Although we don’t like to think about it, employee theft is an issue in the workplace. Expense report fraud is one of the easiest and most common forms of employee theft. In fact, a 2012 the Association of Certified Fraud Examiners released the Report to Nations on Occupational Fraud and Abuse, which showed that about 14.5 percent of investigated thefts involved expense report and reimbursement fraud.
Fortunately, there are ways to recognize expense report fraud, and to keep your company safe.
Types of Expense Report Fraud
There are two basic types of expense report fraud: inflated expenses and fictitious expenses.
Inflated expenses are real expenses that have been exaggerated, including:
- Expensing for items that are not normally allowed under your expense or reimbursement policy, like alcohol or pay-per-view videos. These things could also be itemized incorrectly on the receipt or otherwise hidden;
- Double-charging for tips, such as expensing for tips that have already been included in the bill, or reporting more than was actually tipped;
- Overspending on the company dime, such splurging on items that are more expensive than necessary; and,
- Inflating the mileage totals when reporting expenses for auto travel.
Fictitious expenses are expenses that might not have occurred, or are not the responsibility of the company, including:
- Reporting personal expenses and business expenses;
- Reporting expenses for cancelled tickets or events, or for items for which they have received a cash refund;
- Reporting expenses for items or services that were never purchased; and
- Manipulating receipts.
How to Recognize Fraud
It’s normal for employees to make mistakes, misreport expenses, or lose receipts; however, if it happens often then that could be a red flag.
If an employee routinely expenses more than others in comparable positions, and performing the same activities, then it could be a sign that the employee is taking advantage of the company.
Once you have discovered a potential problem, you should pay closer attention to the employee’s expense reports and take the appropriate disciplinary action, if necessary. Products like the Chrome River expense report automation simplifies and streamlines the process so that employees are less likely to make reporting errors.
You should also take steps to prevent other employees from being able to take advantage, including:
- Having a system in place that allows you to audit expense reports as they are submitted can help you discover issues before they become a problem.
- Having clear expense and reimbursement guidelines that include information on daily limits, and which types of expenses are not allowed.
- Have consistent expensing and reimbursement methods. If you expect employees to pay out of pocket and reimburse them, then do that every time. If you have the company cover the expense up front, then do that every time. If you switch or combine methods, it makes it easier for an employee to double charge you. For example, if you have the company pay for the employee’s hotel room, but have him pay for his own meals and get reimbursement, he could bury a room-service meal on the room charges, and request reimbursement for that same meal.
- Requiring original documentation before expense reports can be approved. Even if the report is submitted digitally, employees must also present the original receipts and documents.
- Requiring employees to put all expenses on a company card, requiring all refunds and reimbursements go back onto the card, and making sure that you receive monthly statements or credit activity reports for all company credit cards.
- Taking strong steps against those who are caught submitting fraudulent expense reports. Strong penalties will discourage fraudulent activity.
This is not to imply that your employees are out to get you. In fact, most of your employees are honest and trustworthy, and would never commit expense report fraud. Unfortunately, it only takes a few bad apples to end up costing your company a lot of money is false or inflated expense charges.
You want to be able to catch the ones responsible, and discourage others from following in their footsteps, without punishing your loyal and honest employees.