Automating expense reports - system for reporting travel and entertainment expense at Merrill Lynch

Internal Auditor, August, 1998 by Michael Castellano

A redesigned travel and entertainment expense reporting system has helped Merrill Lynch improve its internal processes, manage compliance, and cut costs.

The challenges associated with effective management of travel and entertainment (T&E) expenses are well-documented. According to industry surveys conducted by Runzheimer International and American Express, for example, 69 percent of companies rely on paper reporting and manual data input, even though 75 percent maintain that late expense reports are a problem. More than half use a "100 percent" audit, wherein every expense is audited and entered into the system at multiple checkpoints. This far-from-best practice often results in more money being spent on catching a discrepancy than the amount of the discrepancy itself.

Merrill Lynch was no exception. We were spending more than $25 to process every paper-based travel expense report - an expensive venture since more than 26,000 employees filed more than 235,000 reports annually. In addition, the process was redundant and decentralized. The traveler or an administrative assistant would enter T&E expenses into an Excel spreadsheet template. Then, selected pieces of the data would be re-entered into two systems - the accounts payable department mainframe system and the investment banking division's deal expense accounting system.

As a result, our ability to analyze T&E expense data to improve business procedures and monitor actual expenditures against vendor contracted rates was minimal. In addition, the paper intensive and mainframe-based system was plagued by routing delays with as many as three people duplicating approval and auditing processes. Merrill Lynch had to write off thousands of dollars of client-reimbursable business expenses each month because some reports failed to complete the preparation, approval, and reconciliation process in time to bill the clients.

According to the Hackett Group, a T&E consulting firm, T&E expense processing costs can drop to $1.75 per report by automating data collection and report approval. Merrill Lynch needed a corporate software solution to completely automate the expense reporting process, support a corporate credit card program, capture more complete financial data, ensure the accuracy of data, keep data secure, and automate management reporting.

SEARCHING FOR A SOLUTION

We realized early on that we needed to redesign our entire T&E management process, not just automate an archaic system. Every business practice associated with T&E reporting - the creation and enforcement of corporate policies and rules, data end, data processing and management, and data analysis - would have to be addressed.

This comprehensive approach would ensure that consistent business procedures would be followed throughout the firm, and that everyone - from travelers, to the administrative assistants who often input travel data, to the accounting and auditing departments - would be accountable for their roles in making sure the system worked.

We also knew that the successful implementation of any new system depends on senior management buy-in and the education of end-users. In other words, we had to make sure everyone understood how a new T&E system would save time for the travelers and money for the company.

Our first step, therefore, was to form a committee with representation from all affected groups, including finance, accounts payable, internal auditing, tax, travel management, systems, and business managers. The goals of this "Travel Taskforce" were to conduct objective reviews of current practices and identify problem areas; develop criteria for the new system; create a budget and timeline; and choose products for review.

After sending screening requests to 35 vendors, the taskforce quickly realized that very few had viable automated T&E systems. Some of the credit card companies and travel companies provided T&E software as a value-added service; but for a company of our size and level of technical expertise, we found that independent software vendors offered more comprehensive solutions.

We were looking for a system that provided an easy-to-use front-end interface, as well as an easy-to-change rules engine that would allow us to incorporate customized business policies and rules into the system from a central location. We also required that the system's customization capabilities enable us to upgrade to subsequent releases cost effectively. The only product we found that met our criteria was Seattle-based Captura Software Inc.'s Employee Payables program.

THE SOFTWARE

After completing a pilot program, the system was introduced to more than 1,000 travelers in Merrill Lynch's Investment Banking Division, the area of the firm with the highest concentration of frequent travelers. The system components include an on-line travel reservation system, a corporate credit card program, an integrated automated T&E system, and a data warehouse for management reporting.

The program captures downloaded transaction information from our credit card vendors and distributes the data to the preparer for review and inclusion in expense reports. based on vendor and transaction type codes contained in the credit card files, the software automatically inputs much of this information into the expense report for the user. The preparer adds additional cash and mileage expenses and submits the expense reports electronically. The report is then automatically reviewed by the rules engine, checked against policy, and rejected or accepted for routing to the appropriate approvers.