Tips to Prevent Expense Report Fraud
According to the Association of Certified Fraud Examiners, expense reimbursement fraud is one of the top ways to steal money from a business. In 2016, the average loss per offender was upwards of $40,000, and studies show that it generally takes two years to discover expense report fraud.
Most Common Examples of Expense Report Fraud
- Overstating Mileage: An employee may state on their expense report that their commute to the client is 20 miles from their house, when in reality they only live 10 miles away. Even though the difference is only 10 miles, this would add up quickly if the employee goes to this client every day for a month. That is 300 fraudulent miles each month!
- Altered or Fake Receipts: An employee may take a client out for lunch, but instead of submitting the receipt that they received at the restaurant, they may manipulate the receipt to state that they spent more than they actually did. There are even websites that allow the public to generate their own fake receipts.
- Personal Purchases Charged to the Company: An employee may decide that they want to take their spouse out for a nice steak dinner, but they don’t want to pay for it. They will state on their expense report that they took a client out to dinner instead of their spouse.
Management’s Role in the Fraud Triangle
Although there are many ways for employees to commit expense reimbursement fraud, there are also many ways for management to reduce such incidents.
The fraud triangle consists of three different factors including opportunity, pressure, and rationalization. Management is in control of the “opportunity” factor because they can limit the amount of opportunity that employees have to commit expense report fraud. Management should make it clear to employees that they are serious about fraud. If employees think there is a good chance they will get caught, they are less likely to commit fraud.
Create a formal reimbursement policy. The policy could include rules as follows:
- Require detailed receipts for all expenses
- Prohibit the use of personal credit cards. If an employee has to use the business credit card, expenses can be monitored by management
- Require signatures and dates by upper level management on all receipts to ensure that management has examined the receipts
- If a large purchase must be made, only upper-level management has permission to do so
- Prohibit the reimbursement of cash expenses unless otherwise noted by management. Cash purchases are nearly impossible to trace if there is an issue
- Consequences included in the policy if the rules stated are not followed accordingly
- Review employee work and vacation schedules to ensure that payments on the expense report were during work time and not vacation time.
Benefits of Online Expense Report Systems
- Automated systems can assist in the following ways:
- Detection for multiple reimbursements of the same check
- Generation of audit trails
- Automatic credit card transaction import
- Mobile, email, fax, and web-based interfaces that allow employees to submit their expenses as they incur
- Reduced cost of expense report processing
- Elimination of spreadsheets, manual approval processes, and written policy documents. All of these could now be in the software
- Some software allows the employee to see if their purchase is acceptable or not at the time of purchase
If you suspect expense report fraud may be occurring in your business, contact the Fraud & Forensic Accounting specialists at Apple Growth Partners at 330.867.7350.