Champagne, Covert Claims & Casino Bankers

Financial services get the cream of the expenses crop but Sanjay Parekh, MD at Web Expenses, argues that transparency must come from the top if City boardrooms are to fight off the fraud squad, save money and claw back taxes


The implications of a spate of recent reports are clear: it is Britain’s financial-services sector that is at greatest risk as the Government’s newly-empowered anti-corruption warriors chase the expenses money trail in pursuit of their next big-name catch.


A recent Kroll report found the financial-services sector had the greatest prevalence of internal financial fraud and regulatory breach of any business sector, and we now know this arises from the fact that the City’s expenses honey-pot offers significantly richer pickings than any other industry: financial-services employees claim an average of £219 for accommodation, compared to a national average of just £163, and almost half of all City employees receive £1,500 a year in expenses, compared to just 28% nationally.


The larger amounts of cash changing hands in the financial sector, mean the City is both more vulnerable to employee expenses fraud and set to attract the closest scrutiny from white-collar anti-bribery detectives.


Even worse, it appears that the expenses rot has set in from the top: the latest studies show that managers are five times more likely to commit expenses fraud than employees.

As the spectre of the latest Bribery Act hangs over City Finance Departments, a look across the water could offer a frightening glimpse of the future here: the toughening of US anti-bribery laws has led to a record £1.1 billion of fines for bribery in 2010 alone and the trend is upwards. With HMRC now receiving an extra £900 million to help enforce compliance with expenses policies and the FSA equipped with a £68 million budget, Britain is fast catching up with its hawk-eyed US counterparts.

Even before the Serious Fraud Office begins to show its newly-sharpened teeth, the FSA had already been turning the heat on suspicious financial-sector corporate hospitality. Insurance-broker Willis Ltd was recently hit with a record £6.5 million fine merely for the failure of its Directors to take sufficient measures to prevent bribery, even though no actual bribes were ever proven to have taken place.


The Serious Fraud Office will now have the power to impose 10-year jail terms, limitless fines, as punishment for the mere failure of company Directors to enforce anti-bribery policies. And worldwide banks with City links will have noted that the Bribery Act applies to foreign companies with even the most tenuous of business connections to Britain.


And the failure to enforce expenses policies is now harming business growth: the Dow Jones state of corruption survey shows that many businesses are turning down global partnerships for fear of leaving themselves legally exposed to the international tentacles of regulations such as the Bribery Act.



A Culture of Casual Corruption
It is vital for the financial sector to begin to understand where this culture of casual fraud originates. The problem is not confined to the City: a recent YouGuv survey found 23% of employees across all sectors admit to regularly inflating claims. Deloitte say this is because expenses claims are rarely investigated and many businesses do not mandate that they should be checked by Head Office.
In the City, this problem is only amplified by the fact that cash and gifts are status symbols: the mouse-mat and the wine-bottle simply won’t suffice when it comes to impressing City bigwigs at client dinners.


But lax controls alone cannot explain what has allowed this culture of casual fraud to incubate. An interesting study by Ernst & Young found that many employees see nothing wrong with cash inducements while one in four do not believe their managers behave ethically. The implication is clear: when it comes to honesty in financial dealings, employees take their moral lead from those at the top.


The Solution
If businesses can prove they had tough systems in place to prevent bribery, then the Serious Fraud Office will not punish Directors for the actions of employees who manage to elude them. If businesses enforce policies fairly across all tiers of employee, then employees are more likely to co-operate with expenses rules.


Financial-services giants are now turning to automated solutions to take human error and prejudice out of the expenses-management process, through standardised, menu-driven, cloud-based systems which can permanently record and monitor company-wide  employee activity from any location.


Financial-advisory parent-company Honister Capital recently told how its adoption of the WebExpenses system has incubated a culture of transparency and fairness in the organisation. The system helped institute a central policy framework across its diverse array of businesses and provide a comparative overview of expenses spend across different Departments.


The software automatically collects data straight from a company card, red-flags non-compliant claims, can be tailored to different company policies and keeps a bullet-proof audit-trail in the cloud. Critically, ethical expenses-policies can even be enforced while employees are on the move: smart-phone apps allow employees to use cameras to enter claims and receipts so that Finance Directors can centrally monitor global spending patterns in real-time.


Cloud computing may yet aid the financial sector’s move towards fully-transparent financial-governance.




More Casino Guide Articles