Corporate Expenses: A David vs. Goliath Story

If you work in a large corporation, chances are you have come across systems for expense administration. Now, I have a lot of years of experience working in the corporate world and more recently running my own business. What I am about write below is not to refute the importance of expense management. In order to run a successful business, one must keep are careful eye on unnecessary expenses (although this lesson seems to be forgotten when it comes to executive compensation; think Home Depot). What I am going to illustrate through my personal experience is how the creation of corporate bureaucracy can sometimes cloud what are good intentions. By creating inflexible systems with non-thinking bureaucratic employees the goals of any corporate project can be defeated by negative externalities created. In this story I am cast as David. Goliath is played by a senior finance department employee. The setting is one of the world’s largest diversified financial institutions (one of my past employers).

One day the King (the head of the large diversified financial institution) says to his most senior and trusted financial adviser named Goliath, “Expenses are getting out of control. We are spending millions of dollars worldwide on travel, entertainment and other frivolous expenses. I need you to do something about this!” Goliath goes back to his lush office (no cube for Goliath) and thinks about how he can solve this vexing problem. “I know!” he declares, “We will build a new expense system.”

Goliath gathers all the best systems folks from throughout the organization. Never mind that they were engaged in projects that had huge revenue potential. After all, expenses are real right now not possibilities for revenue in the future. Of course since Goliath was so senior in the organization, project prioritization was not necessary. Goliath did not care that his project bumped countless other projects out of contention. That was a small price to pay for saving expenses! Little did he know (or care) about the hundreds of employees who had toiled on their projects over countless hours. Little did he consider the impact on morale or the opportunities lost for future revenue. Goliath was only focused on one thing, saving expenses.

After only 9 months Goliath sat down with the King and exclaimed, “We are done!” Goliath went on to describe the system to the King. “We have built the best expense tracking system in the world as would only befit the world’s best financial institution. I am so proud of the system and the way we built in measures and controls. Let me give you some examples.” Goliath goes on to explain how every item on the expense report needs to be itemized and entered into the system. Each travel and entertainment item has set limits where if the employee exceed the limit the excess comes out of their own pocket, unless of course the employee gains permission from two levels above them in the organization for the excess expense. All receipts get faxed over to a central processing center (newly set up of course) where the receipts are reconciled against the expense report. All reports need to be electronically approved by the employee’s boss and will not be processed until then. And the kicker as Goliath described to the King is that, “I have actually created revenue opportunities for the company from our own employees. Since all expenses are charged on our own corporate credit card, we can collect late fees and interest on unpaid charges. We have actually tracked the amount of time it takes to process expenses on average and it is in excess of 30 days! That means that unless the employee pays the outstanding balance out of their own pocket, we will be able to charge late fees and interest! The King was so pleased with the system and declared, “This is good!”

So the system was rolled out to the corporation. Almost immediately the expense savings were realized (as well as some revenue)! However, unbeknownst to the King the amount of time required to process expenses increased from 30 minutes to 90 minutes. Not only that, but employees got frustrated with the system and morale began to suffer. Important trips were cancelled or never contemplated just because of the hassle of going through the expense process. Overall productivity began to decline and with it so did revenue. Unfortunately, the King had no way to associate the decline in revenue with the new expense system.

About a year after the new system went on-line a new employee named David (aka me) joined the organization. David had never seen such an abominable system during his time in the corporate world. Unfortunately, David was so much lower in the organization than Goliath that there was no way he could change the expense system or make his voice heard. In order to avoid paying interest and fees David used his own money to bridge the gap in time between bills arriving and expenses being processed. The King received no revenue from David!

After two years, David decided to part ways with the company. Unfortunately, in bridging the gap on his credit card for expense processing David had a credit balance on his account. David sent notes to the company explaining the situation and trying to get his money back, but never got any response. After many months David got mad. He thought, “I no longer work for this company and I am no longer afraid to make waves!” In his last correspondence to the company he threatened to contact his State Attorney General.

Well I am happy to report David got a check yesterday for $230 (OK it’s a little victory). The company is in the headlines a lot recently. It seems they can’t seem to organically grow their business. In the latest article the King declared, “We are going to cut expenses by $1B”. It seems the King still has not learned his lesson.