Why T&E audit must be more than just policy compliance

The United States Department of Justice's guidance on the evaluation of corporate compliance programs, released on April 30, 2019, highlights that the regulator is not only interested in how well you've designed your compliance program, but is also interested in whether it works in practice to detect non-compliance. That's why your travel and expense (T&E) audits need to go beyond mere policy compliance and receipt substantiation.

T&E spend accounts for around 6-12% of a company's annual expenditure, yet more than 30% of regulatory non-compliance comes from T&E claims. According to the Association of Certified Fraud Examiners, 17% of all company fraud in North America is T&E related.

The impact – the financial, regulatory, and reputational risk from T&E fraud for companies – is huge. A direct selling company in China, for example, paid $135 million to resolve FCPA offenses in 2014. In that case, the deferred prosecution agreement clearly called out that although the organization had a T&E policy, it didn't have a mechanism to review employee expenses. The company made payments totaling about $8 million in the form of gifts, cash, travel, and other entertainment to gain access to Chinese officials.

A recent Genpact poll during a Compliance Week webinar found that only one in five respondents were very confident that there is no fraud or regulatory non-compliance in their company's T&E spend. There's good reason for the low confidence levels.

The problem is that T&E audit teams rely on manual approaches with limited use of technology. They lack the risk and compliance expertise to detect fraud and regulatory non-compliance, and have limited transaction coverage due to a random sample-based approach.

Manual audits can only cover basic receipt review and policy checks and can't spot trends and patterns that reveal fraudulent or wasteful spend. Also, a manual approach will not, for example, identify interactions with blacklisted parties or expenses misclassified to avoid review.

Digital technologies such as artificial intelligence (AI), machine learning (ML), and analytics won't replace people, but they will help detect anomalies and make reviews more effective, making the overall audit process robust. That's why companies must shift how they handle T&E audits. Digital technologies can run searches on big data and reveal patterns – such as weekend spend, or unusual or repetitive transactions – to identify high-risk expenses, and search against external third-party databases to identify spends incurred with blacklisted vendors.

This allows you to spot trends and biases, reveal patterns , conduct behavioral analyses, track remediation activities, provide translation capabilities, and much more. And yet, our poll results show that only about one-third of respondents use some sort of analytics to review T&E spends, while 45% still rely on random sampling-based manual audits.

Why this slow approach to digital adoption? The high cost of in-house development and change management, inadequate infrastructure, a lack of risk and compliance expertise, and huge volumes of data are some contributing factors. Engaging third parties with compliance expertise and digital technologies to design and run continuous analytics-based audits to identify and detect high-risk transactions in your T&E spends can help overcome these challenges.

Although building a robust T&E audit process can take time, not taking steps to improve compliance is not an option, and can open the door to multimillion-dollar fines, not to mention untold reputational damage.

Digital technologies provide real-time visibility into 100% of T&E transactions and enhance governance and transparency, which can lead to better employee behavior and overall compliance. In addition, audit costs and T&E spend decrease by 40% and 2-3% respectively, thanks to reduced manual effort and wasteful spend.

Organizations can do more than simply streamline data-heavy processes or approvals with digital technologies. Adopt a digitally enabled approach to gain control of your T&E spend, and prevent legal ramifications, reputational risk, and dollar loss from fraud and non-compliance.

For more expert insights on T&E audits, watch our recent webinar here.