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

Internal Auditor, August, 1998 by Michael Castellano

Reports routed to the approvers are highlighted with any exceptions to policy for judgment. Many of our corporate T&E policies would be difficult, if not impossible, to audit accurately without an automated system. For example, we added a rules rate table based on vendor contracts to the system, and ceilings were set for hotel expenditures in each major city. The software will not process anything over that amount without an override by the accounts payable group.

After reports are approved, the program compares the credit card data approved for payment to the data that was originally downloaded from the credit card vendor to ensure that no data tampering has occurred. Merrill Lynch pays the credit card vendor directly for approved charges, and the preparer is sent notification of the report's reconciliation. The traveler also receives a weekly e-mail report confirming that reimbursement for his cash expenses has been deposited electronically into his cash management account.

RESULTS

From day one of the pilot program, the firm realized several benefits. The time required to process expenses dropped from more than six weeks to an average of two days. In addition, the software has increased the amount of data we can capture and analyze, improved the reliability and timeliness of information flow, and resulted in substantial cost savings. These benefits have enabled Merrill Lynch to streamline auditing controls and simplify reporting processes. When implemented firm-wide by the end of 1999, these components are expected to result in projected savings of millions of dollars annually.

Implementing the Employee Payables program has changed the nature of financial management and other jobs by increasing the efficiency and accountability at each step of the reporting and auditing process. The groups of employees most affected include:

THE TRAVELER Accountability for ensuring that expenses are within the prescribed guidelines programmed into the rules engine rests firmly with the traveler. If expenses do not meet specified criteria, the system will automatically reject the report or send it to an approver for a decision, depending on the rule. If the report is rejected, it is automatically routed back to the preparer, who must analyze and fix the problem before reimbursement can occur. As a result, we have significantly reduced human error and eliminated routing delays that occurred with the manual process.

THE ACCOUNTS PAYABLE GROUP No longer a clerical group whose primary functions are to manually audit reports and enter data, the accounts payable department has been transformed into a value-added analytical arm of internal auditing. The new system automatically enters T&E information into the accounting system, and it gives the accounts payable group the ability to capture and analyze more information than was previously possible. The automation of receipt tracking and archiving has led to replacement of the 300 percent pre-approval receipt audits by sample pre- and post-audits based on the program's automated audit flags.