How to Best Prevent Incorrect and Fraudulent Expense Reporting

Incorrect and even fraudulent expense reports: No business leader wants to deal with them. But they do happen and can quickly become a costly problem.

According to a study from analysis firm Oversight Systems, 82 percent of fraud connected to expense reports stems from the actions of just 5 percent of employees. However, these incorrect reports can add up — The Association of Certified Fraud Examiners discovered that companies lose $150,000 annually to fraud. Worse still, smaller organizations with fewer workers can expect this cost to rise by about 28 percent.

Because reports containing mistakes or blatant fraud can take valuable capital away from other business priorities, organizations must address this problem head-on.

Something’s Not Right Here …

Fraudulent or incorrect expense reports can come in many different forms. Some issues may be a function of the intentional misuse of resources, while other situations may just be connected to human error. Overlooking or simply processing these reports can cause serious complications for report approvers, as well as the HR and accounting departments.

Fraudulent expense reports can add up quickly to become a very costly problem. Fraudulent expense reports can add up quickly to become a very costly problem.

But what does fraud look like? And how does it differ from an incorrect report that contains mistakes, but isn’t maliciously fraudulent? Let’s examine a few scenarios:

  • Inappropriate reimbursement requests: One form of fraud takes place when employees include items in their expense reports for which they are not entitled reimbursement. These can include personal items, or other merchandise and services not directly connected to the business or the employee’s mission. As Sequence Inc. pointed out, some workers will miscategorize items in order to make them appear legitimate and avoid the scrutiny of report approvers.
  • Exceeding reimbursement limits: Many companies have per diem limits in place when it comes to employee travel. These can be connected to amounts spent on food, lodging, flights, and other items. Complications can arise when this limit is exceeded. In some cases, it may be an honest mistake on the part of a staff member who didn’t realize he had gone beyond his spending limit. These types of reports can also be connected with fraud, particularly if efforts are made to disguise the extra spending. For example, an employee may attempt to split expenditures into two separate parts in order to better align with spending thresholds. In any case, businesses must ensure that their expressed reimbursement limits are observed.
  • Padding transactions: In some cases, workers may attempt to report transactions as higher than they actually were in order to make a profit upon reimbursement. For instance, a $5 lunch may be inflated to $10, enabling the worker to pocket the extra $5. Small transactions like this are more easily overlooked — especially in companies that don’t require the original receipt — but they add up.
  • Common human error: As noted, not all cases of incorrect expense reports are fraudulent. Some issues, like listing the wrong transaction amounts, incorrectly adding up totals or other mistakes are just that — simple errors on the part of the worker. In these cases, though, it is equally important to spot and prevent incorrect reports to ensure the right reimbursement.

Fight Fraud and Errors With Advanced Expense Reporting

The ideal way to avoid human-error mistakes or costly fraud is with an advanced expense reporting solution that can take the heavy lifting out of checking and approving reports. If you’re looking for the right expense reporting software for your small business, download our guide.

This kind of innovative system provides mobile capabilities for employees, allowing them to easily capture their original receipts, and quickly organize their expenses. Transactions are automatically placed into the correct spending categories, each charge is matched to its appropriate receipt, and any issues or duplicates are flagged for report approvers. This not only helps workers avoid human error, but also makes it increasingly difficult — if not impossible — for a fraudulent report to pass through without scrutiny.

To see how an advanced expense reporting solution could benefit your organization, request a demo of Tallie.