Stealing, specifically reimbursement for business expenses, is an unfortunate reality for many organizations. According to the Association of Certified Fraud Examiners (ACFE), expense fraud accounts for 14.5 percent of all reported occupational scams. Fraud affects all industries. No company is immune.
While large and small organizations fall victim to fraud, the ACFE found that companies with fewer than 100 employees are particularly vulnerable. Larger companies are more likely to have anti-fraud practices in place, while smaller companies are less likely to implement anti-fraud controls that help identify fraud sooner. Larger companies also tend to have more capital to invest in systems and software to automate processes with more personnel to monitor and manage the practices.
The ACFE determined the median loss for organizations is $26,000 in each instance and takes a company an average of 18 months to uncover. Knowing how to identify fraud is an essential first step. There are four categories of expense fraud:
- Mischaracterized expense. Reimbursement request for personal expense that claim to be business-related.
- Overstated expense. Reimbursement request for a legitimate business expense, but for more than the actual amount.
- Fictitious expense. Reimbursement request for a fabricated purchase and/or submits fake receipts.
- Multiple reimbursements. Reimbursement request for an expense multiple times.
Understanding the types of expense fraud is important, but it doesn’t ensure a company is protected from it occurring. The following are some best practices that have been shown to be effective at preventing and detecting fraud in companies:
- Establishing standards. Include guidelines in your expense report procedures and ensure they are met. A few basic guidelines include ensuring expense reports are not paid unless an itemized supporting document is provided and clearly communicates what is a reimbursable expense and what is not.
- Adopting an anti-fraud policy. Create a realistic and clear policy for your company. Ensure the policy is included in your employee handbook and is reviewed with your staff not only at their time of hire, but at least annually.
- Utilizing expense report software. There are several expense report software options that help streamline, automate, and monitor expense report submittal. Implementing a software will help prevent human error with calculations, set automated rules and guidelines for employees to submit expenses, and reduce time spent on managing a manual process.
- Conducting audits on expense reports. Companies that provide a clear, written expense report policy, tend to prevent confusion, frustration, and fraud. A company should implement audits to identify possible mistakes such as miscalculations, duplicate expenses, overstated mileage, or unapproved business expenses. This helps detect if an employee is either committing fraud or is not clear on the reimbursement policy.