Expense reimbursement fraud is an occupational fraud scheme that has become more costly for businesses since the start of the COVID-19 pandemic in 2020. According to the most recent report from the Association of Certified Fraud Examiners (ACFE), this type of employee scheme now ranks fourth, trailing only corruption, billing schemes, and noncash fraud.
Although the median loss of $50,000 from expense reimbursement scams is lower than that of some other frauds, they’re nonetheless widely performed. According to software company Emburse, roughly 25% of 1,000 employees polled acknowledged misrepresenting personal expenditures as work-related. If you let internal controls slip during the pandemic and notice more overstated or falsified expense reports, it’s time to strengthen your fraud deterrents.
How They Do It
Employees frequently falsify expense reports. They might, for example, charge your company for an expensive meal with friends or for hotel expenses incurred when extending a business trip for leisure. Employees may also overstate the amount of authorized expenses, for example by claiming higher service tips than they actually paid.
Other common forms of reimbursement fraud include submitting bills for trips that were never taken (such as canceled airline tickets or refunded hotel registration), claims for items that employees did not purchase, inflated mileage totals, and bills for nonreimbursable expenses, such as alcohol or leisure activity tickets. Some workers cheat their employers regularly by collecting blank receipts from taxis and restaurants to submit with their bogus expense reports.
How to Stop Them
According to the ACFE, larger companies (those with more than 100 employees) are more prone to experience reimbursement fraud than smaller ones. However, any company that fails to strictly adhere to submission and approval standards risks being a victim.
To keep employees from abusing your expense reimbursement system:
- Create an expense reimbursement policy that requires original receipts and documentation for expenses over a specified limit. Ensure that all employees read and sign the policy.
- Hold supervisors accountable for approving and verifying expenses. They should look into questionable items or reports that have several expenses barely below the amount requiring proof.
- Ensure that employee credit card charges (if appropriate) are not canceled and that balances are paid in full.
- Create a confidential fraud hotline if one doesn’t already exist. Employees who are aware of cheating colleagues may hesitate to report them unless there is an anonymous channel in place.
Make sure supervisors and executives follow the same rules as other employees. And if you discover that an employee has been reporting bogus claims, take action. This might involve terminating the employee and filing criminal charges. Consult your attorney.
Vulnerable Industries
Finally, organizations in some industries are more prone to losing money due to expense reimbursement fraud. According to the ACFE report, these include construction, manufacturing, healthcare, education, and nonprofit organizations. Contact us for tips on how to prevent and detect reimbursement fraud.
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