Find and Stop Expense Reimbursement Fraud – Brigade Bookkeeping

What happens when an employee raids the company’s supply closet for their home office? One pen leads to a box of them. Next, it’s a ream of paper (or ten) for their home printer. Boxes of staples and paperclips are sure to follow.

There’s the case of missing office supplies, and then there are the less obvious cases of reimbursement fraud. Are all of your employees’ expense reports 100% accurate? Problems can be difficult to detect if you don’t have a clear reimbursement policy or fraud detection system in place. Both are critical for mitigating risks.

It’s a Problem at All Levels
Who is committing fraud at your company? You can’t assume based on the employee’s level. A 2014 survey by the Association of Certified Fraud Examiners (ACFE) noted that the “Executive/Upper Management” level employees in a company account for nearly 27% of expense reimbursement fraud cases.

Red-flag behavior at work is a better indicator. The ACFE identified these behavioral traits as the ones most likely occurring in perpetrators.

Behavioral Red Flags Displayed Perpetrators 

• Living Beyond Means: 43.8%
• Financial Difficulties: 33%
• Unusually Close Association with Vendor/Customer: 21.8%
• Control Issues, Unwillingness to Share Duties: 21.1%

In 92% of the cases the ACFE analyzed, the fraudster displayed at least one of these behavioral red flags, and in 64% of cases, multiple red flags were observed before the fraud was detected.

A Clear Policy Will Clear-up Confusion
Setting firm guidelines on reimbursements, having a policy about how expense reports are managed, and then enforcing it, will help mitigate risks. Here are 6 ideas:

1. Include the policy in your employee handbook.
2. Consider a system that will call out duplicate or incorrect entries.
3. Develop and maintain a thorough expense report review and approval processes.
4. Apply analytics so you can see patterns of expenses by employee or category, which will help you detect patterns of fraud.
5. Remind management that they must set the tone, participate in the process, and hold themselves to the same standards.
6. Define your expense report policy. This should include:

• Providing a time frame for submitting reimbursements.
• Requiring receipts when submitting a report.
• Including multiple categories for expenses where it’s too easy to mix business and personal expenses, such as a hotel stay. Yes, you’ll pay for parking. No, you won’t pay for pay-per-view movies, etc.

If you need assistance setting up a system for reporting and reviewing expense reports, we can help. Contact us today for a consultation.