In Pursuit of Profit
Read our expert article below or sign up to get articles sent to your inbox.
Business expense fraud is an age-old problem at companies of all sizes. However, with the recent shift toward virtual work the opportunity for expense fraud has multiplied.
Even “good” employees are capable of committing fraud. In fact, a study done in the UK revealed that 74% of employees have committed some form of dishonesty in the workplace. The reported top reasons for dishonesty include “Little chance of getting caught,” “It’s normal – everyone does it,” “The employer can afford losses,” and “Bosses are dishonest as well.” Simply put, employees can be tempted to take more than they should because unlike stealing a stack of cash from a register, buying a nicer version of the technology you need to work from home when someone else is paying for it feels a little less like theft. The problem is exacerbated when employees perceive their peers and management are doing it as well.
When it comes to expense reimbursement requests, if you can imagine it, management is seeing it right now.
Employees working from home are being tasked with submitting reimbursement requests when either they have never had to do this before, or they do not understand what should be covered by their employer. Overwhelmed with these requests, management is less likely to check each one thoroughly, creating a situation that is ripe for fraud.
Can You Believe that Expense was Submitted?
So, what kinds of expenses are managers being asked to approve these days? According to a report from Emburse, a corporate expense management software, the most unbelievable business expenses of the year include:
If you guessed the dog crate, Peloton bike, plants, magazine subscriptions, and coffee mugs, you are correct!
Surprised? We were too.
These expenses were reviewed and either approved or denied based on individual company policies, which is why having a set policy on what qualifies as an eligible expense is so vital, especially with the gray area of employees working from home. While most companies would likely refuse to reimburse an employee for buying home gym equipment or magazines, the companies referenced above decided to do so (hopefully in accordance with their reimbursement policies).
How to Avoid Business Expense Fraud
With the prevalence of expense fraud, companies are always on the lookout for ways to prevent it. The following best practices are crucial in curbing fraudulent activity:
Establish a Formal Policy
Some expense fudging is intentional, while some is not. Communication is key! Have clear guidelines on what can be expensed and what cannot to avoid instances of employees submitting an expense for something that does not qualify for reimbursement. Ensure that the policy lays out specific repercussions for violators and encourage to employees ask questions if they need further guidance.
Once a formal policy has been established, enforce it. Do not bend the rules for anyone regardless of seniority, or lower-level employees will not take it seriously. Jennifer Winter explains, “The best way to gauge how much you should be spending is to watch your more seasoned colleagues,” which makes expense dishonesty by management a serious problem. Expense report fraud at the top of an organization can have a harmful trickledown effect. Prevent expense fraud among management and you can keep it from spreading through the organization.
Do Not Rubber Stamp Reimbursements
Thoroughly review all expenses before approving them in a way that ensures good internal checks and balances. Flag large expenses for review and set tiered limits on expenses that vary by job level. Ensure expenses are work-related but also reasonable (for example, a glass of wine at a happy hour with a client, not several bottles of wine). Where possible, use other employees’ expense reports or reimbursement requests as a reference to spot anomalies. Lastly, always require a proof of purchase – like a hotel room bill, order confirmation invoice, or meal receipt.
Be on the Lookout for Common Expense Scams
Beware of common fraud tactics like expense padding and double billing. “Padding” occurs when employees slip in additional expenses, opt for more expensive versions of items (like a limo instead of an Uber or a massage recliner instead of a regular office chair), or inflate tips on meals/services. In a “double billing” scam, the same expenses are submitted in different reporting periods by the same employee or in the same timeframe by different employees.
Rely on Accounting Software
Use an online accounting software to track and approve business expenses so you have a record of what was expensed when and which expenses were already paid out. Some software automatically checks information as it is entered and warns employees if they are about to submit an expense report that could be denied, minimizing the likelihood of errors, and removing the temptation of fraud. Leaning on reliable accounting software not only streamlines reimbursement activities and prevents fraud but also aids in future budgeting efforts.
Find out more about how remote work affects business expenses and what to expect moving forward as employees continue to work virtually.