Why Automated Expense Reporting Isn't Possible (Yet)

Why Automated Expense Reporting Isn't Possible (Yet)

Investing in expense management tools typically reduces manual data entry and creates reports faster. While many tools on the market paint a picture of easy expense automation, the reality is a bit less rosy.

Below we discuss the realities of expense automation and what you can do instead.

Why everyone wants to automate expense reporting

Improving productivity starts with reducing repetitive administrative tasks that don’t add to the bottom line. Claims using paper expense receipts can be particularly frustrating, kicking off a process that takes up valuable time. Even with widespread credit card use, the manual process has lived on, especially when employees forget their corporate card.

More administrative work

More than half of organizations report that the most significant expense management pain point is “employees losing paper receipts/submitting reports without receipts.”

Even when employees do have receipts, they spend an average of 20 minutes completing an expense report for a single hotel stay. If there are errors like data entry or miscategorizations (which happens roughly 1 in 5 times), they need another 18 minutes to correct them.

Dragging in cross-functional teams

Usually, another team ends up chasing employees for expense reports or lost receipts. After the administrative struggle is over, managers or even the CFO may have to approve business expenses and reconcile spending with policies.

The majority of companies still do not use a system that flags out-of-policy business expenses. Approving reimbursement requests not only becomes a bottleneck, but decisions are made after the purchase takes place.

Automating employee expense workflows could shorten the approval process for reimbursements, reduce inaccuracies, and save time. Increased efficiency allows finance teams to prioritize value-added activities like budget management and forecasting instead.

Reimbursement issues

Expenses take a hidden toll on employees, with adverse effects on the business. A survey of UK employees found that more than half routinely don’t claim smaller expenses, with women more likely to feel embarrassed claiming small expenses.

The root of the problem is that employees find the expense reporting process a hassle or confusing. In response, they either absorb costs or change business practices to avoid paying out of pocket. As many as a quarter of employees have postponed or canceled meetings to steer clear from paying costs upfront.

When employees make it through the expense report, they can still experience delays in bank account reimbursement. Many companies take eight days or more to release reimbursements, which is additional time employees spend fronting company costs.

Cost control

A recent study conducted with 600 budget owners revealed that half of those surveyed exceeded their budget by at least 10%. Over a third of them were at least 30% over budget. Once costs start running away every dollar counts.

You cannot manage what you cannot see, and inaccurate expense reports add to the confusion. Late or error-prone expense reports delay reconciliation and budget management. Businesses need to know where money is going real-time instead of finding out during the financial close process. Management can then make quick changes to expense policies to prevent waste or unauthorized purchases.

Positive ROI

Not only are costs lower, but expense management solutions promote less manual data entry, more frequent submissions, and improved working capital management from clearer spend visibility.

Small businesses tend to experience a greater positive ROI from investing in dedicated expense management solutions. Nearly three-quarters of small businesses surveyed in the 2019 T&E Trends Report realized a positive ROI in two years or less, compared to just over half at the enterprise level.

How automated expense reporting tools typically work

Automating expense reporting usually centers around electronic or online processing. These automated expense tools store reimbursement requests, track approval status, and generate reports from the expense data. The typical process looks like this:

  1. Point of Purchase. Pay for a company expense with a company credit card or personal funds, using cash or credit. Ideally, expense guidelines or clear and accessible online.
  2. Expense Submission. With the paper receipt on hand, employees use a mobile app to submit the expense. Having the ability to upload receipts right away cuts down on the chances of losing them.
  3. Electronic Processing. After taking a photo of the receipt, the tool creates an electronic receipt with OCR technology. The process is meant to be paperless, but the paper receipt can still be useful for error reconciliation.
  4. Submit Expense Electronically. Submit the expense with necessary details for approval.
  5. Approval. A manager or the controller approves or rejects the request with a click of the button. Employee reimbursement requests are then processed and funds disbursed.

Rather than providing true automation, these tools focus primarily on digitization through electronic reports. These tools are clearly a step up from manual processing using Excel spreadsheets, but they still require manual intervention.

Why e-receipts require manual effort

While electronic expense reporting tools help streamline processes and improve overall efficiency, companies still need to keep an eye on the compliance of e-receipts. Without standardization of e-receipts, a company may not satisfy IRS requirements.

For T&E the IRS requires the following information to be included in electronic expense reports:

  1. A description of the expense and business purpose
  2. For each entertainment expense, the names and business relationship of persons entertained in addition to the date, place, duration, and participants in business discussion directly before or after entertainment

The other reason human reviewers may be necessary is to identify fraud. Expense reimbursement fraud accounts for nearly a quarter of fraud cases in small businesses. Spotting fraud requires judgment that ends up pulling managers or controllers back into transactional expense work.

What needs to change before automation is more widespread

In a perfect world, manual processing is mostly eliminated. Paper receipts could still be captured using OCR technology, but human intervention would end there.

Machine learning technology takes over the approval process, using pattern recognition learned from human reviewers. The technology already exists, and larger firms like JPMorgan have eliminated manager approvals using artificial intelligence.

AI frees up time for managers, controllers, and the finance team. Processing time becomes more predictable and dramatically shortened when the system automatically makes decisions.

In general, machine learning needs significant amounts of data to learn an actual reviewer’s decision-making process. Comprehensive rule-based expense policies are also required, which are less common among small businesses. Having clear and enforceable policies, particularly in areas like travel and entertainment, paves the way for automation.

When fully integrated with the automated accounting systems, expense management becomes a powerful solution to the drudgery of expense reporting.

Even though it’s possible to further automate expense management, it’s not entirely probable. IRS compliance and fraud prevention still may require human judgment, though machine audits can track more line items and encourage compliance.

Expense reporting tools represent a band-aid approach unless they can address the bigger problem—controlling expenses and approving requests in real-time.

Get beyond electronic expense reports to true expense automation

Even by increasing digitization, most expense management tools fall short because they preserve the expense report. The main problem is that the entire process happens after the point of purchase. Approvals and budget management after the fact take a completely reactive approach.

In itself, expense reports are a waste of time. Rather than relying on an expense reporting solution, you can use a company card with expense management software. Tech-enabled corporate cards help you exercise full control before spending happens.

Set spending limits

A software-enabled corporate card allows businesses to set limits based on the card, department, and transaction type. In some cases, you may limit spending even for specific vendors. This reduces the chance of budget overages and unauthorized purchases. Unlike regular bank-issued corporate credit cards, tech-enabled cards allow controllers better control over company cash flow.

Integrate with accounting software

Expense management systems integrate with some of the most common accounting software packages today, such as QuickBooks, Xero, Netsuite, and Sage. The automated upload of expenditures saves considerable input and filing time for accounting personnel.

Ensure policy compliance

By creating pre-set controls, employees can be clear on expense guidelines and avoid policy violations upfront.

Real-time tracking

With software automation, expense tracking occurs in real-time, a feature any CFO would appreciate. This allows monitoring of actual spending activity against an approved budget. Real-time data keeps budget management nimble and effective.

Given that a third of small business owners cite cash flow as their biggest challenge, you need to know where your money is going and why.

Expense automation is here, just not the way it’s previously been done. With Lola spend management, you can proactively tackle policy compliance, eliminate cumbersome reports, and enforce budgets in real-time. Lola’s technology-enabled cards are the only solution that offers full visibility and control, completely free.

About the Author: Anna Yen
Anna Yen, CFA, has nearly 2 decades of experience spanning financial markets, cryptocurrencies, and digital marketing. Currently she manages digital assets at FamilyFI, working to empower families with financial literacy.