It’s probably fair to say that most businesses have resisted reacting to the hike in global supply costs for as long as possible. However, the longer it goes on, the harder it is to maintain prices at the expense of profit.
Firms are inevitably passing on some, if not all, of the increased operating costs to their customers through higher prices.
That’s not an option for some businesses that operate in particularly price-sensitive markets or produce goods that people can choose to do without. Those businesses must scrutinise their pricing decisions in forensic detail, including supply-side costs.
Factor in internal costs; not just wages and running the facility. Look at the smaller stuff, the stationery cupboard that looks like a branch of Ryman’s, Barista coffee and posh biscuits in meetings and team-building away days.
Businesses are desperate to keep experienced and skilled employees, seemingly trivial cuts can be demoralising. When staff are routinely asked to go the extra mile, does the cost of a choccy biscuit matter that much?
It could do when every penny counts.
Having trimmed all that you can, where else is there to look?
As an employer, you need to not only trust your employees to do the job but also trust them as people. It might shock you to know the scale of expense fraud committed in the UK.
Numbers speak for themselves and are shocking
According to UK industry reporting, 1 in 10 UK employees admits to submitting falsified claims ‘all the time’, while a further one in five does it ‘irregularly’.
Latest estimates suggest that UK businesses lose around £2 billion annually.
It’s not limited to the private sector.
Research by the Public Sector Fraud Authority conducted in 2022 gave insights into the potential levels of expense fraud in the public sector. Five hundred decision-makers across England, Scotland, Northern Ireland, and Wales took part in an anonymous survey. It examined expense claim behaviour from local and central government, the NHS and education. All respondents held positions of responsibility, including senior managers, chairs, and chief executives.
Participants admitted expense fraud at surprisingly high levels (Education: 31%; NHS: 40%; Civil service: 32%, General: 42%). Responses also revealed that departments do little to prevent or act against fraudulent claims. 81% of respondents claimed to understand what would count as fraud, and 84% appreciated the risks of being associated with a fraudulent claim. This suggests that the issue doesn’t seem to be down to a lack of awareness. (Civil Service World Nov ‘22)
It seems that all areas of working life are vulnerable and it would pay every organisation to tighten up on expense reimbursement fraud.
Top expense offending
- Falsifying time sheets and overtime
- Claiming for items for personal use, stationery, stamps, and groceries.
- Falsifying receipts, particularly taxi fares and meals
- Claiming reimbursement for items that never appear, such as office supplies, gifts, or where family members are entertained as clients.
- Exaggerated mileage claims, duplicating mileage (two colleagues each claim but travel in one car).
- Cancelled meetings and events are open invitations for potential fraud. Especially where it becomes apparent to an employee that no one checks whether meetings occur. Another wheeze is to claim expenses for an accompanying colleague or client who did not attend.
- Potentially embarrassing expenditure that’s not what it claims to be for…
Not necessarily fraudulent activity, but still damaging to your bottom line
Taking liberties by ordering expensive drinks, food, first-class travel etc, or ordering more than is strictly necessary.
How to minimise expense fraud within your business
- Clear written policy guidelines. Issue new employees and every existing employee with an unambiguous and up-to-date written set of guidelines. Consult with staff as to any potential areas of confusion or scenarios that are not covered, however infrequently they may occur.
- Talk about it. Make the guidelines an open topic that’s discussed without risk or implied blame. Mistakes happen, receipts go missing and people sometimes forget. Open dialogue puts everyone on the same footing and means that people ask rather than guess.
- Zero tolerance. Communicate the consequences of expense fraud. Your disciplinary policy should also cover this. Remind your employees that expense fraud is not only a threat to their job, it’s theft and will be dealt with as any other crime committed against your business.
- Accept original supporting documentation only. Original receipts, tickets, or invoices (paper or digital format) dated to correlate with the expenditure.
- Pay expense claims in arrears. If train tickets and hotel bookings can’t be made centrally, ask employees to pay for the expenses themselves and reclaim them from the company. Avoid giving out cash for an employee to spend and later account for.
- Use corporate charge cards. Useful and trackable expenditure for employees who rack up frequent expenses. Employees like corporate charge cards, as they’re not paying out for company activities. From the business perspective, they give accurate information and an audit trail.
Protect your cash flow with formal reviews, vigilance and spot checks
- Have a formal review process. Review the employees’ reports, particularly those who make regular claims. Compare one employee’s claims against another for reasonableness (e.g. two employees live close to each other but one person consistently claims the journey is five miles longer than the other. Also, two employees staying at the same hotel, compare their claims for consistency or duplication.
- Routinely question expenditures that look extraordinary or abnormal. Waiting for a larger problem to build will only be more difficult and costly to resolve later. Keep tabs on employees who have made exaggerated or ridiculous claims in the past, even if they were genuine mistakes. Spot-check mileage claims!
- Be consistent. Create a uniform format for all claims, even for smaller companies. Set up a single system, either employees pay expenditures and seek reimbursement, or the company pays expenses directly. Flip-flopping between the two could allow for duplicate reimbursement to occur.
- Cross-reference claims against corporate credit card statements. Are charges being cancelled or credited back to the account? Compare this activity to actual expense reports.
- Periodically audit a sample of employees’ expense reports. Check that they meet the company’s established guidelines.
Clamp down on expense fraud
- Deal with offenders promptly and appropriately. Nothing cleans up fraudulent expense claim behaviour quicker and more effectively than seeing a colleague marched off the premises. Conversely, staff may take liberties if cheating goes unpunished.
- Lead by example. Employees follow the actions of their supervisors or management. If travel and expense guidelines exist, everyone must follow them, including top management.
- Use the right tools. It’s worth looking into using reporting tools that will do a lot of the work for you and will show anomalies in claims. Very often it’s a leaky system that lets people get stuff through. Paper receipts can be misfiled. Back-tracking expenses and trying to recall evidence make fraud easier.
Tax position of expense reimbursement – self-employed
Expenses can be a minefield for the self-employed. What do you have to declare on your self-assessment tax return?
HMRC cover this complicated topic in one of its many guides. Here’s a link to a printable version of the complete works: https://www.gov.uk/expenses-if-youre-self-employed/print
We’re here to help if you need guidance to help protect your business from fraud
A good accountant can be invaluable in helping a business to spot expense fraud. They can also provide the evidence you need to investigate further or to prevent a genuine mistake from recurring.
Numbers tell the complete story of your business. They throw up all sorts of questions, especially the numbers that look inconsistent, out of context or plain fantastical!
We look after your numbers so you look after your business.
Contact us for a free, no-nonsense chat on 01482 631700 or use our contact form https://www.rackhamsaccountants.co.uk/contact-the-team/
