Business expense fraud – can you spot it?

17 March 2019

Can you be sure how much expense fraud is happening in your business? While most CFOs assume their finance teams will have this well in hand, the truth is on average one in five expenses will be in violation of corporate policy.

To date, all recommendations for clamping down on business expense fraud have involved the manual process of creating and double-checking expense reports. For growing businesses that rely on spreadsheets to manage this process, this approach simply doesn’t scale.

There are four main ways that employees can defraud expenses: through fictitious claims, multiple claims, inflating actual expenses, or mischaracterising the nature of claims (outside corporate policy).


Fictitious claims

According to The Association of Certified Fraud Examiners, around 14% of its investigations into asset misappropriations involved some kind of expense fraud. 

This is particularly true when collusion happens amongst employees with executive support. For example, managers taking their teams out for an expensive lunch including alcoholic beverages will often have a team member submit the expense claim that they then approve.

Examples of fictitious expenses include:

• Personal expenses including fuel for non-business travel, groceries, hotels that aren’t related to work trips.

 Claiming for travel or expenses that never happened. For example, cancelled flights, professional subscription dues, workshops or seminar fees and work-related training or tuition.

 Claiming items that weren't purchased, for example client gifts that are subsequently for personal use

 Outright falsifying or manipulating receipts


Multiple or duplicate expense claims

Otherwise known as “double dipping”, some employees try to find a way to claim a single item multiple times. For example, they’ll list a charge twice, but under different trips.

Or, they will use the company credit card and submit the same receipt as a cash charge.

Sometimes multiple claims will come through two different sources. For example, two employees who are taking the same trip by car, who try to claim separately for the same mileage reimbursement.

These acts of ‘double-dipping’ is most common when the employee has multiple forms of documentation that serve as proof of purchase.

This is the subtlest, and therefore, overlooked area of expense fraud when checked manually.


Claims outside of policy guidelines

Can you be sure that expenses are being incurred within corporate guidelines? For example, one of the most difficult policy violations to spot are mischaracterised expenses.

For example, when an employee attempts to receive reimbursement for a personal expense by characterising it as a business expense. This is a common claim, when business mixes with pleasure (“bleisure”) expenses such as gifts, meals or drinks for others. When employees are required to travel over weekends or public holidays this makes it even more difficult to make distinctions between personal and business-related purchases.

Sometimes, employees are simply trying to make their lives easier. For example, the company’s preferred airline may only offer flights to a certain destination with long connection times or more than 2 stopovers. Considering the wasted time in these cases, a traveller may think they are using common sense by booking out of policy, perhaps spending a little more.

Although you may have specific guidelines about expenses, some employees fail to follow these policies and still manage to be reimbursed. For example, submitting an expense for after-dinner drinks, when company policy only allows for the meal itself. When these differences are small, they are more likely to go unnoticed.


Inflating business expenses

Examples of inflating business expenses include:

 Claiming meals and entertainment reimbursement in excess of allowed per diems or items not reimbursable under your policy (alcohol, leisure activities, sports tickets).

 Conversely, claiming a per diem slightly under the allowable policy, every day even though travel isn’t being taken.

 Adding tips to claims when tips were included in the expense itself.

 Adding tips greater than what was actually left.

 Flying a higher class of airfare or ground transportation when cheaper options are available and appropriate.

 Inflating car mileage totals.

 Adding a small, but frequent amount, to common business expenses – for example taxi rides and coffees.


Implementing checks and balances

Implementing an automated digital system that tracks business expenses end-to-end enables full visibility of each claim, with real-time reports and out-of-policy alerts highlighting any suspicious expenses before they have been submitted.

Using technology to solve the expense fraud problem not only reduces processing times and cuts expense losses, but it also removes the temptation for employees to submit fraudulent or out-of-policy claims, whether intentional or not.

Digitising expense management that provides the ability for oversight in detecting patterns of fraud transforms it from being a grey area to a completely transparent process removing opportunity for noncompliance.

This makes expense claims efficient, fair and easy to use for business users and removes stress and overwork from the finance teams.


Having trouble managing compliance and controlling business expense costs with an overworked finance team? Read our eBook for CFOs on managing business expenses to understand how an automated business expense system can help solve your key challenges. 

poor expense management ebook download

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