How to Protect Yourself From Expense Account Fraud

May 8, 2015

One of the easiest ways dishonest employees steal from the company is by submitting inflated expense reports.

The Association of Certified Fraud Examiners determined in its 2014 Report to the Nation on Occupational Fraud and Abuse that approximately 15 percent of all fraudulent disbursement schemes investigated involved expense reimbursement fraud. It took an average of two years for those employee schemes to be detected.

The industries that have the biggest problems with expense reimbursement fraud are social service, religious and charitable organizations, as well as educational institutions and construction.

Keeping your organization safe from pilfering employees demands strong controls, tough actions against perpetrators and management leading by example.

Whether you’re a multinational corporation employing sales representatives traveling throughout the world or a small not-for-profit organization, you can fall victim to expense reimbursement fraud.

Safeguards to Prevent Expense Account Fraud

As previously mentioned it takes an average of two years for expense report fraud schemes to be detected, safeguard your organization from becoming a victim of expense report fraud. Start by implementing the internal controls listed below and educating your accounting staff on the importance of complying with these preventative measures.

1. Maintain a travel reimbursement policy or guidelines outlining prohibited activity and per diem amounts should be detailed in this policy and regularly communicated to your employees.

2. Require original documentation to be either submitted with the reports or maintained for a period of time for audit purposes.

3. Initiate a formal review process in which a department manager or equivalent reviews employees’ reports. Payroll or human resources should perform a cursory review as well.

4. Routinely question expenditures that look extraordinary or abnormal. Waiting for a larger problem to build will only be more difficult and costly to resolve later.

5. Have all disbursements made in a formal manner through either accounts payable or payroll. Cash shouldn’t be advanced to employees, if at all possible.

6. Implement the use of corporate charge cards for greater control. With corporate cards, companies can query each card individually and ensure that payments are being made against them.

7. Receive credit activity reports on a monthly basis from the issuing company, if using corporate charge cards. These reports can help you determine how many charges are being canceled or credited back to the accounts. This activity can be compared to actual expense reports to determine if it is being accurately reported.

8. Annually audit a sample of employees’ expense reports to ensure they meet the company’s established guidelines. Be sure that proper documentation exists to support the expenditures that were requested. If a company card is used, verify that the balance is being paid promptly.

9. Treat reimbursement activities consistently by having employees pay expenditures and seek reimbursement, or by having the company pay these expenses directly. Flip-flopping between the two could allow for duplicate reimbursement to occur.

10. Prosecute offenders found to be violating or falsifying their expense reports. If they are allowed to escape unpunished, others will follow their actions.

While implementing the above mentioned methods does not garantee that your organization will not fall victim to expense account fraud, it does help minimize the risk. Staying vigilant and taking proactive measures to combat fraud are always best practice recommendations.