How to Control Employee Expense Fraud

Detecting and preventing employee expense reimbursement fraud is equally as important as protecting your bottom line.

Ensure that employees are not embezzling money out of your company under the guise of employee expense reimbursement fraud schemes.

According to a report by the Nations on Occupational Fraud and the Association of Certified Fraud Examiners (ACFE) in 2012, approximately 14.5% of asset misappropriations that were investigated involved an expense reimbursement fraud.

Expense reimbursement fraud, that most employees are guilty of committing, is on the rise and every company needs to be aware of the different forms and kinds of expense frauds and how to cope with and prevent them.

Simply put, sometimes employees mention extra or artificial expenses incurred for official or work related tasks (such as travel expenses, commute expenses, phone bills etc.) In most cases, these activities are not as expensive, or haven’t even been incurred. This is a way for them to embezzle money out of the company. This is known as employee expense fraud or employee expense reimbursement fraud.

Four Types of Expense Reimbursement Fraud Schemes

1. Multiple Reimbursement Fraud

   This is a scheme, implementation for which usually takes place in organizations where the executives do not gel well or communicate well. Employees take advantage of the lack of communication and get the same expense reimbursed multiple times. Most of the employees can talk their way through and successfully get the same expense reimbursed 2-3 times.

2. Fictitious Expenses Fraud

   It is very common (and easy) for employees to state expenses that never even occurred in the first place, such as fueling or maintaining the company car, taking a prospective client for dinner at a rather fancy restaurant, purchase of stationary or unnecessary purchases, etc. This is the most common form of expense fraud and is also the most difficult to authenticate. The employee could, in most cases, have incurred these expenses, but not necessarily for official purposes.

3. Overstated expenses fraud

   This kind of expense fraud occurs when an employee overstates the expenses incurred before requesting a reimbursement. This is also a very common kind of expense. However, it can be detected upon investigation.

4. Mislabeled Expenses Fraud

   This is similar to fictitious expenses fraud. Here, the employee marks personal expenses as official expenses and attempts at getting a reimbursement. This is the easiest kind of fraud to commit, as many executives do not read an invoice in its entirety before reimbursing the amount.

These classifications cover almost all forms of expense frauds that employees commit or try to commit. Now that you’re well-versed with the cause, it is important to understand the identification and prevention of such expense fraud schemes.

Measures to Control Employee Expense Fraud

The most important thing to keep in mind when trying to identify and prevent employee expense frauds, is that it requires a fool-proof checking mechanism to rise above the situations. Here are a few measures you could take to ensure you are not robbed on account employee expense reimbursements:

1. Set a Reimbursement Limit

   This will turn out to be the most effective method to prevent an expense reimbursement fraud – a ceiling on the amount an employee can reimburse. The limit can either be as an invoice percentage or as a monthly limit. Knowing there is only a certain amount that the employees can get reimbursement for, they will fail at any attempt to commit fraud.

2. Structure a Review Process

   Create a reimbursement application and review team amidst the accounting or finance team for your company. Any employee who wishes to claim any form of reimbursement must go through a formal application process, whereby their request will be reviewed and authenticated. Only after getting an affirmative ruling will the amount so asked be reimbursed.

3. Demand Physical Evidence

   Always ask the employees to submit original and authentic invoices along with their request for reimbursements. This will reduce the chances of an employee reimbursement fraud.

4. Create a Strict Policy

   In cases where an employee is caught in an attempt to commit an employee expense reimbursement fraud, crate a strict policy of charging a fine, or firing in case the action is repetitive.

With these defense tactics, you can make sure no employee embezzles money out of your firm via an expense reimbursement scheme.