Common expense report frauds to watch out for in 2023
Companies lose hundreds, sometimes even millions of dollars to expense report fraud every year. Expense report fraud is one of the most prevalent forms of fraud, if not addressed promptly it can severely harm your company’s finances.
According to the Association of Certified Fraud Examiners (ACFE), 5% of a typical organization's revenues in a year are lost due to fraud per annum, while asset misappropriation median loss is about USD 154,000.
Before you can prevent these numbers from harming your company as well you need to be able to identify expense fraud.
To put it in simple terms, expense report fraud is the practice where employees try to get reimbursement for expenses that never really happened or were not related to any business purpose.
While this type of fraud may or may not be done intentionally it can, nevertheless, have severe consequences for your company’s finances and financial management processes.
Companies already spend significant amounts of money to reimburse aspects like business travel, dining, and other expenses that employees have to pay out-of-pocket.
Any discrepancies or fraudulent additions to these reimbursements can push the amount of money you spend to dangerously high levels. This can be particularly damaging for small businesses that work with small margins.
What’s even more concerning is that smaller businesses are more susceptible to business expense fraud than bigger businesses.
This is because smaller businesses tend to have monitoring systems that are not as sophisticated, weaker spend control policies, and corporate culture.
Regardless of why it happens, business expense fraud can severely harm your business’s financial resources.
Uncategorized or miscategorized expense claims are the type of business expense fraud where employees intentionally or unintentionally report expenses not related to business purposes for reimbursement.
Cases like listing a family cruise trip as a “business trip”, a USD 2000 dollar meal had with a friend as a “business meal with attendee”, and theme park ticket purchases categorized as “business-related” are all real-life examples of expenses that have been miscategorized for reimbursement.
Regardless of whether this was done by error or on purpose, they are all clear cases of employees committing expense fraud.
This type of expense report fraud includes cases where the same invoice or receipt is submitted multiple times for reimbursement in the hope that approvers won’t notice.
An employee could submit an invoice in January and then again in August for reimbursement, this could easily be missed if your approvers are not careful.
Employees may even try to get away with multiple expense claims simply by submitting the same claim to different approvers.
Another form of business expense fraud to watch out for is inflated or falsified expense claims. This type of fraud includes cases where employees make a purchase for business and then quote an incorrect or inflated amount for reimbursement.
Examples of this type of fraud are instances such as
• Employee made a purchase of USD 20 but filed for an expense worth USD 100,
• Employee purchases supplies for the office worth USD 200, gets reimbursed, returns the supplies, and keeps the money.
Expense claims are typically falsified or inflated by altering an invoice, receipt, or other documents.
Double billing is the practice of using underhanded methods to charge the same expense twice. For example, an employee may make a purchase with the company credit card and then submit a claim as if the expense was made using cash.
Another example could be a case where employees go on a business trip and charge the same expense on two different days.
These cases are called double billing and fall among the most common cases of business expense fraud that you must watch out for.
In order to keep your business safe from the aforementioned practices you need a comprehensive expense report fraud detection system.
Given below are some strategies you can use to ensure expense report fraud detection for your company is functioning at its best.
Often the reason behind expense fraud is not intentional in nature but a consequence of inaccessible, overcomplicated, or ineffective internal spend management policies.
If your employees do not have access to expense policies or find it difficult to comprehend then obviously it will be difficult for them to adhere to the same.
To avoid fraud as a consequence of inefficient expense policies make sure your policy documents are readily available and regularly enforced.
You must also ensure that the policies you come up with have clearly mentioned spend thresholds and rules regarding them. Additionally, you should be clear about the consequences that will be faced by employees in case fraud is detected.
It’s easy for expense report fraud detection to fall short if regular audits are not conducted. If you don’t audit and vet the reimbursements you make you’re never going to be able to flag or even detect cases of fraudulent practice.
Schedule audits on surprise dates to ensure that company policy is followed by employees. This will help you bring discrepancies and violations under the microscope so that you can address them.
If required, you may also want to start internal investigations into areas that are most susceptible to expense reimbursement fraud.
Regardless of the employee filing the report, make sure you implement controls at the submission stage. Controls must apply to all levels of employees, no matter how senior they are.
This can help you maintain uniform control over expense reports and reduce cases of expense fraud.
Further, ensure the teams responsible for implementing controls are aware of what to keep in check and why they must do so.
Providing guidelines regarding the same can be particularly helpful. Keep a two-stage process of approval on all expense claims to further strengthen your control system and reduce errors resulting from human error.
Expense report fraud detection is difficult to do when you’re using manual systems. Physically vetting thousands of receipts can be a gargantuan task for your accounting department.
Instead, you can use a corporate credit card that comes fitted with expense control systems. These cards and the software they come with can do the job for you automatically.
Related read: How to streamline business expense reporting process?
In conclusion, expense report fraud can become quite a problem if left unchecked. Thousands, even millions of dollars can go missing if you don’t have the right systems in place. And here’s where Volopay comes in.
Volopay is an expense management system that comes with its own, highly advanced corporate cards with credit. Using Volopay you can issue physical and virtual cards to employees who need to make expenditures on behalf of the business.
Every transaction that is made using Volopay cards is immediately recorded on its comprehensive spend management software.
This way you can maintain constant visibility over expenses and flag business expense fraud before they can have any damaging consequences.
The best part about Volopay cards is that you can recharge and set limits on the cards for exactly the amount that needs to be spent, by doing this you can completely eradicate even the possibility of over-expenditure!