is your company protected from internal VAT fraud?vatbox.com/wp-content/uploads/2016/09/Internal-VAT... · At the same time, up to 15% of EU VAT revenues are lost to fraud, and the

is your company protected from internal VAT fraud?

VATBox E-Book, August 2016

How companies can use advanced technology to mitigate the losses and liabilities associated

with internal T&E misreporting that can lead to VAT fraud.

T&E: A Mega Expense, And Growing

Manual T&E Policy Enforcement, Inaccurate Reporting

VAT Fraud – A Growing Liability

T&E Misreporting

VAT Complexity Complicates Reporting

Employee Reporting – Inconsistent And Hard To Enforce

Internal Fraud – The Dark Side Of T&E Reporting

Data Integrity Is Key

Advanced VAT Recovery Technology – How Does It Work?

Case Study

About VATBox


CONTENT

The world is a hyper-connected place – yet much of today’s business is still conducted face to face. In 2015 global spending on business travel topped $1.25 trillion, with $310 billion in the US alone.

In fact, T&E represents on average up to 12% of corporate budgets – secondary only to payroll. To top it off, 20% of reported travel expenses – one dollar in every five – are not costs at all, but rather recoverable VAT.

*Global Business Travel Association / ** Travel Leaders Corporate 2015

Let’s visualize the above information:

$1.25T $310Bglobal business travel spending 2015 WW*

US business travel spending 2015

Average base cost per business trip for air, hotel and car rental:

$2,502 $1,002International Domestic

TRAVEL & EXPENSEA MEGA EXPENSE, AND GROWING


According to a 2016 survey by Certify, despite the incredible and growing volume of T&E expenses, the vast majority of travel reports are still submitted and reviewed manually.* T&E Policy is

not enforced

Methods to Enforce T&E Policy Compliance

Responsibilityof the employee

Manager manually reviews, checking only high value expense

T&E system automatically flags out-of-policy violations

6%

31%

Manager manuallyreview each expense

20% 26%

Largest Pain Points Surrounding T&E

Moreover, according to the same survey, employee-side reporting is notoriously unreliable, causing headaches for expense managers, and exposing companies to liability for erroneous VAT reporting.

45% 38% 50% 30%Reviewing for policy

violations

28%Errors on the

reportEmployees losing

receiptsTime it takes reconcile,

review and approveEmployee’s failure to submit reports on time

42%

* Certify’s Annual Travel & Expense Management Survey 2016

53%of companies

on a web-based

system


MANUAL T&E POLICY ENFORCEMENT, A MEGA INACCURATE REPORTING

Part of the fallout from the recent EU financial crisis is an increasing focus on VAT. Cash-strapped countries are more and more turning to VAT as a simple way to boost tax revenues.

At the same time, up to 15% of EU VAT revenues are lost to fraud, and the EUhas put together a plan of action to crack down on fraud.

Yet fighting VAT fraud requires resources and time. Rather than dig deep to recover VAT from hard-to-solve fraud, VAT authorities are tightening the screws on legitimate businessesto recov-er VAT fraud losses. Among lowest hanging fruits for VAT enforcement? Companies that unin-tentionally misreport expenses, especially T&E, for VAT recovery.


VAT FRAUD A growing liability

T&E MISREPORTING

Misreporting T&E expenses – intentionally or unintentionally – is an administrative burden on the organization, and a potentially serious liability.

Why are T&E expenses especially vulnerable to misreporting?According to a recent survey, much has to do with how companies handle these expenses, and how they require employees to report them.

Methods for Managing T&E Reporting

2013 2014 2015 2016

Cloud/web-based 36% 44% 37% 35%

Excel spreadsheets 35% 29% 32% 37%

Homegrown solution 7% 5% 7% 5%

Pen and Paper 10% 4% 4% 8%

ERP 12% 18% 19% 15%

The mix of expense management system remains consistent:

Not Always Malicious, But Always Dangerous


VAT COMPLEXITY COMPLICATES REPORTING

VAT paid on T&E goods and services, similar to other business expenses, is recoverable in

accordance with local and international regulations.

The problems are:

VAT recovery is highly complex.

The vast majority of employee T&E reporting and validation are still conducted manually.

VAT rates, reciprocity arrangements and recovery formats differ from product to product

and country to country.

Over $5.5 Billion in Unclaimed VAT Yearly

So it’s no wonder that many companies simply write off the VAT as part of their overall T&E expenses. This money, to which companies are legally entitled, disappears into the black

hole of the more than $3 billion in unclaimed VAT yearly.


Employee T&E Reporting

Inconsistent and Hard to Enforce

Even the most disciplined business traveler has trouble keeping up with the complexities of T&E reporting in the rush of a hectic travel schedule. Small-size receipts are often lost and reports are prepared in a hurry between trips.

While many companies have fully implemented a web-based T&E reporting system, and enforce its use - nearly 50% of companies still rely on manual reports, or electronic reports reviewed and approved manually.


What’s Missing?

What’s missing from a regular employee travel report, from a VAT recovery point of view? Just about everything. There’s no VAT amount, no supplier invoice number, and no supplier VAT number. And even if individual invoices are included, usable VAT recovery data is not a given.

Even with a clearly-scanned invoice, making assumptions about VAT data isdangerous. In a given hotel or restaurant invoice, there can be multiple lines with different applicable VAT rates: food versus bar expenses at a restaurant, accommodation versus Wi-Fi in a hotel, for example. Although it would certainly be convenient, it’s incorrect to simply factor the percentage of country VAT off the top.


