Managing expenses: trade secrets

Recent public sector scandals have brought expense management into the spotlight. So what’s the best way to ensure your organisation doesn’t get ripped off?

More than 50 MPs have reportedly laid-off members of staff following the expenses scandal surrounding Tory MP, Derek Conway, who used his expenses to employ two of his sons as researchers earlier this year. Soon after, House of Commons Speaker, Michael Martin, was also accused of abusing his expenses.

But its not just politicians that are in the hot seat over their expense habits. Over the past few months we have seen a trainee from accountancy firm, PricewaterhouseCoopers prosecuted for expenses fraud, the Metropolitan Police Force accused of abusing their credit cards, and the auditor general forced to retire over his ‘luxury’ expense claims.

Avoiding scandal

A lax attitude to employee expenses can result in public scandal and damage the reputations of individual directors as well as that of their employers. In many cases, these organisations are reaping the results of their own poor practice.

UK businesses paid out approximately £5.8bn in employee expenses in 2007, of which as much as £1.02bn could be for false and out-of-policy expense claims, according to our research.

British businesses are being ripped-off to the tune of about £350m in fraudulent expense claims, with an additional £671m paid to employees for expense claims that fall outside company policy, some of which should never have been paid.

Corporate expense policies are being widely and routinely ignored. Around 12% of all employee expense claims are outside of their organisation’s corporate policy, yet only 0.5% of claims are rejected by managers. Nearly a quarter of hotel bill claims are not within corporate policy, nor are nearly one in six entertainment claims.

Why it’s important

With 2008 expected to be a year when business profits come under severe pressure, ensuring corporate expenses policies are followed is something that will have a big effect on a company’s bottom line. Yet employers are literally throwing away money hand over fist by failing to properly check employee expense claims.

Of course, not all out-of-policy expenses are phoney, after all it may be that an employee has overstepped the spending limit by one pound or failed to produce a valid receipt. However, according to research conducted by YouGov on behalf of GlobalExpense, more than five million people – or 30% of all employees who claim, or have claimed employee expenses in the past – admit to exaggerating their expenses.

A third (34%) of Britons think it’s acceptable to exaggerate work expenses compared with a quarter (25%) six years ago. That represents an increase of 36%.

Fiddling expenses, it seems, has become part of the business culture.

The fact that expense claims are rarely checked means businesses and organisations are unlikely to find out if they have a culture of accepted expense fiddling unless they make some changes.

Building a fair policy

Sometimes company expense policies are simply unrealistic and it is for that reason that approved claims are so often ‘out of policy’. However, in the majority of cases a company’s expenses policy is not followed either because people are unaware of it or because managers don’t agree with it and so do not enforce it.

If managers don’t apply and enforce the company expenses policy the system falls down. Even with an automated system, the computer will only record that a claim is out of policy, but it can still be approved for payment by the manager.

Potential pitfalls

To cut down on employee expense abuses, organisations need to make sure that the employee making an expense claim and the manager whose role it is to approve the claim are properly trained, or at least have access to help. Ask the following:

  • Do staff that claim employee expenses and their managers – whether using an internal manual, paper-based system, software solution, or external provider – know what items qualify as a business expense?
  • Do they know what counts under the categories and expense types?
  • Do they keep receipts and supporting information such as: who, when, where, and why they met a client for lunch?

Managers may be aware that certain expenses are not justified but will approve them anyway in an attempt to compensate an employee because they may have been ‘working hard at the moment’, or been ‘away from home a lot recently’. Although it seems harmless, it sets a bad precedent and reinforces the expense-fiddling culture which can lead to more serious and systematic fraud.

HR also needs to understand what it is that stops line managers from processing expense claims more accurately to be in a position to remove these barriers. It may be that the manager is frequently out of the office, or is regularly snowed-under with work as a result of staff shortages. Simple steps might include transferring the burden onto other line managers, or giving greater responsibility to junior managers for smaller expense claims.

Ultimately, employees need to be better informed about the organisation’s expense claim rules and these should then be enforced. If the need to change is not seen as sufficiently strong, managers and staff will continue to consider fiddling as a perk of job and it will become engrained in the culture of the organisation.

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