Oversight conducted multiple surveys to determine the correlation between the pandemic and expense fraud. Here’s what they found:

Spending trends from November 2020 show a massive 57% increase in expense fraud.

The problems of expense fraud are real and threatening. Thus, companies need to find ways to mitigate fraud if they’re looking to remove financial leaks from their system. The following article covers everything business owners and Finance teams must know to identify and eliminate expense fraud.

What is expense fraud?

Expense fraud is a deliberate and planned attempt by an employee to fool your Accounting/Finance teams with fake evidence to claim more money in reimbursements.

Why should companies prevent expense fraud?

According to the ACFE, organizations lose about 5% of their revenue every year to fraud. In the most extreme cases (Enron Scandal, 2001), they could lead to the death of a company.

As you can see, it wouldn’t be enough to have CFEs audit your company on an annual or bi-annual basis. Instead, what would help is if the business and Finance teams take a firm stance against expense fraud. Further, Accounting and Finance teams can undergo training to detect and prevent fraud.

How does expense fraud affect a company?

• The average loss in an expense fraud case can be somewhere around $1 Million.
• Fraudulent expenses can drag reimbursement cycles over multiple months, sometimes even two years, causing an average loss of $31,000.
• If one fraudulent expense is detected, it is an indication that employees could have explored other means for achieving more reimbursements.
• Public knowledge of expense fraud can cause a 17% decline in stock value.

How can companies prevent expense fraud in 2021?

1. Develop a work culture of honesty

This needs to be a top-down approach where employees learn from leadership. Enforce anti-fraud policies, conduct business ethically and allow employees the freedom to report suspicious activity without feeling threatened. Finally, lead how you’d like to be led.

2. Draft clear and concise expense policies

A clear and concise expense policy that is unambiguous is a must. Set clear limits for budgets, cost centers, cash advances, and per-diem rates while also over-communicating these to your employees. This will make it clear to them just how easily Finance teams can detect fraud.

3. Proper documentation and storage of receipts

Making digital receipts mandatory for submitting any expense will make employees feel accountable. This also ensures a secure repository of receipts to retrieve and match against claimed reimbursements, if needed. In addition, businesses can use an expense report software or receipt scanner to digitize all forms of expense receipts.

4. Create custom approval workflows

Depending on the size of your workforce, set up financial workflows that require 1 or 2 reviews of every individual expense before they’re approved. Additionally, train approvers, managers, and Finance teams on what to look for concerning expense fraud. This would be crucial towards preventing expense fraud.

5. Regular reviews of credit card activity

This can help determine canceled or refunded charges to linked company accounts. Furthermore, Finance teams can compare actual activity with reported activity to look for discrepancies. This creates a mechanism that ensures no canceled or personal expenses get approved for reimbursements.

6. Conduct regular and surprise audits

Have an external auditor come in during set quarterly meetings and random moments to verify a proper correlation between reported expenses and the corresponding documentation. This would help in the detection of fraudulent activity at a much earlier stage. 

7. Leverage the power of an expense management software

An expense management software eliminates the need for manual verification of all submitted business expenses. Instead, the software comes with a real-time policy engine that checks all expenses for fraud. It also reviews all expenses against set company policies to ensure no policy violations and out-of-policy payments get through. This exponentially boosts employee policy compliance, helps mitigate expense fraud, and saves vast amounts of time for Finance teams. 

How an expense software helps eliminate expense fraud:

• Employees are aware of company policies with an expense software as it intimates them in case of violations right at the source of expense submission. 
• All receipts are stored securely in centralized cloud storage for easy access by Finance teams during audits. This makes it impossible for employees to submit the same receipts for multiple expenses.
• The robust policy engine in the software can be fed custom business rules to suit your company’s needs better. This ensures zero policy violations and expense fraud.
• An expense software comes with a digital audit trail that stores all actions taken by every stakeholder on a particular expense report. This ensures that Finance teams know all the changes made to a report before they approve it.
• With easier receipt tracking, TATs decrease significantly, leading to increased trust and confidence employees have in the organization.

Conclusion

It’s no surprise that several businesses have ended up closing shop due to expense fraud during the pandemic. This only makes it even more necessary for companies to stay more vigilant in preventing it. 

When employees are aware of the potential risks they face if they submit fraudulent reports, they would be much less likely to indulge in such practices. Furthermore, this would also begin to influence other employees who’d follow the same suit.