Erroneous expense filing happens at every company. When does it become fraud… and how can you take steps to detect or prevent it?
Human error is a factor in expense reporting—every finance department knows it, and they work hard to prevent it, enforcing expense policies, requiring receipts and auditing expense records for irregularities and missteps. Mistakes, by definition, are more easily detectible than fraud. Fraudulent expense activities include a concerted effort to cover up the trail, and perpetrators can get very creative in their tactics.
According to the Association of Certified Fraud Examiners' 2010 Report to the Nations on Occupational Fraud and Abuse, more than 15 percent of fraud cases involve falsified expense reports. The median impact of each fraudulent expense case on a company's finances is $33,000 (though high-profile incidents mount to the hundreds of thousands of dollars), and the median duration of each expense fraud scheme—i.e. the time it takes before the fraud is detected—is two years.
The good news for travel and expense managers, however, is that expense fraud is on the decline. In 2006, the same organization found that more than 20 percent of identified cases of fraud were related to expense reimbursement. The report does not speculate on what stemmed that particular tide, but increased awareness, advancements in expense reporting technologies and reduced travel/stricter travel policies during the economic recession are likely factors.
Still, travel and expense managers need to stay vigilant about fraud. They can do that in part by learning some common travel and expense fraud tactics.
"Below the line" Expenses – In an effort to reduce the number of receipts that employees have to keep track of, many companies identify a minimum threshold of expense before a receipt is required for reimbursement. For some companies, it could be as little as $15, while others skip the receipt requirement for charges as high as $25. Perhaps the simplest form of fraud is to take advantage of this type of trust, submitting false expense reports that are augmented with a few charges of less than the identified threshold for receipts. While this practice could fall on the low-impact end of fraud spectrum, if the problem is widespread among heavy travelers, the impact quickly magnifies.
Overstating Charges – Especially for meals and taxi charges, which are often paid in cash, overstating charges is an easy way to pad a wallet after a business trip. Receipts for these items often consist of a hand-written slip that is easy to alter or even completed by the traveler him or herself. For meals, in particular, paying for a personal guest on the company tab is often an issue.
Claiming Fictitious Bills or Reclaiming Bills – Employees who create fictitious travel bills or reclaim older bills are generally creative in how they couch the expenses, such as coding them to departments or line items that are running below budget so the charges are not detected as out of the ordinary.
Downgrading Dilemma – For travelers who are allowed by policy to purchase premium-class flights, there is the ability to downgrade at the counter or directly through the airline and get reimbursed for the difference or use the difference to purchase a ticket for a companion.
These—and other, more innovative fraud tactics—are likely present in any company. Before taking drastic action, however, travel and expense managers should understand that the vast majority of travelers want to do the right thing by their employer. It's a small percentage that is prone to fraudulent expense claims, but the ability to find those reports and those travelers is critical. Improved policies and comprehensive travel and expense solutions can help. Catch up with part two of my series to find out how.