What REV REC means for T&E Auditors

Perhaps it’s because I have little kids but Rev Rec sounds like something Scooby-Doo would say when he sees a ‘ghost’. For financial leaders, the new Revenue Recognition guidelines is definitely a “Ruh Roh” moment. Changing the way your business recognizes revenue has wide ranging impacts across the entire organization. This in turn affects the way your employees are bench marked, evaluated, incentivized and ultimately paid.

Rev Rec Fraud Risks for T&E

The fraud Triangle for expense reportsAccording to the fraud triangle, there are three factors that explain why an employee commits fraud – perceived financial need, perceived opportunity and rationalization. Drastic changes to commission structures and evaluation metrics could create both a rationalization (“this isn’t fair for me”) and a financial need (“I am not making the same money as last year”). Your company’s T&E system presents the perceived opportunity.

T&E Compliance teams should consult internally with the Audit department to determine the level of risk at a company level. If the risks are high then identify the employee groups most impacted by the changes. T&E auditing could be increased for 2018 on these groups to monitor for the most common fraud schemes. Expense report issues could be an indicator of a larger scheme that also impacts Rev Rec rules.

Background Information

You can find information on how ASC 606 & IFRS 15 might impact your industry here. The financial impacts are generally the greatest for software companies, especially SaaS based software companies with revenue streams that last many years instead of a single one time purchase.

FCPA Compliance Blog has a mini series on this topic that includes more details

Here’s a video by PwC on Rev Rec impacts for Technology companies

DOJ’s bribery guidelines place greater importance on expense reporting

The Department of Justice has now enacted recommendations from the FCPA Pilot Program into the official US Attorney’s Manual (USAM). This was first announced in November 2017, by Deputy Attorney General Rod Rosenstein, he said the DOJ would extend the pilot’s “presumption that the company will receive a declination” into official policy. The FCPA Pilot Program started in April 2016 when the Justice Department created an incentive for companies to self-disclose FCPA related issues and increase the transparency of their internal findings with the DOJ. Disclosure would reduce the fines up to 50% and be eligible for complete declination (no fines) with only disgorgement of the illicit profits.

Increasing Bribery Risks

One year ago, The Expense Reporter documented the increasing risks of bribery and corruption for companies of all sizes. As Ebright and Cottrell point out on Parker Poe GRC Blog, “Over the last 10 years, 143 companies have paid a combined $10.9 billion to resolve Foreign Corrupt Practices Act cases.” The ACFE says that 45% of all fraud cases are bribery & corruption related with a median loss of $200k USD.

The risks continue into 2018, especially as global economies grow and US based business target developing countries for increased revenue. The new policy changes give companies an opportunity and incentive to join the fight against bribery and corruption.

Why this matters for T&E

As George Terwilliger said in a post for the FCPA Blog,

. . . to benefit from the policy the company will have to demonstrate that its compliance commitment is real and its compliance program meets standards articulated by the government, even if scaled to the size and complexity of the business entity employing it. 

Many bribery scandals included meals, gifts, entertainment and travel. All items that should be captured and monitored by your global T&E programs. Million dollar bribery schemes typically involve face to face business meetings on international trips. Corruption happens during business meals with attendees.

T&E data is part of the solution

Finding fraud can be a needle in a haystack challenge. Bribery is a very high risk but low frequency issue for most companies. Whistle-blowers are often the first ones to identify potential bribery. These warnings can come from internal employees or third-parties, but they are themselves incentivized to report the crimes to federal agencies. Going to the DOJ gives allows them a financial reward from the fines collected. Often this is worth millions of dollars to an employee.

ACFE Fraud Tips

This is why having a committed internal compliance program and effective controls on your T&E is so important. If you can catch and disclose FIRST then fines are greatly reduced or eliminated. But your organization still has the ability to reduce fines due to the compliance program’s overall efforts.  Most importantly, the full cooperation and overall effectiveness of your program will be openly commented on by the DOJ during their public remarks. These comments are critical to controlling the far larger impacts to the company’s stock values and market perceptions. Damaging remarks by the DOJ, can impact your organization’s ability to partner with other businesses in markets around the world.

