16 October, etc.venues Monument
30 October, JW Marriott Grosvenor House
1st November 2023, etc.venues County Hall
ALMOST ONE IN FIVE PEOPLE working in the private sector has made a false expenses claim in the past, according to recent research. The same study found that one in nine had thought about doing so but didn’t think they would get away with it.
The study, for expense management automation company Concur, also found that those working in the public sector were even more likely (22.1 per cent) to have made a false claim.
It reaches to the very top of the public sector, too. Who can forget that MPs Elliot Morley, David Chaytor, Jim Devine and Eric Illsley have all spent or are spending time at Her Majesty’s Pleasure because they cheated on their expenses.
The scandal brought intense public scrutiny to parliamentarians’ expenditure on items such as duck houses, moat cleaning, “luxury” beds and flagpoles. MPs argued that if it was not specifically forbidden by the expenses policy governing the Houses of Parliament then it was fair game.
If our lawmakers can’t keep their fingers out of the till, what can hardworking owners of small and medium enterprises and the shareholders of larger companies hope to do about the problems of fraud, waste and abuse?
At a recent travel conference, Sabre Travel Network vice-president Duane Futch defined fraud, waste and abuse and showed how various technologies could be used to combat them.
Expense management company Concur classifies fraud as either intentional or unintentional. The company’s senior vice-president EMEA, Isabel Montesdeoca, says: “Fraud continues to be a huge topic and there is a lot in the news about bribery and corruption. It is the everyday element that Concur can help with – the lunches or the gift here or there that has been going unnoticed – and it can track employees who are attending these entertainment events to retain visibility of the cost.”
Montesdeoca has a view on the intentional fraudsters. “A lot of people are hardworking employees but sometimes they end up feeling there is something owed to them; I would hesitate to put MPs in that category, but perhaps the salary they were given was insufficient,” she laughs. “But every employee loses a receipt here or there, and they submit another one in its place because it is ‘owed’ to them.”
Expense management systems can also help root out excessive spend, such as a flight in a higher cabin class than the travel and expense policy allows, meals which involve attendees such as spouses, and children who should not be there.
“Concur’s tools [and others] can help address anything that is above the norm, enabling the manager and auditors to see problems very easily,” Montesdeoca says.
The unintentional side of fraud covers, for example, the accidental submission of duplicate claims. Montesdeoca says: “We ran some focus groups with both business owners and frequent business travellers who shared stories of how they dealt with receipts: they were shoved in pockets, glove compartments or any number of envelopes. What came through to me was that they all lead busy lives and are inherently suffering from overload.”
Duplicate claims can arise because the receipt is claimed once and then the entry on the credit card statement a month or two later prompts another claim. Systems like Concur can see where the same amount is claimed on the same date for the same company and steers the employee away from unintentional fraud.
Accountability has joined saving money as a key driver for corporations during the slow, faltering climb out of recession. “Our research shows that controlling costs was in first place, but because [corporations] are now controlling them, the issue has swapped places with accountability,” says Montesdeoca.
There has been a noticeable tightening up of expense culture, according to Adam Smith, commercial director of expense management at Meridian Global Services. “One thing we have noticed over the last six months to a year is that companies are warning their employees less about inaccurate claims and just telling them they may not submit the claim or expect for it not to be paid,” he says.
“For example, many companies have per diems you are allowed to spend on meals. If someone spends £22 and the limit is £20 they are now getting blocked. It is not fraud or abuse precisely but there are a lot tighter controls in place to make sure people are adhering to policy.”
Smith says fraudulent claims are often more prevalent in companies using corporate cards that are paid by the company rather than the individual.
“When cards are corporate paid, there is little incentive for an individual to submit an expense claim. The employees don’t need to do anything as they are not out of pocket so they don’t submit the receipts,” he says.
But things are changing. “In some companies, if someone is not submitting supporting documentation they are switching off the ability for those employees to submit out-of-pocket expenses. It puts a lot more emphasis on them providing all the supporting documentation,” says Smith.
Some firms are getting even more draconian. “A few companies switch off the email for people not providing the necessary receipts – that soon gets them submitting things,” he says.
For companies, carrying out an audit of expense claims is the best way of beating fraud. Meridian’s Adam Smith says that it audits 100 per cent of receipts for around half of its clients.
He says: “Some companies say it will cost us more to audit than we will identify. For those that audit a certain percentage, say 50 per cent, we have a dynamic process that changes which 50 per cent is audited rather than just doing a standard sample.
