Bribery Act Can Help Corporates Cut Travel Spending
As the festive season sends Travel & Entertainment costs spiraling
, Sanjay Parekh, MD at WebExpenses, asks whether the Bribery Act could be a blessing in disguise for business.Deloittes latest surveys of British business uncover a trail of missing receipts and unchecked expenses-claims leading to an inescapable conclusion; lack of transparency and control over employee expenses is opening the floodgates to mass bribery and fraud.
In a startling peep into the murky world of expenses, the accounting body found that less than 2% of claims are investigated, 20% of companies have no policy mandating that expenses must be checked by senior staff, almost half have no limits on expenses and consequently, more than third of companies are being defrauded.
It is, therefore, no surprise that the latest Bribery Act, propelling Britain to the forefront of global efforts to shed light on employee expenditure, is sending shockwaves through the business community.
The new Act blurs the legal boundary between corporate hospitality and bribery and critically, eliminates any distinction between active corruption and the mere failure of company Directors to prevent it. Considering that a quarter of all businesses recently admitted they would be unable to account for all their employee expenditure before HMRC, the situation now looks ominous. And events in the US could be a worrying portent of what may happen here, if changes are not swiftly implemented: The US mounted 21 corporate prosecutions under the Foreign Corrupt Practices Act in 2010 alone, raking in a record 1.1 billion in fines.
The legal changes widen the Serious Fraud Offices punitive umbrella to include any bribes taken or received from individual employees and private companies, far exceeding the scope of US bribery laws, which only cover foreign officials and public companies. And the British version comes equipped with real teeth: unlimited fines and 10-year jail terms await potential transgressors.
The Act has triggered panic manoeuvres from multinationals, due to the fact that Section 7 not only holds company Directors personally responsible for any suspicious spending across all of their international divisions, but even applies to companies with virtually no connection to Britain, other than a listing on the London Stock Exchange. Richard Alderman, Director of the Serious Fraud Office, put it bluntly :You bet we will go after foreign companies.
And, as the Act holds companies responsible for the actions of loosely-defined associates as well as employees, World Check points out that SMEs could be at even greater risk, due to their much heavier reliance on third parties, intermediaries and agents to conduct offshore operations. Even worse, a quarter of UK SMEs are still unaware of the full implications of the Act, which has already led to the successful prosecution of a magistrates clerk.
The way in which those at the top can be punished for the actions of rogue employees, was vividly illustrated when Alcatel was fined $137 million even though its Directors were unaware that Costa Rican external consultants had secretly siphoned off company funds to bribe foreign officials. Maberry and Johnson, IBM, Halliburton, Monsanto and Siemens are among other corporate big fish who have recently been subject to prosecutions for the actions of associates and employees.
But the true potential for calamity is only starting to emerge from studies into the wider misuse of employee expenses, with sobering implications for business, at a time of economic uncertainty. Surveys indicate widespread fraud is costing British business over 1.3 billion a year, a figure that could be the tip of the iceberg, as companies are failing to investigate many claims. This shows that failure to monitor and control expenses is not just putting businesses at legal risk, but also jeopardising their financial recovery.
With inadequate spending records, there is also a growing risk that employees buying innocent client dinners and golf trips could be tarred with the same brush as those who use Travel & Entertainment budgets to conceal illicit activities.
Where taxpayers money is spent on private-sector products, a lack of transparency over the relationship between corporate hospitality and public-sector purchases can impact on voters trust in public institutions; Britains pharmaceutical companies refuse to declare their expenses-spending, and only a quarter of all NHS trusts responded to a recent Guardian Freedom of Information request for access to their Registers which record possible conflicts of interest between doctors and supplier companies.
With some 73% of multinationals unaware of the implications of the Bribery Act, it is also clear that companies are struggling to keep up with the pace of regulatory change and seamlessly integrate new laws into their accounting processes.
Yet business is missing a golden opportunity to use the new law to transform its fortunes.