 

 

2018 tax law means changes to meals & entertainment

Changes to 2018 tax law will impact the way your company spends money on meals and entertainment. Dining spend is generally 10% of a company’s total travel spend and over 30% of the on-the-ground spend associated with a business trip. But your company probably spends far more on ‘entertainment’ expenses, which often includes food. It’s not just because your employees like to party. US tax laws allowed entertainment related expenses to be a 50% deductible on corporate taxes. Regular meals are deducted at a much lower amount.2018 entertainment party spend

Company Strategy Alignments

Many companies will shift the way they spend money to accommodate the new 2018 tax rules. This is unlikely to impact the average business traveler’s trip but it could change the way sales leaders entertain corporate clients. These decisions will be driven by your organization’s legal and tax departments. The GRC and Internal Audit teams might also be involved. T&E is definitely a stakeholder in this discussion. From a T&E program perspective, you will want to make sure to align with the company’s strategies.

Behavior Changes?

The party is not completely over just yet. A true business meal with clients is still a 50% deductible. It’s the spend around the meal that is now in question. Depending on your company strategy, it might just mean an adjustment to how your organization defines and recognizes entertainment. Taking a client to play golf for 4 hours and only talking about the business deal for 5 minutes on the third hole probably won’t make it into the ‘entertainment’ expense type by 2018 tax definitions. But it might be easier from a change management perspective to leave your entertainment expense type as-is and create a new one that is in-line with 2018 rules. Going forward entertainment will look more like marketing events than they do a small group playing golf. Corporate branding and logo placements could be an indication that it fits the new 2018 laws.

Remember, the spend is still going to happen because that is how business gets done for many organizations. The key is to align the T&E systems and processes to reduce the back-office accounting work associated with the new tax rules.

Amex GBT Spending an Estimated $550M for HRG

American Express Global Business Travel (GBT) plans to acquire Hogg Robinson Group (HRG) in an all cash deal. News outlets are estimating the purchase at $550M.

Doug Anderson, Chief Executive Officer, American Express GBT, said: “The complementary geographical footprints of each company will improve the global scale and reach of our business, enabling us to achieve efficiencies across a best-in-class platform and accelerate growth. The technology roadmaps of each business provide a powerful platform from which to drive future innovation. We will deliver a superior client and traveller experience through fully-integrated travel management solutions, including booking and expense management products.”

American Express Global Business Travel to acquire Hogg Robinson Group

From an Amex perspective, the ROI will depend on how well they can manage the M&A and subsequent tech integrations. Both companies have made significant investments into their own technology solutions so this acquisition will be challenging from a technology position. Overlapping solutions in mobility and meetings management will have to be sorted out.

In the short term leadership will be very focused on these processes which might strain the relationship (services) with corporate buyers. I’m sure other TMCs will leverage these concerns with Corp buyers entertaining a TMC RFP for the next 18 months.

Expensify Focuses On Core Expense Report Customers

David Barrett, the founder and CEO of Expensify, celebrated ten years of expense reporting and spoke about the growing partnerships with CPA.com over the past 12 months. This network of valued accounting partners represents millions of potential clients for Expensify and David says their development teams have rewritten almost all of the accounting integrations to streamline client experiences and to further grow this partner channel. Last year also saw the launch of a newly overhauled web and mobile experience. A very busy year indeed.

This year will see a different focus. Rather than rolling out big new changes, the company is focusing on improving core features and upgrading “all of our hardware inside all datacenters.” David’s rather technical article about SQLite helps readers understand the complexities of cloud based expense solutions and the reasoning behind the technical decisions. In the first sub-section, he explains WHY this is all so important. Many of their customers rely on Expensify’s accounting partners to run the T&E / Invoice operations. Expensify allows these companies to migrate from one accounting firm to another…

“This is a critical feature that enables us to offer such good support for large accounting firms that manage hundreds or even thousands of clients: when a company takes on a firm, we want to give that firm access to that company’s data, without needing to migrate the company onto the same server the accounting firm is already on.”

The Expensify partnership program creates a rather unique challenge; one that Expensify has solved with technology innovations and improved accounting integrations. David says that 2018 will be “focusing 100%” on common pain points across their clients and partners. While most large companies have already automated their expense reporting processes, many of the smaller companies have not. Expensify seems confident that current features will meet the needs of the CPA.com customer base and give them revenue growth while focusing their technology efforts on infrastructure.

Top