According to the Association of Certified Fraud Examiners (ACFE), expense reimbursement frauds result in a median loss of $26,000 per incident and represent 14.5% of all employee fraud. A 2011 KPMG analysis of fraud suggests that the typical employee committing expense reimbursement fraud is male, aged 36 to 45, has been with his company for more than 10 years, and holds a senior job in finance.
Some of the more entertaining expense report jaw-droppers include these:
- An executive expensed the cost of his daughter’s wedding, rationalizing it as a business expense because clients were invited to the wedding.
- An executive expensed the cost of a flat screen TV for his home, claiming it was for use in videoconferencing.
- An employee submitted expenses for the cost of hiring an escort, claiming she was part of the relocation expenses incurred when his company forced him to change offices.
While those are over-the-top examples, simple schemes like the following list are more likely to be used to perpetrate expense fraud:
- Getting extra receipts from an accommodating cab driver
- Recording tips that were never paid
- Getting duplicate receipts at hotels and restaurants
- Double billing for plane tickets and rental cars
- Enjoying a massage or facial after a long day at a conference
- Having a family dinner at a nice restaurant and characterizing it as a business development expense
- Changing a 1 to a 7, or a 3 to an 8 on a receipt
- Getting reimbursed for some items, then selling them on e-Bay
Expense fraud is one of the most common and ubiquitous forms of employee theft, and hence, one of the most difficult to prevent. Look for these red flags to determine if your organization needs to concentrate on internal controls, expense policy, and detection:
- Expenses that are significantly over budget compared to prior years
- Expenses claimed on dates/times the employee was not working
- Expense amounts just under the threshold for review or requirement of a receipt
- Minimal or non-existent supporting documents
- Sequential receipts or photocopies rather than originals
- Expense reports approved by someone outside the employee’s department
- Unusual or excessive reimbursement to one employee, for example, two sales people with the same position, one has monthly expenses of $8,000 and the other’s is $1,000 per month
Organizations can best protect their employees and financial assets by instituting strong prevention, detection, and response tools.
Any “no” response might be a red flag and should be closely evaluated.