Employee expense report fraud is one of the most prevalent dangers to a company’s assets. Even per diem claims have recently come under scrutiny because of several high-profile fraud allegations. How can a company protect itself in the face of a projected $3.5 trillion global loss to fraud each year?
Tallie has written in the past about how to prevent expense report fraud:
We’ve also developed a comprehensive guide to finding expense reporting software that can, among other things, automate your compliance review. Download it here.
But we wanted to revisit this topic on the Tallie Blog to not only share how we can help prevent reimbursement fraud, but per diem abuse as well.
Preventing Per Diem & Expense Report Fraud
What is per diem?
Per diem (meaning “for each day”) allows companies to give a pre-set amount of funds to their employees in advance, rather than reimbursing actual employee expenses for things like meals and lodging.
For example, a $200 per diem would mean that an employee receives $200 to spend on travel expenses that day. By contrast, under an expense reimbursement system, that employee might spend $180.46 on a ticket, submit the amount on their expense report, and be reimbursed for the exact total.
When is per diem a good thing?
As an employee, per diem allows you the freedom to choose how you want to spend the per diem allowance. Let’s say you’re a pretty heavy sleeper, but you can’t stomach the idea of visiting a conference in Maine without trying a lobster dinner. You might choose to stay in a crowded budget motel, leaving more money to put towards your big meal. Of course, some companies specify how much of a per diem can be spent on meals as opposed to lodging or other incidental expenses, so be sure to read the rules before ordering the surf ‘n turf!
As an employer, per diems mean no surprises when the expense report comes in. If you know that your employees will receive X amount of money on X amount of travel days this year, these costs can simply be budgeted in advance. And since your employee has a set maximum for a meal budget, they are less likely to set you back for the cost of a $50 steak or $200 in room service. Any expenditures over the allocated per diem amount must be covered by the employee.
What are the dangers of per diem?
Because hotel and restaurant rates vary based on location, it can be difficult to ensure that the same pre-set amount will be appropriate for every trip. While the GSA provides yearly per diem rates for individual counties in the United States, seasonal prices fluctuate dramatically for both lodging and transportation.
For example, a reasonable rate for traveling in New York City the Saturday before New Year’s Eve is much higher than that for a Wednesday in March. Some businesses choose to establish on-season and off-season per diem rates for different locations, but these must be constantly checked and updated to remain effective.
Per diems may also inadvertently encourage risky or unethical behavior from your employees. On the one hand, a fixed allowance might motivate your team be frugal with company funds. On the other hand, an employee who wants to pocket any leftover cash from their lodging allowance might choose to stay in a dangerous part of town in order to maximize their payout. Another might ask for per diem to pay for meals at a conference in which lunch and dinner were included with her ticket. The latter is known as “double-dipping,” and may also manifest as employees collecting per diem and then submitting an expense report for reimbursement. Someone might also try to claim that visiting two conferences in separate towns on the same day qualifies for 2x the per diem, while another might leave at 4:00 in the afternoon and ask to be reimbursed for a full day’s worth of meals.
Oftentimes, whether in business or government, receipts are not required to justify per diem use. Without records to show how that money was (or wasn’t) spent, it’s very difficult to prove whether or not food- and lodging-specific funds are being spent appropriately.
Per diems are commonly used by government agencies to provide incentives for legislators to take part in optional committees, events, and special sessions. But a state lawmaker from Pennsylvania is currently in hot water over potential per diem fraud, facing allegations that he deliberately took advantage of the state’s per diem program. Critics cite the fact that even though the House had only 81 days in session, Rep. Sainato logged and received per diems for 192 days on the job. A New Mexico representative was also recently accused of double-dipping her meal expenses–in addition to collecting her per diem, she allegedly sought reimbursement for meals from the state’s funds as well as from her campaign account.
The truth is, whether your company deals in per diems or reimbursable expenses, any system that doesn’t require documentation in the form of receipts is at risk for fraud. But there is good news: with the right system in place, expense abuse can be prevented before it starts.
How can I prevent per diem or expense report fraud?
To set up per diems in Tallie, you must first create a new expense category. Then enter your amount into “Fixed Rate” and map it to the service item or expense account you wish to operate as per diem. Some companies choose to provide a set amount of dollars per day regardless of expense type, while others choose to get more specific. For example, you could choose to set up one new category as “Per Diem – Food” and use a rule to reimburse up to X amount of dollars per employee. You could then set up another as “Per Diem – Lodging,” good for up to Y amount of dollars, and so on. Here we’ve entered $71, the GSA’s required minimum for meal per diems in San Francisco.
To help prevent abuse, Tallie allows administrators to create policies for each individual expense category, including per diems. If you opt to require receipts for any and all per diem expenses, our smart fraud detection will automatically flag reports that do not provide the appropriate documentation.
To prevent double-dipping, Tallie can also detect and alert you to potential duplicates, so that the same receipt can not be used to justify multiple meals or hotel stays. By taking advantage of Tallie’s detailed, customized expense report policies, your company can reap the benefits of a per diem system while minimizing the risk.
Only you know whether per diem or expense reimbursement is right for your company. Our job at Tallie is to make sure whatever system you’ve created runs smoothly, efficiently, and safely. For help configuring our features for your chosen accounting system, contact our Product Expert team at email@example.com or 888-874-1118 Ext 2.
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