Oh yes! The headline might sound a bit harsh. But fact is, that expense fraud is a real challenge for many companies. Most organizations know that it happens, but few know the extent of the issue. Grab yourself a good cup of coffee and read on. Lars from Acubiz will share insights to the topic.
TL;DRExpense fraud is more common than most finance leaders realize, and it takes several distinct forms: incorrect private-to-business misclassification, inflated amounts, fictitious receipts, duplicate submissions, and mileage over-reporting. Acubiz finds that electronic route calculation alone reduces total mileage allowance costs by up to 15%, and that company credit cards significantly reduce the cash withdrawal fraud that is hardest to detect.
One can often distinguish human errors or misunderstandings from intentional fraud. Many different factors can lead to errors and misunderstandings. It can be unclear rules, use of old Excel sheets, where the calculations are no longer valid or something as simple as errors in summarizations. Understanding the extent of the problem and how to spot fraud can be divided into different areas:
Our customers tells us that reporting too many kilometers in connection with mileage allowance is a common form of cheating. We have found that the use of electronic route calculation either through Google or using a smartphone’s GPS tracker can provide savings of up to 15 percent of the company’s total cost of mileage allowance. Everything is relative, but this can potentially involve a lot of money.
Cash withdrawals can be a challenge since the employee withdraw cash instead of using credit cards, and cash is more difficult to control. Our experience is that implementing corporate credit cards reduces the number of cash transactions – which are easier to cheat with. The primary reason is that you can’t control the place of the purchase between the receipt and the credit card transaction.
The above definitions can help to understand the different areas where we often encounter fraud. In reality, however, there are no limits to how employees can cheat and try to avoid controls or exploit weaknesses in processes and systems. The good news is that it’s only 5 % of employees that counts for 82 % of all fraud, according to various research. So, the task is simple – we “just” need to find the 5 %.
Where cheating with expenses can be difficult to detect, the negative impacts are easy to identify. Fraud can be a costly affair for companies of all sizes, but for smaller companies the costs have more impact. According to studies, companies with less than 100 employees have, on average, 28 % higher losses than companies with 100 or more employees. How can that be? The reason is, that digital Travel & Expense Management systems are less common in small businesses. Fewer companies have access to effective and automated control of expenses. Some of these systems may also include functionality for monitoring user behavior and automatic controls of policies and rules. Larger companies will typically have one or more full-time controllers dedicated to the control task. No matter which approach a company has to expense management, there is no foolproof solution to completely eliminate fraud with expenses.
Once rules and policies have been drawn up and written down, it’s easier for employees to understand exactly what compose an infringement. It’s also simpler for the controllers to figure out which employees that are playing by the rules and which isn’t. Furthermore, it’s easier to react and make decisions in cases where the infringements occur.
It’s important to define the right cost structure. I always encourage to describe “what you have spent money on” rather than “which account should be registered”. Most employees aren’t employed in the finance department and don’t understand concepts such as “Freight with VAT” and “Freight without VAT”. It’s all about designing a well-defined structure and process that meets the users on their premises. Did you know that “various” constitute the fifth largest expense category in some organizations – often up to 8 % of the total travel and expense transactions. That’s more than cell phones, taxi services and other clearly defined categories. Consider specifying “various expenses”, so it becomes easy to distinguish the transactions. That will reduce the risks of cheating.
It’s my clear belief, that the implementation of an automated expense reporting system and company credit card is the simplest way to avoid cheating with expense transactions and travel expenses. Company policies, controls, credit card administration, travel orders and the daily flow of expenses can be easily handled with the right solution. The right solution will also ensure compliance with the company’s rules and requirements. Advanced reporting, documented electronic approval processes and robotic technology makes it harder for fraudulent expenses to pass undetected.
With this article I have given some insights into how you can get proper control of your company’s expenses. Get a step-by-step guide on how to get started with a full digitization of the expense process here.
Frequently Asked Questions
What are the most common types of employee expense fraud?
The post identifies five: claiming private expenses as business costs; submitting a valid expense but inflating the amount; fabricating expenses entirely with false receipts; submitting the same expense multiple times; and over-reporting mileage. Of these, mileage over-reporting is the form Acubiz customers most commonly report, and it can be addressed directly with GPS-based or Google route calculation.
How much money can a company save by using electronic mileage calculation instead of self-reporting?
Acubiz's experience with customers suggests that switching from employee self-reported distances to electronic route calculation through GPS or Google Maps reduces total mileage allowance costs by up to 15%. For companies with significant field sales forces or service teams, this figure can represent a substantial annual saving.
Why are cash withdrawals particularly difficult to control for expense fraud?
When an employee withdraws cash rather than paying by card, the place and nature of the purchase cannot be verified independently. The only documentation is the cash withdrawal receipt, not a merchant record. Implementing company credit cards reduces cash transactions significantly, making it much harder to submit uncorroborated expenses.
How does Acubiz help companies detect and prevent duplicate expense submissions?
Acubiz's automated controls flag transactions that match existing submissions on key parameters such as amount, date, and vendor. Any potential duplicate is held for review before it reaches the approver, preventing both accidental resubmissions and deliberate attempts to claim the same expense twice.