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Three Ways the COVID-19 Crisis has Affected Corporate Travel and Entertainment Expense Claims

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Three Ways the COVID-19 Crisis has Affected Corporate Travel and Entertainment Expense Claims

In a few short weeks, COVID-19, also known as the coronavirus, has permeated every aspect of our lives and completely changed how (and which) businesses operate. Business travel and entertainment have come to a standstill. Many companies have switched almost entirely to working from home to enforce social distancing or comply with mandatory shelter-in-place mandates. As the economic landscape becomes increasingly uncertain, many companies have been forced to take difficult actions to cut spending as they endure a severe downturn of unknown length.

As the crisis progressed, the scale and nature of expense claims have changed drastically. As expected, trip cancellations and work-from-home expenses increased dramatically, while business travel expenses dropped.

AppZen wanted to dig even deeper into the data to find out how employee expenses have changed in comparison to this period last year: Which industries’ expenses have been most and least affected by the current environment? What kinds of expenses are changing the most?

The baseline: Strong year over year growth before COVID-19

To contextualize the changes wrought by the current COVID-19 health crisis, let’s first look at what happened before it began. Between January 2019 and January 2020, expenses in the top 10 largest categories grew by 24%. While COVID-19 was causing significant disruptions in Asia and Europe in early February of this year, overall expenses still rose by 8% compared to last year. By March, that percentage had declined to about 7%.

In March, travel expenses began to drop

Unsurprisingly, travel-related expenses such as airfare, hotels, baggage fees, taxis, and trains dropped 9% between March 2019 and 2020. Looking at weekly data shows just how precipitously travel expenses have dropped. Expenses in early March were higher than in 2019, but as the month progressed, expense claims fell dramatically. By the last week of March, travel expense claims were down by 40% compared to the previous year.

However, not all industries are equally affected. Heavily white-collar, digital businesses that have been deemed “non-essential” have dropped off the most. In finance and insurance, for example, expense claims fell by 47% year over year in the last week of March. In information businesses (mostly software and media), claims fell even more – over 63%.

Businesses like construction (whose “essential” status varies by type and location), and life sciences (definitely essential!) were affected to a much lesser extent to date. In the same timeframe, expense claims for construction companies only decreased by 12% compared to last year. Life sciences companies saw an uptick in expenses during this time – a 3% increase from last year, though the trend line in the previous five weeks, if it continues, points toward a decrease in the weeks ahead.

Office expenses have gone up as many employees have shifted to working from home

Expenses in the office supply category have increased across every industry during this timeframe. The most significant spike was during March, where AppZen saw 80% growth in these expenses across sectors.

As companies closed their offices and began encouraging their employees to work from home, many employees needed to expense office supplies such as laptops, monitors, cables, and keyboards. The last week of March was the most significant spike in these expenses, particularly for the construction, information, and professional services industries.

Variations in expense categories by industry

In March, expenses in categories such as subscriptions, training, and internet were 20-25% higher compared to March of last year. Demand for subscription-based services such as video conferencing software rose in March as employees began to work from home. This would explain the additional charges for the internet, as some companies allow remote employees to be reimbursed for internet usage.

AppZen also saw variation by industry. Both life sciences and construction industries show an uptick in transportation mileage during March. This may be because these industries are considered essential, and car travel adheres more strongly to social distancing requirements in the current environment. Finance and insurance companies saw a significant surge in subscription expenses, over seven times higher than 2019. Construction companies saw the most significant rise in office supplies, five times higher than the previous year.

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What Employees Are Expensing During the COVID-19 Outbreak

As the situation surrounding COVID-19 has progressed, more travel restrictions and social distancing practices are being implemented every day. More and more companies are implementing work-from-home policies to adapt to the changing situation.

We’ve been tracking the data since the beginning of the crisis to help your company ensure employee health and safety and make essential decisions around expenses.

Here are a few of the most significant changes we’ve seen.

