Nick Ludlow is General Manager for EMEA at Chrome River Technologies, Inc.
Let’s start with a scenario. Your employee buys a £145 refundable train ticket for a meeting in Manchester.
The meeting is cancelled, and the employee is able to get a refund on the ticket. But they still have the original receipt, so they file the expense claim anyway – and you’ve just been defrauded out of £145.
This is just one of the various ways your employees may be committing expense fraud. And in cases like this, fraud is both easy to commit and difficult to detect. For starters, there’s a gap in time between the purchase and the expense claim, and the record of each is completely separate from the other. On top of that, the purchase is made by the employee with personal funds. This means the business only sees what the employee wants them to see – which in this case, is a £145 charge, but not a £145 refund.
This isn’t a new problem and is a recurring concern for many of the customers we speak to every day. But when surveying 1,200 business travellers recently across the US, UK and Australia, the scale of the problem became apparent.
The results were clear: expense fraud is quietly hitting business’ bottom line at epidemic levels – across geographies, genders and job levels. But to really understand the problem and how to solve it, let’s dig a little deeper into the data.
The expense fraud curve
Ultimately, too many are committing expense fraud: around one in five business travellers (20%) admitted they had done so in the past, but it was interesting to see a fraud curve, with instances of admitting expense fraud climbing from blue-collar (12%) to white-collar (24%), peaking at manager-level staff (34%).
Yet, the instances of fraud jump back up at the top of the chain-of-command, with one in ten (10%) CEOs and owners also confessing to fudging their expenses. So, while men appear to be more likely of committing expense fraud than their female co-workers – 45% more likely in fact – this is clearly a widespread problem for all demographics. And on top of that, this isn’t normally a one-off occurrence: the majority of those who admitted to it (76%), said they’ve done so more than once.
It all adds up
It’s important to acknowledge that expense fraud is, quite often, carried out by those people who are inherently honest and don’t intend to defraud their employer of huge amounts of money. More often, they’re just committing small acts that they don’t even view as ‘fraud’. And they do it because it’s possible and they don’t think anyone will notice.
Over-claiming for restaurant tips, submitting too much for allowed amounts and turning in receipts for unused items or trips are some of the most common expense offences. But ultimately, it all amounts to employee fraud – and it adds up. We found that employees reported adding an average of £225 per expense report – and if they get caught, they’re likely to get away with just a warning.
Large or small, expense reimbursement fraud really does cut into a company’s bottom line – and drives up the cost of doing business in the process. These costs, in turn, may well get passed on to consumers in the form of higher prices, meaning that not only does your business lose, but your customers lose too.
Four key steps
With such a widespread problem that is often perpetuated by company culture, there’s no quick fix for solving the expense fraud problem. But there are a few key steps finance teams should be considering, to help cut down instances and minimise impact when it comes to balancing the books.
- Start with policy. Set a clear and fair expense policy – one that’s free of vagueness but still shows understanding of employees who travel often.
- Give your employees the right tools. A third of business travellers are still turning in paper receipts to claim expenses – despite the fact that the employees who rely on hard copies are more than twice as likely to commit fraud. So, think about putting systems and tools in place that make it easier for employees to claim the right amount, and easier for policy to be automatically enforced.
- Audit selectively. Try auditing the first 10 expense reports of all new hires, to make sure they understand and comply with your policy. Then, continue monitoring – perhaps by auditing every tenth report submitted, for example. And remember to look at backdated reports, too, so that you can correlate receipts with specific events or trips.
- Bring in support from HR. Expense fraud can come from learned behaviour, so make sure managers – and their managers – are being given counsel on the appropriate penalties that help to deter future fraud.
Above all, remember that most honest employees simply need the right guidance and tools. And for the outliers, these steps may not eliminate expense fraud altogether – but they’ll certainly reign in the problem, giving you one less thing to worry about on the bottom line.
Battling Covid collateral damage, Renault says 2021 will be volatile
By Gilles Guillaume
PARIS (Reuters) – Renault said on Friday it is still fighting the lingering effects of the COVID-19 pandemic, including a shortage of semiconductor chips, that could make for another rough year for the French carmaker.
Renault reported an 8 billion euro ($9.7 billion) loss for 2020 which, combined with gloomy take on the market, sent its shares down more than 5% in late morning trading.
“We are in the midst of a battle to try to manage a difficult year in terms of supply chains, of components,” Chief Executive Luca de Meo told reporters. “This is all the collateral damage of the Covid pandemic… we will have a fairly volatile year.”
De Meo, who took over last July, is looking at ways to boost profitability and sales at Renault while pushing ahead with cost cuts. There were early signs of improving momentum as margins inched up in the second half of 2020.
The group gave no financial guidance for this year, although it said it might reach a target of achieving 2 billion euros in costs cuts by 2023 ahead of time, possibly by December.
Executives said they were confident the carmaker could be profitable in the second half of 2021, but that they lacked sufficient market visibility to provide a forecast.
