How to Handle Expense Report Abuse and Fraud?

Managing expense reports manually is highly time-consuming for your business, and it's also ineffective against expense report fraud. As a result, fraudulent claims mostly fall through the cracks.

Is this due to a lack of vigilance? Perhaps that is part of the reason. Above all, companies are ill-equipped to deal with the problem. They lack the appropriate tools to track and monitor expense reports. Many businesses remain faithful to a very traditional model of paper management and Excel forms. These methods no longer serve them well in the modern business world.

Four Types of Expense Report Fraud

Though most employees are honest and trustworthy, all it takes are a few fraudulent claims to have a massive impact on your business. Most managers and executives want to assume that their team members are honest until they have evidence to the contrary. That doesn’t mean you shouldn’t take appropriate precautions to protect your business from those who may be committing expense report abuse.

Organizations must be aware of where potential fraud leakage may occur. The following are four types of expense fraud you need to be mindful of:

1. Exaggerated Expense Claims

The employee purchases an item for its actual cost (£20). When the employee submits an expense report, they charge the same thing to the company for a much higher amount (£200). The invoice is changed or altered to reflect a higher amount. The company reimburses the employee for the higher amount, and the employee makes a profit of £180 from the altered receipt.

Another example of expense report abuse is over-purchasing. An employee may buy too many office supplies and pockets the receipt for £250. The employee returns some of the items for a refund and obtains a new receipt for £100. The employee submits the first receipt for the higher amount to the company for reimbursement (£250) and makes the difference between the two receipts as profit (£250 - £100 = £150 in hand).

2. Mischaracterized Expenses

What do all of the following expenses have in common?

An employee charges four admissions to a theme park on their employee expense report.
Someone submits receipts for a cruise as a business expense.
An employee submitted their family's eight mobile phone lines to the company for a year.
Someone claimed close to £1,500 for a business meal with their partner and two friends listed on the bill as being in attendance.

These are examples of expense report fraud since the expenses are not business-related. When the employee submitted these expenses for reimbursement, whether the employee's actions were on purpose or in error, they committed fraud.

3. Multiple Claims

In the case of multiple claims, an employee will submit a receipt for a product or an expense more than once over several months. The employee hopes that the accounting department will not realize that it has already paid the claim for reimbursement.

If two employees share a meal and both receive a receipt, each one should submit a claim for half the amount shown. If both employees submit the ticket for the total amount, each one is committing fraud.

Employees also commit fraud when they pay for an item using the corporate credit card and then submit a separate receipt for the same item as a cash purchase.

The company needs good oversight of the expenses it has already paid. Otherwise, management and the accounting department won't be able to track the previously submitted and approved payments.

4. False Claims

False claims include the expense report submitted with false documents (invoices, receipts, or cheques created with desktop publishing software) or stolen blank receipts. The employee fills in the stolen tickets with incorrect amounts. Employees may also collect receipts from friends or family members and submit them to the employer as their expenses.

Suppose your company has a policy where receipts are not required for expenses under a set amount. In that case, dishonest employees can take advantage by submitting false expense reports. They may claim the vendor didn't provide a receipt, or they lost it.

A dishonest employee may claim reimbursement for complimentary meals or rides provided by their hotel while travelling.

They may try to charge the company for expenses they never incurred, such as cancelled air tickets, tuition allowances, registration fees for workshops, or professional dues.

A dishonest employee may submit claims for meals with clients that never occurred.

They may use public transportation and make a mileage claim to the company pretending took their own car.

5. Violating Company Expense Policy

It can be challenging to ensure that employees are fully compliant with the company expense policy. There will always be some employees who don't follow the company guidelines. If the employee's violations of company policy are relatively minor, they are less likely to be noticed. Company managers must do everything possible to ensure employees know the company expense policy and the consequences of violating the rules.
Most companies have a policy that doesn't reimburse employees for alcohol or cigarettes. This policy doesn't stop employees from submitting claims for after-dinner drinks when the expense policy clearly states only the meal is eligible. An employee who submits an unitemised receipt for the meal may hope the accounting department overlooks this detail and provides full reimbursement.
Employees may violate stated company policy by choosing premium seats or priority boarding when travelling. They may also upgrade their car rental when more economical options are available.

6. Inflating Expenses

Employees can pad out their business expense claims to pocket the difference. Some examples are as follows:

Adding small amounts to expenses like cab rides or meals on occasion.
Claiming an inaccurate tip amount for business dinners.
Choosing the more expensive alternative for airline tickets or car rentals when lower-cost options are available.
Claiming inflated mileage totals or petrol costs when driving for business.

How does Expense Report Fraud Impact the Company?

A study of nearly two million expense reports from 130 French companies showed that fraud committed through expense reports was costing these companies seven million euros!

This figure represents, on average, a loss of 700 euros per year per employee for a company.

This same study showed that very small businesses (15% of fraudulent expense reports) and small and medium-sized businesses (10% of fraudulent expense reports) are more affected than large companies by this practice of internal fraud. According to PwC (Global Economic Crime Survey 2018), 71% of companies are affected by fraud.

According to Les Échos Business, nearly 12% of expense reports reimbursed by companies are potentially fraudulent.

Apart from the fact that these fraud claims cost the company money while enriching the fraudsters, there are other risks and issues to consider.

Accounting for fraudulent expense reports in the company's accounts. The company may be required to answer formal inquiries from HMRC.
Fraudulent expense reports can also clog the already lengthy process of reimbursing business expenses to employees.

To a lesser extent, since "time is money," the time invested by fraudsters in developing their scheme is equivalent to a loss in terms of productivity.

Existing Solutions to Fight Against Fraud

Here are some solutions to protect you from expense report abuse in your company.

Keep an eye out: the techniques mentioned above already constitute a sound basis for tracking down the slightest trail of fraud left by dishonest employees. You can, for example, check the presence of inconsistencies on the timeline (meals on the weekend, etc.), suspicious values (having significantly exceeded the authorized ceiling, inconsistencies concerning the pattern presented), etc.
Define a business expense policy: Define what constitutes internal fraud and insist on the fact that anyone deviating from these rules could be fired.
Set up a system of capped credit cards: Set a policy that these be the only means of payment for your employees.

Mooncard: The 3-in-1 Solution to Expense Report Fraud

Mooncard offers a reliable and configurable solution: a company card taking care of all your professional expenses and a management application to manage and track your costs and automate your account entries.

Provide your employees with a Mooncard and configure it according to their needs. The card is a safe bet to control any so-called "suspicious" activity, thereby reducing the possibility of fraud.
Set a spending limit on the days of use of your company cards to avoid fraudulent spending. More than 60 criteria allow you to configure the rights and access of your employees fully.
Activate the mode of approval or disapproval of expenses.
Receive notifications when a collaborator requests to go above the spending limit that has been fixed or when you need to approve expenses.
Check the expenses of each of your employees in real-time: amount, type of expense, and date of use.

The expense reports are automatically pre-filled using information from the bank transaction: they are therefore 100% reliable and tamper-proof.

Would you like to get more information about Mooncard and how this system can reduce the likelihood of expense report fraud in your business? Our advisors are ready to assist you, or you can book a demo online.