Expense fraud is more prevalent in businesses than you’d expect. It’s probably happening in your own business more than you realize. That’s because this kind of fraud is typically overlooked by companies due to its seeming insignificance. A single incident of expense fraud usually only amounts to a few dollars. Those small amounts add up over time, though.
In the US, employee expense fraud costs employers nearly $3 billion a year, and while the employees that do commit fraud are in the minority, those that choose to do so each rack up an average of nearly $2,500 of false expense reimbursements each year. Of course, that’s an average; some employees steal tens of thousands more, and usually, they get away with it. Less than one in five employees who commit fraud are ever held accountable.
What Expense Fraud Typically Looks Like
When this type of fraud is committed by employees against a company, it usually falls into four categories.
- Mischaracterized expenses: This occurs when personal expenses are submitted to the company as business expenses. If, during travel for work, an employee takes a side trip to run an errand and then submits those miles traveled as a work-related trip, that is considered a mischaracterize expense.
- Fictional expenses: This type of fraud occurs when the expense an employee has submitted simply never existed. Perhaps someone played around a bit on Photoshop and made a convincing receipt or they claimed a trip in their mileage log that they never took. In both instances, the expense is fake.
- Overstated expenses: In this case, the expense that is submitted for reimbursement is legitimate, but the cost has been inflated. For travel reimbursements, this is often referred to as mileage padding. Employees can also do this in other situations, too, such as claiming they tipped more at a restaurant than they did.
- Multiple Reimbursements: This type of expense fraud exploits a company’s clogged processes by submitting multiple reimbursements for the same expense. It’s understandable that confusion may cause this to happen by mistake, but an employee is obligated to return reimbursements they mistakenly received. By not returning the extra money, they are defrauding their employer.
Each type of fraud would not be able to affect a company if it had strong policies and procedures in place for handling expense reporting and reimbursements. Through vigilance, administrators could catch mischaracterized expenses or multiple reimbursements coming down the pipeline. Verification procedures and careful analysis could prevent overstated or fictional expenses from reaching approval. To beat expense fraud amongst your employees, you need to instill these qualities into your expense reporting policies.
How to Take Action Against It
Establish Firm Reimbursement Guidelines
Having unclear or nonexistent established guidelines leaves your company exposed to employees taking advantage of the confusion. You need to be clear about what constitutes a reimbursable expense and what doesn’t or a few individuals will exploit this gray area you’ve created. For instance, alcohol is usually not a reimbursable expense, but miles driven in a personal vehicle usually is.
For mileage, you need to create clear processes for recording, reporting and receiving travel reimbursements in order to prevent instances of mileage padding and unauthorized side-trips. It’s vital that employees keep a mileage log during their travels, recording their odometer readings at the beginning and end of each trip. You may also want to have them submit their route and itinerary for their travels, so you can verify that the miles they travel line up with the trip they said they took. A mileage tracking app for your company is also a good idea, automating the process of recording mileage and the route traveled.
Require Legitimate Expense Documentation
When expense reports don’t contain the correct or original documentation, it’s tough to know if you are reimbursing employees for legitimate expenses. To ensure you don’t receive any false or overstated claims, adopt rules regarding the procedure and documentation required.
Employees must submit the original receipts for expenses – not copies. Any report with photo copies should be denied. Receipts should also be itemized. You need to know exactly what you’re reimbursing for so you can be sure that there are no charges for unauthorized or non work-related items.
Any receipt or invoice you receive as part of an expense report should also be properly dated. This ensures the reimbursement was submitted in a timely manner and that an employee isn’t trying to submit an old expense. Any supervisors or administrators reviewing documentation need to make a note to verify the dates, as well, to make sure they align with the report.
Develop an Organized Reimbursement Process
If your company lacks a standard procedure for submitting and reviewing expense reports, that allows fraud to slip through the cracks. So there’s no confusion, create rules and guidelines for submittal and the review process. Make sure the review process contains at least two employees – for example, an employee’s direct supervisor and someone in accounting – before reimbursements are approved. Two sets of eyes are better than one, and you will have a greater chance of catching instances of duplicate reimbursements or mischaracterized expenses.
Penalize Fraudulent Employees
At your company, you need to set a definitive tone that fraud will not be tolerated amongst your workers. By penalizing or punishing employees who have attempted to defraud your company, you set a precedent that you take expense fraud seriously and are diligently looking for it. Develop clear policies outlining what practices are considered fraud and how incidents will be handled once discovered.
These policies should also keep in mind that accidents will happen – employees will forget a receipt or submit a reimbursement twice by mistake. As long as employees are open and honest and return any extra money, these occurrences should be treated differently than fraud. Following through on your own rules and proving that you’ve maintained vigilance on these matters will be a deterrence in itself.
Tackle Expense Fraud with Expense Tracking Software
As you work towards creating an environment where fraud is not allowed to thrive, expense tracking software can solve many of the issues companies typically face. Through a SaaS solution, you are able to automate the internal controls that manage incoming expense reports and outgoing reimbursements.
An expense tracking app gives employees the power to track expenses such as mileage and T&E expense in the field. They can easily submit receipts and document their travel from their phone, keeping the process secure and eliminating the confusion of paper-reliant procedures.
CompanyMileage Creates a Fraud Free Environment
SureMileage by CompanyMileage automates mileage tracking and reporting, giving your employees both accountability and ease of use. Rather than relying on odometer readings or a GPS, our system calculates the distance between point A and point B to ensure employees aren’t overestimating or padding their mileage reimbursements. Employees have no need to maintain a mileage log throughout their workdays, significantly reducing the time spent each day managing their expense reimbursements. In some cases, using SureMileage takes as little as 1-2 minutes a day.
The reimbursement process can be tailored to meet your needs with SureMileage, as well. Our system seamlessly integrates into your established processes, enhancing and speeding up the issuing of payments.
Tackle expense fraud with a software designed to help both employees and employers manage the reimbursement process more effectively. Request a demo with CompanyMileage today!