Minimizing Spend Risk by Improving Employee Compliance and Policy Awareness

Nathanael L’Heureux


February 11, 2021

The pandemic and the need to work remotely means spend habits are shifting dramatically with nearly everyone in the organization spending corporate dollars to some extent. With that expansion of purchasers comes inherent risk. Data suggests that while spend on travel and expenses is down 60%, there has also been a shocking 200% increase in spend violations.

This means that organizations are identifying problematic employee purchases, including fraud at twice the rate seen before the pandemic. The rush to furnish home offices and an increase in people making spend decisions who did not do so previously adds up to a lot of purchase activity outside the norm.

In terms of training for new purchasers, most companies will give new hires a manual that they may not fully read or internalize. They may sign a sheet of paper that says, “I know the rules of behavior” and until they violate a spend rule there is little reinforcement to encourage compliance.

But today’s unique circumstances call for real change in employee behavior. There are three ways to better ensure employee compliance: at the onset of employment with better tools and methods, after the fact with well-executed audits, and in real-time with spend monitoring. One of these ways works a lot better than the other two combined.

For example, for Intermountain Healthcare, an integrated health system based in Salt Lake City, Utah, ensuring employees can access the appropriate resources and awareness regarding compliant spend and associated policy is an ongoing priority. With about 8,000 cardholders, evaluating and monitoring spend on the company’s card program is a necessity. Doing so provides near real-time feedback on gaps in policy education and identifies if policy needs to adapt to new spend needs or patterns.

This is a best practice for more than just Intermountain. Organizations can better ensure employee compliance by monitoring spend in real-time and ensuring employees remain educated on policy. Here are a few ways to do so:

Gaining Compliance Before Employees Spend

You cannot improve that which you do not measure, and policy awareness is no different. Spending guidelines are often extensive, and it is likely that no one outside of finance operations is going to understand every line. Much of the information is often intuitive or common sense anyway. Ensuring that employees internalize crucial parts requires targeting testing on the specific areas of policy that they need to know.

Organizations can do this by only issuing a company card after an employee completes training sessions related to purchasing activities and needs. Upon completion of training, companies can ensure employees understand the disciplinary action that occurs if they do not follow policy by asking them to sign an agreement. In addition, they can provide a summary sheet that communicates the high priority policies to remember, directing cardholders to additional resources should they need them. Organizations can continue to focus on education after onboarding by sharing newsletters for cardholders with timely reminders and tips on policies based on trending spend behaviors.

When an employee does make a purchasing decision that is non-compliant, the organization can send an email that reminds the spender of the policy, allowing them to re-learn something they may have forgotten.

Sample Audits

Another way organizations can ensure employees are coloring within the lines is to sample audit expenses in search of out-of-policy spending. This method works about as well as one might expect; many hours of labor used to comb through a small percentage of expense reports. Searching through 1% of an organization’s spend nets about 1% of out-of-policy spending. Where sample audits can be made more useful is when deployed to ensure an automated system is working.

Continuous Spend Monitoring

The new "Continuous Spend Monitoring" method is powered by layers of technology to deliver organizations an automated system that monitors and analyzes 100% of spend, making it easier and faster to detect non-compliance, misuse and fraud.

The sample audit method identifies one-time instances—for example, “Here is an expense report with an out-of-policy item on it”—but lacks longitudinal capabilities. The risk is not the people who spend out-of-policy once, but those who do it repeatedly.

There is a rule of thumb in the spend risk analysis space that about 70% of employees spend within compliance. Another 25% spend outside of policy, but generally do so with good intentions and perhaps lack situational or policy awareness or have an extenuating circumstance. The last 5%, though, are the repeat offenders.

Yet, if you speak to those repeat offenders about any one violation at a time, they will give you a reason that makes sense. Their conversation usually goes something like, “Well, I had to go over my limit because I was entertaining an important customer. My manager said it was fine, go ask them.” In fact, a manager approves nine out of 10 out-of-policy spend violations.

But having longitudinal information allows you to say, “Your last 10 expense reports were all over the limit, you are in the 1% of all employees companywide in terms of spend violation. Knowing this, you must make immediate changes to get your spending within policy.” This conversation shift means you have reduced the back and forth with the employee and have taken steps to change their behavior.

Continuous monitoring across a behavioral trend provides the ability to shift conversations with data. This can be applied to the manager as well. Many times, managers grow lax about spend policy or indicate to their employees that the spend policy does not apply to their group. By retraining the manager and showing that you are tracking and monitoring their adherence to a specific policy in real-time, you can incite action on behalf of not only the manager but also the departmental employees whose spend is in question.

With real-time monitoring tools, you can drive policy awareness and longitudinal compliance in ways that manual sample audit techniques and upfront training simply cannot. It is how organizations who tap spend risk platforms reduce their out of policy spending by as much as 70%. Real-time monitor allows organizations to get better organized around the prevention of fraud and spend violations, providing a better understanding of where to educate and discuss policy based on obvious gaps identified in audits.

Nathanael L'Heureux is chief client officer at Oversight.