MLR

Safeguard against expense account fraud

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A close examination of employee and contractor expense reports may save more than just money. Your organization’s reputation could be at risk.

Plenty of public and governmental entities have been exposed in the media for lavish entertainment practices by their employees. Knowing what to look for can help you spot problems before your crisis response team is needed.

expense report

The Association of Certified Fraud Examiners reported in its 2012 Report to the Nations on Occupational Fraud and Abuse that approximately 14.5 percent of all asset misappropriation schemes investigated involved expense reimbursement fraud.

Spotting different kinds of theft

The two primary schemes perpetrated include claiming reimbursement for fictitious expenses or inflating actual business expenses.

Some examples of fictitious expenses that have been known to appear on expense reports include:

  • Charging for items used either personally or for unauthorized business purposes (alcohol, electronics, gas, groceries, leisure activities, etc.).
  • Billing for travel and expenses that never materialize (canceled airline tickets, seminar or convention registration fees, tuition reimbursement and professional dues payments).
  • Seeking reimbursement for items that were never purchased (office supplies, gifts for clients).
  • Collusion among employees who both billed separately for travel or mileage reimbursement when they traveled together.
  • Outright falsifying or manipulating receipts.

Examples of inflating business expenses include:

  • Claiming meals and entertainment reimbursement in excess of allowed per diems.
  • Adding tips to reimbursement when tips were already included.
  • Adding tips to the reimbursement copies that were greater than what was actually left.
  • Flying first class or using luxury transportation when modest means may be available and more applicable.
  • Using inflated mileage totals when seeking reimbursement for auto travel.

Implementing safeguards to prevent fraud

Safeguards your organization should consider include:

  • Establish and communicate a travel reimbursement policy.
  • Require original documentation to be either submitted with the reports or maintained for a period of time for audit purposes.
  • Establish a formal review process in which someone independent reviews the reports.
  • Routinely question expenditures that look extraordinary or abnormal.
  • Have all disbursements made in a formal manner through either accounts payable or payroll. Discourage cash advances.
  • Implement the use of corporate charge cards for greater control and review all credit activity periodically.
  • Audit annually a sample of expense reports to ensure they meet the company’s established guidelines.
  • Treat reimbursement activities consistently by having employees pay expenditures and seek reimbursement or by having the company pay the expenses directly. Flip-flopping between the two could allow for duplicate reimbursement to occur.
  • Punish offenders found to be violating or falsifying their expense reports accordingly.

Remaining vigilant

Maintain strong controls and consistently review expense reports for compliance. Make a regular habit of communicating noncompliance. Remember, nipping a problem sooner than later could save your organization a great deal of time, money and embarrassment after the fact.