How To Conduct a Deep Audit of Expenses

Glean AI Founder and CEO, Howard Katzenberg’s, step-by-step guide.




I’ll be the first to admit that manual expense auditing is not exactly a pleasant topic — to read about or to write about. But as a seasoned finance professional who has weathered more than my share of storms, I can say that this topic is both timely and important given current market conditions and uncertainty about the future. So, let’s jump right in.

The Why

In turbulent times, companies face increased pressure to reduce their burn rates. In order to accomplish this, finance professionals typically look to the two areas that fall within their direct control: headcount spend and third-party spend.


Headcount Spend

When evaluating headcount spend, one must objectively examine each role within the organization: Are there under performers? Did you hire a bunch of people too quickly? Were you overzealous in hiring for a particular department that hasn’t grown as quickly as projected? This type of close scrutiny can not only help identify ways to save money, but can also help you ‘right size’ your company given the new market conditions.


Third-Party Spend

Next, is third-party spend, meaning the money being spent each month on vendors who supply products and services to your company. This is often where a manual audit becomes necessary, because savings opportunities are not easily identified from just a P&L statement. If you do not have a system in place that centrally tracks and stores all vendor invoices, contracts, and spend history, then documents must be pulled and analyzed one by one. Below is a step-by-step guide on how to do this.


STEP 1: Discovery

First, identify your top 20 vendors over the last 12 months. You should be able to pull this information easily from your GL system. For each vendor, print out all of their invoices and bills over the last 6 months, and analyze them on a spreadsheet. You are looking for changes in total spend, new items purchased, changes in unit pricing, monthly vs. annual billing, and any other relevant changes you may find.

Next, for each vendor you will:


  1. Find the person within your company who is responsible for this relationship (i.e., whose budget does it fall under?). For example, seven of the vendors might go to your Head of Engineering, four might go to the head of Marketing, etc. You are separating the vendors by person because, ultimately, you will be sitting down with each individual to ask a series of questions to help you better understand your company’s relationships with their vendors.

  2. Arrange sit-downs with each of the internal people you have identified in (a) above. These are not questions to be answered by email; I would urge you to not take this shortcut. During this face-to-face (or Zoom) meeting, you should ask the following questions:

  • “Do we still need this relationship?” If they say no, great, you’ve just found savings. If they say yes, ask why.

  • “What value is this vendor creating for our company?”

  • “What is the metric on our company’s P&L that moves because of our relationship with this vendor?” Or how do they reduce our risk as a company?

  • “How does this vendor generate value / ROI for us? What metrics can you point to to demonstrate that?

Next, you want to get into the figures of the vendor spend. The following questions will help guide you:

  • “Do these invoices align with our agreements (MSAs, SOWs, POs, etc.) with this vendor?”

  • “Our consumption of this product/service has increased x% since last year. Why?”

  • “These new items have been added to our invoicing since last year. Why?”

  • “Do we pay any overage fees or penalties that we should be aware of?”

  • “When was the last time you negotiated pricing?”

Finally, you want to get an idea of priorities, therefore pose this final question:

  • “If we had to find x% in savings overall in our budget, where would you recommend it come from?” This question gets budget owners thinking more deeply about trimming fat and just may trigger a shift in their perception of each vendor’s value-add.

STEP 2: Dialing for Dollars

Armed with the information you’ve gathered in Step 1, pick up the phone and start negotiating. Regardless of the amount of leverage you feel you have in a vendor relationship, you should always ask for some type of deal or discount. The worst outcome is a no, and the reality is that vendors do not want to lose business, especially in an economic downturn. A vendor who previously seemed inflexible on pricing may be willing to sharpen their proverbial pencil in order to keep you happy.


Also, embolden yourself to say ‘no’ to pricing proposals or renewals. Blame the CFO, CEO, or anyone else in management, and tell the vendor that your hands are tied unless you can reach your desired price point. By shifting blame to others, you’re able to remain on friendly terms with vendors even while negotiating.


Lastly, ask to extend payment terms with all your vendors. You can improve your working capital cycles by 50% by paying vendors on a Net 45 basis vs Net 30, for instance. For your top 20 vendors, it’s likely that extending your payment terms an extra 15 days is immaterial to their business, whereas it could be very material for yours.


Rinse and Repeat

Once you have completed Steps 1 & 2 for your top 20 vendors, move on to the next 20. By this point, you’ll have had some successes and your negotiating skills will be on point. Even better, you’ll be able to use your gains as leverage (e.g., “Our other vendor offering this same service has agreed to Net 45 terms, we are hoping you will agree as well”). You may wish to continue the process until every vendor on your books has been analyzed and contacted.


Glean AI: Born from a manual audit

Manual audits are slow, frustrating, and prone to errors. Often, there is also time pressure to finish the audit quickly so action can be taken right away. This causes employees to rush through tasks, which creates even more chances to miss savings opportunities or make errors.


Overall, it is a reactive, painful, exercise. So painful, in fact, that I founded a company because of it! My idea to start Glean AI was born from a manual audit I had to conduct at my former employer. Because we had no good data source to examine our spend, we ended up printing invoices, cobbling together Excel spreadsheets, and shuffling papers for days trying to get better control over our spend. The entire process made no sense given that we were already using bill.com, but alas, comprehensive analytics were impossible. And so, the idea for Glean AI was born.


Make this manual audit your last

With a strategic spend intelligence tool like Glean AI, manual audits aren’t necessary — this is because Glean AI does all of the analysis and reporting every single day. In other words, all of this information is available at the click of a button whenever you need it.


Questions like, Why did this invoice go up? Why did our consumption go down? When can we next negotiate pricing?, are already answered and available to you. And best of all, a tool like Glean AI facilitates team collaboration which means everyone sees billing coming in, in real time, creating an environment of transparency and proactive financial management.


ACTION STEPS

Here are two action steps you can take right now to start building a culture of healthy spend accountability at your company.


1 - Set up a procurement process

Create a procurement document that asks vendor-related questions before your company enters into a relationship with them. For example, ask for an explanation as to why this new expenditure is needed and what the value is supposed to be before you start spending money on it. Also, solicit spend expectations so when invoices are received, they can align with a budget.


Finally, ensure that invoices and receipts are being properly routed. Use email aliases religiously to ensure no paperwork goes missing (ap@yourcompany.com for all invoices that need to be paid; receipts@yourcompany.com for all receipts already paid via credit card or another means).


2 – Consider a quality spend intelligence tool

With advanced tools on the market like Glean AI, there is no reason to suffer through paper audits ever again. Even if you are a start-up or processing a small number of invoices, Glean AI’s tiered pricing makes it easy and affordable. If you are interested in seeing Glean AI in action, feel free to book at demo with us.

My experience has taught me that being aware of — and in control of — company spend during an economic downturn is an excellent way to weather the storm. And to leave you on a positive high note, don’t forget that "Even in the midst of the storm, the sun is still shining."


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