Renault struck a cautious note, saying it was focused on its recovery but warned orders had faltered in early 2021 as pandemic restrictions continued in some countries.
The group is facing new challenges as the European Union tightens emissions regulations and after rivals PSA and Fiat Chrysler joined forces to create Stellantis, the world’s fourth-biggest automaker.
The auto industry endured a tough 2020 but a swift rebound in premium car sales in China helped companies such as Volkswagen and Daimler to weather the storm.
Auto companies globally have since been hit by a shortage of semiconductors that has forced production cuts worldwide.
“The beginning of the year has shown some signs of weakness,” De Meo told analysts, but added the chip shortage should be resolved by the second half of 2021. “We have taken the necessary measures to anticipate and overcome challenges.”
Renault estimated the chip shortage could reduce its production by about 100,000 vehicles this year.
The group was already loss-making in 2019, but took a sharp hit in 2020 during lockdowns to fight the pandemic, which also hurt its Japanese partner Nissan.
Analysts polled by Refinitiv had expected a 7.4 billion euro loss for 2020. The group posted negative free cash flow for 2020.
The 2018 arrest of Carlos Ghosn, who formerly lead the alliance between Renault and Nissan, plunged the automakers into turmoil.
In a further sign that the companies have been working to repair the alliance, De Meo told journalists that Renault and Nissan will announce new joint products together in the coming weeks or months.
Renault has begun to raise prices on some car models, and group operating profit, which was negative for 2020 as a whole, improved in the last six months of the year, reaching 866 million euros or 3.5% of revenue.
Analysts at Jefferies said the operating performance was better than expected. Sales were still falling in the second half, but less sharply.
Renault is slashing jobs and trimming its range of cars, allowing it to slice spending in areas like research and development as it focuses on redressing its finances. It is also pivoting more towards electric cars as part of its revamp.
It was already struggling more than some rivals with sliding sales before the pandemic, after years of a vast expansion drive it is now trying to rein in, focusing on profitable markets.
De Meo told journalists on Friday that the French carmaker will make three new higher-margin models at its Palencia plant in Spain, where manufacturing costs are lower, between 2022 and 2024.
($1 = 0.8269 euros)
(Reporting by Gilles Guillaume and Sarah White in Paris, Nick Carey in London; Editing by Christopher Cushing, David Evans and Jan Harvey)
UK delays review of business rates tax until autumn
LONDON (Reuters) – Britain’s finance ministry said it would delay publication of its review of business rates – a tax paid by companies based on the value of the property they occupy – until the autumn when the economic outlook should be clearer.
Many companies are demanding reductions in their business rates to help them compete with online retailers.
“Due to the ongoing and wide-ranging impacts of the pandemic and economic uncertainty, the government said the review’s final report would be released later in the year when there is more clarity on the long-term state of the economy and the public finances,” the ministry said.
Finance minister Rishi Sunak has granted a temporary business rates exemption to companies in the retail, hospitality, and leisure sectors, costing over 10 billion pounds ($14 billion). Sunak is due to announce his next round of support measures for the economy on March 3.
($1 = 0.7152 pounds)
(Writing by William Schomberg, editing by David Milliken)
Discounter Pepco has all of Europe in its sights
By James Davey
LONDON (Reuters) – Pepco Group, which owns British discount retailer Poundland, has targeted 400 store openings across Europe in its 2020-21 financial year as it expands its PEPCO brand beyond central and eastern Europe, its boss said on Friday.
The group opened a net 327 new stores in its 2019-20 year, taking the total to 3,021 in 15 countries. The PEPCO brand entered western Europe for the first time with openings in Italy and it plans its first foray into Spain in April or May.
Chief Executive Andy Bond said its five stores in Italy have traded “super well” so far.
“That’s given us a lot of confidence that we can now start building PEPCO into western Europe and that expands our market opportunity from roughly 100 million people (in central and eastern Europe) to roughly 500 million people,” he told Reuters.
To further illustrate the brand’s potential he noted that the group has more than 1,000 PEPCO shops in Poland, which has a significantly smaller population and gross domestic product than Italy or Spain.
The company, which also owns the Dealz brand in Europe but does not trade online, has already opened more than 100 of the targeted 400 new stores this financial year.
Pepco Group is part of South African conglomerate Steinhoff, which is still battling the fallout of a 2017 accounting scandal.
Since 2019 Steinhoff and its creditors have been evaluating a range of strategic options for Pepco Group, including a potential public listing, private equity sale or trade sale.
That process was delayed by the pandemic, but Steinhoff said last month that it had resumed.
“The business will be up for sale at the right time. It’s a case of when, rather than if,” said Bond, a former boss of British supermarket chain Asda.
Pepco Group on Friday reported a 31% drop in full-year core earnings, citing temporary coronavirus-related store closures.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) were 229 million euros ($277 million) for the year to Sept. 30, against 331 million euros the previous year.
Sales rose 3% to 3.5 billion euros, reflecting new store openings.
($1 = 0.8279 euros)
(Reporting by James Davey; Editing by David Goodman)
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