T&E Spend Analysis Report

Volume 1

T&E Spend Analysis Report

For this report Oversight analyzed over 10 million transactions,

a total of over $1 billion dollars in expenses.

Even though overall

fraud exceptions are low (only about 1% of the total expenses

analyzed for this report), we found that

82% of fraudulent activity

was made by only a handful of employees (5%.)

Spending for items that are arranged through travel management

companies (TMC), such as airfare, lodging, and automobile rentals

rarely involve non-compliant behavior. Still, most organizations have

T&E purchases that occur outside of TMC bookings: out-of-pocket

expenses, travel emergencies and other items that go on corporate

travel cards.

Purchases outside of airfare, lodging, and automobile

rentals are the least controlled expenses and represent a grey

area where advanced analysis can identify opportunities to

improve control of the travel program.

Fraudulent and non-compliant spending costs organizations hundreds

of thousands of dollars each year. Of the $1 billion in transactions

analyzed for this report 6% of transactions, representing 5% in

transaction value, were out-of-compliance with company policy.

For

an organization with an average of $10 million in travel spend, this

equates to roughly $500,000 in annual out-of-policy spending.

CORPORA TE CARD 1234 5678 9876 5432

Introduction

We like to think of T&E as the “window into the soul” of a company. Where else do you get to see your employees’ habits and behaviors as clearly as you do in your travel and expense program? To help prospective and current customers alike, we’ve compiled the Oversight T&E Spend Analysis Report to highlight the typical patterns of behavior we see within travel programs.

The companies in the report are primarily Fortune 500 companies with over $1 billion in revenue annually. These companies use a variety of T&E management systems including Concur, Oracle iExpense, and other solutions such as SAP. Of the customers in this report:

Over 90% of the surveyed clients analyze transactions on a monthly basis with the remaining 10% analyzing data daily or quarterly.

The use of corporate credit cards is on the rise, including everything from office supplies, to temporary employment services, to fuel, to

telecommunications and travel expenses. According to a report published by the Global Business Travel Association, business travel expenses are expected to rise 7.2% in 2014, to over $288.8 billion.[i]

When expenses rise, so does card use and out-of-pocket spending. With increased spending comes greater vulnerability to the two biggest problems facing T&E programs today: fraud and misuse. It has been proven that the longer fraudulent activity lasts, the more financial damage they cause. [ii] With 5% of any given organization committing 82% of the fraudulent actions, the solution isn’t so much about detecting fraud and other non-compliant behavior, but detecting it better, faster, and sooner with as little inconvenience to the rest of the cardholders and travel program staff as possible.

To explore and highlight potential problems associated with increased T&E spend, we’ve compiled the following statistics from data analyzed by the Oversight Insights On Demand™ product for T&E.

6% - Other

10% use Oracle (iExpense) 68% use Concur

10% use SAP

6% use IBM

The Oversight T&E Spend Analysis Report – Volume 1 • Page 3

Fraud

and

misuse

are

the two biggest

problems facing

T&E programs

today.

Exceptions to corporate travel policy

happen every day, for a myriad of

reasons: by accident, necessity, or fraud.

Was the misclassification a mistake or an attempt at stealing?

Of the 160,000 travelers represented in the analysis, 20% had at least one exception on their expense report. Within our analysis, 11%, or roughly 1 in 10 travelers triggered an exception multiple times.

Why look for repeat offenders? Because most fraud, waste, and abuse committed in organizations is perpetrated by only a small handful of

employees. From our data we determined that it was only 5% of travelers in an organization making over 80% of the purchases flagged as fraudulent. Meaning within each organization there are only a handful of “bad actors”. T&E fraud is often one of the largest indicators that fraudulent activity is happening elsewhere within the company. From a similar study conducted by the ACFE, they reported that in 75.6% of their cases involving expense reimbursement fraud, the perpetrator was also engaged in at least one additional form of occupational fraud. [ii]

!

!

! !

Only

5%

of

travelers in an

organization

made

82%

of the

purchases flagged

as fraudulent.

What are the ways in which

these “bad actors” can defraud

companies?

Suspicious Out of Pocket Expenses

Of the 10 million transactions analyzed for this report, 2.8% were flagged for “Suspicious Out of Pocket” activity. This was the largest percentage of transactions for any one category, (out of duplicate submissions, suspicious out-of-pocket, and policy misuse) and more than the exceptions for both duplicates and potentially fraudulent purchases combined. This is not surprising since out of pocket expenses are the least controlled T&E purchases.

Example: A traveler submits an unusual number of “out-of-pocket” expenses just under the $25 receipt limit, meaning they did not need proof whether the purchase occurred. And there is a statistically unusual pattern of occurrences over the course of the past 90 days.

Example: A traveler routinely puts a big-ticket item on their personal card (for the points) instead of on the corporate card, and then asks for a reimbursement. While this example isn’t fraud, as he/she is traveling on behalf of the company, the misuse of policy creates a vulnerability that can be exploited by nefarious travelers.

Duplicate Expenses

Duplicate submissions are also an area of incredible vulnerability for non-compliant spending and fraud. In our data, 0.75% of expense transactions alone were duplicate submissions; instances where the same item was expensed on more than one expense report.

