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Three ways to prevent expense fraud with online expense reporting

Sep 18, 2017 10:54:37 AM

Saving receipts and manually filing expenses are sure to be an erroneous task for any employee and organisation. Most errors are harmless mistakes, but occasionally there is a more malicious intent behind it. As a finance manager, it is your job to make sure that every expense is justified.

Unfortunately, every firm in which employees are allowed to submit expense reports is vulnerable to fraud. Hopefully, it doesn’t happen in your organisation but the unfortunate fact is that 20% of employees have misused company expenses or committed expense fraud by submitting at least one expense that was not compliant with company reimbursement criteria (source: Oversight Systems, 2014).According to the same research, 82% of total expense misuse was committed by 5% of the employees, suggesting that there’s a steady group of recurring offenders.The Association of Certified Fraud Examiners (ACFE) even reported that '27 percent of executives/upper management employees commit expense fraud'. Luckily, it has been reported that organisations that organisations that monitor policy compliance decrease fraudulent spending by 70% (source: Oversight Systems, 2014).

What is expense fraud?
Finance managers are generally well aware that human errors occur quite often in expense reports. Even more so, it is often this awareness that prompts them to prevent it by enforcing expense policies, such as control by the manager and finance department. The boundary between human error and expense fraud is crossed when the error is due to a calculated attempt to bypass rules.Fraud is defined as ‘intentional deception to obtain an advantage, avoid an obligation or cause loss to another person or company ’(Source: SFO). Even though expense fraud is only a sub-category of fraud, the potential cost to a business in both time money and trust is significant.Three ways to prevent expense fraud with online expense management
Businesses start off by taking the first steps to prevent expense fraud, such as defining expense report policies and designing an approval process. Now it’s time to take the prevention of expense fraud to the next level with online expense reporting.

1.  Start by defining more elaborate approval policies
Let’s start with the basics that you’ll most likely have in place with paper expense reports: an approval policy. Receipts or reports have to be approved by the manager that is assigned to the expense reporter. With online expense reporting, you can make policies like this more elaborate. For example: when an expense exceeds the amount of € 500, it has to be approved by two managers. Or: a junior sales representative has no permission to report hotel costs. With expense reporting software, rules like this can be easily put in place in a time-saving manner.

2.  Synchronise credit card statements to match expenses with receipts
Many organisations give out corporate credit cards to employees that make a lot of expenses. These cards are easier to manage and control because the credit card statements go directly to finance. However, from our experience, it gets even more difficult to justify expenses made with corporate credit cards. Because employees are not spending their own money and thus do not have to get it reimbursed. Often, receipts get lost. With online expense software, there's only one action for employees. Photograph the receipt when an expense is paid for. In the online expense tool, credit card statements are automatically merged to receipts. Accordingly, it’s easy to check if expenses match credit card spendings.

3.  Use data retrieved from the software to look for unusual expenses
Using online expense management makes it easier to retrieve data. Use these data to answer for example the following questions:

  • Is there someone who has higher expenses than other employees in the same position?
  • How do receipts from this year compare to those of last year?
  • Are expenses submitted twice? For example, an employee can submit a business trip twice by filing separate expense claims, one for the airline issued receipt and one for the travel agency invoice. Usually, the employee will go to different approvers to avoid suspicion. The latter will not be possible if you have automated approval policies in a place that doesn't allow for this.

Besides these three ways to prevent expense fraud, there is another benefit inherent to online expense reporting. Managers can more easily detect fraud because they can quickly click through the expenses, and see them enlarged on their computer screen. While employees and finance save a lot of time with online expense reporting, managers might take a bit more time to approve. We all know that it is common that approvers don’t even look at the printed expense report before signing it for the employee. Especially when the employee is looking over his/her shoulder and waiting for the signature. Online expense reports invite managers to be more critical.

Lastly, it should be noted that expense fraud cannot entirely be prevented with these measurements. However, a 70% decrease in expense fraud is surely worth investing in!

Interested in preventing fraud?


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Pieter Verbruggen

Pieter Verbruggen

CEO & Founder
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