At our expense
Date: 11 July 2008
Authors: Rakesh Kapila
Issue: Vol 158, Issue 7329
Categories: Features
There has been extensive media coverage this year on the expenses of MPs and MEPs, largely in relation to expenditure on second homes and travel and payments to family members and connected companies.
Although much media coverage relates to the overall level of expenses, eg by reference to the aggregate amount spent in renovating a kitchen or the total amount paid over several years to a family company, there has been less scrutiny of the validity of expense claims, primarily by considering whether expenditure has in fact been incurred for services “properly rendered” or goods provided to the MP concerned.
MPS' Allowable Expenses
Allowances
Before an appraisal of how MPs' expenses may be subject to detailed scrutiny, it is important to obtain an overview of the primary heads of expenditure claimed by them. Information available on Parliament's website in relation to “House of Commons: Members' Allowance Expenditure” includes the following details:
(i) the additional costs allowance (ACA) paid to reimburse MPs for necessary expenses incurred when staying overnight away from their main home for the purpose of performing parliamentary duties was set at a maximum level of £22,110 for 2006/07 and incorporates claims of up to £250 on any “allowable” item without a receipt as well as up to £400 per month on food without a receipt;
(ii) office running costs, also known as the incidental expenses provision (IEP), were set at a maximum level of £20,440 for 2006/07;
(iii) the staffing allowance (SA) paid to members to employ staff was set at a maximum level of £87,276 for 2006/07; and
(iv) MPs' travel entitlements covering the cost of travel including that on parliamentary business within the UK do not appear to have been subject to an annual limit.
Level of claims
An overview of the claims made by MPs for 2006–07 suggests that over 60% of eligible MPs claimed over £20,000 in respect of the ACA, ie representing over 90% of the value of the maximum allowance available for 2006–07. Recent media coverage has centred on the types of expenditure which can be claimed in relation to the ACA, with “current” expenditure such as cleaning costs, mortgage interest and food expenses being covered, as well as “capital” expenditure such as that on new kitchens and television sets being covered in the context of the items listed on the “John Lewis list” of allowable expenditure.
The published analysis for 2006–07 suggests that most MPs claimed either close to or in excess of the maximum allowance of £20,440 for 2006–07 relating to the IEP and close to or in excess of the maximum allowance of £87,276 for 2006–07 relating to the SA, claims in excess of the annual limits being possible given that the provisions allow for transfers from the IEP to the SA and for the carrying forward of unused funds in the IEP and SA from one allowance year to the next or the drawing down of an advance from the next year's budget.
Basis for Scrutinising MPS' Expenses
A significant aspect of the work undertaken by forensic accountants in litigation assignments relates to an examination of expenses incurred by businesses and claims made by managers and staff.
Examples include a consideration of expenses and other claims made by managers alleged to have committed fraud, an appraisal of relevant expenditure to evaluate if it is adequately taken into account in loss of profits claims and a review of expense claims made by a divorcing party from a family business to evaluate the extent to which benefits have been derived by way of such claims in addition to remuneration.
This article seeks to illustrate how such skills could be deployed in undertaking a forensic examination of MPs' expenses.
Categories of Claims
To the extent that claims by MPs may be inaccurate or “false”, it is appropriate to attempt to classify claims within different types of category. Although such classification may not be readily achievable, it is a useful starting point in seeking to raise certain key questions. On this basis, this article considers MPs' expense claims within the following categories:
● misclassifications and “excessive” claims;
● claims unrelated to services and goods;
● the lack of supporting documents;
● fraudulent claims; and
● other aspects.
Misclassifications and “excessive” claims
Examples of the types of claim which could fall into this category include the following:
(i) If a claim made by an MP under a certain head of expenditure appears to be “excessive” and may therefore be rejected, it would be appropriate to examine whether an “excess” amount has been claimed under another head of expenditure. This type of claim can be made with relative ease if it is relatively small and therefore does not need to be supported by receipts, eg allowable claims of up to £250 per item and food expense claims of up to £400 per month.
(ii) The aggregation of monthly or annual claims close to allowable limits may be subject to “misclassification”. In general, it is therefore important to ensure that expense claims are reasonable, such assurances being obtained for instance by reference to comparisons in expenditure between periods. For example, it would be important to assess whether monthly claims for food by a government minister involved in overseas travel are constantly close to the monthly “unreceipted” allowable amount of £400 despite the regular absence of the MP from his or her second home.
Claims unrelated to services and goods
Examples of the types of claim which could fall into this category include the following:
(i) Claims which do not need to be supported by receipts are more likely to have a “loose” relationship with services actually rendered or the purchase of goods. Typical examples could include broad-brush estimates for the use of gardening services at a second home or broad-brush estimates supporting claims for monthly purchases of food.
(ii) “Enhanced” claims could be made for services which are rendered on an incidental basis. For example, a nanny who is also “incidentally” involved in answering a few telephone calls each day could have a significant proportion of her income as a nanny funded by payments obtained by way of the SA on the basis that s/he offers secretarial services. It is imperative in such situations to consider the nanny's overall income, the “mix” of the duties involved and the ways in which the income is funded.
