Expense reimbursement fraud makes up 17 percent of business fraud with a median annual loss of $18,360 (of the total $108,000 in median annual loss), according to a study by the Association of Certified Fraud Examiners. Additionally, the study states it takes about 24 months before expense reporting fraud is detected when committed by an owner or executive.
Do you suspect your employees are taking advantage of your expense management process?
Here are a few tell-tale signs to watch out for.
1. Some employees are spending more than others
Employees in comparable positions should have similar expenses.
For example, say David and Ben both hold the same sales position. If Ben expensed $8,000, while David expensed only $1,000 this month, you may want to take a closer look at Ben’s expense reports from now on. He could be making exaggerated claims or manipulating the dollar amounts.
Look at spending trends over time and how they correlate with your ROI. Ideally, if you see higher spending trends, those charges should be coming from a high performer who understands the best way to make your dollars count.
Train your employees on the types of places they should stay while traveling or go for business dinners.
For example, while you might not want your employees taking prospective clients to five star restaurants, you also might think that fast food is too informal.
2. Claiming non-business related items
Regardless of how your employee positions it, a half-hour massage at the hotel probably does not fit within your expense policy. To deter this type of frivolous spending, your company needs to solidify what types of expenses are to be charged to the business.
One way to do so might be to educate the employees and train the managers approving the reports. Managers have to be fair about charges they accept.
While sales people may need to have some flexibility on spending, other roles in your organization may not. Look at the ROI on your expenses to determine what makes the most sense for your business. Communicate that to all your employees, but at the same time, hold people accountable.
3. Inflating acceptable expenses
When using their own personal accounts, a dishonest employee could turn a profit from business trips by tacking on a couple of dollars to common business expenses. So a $5 taxi ride suddenly becomes $10. Since it’s such a minimal amount and a standard expense, it often gets overlooked.
Whenever possible, a receipt should accompany every claim on an expense report. To avoid getting drained by employees’ cash purchases, some businesses put a limit on the reimbursable amount allowed without a receipt.
4. Overcharging the company card
Many business owners provide corporate credit cards to employees who do a lot of traveling or entertaining so that they don’t have to worry about reimbursement. Corporate credit cards consolidate expenses, making it much easier for your finance department to track trends and verify charges.
However, when you issue corporate credit cards, there’s a risk that employees will spend more than necessary. When the company credit card bill arrives, don’t just blindly sign a check and send it on its way. Review the charges to ensure your card hasn’t become your employees’ fun money.
Another option might be to issue prepaid debit cards to traveling employees, so that you can set spending budgets for trips ahead of time. This helps to deter employees from overspending, and keeps them budget conscious.
5. Double billing
Some employees may try to double dip. For example, they’ll list a charge twice, but under different trips.
Additionally, if not monitored carefully, some employees may make a charge on their company credit cards and later submit a receipt for the same purchase as a cash claim. When you provide company credit cards, you need to be especially diligent about monitoring usage.
With automated expense management software, you can put controls in place that will automatically alert you to duplicate transactions. This way your finance department doesn’t have to sift through paper statements or old spreadsheets.
6. Exceeding the limits for allowable expenses
Employees sometimes split large amounts into two or three items on the expense report.
Instead of setting limits on individual purchases, you might consider setting a company’s expense limits based on a per-trip cost. Employees who travel for the company will likely have a larger budget than those who entertain partners and clients locally.
The takeaway
When there are policies in place, along with an automated expense management system, it can dramatically reduce the chances your company will fall victim to fraudulent expense report reimbursement.
Looking for a better way to enforce your employee spending policies? Download our free e-book, Taking Control of your T&E Budget: Best Practices for Managing Employee Spending, to learn more about how automated expense management systems can help streamline your expense reporting process.