In this article we will investigate common fraudulent activities within Employee-initiated spending, especially Travel and Entertainment (T&E) and how Finance Professionals can deter fraud and drive policy compliance.


The Cost of Fraud

£326mn is lost annually by businesses to fraud. Median losses range from £75mn-£95mn and in more than 40% of fraud cases, not a penny is recovered.

While there are many types of fraud schemes, recent reports indicate that at least 21% of a company's fraud is related to expense reimbursement. 

A surprising number of business travelers’ (25%) admit to booking travel outside of company policy, and although not every unauthorised expense constitutes fraud, there can be a fine line between out-of-policy spending and fraud. In fact, 20% of companies say that it is common for travelers’ to file reports that include completely false expenses. 

Common Fraudulent  Expense Related Activities

• Mischaracterised expenses - the employee falsely claims a personal expense as a business expense or claims another employee's purchase as his or her own (a meal, parking, taxi ride, etc.), or attempts to circumvent spending limits by deliberately miscategorising an expense.
  
  
• Overstated expenses - the employee falsifies the amount of an item, especially common when receipts are not required or missing.
  
  
• Multiple reimbursements - the employee files the same item on different reports over time, sometimes to multiple approvers.
  
  
• Fictitious expenses - the employee fabricates completely false expenses.
  
  
• Payment cards -  can allow the same person to order, pay for and receive goods allowing this method to be easily open to fraud. Click here for link for more information.

It is worth noting that 18 months is the median length of time it takes to detect fraudulent activity and that in more than 25% of cases, fraud is discovered by accident.

Internal Ways to Reduce Fraudulent Expense Related Activities

Recent research has revealed that 91.5% of employees who submitted a false claim say they were never caught by their employer.

• Carry out rigorous auditing but often it's a tedious, low-return activity, and internally conducted audit processes are not always above reproach. External options can assist this process considerably. Click here for further information.
  
  
• Create effective travel policies:  A comprehensive and detailed company policy is the backbone of an effective expense claim process. It ensures all claimants, from employee to board, know exactly what they can and cannot claim for. This must reflect local and regional differences and needs and must be communicated to all levels of staff using various media e.g. intranet, email, and small group information sessions.
  
  
• Explore best practices and benchmarks. Compare results with other organisations in a similar sector. Due consideration to the complete expense management lifecycle is a must.
  
  
• Utilise knowledge gained from audit results and reporting and analytics to continuously evaluate and refine policies to drive better compliance.