How Companies Can Recognize and Prevent Reimbursement Fraud 

Far too often, organizations that regularly reimburse employees for expenses such as mileage, travel, or supplies contend with the silent killer: reimbursement fraud. While often thought of as a small-scale problem, individual instances of fraudulent expense reporting add up fast, to the tune of billions of dollars in annual losses across industries. 

The issue isn’t solely a financial one, either. An organization fostering an environment in which reimbursement fraud can occur unnoticed and unprevented, even unknowingly, can erode employee trust and morale, severely damage overall compliance, and even result in legal action.

But if ignorance is bliss, knowledge is power. In this article we’ll dive into the nature of reimbursement fraud and the ways in which different forms of expense fraud may be manifesting in your organization. We’ll also discuss best practices for prevention, and detail how the right tools can make a serious difference for your business, for the better. 

Understanding Reimbursement Fraud

So when we talk about reimbursement fraud, what exactly do we mean? Often referred to as expense fraud or business expense fraud, reimbursement fraud occurs when employees submit false, inflated, or duplicate reimbursement claims for personal financial gain. 

In the case of fraud, intent matters. If an employee accidentally submits a duplicate copy of a legitimate reimbursement claim, that’s simply human error. Mistakes happen! But if an employee or employees are routinely submitting reimbursement claims for alleged business expenses that simply don’t add up, that’s probably a sign of fraudulent behavior. 

Common categories of routine business expenses vulnerable to instances of fraud include meals, lodging, mileage, and office supplies. 

How Reimbursement Fraud Manifests in Mileage Claims

In the case of business mileage reimbursement specifically, the opportunities for expense fraud to go unnoticed can be myriad. Common examples include employees reporting inflated trip mileage beyond the actual distance traveled, claiming personal trips or commutes as business mileage, and submitting duplicate mileage claims across different reimbursement periods. 

If an organization isn’t careful, the way it manages – or mismanages – its mileage reimbursement processes can create opportunities for reimbursement fraud. An overreliance on outdated or inaccurate methods for recording and tracking mileage can help fraudulent reports slip through workflows unnoticed. 

Consider, for a couple of examples, the traditional methods of requiring employees to calculate mileage totals by subtracting mileage from totaled odometer readings, or having workers manually enter log data in manual mileage spreadsheets. The multi-step, manual nature of these methods, combined with a lack of transparency and administrative oversight, can make instances of mileage reimbursement fraud hard to catch, and equally difficult to prevent.

Reimbursement Fraud Can Appear in Other Places, Too

Mileage claims aren’t the only places in which workplace expense reimbursement fraud might rear its head. 

Dishonest employees might commit travel reimbursement fraud by booking refundable flights, submitting receipts to their employer, and later canceling that flight for financial gain. Or they might commit supply and equipment fraud by making personal purchases and then claiming the expenditure as business expenses, or meal and entertainment fraud by submitting exaggerated or fabricated receipts for meals or client meetings. 

The frustrating fact about reimbursement fraud is that it’s so prevalent. Part of this can be chalked up to the variety of ways expense workflows can be manipulated for a bad actor’s personal gain. However, as outlined above with mileage reimbursement fraud, oftentimes a business’s travel and expense management workflows aren’t optimized for fraud detection or prevention.

Utilizing trust-based systems with limited transparency can contribute to this issue. Likewise, inconsistent standardization or enforcement of reimbursement policies across departments can complicate prevention, as well as prosecution, of employees engaged in fraudulent behavior. Additionally, many instances of reimbursement fraud consist of a high volume of low-dollar transactions, that easily slip past review, and might not seem worth the resources to audit compared to larger financial risks. 

What Happens When Reimbursement Fraud Goes Too Far? 

Those low-dollar transactions can and will accumulate, though, creating significant direct financial losses, especially for businesses with larger workforces. A workplace in which reimbursement fraud is allowed to flourish also creates less direct costs, like reduced employee morale, or contention between honest and dishonest workers. 

The issue of unchecked reimbursement fraud continuing within an organization can also cause serious reputational damage to the organization. In more extreme cases, reimbursement fraud can also land the company and/or the employee up to serious legal or regulatory trouble, such as sanctions or fines. 