(iii) A significant proportion of MPs' claims for the ACA may relate to mortgage interest payments. In addition to ensuring that such payments are adequately supported by relevant mortgage account statements and that they do not include capital repayments, it is relevant to establish that interest payments relate to a mortgage obtained solely in relation to the purchase or improvement of the second home without any proportion of the mortgage having been used for any other purchase, eg, in assisting towards the purchase of another property.
Lack of supporting documents
In addition to claims which need not be supported by receipts, eg, monthly food claims for up to £400, examples of the types of claim which fall into this category include:
(i) Claims could be made for “retrospective” expenditure or expenses in relation to which receipts have either not been received or “lost”. In these instances, it is important to pay close attention to “generic” receipts which contain inadequate information, eg the date on which a service was provided, given that such receipts could conceivably have been completed by or on behalf of an MP.
(ii) Claims may be supported by receipts which contain “incomplete” information. For instance, a claim for gardening services at a second home could be supported by a receipt referring to “gardening services” without referring to the address of the property with such services possibly having been provided at an MP's primary home or possibly having been provided to a relative at an unconnected address.
Fraudulent claims
Although a number of the types of claim cited in this article could be cited as “fraudulent”, there are claims which may “deliberately” be made on a fraudulent basis including:
(i) “Double recovery” of expenditure is difficult to establish but clearly possible. For instance, an MP reimbursed for travel and other expenses incurred for a speaking engagement could recover an equivalent amount by way of the travel allowances available from the House of Commons' Department of Finance. Similar types of expense recoverable from funds raised for a particular campaign, eg, a deputy leadership campaign, could be “double” recovered from available travel allowances. A consideration of the efficacy of such claims would necessitate a detailed consideration of the travel involved and the expense arrangements in place for MPs' non-parliamentary activities.
(ii) “Double recovery” of expenses is also possible in successive periods. For instance, if expense claims need not be supported by receipts or are supported by “generic” receipts containing incomplete information, it may be possible for two claims to be submitted in different years for the “same” expenditure, eg repairs to a certain part of the second home.
(iii) “Double recovery” of expenses is also possible in situations where MPs are either personal partners or share accommodation. In such instances, it is important to ensure that copies of receipts or “duplicate” receipts are not used to support a “second” claim by an MP in relation to an “equivalent” claim submitted by another MP with the same address.
(iv) General “overstated” claims, which could also be classified as being unrelated to services rendered or goods obtained, may arise from service providers being asked to submit “inflated” receipts. This may be more readily achievable for low-value services such as cleaning or gardening. In such instances, receipts should contain a reasonable level of detail which can be subject to scrutiny.
(v) A key allegation relating to overstated claims centres around staff payments to MPs' family members or to connected companies. Since it is often alleged that such payments are relatively significant and have been made either without any services being rendered or with negligible assistance being afforded to the MP concerned, claims of this type should be subject to close scrutiny. In addition to the provision of detailed information on the recipient of the payment, it is important that claims are supported by details of the work undertaken, eg, when undertaken, number of letters involved etc. Such claims can then be subject to selective examination, either on a claim for claim basis, or where large sums over a few years have been paid to the same recipient.
Other aspects
Other aspects of claims which may need to be subject to examination include the following:
(i) Certain types of claim, eg those relating to travel and staff costs, may result in amounts being offset for tax purposes against “other income”. For instance, it would be improper for a claim for travel expenses from the House of Commons to be taken into account in considering the tax allowable expenses relating to fees paid for an MP's appearance at a promotional event.
(ii) Claims for certain expenses and particularly for “capital” expenses available within the ACA may relate to “unnecessary” expenditure. For instance, it is possible that an MP who has spent well ACA limit in a particular year could decide to spend a significant amount on unnecessary renovations to a kitchen so as to be able to claim close to the ACA allowance. Such expenditure would enhance the value of a second home, the benefits of such enhancement being available upon sale of the property by the MP concerned.
(iii) In general terms, it is important to consider the overall expenditure of particular MPs if claims under each head of expenditure are close to the allowable limits and if such MPs make consistently high aggregate claims from one year to the next.
Although the current system of MPs' allowable expenditure is subject to possible reform, with changes having been introduced in relation to claims supported by receipts, the prevailing system may be subject to improvements on the following basis on a par with prevailing good business practice in the private sector:
● submitted receipts and invoices should not be acceptable unless they contain detailed information in accordance with specific guidance;
● selected receipts and invoices should be subject to verification with regard to capital expenditure, eg the purchase of television sets, and high-value claims, eg those for mortgage payments; and
● overall claims by each MP should be subject to analytical review with regard to the pattern and “quality” of clams from one year to the next, the extent to which overall claims come close to the allowable limits under each category of expenditure and where anomalies are identified in relation to particular MPs.
The contention that MPs' claims are relatively modest in relation to the invaluable services rendered by them needs to be “tempered” by the consideration that there is no reason in line with prevailing good practice in the private sector and within the civil service why expense claims should be allowed unless they relate to necessary expenses incurred by or on behalf of MPs within the context of their parliamentary duties.
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