Comment: Bribery Act can help corporates cut travel spending

The Bribery Act has sent many companies into a panic about having to stop golf trips and client lunches. But Sanjay Parekh, managing director of WebExpenses, says it provides a ‘golden opportunity’ to cut travel and tax bills.

Deloitte’s 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 peek into the murky world of expenses, the accounting firm 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 the UK 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. Critically, it eliminates any distinction between active corruption and the mere failure of directors to prevent it. Considering that a quarter of all businesses recently admitted they would be unable to account for all their employee expenditure to HMRCHer Majesty's Revenue and Customs: in the UK, HMRC was formed on the 18 April 2005, following the merger of Inland Revenue and HM Customs and Excise Departments, the situation now looks ominous.

The legal changes widen the Serious Fraud Office’s 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.
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The act has triggered panic manoeuvres from corporates, because it holds directors personally responsible for any suspicious spending across all international divisions, and also applies to companies whose only UK connection is a London Stock Exchange listing.

The act also holds companies responsible for the actions of loosely-defined “associates” as well as employees, which means that SMEs could be at even greater risk according to business risk analyst World-Check, because of their heavier reliance on third parties and agents to conduct offshore operations. Even worse, a quarter of UK SMEs are still unaware of the full implications of the act.

The hidden threat

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 fraud is costing British business more than £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 putting businesses at both legal and financial risk.
　
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. Diageo was found to have camouflaged millions of pounds worth of bribery beneath such vague budget items as “hospitality” and “stakeholder engagement”, which highlights the need for companies to be able to prove where their money is going.

With some 73% of multi-nationals 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.

A golden opportunity

Yet business is missing a golden opportunity to use the new law to both reduce waste and get the best travel deals and cut the VAT burden.

British companies are losing out on a quarter of the VAT they could be recouping on annual business trips and are also passing up opportunities for massive bulk travel discounts because of a complete failure to keep track of multi-national expenses spend.

Travel companies frequently offer discounts and freebies for repeat customers and bulk bookings and many countries offer great VAT rates on business hotel stays and travel expenses. Yet the failure to monitor and record employee “Travel & Entertainment” spending means many cash-strapped companies are missing a great opportunity to recoup funds.

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 smallprint

The Bribery Act offers a 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, they will not be prosecuted, even if individual employees break those rules. If companies can account for their expenditure across all international divisions, they can also 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.

A digital boost for financial transparency

Innovations in cloud-computing technology and consumer IT are at the forefront of the renewed drive for financial transparency in employee expenses and control over staff activity.

Cloud technology helps companies enforce compliance with laws such as the Bribery Act, by allowing employees’ spending to be monitored in real-time from any location, with receipts and evidence saved in a single, safe online repository. New software cuts the massive admin burden of expenses management and compliance with new regulations by 50% by automating the painstaking process of checking individual receipts and claims for compliance with existing laws.

With new IT technology, businesses can take advantage of Britain’s latest legislatory drive for improved transparency to regain control over their expenditure, repair the reputation of corporate finance departments, prevent harmful prosecutions and cut the crippling admin burden.