Automating expense reports

Automating expense reports – system for reporting travel and entertainment expense at Merrill Lynch

Michael Castellano

A redesigned travel and entertainment expense reporting system has helped Merrill Lynch improve its internal processes, manage compliance, and cut costs.

The challenges associated with effective management of travel and entertainment (T&E) expenses are well-documented. According to industry surveys conducted by Runzheimer International and American Express, for example, 69 percent of companies rely on paper reporting and manual data input, even though 75 percent maintain that late expense reports are a problem. More than half use a “100 percent” audit, wherein every expense is audited and entered into the system at multiple checkpoints. This far-from-best practice often results in more money being spent on catching a discrepancy than the amount of the discrepancy itself.

Merrill Lynch was no exception. We were spending more than $25 to process every paper-based travel expense report – an expensive venture since more than 26,000 employees filed more than 235,000 reports annually. In addition, the process was redundant and decentralized. The traveler or an administrative assistant would enter T&E expenses into an Excel spreadsheet template. Then, selected pieces of the data would be re-entered into two systems – the accounts payable department mainframe system and the investment banking division’s deal expense accounting system.

As a result, our ability to analyze T&E expense data to improve business procedures and monitor actual expenditures against vendor contracted rates was minimal. In addition, the paper intensive and mainframe-based system was plagued by routing delays with as many as three people duplicating approval and auditing processes. Merrill Lynch had to write off thousands of dollars of client-reimbursable business expenses each month because some reports failed to complete the preparation, approval, and reconciliation process in time to bill the clients.

According to the Hackett Group, a T&E consulting firm, T&E expense processing costs can drop to $1.75 per report by automating data collection and report approval. Merrill Lynch needed a corporate software solution to completely automate the expense reporting process, support a corporate credit card program, capture more complete financial data, ensure the accuracy of data, keep data secure, and automate management reporting.


We realized early on that we needed to redesign our entire T&E management process, not just automate an archaic system. Every business practice associated with T&E reporting – the creation and enforcement of corporate policies and rules, data end, data processing and management, and data analysis – would have to be addressed.

This comprehensive approach would ensure that consistent business procedures would be followed throughout the firm, and that everyone – from travelers, to the administrative assistants who often input travel data, to the accounting and auditing departments – would be accountable for their roles in making sure the system worked.

We also knew that the successful implementation of any new system depends on senior management buy-in and the education of end-users. In other words, we had to make sure everyone understood how a new T&E system would save time for the travelers and money for the company.

Our first step, therefore, was to form a committee with representation from all affected groups, including finance, accounts payable, internal auditing, tax, travel management, systems, and business managers. The goals of this “Travel Taskforce” were to conduct objective reviews of current practices and identify problem areas; develop criteria for the new system; create a budget and timeline; and choose products for review.

After sending screening requests to 35 vendors, the taskforce quickly realized that very few had viable automated T&E systems. Some of the credit card companies and travel companies provided T&E software as a value-added service; but for a company of our size and level of technical expertise, we found that independent software vendors offered more comprehensive solutions.

We were looking for a system that provided an easy-to-use front-end interface, as well as an easy-to-change rules engine that would allow us to incorporate customized business policies and rules into the system from a central location. We also required that the system’s customization capabilities enable us to upgrade to subsequent releases cost effectively. The only product we found that met our criteria was Seattle-based Captura Software Inc.’s Employee Payables program.


After completing a pilot program, the system was introduced to more than 1,000 travelers in Merrill Lynch’s Investment Banking Division, the area of the firm with the highest concentration of frequent travelers. The system components include an on-line travel reservation system, a corporate credit card program, an integrated automated T&E system, and a data warehouse for management reporting.

The program captures downloaded transaction information from our credit card vendors and distributes the data to the preparer for review and inclusion in expense reports. based on vendor and transaction type codes contained in the credit card files, the software automatically inputs much of this information into the expense report for the user. The preparer adds additional cash and mileage expenses and submits the expense reports electronically. The report is then automatically reviewed by the rules engine, checked against policy, and rejected or accepted for routing to the appropriate approvers.

Reports routed to the approvers are highlighted with any exceptions to policy for judgment. Many of our corporate T&E policies would be difficult, if not impossible, to audit accurately without an automated system. For example, we added a rules rate table based on vendor contracts to the system, and ceilings were set for hotel expenditures in each major city. The software will not process anything over that amount without an override by the accounts payable group.

