Yes, I know. The headline might sound a bit harsh. But fact is, that fraud with expense transactions is a real challenge for many companies. Most people know that it exists, but few know the extent. Grab yourself a good cup of coffee and read on. I will shed some light over the topic.
How to identify fraud?
One can often distinguish human errors or misunderstandings from intentional fraud. Many different factors can lead to errors and misunderstandings. It can be unclear rules, use of old Excel sheets, where the calculations are no longer valid or something as simple as errors in summarizations. Understanding the extent of the problem and how to spot fraud can be divided into different areas:
- Incorrect expenses: An employee request a refund for a private expense but claims the expense as being business related.
- Too much refund of expenses: A refund submitted where the purpose is correct, but the amount is too large.
- Fictive expenses: An employee seeks refund for fake purchases. Often with a copy of a false receipt.
- Repeating refunds: When an employee submits the same expense several times.
- Mileage allowance: The employee reports more kilometers than has actually been driven.
Our customers tells us that reporting too many kilometers in connection with mileage allowance is a common form of cheating. We have found that the use of electronic route calculation either through Google or using a smartphone’s GPS tracker can provide savings of up to 15 percent of the company’s total cost of mileage allowance. Everything is relative, but this can potentially involve a lot of money.
How about cash withdrawals?
Cash withdrawals can be a challenge since the employee withdraw cash instead of using credit cards, and cash is more difficult to control. Our experience is that implementing corporate credit cards reduces the number of cash transactions – which are easier to cheat with. The primary reason is that you can’t control the place of the purchase between the receipt and the credit card transaction.
Cheaters are creative
The above definitions can help to understand the different areas where we often encounter fraud. In reality, however, there are no limits to how employees can cheat and try to avoid controls or exploit weaknesses in processes and systems. The good news is that it’s only 5 % of employees that counts for 82 % of all fraud, according to various research. So, the task is simple – we “just” need to find the 5 %.
The hidden costs of cheating with expenses
Where cheating with expenses can be difficult to detect, the negative impacts are easy to identify. Fraud can be a costly affair for companies of all sizes, but for smaller companies the costs have more impact. According to studies, companies with less than 100 employees have, on average, 28 % higher losses than companies with 100 or more employees. How can that be? The reason is, that digital Travel & Expense Management systems are less common in small businesses. Fewer companies have access to effective and automated control of expenses. Some of these systems may also include functionality for monitoring user behavior and automatic controls of policies and rules. Larger companies will typically have one or more full-time controllers dedicated to the control task. No matter which approach a company has to expense management, there is no foolproof solution to completely eliminate fraud with expenses.
Get control of rules and policies
Once rules and policies have been drawn up and written down, it’s easier for employees to understand exactly what compose an infringement. It’s also simpler for the controllers to figure out which employees that are playing by the rules and which isn’t. Furthermore, it’s easier to react and make decisions in cases where the infringements occur.
Structure and process
It’s important to define the right cost structure. I always encourage to describe “what you have spent money on” rather than “which account should be registered”. Most employees aren’t employed in the finance department and don’t understand concepts such as “Freight with VAT” and “Freight without VAT”. It’s all about designing a well-defined structure and process that meets the users on their premises. Did you know that “various” constitute the fifth largest expense category in some organizations – often up to 8 % of the total travel and expense transactions. That’s more than cell phones, taxi services and other clearly defined categories. Consider specifying “various expenses”, so it becomes easy to distinguish the transactions. That will reduce the risks of cheating.
Power up the process and include fraud controls
It’s my clear belief, that the implementation of an automated expense reporting system and company credit card is the simplest way to avoid cheating with expense transactions and travel expenses. Company policies, controls, credit card administration, travel orders and the daily flow of expenses can be easily handled with the right solution. The right solution will also ensure compliance with the company’s rules and requirements. Advanced reporting, documented electronic approval processes and robotic technology makes it harder for fraudulent expenses to pass undetected.
Do you want to know more?
With this article I have given some insight into how you can get proper control of your company’s expenses. Get a step-by-step guide on how to get started with a full digitization of the expense process here.
Lars de Nully
CEO & Founder