White Paper. 10 Ways to Prevent Business Expense Fraud and Abuse

Transcription

1 White Paper 10 Ways to Prevent Business Expense Fraud and Abuse

2 The real impact of expense fraud Business expense fraud is a considerable issue across the world. 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 in fact 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 investo r 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 victi m 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. +1 (888)

3 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 are some of the expense fraud scams that perpetrated against them. Some of these include: Submitting expenses for personal items, such as gasoline or food, as business expenses. Submitting expenses for unused items, such as canceled airline tickets, or registration fees for conferences that were never attended. 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 (alcohol, sports tickets). Adding tips to expenses (such as meals or taxi rides), 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. +1 (888)

4 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 first and most important step toward minimizing both inadvertent losses and deliberate expense fraud is to establish a clearly articulated policy for business and travel expenses, as well as ensuring that it is read, understood and acknowledged by all team members. These policies should factor in the needs of specific departments or users, and the organization be able to manage these as appropriate. Although it may seem easier to create (and subsequently police) a one-size-fits-all policy, with many organizations having a wide range of staff members with varying roles and requirements, in practice this creates confusion and can become an administrative nightmare. While a $20 lunch allowance may be appropriate for a junior team member who is away on a training course, it certainly won t work for your VP of sales who is taking out a million-dollar prospect. You therefore need to ensure that your organization has the capability to support varying policies for different team members. 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, especially if there are several tiers within a corporate policy. Automating compliance rules removes the need to manually check policies before approving, and also eliminates the potential of conflict between employee and approver, by automatically blocking submission of out-of-policy expenses (hard stop), or asking for an explanation for possible exception approval (soft stop). For example, the corporate policy for lunch is $20, but an employee tries to submit a claim for a $50 lunch. This issue can be eliminated by enforcing the policy and not allowing an expense over the limit to be submitted without providing an explanation of the overage. This will allow the approver to allow the expense to be reimbursed for legitimate reasons. +1 (888)

5 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. One examples of the type of fraud that can be eliminated is an employee who uses their personal credit card to buy a business-class ticket (even if this is within policy), submits the receipt as an expense, and then cancels the ticket, buying and traveling on a coach-class ticket in its place. Another example is an employee pays for a $200 client meal with their personal credit card and adds a 10% tip, but on the copy of the receipt that they submit, they add in a 20% tip and claim the difference. A corporate credit card would not only remove the benefit of either of these for the employee, but once the bill was reconciled against the claimed expenses, the difference would be highlighted. 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. Integrating the travel booking tools into the expense management system can also streamline expense approvals and reconciliation. 5. Mandate Preapprovals Mandated preapprovals can also 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 can change, dependent on the size of the purchase, per the organization s policies), who must then give their approval to make the purchase. +1 (888)

6 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. Two possible scenarios for this are outlined here: First, 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. Second, an employee submits a legitimate receipt one month, and it is approved and reimbursed. The individual then submits the same receipt for reimbursement the following month. Duplicate receipt tracking will identify that the same expense has been submitted twice, and flag this as potentially fraudulent. 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 these 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. This will limit attempts by individuals to either mask inappropriate expenses, or collude with their expense approver to defraud the organization. One example of this is an employee who submits a receipt for a $500 meal with their spouse in a non-specific (e.g. miscellaneous ) category, and colludes with their approver to split the reimbursement. 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. +1 (888)

7 8. Mapped Digital Mileage Tracking Instead of simply requiring employees to state their mileage for reimbursement purposes, tracking this electronically (by using a map showing the route between start and finish, complete with total miles driven), 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. To illustrate this, an employee makes regular drives from New York to Washington D.C., a distance of about 225 miles, but claims 250 miles each way on their expenses, pocketing the additional 50 miles worth of mileage reimbursement on their expenses. Submitting expenses with a map showing the journey and mileage will eliminate this type of fraud. 9. Segregation of Duties Even 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. Here are two possible ways that this can happen. First, a senior vice president asks their administrator to file expenses on their behalf from a recent business trip. The administrator logs into the expense management with their SVP s credentials, and while logged in, approves their own fictitious expenses, unbeknown to the SVP. A system that allows users to delegate the filing of their expenses to subordinate, without requiring them to use their login credentials. A second example is a sales director who takes their sales staff for a meal that s above their policy limit. The director asks a more junior team member to pay for and expense the meal, so the director can approve the expense with no further scrutiny. The boss rule would ensure that the most senior person expenses the meal, themselves, so their expense report can be approved by their own supervisor. +1 (888)

8 10. Analytics and Audits Analyzing your organization s expenses can provide a wide range of benefits to the organization for example support for vendor discount negotiations, identifying areas for cost savings and minimizing 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 that takes advantages of an organization s requirements to provide a receipt for transactions over $25, by submitting a series of fake expenses for $24. While these transactions may get missed by a human reviewer, running analytics across the organization s expenses can identify and flag patterns of behavior that could be either out of policy or fraudulent. +1 (888)

9 Create 360 Degree Visibility of Your Organization s Travel and Expense Spending Many of the issues outlined above can be addressed by the introduction of 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 for 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, or ganizations can make data-driven decisions that can add to the bottom line, such as reducing inefficiencies in spending and negotiating volume discounts with vendors. For additional information on this subject or on how Chrome River EXPENSE can alleviate these issues for your organization, please contact Chrome River: Phone: [email protected] Web: chromeriver.com twitter.com/chromeriver linkedin.com/company/chromeriver facebook.com/chromeriver +1 (888)