There’s Big Money in Scandalous Expenses?

Its nine years since the expenses scandal broke and a MPs’ were rightly put through a spin cycle in the media gutter relating to their ‘questionable’ expenditure. Repayments and apologies aplenty followed, a handful of the ‘greedier’ MPs’ were prosecuted and a minuscule number of parliamentary careers ended. Fast-forward to 2019 and the level of expenses expenditure is creeping back to 2010 peak expense scandal levels. Recent media articles have reported on the suspension of MPs’ credit cards for various reasons.

Dated: May 2019 Author: Allan Maund, Head of Compliance & Risk

Cross the channel in late 2018, the Court of Justice of the European Union backed the EU parliament’s authorities in rejecting long-standing journalists’ claims to see accounts and receipts for that and other allowances. The breach of MEPs’ privacy, the court found, was not sufficiently warranted by the demands of public accountability. Read into that what you may. 

It’s accepted, regardless of loopholes that some seek to apply, that business expense relates to legitimate expenditure incurred for, or on behalf of a business. The expense is typically incurred either using a company credit card or a reclaim where a personal card was used. Simple.

So where does it go wrong in business?

Explanations by the employee are typically limited where an expenses irregularity occurs. These are examples of the many expense cases I have resolved:

(1) the claimant of the expense is a thief, remember, its estimated one third of business-related financial crime is committed by employees of the organisation, so no surprise there

(2) there could be a lack of clarity relating to the expense policy and/or

(3) a genuine administrative mistake.

A policy doesn’t prevent fraud. The reader of the policy is very unlikely to prevent an employee from committing fraud. Remember, policies should contain plain language, be easy to navigate, provide clarification and include the details of a person to contact with any policy related queries. It’s worth remembering that genuine administrative mistakes aligned to policy non-compliance should happen infrequently (unless the policy is nonsense) but if you have repeat offenders, you need to revisit how long you can apply the ‘mistake’ defence.

Culture and controls deter and prevent fraud

If you’ve been subject to my awareness training sessions over the years, ‘Trust is not a control’ is the generic theme I have stuck with. If you rely on trust, rather than a ‘control’, you will significantly increase the likelihood of being a victim to financial crime. Controls should be tested and reviewed, and I’d suggest the reviews are conducted by an anti-financial crime expert. You need an expert who thinks like a fraudster and looks at ways to circumnavigate controls. It’s even more important when your business has been subject to any form of financial crime that your controls are reviewed. If one fraudster has exploited your controls, it may not be an isolated case and others could use the same approach to cause further damage. Robust internal controls are an effective way to both prevent and detect fraud. Investing time and effort to implement appropriate changes could save you problems in the future. When, not if, a control fails, don’t automatically think mistake. Challenge, question, or test a wider sample range. ‘We trusted X’ is the most common phrase I have heard in all my years on investigating fraud.

“Culture eats strategy for breakfast”, a phrase believed to have originated by Peter Drucker and made famous by Mark Fields, President at Ford.

Culture, Culture, Culture

But how does this relate to fraud? Employees are (mostly) social beasts, our actions in the workplace are reflected by the culture and environment of where we work. The work environment, or the culture, is typically a mirrored, or if not, controlled, by the company’s senior management in both formal and informal situations. A respected senior management team that lead by example, reflected by management, should make any form of non-compliance unacceptable. This includes not turning a blind eye to inflated or false expense claims, or expense claims for non-business-related activities. It doesn’t take long for one bad apple to infect the fruit bowl.

Zero-tolerance

The internet is bursting with business’ promoting their strategy.  But as Peter Drucker alluded, you can have the best strategy, but get the culture wrong and your strategy/vision won’t be realised. This is the same for anti-financial crime.  You can have all the bells and whistles, but if your culture doesn’t support a robust zero-tolerance anti-financial crime stance, your business will be the victim.

Ensuring your controls are robust, consistently applying a zero tolerance approach to financial crime, in whatever guise it presents itself, and senior management leading promoting the same will reduce the likelihood of your business becoming a victim of fraud.

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