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Reprinted by Permission of the Employee Relocation Council from the November issue of Mobility
By Bill Thompson
For a company to remain competitive during this era of globalization, it is imperative that its business systems keep pace with its corporate and financial goals. Donegan and Thompson say this is especially true in terms of global expense management duties for the human resource department. They offer guidelines for such a system.
Companies indicate that 43 percent of their revenue is generated outside the headquartered country, according to the Global Relocation Trends Survey 2000 conducted by GMAC Global Relocation Services.
As markets mature in their home countries, companies seek new opportunities in other countries. This boosts the demand for talented, qualified employees in the global marketplace, translating to an ever-increasing need for international mobility and effective expense management systems.
There must be solutions in place for effective expense management when companies are required to pay in multiple currencies on a global basis. An expense processing system must be able to provide cost-effective, efficient delivery anywhere in the world. The ability to make timely payments to assignees and service providers in any currency and into any bank account worldwide is vital to successful account management.
This article outlines features that could be part of an expense management system that would ensure a company's ability to provide tailored solutions for international financing requirements. These capabilities could be managed internally, externally, or through a combination of both.
Developing a Dynamic Operational System
One crucial aspect of a global expense management system is an operating system that integrates the various elements of the international assignment partnership and facilitates and controls both the human resource and financial processes.
This unique system should be developed primarily to manage the company's outsourced services and should offer the human resource department the capability to capture detailed information on the assignee (including any dependents), as well as all service providers. It should be able to make direct payments for utilities, as well as payments into employee expense accounts for reimbursable expenses, and direct payments to service providers approved by the company. It also should be able to deliver global financial management services through the following means:
Just as the needs of individual clients will change with the ebb and flow of the economy, so, too, must a global expense management system be dynamic, fluid, and flexible enough to meet the company's changing needs. If this capability is outsourced, be sure the service provider can develop new systems or adapt existing ones to suit the company's specific needs. Such flexibility allows clients direct access to live data, along with the ability to construct their own management reports.
The operating system is the "glue" that integrates all the operational processes, allowing multi-site capabilities to all users. As such, it should be designed to ensure strict divisions of responsibility and control. From a "best practice" audit perspective, there must be a dedicated, experienced central global financial management team assigned to this area.
Drawing the Lines of Responsibility
An efficient outsourced partnership for expense management is based on the ability to deliver global solutions, the optimal usage of an integrated operational system, and a clear allocation of resources to deliver and support the system.
This is most easily achieved by using one global coordination point to manage the relationship and oversee service delivery. In order to fulfill this role, the global coordinator will have to draw on key areas of expertise, e.g. access to global on-the-ground support, cultural preparation programs, and financial management systems.
In providing outsourced global expense management services, it is essential that there is a clear division of responsibility between the day-to-day operational interface with the client/assignees. There should be an experienced financial team supporting the payment processing client team.
Options for Outsourced Programs
Since global expense processing requires disbursement of substantial funds in various currencies, it is key to the management of this exposure that the funding process is controlled centrally at one location, in conjunction with a global financial institution.
There are two alternative methods of funding:
In such cases, client accounts should be set up and held securely with restricted and controlled access. The outsourced provider must work closely with internal audit functions to ensure that they are confident and comfortable with the financial control arrangements, systems, and procedures that have been set up for their accounts.
Each year a monthly budget should be established, designating the sum of money to be deposited in the client account on a monthly basis. Quarterly, this budget should be reviewed and any necessary adjustments made.
These funds then can be used to make payments within the parameters of client policy, with the detailed expenditures reported to the client's general ledger and operational cost centers/regional centers.
Payment Methodology
For security reasons, the transaction should be password protected. Data transferred must be encrypted, and only the mandated personnel should be able to authorize payments.
This ensures a high level of control, and also firmly places the responsibility for payment authorization with expatriate administrators, who must ensure that all payments are verified against policy. These expatriate administrators also should be required to seek approval from the appropriate client personnel before authorizing payments outside of policy.
Each payment must be input into the operating system and logged against an existing assignee. This ensures that:
It is imperative that the payments processing provider partners with a truly global financial institution. This ensures that:
Finally, the system's method of payment should allow payments to be made into most bank accounts worldwide and in most currencies. It should process urgent payments to third parties-especially useful in securing accommodations-and it also should have a function allowing for pre-formatted payments. This helps to avoid repetitive data entry, which is essential in making ongoing payments for rentals, club memberships, school fees, and other recurring expenses.
Finally, the system should allow for automatic transmission of those payments that have been authorized prior to the value date, so the work flow can be managed even more efficiently.
Companies must be cognizant of these guidelines for more effective global expense management.
When choosing to partner with an outsourced service provider that can manage this process, companies must be sure that the supplier has the international financial expertise to handle all aspects of the process.
Bill Thompson is a Global Account Director in our London based EMEA office. Bill is responsible for all aspects of global client service delivery and financial management for IHG. He has particular expertise in the delivery of financial management solutions to global clients.
Bill is a UK Chartered Accountant with a degree in Economics. His early career, following a period with Price Waterhouse Coopers, was in International Banking and Finance for major US banking groups. Bill has lived and worked in several European countries and he has many years of experience in the international assignment management field and speaks Italian fluently.