We have all marvelled at the Lawson family lifestyle and wondered how it is that someone who works for you can run up more than half a million pounds worth of unauthorised expenses. The issue of unauthorised expenses is a suprisingly common problem in growing businesses.
We have worked with business that have lost £5m+ (over a period of time) to unauthorised transactions. A lot of these problems don’t make headline news since business owners are very reluctant to let the world know they didn’t realise what was going on. The police and Crown Prosecution Service are not always keen to get involved since fraud is a difficult crime to prove. If there is no clear expenses policy and there are disputes about whether the expenses were authorised then cases are less likely to get to trial.
If HMRC decide the expenses were not ‘wholly or necessarily incurred’ they will treat this as a taxable benefit. The unfortunate boss will not only have paid out on expenses, but can get a tax bill to go with it. That really is adding insult to injury.
To some people an expense account or a business credit card is a license to indulge themselves at someone else’s expense. To protect your business you should:
1) Have a clear and simple expenses policy that sets out what you will pay for and states that expenses are not authorised until approved.
2) Make it clear in writing that unauthorised expenditure will not be reimbursed. State that you will deduct from salary any unauthorised credit card expenditure (and will that this lead to disciplinary action).
3) Make sure the credit limits on your employees’ cards are only high enough for what they need to claim – do not let the credit card company put up the limits each year (they tend to do this). Contact the card company and get them to reduce the credit limit on employee cards. You can always put it up temporarily if a big trip is coming up.
4) Make sure your credit card statements are checked by someone who is not the card holder and that expenditure is properly queried every single month.
5) Make sure everyone knows your credit card statements are checked and monitored.
The most powerful way you can discourage people from abusing their expenses or business credit cards is to check them regularly. Most people will not abuse your system, those that do often start with some small, tentative ‘dodgy’ transactions – a few CDs, a lunch on a non working day. They wait to see if you will pick them up. They are testing the system. If you do (and they can’t get round you) they will move on – often leaving to find easier targets. If you don’t pick them up they will make larger transactions.
Someone who uses their business credit card for £200 a month of unauthorised expenses will run up a bill of £12,000 over five years. If they get greedier over time (and many do) we can often find higher amounts. If their normal business expenses are high anyway it is easy to hide £500 a month – (£30,000 over five years). These amounts often come to the light if the business is struggling financially – and they are usually impossible to get back.
There are so many things you need to do to have a successful business, it is easy to overlook expenses as an area of vulnerability to fraud or abuse. It doesn’t take a lot to close this opportunity – and now is a good time to do so.
Talk to us about putting a short, simple, clear expenses policy in place and save yourself time, money and worry.
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We founded Irenicon in 1980 to help employers make employment law work for them. We were always a mixed disciplinary practice – something quite revolutionary at the time. Over the years we have worked with some wonderful organisations, pushing the boundaries of how employment law can really be made to work without restricting the flow of the organisation.