News & Insights
Expense Report Fraud
February 21st, 2022
By Sarah Jennings |
Accounting & Outsourced Solutions
“Everyone Does It.”
All of these are euphemisms that are used to trivialize expense report fraud. Employee fraudsters rationalize their dishonesty by minimizing the fraud and seeing it as just a normal cost of doing business. That said, how can employers protect themselves?
Know the Schemes
Typical expense reports consist of reimbursements for meals and client/customer entertainment, mileage, training and seminars, and flights. Each of these appropriate reimbursements has commonly exploited schemes that can be difficult to detect.
Meals and Entertainment
- The FREE Meal – Employee Z goes to dinner at the successful conclusion of a project with a customer. The customer picks up the tab in celebration. Employee Z snags the receipt from the table and turns it in for personal reimbursement.
- Room Service Double Up – Employee Z is traveling for business. Room service is ordered and charged to the room. Employee Z turns in the full hotel bill (with the hidden meal charge), along with a separate meal reimbursement, and is paid twice for the same meal.
- Joint Meal – Employee Z and Employee Y go for a night on the town. Employee Z picks up drinks and dinner and turns that in for reimbursement, indicating Employee Y as the guest. Employee Y picked up a copy of the receipt and submitted that for reimbursement, indicating a significant client as the guest.
- It’s a Family Affair – While traveling for business, Employee Z pays for the entire family and submits the bill for reimbursement. Generally, details of the receipt are not included in the request. This is also used for entertainment charges, substituting client or prospect names for family members.
- Recurring Meal – Employee Z submits the same receipt on multiple expense reimbursement requests.
Mileage and Fuel.
- Long Way Home – Miles are added to the trip for reimbursement.
- Free Ride – Employee Z and Employee Y carpool to a training event. Both submit a request for mileage reimbursement.
- Out of Body Experience – Employee Z travels for a client meeting and gets a rental car. The reimbursement request includes the full rental car fees and mileage reimbursement for using his personal vehicle. The two requests are often submitted in separate reports to hide the duplication.
- Fill it Up! – Employee Y starts the week filling up with gas. Her husband and son line up behind her at the gas station. All charges are together on the company fuel card.
- One Charge for the Price of Two – Employee Y used the company card for gas prior to the day’s travel. The receipt was also submitted for personal reimbursement.
- Free Vacation! – Employee Z has approved travel for a training seminar in Palm Springs. The seminar was paid for, along with travel, on the personal card and submitted for reimbursement. The seminar was canceled and refunded on the personal card. Employee Z has a week’s vacation with spending money compliments of the company!
- Flight Switcheroo – Employee Y schedules and pays for airfare far in advance of travel to get the economical rates. Airfare is purchased for the same flight close to the date of travel at an exorbitant rate and canceled. Reimbursement is submitted for the higher costing flight.
- Downgrade – Employee Z schedules a flight with a more expensive seat or section than downgrades (from business class to coach or from an exit row to a regular seat). The original, more expensive airfare is submitted for reimbursement.
- Airline Credit – A flight is scheduled and expensed for reimbursement. Plans change, and the flight is canceled with an airline credit issued. The credit is then used for employee personal use.
Ask Questions and Get Support
The best way to protect your business from significant and widespread expense report fraud is to require detailed supporting documentation for all transactions and ask questions! Here are some key measures to take:
- Institute a documented policy for appropriate company expenses and the process for reimbursement and/or charges. This reduces room for questions on what is allowable and expected.
- Require detailed receipts, not just totals for all credit card charges, hotel bills, and supply orders. Review the details for duplicates, credits, and any identifying details. Elements such as date, number of people, time, shipping address, and an indication of a completed transaction (as opposed to a preliminary quote or order) can be very useful when verifying appropriate expenditures.
- Maintain the last four digits of employee and company cards on file. Compare documentation to make sure reimbursements are not done for company cards, and compare reimbursements for duplicate transactions among employees.
- Compel supervisor reviews of expense reports. Approvals should not be done only by accounting. Immediate supervisors, who are knowledgeable about the employee activities, should review the reimbursement request. Another individual can be responsible for ensuring appropriate support to maintain efficient processes.
- Periodically compare reimbursements with employee schedules/itineraries.
- Compare reimbursement requests to other employees with similar clients or attending similar conferences.
- Consider utilizing a company-sponsored travel agency or booking service for all company travel.
- Require employees to submit start and stop locations for mileage reimbursements periodically verify the mileage.
The Association of Certified Fraud Examiners estimates that 5% of revenues are lost annually by companies due to fraud. No one is untouched. While you may not have the staff or resources to detail review every transaction, employees need to know samples are selected regularly for detailed questions. One of the best defense mechanisms is people believing they could get caught.
The team at Maner Costerisan can help you put policies and procedures in place that will help protect your organization from fraud.