Detecting and Preventing Travel and Entertainment Expense Fraud

Improved policies, the right tools and smart reporting can help.

In an earlier post on travel and entertainment expense fraud, I delineated some common tactics for fraudulent reporting of T&E spend. These tactics—and undoubtedly others—contributed to the 15 percent of corporate fraud that was linked to falsified expense claims in 2010 by the Association of Certified Fraud Examiners. In this post, we'll take a look at what companies are doing to detect fraudulent expense activities as well as prevent them.

Critical Reporting—Quality data plays a big role in detecting fraud, and short of audits, there are key reports that should be run on a regular basis to ferret out suspect activities that require further investigation. For companies that allow a minimum charge threshold before requiring a receipt for a travel expense, it is critical to run reports on travelers with the largest number of "below-the-line" charges. Companies may also deter this type of fraud by enforcing stricter receipt-requirement policies. Companies should also run audits of their highest spending travelers and conduct a reality check on whether these individuals are, indeed, the heaviest travelers in the company.

Auditing—Expense auditing is a traditional tactic for detecting erroneous or fraudulent expense reports, but it does so after the company has already been impacted by the problem. Nevertheless, it is a best practice that continues to gain some ground. A 2010 survey released by Business Travel News last November queried 226 travel buyers about the rate of T&E expense auditing at their company. The survey asked the respondents to compare the rate of expense auditing in 2010 over 2009. For 44 percent of respondents, 100 percent of T&E expense reports were audited in 2009 and 2010, while 23 percent responded that their audit rates were less than 100 percent but remained unchanged compared to 2009. For 19 percent of respondents, however, audit rates had increased over 2009. Only 7 percent said that audit rates had decreased year over year.

For small to midsize companies, 100 percent audit rates may be feasible, but it becomes very challenging for companies with larger travel programs—and possibly counterproductive. For these companies, it is critical to conduct regular audits of "out-of-policy" expense reports as flagged by automated travel and expense tools, top travel spenders and expense reports that show bookings and spend entirely outside of sanctioned program channels.

Automated Expense Tools—Automated expense tools have become an integral piece of a comprehensive travel program, allowing corporations to get a fast read on in-policy and out-of-policy expense reports. Tight integration of corporate card data has become a best practice on many levels—making it easier for travelers to complete expense reports thanks to pre-population of reporting fields and allowing for quicker reconciliation and reimbursement. This type of integration also works to discourage fraud by making it harder to falsify charges, especially with a mandated corporate card program. More companies are also looking to integrate their booking tool with the expense tool to identify differences between booked and expensed charges.

Innovative Policy—Some companies are taking advantage of the tight integration of tools to create innovative policies that discourage fraudulent expense activities. While pre-trip approval has become de rigueur for many travel programs, a few companies have taken the idea a step further. Traditionally, pre-trip approval would include an estimate of air and hotel costs—and possibly car rental. Some companies, however, are asking travelers to estimate the total trip cost—including food, taxis, entertainment, etc.—and to include those charges in the pre-trip approval process. The expectation is that travelers will remain within that estimated cost, and tolerance for overspending is minimal. Booking and expense tools come into play for managers approving expenses. Tight integration of tools would allow the manager to review the approved estimated trip cost and the actual expense report side by side when the report is submitted. The temptation to overstate charges or throw in an additional taxi receipt is reduced.

For companies that have not yet invested in automated booking and expense tools, there is clearly an opportunity to tighten controls and prevent expense fraud. Will it be 100 percent effective? Sadly, that answer is no. Perpetrators of expense fraud will continue to find creative ways to beat the system, but continued program vigilance and the right tools can substantially decrease the impact on the corporate bottom line.

Previous posts:

Make Your Corporate Expense Policy Fit Your Company Culture

Related posts:

Loading next article