The Oversight T&E Spend Analysis Report – Volume 1 • Page 5

16,000 travelers in our report, or

10%

had a

suspicious out of pocket

expense on their report.

10%

of the travelers analyzed for

this report had at least one

duplicate

expense

on their expense report.

$24.99 $24.99 $24.99 $24.99 $24.99 $24.99 INVOICE FOR ABC COMPANY PERSONAL CARD 1234 5678 9098

From our set of 10 million transactions, over 75,000 are duplicates. This study had an average duplicate transaction value of more than $50 per duplicate. This means nearly $3.8 million in duplicate expenses across the 160,000 travelers in this report.

Waste

Issues in T&E are often a good indicator of the need to review other activities to gauge risk, which is why it is especially important to monitor for all behaviors, not just fraud alone.

20% of the 160,000 travelers in this sample had at least 1 non-compliant purchase. This is lower than surveys where 25% of travelers admitted to submitting out-of-compliance expense reports. [iii] With only 5% of our travelers potentially attempting to defraud the company, this means that the other 15% aren’t “bad actors,” but they also aren’t being as cognizant of spending as they could be.

Detecting non-compliant spending isn’t just about catching fraudsters. It’s about shaping policy so that travelers and company leadership can both feel comfortable about where their money is going and reducing leaks in the spending. The lower level of fraud among the travelers in our report (1%) is likely due to the Hawthorne Effect, wherein people respond differently when they know they’re being watched. This falls in line with the ACFE 2014 findings that organizations with proactive monitoring and analysis consistently identify fraud schemes in half the time of those without analysis. [ii]

Henderson Steakhouse $176.32

Error Detected

Policy Misuse !

Nearly 18,000 travelers in our analysis, (11%) had an expense on their report flagged as policy misuse.

75,000

$50+

$3,750,000+

duplicate transactions

total in duplicate expenses per duplicate

X

80%

75%

25%

15%

5%

Travelers that admitted to submitting out-of-compliance expense reports

Travelers that aren’t being as cognizant of spending Ov ersight Report Other Surv eys

Where does the money go?

Since travelers are spending significant company dollars on non-compliant goods and services, where exactly are they spending this money?

In most T&E programs companies across the board spend the largest amounts of money on airfare, hotel, and restaurants. Surprisingly, we also found these four categories where customers spend large:

Unsurprisingly, two of these four categories also had the highest number of instances of non-compliant spending:

Conferences & Training Theater & Entertainment Office Supplies Storage Facilities 134569 ADMIT ONE 134569 ADMIT ONE Electronics stores Management, consulting, and public relations firms Theatrical Producers (Non motion-picture)

Computer Software Stores Sports & Athletic Clubs, Country Clubs and Golf Courses

The 5 most popular merchant category codes for non-compliant spending are:

The Oversight T&E Spend Analysis Report – Volume 1 • Page 7

Office Supplies Special Events Theater & Entertainment Computer & Electronics 134569 ADMIT ONE 134569 ADMIT ONE

About Oversight

Oversight’s mission is to deliver analysis that helps companies make smarter business decisions. Oversight Insights On Demand™ is a new web based application designed to assist travel and purchase card managers in uncovering possible misuse, fraud, and compliance violations. With the software, customers address operational data analysis requirements and leverage analytics to change employee corporate spending behavior. A Concur, Oracle, SAP and TSYS partner, Oversight has over 10 years of experience analyzing $1.8 trillion in expenditures annually at Fortune Global 5000 companies and government agencies.

Visit www.oversightsystems.com for more information.

The Good News

• While fraud is certainly a hot button issue, it isn’t a rampant problem when organizations leverage proactive monitoring and analysis. Only 1% of transactions in this study were flagged as potentially fraudulent.

• The same goes for policy misuse, suspicious out-of-pocket, and duplicate expenses: each only accounts for less than 5% of the 10 million transactions we analyzed.

• The experiences of our customers indicate that monthly monitoring and related actions and communications helps to

promote appropriate behavior among employees. These companies have seen improvements in compliance reflected in the decrease of out-of-compliance activities by as much as 70%.

Only 35% of the organizations in the ACFE report [ii] had an effective anti-fraud, transaction monitoring solution, and automated, on-demand analysis is the solution to many of the issues highlighted in this study.Oversight Insights On Demand™ makes it easier than ever to analyze 100% of transactions at the frequency your organization desires.

Resources

[i] Iwamoto, K. (2014, July 14). GBTA Report: 2014 Business Travel Spend to Rise Nearly 7%. Retrieved from http://www.lanyon.com/resources/gbta-report%3A-2014-business-travel-spend-to-rise-nearly-7 [ii] ACFE. (2014) Report to the Nations on Occupational Fraud and Abuse 2014 Global Fraud Study. Retrieved from http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf

[iii] http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2014/08/29/one-in-four-staff-admit-making-false-expense-claims-study-finds.aspx

10 Million

Transactions

5%

Policy misuse, suspicious out-of-pocket, & duplicate expenses