Newsflash: expense fraud is taking place in many companies around the world, every single day! If your company still relies on an outdated expense management process with paper receipts and spreadsheets, it is very likely that you’re up against this enemy as well. Take a closer look into the most common ways expense fraud is committed and how to use the best weapon to protect your company: a digital T&E management solution and a killer T&E Policy.
The impact of fraudulent expense claims
It is really easy to understand how expense fraud happens. Picture this: a sales manager has a generous gift limit on her expense account: 75% of her purchases were for actual clients and the remaining 25% – all under family members’ names – were sold on eBay.
That’s a fairly extreme example of expense fraud, but one that is indicative of the casual manner in which it is conducted. The employee was caught in this instance, but like many others, she probably saw expense fraud as a “victimless crime”. Some don’t believe they are doing anything wrong by charging the company a little extra – it isn’t surprising that 94% of workers in the US claim to always be honest when making expense claims.
It’s ironic that those with the greatest level of responsibility have the most opportunities to commit fraud – 13.9% of expense fraud is committed by senior vice presidents. They travel the most often and have access to corporate credit cards. They are also the employees who will be expected to be more au fait with the T&E policy. Perhaps that’s why a US business fired a female employee for putting a $9.95 movie rental on her hotel bill – because she knew very well that she shouldn’t. As the president of fraud-prevention consulting firm FraudAware, Peter Goldman, puts it, “Most companies wouldn’t do that, but her manager’s point was, ‘if we allow it and it happens a thousand times a year, everyone is allowed to break the law.
Yes, this sounds like extreme measures, but when companies in the United States are losing $2,448 per year on average to each known fraudster, you can see why the employers themselves might say enough is enough. Some wayward employees have even admitted to claiming as much as $25,000 per year.
Rydoo’s Research Report on the State of Expense Management has revealed that France is the worst offender in terms of violations of travel & expense policy for the second year in a row, and also, compared to other European countries, is the country most likely to both scan and keep receipts – whilst in the UK, 42% of companies still use paper receipts exclusively.
Given that most violations in our survey emanate from France, some may say that this is a case of French companies acknowledging that they have a problem and keeping a closer eye on what their employees are expensing.
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What are the most common practices?
1. Fictitious expenses
Essentially, making things up. This is a fraud that could never be confused with human error. And, given the consequences of being caught, it’s reasonably rare. Fictitious expenses usually involve fake receipts for purchases that never took place.
Employees who commit such fraud will do whatever they can to hide it, which is why a regular audit in addition to a T&E policy is needed to target those with unusually high out-of-pocket expenses. The implementation of such an audit system is made easier by an expense management platform that allows the finance team to easily sort expenses by an employee.
2. Multiple reimbursements
When an employee has multiple forms of documentation, they can attempt to submit a receipt more than once. This will usually be attempted through different management channels, if possible.
This is something a T&E policy cannot account for, as the multiple receipts may be ‘in policy’. If your expense policy is entered into a real-time expense app, however, it can send an alert when an expense is suspected of being entered multiple times. Otherwise, you’re relying on someone who will be checking a large number of receipts to catch someone in the act.
3. Personal expenses
Like fictitious expenses, you can’t mistake personal expenses for basic human error. Employees will often make the expense look like a business expense. Again, such employees may be found to be spending more than they should in an audit, or the nature of their expense will be flagged by their company’s expense app. But your policy can state clearly how much employees are expected to spend, what they can spend it on, and when they can spend it.
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4. Overstated expenses
Human error may account for overstated expenses, but not always. These are legitimate expenses that have been inflated. A tip that was not paid may be added to a receipt, for example, or a taxi driver is asked for a blank receipt.
Only by setting clearly defined limits and flagging any irregularities can this kind of fraud be stopped in its tracks. If your policy states a €70 limit for dinner and someone spends €90, that’s a fraud. The employee is unlikely to see it that way – €20 doesn’t sound like much, but it quickly adds up.
5. What expenses to keep your eye on
There are some expenses that are more open to overstatement or multiple claims than others. Airline add-ons, such as premium seat options and priority boarding, are difficult to spot when added to a flight. If the traveler only has a statement or a company credit card, it may be possible to hide such add-ons.
Claiming additional mileage when driving for business and purchasing more petrol than required is another common type of fraud that is difficult to spot. 40% of exaggerated expenses are for fuel, which is often paid for in cash. Perhaps consider inserting into your policy a request for documented driving directions from a map website or app that correlate to the amount the employee is requesting.
Can my company be protected?
A well-written policy and an expense management system that flags irregularities can help to limit expense fraud. Employees will think twice if the rules and the consequences are clear, and finance teams can investigate out-of-policy claims quickly and efficiently. But we need to keep developing both our policies and technology. Fraudsters are clever and they will continue to look for imaginative ways to play the system.
Let’s share the great news: Rydoo can be your right arm when it comes to fighting expense fraud (and much more). With Rydoo, your T&E Policy will be integrated inside our system and we’ll make sure that every time a line of expense is incurred and does not comply with your company’s policy, you and your employee will be notified. Looking for a personalized approach to understand how your T&E Policy can be integrated into our expense management solution? Book a demo with one of our specialists.