Fraudulent Disbursements: Beware Of Expense Reimbursement Schemes

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According to the 2016 survey conducted by the Association of Certified Fraud Examiners, a typical company will lose on average 5% of its revenue to occupational fraud each year. The median loss is $150,000 and the average duration of the fraud is 18 months.

You would like to think everyone in your company is honest and would never cheat on an expense report, right? According to the above survey, 16% of the asset misappropriations schemes are related to fraudulent expense reports.

Below are typical examples of restaurant receipts. You could find either one attached to an employee’s expense report, however, one is valid and one is fraudulent. Take a few seconds to decide which one is valid. Remember your answer because it will be addressed shortly.

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Besides submitting a fake receipt for reimbursement, consider the following partial list of possible fraudulent expense reporting:

  • Personal purchases charged to the company
  • Billing for travel and expenses that never materialized or were canceled and refunded
  • Seeking reimbursement for items that were never purchased
  • Double dipping of expense reimbursements or overstatement of actual cost
  • Dollar amount threshold manipulation
  • Submitting non-original or altered receipts
  • Collusion (i.e. two employees traveling together bill separately for a single charge such as a taxi)

 

The ways and means of fraudulent reimbursements are only limited by the fraudster’s imagination, the company’s vigilance and the effectiveness of its internal controls.

History has taught us that when motivation meets opportunity, then rationalization and resulting fraud are likely to occur. It has also taught us that there is no 100% fool-proof way to prevent fraud, but there are ways to mitigate the fraud risk through education, deterrence and detection.

Although each organization is different, the best practices in mitigating, preventing and detecting fraudulent expense reports are basically the same in any organization.

Below is high-level overview of some of the basic core processes that should be in place.

  • Establish, maintain and communicate a formal expense reimbursement policy and related guidelines, which includes the violation penalties. Keep the policies and guidelines super simple so that they are easily understood and followed.
  • Require original receipts be submitted on a timely basis, such as monthly, or they will not be reimbursed. Pay expense reports timely and on a set schedule with a submission deadline date.
  • Implement a formal review process whereby the submitter’s department manager reviews and approves the expense reports.
  • The manager should be held equally accountable for the validity and appropriateness of the items in the expense report as the person who initially submits the reimbursement request.
  • Discipline and/or prosecute offenders proven to be violating or falsifying their expense reports. Otherwise, if there are no negative consequences for not adhering to the reimbursement policy then the importance of the policy will be lost on other employees.
  • Create the perception of detection by openly communicating that expense reports will be and are randomly selected for inspection by your outside auditors.

 

Now for the two receipts above. I suspect many readers may have selected receipt #1 as valid. The fact of the matter is that they are both fake! Do a Google search for receipt maker and you may turn up results from such sites as expressexpense.com or customreceipt.com (from where these two examples came). For a small annual fee, anyone can use those sites to customize fraudulent receipts for expense reimbursement purposes. Give it a try and see how easy (and scary) it is to use.

Originally Posted on Mondaq.com