17 ways the expense report process hurts your business
And while these were fun ways to examine the way that businesses spend money, today’s post is much closer to home.
We’ve written multiple times about why employees hate expense reports. The statistics in this post reinforce the fact that expense claims aren’t just annoying and clunky - they’re also bad for business.
The more you dig in and learn about the problems with expense reports, the easier it is to see that they’ve simply got to go.
But you don’t have to take our word for it - we have the data.
Expense reports are a drain on time and money
The most obvious drawback to expense reports is the time they take to prepare and process. Most companies just grit and bear it.
But if more businesses realised just how much time they lost to the expense report process, perhaps they’d rethink this position.
1. The average expense claim takes 20 minutes to process
This statistic comes from our own client surveys, cross-referenced with industry data available online. Despite the fact that companies everywhere have been using expense reports forever, the process is still often misunderstood and costs unnecessary time for everyone involved.
The typical claim takes:
5 minutes for the employee to file
5 minutes for their manager to review and approve
10 minutes for a finance team member to review, reimburse, and reconcile
Hence 20 minutes. And when we’re talking about dozens of claims per month, that’s a huge amount of time that your business teams could be using for something more valuable.
2. 1 in 5 expense reports are filed incorrectly
According to the Global Business Travel Association, 19% of all expense reports contain errors. And the same report states that it takes a further 18 minutes (on average) to correct each one.
So if it takes 20 minutes to file a claim, and 18 more minutes to correct the errors, that’s 38 minutes for every fifth expense report. And 28 of those minutes belong to one poor finance team member.
It’s no wonder that month-end closing has become such a trial for finance teams.
3. The average expense report costs £16.50 to process
This stat comes from the Aberdeen Group, and has been quoted all over the place. In fact, that number is probably a little out of date by now - the original case study was from back in 2013. The Aberdeen Group released another report in 2015, and the new number was up to US$35.02 (£25.71 in today’s British pound - without inflation).
Either way, it should come as a shock to most employers. One of the chief reasons companies stick with expense reports is that they don’t require any technology or special knowledge. You can basically use them “for free.”
Except they’re not free after all.
This figure reflects the time cost from tying up valuable team members with this tedious task. Their time is precious, and you’re essentially paying them to do something that can be automated.
4. 57% of companies say lack of visibility is their biggest spend-related concern
This comes from the Aberdeen Group again. (Hats off to them!) And given the prevalence of expense reports, it’s no real surprise.
One of countless issues with this process is that finance teams and managers usually don’t know what’s been spent until the end of the month when claims flood in. At which point it’s too late to make changes or act strategically.
And because (as we’ll see) fraud is a real problem, there’s no guarantee that the reports you receive truly reflect the way that teams are spending.
5. Two-thirds of employees haven’t read their company’s expense policy
This statistic is talking specifically about U.K. companies, and it’s hard to know what the correct response should be. On the one hand, it’s pretty horrifying. Employees are spending company money without truly knowing what’s allowed and what isn’t.
But on the other hand, is it really surprising that people don’t read internal policy documents?
This is why we’re passionate advocates for software with spend management built in. Provide good tools to your team, and you essentially give them no choice but to follow the rules.
6. Only 32% of companies have automated links between expense reports and other processes
This is what we’re talking about - smart platforms that encourage employees to spend the correctly. And the beauty of using one is that you remove most of that time waste at the end of the month.
For example, Spendesk combines integrates expenses, subscriptions, procurement, and invoices. Team members input the data themselves, send to finance for approval, and then this connects directly to your accounting tools.
You shouldn’t have 10 different processes for company spend. You only really need one.
Losses from expense report fraud
So far, we’ve looked at the staggering time cost that comes with expense claims. But they bring a direct financial hit too, through falsification (aka fraud).
UK Finance reports the United Kingdom overall lost £374.3 million to fraud in just the first half of 2020. And while obviously not all of this comes from expenses, they’re responsible for more losses than you’d think.
7. 85% of employees admit to lying on expense reports
This comes from one study, and we have another just below that makes matters worse. According to this one, 5% of those who do lie fabricate some part of every single claim.
The article which links to the study (above) refers to this as employees “fibbing” in expense claims. But we’re not so sure that most employers would use the same language.
To compound matters, a separate study from the Global Payroll Association (GPA) found that 10% of employees admit to submitting erroneous claims “all the time,” while 20% do so “irregularly.”
These figures illustrate how little respect most team members have for the expense process. They even suggest that fraud is simply “to be expected.”
8. Expense fraud costs U.S. businesses over $2.8 billion per year
Wow. Expense fraud in the United States alone is higher than the GDP of more than 35 countries.
The GPA study (link above) states that the most common fraud includes “exaggerating mileage (27%), buying office supplies and keeping them for personal use (20%), and altering taxi receipts to claim a higher fare (16%). Such activity is estimated to cost UK business around £2 billion a year.”
Starting to see a pattern? Expense fraud is a lot more prevalent - and far more costly - than you may previously have realised.
And here’s another shocker...
9. Some individuals claim as much as US$25,000 per year in fraud
Jaw-dropper. This comes from a report by Chrome River. As in, some survey respondents steal $25,000 per year from their companies.
The report also shows that while most employees submit honestly, those who do submit fraudulent claims request reimbursement for, on average, $2,448 in false expenses.
The sheer extent and volume of expense report fraud is astounding. And as if that wasn’t enough, we have even more statistics to share.
