ARTICLE
17 August 2005

Expenses and benefits: how a review of processes could yield cost savings

The Inland Revenue has recently announced that it will be introducing systemsbased risk audits for Employer Compliance Reviews. Jackie Fell suggests how companies might follow this lead in reviewing the processes and procedures in place to support expenses policies.
United Kingdom Employment and HR

The Inland Revenue has recently announced that it will be introducing systemsbased risk audits for Employer Compliance Reviews. Jackie Fell suggests how companies might follow this lead in reviewing the processes and procedures in place to support expenses policies.

No matter how good your financial results, there is always room for cost reduction and improvements. Some areas are more commonly targeted than others. Headcount and office facilities, for example, come under frequent scrutiny. In the area of expenses and benefits, companies often review their company policy to restrict specific expenditure but how often are the actual processes and procedures in place subject to any strategic review?

With the Inland Revenue Employer Compliance teams changing their review approach to one of systems-based risk audits, this is a good time to consider making the company systems through which expenses and benefits are delivered more efficient. There are potential savings to be had by way of process and procedural changes, which may lead to more effective management and use of resources.

Employer Compliance Reviews have shown the Inland Revenue that, where expenses policies are concerned, there are three key aspects to consider:

A. the prescribed system, i.e. the written policy, together with any company rules and guidelines;

B. the alleged system, i.e. the procedures that management believe to be in place to make the policy effective; and

C. the actual system, i.e. the processes in place which become apparent when the Inland Revenue undertakes specific ‘walk-through’ tests.

The Inland Revenue is switching to systemsbased risk audits to identify compliance risk areas more accurately. Employers however, can also use the same strategy, to identify out-of-policy spend and opportunities to streamline procedures.

Why review expenses processes and procedures?

Instigating procedural changes can bring about long-term benefits, rather than mere short-term fixes in many areas of employee expenses. For example, a major area of company expenditure is that of business travel and subsistence. Employers are often aware that such expenditure is excessive, but in order to achieve sensible long-term reductions, they must identify where the current policy is going wrong. A review of a company’s travel and subsistence expenditure, based on process mapping, (i.e. mapping the procedures from the time the expense is incurred to reimbursement), may identify cost savings which can be achieved in a pragmatic manner and to the long-term benefit of the business.

Process mapping such expenditure may identify a variety of savings opportunities. These could include introducing a travel bureau outsourcing service, introducing expenditure limits, better identification of nominal ledger codes, identification of preferred suppliers leading to improved buying power and restrictions on the use of company credit cards.

What are the benefits of a review?

In addition to the more obvious cost-savings, other benefits include:

  • improvements in the areas of policy design and effectiveness;
  • clear and positive communication of policy and procedures to employees, illustrating consistency of treatment;
  • administrative efficiencies leading to better use of resources;
  • better use of technology to produce more accurate and useful operational management information; and
  • the elimination of risk and exposures in the areas of employment taxes compliance.

The need for an up-to-date, robust expenses policy, demonstrating a well-controlled financial environment, is understood by most companies (particularly those meeting the stringent SEC requirements resulting from Sarbanes-Oxley), but reviewing and updating support systems generally only takes place after the Inland Revenue has pointed out the often costly compliance failings.

Although a company may have identified the need for an overhaul of policy, there is often insufficient dedicated in-house resource available to undertake such a review in a reasonable timeframe. Experience shows that many internal reviews of this nature are never completed. There are many advantages to using an outside reviewer, who will have no preconceived ideas of company policy and management and will be able to provide an objective view, whilst applying appropriate benchmarks.

There are many gains to be had by following the Inland Revenue’s lead and fine-tuning the underlying processes in place to support expenses policies. It makes good business sense not to wait for a knock on the door from the Inspector to prompt action.

Process review strategy

Financial – the management and control of costs is imperative for any business but it is not always easy to identify how this is achieved.

Policy – in most cases there will be areas of ‘out of policy’ spend which may be substantial. Regular review will ensure that your policy reflects best practice.

People – is your policy fully communicated at all levels and is it motivational, supporting staff retention?

Operational – are you maximising use of technology and administrative efficiencies?

 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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