July 15, 2019

Bureaucratic Sludge in Expense Reimbursements

Having worked at a few large, public-sector organizations, I am intimately familiar with bureaucratic sludge (and why organizations like BERI are so valuable). One of things I found most frustrating was the process for getting reimbursed for business travel and purchases. Some of the pain points I’ve experienced include:

  • Difficulty finding options that are within policy limits (and either having to waste time finding a cheaper option, or accept that you will have to pay the extra out-of-pocket)
  • Having to find your employee/medical/membership ID number and other data
  • Filling out badly designed forms
  • Providing sensitive financial/medical data over insecure channels
  • Collecting receipts
  • Printing, scanning and/or mailing the necessary documents
  • Waiting for ages without getting a status update
  • Remembering to follow up to ask for a status update
  • Determining the right person/number to call to get an update
  • (If it’s a large amount) Financial hardship due to fronting the money and being out of pocket until you get it back
  • (If it’s a small amount) Feeling silly chasing up, or wondering if the cost of your time spent chasing is worth the amount you’ll get back
  • Anxiety while you wonder how long it will take or whether you’ll ever get your money back
  • The reimbursement getting denied due to a technicality
  • Checks getting lost in the mail
  • Discovering that the amount reimbursed was incorrect, and needing to follow up again to get it corrected
  • Giving up because it starts to not become worth the time/cognitive overhead, and just accepting the money as lost

I’m aware that some business models (like dubious cash rebate’ schemes) actually rely on the sludge of the process to stop people following through. This makes me sad. But in general, I don’t think the sludge is there to deliberately put people off (see Hanlon’s razor) — or at least if it is, it’s very short-sighted.

Consider a company that covers employee travel expenses. If the process is sludgy and bureaucratic, involving lots of forms and collecting receipts and printing things off and mailing them in, this takes a lot of employee time and cognitive overhead. I suspect in many cases the cost of the time of the employee plus the cost of the time of the processing department outweighs the actual amount owed to the employee. On top of this, it’s a terrible experience for the employee. I’ve known people who don’t even bother to submit expenses unless it’s a pretty significant amount. While this might sound like a win for the company, it usually results in low morale and resentful employees who leave to go somewhere else… Perhaps somewhere that provides a company credit card.

Perhaps things aren’t as bad in private-sector companies; it often seems that this kind of bureaucratic sludge is particularly common in public-sector organizations. In general, public-sector organizations are expected to be particularly responsible and cautious with their resources. The sad thing is that often the sludgy processes are more about appearing to be responsible and cautious than actually managing resources well, and I think the costs of this are often underestimated.

I think it’s possible to have a responsible expense system that is also efficient. In order of preference:

  1. Cover the costs upfront. If you’re a company that covers expenses, offer employees a company credit card so that they don’t need to front the money themselves. The spending can be easily tracked via online banking, and employees should be expected to explain any unusual expenses. They should also be responsible for paying back any unauthorized or out-of-policy usage.
  2. Provide a daily allowance. Rather than specifying an upper limit for each individual meal, allocate a daily travel expense allowance that employees can distribute throughout the day as they see fit and not worry about keeping track of individual receipts. It saves employee time and also reduces the processing overhead.
  3. Have a fast, efficient, digitized process. If you must stick with a traditional expense policy, ensure that the process is as painless as possible. Have a well-designed, easy-to-use online form that collects info automatically as far as possible (e.g. a form that automatically collects your email address and matches it against your employee ID, bank info, etc), and only asks for further information that it really needs. Accept photos of receipts. Use a service like Expensify that makes processing easy. Provide regular status updates and process the reimbursement within a few days.