EXPENSES ABUSE at Westminster was the news story in 2009. This year employees, public sector workers, directors and members of the Lords have hit the headlines, accused of unethical expense-claiming behaviour. GlobalExpense’s David Vine has selected some of the most noteworthy examples for its 2010 Rogues Gallery.
Mark Hurd, the former CEO of Hewlett Packard, was forced to resign in the summer following allegations that he made false entertainment expenses claims for business meals with a female contractor with whom he had a relationship. The financial press reported that his unexpected departure knocked $10bn off the company’s value.
Submitting fraudulent expenses claims is not a shop-floor only issue. The higher you are the further you fall. Seniority won’t protect you from punishment – if anything the consequences of being caught are likely to be much more severe and personally embarrassing. By casting doubt on the trustworthiness of senior executives, it could also have an effect your company’s share price. Nobody in a company should be able to approve their own expenses claims. The finance director should approve the CEO’s claims, and the CEO should sign-off the FD’s claims. Better yet, use a third party to scrutinize all claims.
Detective Constable Daren Pooley a counter-terrorism officer in the Metropolitan Police was jailed in November 2010 for exaggerating his accommodation expenses by £93,000. When sent to work in Leeds to investigate the 7 July 2005 bombings, he arranged for a lettings firm to provide four apartments for his team at an inflated cost and pocketed the difference.
This striking case illustrates that even staff in a position of trust can be tempted to abuse the expenses system if an opportunity presents itself. It is noteworthy that the inflated accommodation claims were for an amount similar to other approved claims for the same type of expense. This is a common tactic for expenses fraudsters and shows that simply checking whether a claim exceeds a pre-set limit is no defence against fraud. Companies need to benchmark not only the value of claims, but also the detail of claims to compare like for like: in this case a large, fully-serviced apartment with a smaller non-serviced apartment.
This autumn, executives at the US arm of National Grid, reportedly allowed the cost of shipping executives’ personal possessions, including wine collections and cats, to be added to its American customers’ electricity bills.
Too many senior managers and directors still see expenses as a perk of office. HMRC considers employee expenses to be expenses incurred by employees as a result of doing their job. Admittedly, companies can include anything they chose in their own expenses policy. However, directors would do well to ask “how would this appear to others?”, before making a claim.
Walsall Council’s interim head of human resources and development has been claiming accommodation expenses to stay at a four-star hotel for the past six months. The expenses are allowed in her contract and there is no allegation that she is doing anything wrong, but this example seems unethical at a time when the council has posted more than 1,300 letters about voluntary redundancy to staff.
Employee expenses need to be fair, consistent and transparent to work effectively. A 4-star hotel provides the appropriate level of accommodation that a highly-skilled and experienced head of HR should expect. It is the amount of time spent at the hotel that smacks of extravagance at a time of public sector cuts. Expenses of this type lead to disenchantment and disgruntlement in the work-force. Lack of perceived fairness is the main reason most expenses fraudsters give for abusing the expenses system.
Professor Roger Cashmore, the principal of Brasenose College, at Oxford University, had his travel expenses probed according to reports in May 2010. He was accused of not ‘always adhering’ to policy.
Clear rules that are well communicated, unambiguous and easily understood are essential if you want people to follow them.
Principal Ian Howard and another employee from Edinburgh College of Art were accused in November 2010 of spending close to £50,000 on corporate credit cards. The extent of the expenses spend came to light during due diligence for a proposed restructure. This example shows how easy it is for many organisations’ expenses bills to become a black hole. The money spent on expenses should be monitored and analysed like any other type of purchase.
Three Labour peers were suspended from the House of Lords because they were accused of misusing their taxpayer funded accommodation allowances. But in October 2010, a Lords conduct subcommittee watered down the punishments; reducing the suspension period and telling the culprits they did not have to apologise – although they have been told to repay around £200,000.
Expenses culture starts at the top. People look to the behaviour of senior management to set the tone for their own behaviour. If Lords and Ladies are seen to get away with abusing their expenses then the hoi polloi will think they can, too.
Finally, in November 2010, the Supreme Court threw out a plea by three former Labour MPs that they should not be tried for theft by false accounting i.e. manipulating the expenses system, because of parliamentary privilege. This is good news. If you don’t identify wrong-doers and be seen to punish them (even if that is by simply enforcing your policy), then any expenses policy isn’t worth the paper it is written on.
David Vine is the CEO of employee expenses management company, GlobalExpense