COVID-19 expenses haven’t shown any sign of slowing down

In our last blog, we noted that COVID-19 expenses skyrocketed, and we expected them to fall as trip cancelations began to taper off. However, these expenses have shown no sign of slowing down. COVID–19–related expenses have doubled from the week ending March 7 to the week ending March 14, with trip cancelation and work-from-home expenses being the primary causes.

Number of claims

Submitted expenses vary by industry

Although changes to travel plans and cancelations still make up over half of all COVID-19-related expense claims overall, the trends change when you look at specific industries.

In the finance and software industries, half of the expenses are related to travel cancelations, and the other half are work-from-home expenses.

In the consumer goods, manufacturing, and pharmaceutical industries, masks still make up 15 to 20% of expenses but are otherwise in the low single digits in other industries.

The growth in expenses also varies by industry.

Work-from-home charges have increased dramatically; masks have fallen

Work from home expenses have grown the most, increasing 3.5x since last week. These charges are mainly related to “remote office setup” or “supplies for remote work,” and include accessories like printers, ink, headphones, and HDMI cables.

In our own workforce, we’ve noticed that everyone has a different set-up at home, ranging from at-home offices to sitting with their spouse at the dining room table or even sitting in bed with their laptops. It’s essential to employee productivity and ergonomics to help everyone make the best of whatever space they have.

Mask expenses have fallen – there was a peak in mid-February, then another dip, and a second peak at the end of February.

What does this data mean for my company’s expense policy?

We hope this data can help you consider the appropriate response to COVID-19 in your organization and how you can best support your employees. It’s clear from the above data that work-from-home expenses are increasingly common, and will likely continue to increase over the next few weeks as more companies continue to close their offices temporarily. We’ve also noticed that several companies have created specific expense types to track COVID-19 spending more closely. Others have created expense categories for their accounts payable departments to pay temporary workers more quickly in times of uncertainty.

If you’re unsure of what you should allow in your expense policy in response to the current climate, we’ve outlined some best practices on work-from-home expense policies from our peers and customers. In the meantime, we hope you and your company are taking the necessary precautions to ensure the health and safety of your employees during this unsettling time.

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Anant Kale is a CEO at AppZen, the world’s leading solution for automated expense report audits that leverages artificial intelligence to audit 100% of expense reports, invoices, and contacts in seconds.

Three Expense Policies You Should Consider Revisiting

“Are you reallygoing to reject that expense report because of that?” We ask our customers this question all the time — and guess what, they usually say “Nope.” They’re just adhering to their company’s travel and expense (T&E) policy without really considering the context of the expense. Many T&E policies we’ve seen are outdated. More often than not, these policies were either put in place when the company only had a handful of employees traveling or they were based on industry standards that haven’t been revised in over a decade. With business travel on the rise, it isn’t just the overall reimbursement amount that has increased, but also an increased burden on employers to audit these expenses.

From our experience implementing our AI-powered expense audit solution for over 1,000 companies, we’ve identified three expense policies your company should seriously consider revisiting.

‍Don’t be too strict on meal spend

$10 limit for breakfast, $15 for lunch, and $25 for dinner – this is the standard policy most companies have around meal expenses, but how often do auditors truly follow this? It’s becoming increasingly common for auditors to approve expense reports that don’t stick to these strict guidelines, as long as employees don’t go over the overall daily limit of say, $100. We recommend setting an overall daily meal limit or per diem rather than a meal-based one. This change will ensure that your auditors are paying attention to the expense reports of employees whose behavior they actually want to address, rather than focusing on someone who spent $5 extra on lunch, for example.  

Give your employees more time

T&E policies usually require expenses to be submitted for reimbursement within 90 days of incurring the expense. Let’s say an employee submits a receipt that’s older than 90 days. It’s likely that this expense just slipped the employee’s mind or they just found it while cleaning out their suitcase. Are your auditors really going to go through the trouble of asking the employee why they didn’t submit the receipt earlier? Probably not. There are various reasons for delayed submission, but usually, the employee is given the benefit of the doubt. We recommend increasing the permitted expense age to 180 days to give employees more time to submit their expense reports and decrease any potential back-and-forth between employees and auditors.

