Recognize and Mitigate Expense Fraud in Business

Expense fraud ranks as the most common type of staff fraud. With an estimated 7% of revenues usually lost to fraudulent activities around the world, this fraud accounts for 15% of all the fraud uncovered. Employees will seek to benefit at the expense of their manager for one reason or another. But each inappropriate expense claim harms your business. Not all of them are performed intentionally. Invalid amounts can at times occur because of a typing mistake or a legal claim where a staff misplaced a receipt. For such reasons, it is critical to make sure that your expense management method is easy and transparent in order to prevent human error and validating inaccurate claims before confronting your workers.

Expense Fraud: How Big is this Issue?

According to ACFE, expense reimbursement fraud accounts for 22% of fraud in SMBs and 12% in large enterprises. Organizations often miss out expense fraud as the sums of money involved can seem small. But the costs can add up rapidly.

Fraudulent activities by staff tend to extend reimbursement scenes out over time, with the median duration of claim fraud being 24 hours. When you come across expense fraud, it is critical to know that it can be a sign of a bigger issue. Where workers are willing to carry out a scheme, they may be willing to carry out others. In such types of fraud cases, organization losses can range from some hundred dollars of padded receipts to millions in schemes for multiple years.

Types of Expense Fraud

a. Mischaracterized expenses

A worker submits private expenses under the business expense category. Such claims are common as there is no way of categorizing a claim by looking at the submitted receipt. 85% of global office workers said that they have never had any of their expense claims declined/challenged.

b. Overstated expenses

An employee inflates the expense of a legal expense. It can either be performed by padding mileage or showing a massive tip than what was paid actually.

c. Several reimbursements

A worker forwards the same receipt for a good/service more than once. The finance department later ends up approving duplicate payments if they aren’t careful about accepting expense claims.

While small expense fraud is not likely to have a material effect on the financial position of the organization and could become a common behavior across the company when allowed to continue, there is also a risk of growth to large-scale fraudulent activities.

4 Ways to Spot and Combat Fraud in Expense Management

Protecting the business from falling into the wrong hands does not have to be difficult. It is critical to begin by maintaining robust internal controls. There are some major steps that the finance department can consider to cut down instances and reduce impact when it comes to balancing books.

1. Begin with a Good Expense Policy

Set a transparent expense policy, one that is free of uncertainty but still shows understanding, especially for travelers. A good policy and a robust expense management solution that flags irregularities can aid limit expense fraud.

The policy must be communicated to the staff and offer detailed information on prohibited tasks and per diem amounts. Workers will think twice if the rules and the outcome are clear, and the finance department can investigate out-of-policy claims fast and effectively.

2. Use a Cloud-based Expense Management System

These days running expenses through pen and paper-based methods is time-consuming and generates a poor staff experience. Leveraging mobile-friendly expense management software enables your employees to submit on the run, wherever they might be, and the employers or the finance team doesn’t need to receive the paper copies for review.

3. Transform the Way of Expenses

Deploy the use of corporate charge cards for greater control. With business credit cards, organizations can query every card individually and receive better oversight over-spending. You can also receive credit activity reports every month from the business.

4. Digital Receipts and OCR

Make it simple for workers to submit their expenses by uploading pictures of receipts or scanning them. By uploading photos of receipts, staff can submit expenses on the go. Leveraging OCR technology to do it pre-populates fields, thus decreasing unintentional mistakes and enhancing appropriateness whilst saving productive hours for staff and the finance department.

The Bottom Line

Despite many of your workers being true and law-abiding, a small section might be the ones who commit fraudulent activities. Such types of activities can be expensive for your organization when left unseen. Hence this is the reason why it is crucial to remain upgraded on the various types of expense fraud, spot any patterns and loopholes in the system, and make sure instant controls and checks in place.