From time to time, stories about fraud with public funds reaches the front pages of the Danish news medias. Stories that are indisputable bad for the legitimacy of public institutions and create bad publicity. It’s difficult to put an end to these stories. They’ve always existed and will continue to do so in the future – hopefully to a lesser extent though.
Fortunately, it’s possible to take control of the processes and intensify the defense against fraud and cheating. I don’t have the final conclusion but I will try to uncover the challenge in this blog post and present some of my own perspectives on how it’s possible to take better charge of the expense related processes, which may be exposed to fraud and cheating.
Expense fraud among employees in private companies is – by the way – also happening. In this blog post, I’ve chosen to exemplify through public institutions, but the defense mechanisms are more or less the same.
Increased focus from public authority’s
The Danish Agency for Public Finance and Management has recently, in the beginning of June, launched a multi-year effort on strengthened internal control, supervision and risk management as a consequence of the cases of fraud and cheating with public funds within public institutions.
Several activities and initiatives have already been initiated – including mandatory and specialized courses, cross-functional networks and webinars. I think it’s encouraging that managerial attention and knowledge are prioritized and efforts are made to strengthen it.
Managers in Danish municipalities have financial management supervision. A task that municipal managers must perform where control of expenses are included. The purpose of the financial management supervision is to ensure that the financial framework is used correctly, secure against significant errors (incorrect bookkeeping, etc.), secure against unjustified suspicion of employees and secure against fraud. Many municipalities have begun to digitize the financial management supervision. I can only applaud that – because as I will touch upon later – digital solutions makes it much easier to carry out supervision and internal control.
I love the increased focus that expense fraud gets. Hopefully, it can help to reduce the extent over time. Let’s look at how fraud occur and find out what defense mechanisms organizations can use.
How does expense fraud occur?
Few employees cheat with their expenses. Let’s start by making that clear. Most organizations face no issue in this regard.
Nevertheless, several cases has been publicly known within the last few years. The cases in the Danish Ministry of Defence Estate Agency and Greve municipality is perhaps best remembered. According to an audit report, employees in the Danish Ministry of Defence Estate Agency had, almost, free reins for making fraud if they wanted. The employees could buy goods and services, sign for the receipt and approve the payment. In Greve municipality, the city manager was sent home and later dismissed because he bought icehockey tickets, grocery goods and other private stuff on the municipality’s credit card.
In recent years there’s been several cases, where the municipality’s credit cards has been used for private consumption. The documentation in the form of a receipt or an invoice are in many cases not attached. In other cases, the approval procedures are inadequate and certain employees have been able to approve purchases for their own benefit.
At Acubiz, we’ve been managing all types of employee-initiated expenses since 1997, and we’re aware of the various types of expense fraud. Besides the above-mentioned fraud types, we can also add:
- When an employee submits the same expense several times
- When a refund is submitted where the purpose is correct, but the amount is too high
- When an employee reports more kilometers than has actually been driven
- When an employee seeks refund for fake purchases – often with a copy of a false receipt
Take control of the documentation of the expenses
There’s no doubt that fraud are easier to get away with if the organization works manually with expenses. The control mechanisms are often weaker when the process is manual, which, all things being equal, will tempt those employees, who’re weighed down by a shady sense of morality and ethics.
Conversely, a digital expense management service will make it much easier to keep track of the expense process. Most Expense Management services will be able to control whether all conditions around a given transaction is in order. That’s at least possible in Acubiz. Both in terms of the statutory documentation, but also in terms of the transaction’s compliance with the organization’s own rules and policies for purchases on e.g. company cards.
Acubiz can’t prevent fraud or misuse from happening, but when it does, it provide the opportunity to quickly gain insight into the audit trail of a transaction as well as the accompanying documentation. This way, it can be identified whether there’s been a breach of rules and policies. Acubiz can be configured in a way, so it proactively can give alerts about potentially abnormal use – on user level.
In Acubiz we find, just as the Danish Agency for Public Finance and Management, internal control important. Therefore, it’s possible to use robot technology to perform control/audit and spot checks on the expenses that run through our solution. That’s a very good defense mechanism against fraud and misuse.
Sometimes employees gets caught in “fraud” because they don’t understand or know exactly what constitute a violation. That’s why it’s important that you help your employees by communicating the rules and policies of your organization.
Acubiz is not a firewall for expense fraud. We can’t prevent fraud from happening, but advanced reporting, full transparency around documentation, electronic approval processes, duplicate control and robot technology makes it harder and more difficult for fraudulent expenses to pass undetected.
Take control and digitize your business spend processes. It minimizes the risk of fraud and hence bad publicity. At the same time, it’s beneficial for both employee, approver and finance department.