U.S. FIRMS SEE HIGHER SPENDING IN 2006, WHILE SCRUTINY OVER T&E AND PURCHASING COSTS BUILDS, SAYS AMERICAN EXPRESS SURVEY
In Poll of More Than 250 Companies, Nearly 30% of Financial Executives Say Their “Burning Issue” Next Year Will be on Employee Compliance
Other Findings:
- Many Are Confident About Control Over Expenditures but…
- Nearly 75% Are Scrutinizing Purchasing Processes, Approvals More Carefully; 63% Are Reviewing T&E Expenses More Closely
- Poll Shows Concern Over Possible Hikes in Telecom, International Travel, Meetings Costs
NEW YORK, November 01, 2005 -- More than half of surveyed U.S. financial executives say they will spend more on business travel and office supplies next year, according to a new study by American Express.
Yet, every penny spent is likely to come under greater scrutiny.
The new poll (of mostly mid-sized firms) finds that senior executives are intensifying their watch over employee expenditures, in light of Sarbanes Oxley regulations, as well as much-publicized reports of expense abuse. In fact, many respondents say that they will make compliance a priority in 2006.
“For mid-sized companies, getting employees to follow rules and spending policies seems to be as important as securing good deals from suppliers,” said Anré Williams, EVP, U.S. Commercial Card, American Express Global Corporate Services. “Focusing on spending policies supports good corporate governance and drives bottom-line savings. CFOs realize that it's not enough to make rules; they also need to enforce them.”
And while a great many respondents have confidence that they have control over indirect expenditures, as well as faith that employees are adhering to spending policies, a majority have stepped-up their watch over employees – compared to previous years.
Further, about one-in-five report corporate disciplinary actions against employees who've strayed from rules governing procurement or T&E expenses.
The Outlook: Budgets Will Rise in ‘06
Adding to the pressure, many financial executives are anxious about a potential rise in costs.
A majority, 54%, forecast that their companies' overall level of spending for non-T&E procurement (incurred in both procuring and processing purchases) for 2006 will increase by up to 10% above this year's level.
An additional 15% of respondents said spending would grow by more than 10%. Meanwhile, 20% foresaw no growth in 2006 spending, while the remainder of respondents forecast declines.
On the T&E side, nearly half (47%) forecast up to a 10% year-over-year rise in spending for 2006, while another 9% estimated a spike of more than 10%. Meanwhile, one-third said T&E spending would remain the same, and the rest foresaw declines.
Added Williams: “Airfares have been extremely low in the past two years, but fuel prices may continue to drive air fares higher.”
Focus on Compliance
American Express' new survey sheds new light on companies' focus on compliance issues. Among a series of questions that elicited write-in answers, respondents were asked to predict the greatest “burning issue impacting finance executives” in 2006.
Sarbanes-Oxley was cited by nearly 30% of those who answered. But many also said their top issue would be the rising cost of capital, increased health care costs (and cost control in general), rising energy prices, interest rates, inflation, and the challenge of “doing more with less.”
Another question asked respondents to name “the most important lesson on compliance” learned in the past few years. One individual responded: “Whatever is not monitored is not in compliance.”
About 20% cited the value of scrutinizing expenses, and another 19% mentioned the importance of spending policies, e.g. establishing clear rules, getting endorsement by senior management and continually communicating policy to all employees – including senior leaders.
Scrutiny Rising Over Purchases, Employees' T&E Expenses
Overall, most financial executives polled felt confident—to some degree—about their employees' adherence to T&E spending rules (see chart).
| Very Confident | Somewhat Confident | Not Very Confident | No opinion |
| 36% | 56% | 7% | 1% |
However, for mid-sized companies, with annual revenues of between $250 million and $1 billion, only about one-in-five (21%) finance executives said that they were “very confident” about adherence.
In a related question, on the purchasing side, 49% of all respondents said their companies have either an “extremely high” or “high” level of control over purchasing processes today. Yet, only 31% of mid-sized firms answered the same way.
Also, it's clear that financial executives are cranking up oversight of expenditures.
For non-T&E expenses, such as office supplies, nearly three-quarters (72%) of those surveyed said that, compared to previous years, their firms are scrutinizing purchasing processes and approvals “much more” or “somewhat more” carefully.
When it comes to business travel, almost two-thirds (63%) of respondents said that their companies scrutinize employee T&E expense reports “much more” or “somewhat more” carefully than in the past.
However, despite evidence of concern over potential cost hikes and employee compliance to spending policies, a significant number of companies have not yet adopted more advanced tools to garner leverage with vendors and monitor spending.
For example, 51% of firms use checks as the most common form of payment for non-T&E supplies, while one-third use a procurement card or corporate card, which can provide data to track purchasing behavior.
“A few years ago, mid-sized companies began implementing Corporate Card programs to provide convenience to traveling employees,” said Williams. “Now, in contrast, firms are seeking Corporate Card programs as a way to monitor out-of-policy spending and drive savings.”
In the survey, 22% of respondents said that, within the past year, their companies had taken punitive actions against employees for expense-reporting abuse.
Threat of Rising Costs
In the new American Express survey, the vast majority of financial executives polled said they were satisfied—to some degree—with their companies' success at securing savings via preferred pricing from vendors.
On the procurement side, 86% rated their success as good, very good or excellent. For T&E, nearly three-quarters (73%) polled felt their firms were “somewhat” or “very” successful in securing the lowest costs from travel vendors, with about one-quarter (23%) noting that they were “not very successful.”
However, the poll revealed a considerable degree of concern over the threat of rising costs in certain categories, such as wireless telecom, internal and external meetings, and international business travel expenditures.
Among these categories, the largest proportion of respondents, 50%, said they were greatly concerned that costs for industry meetings and events could grow. Slightly fewer, 45%, said they were worried about potential increases in travel telecom costs, specifically related to cell phones and Blackberries.
Meanwhile, 41% had serious concerns about the threat of rising expenditures for international travel, and 34% were most worried about higher costs for internal meetings.
What's more, despite advances in teleconferencing, a majority of respondents forecast that, by 2010, their companies' level of business travel would be higher – with 10% noting it would be “dramatically” greater and 51% saying it would be “somewhat” greater.
One-third polled said their business travel would remain the same, while only 6% said travel activity would decline.
About the Survey
The American Express 2006 Expense Management Benchmark Survey polled 255 U.S.-based companies of varying sizes on a variety of indirect expense management issues, including T&E and commodities such as office supplies, computers, temporary labor and other indirect purchases. The survey was conducted among readers of Business Finance magazine in June and July of 2005. The majority, 58%, had annual sales revenue below $250 million, while 19% reported revenue of between $250 million and $1 billion, and 24% had sales revenue of more than $1 billion.
About American Express Global Corporate Services
Through its Global Corporate Services group, American Express provides expense management services to more than 100,000 firms worldwide through its Corporate Card program, Corporate Purchasing Solutions and Business Travel Services. It is both the leading issuer of commercial cards and the largest corporate travel management company in the U.S., serving nearly two-thirds of the Fortune 500, along with tens of thousands of mid-sized companies. More information on expense management tools from Corporate Services can be found at http://www.americanexpress.com/corporateservices.
The American Express Company is a diversified worldwide travel, financial and network services company founded in 1850. It is a leader in charge and credit cards, Travelers Cheques, travel and international banking.
