Employee expenses: Who’s picking up the tab?

When it comes to spending other people’s money, our elected representatives have got it down to a fine art. MPs claiming tax payers’ money for moat cleaning, mortgages that have already been
paid off and questionable late-night movies have hardly done much for the dignity of Parliament, but what they have done is raised the profile of the issue of expenses.

Retail staff do not spend taxpayers’ money, of course, but at a time like this no retailer can afford to have its system open to abuse. An investigation by expenses consultant GlobalExpense, which analysed 1.1 million individual claims by more than 40,000 retail and FMCG UK employees, revealed that as an industry retailers pay out over £600m a year – some £100m of which is for incorrect or fraudulent claims. So where are retailers losing money on expenses and what can be done to stop the rot?

The finance director of one retailer with around 30 UK stores, who wanted to remain anonymous, says: “The MPs expenses business has angered people because they’re saying ‘it’s so hard to control’. That’s rubbish. It’s about having a process which is well defined and laid out and you need to hire trustworthy people.”

Expenses are an essential part of keeping a retail business afloat. Many employees spend a significant amount of time travelling from store to store and spend a significant amount of their own money in the process. As with any business, retailers need to ensure there is an efficient and speedy expenses system to reimburse them. Fergus Patterson, managing director of knitwear retailer Wolsey, says: “Good retailers have a very clear policy about what you can and can’t claim but they do it in a way in which people aren’t out of pocket. If people feel they are funding and subsidising a business it creates very bad feeling.”

The challenge is keeping tabs on expenditure to ensure retail businesses aren’t paying out too much either through flaws in the system or outright fraud. The problems invariably start at head office. Of all mistakes that can be made, failure to have a clearly laid-out policy is perhaps the most costly.

Without strict guidelines about what can and can’t be claimed for there is inevitably going to be confusion and, ultimately, extra cost incurred to the business because of incorrectly approved costs.

Former Baugur head of HR Nadine Jones says: “The example has to come from the top.” She adds that senior managers should be just as restrained with company money as they would be with their own if they are to expect the rest of the organisation to follow suit.

One straightforward way to avoid wasting company money is to insist that the whole business applies commonsense to their expenditure.

A lack of forward planning and organisation often leads to huge amounts of unnecessary expense.

Ensuring that staff keep hold of VAT receipts is one easy way to save cash. With an estimated 40 per cent of claims being put in without a proper VAT receipt, managers need to be made aware of how important a business practice it is and should be stressing this to their staff.

GlobalExpense managing director David Vine says big savings can be made by being properly informed about what types of VAT payments can be claimed back by staying in line with HM Revenue & Customs guidelines and ensuring that the right receipts are kept.

Train fares are another area of expenses where, with the range of prices that exists, retailers can save a lot or waste a lot depending on how organised their staff are [see box]. Staff must be encouraged to book tickets early and to choose cheaper fares wherever possible. As Jones says: “It’s not about luxury. Is there any need to travel first class when it makes no difference to a journey?”

Many retailers are also now introducing systems to establish how far in advance journeys are booked so they can check that unnecessary money isn’t being spent simply because of a lack of planning. In certain expenses systems staff are required to enter both the date a journey was taken and the date tickets were bought before the claim can be processed.

Nevertheless, even with the most carefully thought-out policy, there is always the threat that a minority of people will deliberately fiddle the system. Retailers need to be aware of the risks and be ready to be tough if and when necessary.

If a retailer goes back over the books and discovers that certain members of staff have been claiming fraudulently or are pushing the boundaries of company policy, action can be taken. For repeat offenders this might mean disciplinary action and ultimately dismissal.

The best place to start, says Vine, is to make sure you know exactly where the strengths and weaknesses lie in your expenses system before taking any action. This involves adopting a “wait and see strategy”. In other words, continue to accept expense claims as normal for, say, three months, and in that time the business can collect and analyse the data.

The next step is to make clear to staff that the system is being overhauled, but to do so in a way that doesn’t imply a witch-hunt is about to begin. The key, he says, is to point out the benefits
to the company and the individuals working in it.

One way to both help reduce the risk of employees exploiting the expenses system and help reduce cost is to introduce an automated process. This is increasingly being done on the internet, with claims being made and authorised online. An online system can result in significant savings because it is fast and efficient and, most importantly, has a strict set of rules that have to be followed before a claim can be processed, meaning staff have to be much more specific than they would be in non-automated systems, which Vine says are “fraught with errors.”

This saves retailers considerable time and money and makes the whole process more clearly laid out and hard to fiddle. Online systems require investment, and as such might only
be appropriate for the largest companies with sizeable and disparate workforces, but it is a cost that will soon reap rewards. 

It is also important to remember, however, that nearly all staff will be honest about their expenses claims, and will resent being policed too much. Companies need to show their workforce the trust and respect they deserve.

As Vine says: “If you don’t trust people it can go the other way. Most people will treat expenses in the spirit they are meant to be treated.”

Former Space NK commercial director Alison Middleton, now founder of AM Retail Consultants, says that while it is important to make savings, especially in a downturn, retailers can go too far. “You have to see what the long-term effects of the cost-savings you make are going to be. Doing a witch-hunt in expenses now might be detrimental to morale. If you cut out absolutely everything you can and you’ve got demoralised people, then nobody’s looking for the upside when the economy does come back.”

There is a fine line between having a weak expenses system that haemorrhages cash and a draconian workplace that scrutinises every penny going out. Retailers need to be clear at all times and strict when necessary, but for the majority of staff who do play by the rules, respect and trust is the best policy.