Ten Ways to Reduce Expense Fraud

The Real Impact of Expense Fraud

Business expense fraud is a considerable issue worldwide. According to a survey that Chrome River conducted of more than 1,000 business travelers, expense fraud is estimated to cost $2.8 billion dollars a year in the United States. These are not simple cases of an occasional dinner being fraudulently expensed. In fact, according to data from the Association of Certified Fraud Examiners, on average, 24 months elapse between the first instance and the individual (or individuals) being caught – if ever. In many cases, the amounts increase over time as the perpetrators become ever more brazen. This fraud isn't just a rank-and-file issue, but more than a quarter of all cases are committed by executive-level staff, and the more senior the perpetrator, the greater the loss to the organization. In addition, our research shows that only 17% of perpetrators get caught.

The impact of expense fraud goes far beyond the financial loss suffered. Organizations' liabilities can range from audits to loss of investor confidence. And of course for those responsible for expense management and approval, failing to stop fraud can be somewhat career limiting.

Your organization need not be the next victim of travel and expense fraud. In this white paper, we will outline the different types of expense fraud and will also explain how organizations can reduce and even eliminate the risk of expense fraud.

How Could You Be Exposed?

Before identifying some of the ways that companies can protect themselves against expense fraud, it’s useful to know what some of the expense fraud scams are:

  • Submitting expenses for personal items, such as food, as business expenses
  • Submitting expenses for unused items, such as canceled airline tickets
  • Submitting receipt-less expenses for non-existent purchases, just below the organization’s threshold for needing a receipt
  • Submitting a mileage report for a journey in which you were a passenger
  • Falsifying or manipulating receipts

There are also opportunities for potentially legitimate expenses to be inflated inappropriately, such as:

  • Booking a higher class of travel (such as a limo or business class flights) when cheaper alternatives are available
  • Claiming for meals and entertainment in excess of policy amounts or submitting items not allowed under your policy
  • Adding tips to expenses, either where they are already included in the cost or where the amount on the expense receipt is more than what was left on the merchant receipt
  • Submitting higher than actual mileage totals for trips taken in personal vehicles

How Can You Protect Your Organization?

Despite the many ways that employees can abuse their employer’s trust with inappropriate and fraudulent travel and expense claims, the organizations themselves have several tools at their disposal. From both an operational and a technical perspective, there are many ways that businesses can reduce and even eliminate expense fraud and abuse. Below are 10 ways that companies can protect themselves.

1. Create a Global Travel and Expense Policy

The most important step toward minimizing both inadvertent losses and deliberate expense fraud is to establish a clear policy for business and travel expenses. Ensure that it is read and understood by all employees.

These policies should factor in the needs of specific departments or users, and the organization must be able to manage these as appropriate. Although it may seem easier to create and police a one-size-fits-all policy, with many organizations having a wide range of employees with varying roles and requirements, this creates confusion and can become an administrative nightmare.

2. Automate Policy Compliance Rules

If establishing policies is the first, most critical step for any organization, the second most important is ensuring compliance with these rules. For organizations with a manual expense approval process, tracking which expenses are within policy and which are not can be cumbersome and time-consuming. Automating compliance rules removes the need to manually check policies before approving, and it also eliminates the potential of conflict between employee and approver by automatically blocking submission of out-of-policy expenses or asking for an explanation for possible exception approval.

3. Initiate a Corporate Card Program

Corporate credit cards can offer companies a variety of benefits such as cash back on purchases and insurance protection for travel bookings. However, they can also be an effective partner in the fight against expense fraud by ensuring that actual spend matches up to expenses submitted for reimbursement by the individuals. A side effect of corporate cards is that they provide an element of self-regulation, as employees know that all purchases on the cards are visible to their supervisors when they approve their expenses.