With British companies losing out on over a quarter of the VAT they could be recouping on unrecorded business trips, and missing out on massive travel discounts due to inadequate expenses monitoring, there is a real opportunity for businesses to make financial gains, as well as protect themselves from prosecution, if they use the new law as a spur to restore control over expenses. But this would require Finance departments to radically alter the way they operate.
The Bribery Act offers a clear way out for businesses whose employees misuse money, if they can prove they communicated the law to staff and took appropriate measures to enforce the rules. If companies can account for their expenditure across all international divisions, they can defend themselves against false accusations.
Too many firms today rely on paperwork and inefficient manual methods of entering, filing and processing claims, leaving an invisible money trail, shrouded in an unchecked backlog of spreadsheets, stapled receipts and forms.
The question for business, as the Bribery Act starts to take effect, is how they can both cut admin and labour costs, and improve transparency and control over expenses.
Digital Transparency, Ethical Governance and policy implementation
One upside of the Act will be greater social responsibility, and more proactive action from companies to enforce ethical expenses-policies.
Innovations in cloud-computing and mobile-IT technology are at the forefront of the renewed drive for financial transparency in employee expenses and control over employee activity.
Cloud-based expenses management technology helps companies enforce compliance with tough new laws such as the Bribery Act, by allowing employee spending to be monitored in real-time from any location and permanently recorded, with receipts and evidence saved in a single, safe online repository.
Critically, these softwares can be quickly updated to include new regulations in its calculations and notify both finance departments and employees at remote locations, if a claim is erroneous.
They can incorporate easily-accessible expenses rules and point of entry reminders notifying employees if a claim breaches those rules when entertainment is being claimed for, as well as stipulating details required relating to this, ensuring the user details who was entertained, why and how much was spent.
This real-time reporting gives firms the visibility and transparency needed to combat bribery and avoid prosecution, meaning they can prove before the courts that they took the legally-required measures to keep staff informed of the law and prevent misuse of their money.
These softwares also cut the massive admin burden of expenses-management and compliance with new regulations by 50%, automating the painstaking process of checking individual receipts and claims for compliance with existing law instantly red-flagging any claims which do not comply with any new policy or exceed the approved expenses limit for each tier of employee, sub-division, subsidiary or Department.
Some even use GPS technology to clamp down on travel fraud by accurately pinpointing the mileage for each journey. Whole trips can now be digitally planned in advance and employees can swiftly and easily enter claims and evidence from remote locations through software that incorporates differing currencies, laws, tax rates and tiers of employee in its calculations.
The software can automatically collect spending details straight from company credit cards and instantly incorporate all the data into central company accounts, giving finance departments into a live portal of spending across all divisions.
Todays employees not only incur costs while travelling but also book their flights, dinners and hotels on the move, using Smartphones. This further fragments the mound of expenses claims and receipts, making it harder for finance departments to monitor the money trail across a globe-trotting, Blackberry-wielding workforce.
Smartphone apps turn the trend in consumer IT into an advantage for the finance department, by allowing employees to enter claims and photographic evidence on the go. Taking advantage of consumer devices designed for ease-of-use, the app makes entering claims and sending off receipts faster and easier than ordering a book on Amazon: employees can electronically upload their corporate card details to the phone or type the claim into their smartphone, and use the built-in camera to snap the receipt. This means employees can be instantly reimbursed for genuine claims, which deters fraud.
This also eliminates the problem of paper receipts lost in transit, compelling employees to enter claims as soon as costs are incurred and equipping finance departments with the credibility and confidence to face HMRC with up-to-the minute records. Making the process of entering claims faster and more convenient, deters fraud and fosters a culture of transparency: all claims must be immediately entered and there is no longer any excuse for losing evidence or claiming for last-minute extras once employees arrive back at the airport. The potential for the technology to aid transparency is even greater; smartphone cameras could one day be used by employees to provide photographic evidence of the attendees at corporate hospitality events, in order to disprove allegations of bribery.
With new IT technology, business can take advantage of Britains latest legislatory drive for improved transparency to regain control over their expenditure, repair the reputation of corporate finance departments, prevent harmful prosecutions and cut their crippling admin burden.
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