CFOs have the crucial role of managing cash flows and ultimately ensuring the long-term financial health of the business. However, how many CFOs can confidently say they have adequate controls over business expenses?
The majority barely keep heads above water as the expense reports pile up and the risks multiply. The root problem is usually a lack of clear policies or automated systems to manage business expenses.
Considering that the majority of small businesses have more than 50 employees, while midsize enterprises have more than 100 employees, it’s vital to have rigorous CFO internal controls in place to manage employee expense reimbursement and other expenses which are a regular part of day-to-day operations.
This is doubly necessary for those interested in streamlining vendor payments. Otherwise, businesses that fail to simplify expense reimbursement and the overall expense management process will continue to incur small financial losses from multiple sources. Over time, these losses merge into a gigantic cost that no business can afford to pay.
Death By A Thousand Paper Cuts: How Employee and Vendor Theft Sinks Businesses
When dishonest employees regularly defraud your business, the costs can add up quickly. Looking through a financial lens, each case of employee theft – no matter how small – is a tiny paper cut that harms your company.
With enough time and opportunity, sticky-fingered employees can significantly damage the business’s bottom line. According to one report, employee theft results in $50 billion yearly losses and is responsible for one-third of bankruptcies. Another report by the ACFE estimates that organizations lose 5% of their annual revenue to employee fraud.
Rampant employee theft is one of the biggest challenges CFOs face, and as stated, it’s a sign of inefficiencies within expense management, largely caused by manual processes. Addressing this challenge begins by acknowledging that it exists.
How Well Do You Trust Your Employees?
According to a report by the Association of Certified Fraud Examiners (ACFE), expense reimbursement fraud occurs in 13 to 14% of cases and can cost businesses unnecessary losses.
While it may feel shocking to know that your employees are stealing from you and even more uncomfortable addressing the issue, the numbers don’t lie. The National Federation of Independent Business (NFIB) estimates that employees are 15 times more likely to steal from you, while the US Chamber of Commerce estimates that 75% of employees steal, with the majority being repeat offenders.
Given this, how much do you trust your employees? Trusting your employees to do the right thing without putting measures in place to prevent employee theft constitutes a significant risk factor.
Workplace fraud – whether unintentional or deliberate – occurs because there’s an opportunity to do so.
Creating a Culture of Theft
As a CFO, you are engaged in various number-crunching tasks and must sign off on various financial reports. By failing to simplify expense management, it’s challenging to contain out-of-control expenses and reduce expense fraud. This encourages any number of the following scenarios:
- Project teams go over the budgetary limits you set down on paper.
- False reimbursement claims – for instance, trips that were never taken and items that were never purchased.
- Inflated reimbursement claims – for instance, employees might lie about mileage totals.
- Continued expense “creep” as employees submit expense reports for non-reimbursable expenses, such as family dinners and leisure activity tickets.
- Regular duplicate expenses that go unnoticed but add up to a significant amount.
- Billing and payroll fraud may involve setting up fake employees or writing forged checks, and cooking the books to hide the embezzlement.
- Benefits fraud, such as when an employee submits false claims for a wellness treatment they never received or exaggerates the cost of the treatment.
There are more instances of low-level fraud that can happen if CFOs don’t have a handle on expense and stipend management. The bad news is employee fraud is not the only thing CFOs have to worry about. They also have to be vigilant about vendor fraud.
Vendor Fraud Is a Real Thing
Businesses fall victim to vendor fraud every day, and the impact can be pretty severe. According to the American Institute of Certified Public Accountants, small- to mid-sized private entities are soft targets and face a greater risk of exposure to vendor fraud schemes.
The risk increases if smaller businesses can’t efficiently track processes and controls. The Association of Certified Fraud Examiners’ (ACFE’s) 2020 Report to the Nations on Occupational Fraud and Abuse indicates that many fraud cases involve departments that interact with vendors. The list includes the accounting, finance, and purchasing departments.
Types of Vendor Fraud
Vendor fraud can involve employees, vendors, or other entities, as seen in the following scenarios:
- Employees create fake vendor accounts and make regular payments to these ghost vendors.
- Employees use genuine vendor accounts to profit through duplicate payments.
- Vendors and employees collaborate to steal from the business and share the spoils.
- Vendors get more than what is due to them through overbilling or excess billing.
- Other entities divert payments to themselves by manipulating vendor accounts.
Fortunately, there are ways to detect and prevent small business vendor fraud and employee theft.
