Business expenses – Common frauds and solutions

business expenses fraud

Fraud related to expense claims is more widespread than most executives think. In a recent report, the National Fraud Authority estimates that businesses lose £100 million each year due to exaggerated or false claims. Among all business expenses, mileage expenses are the most problematic because it’s easy and tempting for employees to exaggerate travel costs. Imagine if 20% of your staff add 5 to 10% to each claim; the cumulative loss for the company can quickly become very significant.

Because it’s hard for the finance team to check expenses claims, often those abuses are not tackled and sometimes even tolerated. The result is an environment in which fraud is the norm.

To deal with the problem, first, you need to understand the methods fraudulent employees use. Here is a list of the most common scenarios we often encounter.

Exaggerating business claims is very common

David, a technical manager for a medium company makes 2 to 3 weekly trips to a client site. There are different routes, ranging from 10 to 15 miles in length. He systematically travels the shortest route, but claims for the longest one, a 50% overstatement.

5 miles may not seem much, but if a third of your staff overstate their claims by 5 miles here and there, the cost to your company will add up to tens of thousands of pounds by the end of the year.

Rounding up mileage is quite irresistible

Olivia works as an aged care worker for a small healthcare provider. Every day, she travels to 5 locations to visit patients. Over time, Olivia normalized with fraud and came to believe that it’s perfectly acceptable to round up each journey by 2 to 3 miles.

Because it’s time consuming, the finance team can’t check the validity of each business claim. Nevertheless, the cost to the company amounts to £1,700 per year.

Submitting a business claim multiple times

When such practices are tolerated, a culture of fraud develops. Before you realize it, some employees get bold and start submitting false claims.

Owen is a consultant for a mid-sized business. Last month, he travelled 200 miles by train to give a presentation to a client. When he bought his ticket, the ticketing machine printed 3 tickets (inbound, return and credit card slip), all showing the total amount and date.

Owen submitted the same expense twice, the first time using the outbound ticket and then using the return ticket, costing his employer an unjustified £146.

Forgery, when some get creative

Taxi receipts are another source of problems. Often the driver issues an unreadable handwritten receipt, which encourages many to fraud.

For instance, James, a project manager for a construction company, took a taxi from home to the airport. The trip cost him £34 but he changed the 3 to 8, and then submitted an £84 expense claim.

Businesses are also to blame

Many small and medium businesses don’t have an expense policy that clearly tells employees what constitutes a legitimate expense claim. In addition to that, they have limited resources to monitor compliance.

Often, only one person is in charge of reviewing and approving all expense reports. That person has conflicting requirements. On the one hand she is expected to speed up the reimbursement process to keep employees happy. On the other hand, she audits expenses and has to reject them if they don’t comply, adding further delays.

There are also busy managers who often, in an attempt to save time, authorize their employees’ claims without paying a lot of attention.

How to limit expense frauds?

The best method to fight fraud is by putting the right processes in place and enforcing them. Here are some of the measures businesses can take to limit the problem.

  • Empowering your finance team and managers to say “no”: Saying no to an expense claimant is not easy. A lot of people shy away from confrontation because they don’t want to make enemies in the organization. Those people need to know top executives fully support them.
  • Regularly sample and review: Conducting a thorough manual review on all expenses is almost impossible. However, you should, on a monthly basis, take a random sample and review it. Don’t forget to publicize this measure.
  • A procedure to deal with fraud: Putting in place a public procedure that details how you would deal with fraud is a powerful tool to deter employees inclined to fiddle expenses.
  • Automating the expense management process: Adopting an expense management software can save your finance team a lot of time, which in turn will help them focus on auditing and limiting fraud

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