I learnt a lesson about business expenses early in my career. In those days I knew a hard-bitten Australian mining promoter who regularly took over companies and then fired the management – normally without problems.
He told me his trick: the day he bought the business he always went to the accounts department and examined in great detail every senior executive’s expense forms to detect fiddles. According to him, it was a rare occasion when he didn’t end up with enough incriminating material to sack whomever he wanted.
Indeed, in some lines of work expenses are seen as an integral perk of the job. Padded expenses are normal practice, a bonus, a top-up to the salary. I suspect they help make the world of posh restaurants go round: some I once owned, such as The Ivy, derived at least one-third of their overall income from business accounts. I wonder how many such meals are legitimate costs incurred in the course of work duties?
But defrauding expenses is a perilous game. Toshikatsu Matsuoka, Japan’s agriculture minister, committed suicide in May after claiming almost £120,000 worth of utility fees at his parliamentary office – in spite of the fact that such services are free in government offices.
And memorably Dennis Kozlowski of Tyco supervised hundreds of millions in unauthorised loans and gifts for himself and other executives. He ended up in jail thanks to his greed.
Why is it that well-paid managers rip off their employers? Generally it is not because they need the money. They do it because they feel exploited or hate their boss – or like the risk.
It’s the same thrill some people get from running off without paying a restaurant bill, even though they can afford it. Surveys suggest men often cheat on their expenses to help them impress the opposite sex. Other research indicates one in five workers does it. Apparently the culprits rarely feel guilty – perhaps because they get caught only occasionally.
In truth, if expense account fiddles were all the fraud I’ve had to contend with over the years, my corporate life would have been much easier. But you need to be constantly vigilant – especially in cash businesses such as retailing and the restaurant trade. I hate euphemisms such as “shrinkage”, which are used by shopkeepers to describe the costs of shoplifting. It makes it seem as if the offence is hardly a crime. Yet shoplifting costs at least £1.7bn a year, even though retailers spend almost £1bn on security measures. And this comes on top of annual employee thefts of another £1.5bn.
One of the first public companies I got involved with had accounts that overstated revenues and concealed liabilities – a very painful discovery. It may have had something to do with the fact that the finance director was senior partner at the auditors. Welcome to the world of high finance.
Other companies I’ve owned have suffered from ghost employees, forged cheques, faked robberies, organised credit card scams, counterfeit banknotes, phoney refunds, payments to bogus suppliers, invoice kickbacks, staff working for competitors and hands straightforwardly in the till.
I doubt that my experiences are worse than average. If a theft or fraud can be carried out, it will be. Mostly the sums are not huge and the fraudsters tend to be amateurs. But the cons always disappoint – they involve lies, betrayal and other seedy behaviour that occasionally makes you despair of human nature.
Unquestionably, seasoned entrepreneurs end up more suspicious and cynical than beginners. We all start out trusting people and end up expecting assets to be misappropriated at every turn. This explains the prosperity of the security sector.
I leave the last word to that gloom merchant, Dostoyevsky: “Shower on him every blessing, drown him in a sea of happiness, give him economic prosperity such that he should have nothing else to do but sleep, eat cakes and busy himself with the continuation of the species, and even then, out of sheer ingratitude, sheer spite, man would play you some nasty trick.”
Is fiddling expenses a perk of the job or a perilous game? Have your say at www.ft.com/expenses
The writer is chairman of Channel 4 and runs Risk Capital Partners, a private equity firm