Expenses in the Spotlight
Staff expenses
in the spotlight
The year 2009 will be remembered for the furore over MPs' expenses. But, as
Alex Blyth reports, people in your business could be getting away with dodgy expense claims too
OVER THE PAST FEW MONTHS THE UK's MEDIA has been filled with people damning MP's for their alleged misdemeanours over expenses payments. We all watched, appalled, as revelation followed revelation about duck houses, moats and flatscreen televisions. Yet, few of us are aware that the problem of inaccurate and fraudulent expenses claims is not limited to parliament – it is, in fact, rife in the business world.
According to the 2009 GlobalExpense Survey, 11 per cent of all employee expense claims – around £923 million – should never be paid because the items purchased are not covered by company policy, but managers approve the payments anyway. On top of this, an estimated £1.08 billion fiddled expense claims are wrongly approved for payment. That is a total of £2 billion that UK businesses are losing in expenses payments. It dwarfs the events at Westminster.
For many employees, this is just how things are done. For small businesses, however, it is a major and unnecessary cost – and, at this time of economic hardship, when most businesses are looking to reduce expenditure any way they can, this ought to be a priority. There are some simple steps that every SME owner-manager can and should take to minimise these inaccurate or fraudulent expenses payments.
Screen Staff
The first step towards reducing the number of fraudulent expenses claims your business faces is to screen all staff before hiring them. Steve Bailey, head of employment screening at security firm G4S and founder of the National Association of Professional Background Screeners, says: ‘There are numerous examples of companies, both small and large, that have been taken to breaking point by these fraudsters.'
He continues: ‘Business owners need to start screening all staff before hiring them. This should be done with the applicant's consent, and that alone can act as a strong deterrent. Too many business owners expect they'll have to pay a lot of money for it and so ignore all these warnings. In fact, this sort of background screening can often be done at little or no cost. Finally, remember to also screen temps and supply staff.'
Develop a policy
The next step ought to be to develop and communicate a clear policy on expenses payments. Gillian Dowling, employment technical consultant at HR advisers Croner, offers this advice: ‘Most businesses need to have a written policy on expenses, setting out clearly what staff can claim and what is not allowed. The policy should cover the details of the costs to be covered, such as second class or economy travel, business mileage, whether taxis can be claimed for, and grades of hotel to be used. It's also common for maximum levels to be set for meal allowances.'
She continues: ‘Expenses must be wholly and exclusively incurred for business purposes. Separate details should cover entertaining clients. Employees should also know in advance how to make the claims, how to complete the form, and that receipts are needed. A firm needs to decide what to do if receipts are not produced. The policy should be given to employees at the start of their employment, and be easily available for all employees to access.'
Guy Hollebon, director and head of employment at Bevans Solicitors, agrees: ‘Employers must have a clear policy on expenses that provides for any expense claim to be supported by appropriate receipts and evidence. It should be clear in the policy who has the authority to approve expenses, and this must be monitored by accounts or senior management. To avoid the need to bring a fullblown court claim to recover overpaid expenses, there should also be a contractual right to deduct any overpaid expenses from an employee's salary.'
Focus on danger areas
Once you have reassured yourself that your staff members have no record of fraud, and you have compiled and disseminated your expenses policy, you need to keep a close eye on three areas.
Firstly, watch claims for mileage. According to GlobalExpense, around 40 per cent of mileage claims do not have a receipt. This is up from 25 per cent in 2006. As a consequence, companies with high mileage costs are missing out on thousands of pounds of recoverable VAT.
Secondly, cut out luxury travel. Only about eight per cent of flights were business class – but these tickets accounted for nearly 40 per cent of costs. Clear savings can be made by travelling economy or by budget airline. Furthermore, the vast majority of flights bought by employees were for other UK destinations, where going by car would be a cheaper alternative especially if more than one person is travelling.
Thirdly, monitor big spenders. Almost 30 per cent of employees received more than £1,500 in expenses in 2008 and 15 per cent of individual claims were for £100 or more. GlobalExpense research shows that 30 per cent of employees think it is fine to exaggerate expense claims. Companies should identify who the big claimers are and make sure that large claims are scrutinised particularly closely.
Automate the system
Many larger companies are able to cut down on fraud and inaccuracy in expenses payments by automating the system. They pay a subscription to a provider of an online service where their employees can input claims, managers can approve them, and the entire transaction is logged for future reference. These systems can be expensive – but in recent months prices have been falling, and it is now possible to buy in a system for as little as £5 per person per month.
Neil Robertson, chief executive of one such provider, Compleat Software, points out that – aside from any reductions in fraudulent and mistaken claims – this can cut the time and resource devoted to processing expenses claims.
He explains: ‘If each expense claim takes 45 minutes to produce, five minutes to approve and 30 minutes for accounts to check, code and post, that is one hour and 20 minutes per claim per person, per month. So, if staff cost an average of £40,000 per year, each expenses claim costs about £28 to process. Twenty staff claiming every month is costing the business more than £6,700 a year. Automating this will reduce costs by at least 40 per cent.'
Be fair
Finally, you should ensure that you are entirely fair to the vast majority of employees, who are scrupulously honest and accurate with their claims. David Vine, managing director at GlobalExpense, says: ‘If you nit-pick over small amounts, and if you take too long to pay staff, you will engender resentment among your staff and develop a culture where this sort of
fraud is acceptable. So, be fair. Don't insist on receipts for small amounts and make sure you reimburse employees within a week – and ideally more rapidly.'
There is then much to think about when tackling this issue of inaccurate and fraudulent expenses claims. It is, though, worth addressing the problem – and, with the issue so much in the news, there has never been a better time to do so.
As Pam Loch, a solicitor at employment law practice Loch Associates, concludes: ‘Media attention on expense claims by MPs should have drawn employees' attention to their own expenses. Those who may have considered making a fraudulent claim
in the past may think again as they may now fear the consequences of being caught.'
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