Expense fraud is a serious issue across organizations because of the relative ease with which a few employees commit these frauds that are equally hard to detect. All business travel expense frauds are not intentional, as some of these are simple calculation errors or other unintended mistakes.
Whether innocent or intentional, each organization must adopt stringent fraud detection measures to control travel costs. The probability of expense fraud is more after the pandemic because there was negligible business travel during the lockdown periods.
Types of Business Travel Expense Fraud
According to the Association of Certified Fraud Examiners (ACFE), four types of expense fraud are prevalent.
1. Personal expense claims
These are deliberate attempts to claim personal expenses as business expenses. It is the prevailing fraud among employees, as organizations do not challenge or detect most fake claims.
2. Fake or fictitious expense claims
Creating fake documents is easier than ever because of computers and design expertise, making it difficult to differentiate from genuine.
3. Multiple claims
Approval of multiple expense claims for the same purchase is possible if the finance department cannot detect such claims. These instances may be innocent or intentional.
4. Inflated or overstated expense claims
Employees may inflate legitimate expenses intentionally or inadvertently. Such expense claims are common in mileage reports.
How to identify and prevent expense fraud
There is a perceptible rise in expense statement fraud as employees discover new ways to claim illegitimate expenses. The work-from-home culture helped employees with more opportunities for expense statement fraud. Allowances for physical and mental well-being, food deliveries, and home-office essentials presented a broad scope for fraudulent expense claims.
Identifying fraudulent expenses is the only way to prevent the menace of expense fraud. Expense fraud detection requires robust internal controls and vigilant teams of line managers, approving authorities, and finance staff. Travel managers can prevent deliberate or unintentional expense fraud by considering the following guidelines.
1. Create or update an expense policy
A well-defined expense policy that includes expense categories is a crucial aspect of the company’s travel program. A supportive expense management program capable of flagging expense policy deviations is necessary to restrict expense fraud. An automated expense management platform can instantly flag out-of-policy expenses.
Employees must have clarity about per diem allowances and illegitimate expenses. Frequent updates will minimize expense claim rejections or corrections, saving valuable time for your employees.
2. Adopt efficient tools
SaaS-based travel management tools enable online expense reporting and reimbursement. The app support facility of the platform allows employees to upload receipts for verification. These platforms provide in-depth visibility into expense claims with analytics to detect policy deviations.
Implementing corporate cards is another way to reduce expense fraud. These cards empower companies to define spending limits for greater compliance with expense policy guidelines. Employees using corporate cards cannot claim out-of-policy expenses.
Companies get real-time expense data with granular visibility into all transactions. The expense management program allows card providers to share feeds with the travel managers and finance staff to crosscheck with actual expense claims.
3. Audits
Besides standard audits, line managers can check anomalies like location, time, and date to identify expense fraud. Monitoring expense reports with unusually high claims can help detect fraud. Random checking of claims by travel managers may help expose expense claim fraud. You may hire external auditors to leverage their fraud detection expertise. Have zero tolerance for any instance of fraud, irrespective of the amount. Adopt a strict policy to prosecute employees deliberately indulging in expense fraud to set an example for others and prevent future expense fraud.
4. Automation
Implement automation by selecting an efficient and reliable SaaS-based expense management system like Paxes. It empowers organizations to enable real-time fraud prevention, besides the following benefits:
a. Facilitates on-the-go expense reporting
Employees can file expense reports through the app. It eliminates errors common in paper-based expense reports. App-based expense claim filing reduces the burden on accounts teams and improves audit readiness.
b. Improves policy compliance
Expense management software improves policy compliance as you can incorporate the expense policy into it to prevent deviations. The SaaS-based expense management software detects policy deviations and brings these to the notice of finance teams. If the deviation is found, it can be corrected on the next business travel with efficient policies in-effect.
Suggested Read: What Are The Different Types Of Corporate Travel
c. Helps create a systematic approval process
To keep a track on the travel expenses a booking approval process is essential. The travel expense approval system keeps travel managers and employees in the same loop. Hence, chances of fraud reduces to minimum. Further, integrating approving authorities and processes into an automated expense management software streamlines the approvals for speedy reimbursements.
Conclusion
Business travel expense frauds are detrimental to the financial health of organizations. Rising expense fraud cases and challenges to the detection and prevention mandate an automated solution. Adopting expense policy guidelines and proven expense management platforms like Paxes improves policy compliance by preventing deviations.
Business Travel Expense Fraud FAQs
What is the prevalence of expense fraud in small and large organizations?
A report from ACFE (Association of Certified Fraud Examiners) confirms that fraudulent expense claims in small organizations are 21 percent of all cases of expense claims. The contribution of fraudulent claims in enterprises is 11 percent.
What is the average loss of revenue because of expense claim fraud in an organization?
A reliable study shows that the revenue loss because of expense claim fraud is five percent of annual revenue in a typical company.
What are standard out-of-policy expenses?
Add-ons and travel upgrades are a few expenses that are out-of-policy besides expenditures on alcohol and cigarettes in most organizations.
Is expense fraud illegal?
Expense fraud is an offense and may attract jail if the organization proves it to be a deliberate act of fraud.
Is expense fraud completely preventable?
It is practically difficult to prevent every expense fraud, whether deliberate or unintentional. Expense policy compliance, regular audits, and automation can drastically reduce claim fraud.
