AppZen is using AI to audit employees' expense reports, and catching errors and fraud in the process.
Image by Andrey Popov—Getty Images/iStockphoto
By Jen Wieczner
October 30, 2018

When Wells Fargo reportedly fired or suspended more than 12 employees this past spring for doctoring meal receipts in their expense reports, Arif Janmohamed, a partner at Lightspeed Venture Partners, was hardly surprised.

“I think it was just validation,” says Janmohamed, who led a $35 million Series B funding round, announced Tuesday, in a company called AppZen, which uses artificial intelligence to audit employees’ corporate expenses. “When I was doing diligence, I not only called CFOs who were AppZen customers, I also called CFOs who were not. And categorically they all said, yes this is a problem.”

Wells Fargo is not currently a customer of AppZen, but Anant Kale, the startup’s cofounder and CEO, has a feeling the bank might be interested in that product. “After that incident, they might be a customer in the future,” he tells Fortune in an interview.

In the past year, San Jose, Calif.-based AppZen has grown from 50 customers to more than 600 today, including Amazon, Salesforce, Intuit, Citi, and more—selling a promise to save clients up to 5% of travel and expense (T&E) costs. That’s how much many companies spend reimbursing employees’ illegitimate and even fraudulent expenses today, Kale says.

AppZen has found employees who tack on HBO and other premium cable subscriptions to their monthly cellphone bill paid for by their employer, who disguise strip club visits as client meetings, or who commit “Starbucks refill fraud,” Kale says—topping off their personal Starbucks card with an extra $15 to $20 every time they expense a business meeting at the coffee chain.

Some employees purchase economy class tickets when they travel for business, in line with their company’s policy, but routinely upgrade to first class when they get to the gate, charging the upgrade fee to their corporate card. Occasionally, AppZen has caught employees trying to turn a work trip into a family vacation—on their employer’s dime. “They expense a normal car, but then we see a carseat that was also expensed, so we know they took their family out, and expensed all their meals for the entire family,” Kale adds.

In certain instances, AppZen detects an “anomaly” in the expenses of an entire department, signaling a cultural issue. At one company, “Every employee in the sales team was spending on manicures and pedicures and spas and yoga classes, you name it, in the name of customer entertainment, and the manager was just approving it,” Kale says. “Entire teams got disciplined.”

Because AppZen integrates with popular expense management software such as Concur and Chrome River, employees often aren’t even aware that it’s a machine—using AppZen’s AI—checking their expense reports instead of a human. They might notice, however, that their submissions are being audited almost instantaneously, and in some cases, being flagged and sent right back to them. After Amazon began using AppZen, it cut its expense auditing time from weeks to minutes, and reduced the number of humans needed to review reports, Kale says.

Of course, companies’ overspending on T&E isn’t entirely due to employees committing fraud or behaving maliciously. Many times it’s the result of employee error or carelessness.

One company uncovered $1 million in spending on cookies and coffee by office administrators, who were apparently unaware that their employer had nixed the refreshment budget for manager meetings, says Janmohamed, who also sits on AppZen’s board. “As a result of AppZen being in there, admins were now aware that any cookie and coffee expenses would actually be rejected as out of policy,” he says.

Endeavor, the talent agency formerly known as WME-IMG, recently began using AppZen, and hopes to not only save money, but also to root out any employees inappropriately (or potentially illegally) meeting with government officials, says Adam Feibish, Endeavor’s senior director of procurement operation. (Endeavor routinely deals with government representatives in the normal course of business, when negotiating sports deals and in hosting its Miss Universe pageants.)

With the entertainment firm spending upwards of $100 million annually on T&E, even if AppZen catches just 1% or 2% of illegitimate expenses, Endeavor will save millions of dollars, Feibish says: “That’s significant dollars.”

Note: This article has been updated to reflect that the number of minutes it takes AppZen to audit Amazon’s expense reports can vary.

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