9

Internal Fraud - The Dark Side of T&E Reporting

Unfortunately, companies also face the challenge of intentional employee misreporting.

The more bombastic stories, such as those illustrated on the next page, can be amusing. Yet the phenomenon of employees who purposefully inflate travel and entertainment expenses or invent nonexistent expenses – especially when reporting policies or tools are lax - is not funny.

It represents not only a breach of employee-employer trust, but also a serious VAT fraud liability for companies trying to recover VAT.

$35,000 for a dozen cases of wine

$25,000 house rental for one day

$20,000 private plane rental

Why Policy Enforcement MattersTop 5 Highest Expense Amounts of 2015

$18,000 night out in Las Vegas

$4,000 for one bottle of champagne


VAT Fraud – Why Else?

According to Tax Assurance Research, there are a number of other organizational triggers or causes for VAT Fraud:

Lack of transparencyOverly-complex financial transactions can be difficult to understand.


Poor information managementIf IT systems don’t deliver results that are timely, accurate, detailed and relevant - warning signs of fraud can be obscured.

Non independent internal audit departmentWhen the internal audit department is not independent - red flags can be ignored.

Moral leadershipIn organizations where top management participates in potentially fraudulent practices like adjusting expense claims upward, others will inevitably follow.

Poor accounting controlsWhen accounting controls are lax, the signals that fraud is occurring can be easily missed.


SECURE T&E VAT Today, regardless of their T&E reporting methodology, procedures, and technological platforms, companies have new options to secure T&E VAT leaks, lower the risk associated with VAT fraud, and dramatically improve VAT recovery.

For structured, unstructured, and even ad hoc T&E expenses, new technologies facilitate a single, centralized and automated VAT recovery process, enterprise-wide. These solutions are automated and leverage existing data, processes and systems to streamline VAT reporting and maximize returns.

Data Integrity is Key

Advanced VAT recovery technology gathers data from every T&E data resource across the full range of internal and external company systems. With no IT involvement, VAT-relevant T&E data is extracted from wherever it may be hiding – including strategically important external sources, like major hotel chains frequented by travelers.

Advanced OCR technology can automatically decipher scanned receipts in any format, and then cross-check these against submitted expense reports. These tools use cropping and matching techniques to deliver full insight into every VAT expense and report line. This ensures full compli-ance, more accurate risk assessment, and documented audit trail.

Once T&E data is qualified, these solutions use a rules-based engine to validate both foreign and domestic VAT claims - without resource-consuming manual data aggregation and qualification.

Where legacy VAT recovery providers work manually, sifting through paper invoices one by one and choosing only those invoices “worth their effort” to submit - technology-driven VAT recovery eliminates the labor overhead and human error associated with manual processes. This enables cost-effective discovery, validation, and submission of even small invoices. The end result – more VAT recovered, more efficiently and more effectively.

ACCOUNT SETUP &MAPPING

DATAGATHERING

DATAINTEGRITY

VAT KNOWLEDGE& EXPERTISE

ANALYSIS &GOVERNANCE


VAT Recovery Technology:How Does It Work?

CASE STUDY

A multinational pharmaceutical company Centralizes and Automates VAT Recovery THE BUSINESSA leading global pharmaceutical company that delivers high-quality, patient-centric healthcare solu-tions to millions of patients every day. As the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area with net revenues in 2015 amounted to over $20 billion.

THE CHALLENGEThe company is a true multinational, with hundreds of entities and VAT registrations worldwide, and hundreds of business travellers crisscrossing the globe each month.

The VAT processes were still very much decentralized, and managed by local entities. Despite the high and growing volume of unstructured processes, much local VAT data remained unqualified. Moreover, the data resided in diverse systems and was subject to loose governance. For example, not all invoices were scanned into the T&E systems, and executives using company credit cards often didn’t retain invoices at all.

THE SOLUTIONVATBox was chosen to meet its strategic goals of centralizing and automating VAT recovery efforts across all corporate entities. Moreover, the company decided to invest in VATBox to raise overall indirect tax governance, replace inefficient manual VAT recovery processes, lower the risks and liability associated with inaccurate T&E and other VAT submissions, and dramatically grow overall recoverable global VAT.

THE TAKEAWAYSSome of the keys to the success of VATBox rollout were:

Goals

Timeline

Buy-in

Determine a clear focal point in each region or entity.

Define a clear and staged rollout timeline.

Have a buy-in of all relevant local and corporate decision makers in advance.

Status updates

Objection handling

Education

Schedule a status meeting once a quarter to ensure a smooth process.

Evangelize the process.

Educate stakeholders in the most suitable manner for your company.


Since 2012 VATBox has been revolutionising the VAT recovery marketplace with its automated cloud-based solution leading the worldwide foreign VAT recovery arena.

VATBox is a global cloud-based technology company focused on simplifying the laborious VAT recovery process through intelligent knowledge-based automation. VATBox gives businesses full visibility, full international compliance and data integrity. Using intelligent automation and keeping all data entirely in the cloud, VATBox gives you full control of your VAT spending, making the VAT recovery accurate, productive and increases returns.

With offices in London, Paris, Frankfurt, New York & Tel Aviv, VATBox operates globally to give businesses full control over their tax spend.

For more information visit www.vatbox.com

ABOUT VATBOX


Documents

is your company protected from internal VAT fraud?vatbox.com/wp-content/uploads/2016/09/Internal-VAT... · At the same time, up to 15% of EU VAT revenues are lost to fraud, and the