As a business owner, you’ve probably received advice regarding keeping accurate books in case of an IRS audit. While this is excellent advice if you ask us, there are a plethora of reasons why you need to keep accurate records. One of the most pressing reasons is to protect your business from employee expense report fraud. This type of fraud occurs when an employee (knowingly or unknowingly), receives reimbursement for expenses that are not covered by your reimbursement policy or receives a higher amount than was spent.
Expense report fraud is a major issue and could be costing your business a pretty penny. A 2013 SAP Concur analysis found that 23% of expense reports fail audit checks. A recent study done by Certified Fraud Examiners, or CFES for short, estimated that 5% of yearly revenues are lost to fraud. They also showed that on average, one case of fraud led to a median loss of $30,000.
Keep in mind, expense fraud is not always intentional. Many employees make accidental errors on their reports. So how do you determine whether fraud was committed by accident or with the intent to deceive? Well, there are four different ways that expense fraud can be committed. Knowing the different types can help you identify fraud and help you decide what action to take if you identify a fraudulent expense.
1. Mischaracterized Expenses – This type of fraud occurs when non-business-related expenses are claimed as business expenses. Employee confusion and /or oversight can often cause this type of fraud.
2. Inflated Claims – This type of fraud occurs when the employee claims more money on an expense report than was actually spent. Some employees may attempt to justify the expense by falsifying receipts. However, employee oversight can also be a cause.
3. Falsified claims – This type of fraud happens when an employee submits a claim with an intention to deceive. They will often use falsified or fake documents. This type of fraud requires immediate corrective action.
4. Multiple Claims – This occurs when an employee submits the same receipt more than once and receives multiple reimbursements for the same expense. This can be done intentionally, or by accident.
When reviewing employee expenses, there are four patterns you should watch for:
According to Abigail Grenfell, the president of Internal Control & Anti-Fraud Experts, LLC, there are several ways to prevent expense fraud schemes.
Even with strong policies in place and regular auditing, fraud can still occur. However, keeping accurate records can help you identify offenders and lower the risk of long-running expense schemes occurring at your organization. Neat can help you and your employees track expenses and digitize and store receipts. Try Neat free for 30 days to see how our software can help your organization prevent expense fraud and save money.