‍It’s okay to enjoy a glass of wine once in a while

Sure, no one wants their employees getting drunk on the company dime, but it isn’t uncommon for employees to sip a glass of wine at dinner – especially when they are traveling on business, away from their families, and eating all by themselves in the hotel lobby. Okay, I didn’t mean to paint such a dampening picture, but it’s quite true! Expecting companies to pay for a drink used to be a complete no-no in the business world, but today, companies are more flexible about alcohol. So, either allow it up to a certain dollar amount, say $100, or track an employee’s behavioral trends over time without interrupting the reimbursement process.

Those are just a few of the ways you can change your expense policy to help reduce the stress on both your auditors and your employees. For more ideas on how to best structure a T&E policy that promotes a healthy expense culture, download our whitepaper.

Cauvery Mallangada is an Implementations Manager at AppZen, the world’s leading solution for automated expense report audits that leverages artificial intelligence to audit 100% of expense reports, invoices and contacts in seconds.

Why is there so little expense report misconduct in China?

Recently, I wrote a data-driven piece revealing which countries are home to the most expensive report misconduct. Several of the results were extremely interesting, but the most fascinating piece of data was redacted because it needed to be looked into more thoroughly.

That data point was this: only 1% of expense report items flagged for review by leading automated expense report audits AI software, AppZen in China are ultimately rejected by the client company.

This 1% figure sits at the very bottom of the international list; no other country is even close. For example, Japan, only a few hundred nautical miles away across the East China Sea, ranks in the bottom half of flagged expense dollars rejected, with a much more robust 18%. Here’s the data from the last blog post, but with China put back in.

So what are the explanations for this oddly-low Chinese rejection rate? The answers are somewhat dubious and connect to transfers of wealth. 

Like most nations, China has its unique accounting complexities and one example is the country’s Fapiao system, in which receipts and invoices are actual official tax documents printed on the spot. The goal of Fapiao was to create a transparent system spitting out real-time tax documents at points of purchase across the country, but that hasn’t stopped enterprising folks from coming up with schemes to take advantage of it. 

For example, imagine taking 40 expo guests to dinner after a conference. In America, the hosting employee would simply receive a receipt for the pricey dinner which he would then expense for reimbursement upon returning from the trip. The company submits that receipt as part of its tax return at the end of the year.

Now let’s say some out-of-policy behavior takes place at this dinner; maybe the host employee decided to order several $200 bottles of wine, easily exceeding the $50 bottle company policy limit. AppZen would catch the out-of-policy misconduct on the expense report in this example. 

But in China, Fapiao are actual tax documents and business-related expenses are sometimes used to offset revenue, which allow companies to bring down their corporate income tax. Accordingly, managers subtly encourage their staff to collect Fapiao, and turn the other cheek instead of scrutinizing the documents.

In other words, Chinese corporations can lower their tax bills by indirectly transferring a fraction of those funds to employees via liberal unwritten expense report oversight thereby making them happier, at the expense of The Party’s tax revenue.

The less cynical explanation picks up the same thread of employee satisfaction without looping in Fapiao: the Chinese are, in general terms, lax in their enforcement around expenses; they turn a blind eye to most expense ambiguity to help incrementally raise employee take-home pay. In other words just as Silicon Valley companies are happy to supply their employees with millions of dollars in free meals and snacks at the office to supplement incomes, many Chinese companies are similarly, indirectly liberal outside the office, around expenses.

Either way, the title of this article is somewhat misleading. The Chinese have an average number of expense items flagged for potential conduct by AppZen relative to other countries. The difference is that Chinese companies are choosing to reject these flagged expenses at an unusually-low rate of 1%. The reasons for this are Fapiao loopholes and cultural norms around allowing employees liberties with their work expenses. 

Josh Anish is Senior Directing of Marketing at AppZen,the world’s leading solution for automated expense report audits that leverages artificial intelligence to audit 100% of expense reports, invoices and contacts in seconds.