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Recent high profile cases of apparently fraudulent expense claims may have highlighted a lack of accountability within the public sector.

More critically, it demonstrates the endemic lack of control over employee expenses across private and public sector alike.

Deviations from the norm 

While companies may have devised employee expense rules, they are rarely enforced by typically manual expense claim processes.

Organisations need to automate expense authorisation and preauthorisation, analyse trends and highlight deviations from the norm that can be further investigated to minimise fraud or curtail excessive employee spending.

Without this level of control, organisations will continue to run the risk not only of negative publicity but costly fines from HMRC reviews increasingly focused on poor expense management processes.

Taken in isolation, expense figures, however large, are meaningless. Far more relevant is the comparison with the expenses incurred by colleagues undertaking similar activity.

Without this information it is very difficult for organisations – or external audit bodies – to assess whether or not expense claims are fraudulent, excessive or justified in the line of duty.

Capture fraudulent activity 

At the heart of the problem is the endemic lack of control over expense claim processes. The majority of public and private sector organisations still use manual, often paper based, processes for submitting expense claims.

Even for those organisations claiming some degree of automation, the expense claim is simply emailed to finance department rather than sent via internal mail.

Because each expense claim is addressed individually, the finance department cannot aggregate the data and therefore has no opportunity to analyse expense claims, highlight trends in expenditure or capture fraudulent activity.

Yet the increasingly challenging economic climate is combining with growing requirements for accountability to raise awareness that organisations need to impose far greater control over employee spend.  

Whilst many companies have rules – such as maximum spend on hotel accommodation or seniority required to fly Business or First class – it is extremely difficult to refuse to reimburse an employee that has broken such rules, whether by accident or design.

Monitoring trends 

By combining workflow based expense authorisation with a tool that reflects corporate rules on expense claims, an organisation can actually enforce its policies and minimise the risk of fraud or unwitting overspend.

Indeed, using preauthorisation expense forms, a company can ensure large expenses – such as those for overseas trips – are authorised before the expense is incurred.

A company can opt for diverse strategies for highlighting expense claims that breach the policy to reflect corporate culture or employee seniority.

Should an employee attempt to input a claim that is in excess of that allowed, such as a £250 hotel bill when the limit is £200 per night, the software can be designed to respond in three ways: reject the expense claim out of hand, accept the claim but flag up the problem to both employee and finance team or simply accept the claim and email the relevant line manager of the problem.

By imposing this level of control and continually monitoring trends in expenditure, expense management software protects the employee from inadvertently running up excessive expenses.

Indeed, those organisations that have employed this software have discovered that employees begin to spend corporate resources far more effectively.

They know claims are monitored and, as a result, are far less likely to overspend, driving down annual expenditure costs by upwards of 20 per cent.

Additional cost savings are attained by analysing claims in detail, by employee or by expense type such as client entertainment or airline travel.

Clear financial benefits 

This detailed insight into trends in expenditure provides both early warning of potential fraud or overspend and a platform for refining expense policies.

Detailed understanding of spend on hotel bills, for example, across multiple chains can be used to support the creation of a discounted deal with a single hotel organisation.

In practice, such deals typically reduce annual expenditure on hotel bills by 20-25 per cent. Yet, despite these clear financial benefits, it is the spectre of the HM Revenues & Customs (HMRC) review that is driving increasing numbers of organisations towards expense management software.

Company expenses are a soft target for HMRC because it is so easy for companies to overlook tax required on personal expense payments or reclaim VAT incorrectly, especially when the employee cannot produce a valid VAT receipt.

Mistakes of this nature can, and do, result in significant fines, often in excess of £100,000. Furthermore, the process is a significant burden on the finance team.

Correct taxation policies 

While HMRC is happy to work with paper records, the time and effort required by the organisation to aggregate information is huge.

How, for example, can an organisation demonstrate that a client entertainment event did not include too many employees – which would turn it into a staff entertainment event requiring different taxation policies – without manually checking each expense claim and staff diaries?

Yet with an automated system, a simple search on the specific event will produce the entire list of staff who attended the event, demonstrating to HMRC that the correct taxation policies have been applied.

No organisation wants to find itself in the headlines as a result of employee misdemeanour.

There is a simple solution: don’t put employees into a position where they can run up huge expense claims – whether by design or not.

Negative publicity 

Corporate responsibility demands far more effective control of employee behaviour and, while most companies have devised basic rules designed to limit excessive spend, unless these rules can be effectively imposed, they deliver little or no corporate value.

Add in the growing cost – and negative publicity – associated with HMRC fines, organisations simply cannot afford to rely on the good will of employees when it comes to making expense claims.

It is only by automating the process to enforce rules, enable preauthorisation of claims and support detailed analysis of expense trends that an organisation can truly impose control over this key corporate cost centre.

Michael Sheehan is managing director of systems@work.

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