Combatting expense report fraud

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By: David G. Friedman, CPA, CFE, CFF, CICA – Partner at Wipfli LLP

It’s an unfortunate reality of the business world that one of the most common types of fraud may be occurring from within your own ranks. Expense report fraud is the easiest way for an employee to steal from their organization as the controls around it are relatively lax.

This kind of behavior occurs at a slower pace than other deceptive practices, but it can be a bellwether for more insidious activities by a determined fraudster. Perpetrators of expense fraud are generally committed to this behavior over the long haul (it typically proceeds for 18 months) and they steal, on average, about $2,200 a month from their organization.

Be attuned to different types of fraud

Expense report fraud most commonly falls into these four categories:

  1. Fictional expenses: The fraudster may make up expenses to line their pockets. For example, they’ll submit an expense report for a business dinner that never happened, mileage that didn’t occur, or made-up entertainment or office supplies.
  2. Double-dipping: The fraudster may report the same expense multiple times, usually over multiple reports.
  3. Personal expenses: The fraudster may submit an expense report for a personal dinner with their family as a business expense or allow family members to use the company card.
  4. Overstated expenses: The fraudster may inflate a $10 expense so that it shows up as $100 or $1,000 to capitalize on the extra dollars.

Ways to prevent expense report fraud

Take a close look at your company’s credit card policies. Take advantage of your ability to control the credit limits and usage of company credit cards. Here are some other tips to reduce expense report fraud:

  • Have all credit card statements sent directly to your organization in one format rather than accepting submissions with varying formats.
  • Require a receipt — plus information about the who, what, where, why, and how — for all purchases.

  • Require receipts to be forwarded on a weekly or biweekly basis to support expenditures.

  • Be willing to pull a credit card from an employee for misuse.

  • Institute an organization-wide review and approval process. It’s best to have an accounting department staff member (rather than a supervisor or department head) complete this process.

    While leaders should understand the rationale for expenses, almost universally they don’t have the expertise to properly review expense reports. If your accounting department is short staffed, this process can easily be outsourced.

  • Use fleet cards for fuel and vehicle maintenance when possible. They allow your organization to control spending for specific purposes such as gas, washes, and oil changes.

  • Require cardholders to prepare a monthly summary of expenses designed by your organization. This allows individuals to catch and correct inadvertent mistakes.

    Expenses should be rejected if they are not submitted in the required format. This approach may also help reveal fraudulent intent by employees with certain expenses.

How Wipfli can help

If your organization suspects ongoing expense report fraud, Wipfli professionals can assess your current submission and review process and help you develop new systems to improve accountability. Many accounting departments are understaffed and overworked and can benefit from our experience grappling with expense report fraud.

Contact us to learn more about how we can assist you.

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