After reports are approved, the program compares the credit card data approved for payment to the data that was originally downloaded from the credit card vendor to ensure that no data tampering has occurred. Merrill Lynch pays the credit card vendor directly for approved charges, and the preparer is sent notification of the report’s reconciliation. The traveler also receives a weekly e-mail report confirming that reimbursement for his cash expenses has been deposited electronically into his cash management account.


From day one of the pilot program, the firm realized several benefits. The time required to process expenses dropped from more than six weeks to an average of two days. In addition, the software has increased the amount of data we can capture and analyze, improved the reliability and timeliness of information flow, and resulted in substantial cost savings. These benefits have enabled Merrill Lynch to streamline auditing controls and simplify reporting processes. When implemented firm-wide by the end of 1999, these components are expected to result in projected savings of millions of dollars annually.

Implementing the Employee Payables program has changed the nature of financial management and other jobs by increasing the efficiency and accountability at each step of the reporting and auditing process. The groups of employees most affected include:

THE TRAVELER Accountability for ensuring that expenses are within the prescribed guidelines programmed into the rules engine rests firmly with the traveler. If expenses do not meet specified criteria, the system will automatically reject the report or send it to an approver for a decision, depending on the rule. If the report is rejected, it is automatically routed back to the preparer, who must analyze and fix the problem before reimbursement can occur. As a result, we have significantly reduced human error and eliminated routing delays that occurred with the manual process.

THE ACCOUNTS PAYABLE GROUP No longer a clerical group whose primary functions are to manually audit reports and enter data, the accounts payable department has been transformed into a value-added analytical arm of internal auditing. The new system automatically enters T&E information into the accounting system, and it gives the accounts payable group the ability to capture and analyze more information than was previously possible. The automation of receipt tracking and archiving has led to replacement of the 300 percent pre-approval receipt audits by sample pre- and post-audits based on the program’s automated audit flags.

TRAVEL MANAGEMENT A relational database of data specific to individual vendors is available for travel managers to use throughout contract negotiations. It also enables data compilation and review to ensure that vendors are complying with existing contracts.

FINANCIAL MANAGERS The software contains report writing tools that make it easier for managers to create and produce a wide range of customized reports. Financial managers can now focus on compliance issues – employees complying with corporate policy and vendors complying with contracted rates – to improve cost controls.

INTERNAL AUDITORS AND TAX EXPERTS Time-consuming searches through reams of paper archives have become virtually obsolete. These groups now have easy access via a graphical user interface to a multitude of employee and vendor data. Also, an array of flexible and reusable reports can be set up in a matter of hours.

One of the primary benefits of reengineering T&E management included the implementation of a corporate credit card program. The response has been positive, as both employees and management have witnessed more timely reimbursements and a reduction in bureaucracy and redundant processes.

Merrill Lynch issued corporate cards to 400 frequent travelers in 1997, and that figure will easily reach 2,000 by the third quarter of 1998. The advantages of putting that volume on a corporate credit card instead of individual credit cards include cost savings via exchange fee rebates, more reliable expense tracking, and limited liability risk.


During the next two years we plan to continue to roll out the system around the globe to more than 26,000 employees. The company is gearing up to implement Captura’s intranet version of the Employee Payables software for even tighter auditing control and greater end-user convenience in reporting and tracking expenses.

Merrill Lynch is also studying the feasibility of implementing an electronic booking and ticketing system, which will allow employees to make airline and hotel reservations on-line with or without the use of a travel agent. Not only will Merrill Lynch save on booking costs, but electronic ticketing will also simplify inventory problems with unused tickets. For example, no ticket will need to be returned if it goes unused; instead the cost is simply credited to the traveler’s corporate credit card.

For Merrill Lynch, automating T&E reporting is an integral part of a larger vision to use financial systems technology to control costs, as well as provide more information to employees and managers. These tighter controls allow for more cost-effective, reliable auditing processes throughout the firm. By implementing the Employee Payables program now, Merrill Lynch is putting in place one of the building blocks to support its financial systems technology strategy, and we are creating a long-term foundation for the future.

MICHAEL CASTELLANO is Senior Vice President and Controller, Merrill Lynch & Co., Inc., in New York City.

COPYRIGHT 1998 Institute of Internal Auditors, Inc.

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