Since the onset of the pandemic, the ACFE (Association of Certified Fraud Examiners) had conducted multiple surveys to determine just how much expense fraud had risen. Their findings?
80% of anti-fraud professionals confirmed a steep increase in expense fraud levels during the pandemic.
What’s more? An Oversight spends report from Q3 2020 showed a 57% increase in fraudulent activities within businesses.
All these statistics just tell us one thing: the problem of expense fraud is real, and that companies would need to identify ways to mitigate it as soon as possible. The following article elaborates on everything business owners and Finance teams can do to eliminate expense fraud from their company.
What is expense fraud?
Expense fraud is a planned or deliberate attempt by a working employee to fool the Finance and Accounting departments with false proof of spend resulting in them claiming more than they deserve in reimbursements.
While every inaccurate expense report will cost your business, keep in mind that they all aren’t deliberate. Human beings are prone to error; so, coming across erroneous values in reports, miscalculations, or receipt losses don’t necessarily mean that expense fraud is at bay in your company. It, therefore, makes it critical to first classify a false expense before taking the appropriate action.
What are the different types of fraudulent expenses?
Mischaracterized expenses: These fraudulent expenses occur when employees submit personal spend receipts disguised as proof of business expenses. These instances are primarily seen in food and mileage expenses, as there’s no way of differentiating these expense receipts on face value.
Fictitious expenses: These types of fraud occur when employees create fake receipts to support false reimbursement claims. Computer programs, design tools, and even free online tools like Custom Receipt have made it much more convenient to produce fake expense receipts.
Overstated expenses: These types of fraud occur when employees increase the cost of a legitimate business expense, such as modifying a $20 to $30 while filling out expense reports.
Multiple reimbursements: These fraudulent expenses occur when employees use the same receipt to claim reimbursements more than once. This is most commonly found in food bills as they might be pretty easy to slip past Finance teams if they still verify these expenses manually.
Stats to show expense fraud is real.
Global economic crime has risen since the past years, increasing 17% in North America, 16% in Asia, and 25% in Latin America.
5% of employees who do lie on reports fabricate some part of every single claim.
10% of employees admit to submitting erroneous claims “all the time,” while 20% do so “irregularly.”
Expense fraud costs U.S. businesses alone over $2.8 billion every year.
How can automating pre-accounting eliminate expense fraud?
Pre-accounting, as the name suggests, is what happens before the actual "accounting" process starts. It is the process of collating, organizing, tagging, and documenting data before dissection into reports and findings.
Pre-accounting as a process is pretty tedious and time-consuming if done manually. It is also why Finance teams spend so much time and effort with back and forths with employees for submissions. Finance teams spend so much time doing this that they draw close to deadlines that force them to either not check or poorly check expenses before submissions.
This is where automating your pre-accounting with an expense management software comes into play.
An expense software makes it easy for employees to submit expense reports using simple apps like Slack, Gmail, Outlook, and more. It ensures all expense reports come with receipts at the source of expense creation itself. This also eliminates the need for Finance teams to beg employees to submit expense reports on time.
It runs real-time policy checks on all submitted expense reports. Here it makes sure all expenses comply to set expense policies. If they don't, the software notifies employees to make necessary changes. This ensures only clean, and policy-compliant expense reports reach the Finance teams.
It comes with a digital audit trail that documents all actions taken on an expenses report by any/all stakeholders involved. This enables Finance teams to be in the loop rather than scrambling for email threads and lost receipts.
It comes with centralized cloud storage that securely stores all expense data in one place with easy retrieval by Finance teams during audits. In addition, with every receipt saved on the cloud, it becomes impossible for employees to create duplicate expenses.
The software also checks all expenses for all types of fraudulent expenses. This stops expense fraud at the source of expense creation and saves Finance teams time and effort in doing.
It allows Finance teams to customize, build, and enforce business rules and workflows to suit company needs. This further ensures zero policy violations during report submissions.
An expense software also eliminates the need for Finance teams to verify and approve expenses as it automates pre-submission checks manually. This means Finance teams now have clean data and reports by automating pre-accounting.
P.S When you plan to switch or upgrade your expense software, ensure that you do not limit your options to legacy software that do not exceed a set brand value. Instead, look for modern and innovative expense software that may be relatively new to the market but can solve today's time-sensitive problems.
Conclusion
Keeping in mind the massive number of businesses that might end up closing shop before the pandemic ends, companies need to ensure they remain vigilant in preventing expense fraud. However, an ideal expense management software combined with the industry’s best practices can permanently stop expense fraud in your organization.
Once employees know are aware of the potential risks of submitting fraudulent reports, they become less likely to indulge in such activities. This would further encourage other employees to follow suit.
Rahul Radhakrishnan is a Content Marketer at Fyle - an expense management software. He believes everyone has a story to tell. If he isn’t writing one, he’s hearing one from someone.