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Case Study Mileage Expenses – Large US Chemical Company – 300 Users

Company profile

Company A is a large US organization with annual sales ITRO $16 billion and approximately 35,000 global employees. They have a large UK presence.

We have kept the companies name private as there is sensitive tax information included in this case study

Business Problem

Company A had a problem with its mileage expenses. During an HMRC compliance review it was discovered that anomalies with the mileage expenses process had been uncovered.

The non-compliance focused around two main areas: The mileage expenses process itself and the fact that drivers had been proven to be overestimating mileage. As part of the study it was also discovered that certain employees had been claiming for mileage between home and a permanent place of work.

The Process

The mileage expenses process had previously taken drivers just 20 minutes or so to complete, but when reviewed there was deemed to be some significant gaps in the information recorded.

Among the many problems, the following were deemed as the key issues:

  • The claims showed all trips within a day totaled into one amount. E.g. 10 trips of 10 miles each just showed one entry for 100 miles
  • The individual trip details, such as start and end addresses, dates and reason were non existent
  • Many of the entries indicated trips such as “Home to Home or Home to Office”
  • The pence per mile were chosen by the driver from a drop down and it was discovered that more than 60% were entered incorrectly.
  • The approvals process was lax or in some cases nonexistent.

Overestimation and Fraud

Due to the process being far from ideal, the company’s mileage records showed (and actually proved) that many drivers were overestimating mileage and in many cases appeared to be committing fraud.

Some of the key issues were:

  • A selection of Key drivers with fraudulent mileage equating to more than 300% of the mileage travelled
  • Some drivers claiming for train tickets whilst claiming to have driven the same route.
  • Drivers travelling in 1 car but all passengers claiming the trip as well.
  • Distances often exaggerated will above the actual trip distance
  • Some claims for mileage actually higher than the odometer readings from the same period
  • Overall mileage claims equated to 32.3% overestimation against all users.
  • The approval process was not enforced and many expenses were not properly approved

Permanent Place of Work

If you drive from home to a permanent place of work, then it is seen as a commute and not chargeable. The rules around a permanent place of work are complex and can be found here (http://www.hmrc.gov.uk/manuals/eimanual/eim32065.htm). Many companies and drivers can inadvertently change the permanent place of work by the behaviors they exhibit. E.g. A salesman who officially works from home but goes into a local office 3 days a week could inadvertently change his permanent place of work to the office, making those trips a commute and not claimable. Company A, had a large list of such drivers which meant many more miles had been claimed than should have been.

The Consequences

Without going into all the associated compliance and tax issues that were uncovered the client went through a 3 month period of negotiation with HMRC ultimately resulting in a back payment of taxes, interest paid on those taxes and a penalty on the taxes.

On top of the payment to HMRC the client also had to pay considerable fees running into tens of thousands to its advisors (a big four firm) to help negotiate with HMRC and to put together remedial solutions

The whole affair ended up costing the firm in question the equivalent of just over 4 weeks’ worth of net profit

The Temporary Fix – Making it Harder

To fix the problems (outlined above) the company decided to initially put together their own process based on the good advice it had received. This involved an incredibly intricate and comprehensive spreadsheet. The spreadsheet offered virtually no room for error and covered all of the points of compliance however it had one huge draw back… It took a long time to complete.

The new process was so involved that it now took the average driver 4.5 hours on average to complete. For some drivers this was virtually an entire day on mileage admin.

Part of the problem had been fixed but the side effects were almost as unpalatable.

The search was now on for a valid alternative that was both compliant and quick

The Solution – PEAK Miles

peakscreen

Company A considered a total of 11 systems and solutions to solve its mileage problems, from the full blown in car telematics, to phone apps and everything in between.

After a number of user trials and a short list of the best 3, the users were given the option to choose the best fit going forward. Above all the competition the PEAK system was chosen.

The user group commented that they liked the following about the PEAK system:

  1. It was quick, with the whole process taking around 10 – 15 minutes (down from 4.5 hours)
  2. It seemed easy; the users had tested the PEAK Trip stick where a small device is placed in the car cigarette lighter to record all trips. The data is then uploaded by the driver at the end of the month when the claim is ready.
  3. It was accurate enough: The users commented that the trips they uploaded appeared to be very accurate in comparison to the alternative methods. They did comment that sometimes if they set off quickly they may lose 100 meters or so until the GPS kicked in, this generally only happened for the first trip each day. The largest distance lost by any individual meant the system was at least 97% accurate overall, with many users claiming virtually 100% accuracy. Certainly much better than they were used to!
  4. The users liked the way they could hide any personal trips from their employer.
  5. They liked the fact that although it used GPS it did not record speed, driver behavior or anything they would rather not share with their employer
  6. They also liked the fact that the GPS did not use up the battery on their phone and the way they did not need to remember to turn it on or off.
  7. Overall they like the fact the PEAK system was designed specifically for mileage without being cluttered with lots of other features.
  8. They like the fact the user comments were generally very positive even though it could be seen as tracking
  9. The fact that personal trips could be hidden by employees was seen as a big bonus in the fight against big brother perceptions
  10. The fact that the system could be developed slightly to encompass some of their specific needs was seen as a huge bonus
  11. With its 3 options it meant that high mileage users could be given GPS devices but less frequent users could be put on the lower cost manual system
  12. They also liked the way that both company car drivers with fuel cards and grey fleet drivers could all use the same system and feed into the same reporting system.

The Management Team of Company A also had some comments and elements that they liked about PEAK

  1. They like the fact the user comments were generally very positive even though it could be seen as tracking
  2. The fact that personal trips could be hidden by employees was seen as a big bonus in the fight against big brother perceptions
  3. The fact that the system could be developed slightly to encompass some of their specific needs was seen as a huge bonus
  4. With its 3 options it meant that high mileage users could be given GPS devices but less frequent users could be put on the lower cost manual system
  5. They also liked the way that both company car drivers with fuel cards and grey fleet drivers could all use the same system and feed into the same reporting system.

Benefits

The benefits for the company were startling and continue to be. They include:

  • Time taken to complete a claim has dropped by 95%
  • Accuracy of mileage has changed from 67% to around 98%
  • Savings in the total mileage bill equate to around 30%
  • The saving mean the entire yearly cost of PEAK has been recovered in month 1.
  • The approvals process is much more regimented and now picks up anomalies
  • The payroll reporting is simple reducing the time of the payroll team to process mileage expenses, and to spot any anomalies.
  • The Finance Director now sleeps more easily at nightProducts and services your company used

The PEAK system that the company used is as follows:

  • The PEAK GPS System and GPS strip Stick.
  • The PEAK enhanced system for low usage drivers
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About the Author

Alex Baker
"The reasonable man adapts himself to the conditions that surround him... The unreasonable man adapts surrounding conditions to himself... All progress depends on the unreasonable man."

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