As political leaders scramble to introduce radical new measures for better governance over the MP expenses system, organisations also need to review their business expense processes, says Tim Hardcastle.
Despite the fact we’re at the tail-end of a recession, businesses are still mismanaging their operational expenses, with expense spend up to 40% higher than it should be, and are therefore throwing away millions of pounds each year.
Over the last five years, we have worked with HR directors and finance directors to help save companies in excess of £50m by reviewing their operational expenses processes including sub-contractor spend areas from company cars, fuels cards and company credit cards.
The following top tips are a guide to an efficient internal expenses management system that will deliver cost-saving benefits to the business:
- A good business expense system is process driven with tight governance and controls.
- Ensure all expenses processes are transparent, auditable with delegated authority and automated wherever appropriate.
- Any new governance process needs to be communicated to staff with checks in place and assigned ownership and sign off policies.
- Clear expense policies are vital, setting out who authorises expenses, what value they can authorise and who is overseeing these policies. If this is unclear for any type of spend than there are likely to be issues.
- Informally ask questions to determine if the authorisers check the expenditure, if they follow policy and are conscious about keeping costs to a minimum. If necessary, change your authorisers to someone who will be focused on reducing spend.
- Ensure to read the policies you have in place. It’s surprising how few do.
- Consider alternatives to the spend area. For example, could you introduce a policy to encourage staff to take the train instead of using company cars? If they have a company car, why do they need to take the train? Is it really essential to have a fuel card for their role? Are company serviced apartments cheaper than using hotels? Encourage employees to use video-conferencing instead of taking flights.
- Ensure all expenses are charged to appropriate cost codes to align all expenditure against departments, clients and individuals, to track spend against real overhead costs. This will help identify whether each spend area adds value to the business or is merely a drain on the bottom line.
- Track certain expenses – particularly company cars, taxis, trains, fuel cards – with reporting structures to identify areas for improvement. This is particularly useful where you have sub-contractor accounts with discounted rates. This will also help determine if staff are using things, like company credit cards, responsibly.
- Recessions are a good time to strike a bargain with sub-contractors. But it isn’t all about price; you still want contractors to deliver effective services. Ensure your contractors are incentivised to reduce your overall costs through cost reduction rewards.
- Review your spend on external contract staff. Check your supplier contracts. Are those rates actually preferential or are they ‘reductions’ against a pre-inflated price? If you use a lot of contract staff, identify why and make sure the value adds up. Is the business overall getting value for money from its contract workforce or would it be cheaper to recruit permanent employees? Negotiate any long standing contractors to permanent roles.
In short, the key to cutting down your business spend is to focus on high spend areas and put in place effective supplier contracts. Don’t get bogged down by low value spend as you’ll just be wasting time and money on areas that offer little reward. However, do encourage a cost awareness culture. Get directors to lead from the front on the importance of keeping costs down which, in turn, will ensure that all business expenses and costs across the company are kept to a minimum.
Tim Hardcastle is chief executive of F2X, a leading consultancy specialising in expense review and business management.