If you read nothing else, read this…
• Many people believe it is acceptable for an employee to fiddle or exaggerate expenses when they work long hours but are not paid overtime.
• Corporate policies allowing senior staff to claim for first-class travel reinforce aculture of expenses as benefits.
• The Bribery Act 2010 highlights the reimbursement of hospitality expenses to employees as a potential area for fraud, so employers should be vigilant when dealing with such claims.
Case study: Honister watches the numbers on staff expenses
Honister Capital is a private investment company that employs the biggest group of independently-managed financial advisers in the UK. Operating in a Financial Services Authority-regulated environment means all of its systems and processes must be compliant, so Honister has an extensive policy on what employees can claim as expenses.
The organisation deals with an average of 130 individual expenses claims a month, and its directors each use a corporate credit card. Until recently, all expenses were processed manually on an Excel spreadsheet, a system that was prone to errors and lost data, resulting in payment delays and sometimes incorrect payments.
A lot of time was wasted checking claims, splitting out the VAT and re-inputting data. Dealing with this antiquated expenses system was a priority for Ken Wotherspoon when he joined Honister as group cost accountant. He was involved in selecting the WebExpenses software system as a replacement.
Introducing a modern, web-based expenses management system has cut the amount of time Honister spends on processing expenses from two weeks to two days a month, including payment of expenses. This gave Wotherspoon enough time to analyse the data and prepare information for the board.
Previously, this management information was collated in a different way each month, with no continuity. The new system is interrogative, and it is now possible to select a whole year’s worth of claims for an individual employee, analysed by expenses codes, such as mileage.
This more sophisticated expenses package also enables the organisation to control and enforce its claims policy in a transparent way. For example, car mileage claims are now more accurate because a verification tool provided in the software uses postcode data to provide precise distance calculations for every business journey, instead of relying on employees’ rough estimates of the most direct route, as was previously the case.
The standardised, menu-driven system creates a level playing field, removing human subjectivity from the process and enforcing the same expenses policy for all employees, including the directors, says Wotherspoon.
The software captures data from the company credit card, red-flags non-compliant claims, plus it can be tailored according to different company policies. Audit trails, stored via cloud computing, are strong, and ethical policies can be enforced while employees are on the move.
Smart phone applications enable employees to use cameras to enter claims and receipts, which means Honister’s finance director can monitor global employee spending patterns centrally and in real time.
Employers have financial and legal reasons to make sure employees do not fiddle their expenses, says Sarah Silcox
One in five people believes it is acceptable to fiddle or exaggerate expenses when an employee works long hours but is not paid overtime, according to the survey Expenses benchmark report 2012 by expenses management firm Concur Technologies, which polled 2,000 adults in January.
A similar proportion believe staff are entitled to inflate claims if they do not feel they are fully reimbursed for all the costs they have incurred on behalf of their employer.
The survey also found that young workers are most at ease with the idea of inflating expenses claims, with almost 30% of 18 to 24-year-olds believing it is acceptable to exaggerate claims, compared with 15% of older workers. David Vine, senior director of Concur Technologies, says: “It is still disappointing to see attitudes towards expense fiddling remain so casual. The data shows businesses cannot afford to take their eye off the ball.”
The research also suggests that some employees consider expenses to be an entitlement, or even a benefit. Sanjay Parekh, managing director of expenses solutions firm WebExpenses, suggests some corporate policies reinforce a culture of expenses as benefits by allowing senior staff to claim for first-class travel. A lack of robust expenses policies and ongoing monitoring of claims compounds the issue, he says.
However, Parekh reports a move by employers to tighten up expenses policies in the past 18 months, driven primarily by the need to control costs. This contrasts with the heady pre-2008 days when expenses were a relative free-for-all for all levels of employee, he says. “It is harder to grow your revenue line these days, and controlling expenses can shave 2% off total costs, with a feed through to profits.”
Bribery Act drives change
The Bribery Act 2010 is set to be the biggest driver of change in employers’ expense policies. The legislation highlights the reimbursement of hospitality expenses to employees as a potential area for fraud, stressing that such expenses should be reasonable and proportionate to avoid triggering interest from investigating authorities. Andrew Yuille, head of marketing at risk information specialist WorldCheck, says employers will have to scrutinise expenses from a compliance perspective, and introduce adequate procedures to prevent excess hospitality claims.
Of course, a management system will never stop rogue individuals, but it will enable an employer to show it has taken steps to manage the risk. “If a culture of excessive entertaining survives, organisations need to ask why, and put robust procedures and training in place,” says Yuille. “Most large employers check expenses from a cost-control perspective, but will have to look at them from a compliance one as a result of the Bribery Act. In signing off expenses, organisations will need to have a compliance oversight, so systems and procedures need to have the capacity to flag up unusual claims.”
Lawyers are finding employers keen to re-examine their policies on bribery and, crucially, to cross-refer these with their expenses policy. Lucy Rhodes, a paralegal at Bates Wells and Braithwaite, says cash bribes are often hidden in expenses claims, so employers need clear, cross-referring expenses policies with built-in safeguards, such as an upper limit on hospitality claims. Verification needs to be tight and sanctions for transgressors must be visible and well communicated, she says.
“Corporate email policies should give organisations the right to search employees’ accounts as part of an investigation if fraud or bribery is suspected,” adds Rhodes.
Top tips for reforming an expenses policy
Review policies and tighten up on implementation. To be able to deal with inflated claims, it is crucial to first know they are inflated, so expenses policies must clearly state what can and cannot be claimed and then be reviewed regularly.
Caps should be introduced for the maximum amount that can be claimed for particular items. For example, some organisations are reducing the maximum amount employees can claim for hotel accommodation on business travel.
The process for verifying claims should be strengthened. For example, some employers are using more sophisticated tools to obtain a more accurate picture of mileage expense claims.
A zero-tolerance or one-strike policy should be implemented for employees who breach the policy. Organisations must spell out the consequences of inflating claims, and be seen to enforce them. Top tips for reforming an expenses policy
Source: Concur WebExpenses
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