The Ninja Art of Combating Expense Report Fraud

Fraud is a major concern for any organization that processes expense reports. In fact, a 2014 study by the Association of Certified Fraud Examiners (ACFE) found that “the typical organization loses 5% of revenues each year to fraud.” Here are three effective ways to fight against expense report abuse:

  1. Establish an EXPENSE report fraud hotline.

    The ACFE reported that “Organizations with hotlines were much more likely to catch fraud by a tip, which our data shows is the most effective way to detect fraud.” Having a resource for information to be submitted and followed-up on provided those organizations with an excellent way of combatting fraud.
  2. Auditing software.

    The ACFE also reports that “The presence of anti-fraud controls is associated with reduced fraud losses and shorter fraud duration.” According to a 2011 Aberdeen Group report, “Expense-auditing is a major tool for identifying instances of non-compliant expenses and employee-driven expense fraud. Aberdeen research has found that, on average, only 30% of all expenses are audited on a regular basis at the typical organization, leaving a vast majority of expenses to be reimbursed and paid without a deep-dive into their details.”

    The reason why that number—30%—is so low is that most organizations don’t have a solution in place that will perform more thorough, more regular audits.

    The same report details how “Best-in-Class companies are 44% more likely than all other organizations to institute a formal expense-auditing team, a factor which surely contributes to their superior level of travel policy compliance.”

    Auditing software is also great for catching duplicates and matching transactions to receipts. One expert on fraud detailed how she caught executives who had purposefully submitted receipts for reimbursements that had already been paid on the company credit card. The software is very good at catching errors like this one.

Related Article: The Future of Expense Reports: Our Expense Reporting Predictions For 2037

  1. Front-end approval.

    Asking employees to submit their expenses ahead of time can be frustrating for all parties involved (from the employee who has to submit two expense reports to the admin who has to approve both reports). However, instituting a policy that requires expenses to be pre-approved saves you from surprises and helps employees stay on track with how much they submitted to be approved and how much they actually will get approved.

    Controlling fraud from the front end makes the process more manageable. Software is also capable of assisting with solutions like P-Cards or pre-trip approval. Another capability of software is in its pre-approval validation. Before expense reports are even able to be submitted, they must go through a validation system that tests the expense report against a set of inputted requirements and provides reminders about receipts or warnings about elements of the report that go against policy. This puts the onus on the submitter to fix the problems before they resubmit, which ensures improved compliance.

The overall goal is to stop fraud in its tracks rather than finding it years or decades later. When fraud is prevented in the moment, it’s more likely that it’s possible re-coup any potential losses. The longer fraud goes on, the more the cost of the fraud increases. These three methods will be excellent fighters in the battle against fraud.

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