Fighting for Efficiency

The story behind one defense contractor's effort to automate expense management

Bolger McGrory Ryan Bolger thought his company's travelers deserved a reasonable expense policy. But the financial analyst at defense contractor Engineering Solutions & Products, in Eatontown, N.J., was put in the position of making what many considered less-than-reasonable demands. ESP has employees scattered at military locations throughout the country, as well as at corporate offices in five different states. "It was kind of ridiculous that they were mailing in their expense reports," says Bolger, whose department received all the paperwork. Because company policy required "original paperwork, original signatures and original receipts," Bolger explains, the tiniest of mistakes could become major hassles.

When employees made errors, Bolger's department would have to ask them to revise their expense reports. "They'd ask, 'Can we fax it? Can we scan it and e-mail it? Will you accept scanned and e-mailed receipts?' And we'd just tell them 'No, I can't process the report until you mail me this.' The mailing and all that back-and-forth could end up costing a lot of money," says Bolger.

With about 700 travelers and an annual air spend of $6.5 million, the cost in processing time was an issue that went beyond traveler inconvenience.

Bolger began asking why the policy was so stringent, and he did some research. He immediately found the IRS tax code permitting the submission and electronic storage of scanned receipts, and he studied automated expense platforms. He attended travel industry events, in large part to research expense management and booking platforms so that ESP could streamline these processes.

But an interesting thing happened on the way to ESP's automation. Because the company is a government contractor, it must adhere not only to IRS tax regulations but also to the Federal Acquisition Regulation, a list of requirements imposed on companies that do business with federal agencies. To Bolger's dismay, the two sources don't agree when it comes to document storage. According to the FAR, all original documents -- traveler receipts included -- must be retained for at least one year, even with a valid imaging and electronic storage system in use.

This obstacle is particularly frustrating and costly for companies that are attempting to streamline and move to electronic storage. "That doubles record-keeping costs," says Bolger, "because you're maintaining the electronic media and some sort of document management software, as well as keeping your filing cabinets going, which take up real estate in your office. And having to retrieve [the original documents] costs money."

Plus, ESP's travelers must continue to save original receipts while traveling. "We can route them through [an expense platform]," Bolger notes, "but we still need to get them to mail in the original receipt." Bolger hasn't been able to determine whether larger defense contractors have found a way around these rules. Furthermore, he says, when companies like his are on government contract, it is taxpayers who foot the bill.

Man on a missionWhat began as a task to automate expense management has become for Bolger a fight against bureaucracy. It's the lack of logic and apparent hypocrisy that most bother him: The Department of Defense, he says, needs only to follow IRS guidelines for travel and expense, but it's a different story for contractors.

In the fall of 2007, Bolger wrote his first letter to the government requesting that a case be open on FAR 4.7 Contractor Records Retention; each response he has received since then has disallowed his request. Bolger sent a follow-up letter in spring 2008, in which he addressed the arguments he had received to that point. Each of these arguments represents an assumption about expense management that many companies have had to address in policy. Bolger refuted the assumptions as follows.

Assumption #1: Electronic documents are not original documents. This is an outdated notion, Bolger argued. By today's standards, it is entirely possible to receive wireless-service invoices and card statements only by e-mail; the option to receive hotel invoices by e-mail as PDFs is growing in popularity. By the FAR standards, said Bolger, those documents don't become official until they are printed out. "This is a huge waste of resources," wrote Bolger.

Assumption #2: Electronic documents can be easily and fraudulently manipulated. "The truth is that an original fraudulent document can be made just as easily and be printed out and kept as an original," Bolger wrote. "A one-year retention time would not stop this."

Assumption #3: Retaining original paper records is necessary because it is protecting taxpayer dollars. It's actually quite the opposite, argued Bolger. "Changing this clause would only reward the taxpayers with cost savings by rewarding the contractors with cost savings," he wrote.

Moving forwardAs of press time, Bolger was waiting once again for an update on whether the FAR would be amended. His efforts are making waves, at least. A larger defense and aerospace contractor is waging its own battle on the FAR guidelines -- inspired, in part, by Bolger's fight and an article he wrote on the topic for the National Contract Management Association.

Bolger's company, meanwhile, has forged ahead with automation plans, despite the challenges involved. According to CFO Stephen McGrory, an electronic expense platform first and foremost guarantees consistency in the process.

"We've got operations throughout the country, and it's very important and very critical that we all operate on the same page," McGrory explains, "and in a manner that's consistent with guidelines that are established." By automating, "you really naturally create those consistencies between the different business groups."

Furthermore, McGrory says, "The quicker we turn these around, the quicker we're going to realize whatever revenue is associated with each expense report. The expense-reporting process is going to be tremendously more efficient than the way it's running now."

McGrory says the platform (which he declined to name) currently is being rolled out to travelers and will allow them to store original paper documents at the local corporate offices until they're no longer required to keep them, thereby reducing the burden on headquarters.

"When we get to the point that we can eliminate the paper altogether, that's just an additional benefit from implementing this solution," says McGrory. "The hope is that the FAR and the government will eventually catch up, but if they don't, because of the kind of company we are, this is still a home run."