Expense fraud means modifying expense reports in an attempt to get inflated reimbursements. This way, employees attempt to seek personal financial gain at the expense of the company.
The ease of committing employee expense fraud, coupled with the challenges of detection, makes it a problem for businesses. Traditional methods of expense management, such as using spreadsheets and manual receipt submission processes, can further exacerbate the difficulty of identifying fraudulent activities.
Some of the ways in which employees can commit expense fraud are:
Overstating Expenses
Overstating expenses to commit expense fraud means that the employee inflates the expense shown on the invoice. As a result, employees claim a higher amount than what was actually spent on expenses such as accommodations, transportation, or meals.
Some ways in which employees overstate expenses are:
- Claiming a $5 meal as a $15 one
- Claiming inaccurate tip amounts for cab, meals, etc.
- Inflating mileage for claiming higher transportation reimbursements
- Booking expensive options for accommodations and flights when economical options are available
Claiming Personal Expenses
Instances arise when employees attempt to pass off personal expenses as business-related in order to seek reimbursement. This fraud is comparatively easy to commit.
One common scenario involves employees incurring personal expenses during business trips. They strategically frame these expenses to resemble business costs.
For instance, an employee submits expense reports claiming reimbursement for meals that were purely personal in nature, such as dining out with friends or family. They misrepresent these expenses as business-related by providing vague descriptions or falsely attributing them to client meetings.
In another case, an employee includes personal costs during bleisure trips, such as hotel stays or rental cars, in their expense reports and presents them as business travel expenses.
Claiming Fictious Expenses
Fictitious expense fraud is when an employee attempts to obtain reimbursement for purchases that did not actually occur, usually by providing fake invoices. Such types of employee expense fraud are possible when your company does not mandate providing receipts for expenses lesser than a specified amount.
Sometimes, employees may try to submit expense reports without any receipts, claiming that they have lost them. Other times, employees can create fake receipts using design software. They can also collaborate with suppliers to tamper or get fake receipts for purchases that were not made.
Duplicating Submissions
Another common method of expense fraud is duplicating submissions. This deceptive practice involves an employee providing multiple forms of documentation for the same expense.
These documents may be submitted either under the same expense category or different categories to increase the chances of getting reimbursed multiple times. For instance, they might submit an expense for office supplies as both a general office expense and a specific departmental expense.
In another scenario, two employees have dinner. Instead of accurately splitting the bill and claiming their respective amounts, both employees dishonestly submit the total amount as if they paid for the entire meal individually. By doing so, they aim to receive reimbursement for the full expense twice, effectively defrauding the company.
Claiming Refunded Expenses
There are cases where employees engage in refunded expense fraud by purchasing an item, obtaining a refund for it later, and then submitting the original purchase receipt for reimbursement.
For instance, an employee makes a hotel reservation for a business trip and submits the receipt for reimbursement. If the reservation gets canceled and the employee receives a refund, they dishonestly retain the original receipt and claim reimbursement for the canceled reservation, effectively profiting from the refund.
In another example, an employee purchases a product for business purposes and later obtains a refund for it. However, instead of returning the refunded amount to the company or offsetting it against future expenses, the employee submits the original purchase receipt for reimbursement, essentially getting money for an expense they no longer incurred.
Claiming Out-of-policy Expenses
At times, certain expenses fall outside the scope of the business reimbursement policy. Even with a well-established expense policy, ensuring universal compliance among employees can be challenging. Minor violations often go unnoticed if they do not attract significant attention.
One common category of out-of-policy expenses includes items such as alcohol. These items, while potentially linked to business activities in some cases, are not typically eligible for reimbursement.
Why Do Employees Commit Expense Fraud?
Employee Expense fraud can be driven by various motivations. Usually, employees engage in expense fraud with the intention of attaining financial gain. This dishonest behavior can be driven by a desire for increased income or an attempt to address personal financial difficulties.
In some cases, employees commit expense fraud for personal gain unrelated to financial needs. This could involve obtaining goods or services for personal use under the guise of business expenses.
Pressure and stress within the workplace can push employees towards fraudulent activities. For instance, employees facing performance targets may succumb to the temptation of falsifying expenses to create the appearance of meeting those goals.
Further, some employees may exhibit apathy towards the company and its policies. They may view expense fraud as a form of passive rebellion or disregard for the rules.
How can you Prevent Expense Fraud?
To prevent expense fraud within an organization, you can implement several measures.
Maintain an Updated Expense Policy
It is crucial to keep the expense policy current and aligned with the company’s evolving business needs.
Conduct Regular Audits
These audits should be conducted systematically and randomly to ensure a comprehensive review of expense claims.
Implement Disciplinary Actions
Establishing a clear framework of disciplinary actions for employees who engage in expense fraud acts as a deterrent. Employees should be aware of the consequences they will face if they violate the expense policy.
Utilize Expense Management Tools
Technology can be leveraged through the use of expense management software. These tools automate the expense reporting and reimbursement process, making it harder for employees to falsify expenses.
Promote Transparency and Communication
Encourage open communication and transparency regarding the expense policy and procedures. Organizations should establish channels for employees to ask questions, seek clarification, or raise concerns related to the expense policy.
Control Employee Expense Fraud at your Organization
It has become increasingly evident that relying solely on manual methods to monitor and prevent employee expense fraud is not sufficient anymore. As technology advances, you must leverage tools such as expense management software.
ITILITE is an advanced corporate travel management software solution that provides access to a powerful automatic fraud detection feature that keeps a vigilant eye on expense reports. The software intelligently scans expense submissions, comparing them against your company’s expense policy. Any reports that deviate from the policy are promptly flagged, alerting you to potential fraudulent activities.
Further, with real-time reporting, you can easily keep track of employee expenses and identify any suspicious activity promptly.
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