DIERCKX & ASSOCIATES LTD

Expense reporting is a pain: for companies as well as employees alike. It’s a a necessary evil and annoy everyone who comes into contact with it. From the employee who is searching for receipts to the employee who has to verify the expenses, the process is tedious and time-consuming.
But why is this issue related to fraud? You’re thinking to yourself, “Sure, employees cheat and steal with expense reports, but isn’t the amount lost very small?” In most companies, yes, the amount lost to employee expense report fraud is relatively small. However the direct financial loss is is not the only consideration.

Expense report fraud tells your something about your employees: if an employee is willing to commit theft via expense reports, he or she might be inclined to commit fraud against the company in other ways as well.
Expense report fraud includes schemes like:

• Claiming items for which the employee does not have a reimbursement entitlement;
• Exceeding the limits for allowable expenses (sometimes splitting an expense into two or three items to get around the limit);
• Inflating legitimate expenses;
• Claiming “cash” expenses to try and avoid producing receipts;
• Taking advantage of a maximum reimbursement allowed without documentation For example “losing” a receipt for a $12 meal, and claiming a $25 expense because that is the maximum allowed to be reimbursed for a meal without a receipt;
• Double dipping: for instance using a company credit card and also submitting the actual receipt later for cash reimbursement;
• Claiming for personal items.

Expense report fraud says a lot about an employee. Imagine a highly compensated executive cheating on expense reports to steal $10 here and $12 there. The fact that a well-paid executive with nice perks would steal such petty amounts seems incredible, but it happens. And often that type of theft can be indicative of other fraud problems. It wouldn’t be unthinkable for that executive to be stealing in other areas of the company, and the expense report theft is simply consistent with the executive’s attitude toward the organization’s money.

Theft via expense reports remains a relatively insignificant part of a company’s financial picture. For this reason, it’s easy for companies to ignore the problem. It probably costs more to investigate the problem than the actual cost of the theft. Yet business owners and executives should not lose sight of the fact that the expense report theft can have larger indirect consequences. To give you an indication as to how often this happens: in 2007 a survey by PayScale.com identified a staggering 39% of respondents admitting to some form of unethical practice in relation to their expense reports. Expense report frauds, such as fictitious or exaggerated expense reports appear to be viewed very similar to how many people look at insurance and tax frauds; it is not perceived as a crime, probably because of the relatively small amounts involved. For some reason stealing small amounts of money are not perceived as theft, while in actual fact it is. What is more important; expense report fraud may well be a symptom for more serious issues.

WHY IT IS IMPORTANT TO ADDRESS EXPENSE REPORT FRAUD AND WHAT IT MAY BE TELLING YOU!
If you as a business owner, or as a company know that expense report fraud is occurring, do not overlook this as so often happens. Employees may be tempted to see what other theft and fraud they may get away with. Do you really want employees trying to figure out how much dishonesty will be tolerated? Is is really wise to implicitly indicate to employees that some level of theft is okay? You simply cannot allow employees to independently determine what unethical behavior is acceptable. There must be clear expectations and those expectations need to be regularly enforced and preferably seen to be enforced. Instances of suspected expense report fraud must be investigated and where such frauds are established action will need to be taken. You should also consider what other fraud schemes the employee may be involved in. It would not be the first time where follow through leads to a substantial can of worms being opened.

Fostering ethical behavior in a company often starts clear rules and consistency also when it concerns seemingly insignificant issues.
Enforcement of  a zero tolerance policy with predictable regularity, often results in employees behaving more ethically in general. Demanding honesty in the expense reporting process is one small part of setting the right tone for employees and creating an ethical corporate environment. And before I forget: setting the tone at the top does not just mean setting the expectations and rules and enforcing them. It all starts with being an example of ethical behaviour yourself. If you can’t stick you your own rules,, don’t expect that your employees will.

SOME PREVENTION TIPS

• Establish and maintain expense reimbursement policies/guidelines;
• Require documentary evidence for all expenses claimed. No receipt, no reimbursement. And important here: do not allow for photocopies of bills.
• Implement routine reviews.
• Routinely question expenses that seem out of the ordinary.
• Disbursements should at all times be made in a formal manner (with the pay cheque, or wages) and do not allow for cash advances.
• Consider the use of company charge cards.
• When using charge cards or company credit cards, ensure that you receive monthly updates.
• Treat expense reimbursement consistently and in line with the rules / guidelines and where there are exceptions, document them.
• Annually have an audit sample look at expense claims and reimbursements to verify that things are going according to the rules and guidelines.
• Sanction perpetrators consistently, and make it visible that identified frauds do not go without serious consequences.

If this all sounds to complicated or if you would like to learn more about how we may be able to assist you in any of the matters relating to expense disbursements and the managing of expense report fraud risk, do not hesitate to contact us.

MARKETING PLOY OR AIDING AND ABETTING TO FRAUD?

As a ludicrous example of how you should not settle for photocopies of receipts: check out Maloney & Porcelli Expense Report Generator at Expense-a-Steak. The site is run by a New York City steakhouse for the purpose helping customers trick their employers into paying for expensive meals. Here’s how it works:

Your employee spends a few hundred dollars on good food and nice drinks for himself and some “business associates.” As the receipt would probably draw the attention from the accounts payable department. The employee  enters the amount into Expense-A-Steak, which spreads the cost out over several phony receipts. The receipts are delivered as a PDF that users can print out and include phony tabs for all kinds of things that could stay under the radar. They even have typical flaws such as dog-eared corners and fuzziness as a result of low ink. I typed in a phony amount of $461,99 and got a nice PDF back: MyExpenses1714

The restaurant sees it as a marketing ploy at a time when the recession is hitting the more expensive establishments. A good joke maybe but it could also be construed as assisting people in committing fraud.

Filed under: FRAUD DETECTION, FRAUD EXAMINATION, OCCUPATIONAL FRAUD AND ABUSE, RISK MANAGEMENT