4. Integrate Travel Booking Tools

Integrated travel booking tools enable organizations to centralize all airline and hotel bookings though a single vendor and payment process. While from an overall administrative perspective this is helpful in itself, a travel booking tool can combine with a travel and expense management solution to provide an effective system to protect against employees abusing corporate travel policies.

Organizations can enforce policies by establishing business rules within the systems and mandating that all travel is booked centrally, as opposed to individually through other online booking tools.

5. Mandate Preapprovals

Mandated preapprovals can greatly reduce the opportunity for expense abuse. Preapprovals often work in conjunction with a corporate purchasing card, such as for office supplies, or a travel booking system. Although employees can browse and select their items / tickets, they can’t purchase until approved by a supervisor. These systems work by alerting approvers of a purchase request, who must then approve the purchase.

6. Implement Duplicate Expense Checking

There are several ways that legitimate expenses can become fraudulent, one of the most common being duplicate submissions for the same expense. If these expenses are submitted by multiple people or at different times, it can be very easy for them to be overlooked – especially if there is more than one expense approver. Tracking and flagging duplicate expenses enables organizations to identify these and limit payment to a single user.

A possible scenario for this is two employees travel to a meeting together and both claim reimbursement for their own lunch expenses, even though one of them paid for both meals. Tracking duplicate receipts can identify if they are being submitted by more than one person.

7. Dynamic Approval Routes and Inline Audit

It’s not feasible for many organizations to have a separate audit review of every expense before they’re approved for reimbursement, as this would be a major administrative burden and could lead to delays. However, organizations can establish rules so that certain types of expense submissions trigger the report to be submitted for audit before being sent to the approver. By creating a business rule that sends all “miscellaneous” expenses, or those over $250, for inline audit, the organization can provide an extra level of security before reimbursement occurs.

8. Mapped Digital Mileage Tracking

Instead of simply requiring employees to state their mileage for reimbursement, tracking this electronically (by using a map showing the distance of the route), enables approvers to verify that mileage submitted for expenses is the same as that actually driven. This eliminates the possibility of distances being inflated for the purpose of increasing mileage reimbursement.

9. Segregation of Duties

The most robust travel and expense policies can be abused if there is no oversight for approval of expenses. To enforce the corporate rules, processes should be put into place to prevent collusion in the approvals process.

An example of a business rule that organizations can implement to reduce the possibility of collusion and fraud is the “boss’ rule” which eliminates collusion between employees and supervisors to submit and approve inflated or out-of-policy expenses.

10. Analytics and Audits

Analyzing your organization’s expenses can provide a wide range of benefits to the organization, such as support for vendor discount negotiations, identification of areas for cost savings, and minimized credit charges. In addition to these, analytics can also provide a vital tool to identify and subsequently prevent expense fraud.

One area where this can happen is an employee who takes advantage of an organization’s requirement to provide a receipt for transactions over $25, by submitting a series of fake expenses for $24. Running analytics across the organization’s expenses can identify and flag patterns of behavior that could be either out of policy or fraudulent.

Create 360 Degree Visibility of Travel and Expense Spending

Many of the issues outlined above can be addressed with a travel and expense management (TEM) solution. An enterprise TEM solution can be configured to allow for multiple business rules and policy enforcement tools, while providing the flexibility for global organizations to operate without the requirement of constant manual intervention or administrative burden. Travel and expense management solutions should also provide actionable analytics and meaningful insight, not only to eliminate fraud and reduce unapproved spending, but also to give total visibility into employee-related spending. Armed with this intelligence, organizations can make data-driven decisions that can add to the bottom line, such as reducing inefficiencies in spending and negotiating volume discounts with vendors.



Chrome River provides an online expense reporting and invoice management automation solution designed specifically to meet the needs of law firms and professional services organizations. Click here for more information.

Return to Forefront main page »
Thomson Reuters Elite Headquarters
800 Corporate Pointe, Suite 150, Culver City, CA 90230
© 2016 Thomson Reuters
Thomson Reuters