Preventing Employee Theft and Vendor Fraud
Cutting costs is one of the biggest objectives for companies. The problem is that most businesses lose money because they’re trying to reduce expenses incorrectly. Take, for instance, businesses that process expenses manually and through spreadsheets.
These outdated expense management methods create the illusion of cost reduction but can actually lead to financial losses from employees and vendors. On the other hand, automating expense management is a small, inexpensive leap that effectively nips expense fraud in the bud – especially if you avoid expensive and inefficient software.
The modern and forward-thinking CFO must automate business expense management since this is the only way to stay on top of employee theft and vendor fraud.
Are You a Budget-Conscious Business Leader?
The role of the CFO continues to be a dynamic one, with the digital age requiring CFOs to be quicker on their toes than ever. As the top financial maven, the CFO has to steer the company in a strategic direction, as far away from its financial weaknesses as possible.
As such, CFOs are under pressure to control spending and improve business expense oversight. This can’t be done without a budget-conscious mindset. In turn, it’s impossible to be budget-conscious or keep track of incoming costs effectively without implementing automated, integrated financial systems.
If you’re a budget-conscious business leader, it’s in your best interests to get in the driver’s seat of your company’s finances and implement an iron-clad spend policy for the following reasons:
- Save time, money, and resources. Manual expense management is pricey time-wise and money-wise. By automating your expense management system, you not only reduce fraud cases but also reduce labor costs and maximize productivity.
- Keep your eye on the complete picture. Automation gives you control over spending even when employees spend across multiple channels.
- Enforce spending policies easily, long-term. As the business grows, you can easily scale up your accounts payable and keep a tight lid on spending with digital and innovative payment solutions.
How To Create a High Control Environment
Let’s dive into the top innovative solutions that streamline expense management for you:
Reloadable purchase cards with dynamic spending controls
Reloadable expense cards change the way you approach employee expense reimbursement and help you clamp down on employee theft and fraud. They provide greater control over employee expense payments by allowing you to upload the exact sum of money needed at the push of a button.
You can issue employees with a reloadable card to be used specifically for company expenses, so they never have to wait for reimbursement. Alternatively, you can upload funds, and the employee receives the money immediately once the finance team approves the expense claim. This makes it easier to approve low-value expenses and unlock employee satisfaction. In addition, you can restrict usage by time, location, merchant type and more. This allows you to ensure that the funds are being used in the way that they are meant to be used.
One-time load purchase cards with dynamic spending controls
It’s common for businesses to have once-off big-ticket expenses that fall outside the normal spend limits. CFOs can approve one-time load purchase cards with high limits in such instances.
Again, these cards can be funded instantly and on-demand with the precise dollar amount needed to facilitate the purchase or payment. Segregating large and small expenses in this way introduces more smooth functioning.
Virtual cards are just as effective as physical cards and ideal for online payments. The good news is that you can integrate virtual cards with your other financial systems and software to efficiently track expense data.
You also have plenty of room to customize the business’s online shopping activities using different cards with different limits. You can regularly pay for subscriptions and services while remaining in control of your expenses.
On-demand vendor payments
Small businesses can now be agile with on-demand vendor payments that allow CFOs to automatically execute contracts anytime, anywhere at the press of a button. This reduces fraud since the CFO can quickly issue the agreed-upon amount to the correct supplier while placing controls to avoid fraudulent use of virtual or physical cards.
The cherry on top is you can co-brand cards to increase brand awareness among premier vendor partners.
On the whole, you can implement a low cost expense management system with these solutions and plug the thousand tiny leaks that are costing you big time.
How Do Employees, Contractors, and Vendors Benefit?
Automated expense and stipend management programs incorporate dynamic tools useful in a broad range of use cases. This makes it easier for employees to do the right thing and adhere to the company’s spending policy. Consider the following scenarios:
- An employee in the purchasing department submits a request for an expense – All you have to do is approve the request and upload the approved amount onto a reloadable purchase card the employee has. That way, every expense is pre-approved and linked to a pre-authorization request which speeds things up for employees.
- An employee submits a reimbursement claim for expenses incurred on behalf of the company when traveling for business – Travel and expenses are typically the largest expenses after payroll and a significant financial stressor for employees. CFOs can issue instant cards and manage lodge and meal expenses in real time. This can be a lifesaver if employees get stuck out of town and need extra funds for meals and lodging.
- An employee requires a stipend – CFOs can now offer one-term stipends, short-term stipends, long-term stipends, perk stipends, and other types of stipends while maintaining complete visibility over crucial areas of the budget. Employees have access to readily available and personalized funds whether they’re receiving stipends for cell phones, remote working, wellness activities, health insurance, living expenses, professional development, or reward programs.
