Other People’s Money

I have just been reading yesterday’s Mail On Sunday about the extraordinary expenses claims
of former JJB Sports chief Chris Ronnie, which recall the worst excesses of disgraced US CEOs such as Bernie Ebbers of Worldcom.

Most of the expenses mentioned in the report from top accountants Deloitte referred to planes and helicopters but coming hot on the heels of the lurid stories of expenses claims by MPs, BBC executives using public money to shower its highly paid talent with gifts and dinners and the current focus on the revival of the lavish salary and bonus culture that permeates the City, it is easy to take the view that our leaders, be they public sector or private sector are seized by an extraordinary level of greed the moment they get the keys to the executive bathroom.

And yet are those of us that make up the lower reaches of the scale untainted by all of this? Fiddling expenses is sadly not uncommon within the work environment, and even those of us that would never dream of being dishonest will invariably make the most of any opportunity to help ourselves if our employers are paying. The temptation to enjoy the benefits of other people’s money remains strong.

Even owner managers, who are the closest to business people who actually do spend their own money, are not immune from such temptations, particularly when you consider that much of their funding comes from third party creditors and funders, such as banks, and that many such owners have difficulty distinguishing between the company’s funds and their own.

Actually what we are seeing here is what can be termed as a warped sense of entitlement, often borne of resentment at inadequate pay and rations or some other perceived employer slight. The inner justification of “I deserve it. It is my money really” is what drives this desire to maximise the use of other people’s money. In the case of the MPs, it was their view that their pay was not commensurate with their status and therefore it was right to use their generously lax expenses system to supplement it. In the case of Chris Ronnie, it was “I am important and therefore it is right that the company spends this money on me” and in the case of the average employee it is often “they don’t care about me so I will take them for everything I can get”.

I am not sure if we will ever reach a stage where people treat business expenditure in the way they treat the money that they have to shake out of their own personal piggy banks, but maybe the key to reducing this sense of entitlement, apart from implementing strong financial controls (including in the case of senior executives a robust non executive presence) and creating awareness of the fact that excessive use of other people’s money is plain wrong, is to make them feel more valued in the first place.

A moat too far – MPs expenses and financial management

Now, what can we possibly say that hasn’t already been said about the MPs expenses debacle?

Well from our perspective it has a number of characteristics in common with other financial scandals whether in the public or private sector, which illustrate poor financial management and control.

1. An unclear policy
Much has been made by many MPs trying to mitigate their disgraceful behaviour by claiming that the expenses policy and regime was unclear. Certainly by what has been reported in the press, the fees office seemed to have a high degree of discretion in how much for example of a £2,300 plasma TV would be reimbursed. They also had policies which weren’t communicated eg. that they would normally pay no more than £750 for a TV. But if that was the case why didn’t they write it in and communicate it? Why did the John Lewis list only eke out into the public domain by chance last year? This can only have increased confusion and inconsistency in the application of the policy, such as it was.

2. A weak finance function
Most MPs are a pretty forthright lot. Perhaps they don’t always smack you on the chin like John Prescott but I suspect many of them can be fairly intimidating to administrative staff in the fees office. It does seem that the sarcastic and patronising correspondence from MPs to fees office staff that has come to light may have placed pressure on the fees office to pay claims which they might not otherwise have done. Apparently, there was also a fair bit of bullying going on .

3. Management override
A powerful management team or CEO in any organisation can often get their own way (passim. Fred Goodwin etc.). In this case the fees office seem not to have been supported by anyone in the House of Commons. Indeed two of the three main political parties consistently voted against greater disclosure and even for their own exemption from the Freedom of Information Act 2000!

4. Unclear reporting lines
On top of all this the reporting lines for the fees office were somewhat unclear and incestuous as The Guardian has clearly shown . If there’s no one at the “board” level with accountability then those at the board level have greater lee way to abuse the system. In the Commons, the most important person is the Speaker and it is his responsibility to safeguard the reputation of the House. His failure to do so and his mocking of those seeking it would be a dismissible offence in most organisations.

5. A misunderstanding of the ethos
Most people would understand clearly that expense claims are for costs incurred so that you aren’t out of pocket in performing duties for your employer. Was it really beyond MPs to understand this? Or was it even stated anywhere? Or was it as a concept overridden by daily sloppy practice in the organisation? Who was the guardian of financial prudence in the House?

When you get one of these issues arising it’s a cause for concern, but when you get all five it’s a disaster waiting to happen.

So what next? Well, in most organisations an issue like this would be dealt with quickly to produce an effective solution which have broad support. The measure of the House, the Speaker and the party leaders will now be how quickly they can produce a solution which meets the publics expectation for common sense.

Steve Easterbrook, CEO of McDonalds UK was on Question Time last week and was the voice of common sense and good business practice and was puzzled why this could not be fixed within 48 hours.

We wait with bated breath to see how quickly the honourable members take to deal with the issue and when the moat will stop rocking this hitherto fine institution.

(Meanwhile, this is a classic- See Eric Pickles MP explaining why he needs two homes in the capital to do his job).

Ash Mehta