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FD Roundtable: Must expenses be expensive?

ONE business cost that is frequently overlooked is employee travel and entertainment expenses. In most organisations, they are the second-highest controllable annual expense – only salaries and benefits are higher. However, many finance functions are processing T&E expenses, rather than managing them

Concur estimates that in 2012 UK companies paid out £8.2bn in employee expenses, while a poll of finance directors conducted by Financial Director and Concur found that 65% of finance functions use fully manual processes to do expenses. Additionally, more than half of senior finance managers are still using spreadsheets.

This is problematic. Without control and visibility into travel and entertainment spend, finance departments are stymied in their ability to report accurately both internally and externally to the likes of HMRC – resulting in potentially tens of thousands of pounds in unclaimed or repaid VAT – or to ensure that the business has an expense process that ensures compliance with company policy.

Among the key challenges to setting and policing company-wide expense policy, highlighted during a roundtable hosted by Financial Director and Concur in central London, were the inability to track individual employee spend, expenses being paid outside of policy or without the requisite receipts, and difficulty in encouraging good corporate behaviour.

“Without visibility, you can’t educate your employees and say to them, ‘Last quarter the company lost £70,000 in VAT.’ The vast majority of employees would not want the company to suffer that kind of loss,” David Vine, managing director UK SME at Concur, told participants at the roundtable.

“You can talk to them in detail about why you insist on receipts. Employees think you’re doing it because you want to be awkward or don’t trust them, when actually you only want to do it to because it has to be shown to the tax man.”

Tracking who is spending what can also be a burden. “There are certain things we do track quite regularly. We keep constantly updated spreadsheets but it’s quite a drain on staff time,” said Chris Thomas, finance and IT director at the Institute of the Motor Industry.

Tracking receipts
Similarly, Camelia Ion-Byrne, vice president, finance at Optimal Payments, said tracking which expenses have receipts attached to them is a drain on resources because of the staff time needed to have someone in the purchase ledger department who goes through each one and highlights what is in and out of policy.

Nevertheless, the business keeps scans of every submitted receipt and will refuse to reimburse anything without a receipt. “If you stick to it, they learn this and eventually they are really careful with receipts and keep them all,” she said.

Thomas agreed. “I think you have to be rigid because as soon as you show any give or open the door in an area, people will drive straight through it,” he said.

But there is a risk to being draconian. Employee travellers start to feel growing resentment about how difficult it is to claim expenses.

“Some managers who might be quite draconian just say, ‘In my office, I’m not paying that – take it off.’ The resentment caused through that could lead to them getting it back another way,” said Vine.

“You could buy a book of black taxi receipts on eBay for 99p. There’s one guy that sells 20 different taxi receipts for £2. So people can get hold of this if they want to. This is a very small percentage of employees but if you create that resentment, there are many ways for them to get it back.”

However, such strict adherence to denying expenses outside of company policy – whether for non-business expenses or claims without proof – is all too rare. According to a poll conducted by Financial Director during an online debate, 72% of finance directors said that less than 3% of out-of-policy expense claims are rejected. A further 18% said that less than 5% get rejected; 6% said that less than 10% get rejected; and 4% said that more than 10% get rejected. Separate research conducted by Concur found that less than 0.2% of all claims get rejected, while 7% or respondents never had an expense claim queried.

Indeed, Andrew Boland at Haywood Tyler struggles with policy that is not enforced. Part of this has to come from the top.

“[The policy] needs to be updated and then we need the support of senior management – the top man has to support us on it. Maybe it should be introduced as part of the induction process for new starters,” he said.

The weakest link
But often the weakest link in the chain is the authoriser.

“I’ve never read a policy that actually has a section in it for managers that says, ‘This is how you should review them and this is the approach you should take if you want to push back’,” said Vine. “You need engagement at the top. If you don’t have the backing of the chief executive and the senior management, it’s going to fail. The chief executive of one of Britain’s biggest retailers – believe it or not – started introducing an expenses review in his monthly board meetings and his management meetings for five minutes.”

A company that wants to be an employer of choice should have expense claims automated, Vine added.

“It’s absurd how everything else has moved on and our employees are bringing their own devices into work now with apps on them that records receipt images that allow them to do it and capture their expenses. They might use GPS tracking on their mobile phone when they do a mileage journey so they don’t have to remember the route that they took and the mileage that they did. So for businesses I would advocate that, yes, we’ve got to control and manage it – but we can do that in a really positive way that brings everybody with us rather than this constant battling.”

But if you make life easy for people, people want to do the right thing. There are features and apps that make people go out of their way to get a receipt because their life is made easier by getting a receipt because all they do is photograph it, put a bit of information in, and click send, and it goes up into the cloud.

“That is infinitely easier than stuffing it in their wallet and getting to the end of the month, pulling out the sheet that they can never remember how to fill out, and going, ‘Where’s that receipt?’ And it’s all rubbed off because the thermal image has worn out. So you can do all of this in a really positive way with technology,” said Vine.

“Because you’ve given them the tools, you can really start to hit people over the head because you’ll say, ‘I’ve made it really easy for you so I’m going to come down hard if you don’t do it now.’ I think it’s difficult to hit people really hard if the internal system is time-consuming and difficult.”

And, importantly, the first thing HMRC looks for when conducting a travel and expense audit is what the policy is and how it is policed.

“In order for me to be confident that I’m not going to be fooled by HMRC, I do not reimburse anything that you don’t have a receipt for, and – as I said – if you stick to the items that you have a receipt for VAT for and the amount stated on your receipt is clear, there’s very little that HMRC could actually do about it,” said Ion-Bryne.

“By being able to demonstrate with automation that everything is consistent and the same data is collected in every single expense claim, you’ve actually got a little bit more leeway about unreceipted items because you’ll be able to demonstrate what percentage there is of unreceipted items and show you’re demonstrating really good governance with having automation and a clear policy,” Vine concluded. ?

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