Last year, a total of $7 billion was lost to occupational fraud, according to a 2018 report by the Association of Certified Fraud Examiners (ACFE). That’s 2,690 cases of occupational fraud from 125 countries, across 23 industries.

Not only is occupational fraud found across companies in almost every sector, but it also appears company size isn’t a buffer to being conned. In fact according to the same report, small businesses (less than 100 employees), suffered a median loss of $200k per fraud – double the average of larger companies. The size of the frauds also range, from petty expense inflation to fabricated travel expenses to the tune of $2.5 million.

So where does all this fraud come from? According to the ACFE, at least 15 percent of it comes from straight up asking for the money. We’re talking about falsified expense reports. We break down what to look out for, and how to prevent your company from falling victim to paying for fraudulent expenses.

Types of Falsified Expense Reports

When it comes to false expense reports, there are four main types to keep a lookout for.

  1. Overstated expenses. This type of expense theft occurs when employees overstate how much an item or trip cost, and this can be particularly hard to notice as they often cover real flights and hotels that occurred. An example can be when employees who shared an expense (for instance sharing a rental car) submit separate expense forms for reimbursement.
  2. Personal expenses. Another common and hard to notice form of expense theft is when employees categorize personal expenses under company expenses. These often include meals, travel, and the notoriously ambiguous “entertainment” category used to take clients out.
  3. Multiple Reimbursements. This can just as easily be human error as it could be fraud, making it hard to punish offenders. When receipts are submitted in bulk, it can be easy for a few expenses to slip in repeatedly, without anyone noticing.
  4. Fake Expenses. The most nefarious form of fraud is straight up fabricating receipts for events that never happened. With modern day technology, is has become easier than ever to alter, or even wholly fabricate receipts and expense reports. There’s even a site that allows you to easily enter in your information to create a receipt if you “forgot” to ask for one during your recent hotel stay.

From these examples it should be clear one of the largest problems with expense fraud is detecting and enforcing it. According the ACFE the average occupational fraud scheme lasted 16 months, and over the last decade prosecution of these frauds decreased by 16%, largely out of fear of bad publicity for the company. In other words, prevention is much better than detection and enforcement – both for limiting loss and company image.


How to Prevent Fraud Within Your Company

While it may feel hard to detect fraud within a sea of fast-moving parts and numbers at your company, there are a few easy and concrete steps you can take to help reduce fraud at your company.

  1. Create a Strict Guideline System For Reimbursements. Ambiguity is the enabler of fraud. The less specific your guidelines are for categories like “entertainment” and “travel” the more liberties your employees’ interpretation of “business expense” can be. Many companies prefer setting per diems for certain items like food, as it allows a company to limit its expenses while avoiding micromanaging every employee expense.
  2. Routinely Question or Audit Expenses. One of the main deterrents to bad behavior is the likelihood of getting reprimanded. Be sure to take the time to question expenses, and have regular audits. This ensures erroneous expenses are more likely to be caught, and employees are staying consistent with reimbursement guidelines. However keep in mind: this step isn’t possible without the first step, so make sure to set up a good expense guideline system.
  3. Require Original Documentation. This should be a staple in every expense report system: require receipts. Yes, the possibility of alteration and fabrication still exists, but there is nothing like having concrete proof of a purchase to help enforce proper purchase behavior.
  4. Set Up Corporate Cards. One of the benefits of corporate credit cards, is they can be issued with merchant category, date, and amount restrictions, putting a hard cap on potential misuse. If you have employees traveling on a trip, you can ensure purchases are only happening during that time, and for amounts under a specified amount. And because they are charged to the company account and not reimbursed for cash, it lowers the temptation to use them for personal gain.
  5. Follow Through on Consequences. While prosecutions are uncommon for expense theft, it’s important to enact strict consequences for fraud. As much of expense reporting could conceivably be human error, it’s important to have a well set up expense system and guideline, so that employees are unfairly punished.

If you follow these guidelines and look for the common forms of expense report inflation and fabrication, we strongly believe you can cut down on the erroneous charges. For companies who prefer to streamline their expense management, and have more control over employee purchases, we recommend checking out our corporate card program.

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