Creating a best practice expense policy

According to the Association of Certified Fraud Examiners, a fifth of workers not only admit to fiddling with their expenses but believe it is OK to do so.

Employees do this for a variety of reasons from feeling they are underpaid to wanting compensation for the inconvenience of travelling, but ultimately and most commonly because “everybody does it”.

With expense claiming being so highly susceptible to fraud, it is not surprising that major UK bank, Natwest estimates the average cost of expenses fraud to businesses worldwide is £30,000 per year.

Employee expenses are often an overlooked area of expenditure, which consequently may contain a number of inadequate processes leading to unnecessary extra expenditure.

Tackling and preventing expenses fraud starts at the very beginning of the process, with the employees making the claims.

An expense policy is an important document containing the rules and expectations of employees when claiming reimbursements from the company they work for.

Even if your company has only one employee claiming expenses, a good expenses policy can encourage good habits and honesty from your employees.

Equally important is the benefit of reassuring your employees that you will also operate within the rules of your policy.

Your expense policy is therefore a very good place to start, and including the following elements as a minimum will reduce the likelihood of fraud, by encouraging honesty from your employees with a clear set of guidelines.

1. Do your employees know exactly what they can and cannot claim for?

Employees are likely to push the limit as far as possible without a list of allowable expenses.

• If employees book their own travel, will you reimburse for first-class or economy?
• Are there limitations to claiming a breakfast allowance (e.g. governed by early morning starts)?
• Do you employees need prior-authorisation of making an expense claim in order to be reimbursed?
• Do employees know which parts of their journey they can claim mileage for?

We hear frequently from our clients about problems they have experienced in the past with mileage claims. Employees are unclear on what is/isn’t allowed, and this leads to incorrect claims.

2. Have you set time limits for claiming reimbursements?

Setting time limits on claiming expenses is important for a number of reasons but for the purposes of preventing fraud consider what happens without time limits. Your employees are tempted to save numerous expenses and claim maybe once or twice a year (often just before Christmas for a nice extra pay-out).

The problem here is that managers responsible for approving claims are less likely to remember accurately what expenses were incurred 6 months ago. There is even the probability of duplicate claims going unnoticed in a large group of expenses, by both the manager and the finance team.

This can all be easily avoided by setting a limit to the time and expense that can be reclaimed, after it has been incurred, and enforcing that limit.

3. Are the claim limits realistic?

Claim limits on your expenses are very important, to keep control of overall spending, but they must be fair and realistic.

A £30 limit on an overnight stay may be fair in certain parts of the country, but not London for example.

Do your research.

Your employees can operate more easily, within the guidelines.

4. Specify how to claim expenses

Clear instructions for claiming expenses will prevent a lot of unintentional mistakes.

For example, specifying only one expense report per trip will prevent any accidental duplicate claims.

If you are using expense management software, ask claimants to use a separate claim line for each receipt, thereby avoiding any errors in addition to multiple receipts.

5. Future dated expenses

Often travel or hotel bookings are made and paid for in advance, whether in full or with a deposit.

This is a particularly hot area for fraud.

Employees may be tempted to claim the cost of deposit, and then later on using the receipt provided by the hotel, the full cost, including the deposit again.

There is also the risk of employees claiming back the cost of a train ticket paid for in advance, which is then cancelled and refunded to the employee after you have reimbursed, for whatever reason.

Using your expenses policy, you can choose to not allow future dated expenses.

However, sometimes if it is a sizeable expense this can leave your employee out of pocket and reluctant to book in advance (benefiting from lower-cost travel).

Perhaps then consider only allowing future-dated expenses on a corporate card, thereby ensuring any refunds are processed back to the company.

6. The company’s responsibilities

Your employees are less likely to be tempted to fiddle their expense claims if they know the company will also act fairly and honestly in line with their policy, particularly when it comes to repaying expenses.

By specifying how and when employees can expect to see their reimbursements, employees will be less likely to “claim compensation” for lengthy waiting periods.

Using software to manage the processing of expenses means managers can quickly and easily review expense claims, meaning a faster process and happier claimants.

Your expenses policy is also an opportunity to make sure your company’s managers know what their limits for authorisation are, and at what point more senior authorisation on expenses should be requested.

Implications of non-adherence

A robust expense policy should guide most employees to make accurate and honest expense claims, however, for those that slip through the net, your policy needs to set down the implications.

The most obvious being that claims will be denied if found to be incorrect or fraudulent which will ultimately delay any reimbursements.

You may wish to go further than this and warn of the implications for repeated fraudulent claims. It is a good idea to specify any disciplinary action for deliberate attempts to defraud the company.

This will hopefully also act as a deterrent for any employees who may still be tempted to make fraudulent claims, despite your clear expense policy.

When you have finalised your expenses policy, it is crucial that it doesn’t sit in a drawer gathering dust or tucked away in a hidden file on your company’s IT system.

Allstar Business Solutions found that two out of three employees haven’t even read their expenses policy.

Make sure your policy is included in new employee induction plans for those who will be frequently travelling, and ask employees to sign to confirm their understanding and acceptance of the policy.

Let us know of any lessons learned when drafting your expenses policy (expensemanagement@civica.co.uk).