To determine the extent of just how much the pandemic has influenced expense fraud, the Association of Certified Fraud Examiners conducted surveys with anti-fraud professionals across the world. What did they find?
80% of anti-fraud officers agreed that there had been a massive rise in expense fraud since the onset of the pandemic.
Additionally, as of March 2021, Oversight has reported a massive 300% rise in spend violations despite the significant reduction in business expenses during remote work.
This makes it evident that the problem of expense fraud is real and that businesses need to find new ways to mitigate its underlying issues. So, to help companies ensure no financial leaks, we’ve crafted this quick read on how an expense management software prevents expense fraud with no additional costs or efforts. So, let’s dive in!
What is expense fraud?
An expense fraud is a deliberate attempt by any working employee to game the expense reporting system to gain more through reimbursements than what they spent.
It’s important to remember that even though every inaccurate expense report will cost your business, not all of them are deliberate. Human beings are prone to data entry errors, receipt losses, or even miscalculations. Therefore, it becomes imperative to classify an erroneous expense first before deciding the course of action.
What are the types of fraudulent expenses?
- Mischaraterized expenses: When an employee submits a personal expense receipt as proof for a business expense, it is a mischaracterized expense. This is most commonly seen in mileage and food expenses as it’s often difficult to distinguish between business and personal expenses based on a simple receipt.
- Fictitious expenses: When an employee creates a false receipt as proof of spending for a business expense, it is a fictional expense. An easy way employees design fake receipts is by using free online tools like ExpensesReceipt.
- Overstated expenses: An overstated expense happens when an employee modifies values in an expense report to claim larger reimbursements. As Finance teams need to go through multiple in-line entries in a single expense form, missing these minor leaks is relatively easy. Take a look at Financial Shenanigans, the bestselling novel by Howard M. Schilit, if you’d like to know more.
- Multiple reimbursements: When an employee submits an old receipt as proof for a new expense, it can be classified as a multiple reimbursement fraud. This, as expected, can be most commonly seen in food bills and are also most likely to slip by your Finance teams if they aren’t careful.
Why should organizations pay heed to expense fraud?
This makes expense fraud a real problem that businesses must focus on eradicating. Listed below are the additional effects expense fraud has on your organization:
- 20% of fraudulent cases result in a $1 million loss to the organization.
- A fraudulent expense can extend your reimbursement cycles to over 24 months with an average loss of $31,000.
- Detecting one fraudulent expense shows that employees have explored other means for submitting similar reports.
- Organizations face a 17% decline in stock value if the news of expense fraud goes public.
- As a business leader, you should understand that it isn’t enough just to audit your finances as an annual event. Instead, the entire organization needs to take a firm stance on preventing expense fraud. Additionally, what would help is empowering your Accounting and Finance teams with the right skills and training they’d need to detect and prevent fraud right at its source.
How does an expense management software prevent expense fraud?
Most fraudulent expenses arise because traditional expense management leaves a lot of blindspots open for Finance teams. Using a spreadsheet-based expense reporting system gives expense fraud the upper hand. This is mainly because manual methods are filled with errors, human bias, and a lack of interest in the process.
If you’re looking to end expense fraud, the first step is identifying and eliminating all the variables that lead to expense fraud.
Some of these could be time-consuming manual processes, poor enforcement of business rules, no real-time visibility and control over business expenses, or even the lack of automation tools where needed.
An expense report software makes your Finance team’s life easier by efficiently enforcing compliance through automated pre-submission checks. Additionally, the software flags every expense report that violates company policy and notifies all involved approvers. This helps in the quick rectification of erroneous reports. Further, the software makes the expense reporting process extremely easy for employees. This ensures employees always submit compliant reports on time.
Must-have features to look for in an expense software:
- By automating pre-submission checks, the expense reimbursement software ensures all submitted expenses comply with the set rules and policies of the company. This ensures only compliant expenses get through, saving Finance teams a lot of time and effort.
- A centralized storage makes it easier for Finance teams to store and instantly retrieve every receipt for audits. Additionally, having a central repository means that employees can no longer submit duplicate receipts.
- The software enables Finance teams to regularly review credit card activity which helps them determine credited back charges to the company account. By comparing this activity with the reported ones in expense reports, Finance teams can ensure that no personal or discarded expenses get reimbursed. Additionally, the software gives relevant stakeholders real-time information into card spending with detailed information on every transaction detail.
- An expense software has a robust policy engine that can process complex business rules. Thus, Finance teams can create and enforce custom policies depending on the organization’s needs with just a single click.
- The digital audit trail in an expense software records and documents all actions taken on an expense report keeping Finance teams in the loop and records constantly in an audit-ready state.
Keeping in mind the number of businesses that might close before the pandemic ends, organizations need to stay vigilant against fraudulent expenses. An ideal solution for this would be switching to an expense management software that can ensure you’re equipped to stop expense fraud in your organization.