Keep control of employees' expenses claims
David Vine, September 15, 2010
HR directors can have a significant impact on businesses' second largest controllable cost.
No, I’m not talking about salaries. Employee expenses is a significant cost to most businesses and in the majority of cases it is badly managed and poorly controlled. Businesses and organisations are waking up to the fact that in these austere times their expenses system could be leaking much-needed cash and are turning to HR directors to devise and implement stricter policies.
But it’s not as simple as reducing the amount an employee can spend on a hotel room in Birmingham by £10, or cutting the client entertainment budget. For a start these types of claims are incurred as a result of doing business – and companies want to encourage more business. The main problem with expenses policies is not the value of the individual claims, but the clarity of the policy and training of those whose job it is to implement it.
In 2009 more than £8.8 billion was paid out by UK organisations to reimburse their employees for expenses incurred – but around £2.1 billion of this should not have been paid as it was for fiddled and ‘out-of-policy’ expenses. Approximately 11% of all approved expenses claims do not comply with company policy. This figure rises to 20% of all hotel claims and 29% of entertainment claims.
The majority of employees who make out-of-policy claims do so because they are genuinely confused about the rules. They certainly don’t understand that quite apart from not being company policy, some expenses types also incur a PAYE liability, usually paid for by the employer.
In a recent GlobalExpense survey conducted by YouGov, less than half of the employees questioned said their employer has a written expenses policy. A clear expenses policy that ensures employees understand exactly what they can and cannot claim, written in clear English and easily accessible to employees for reference, such as on the intranet, is the first step to cutting expenses costs.
Induction training for new joiners and signing a declaration as part of the employee contract to the effect that the employee will abide by the expenses rules are other ways of both communicating the importance of the policy as well as its contents.
No matter how well worded the expenses policy, if managers or directors with approval authority continue to sign-off out-of-policy expenses it is worthless. In the same YouGov survey, 77% said their employer had never queried or rejected an expenses claim. Those responsible for authorising expenses claims need to be appropriately trained and supported so that they feel able to query and reject suspect claims and enforce the need for receipts.
Our research reveals more than a third (36%) think it is acceptable for an employee to fiddle their expenses if their employer takes a long time to reimburse them, and 71% agree it is acceptable to submit fraudulent claims if not all of the employee’s costs are reimbursed by the employer. Fairness and fraud are linked. It seems that if employees feel hard done by then they will submit fraudulent claims to rectify the perceived unfairness.
Employee expenses policies need to be fair and realistic. Reducing the hotel room night spending limit in the UK to £80 may be generous in Plymouth but harsh in London. The policy must reflect the geographic and economic circumstances of where expenses are incurred. Expenses policies may also include different levels of spending authority based on the role of the employee and the sometime differing business requirements. While it’s important to make sure expenses spending is not excessive, unreasonably strict policies will only encourage employees to find other ways to recompense themselves.
Analysis of expenses spending data can be used to constantly review the policy to make it as fair and as up-to-date as possible, but it will only be effective if expenses policy categories are distinct and cover relevant expenses claims that employees may need to make. Otherwise companies run the risk of employees making lots of claims under general categories such as sundries – an expense type against which VAT can’t typically be claimed and which may be used to hide out-of-policy expenses.
Encouraging authorisers to approve expenses claims promptly, and staff to claim more regularly, not only cuts down on the risk of fiddling from disgruntled employees, but can also help ease the business’s cash flow.
Salary and promotion freezes, reduced working hours, smaller bonuses and threat of redundancy mean there are plenty of reasons for an employee to feel aggrieved. A consistent, transparent and fair employee expenses system can go a long way towards not only cutting the second largest controllable cost in your organisation, but also reducing the ability for certain employees to right perceived wrongs via the expenses system.
David Vine is CEO of employee expenses management company, GlobalExpense.