How employees lose with expense reports
It’s not only the company bottom line that can fall victim to expense reports. This common business process actually takes a heavier toll on their team members than most executives realise.
And while expenses certainly count as “boring stuff I don’t want to do,” there’s actually a real finance burden placed on the average employee.
What happens when a team member forgets or is unable to recoup expenses? In essence, those company costs come directly out the employee’s payslip.
To celebrate the launch of the first corporate credit card more than 50 years ago, Barclaycard conducted a study on business expenses. And the results were, frankly, disturbing:
10. 48% of employees still use their own money to cover business costs without reimbursement
Which, as we hope goes without saying, is completely unfair.
11. UK employees are missing out on £962 million in company expenses
This is largely thanks to lost receipts and unclaimed costs.
12. 60% of study respondents said they had failed to claim expenses in the past
Whether this is their own fault or not isn’t actually relevant. These are company costs being borne by individual employees.
13. The average value of unclaimed expenses was £123 per person, according to the study
Some business owners might argue that this is down to the employees themselves. After all, the top reasons given included lost receipts or because the amount in question was “too low to be worth the hassle.”
But it highlights a larger, more troubling issue: companies routinely require employees to go through tedious processes just to break even.
And if you’re a business owner, CFO, or member of an HR team, here’s the part that should get your attention:
“37% of Barclaycard respondents experienced cash flow problems and one in ten had missed a payment on a personal credit card while waiting for their company to pay them back.”
In other words, employees’ personal credit is at risk because of company travel and other expenses.
Another study backs up Barclaycard’s. 2,000 British workers were polled on the same subject, leading to several shocking revelations:
14. A quarter of workers have postponed or cancelled meetings because they couldn’t cover the costs themselves
Which is a problem. If they’re cancelling meetings for personal financial reasons, it reflects poorly on the company overall.
15. A third of workers feel “financially unstable” because they had to deal with large or unexpected expenses
Company costs should never infringe on an employee’s financial freedom. And yet, for more than 30% of workers, that’s exactly the position they’re in.
16. Expense reports are worse for women
Another troubling statistic comes from this study. You may think of expenses as being completely neutral - they affect your employees equally. And while some team members have more expenses than others, everybody follows the same reimbursement process. So things are fair.
But this is simply not the case.
The average amount claimed in expense reports is vastly different for men and women:
On average, men in the study claimed £199 per month
Meanwhile, women in the study claimed £76 per month
The authors at qz.com put this down to a handful of factors:
“The disparity is a function of women either being more frugal than men, absorbing more of the costs themselves, or not having the same opportunities for business travel and dining as men. It’s probably a combination of all three: Women were far more likely to have average monthly meal expenses under £10, while men are almost twice as likely to claim meals over £100. More than 60% of the women said they had no monthly hotel expenses, compared to 47% of the men.
“Women were also more likely to say their expenses were too little to justify claiming, or they felt embarrassed asking for them.”
The reasons for the above disparity might be interesting to analyse. But whatever the cause, the fact is that expense reports simply aren’t the same for everyone. Your employees don’t make claims in the same way, and this is hitting some of them harder than others.
And it’s not only the gender divide that should worry you...
17. Younger people are more negatively affected by expenses
We saw above that many employees feel a serious economic burden thanks to expense claims. And for younger employees, this burden can feel even heavier.
Junior employees usually earn less and often have shallower savings to rely on. Which makes the prospect of waiting until payday to recoup their costs truly daunting.
Again, from the qz.com article:
“In the UK survey, a third of respondents under the age of 35 said they repeatedly postponed or canceled meetings because they couldn’t afford the expense. Fewer than 15% of workers over 35 said they canceled meetings for this reason.”
Hopefully the overall theme of this article is becoming crystal clear: the expense claim process is simply unfair - despite business owners’ best intentions (hopefully).
And while it’s not good for anyone, it’s more difficult for specific groups of team members.
Why do we stick with this expense reports process?
Despite all the evidence above, companies continue to cling to this outdated and inefficient process. And the biggest reason is simply that they don’t have anything better.
Corporate credit cards were introduced as replacement for expense claims. But not every employee can have one - they’re too expensive and it’s too risky.
So companies leave their (non cardholding) employees with no option but to pay with their own money and wait for reimbursement.
"It’s not my problem"
Sadly, some executives also see it as a good thing to place the burden on employees. If team members have to spend their own money, they’ll be more careful with company funds.
But this assumes that:
It’s better not to spend money in business; and
Employees would otherwise make all kinds of purchases they shouldn’t.
As we’ve seen, employees regularly cancel client meetings due to the cost involved. They make frugal decisions which mean they’re not maximising their potential and getting the most for the company. So that’s point 1.
But more importantly, expense report fraud is already rampant! (See above) Employees do make purchases that they shouldn’t, and companies end up paying for these anyway. Expense reports give you less visibility over company spending than you need, and leave wiggle-room for those misbehaving employees to take advantage.
Get full visibility, more control, and greater autonomy
The good news is that there’s a better option than expense reports or giving corporate cards to everyone. A spend management system combines smart expense cards with powerful automation software. The cards have customisable limits (unlike corporate credit cards), and the software lets you choose who can spend, how much, and who needs to approve each payment.
The best part (for finance teams) is that there’s no manual data entry, and your normal workload is shredded. In fact, our customers save between 2-5 days per month on financial reconciliation.
The main takeaway here is that expense reports are bad. If you didn’t know before, you do now.
It’s time to do something about it. And that starts with proper spend management.