Dodgy expense claims: What firms can learn from the Government’s lack of oversight
Written by Kenny Eon, GM and SVP EMEA at Emburse
As organisations adjust to the pandemic aftermath, CFOs and finance teams need microscopic insights into data to maximise their recovery, as well as insulating them against what looks likely to be a recession within the coming months. Undermining this is a lack of oversight over financial processes, leading to holes in fraud prevention.
CFOs were put in the hot seat when managing the transition to remote and hybrid working and navigating where best to draw the line on evolving expense claims, budget requirements and fair policy. For instance, when it comes to expense claims for former city dwellers who now live several hours from the office (often benefitting from a lower cost of living whilst keeping the same salary), should they be allowed to expense travel for an in-person meeting, when those who have remained local aren’t reimbursed? Clearly, finance teams have many factors to consider when balancing employee happiness and equity, and managing corporate finances.
Fraudulent leaks
Beyond new types of hybrid-work-related expenses, the digitalisation of paper-based processes, such as automating invoice processing and eliminating manual cheque runs, continues to be a key initiative for mid-sized businesses. The shift to hybrid working has exposed large weaknesses in the manual approach to spend control and internal audit, with increasing reports linking hybrid working to employee fraud. All elements of the finance continuum – including expenses and invoices – must be carefully managed to ensure business stability. Although a single incorrect or illegitimate expense may seem like a small issue for an organisation with hundreds or thousands of employees, if left unchecked, expense falsification can become pervasive and rapidly cause considerable financial and reputational harm.
Emburse recently released the findings from its Freedom of Information request detailing a lack of oversight from ministerial departments in relation to expense claims. It found that, shockingly, the government rejects less than 1% of the millions of employee expenses processed each year which could point to a staggering amount of taxpayer money being potentially lost. Studies have consistently shown that about 5% of employees admit submitting fraudulent expenses, which is more than 300 times the levels cited in the FOI report. This is an issue that spans far beyond ministerial government departments, and if the rate of unintentional and out-of-policy expenses in the government overall is anything close to that, we could be looking at many millions of pounds of employee – taxpayer-funded – spend that shouldn’t have been reimbursed.
The increase in fraudulent employee spending activity can often be attributed to outdated, typically manual, processes that are unable to effectively identify out-of-policy spend, combined with a lack of impartial auditing of expenses. Human error happens, but now it’s an unnecessary stressor, considering the widespread availability of tech solutions available to automate these processes.
Turning the tap
In terms of wider business recovery and progression, digital transformation is mission critical for organisations slowed by outdated legacy systems and information silos. Greater numbers of organisations accelerate finance transformation initiatives to maintain a competitive edge. Those who fail to undergo a transition will be ill-equipped to keep pace, and will continue suffering what ought to be preventable losses. Consistent audit processes are crucial to keep any mishaps at bay and provide checks and balances on cashflow and expense payments. By automating much of the audit proecss, finance teams reap the benefits of more time back and greater oversight into the nuts and bolts of the books. Ultimately, technology is the solution to help expense fraud prevention.
Beyond data insights, leadership must look inwards to assess the factors triggering fraud. People are a product of their environment, and the anxiety of the pandemic mixed with economic uncertainty and the recent spike in the cost of living, may leave employees facing financial challenges. In addition, adapting to back-to-office or hybrid working processes may have also led to feelings of resentment towards their employers.
We are also currently in the midst of ‘The Great Reshuffle’ as workers re-evaluate everything from their salary, benefits, health packages and work-life balance. Additionally, as lockdowns eased and many returned to their commutes and daily office life, we collectively entered a new phase coined as “The Great Fatigue,” with employees struggling on the brink of burnout. With this, we must bear in mind workers aren’t robots. Though on a practical level human error comes into play for spotting fraudulent activity, what has come to the fore following the pandemic is the need for the humanisation of work.
With this, leadership must continue to be agile, and this goes beyond the adoption of hybrid and flexible working. By pursuing digital transformation projects, internal audit and fraud prevention processes will be strengthened whilst alleviating admin-heavy lifting for workers. In turn, this should free up time for employees to focus on other important tasks and reduce stress, high employee turnover and the risk of burnout.
