Lax management and staff expense fraud cost UK business dear

The inaugural Employee Expenses Benchmark Report 2007, released by employee expenses service provider GlobalExpense, shows that British organisations are frittering away around £1.3bn on employee expenses as a result of lax managers and employee expense fraud.

The report is the largest ever research into this area (based on over 3.53m individual expense claims by over 60,000 employees from a wide range of UK-based organisations) and is definitive - being based on what employees actually claimed (as opposed to what they said they claimed) and the payments actually made by employers.

Approved unusual employee expenses claims ranged from lap-dancers to hostesses, from condoms to cat food, replacement lingerie to Valentine's presents. One sleepy manager approved a £570m claim for a £4.70 bridge toll!

Based on its research, GlobalExpense calculates:

Across the UK economy (private and public sectors) around £5.2bn was paid to employees as expense claims. However, 15% (about £800m) of this is for payments approved by managers that are "out of policy" (i.e. for items or levels disallowed by their employers' expenses policies so payments should not have been made).

GlobalExpense estimates that each year four million employees claim expenses from their employer. Separate research for GlobalExpense revealed employees are unaware of them and because managers don't bother to enforce them. The extra costs of higher-than-policy claims can quickly add up, particularly in areas such as hotel accommodation where over 20% of claims are outside policy. "For many organisations, employee expenses is a black hole. They have no idea how their employees' spending measures up to others, making it difficult to judge if too little, or too much, is being spent on any one area or by an employee. The report provides insights on where companies should focus attention to make sure that profits are not being lost. It will also help them to compare costs with similar organisations, by size or industry sector." Unusual employee expense claims recently received by GlobalExpense include: a receipt for £1,000 from Spearmint Rhino for 'Client Entertaining' (approved by the employer); a claim for expensive lingerie because the employee had 'lost' hers (approved by the employer); a claim where a man wanted to be reimbursed for a Valentine's day gift (not approved by employer); a claim for 'Durex Play' - expense type 'Daily Allowance' (approved by the employer); a claim for a book called Ever Dated a Psycho? In justifying it, the employee said it was "a book for my psycho ex". A toll claim was approved for over £570m by a sleepy manager - the employee entered the VAT number instead of the actual amount of the receipt. (The error was intercepted by GlobalExpense and the correct amount of £4.70 was paid to the individual). Other claims of a sexual nature, include one for over ?400 for a 'hostess in Greece'(approved by the employer) and another for condoms. The employee categorized the expense type as 'Tools, Test and Other Equipment' (approved by the employer). Lastly, a tin of cat food was claimed under the 'Restaurant Meals' category by an employee (approved by the employer). The report identified a number of trends and statistics:

Entertainment claims are less generous at large businesses with average costs of nearly £66 compared to £103 and £99 at medium and small firms respectively.

In 2006 the average expense-claiming employee requested payment for 35.9 separate items as expenses. Their average approved claim was £49.87, and they received £1,668.88 in total for expenses.

The average employee who claimed expenses will have received £313.26 in 2006 for hotel accommodation, £209.60 for entertaining, and £644.01 for business travel.

For the typical company, around 40% of items claimed by employees are under £10. Around 45% of claims are for between £10 and £99.99, and at least 12% are for items worth £100 and over.

In 2006, the largest single approved claim by an employee was for £30,781 to cover training and conference costs for a team.

The largest total claimed by an individual during 2006 was £142,709 - more than six times the national average salary of approximately £22,500.

20.5% of mileage claims do not have a valid receipt, meaning businesses cannot claim back the VAT. A business with 190 employees claiming an average of 5,000 miles could be losing about £9,000 in unclaimed VAT. This will come straight out of a company's profit. In sectors with margins of 10%, this would require around £100,000 of sales simply to cover the cost.

Business travel expenses - air fares, rail fares and mileage - is the largest expense category accounting for around 40% of claims by value from 2004-2006, followed by accommodation (typically hotels) accounting for around 20% of claims.

The number of claims for business class air fares has fallen by a quarter and first class by over 10%.

Women are more likely to spend more on hotel accommodation (£157.02) than their male colleagues (£148.44). But a man is a better bet for a good meal as they typically spend a third more on entertaining than women and make twice as many claims.