Use These Best Practices and Tips for a Fraud Mitigation Program

In part one of our on-going series, we defined employee-initiated spend and enumerated on a number of areas affecting management of this category of spend. In this article we turn focus on potential fraud that can result from employee spending, intentional and accidental, and how to mitigate it.

The new ways in which employees are spending complicates spend management for organizations. The Association of Certified Fraud Examiners (ACFE) 2018 Global Study on Occupational Fraud and Abuse reports that 5% of a typical organization’s revenue is lost to fraud each year, and 83% of fraud cases involve asset misappropriation, including padding Travel and Expense categories. Employees using personal payment methods such as cash, Apple pay, personal credit card, or buying directly from a service provider to pay for non-traditional expenses can open the door for potential fraud and impact an organization’s predictability of cash flow requirements. Non-traditional expenses include:

  • Hotel bookings outside of the company’s managed travel system,
  • Meeting room bookings and catering for a corporate function without a P.O. or prior approval request,
  • Subscriptions to magazines, gift programs such as wine clubs, season passes at football games, etc.
  • Gasoline
  • Reimbursement for the use of personal cars;

Additionally, opportunities for fraud can occur when multiple reimbursement requests are submitted for the same expense, such as home-office supplies purchased with a credit card, reimbursed on an expense report to the employee, and later paid against an invoice submitted to accounts payable by the vendor; or if an employee submits the same receipt on two different expense reports or the same expense for different trips. !

The ACFE study shows that the median loss of asset misappropriation amounted to $154K, with expense reimbursements making up 14% of risk in this fraud category. Additionally, a 2017 report by Oversight indicates that 37% of business travelers had at least one exception on their expense reports. Ultimately, this means that there are numerous opportunities an employee has to manipulate expenses to their personal benefit. The multiple channels of spend and payment methods available today, and the absence of a process and system in place to capture all of this spend can multiply the impact of this phenomenon.


Audits are only part of the solution

Most companies have some form of approval workflows and audit processes to ensure that expense reports are properly filled out and substantiated. The employee categorizes what the expense was for (e.g. travel to visit a client, personal meal, hotel, taxi, etc.), indicates amount spent, which form of payment was used (cash, corporate credit card), and attaches a receipt or invoice. Managers approve or reject the expense reports according to corporate policies, approved expense reports and invoices are registered in the ERP system and scheduled for reimbursement to employee, payment to corporate credit card, or to vendor.

Audits are a great method when used to verify expenses are properly substantiated to meet tax and fiscal requirements, adherence to company policy, and as a checkpoint for multiple submittals of the same expense or invoice. However, if you are not connecting all channels and methods of spend available to employees in today’s landscape, you don’t have the ability to proactively prevent fraudulent activity and are missing out on accurate spend data for reporting, budgeting and forecasting purposes no matter what percentage of expenses you are auditing


Visibility into fraud requires observation over time

According to the ACFE study, 82% of fraud is caused by 5% of employees, and it takes 18 months to uncover. Tracking unusual patterns of spend within a department, or spending peaks by employee, might help detect possible fraud.

Fraud mitigation involves a combination of actions beyond audits:

  1. One organization suggests having a robust program for corporate p-cards or travel and expense cards that integrates into a spend platform.  This provides a mechanism for automatic verification of charges and visibility of charges independent of when an expense report is submitted. Fraud examiners, auditors and managers can rely on this data to validate purchases, credits and aid in investigations.
  2. Using GPS-enabled technologies that track point-to-point mileage ensures employees are not padding their traveled miles to see clients.
  3. Monitoring out-of-policy spending with reporting tools that can track exceptions over time by employee and by category of expense can alert managers to potential fraud before it gets out of hand.
  4. Having an integrated system that automatically alerts when the same charge is being submitted on two separate expense reports, e.g. a train ticket for reimbursement against a personal credit card receipt, and against the actual ticket, will prevent potential instances of fraud.

For employee spend that is not travel-related, employee spend, payment with P-cards or corporate credit cards also can protect the company from paying for the same invoice twice: once when the expense is recorded in an expense report, and then if an invoice is received. The P-card or credit card provides visibility to the charged amount and vendor, so that chances of the same invoice being paid twice are minimized.


Best practices CFOs can implement to mitigate errors and fraud associated with employee spend

Intentional fraud and unintended mistakes can be minimized by implementing one or more of the following best practices:

  • Using an integrated platform for capturing employee spend across all spend channels 
  • Having centralized budgets with timely alerts to department managers for staying within approved budgets, combined with approval policies both for prior and after submitting the expense
  • Putting audit policies in place to monitor 100% of reports for key areas of duplication and intended and unintended errors
  • Eliminating manual reporting of mileage with the introduction of automatic GPS-based mileage trackers
  • Auditing 100% of expenses using a combination of Artificial Intelligence and manual audits

To assist our customers in the implementation of the above best practices, SAP Concur is your partner that provides the tools and services you need to proactively prevent, manage and detect expense fraud. SAP Concur solutions including Consultative Intelligence, Budget, Detect, Drive, and Corporate Billings Statements, work with Concur Expense to help mitigate risks around fraud opportunities.


SAP Concur value consulting to benchmark best practices

For current SAP Concur customers, there is a new service called Value Consulting. Value Consulting benchmarks best practices of an organization to compare them against others in their industry, and possible cost avoidance is identified through a collaborative value assessment with the SAP Concur value consultant. For more information on this and other services, CFOs should contact their SAP Concur account team.

In this article we learned from the ACFE that up to 5% of a company’s revenue is lost each year to fraud. For organizations with $100 million to $500 million in annual revenue, fraud can account for $5 million to $25 million in losses. Putting in place policies and best practices such as budget control, 100% auditing, replacing manual-reporting of mileage with automated mileage tracking, and data mining, among others, can help mitigate the magnitude of these losses and increase the company’s bottom line.

Stay tuned for our next article where we will explore the topic of invisible spend and take an in-depth look at ways in which CFOs can benefit from monitoring and tracking spend, no matter how spend is captured, where the money is spent, and what payment channel the employees use to pay for services.

Visit our website to learn more about compliance and fraud solutions, and strategic spend solutions for better expense management and create a culture of compliance.

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