- Contractors ask for payment for materials – You can easily order one-time load or reloadable cards for contractors and avoid project delays with the instant allocation of funds.
How does this save the business money? When you empower employees to make purchases and cover expenses on the company’s behalf, they no longer get bogged down in filing expense claims.
They also don’t have to experience cash flow pinches due to slow manual expense reimbursement processes. Overall, business expense management automation allows CFOs to reign in the hidden but high costs associated with regular expense fraud, poor reporting, and time-consuming processes while improving employee satisfaction and productivity.
Vendors Value Real-Time Payments
Streamlined finance and procurement functions are also a godsend to suppliers. Thankfully, expense cards and virtual cards are increasingly becoming popular payment options for vendors. That’s because they facilitate real-time payments as soon as the conditions of the contract are met. Suppliers appreciate companies with high payment efficiency, which translates to many benefits for the business.
It makes sense that suppliers are more willing to offer discounts if they don’t have to wait for you to print checks and mail them. By reducing the procurement lifecycle and increasing payment flexibility, you can optimize the expense value management chain and boost ROI.
The biggest benefit, of course, is that you can mitigate fraud risks with customized access controls and secure e-payments. This gives you a 360-degree financial oversight of your supply chain and increased vendor payment management capabilities.
Why Should CFOs Care About Expense and Stipend Management?
In a nutshell, CFOs MUST be concerned if they don’t have processes and practices in place for preventing employee theft and vendor fraud when issuing stipends, payments, and expense reimbursements.
That’s because the ultimate cost of low control corporate expense management is unacceptable if the business is interested in profitable growth. Here’s the cost of getting it wrong. In a nutshell:
- Financial leaks – Manual errors, unclear policies, time-consuming processes, and lack of centralization all result in severe profit bleed.
- Fraud risks – Ineffective expense management opens the door to financial losses from employees or vendors. These losses add up and run into the billions every year.
- Poor reporting – Inefficient and untimely reporting makes it difficult to gain valuable insights that help you control spending and manage expenses.
- Non-compliance – Legit businesses have to observe all laws and regulations or face fines, fees, and investigations that could potentially shut them down if audits show glaring discrepancies in financial reports. Moreover, tax compliance becomes a bothersome burden when the finance team relies on manual processes.
- Reduces employee satisfaction – When employee expense reimbursement is excessively slow, this impacts employee satisfaction and productivity. That’s because employees feel like they’re forced to provide the company with interest-free loans even as they live paycheck to paycheck. Inefficient distribution of stipends can also lead to disgruntled employees.
- Lack of growth – It’s almost impossible for business growth to occur without automation. It’s like trying to fill a leaky bucket with sand. The bigger the holes, the emptier the company’s coffers, so there’s no room for expansion. Instead of allocating resources for growth, a larger finance team is required to manage expenses manually.
Control Spending and Restrict Expenditures – Benefits for CFOs
Business expenses are an unavoidable part of life, but perhaps companies could benefit from adopting the concept of frugality, which has taken the rest of the world by storm. Contrary to popular belief, frugality is not about spending less but spending wisely.
By controlling spending and restricting expenditures, CFOs can implement a more frugal expense culture to improve overall operational efficiency. It’s as simple as defining the threshold for various company expenses, such as air travel, lodging, hotels, and daily meal stipends.
The precision of this process increases with the ability to restrict expenditures based on amounts, time, location, and vendor type. It gives you more control over what employees spend on and how much suppliers can charge.
Once you introduce a cap, this eliminates the need to constantly approve expense claims while giving employees greater flexibility to cover various payments and purchases. You can simply issue reloadable cards with instant funds. You can block unapproved cards or restrict them to specific employees/vendors with a few button pushes.
This helps CFOs establish a cost-conscious culture as employees learn to respect the expense controls and restrictions.
Get the Level of Control You Need With Juice Banking’s Expense and Stipend Management Blend
Looking for innovative expense management solutions? It’s time to consider dynamic technology solutions and eliminate obsolete money-sink systems. When you update to Juice Banking’s Expense & Stipend Management Technology Blend, you ensure both security and flexibility across various financial operations.
You can introduce sophisticated CFO internal controls with reloadable purchase cards, one-time load purchase cards, and custom programs blended to match your unique financial operations. Get control over your entire business expenditure, reduce theft, simplify reporting, increase employee satisfaction, and shrink costs.