Running a business involves threats from all over the place. Though it is hard to predict the market trends and associated threats, a company is vulnerable to internal fraud. Internal fraud is not just a blow to the finances of the company but also to the very core of the trust. Therefore, it is important to maintain goodwill among the employees and provide regular incentives for any professional trips. However, it is understandable that limiting the fraud to a bare zero is next to impossible. Hence, companies should be ready to catch and tackle any such activities within the organizations. Here are some of the top ways your employees can commit expense fraud.
Ways your employees can commit expense fraud:
1. Mischaracterized expenses
Most of the time employees don’t fully understand their per diem expenses or their limits, and go for a fancy dinner or take a luxury ride to business events. These are not counted in business business costs and are considered personal expenses. However, employees can show them in the corporate credits and use the companies for personal items or services.
2. Overstated expenses
Similar to mischaracterized expenses, if the employees use the company’s money for a not approved budget they are committing fraud. They may give reasons such as higher mileage rate, or exceptional meal costs. An employee submits a meal expense report for a team meeting but includes fictitious tips that were never paid, inflating the overall cost to receive a larger reimbursement. This kind of fraud is known as overstated expenses.
3. Fictitious expenses
This kind of expense is one of the most challenging ones to find out. Employees go the extra mile to create fabricated receipts and invoices for the expenses that were never paid. They can use software such as Photoshop to easily edit the invoice and present a fake one to the company. They can tamper with the date, amount paid, items purchased, time, and many other essential data points and present it like an authentic receipt during reimbursement submissions.
4. Duplicate submissions
One of the easiest frauds to track is the multiple submission of the same receipt in different reports. This could involve submitting a physical receipt twice or using a digital copy on different reports. For example, an employee submits a physical copy of a hotel receipt for reimbursement and later includes the same receipt in a digital expense report. In such a case he is trying to receive double reimbursement for the same expense.
5. Refunded expense fraud
Considered one of the boldest frauds in any company, refunded expense fraud shows a moral conundrum in any employee’s mind and they choose to exploit the company. In such expense fraud employees make use of the refundable policy of any item, get the money back later, but keep the original receipt for reimbursement. An employee buys a laptop for a business project using their personal funds but later returns it for a refund. They keep the original receipt and still submit it for reimbursement, effectively getting reimbursed twice for the same expense.
6. Fake trips
Lastly, fake trips are one of the biggest issues as they can result in major expenses on behalf of a company. Employees can create fake receipts and reports for trips that never took place, entirely fabricating a business journey. Using a combination of fake receipts and fabricated travel itineraries, an employee claims expenses for attending a conference in a different city when, in reality, they never left their hometown.
Suggested Read: A Guide To Prevent And Detect Business Travel Expense Frauds
Preventing travel expense fraud
- Clear expense policies: A well-defined policy outlining acceptable expenses, spending limits, and receipt requirements makes it harder for employees to claim something out of line.
- Automated expense tracking: Advanced software in the market can streamline expense reporting, categorize purchases, and flag suspicious activity.
- Review and approval process: A supervisor or designated person should review expense reports to catch inconsistencies or unreasonable amounts.
- Random audits: Conducting occasional audits of expense reports keeps employees honest and deters them from trying fraud.
- Strong internal controls: Make it difficult to submit fake receipts or alter expense reports by requiring proper documentation and approval processes.
By implementing these practices, you can significantly reduce the risk of travel expense fraud in your business.
We hope that you are able to understand the basic ways your employees can commit expense fraud. You can delve deep on each one of them to know more and tackle these challenges and ways your employees can commit expense fraud.
Disclaimer: It’s important to remember that this information is for educational purposes only and shouldn’t be used to commit fraud.
Suggested Read: 5 Types Of Employee Spending Limits On Corporate Cards
Ways Your Employees Can Commit Expense Fraud FAQs
What is expense fraud and why is it a problem?
When an employees takes funds from the company through fraudulent methods for personal gains is called expense fraud. It can damage finances of a company and erode trust among employees.
What are some common ways employees commit expense fraud?
Mischaracterized expenses, overstated expenses, fictitious expenses, duplicate submissions, refunded expense fraud, and fake trips are the top ways.
How can companies prevent expense fraud?
Clear expense policies, automated expense tracking, review and approval process, random audits, and strong internal controls are top ways.