Earlier this year, for example, a Baltimore man pleaded guilty to felony theft for submitting false reimbursement claims. A nonprofit owner, he had claimed expenses for providing food for student-after school programs on dates the program wasn’t actually in operation, ultimately stealing over $82,000 in fraudulent reimbursement payments from the state of Maryland. He was sentenced to five years of incarceration, suspended for supervised probation. 

Detecting and Preventing Reimbursement Fraud in Your Organization

While reimbursement fraud can be insidious, there are some ways to detect signs that fraudulent activity may be afoot in your workplace, as well as steps to take to prevent it. 

Look for the Signs

Some common signs of reimbursement fraud include:

• Out-of-the-ordinary numbers in expense reports. These include too-neat, round numbers, vague receipts, or an abundance of small-dollar claims. 
• Discrepancies in logs and expense reports, such as dates or amounts from the same trips that don’t add up, could be a sign of inflated mileage or falsified documentation.
• Patterns of behavior. If one employee consistently submits higher mileage claims than their peers, that might be a sign that that employee is attempting to commit mileage reimbursement fraud. Workers showing reluctance to participate in audits or spot checks might also be an indication they have something to hide. 

The Role of Policy in Fraud Prevention

Prevention starts with strong reimbursement policies. Having unclear or nonexistent expense policies leaves your company exposed to employees taking advantage of the resulting confusion. 

When crafting a strong expense policy for your organization, use clear, concise language. Outline exactly which company expenses qualify for reimbursement, and which ones don’t. Include detailed instructions for how to submit and claim reimbursements, including which documentation, such as itemized receipts, will be needed for valid expense claims. 

A strong, actionable reimbursement policy should also outline guidelines around enforcing these policies. Include the consequences for  individuals found committing or attempting to commit reimbursement fraud. 

Don’t neglect the final, most crucial step in creating and enacting this policy: Communication! Your company policies around expense reimbursement and reimbursement fraud prevention will see much higher levels of engagement and compliance when you know that your employees have read and fully understand them. To accomplish this, make company policies around expense reimbursement easily accessible as a potential point of future reference. It may also be necessary to conduct employee training to ensure full comprehension.

How the Right Technology Can Help Stop Reimbursement Fraud

Have you considered embracing automation? Strong internal policies are vital, but the proper digital workforce tools can help safeguard companies against reimbursement fraud. Automated systems for tracking T&E expenses can provide an additional layer of protection against fraudulent claims by removing the guesswork from mileage expense tracking.

Automated expense management systems also assist companies in being proactive against fraudulent behaviors. When using traditional, manual methods for submitting and processing reimbursement claims, managers and supervisors are forced to serve as the last line of defense between fraudulent or error-ridden expense claims and payment distribution. The process of manually reviewing reports for errors or inconsistencies is a difficult, time-consuming one, and even with meticulous checks, fraud and mistakes are still likely to slip through the cracks unnoticed.

Automated systems for managing reimbursement, on the other hand, are designed to add transparency and oversight to expense management processes. Using automated solutions for reimbursement, managers and supervisors can set the system to automatically flag potentially problematic behavior, such as duplicate reporting, and isolate it for further review. 

CompanyMileage is the Right Technology for Better Reimbursement Management

In the fight to fend off reimbursement fraud, the right tools are vital. Let CompanyMileage provide those tools for your business, with our suite of software solutions designed to automate and optimize the mileage reimbursement process. 

Our mileage reimbursement software, SureMileage, fully automates mileage tracking and reporting, eliminating the need for odometer readings, GPS tracking, or mileage spreadsheets. Instead, employees enter their starting point and destination into the system, which then calculates the best route between those two points, and the mileage for reimbursement. This method collects all data contemporaneously, and saves workers time and energy while ensuring they can’t inflate their mileage totals, or claim expenses for personal trips. 

Our mobile app, SureMobile, takes this ease and efficiency one step further, giving employees the ability to compile trip data and submit reports on the go from their smartphones, no matter where they are. Once submitted, those reports move through an automated approval workflow, easily customizable to meet the needs of your business. And because our systems integrate easily with all major accounting and approval software, your hardworking employees are guaranteed fast, accurate reimbursement payments, every time. 

Keep reimbursement fraud at bay with software designed to offer the best tools for reimbursement management on the market. To find out more, request a demo with CompanyMileage today!