You can trim travel and entertainment costs -- if you pay attention to your reporting system
For most companies, business travel and entertainment rank as the third-largest controllable expense -- after salaries and benefits, and data processing. Nationally, T&E costs this year are expected to reach an estimated $125 billion. And at the current rate of growth, T&E spending is far outstripping inflation and will be astronomically high by the end of the century.
A survey released last year by American Express showed that managers were troubled by the trend: 60% of those questioned rated rising T&E costs as a top concern, up from 45% in 1986. But only 38% of them said they had been successful in controlling those costs, down from 42% the previous year.
James Firestone, executive vice-president for small-business and corporate services at American Express Travel Related Services, has some advice for companies that are striving to minimize T&E outlays as they maximize their returns. The first and most important step in doing so, he says, is to implement a formal, written travel policy. Small companies, he points out, are far less likely than large ones to have done so.
"They have so much to worry about that this does not get as much attention as it should," he says. "But by the time you get to a substantial size, a coherent travel strategy is no longer something that can be ignored. The key thing a growing company should realize is that it's a relatively painless way to wring efficiencies out of your cost structure and allow you to invest more in marketing or whatever."
A travel policy need not be terribly complicated. A good one, in fact, is unambiguous and easily enforceable. First, you should clearly establish that rules and guidelines to purchasing T&E do exist. Second, you should consolidate all your company's travel arrangements with one supplier -- an agency or internal source. That allows you to track expenses and compliance, and take maximum advantage of any volume benefits. Third, you should design an expense-reporting-and-tracking system that is simple and reflects the way your company operates. At the core of this system is the T&E expense report. The way you organize and interpret the information on an expense report is key to maintaining your company's T&E policy. On this and the following page, Firestone looks at a typical report -- reports vary little from company to company -- and comments on how to spot the perils, pitfalls, and opportunities for savings that are revealed there.
Buy Services According to Your Common Travel Patterns. "One mistake many companies make is to spend all their time and energy auditing expense reports. When you do that, you are saying that the area of greatest value is either employee mistakes or employee cheating. We find that the area of greatest value is determining what hotels and airlines you should use and making sure that everybody uses them. You don't need much volume these days to leverage it for discounted rates. If employees fly to the same destination a lot, buy advance purchase, no-refund airline tickets. The probability of cancellation is usually low enough that you can take advantage of substantial discounts, even if you have to cancel 2 or 3 times out of 10 and pay full price for new tickets. The savings on the other 7 or 8 flights are so large that they'll compensate for the difference. Round-trip fares from New York City to Los Angeles, for example, can vary by as much as $1,000.
"Or, if you're always traveling to, say, Denver, you should have there a hotel where you want everyone to stay. If even 5% of your people are not doing so, that is leakage from your system, and it undermines your ability to control costs. You want to track what percentage of your employees actually use the hotels you've identified as most advantageous, and you should require specific explanations for any exceptions."
Require Justification for Exceptions. "One of the impediments to full compliance with a travel policy is management's concern that operating within the constraints of a policy will prevent a company from being flexible and responsive. Of course, you have to allow for exceptions, but the expense report should require that the employee justify and explain them. That gets employees to buy into the policy and think twice about why they are making an exception to it."
Limit Cash Advances. "Cash advances are bad for three reasons. First, they reduce the company's cash flow and produce negative float, since the funds are spent before the expenses have actually been incurred. Second, under IRS regulations, if the employee doesn't account for that cash advance in a timely fashion, it's considered part of his or her earned income, and then it has to be reported. And finally, cash advances create an administrative burden. Someone has to track whom you gave them to and whether you got them back. We found a midsize company that had more than $1 million outstanding in temporary cash advances. Of that, almost 60% was past due at least 60 days, including 25% that was past due more than 90 days.
"Also, limiting or eliminating advances is an effective, if severe, way to speed up expense reporting. Studies show that travelers who have to pay the bills themselves submit expense reports 60% faster than those who don't."
Make the Form Clear, Simple, and Suited to Your Needs. "A lot of companies don't make it clear how to fill out an expense report. Somehow they think the categories are self-explanatory. It's not unusual for 25% of T&Es to be routed back to individuals because they are incomplete or there's insubstantial documentation for an exception to a policy. That's just wasted time and energy. You can make that more or less likely to happen depending on how involved your form is. The categories should be kept relatively simple and should be dictated by what you want to break out for tax purposes. For instance, those expenses that are 100% deductible, such as transportation and lodging, should be grouped together. Meals and entertainment, which are 80% deductible, should be in another category."
Encourage More Complete Docmentation. "A lot of companies say that for any expense under the IRS's $25 threshold, they don't even care to see a receipt -- they don't want the paperwork. That's a big mistake. You can save yourself quite a bit of money by lowering your requirement for receipts to an in-house standard of $10. The reason is simple. If a receipt is not required, employees tend to estimate or round off the amount. Over time you'd expect things to average out, but they don't. Companies consistently overpay. That really adds up because meals can represent 20% of travel costs.
"Similarly, studies on the use of tear-tab receipts showed that 73% of the time they came from restaurants that would have accepted the organization's corporate charge card. That means the employee made a conscious decision to use cash instead of charging the meal. But because the employees fill out the stub themselves, often not until much later, the amount is often an estimate. As a result, the average tear-stub meal charge is 25% higher than the average documented meal charge in the same price range."