Our technology allows us to be a bit more forensic with that 50 per cent. You might look at every claim that has a line item over a certain value or any line item with business entertainment. Sometimes there might be a focus on a certain entity or a certain country. You can also set it so there is a degree of randomness or set rules to ensure that each individual is audited at least once in every three claims they submit.”
Many people argue that it is human nature to fiddle. If there is a loophole in an expenses policy to be found, employees will be sure to find it – the MPs’ expenses scandal is a stark reminder of that. Yet the increasing power of expense management technology means that those loopholes are going to become harder and harder to find.
THE BRIBERY ACT came into force on July 1, 2011 and aims to combat bribery in the UK and on the international stage. It covers UK citizens, residents and companies established under UK law as well as foreign companies doing business in the UK.
The act strengthens existing bribery legislation and creates the four following offences: active bribery – promising or giving a financial or other advantage; passive bribery – agreeing to receive or accepting a financial or other advantage; bribery of foreign public officials; and the failure of commercial organisations to prevent bribery by an associated person (corporate offence). Anyone convicted under the Act faces up to 10 years in prison and an unlimited fine.
The Act is clear about what is allowed – it expects individuals to behave in a way that “a reasonable person in the UK would expect in relation to the performance of the type of function or activity concerned”. The legislation is wide ranging in covering bribery overseas. Local custom and practice are specifically ruled out, except where this is enshrined in the law of the country concerned.
But what actually constitutes a bribe? The act says a bribe occurs when “a person offers, directly or through a third party, promises or gives any financial or other advantage”. Many were concerned that this wording meant that traditional methods of doing business, taking potential contacts our for lunch or furnishing them with hospitality, would be made illegal. However guidance issued by the Ministry of Justice (www. justice.gov.uk/guidance/ docs/bribery-act-2010- guidance.pdf) calmed companies’ fears.
On this area specifically, the guidance says: “Bona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour.” It goes on to say that hospitality should be “reasonable and proportionate”. The guidance also gives a number of examples of what would be considered inappropriate.
One example cited is “supplementing information provided to a foreign public official on a commercial organisation’s background, track record and expertise in providing private health care with an offer of ordinary travel and lodgings, to enable a visit to a hospital run by the commercial organisation”.
It says this is unlikely to fall foul of the Act. However, it adds, “the provision by that same commercial organisation of a five-star holiday for the foreign public official which is unrelated to a demonstration of the organisation’s services is, all things being equal, far more likely to raise the necessary inference”.
Announcing the guidlines, Justice Secretary Kenneth Clarke said: “The guidance makes clear that no one is going to try to stop businesses getting to know their clients by taking them to events like Wimbledon, Twickenham or the Grand Prix. Reasonable hospitality to meet, network and improve relationships with customers is a normal part of business.”
A recent report into the Bribery Act by hotel booking agency BSI (www. bit.ly/bsibribery) said that companies should “ensure expense approval procedures are robust and transparent”.
It is something that Robert Kirby, CEO of expense management company Spendvision, agrees with. “The line between ‘appropriate’ and ‘excessive’ expenditure on a prospect or client is blurred at the best of times, but the final guidance on the Bribery Act has turned the spotlight on the need for even greater transparency into how businesses spend money, especially in the minefield of corporate hospitality,” he says.
“However, it can be very difficult for organisations to keep track of the payments made by employees while they’re out entertaining clients. To overcome this, employees must be able to easily demonstrate compliance by logging their expenses as they accrue.
This would significantly reduce the risk of error and enable chief financial officers to quickly identify expenses as and when legislators get heavy-handed.”
THE SARBANESOXLEY (SOX) ACT was signed into US law by President George W Bush in 2002 and is named after the two US politicians who sponsored the legislation.
The Act came about as a result of the Enron and WorldCom scandals and put in place much stricter laws for corporate governance.
The act included a ban on auditors acting for listed companies from doing work at the same time as providing accountancy services for the same firm, and limiting the number of consecutive years for which they could work for companies to five.
The Act also put the onus on chief executives and chief financial officers to implement internal controls to combat fraud and dramatically increased the penalties for fraud.
Executives suddenly faced $5 million fines and the prospect of up to 20 years in prison for failing to keep track of the activities of their employees.
This insistence on internal controls, backed up by the huge fines and risk of jail, means that many big companies have implemented much stricter expense management policies in their organisations in order to track employee expenditure.