The accuracy of employee expense claims probably isn’t a great concern for most HR managers, but new research suggests this is an issue that should be taken more seriously. Nick Martindale reports.
According to a survey of blue-chip companies and government agencies by software firm Software Europe, almost 5% of all submissions are fraudulent; either totally fictitious or exaggerated. Such claims account for a staggering £151.5m of the £3.1bn that employees claim back each year.
Many companies do not have a formal policy outlining what can and cannot be claimed for, and responsibility for policing any spurious claims often falls between line managers, HR and the accounts department. Even the CIPD admits it has done little research into the issue and is unaware of just how many companies have processes in place to prevent fraud.
International wine and spirits retailer Pernod Ricard realised it needed to introduce a formal expenses policy when it underwent a period of rapid growth 18 months ago and seriously cracks down on any employee who can be proved to have breached that. “The more people you employ, the bigger the potential for this is,” says the firm’s HR director Pam Rowan, who also urges line managers to lead by example when submitting their own expense claims.
Graham White, head of HR at Surrey County Council, also believes HR has a vital role to play as the link between processes and people. As well as introducing manual checking and using technology to eliminate genuine errors, he believes HR needs to foster an environment where staff wouldn’t even think of defrauding their employer.
“If an employer is surprised that staff don’t show respect and responsibility, maybe it should look at its own integrity,” he says. “It’s almost as bad to know that it’s happening and do nothing about it as it is to be doing it in the first place.”
The repercussions of failing to keep track of employee expenses go beyond companies handing over money unnecessarily and having to endure a culture of deception.
Firms subject to tax audits that cannot provide receipts for expenses will find themselves unable to deduct VAT paid on staff purchases from their total VAT bill, while any unaccounted payments to employees will be classed as benefits in kind, meaning they are subject to both tax and national insurance. The survey cites one company that was hit by a £150,000 tax bill because expense claims submitted by staff were so vague that they were all classed in this way.
And following the changes to accounting regulations under the Sarbanes-Oxley Act, any company listed on the US stock market or which has adopted the regulations over here is under even greater pressure to account for exactly where every penny has gone, says Rowan.
Charles Cotton, rewards adviser at the CIPD, believes dubious expense claims could have a major impact in the allocation of budget to certain departments and could even affect a business’ overall performance. “In some industries claims can add up to quite a significant amount of money,” he warns.