Expense fraud is prevalent in business. It costs companies billions every year, and many businesses will experience some form of expense fraud during the course of their operations. According to the Association of Certified Fraud Examiner’s 2018 Report to the Nation, expense reimbursements accounted for 14% of all fraud cases studied.
Expense fraud can come in many forms. These are some of the most common schemes
Types of Expense Fraud
Fake or fictitious reimbursements
Fraudsters will submit expense reports with doctored or crafted receipts to file expenses that never actually happened. Anyone with some know-how and a design program can create a fake receipt, but there are also companies that can counterfeit receipts with astounding quality and accuracy.
Altered or inflated expense claims
Sometimes, receipts aren’t fully counterfeited. Employees may simply increase the amount that an expense costs before submitting, usually using design software. Alternatively, they will inflate their mileage for a trip or write in a larger tip amount for a meal. This type of fraud can be more difficult to spot.
An employee submits the same receipt multiple times. For example, they might submit the original receipt and their credit card statement as separate expenses even though they cover the same purchase.
Expenses are, by nature, for business-related spending. And yet, one fifth of employees have filed at least one non-compliant purchase. Employees might think that it’s easy to claim personal expenses as business expenses, but these mischaracterized reimbursements can easily get out of hand. These might be as simple as a night out “entertaining clients” who are really personal friends, making personal purchase and claiming the supplies were business related, or as outlandish as a vacation with a significant other. Even in extreme cases, mischaracterized expenses aren’t always easy to weed out without proper controls.
While fraud can be devastating to your organization, you can take proactive steps to prevent fraudulent spending by your employees.
Tips for Preventing Reimbursement Fraud
Use corporate cards with expense management software
Corporate credit and debit cards are effective tools for fraud prevention. Since your business controls the card, you have total access to spending and bills and don’t have to rely on employees submitting reports.
Some cards come with software that allow you to take proactive controls on expenditures. You can set limits on amounts spent, assign who can use certain cards, and control the when, where, and how much for expenses. Software often lets you set up real-time alerts (like texts and emails), so your owners and administrators are always in the know. Remote controls also allow you to turn a card on or off at a moment’s notice.
Control and monitoring software creates more company transparency, too. Employees may be more conscious about their company allowance, knowing that any non-compliant spending will be caught.
Require original receipts
Without software in place for expense monitoring, manual controls like requiring original, physical receipts will help you keep a grip on fraud. Copies won’t always work—altering receipts before scanning is easy, and it can be tough to tell if alterations were made.
Review every expense report twice
Even if you have few employees, one or more secondary reviews and approvals should occur for every reimbursement. Additional review layers help you catch mistakes, but they also deter potential theft, as everyone knows every purchase is under scrutiny.
Give clear guidelines
Don’t leave any room for error in your business expense policies. Communicate clearly what can and can’t be put on your company’s tab, e.g. alcohol can’t be purchased, all client entertainment must be pre-approved, and office purchases must be made in approved merchant categories. You should also make per diem amounts known to every employee.
Perform random audits
Even if you’re already monitoring expenses closely, random audits can help prevent fraud. Unannounced audits keep would-be thieves on their best behavior. Plus, spot audits of employee expense reports can help reveal anomalies and ensure every expense has proper documentation.
Monitor average costs
Every once in a while, analyze average spending across different categories like restaurant spending, air travel, and supplies. Doing so will allow you to spot trends in employee spending and catch any outliers that may point to fraud.
Create a tip line
Your employees are a great source of information in fraud prevention. Create a fraud tip hotline within your organization to help with initial fraud detection. According to the Association of Certified Fraud Examiners, organizations with hotlines detect 46% of fraud cases by tip vs. 30% for organizations without a hotline.
Set strong examples
Regardless of your controls and policies, employees look to leadership when it comes to spending. If they see you or your executives making non-compliant purchases frequently, they will be encouraged to do so themselves. Keep your own spending in line.
If and when someone in the company does commit fraud, however, it’s critical that you set an example and follow through on your company policies. Don’t let fraudsters off with a slap on the write—make it clear that intentional expense fraud earns appropriate punishment.
Stay vigilant to prevent expense fraud
People are clever, and you’ve hired smart employees. Thorough policies and powerful software can give you peace of mind, but there’s always a chance someone will figure out how to beat your systems.
Following these tips will help bolster your company’s fraud prevention efforts. Just remember to stay on top of your policies and procedures and you’ll keep employees from abusing company allowances.