Report finds that T&E business spend is down, but risk sharply increased

Disruption was inevitable in 2020, leading to a completely hectic environment that was hard for companies to keep up with, let alone track certain metrics like business spend. While these disruptions have wreaked havoc on companies, it has helped them to think twice about business spend. However, just because a company spends less doesn’t guarantee it’s exposing itself to less risk.

T&E (travel and expense) business spend has decreased this year, yet there has been an ongoing rise in corporate fraud, waste and misuse, according to a new report released by Oversight.

Oversight, a spend management and risk mitigation technology specialist, created its November 2020 report to answer the question: Why is risk rising dramatically against a backdrop of reduced spending?

“The reality is that the pandemic has brought a 12% increase in new spenders, and introduced new patterns of risk that need to be accounted for,” Terrence McCrossan, CEO of Oversight, said in a press release. “These risks are not subsiding, and organizations are beginning to recognize that their existing policies and audit processes are not sufficient for controlling these new behaviors. To combat this, we’re working with organizations on suggested changes to policy, adjustments to audit approaches, and other recommended actions to target these new risk profiles more effectively.”

Findings of the Oversight business spend and risk report

The hectic environment of 2020 led to pushed limits, which resulted in extremely high volume of spend violations that exposed organizations to nearly two times the level of risk in Q2 2020 compared to the quarter a year prior. Oversight, in its report, said it expected these heightened risks to be short-lived as businesses adjusted to life within COVID-19. But year-over-year (YoY) analysis showed that risk is not normalizing. Cash flow and controls continue to be significantly impacted even while certain expenses are down.

Among other key findings of the survey, Oversight reported that:

• T&E spend dropped, but risk tripled
  • Companies reported a 77% decrease in travel and expense spend that was thwarted by an alarming year-over-year (YoY) increase in spend risk that was three times higher than in Q3 2019.
• Fraud activity violations more than doubled
  • Fraud activity violations increased 57% between Q2 and Q3 2020, remaining the most prevalent type of spend risk since the COVID-19 pandemic. Electronic, computer and package stores triggered the majority of these violations.
• Ongoing work-from-home arrangements open the door to out-of-policy spend
  • Employees bent the rules on equipment purchases, payment and procurement methods as they worked from home. Expenses submitted as office supplies or meals/restaurants accounted for more than 25% of spend violations.

Categories of business spend shift in pandemic era

The types of expenditure for companies also showed a shift in the way work looks today. In pre-pandemic times, travel-related expenses ruled supreme in many business spend metrics. Now that fewer companies are jetting their employees off to events or meetings, the top categories look a little different.

Spend has been lower. But the portion of dollars spent in high-risk categories has increased in two specific categories — miscellaneous stores and mail/phone order. Purchases in these categories accounted for nearly 40% of spend in the top five categories of Q3 2020. Before the pandemic, these categories accounted for less than 6% spend on average per quarter.

Miscellaneous stores and mail/phone order categories tend to be riskier because merchants sell an array of items, making it harder for businesses to assess the legitimacy of expenditures. For example, an employee could order paper from Amazon, and it’s hard for its employer to confirm that.

These categories include goods like equipment and supplies for remote work. This spend pattern and the risks associated with it will likely continue to challenge cost controls as organizations adapt to remote work.

Spend violations indicate how companies can track risk better

Trouble spots for spend violations looked similar to last quarter and indicate to companies where they should monitor spend closely in the following months.

For example, companies should be vigilant in tracking purchases made at electronic, computer and package stores, which triggered the majority of fraud violations. Organizations should also be watchful of spend through third-party payment platforms like PayPal or food delivery services. These types of transactions caused the most keyword violations and misuse.

Additionally, four expense types triggered spend violations and accounted for nearly half of all violations:

• Meals/restaurants: 19%
• Miscellaneous: 15%
• Office supplies: 8.5%
• Hotel/lodging: 6%

For each section of the report, Oversight includes suggested actions that firms can take to help monitor risk and fight fraud in that category. You can read those in Spend & Risk: Drawing Parallels to Prevent Misuse, Waste, and Fraud.