Expense Fraud: Loss Prevention

Posted by Jeff Pelliccio on Oct 20, 2017 9:00:00 AM

In ICS insights

Just how much money does your business lose to expense reimbursement schemes? Accounting professionals define expense reimbursement schemes as tactics that either falsify or inflate expenses in order to get more money back from an employer than an employee is entitled to for legitimate purchases.

Even small percentages of disallowed expenses can add up and take a large slice out of a company's profits.

The Minnesota Society of CPAs published some pretty startling statistics that highlight the problem of padded expense reimbursements for all kinds of businesses today:

  • Estimated average losses in U.S. companies: $30,000
  • Percent of inflated or false expenses with companies over 100 employees: 16.5 percent
  • Percent of inflated or false expenses with companies with less than 100 employees: 13.1 percent

Larger companies actually lose more to expense reimbursement schemes than mid-size and small companies. Some business owners and managers may find this surprising because they would assume that larger companies have better controls in place. Of course, smaller businesses may be less able to absorb the losses, so carefully watching reimbursements could be a key to survival. Employees of larger companies may also feel more anonymous and less connected to the company's owner or leadership, so it's easier to justify the scheme. 

Communicate Employer Expense Policies 

Consider some proactive solutions that will stop reimbursement schemes before they start. Obviously, companies should start curbing padded expenses reimbursements by developing and communicating clear policies. In addition to that, they should also communicate the consequences of ignoring policies. 

For instance:

  • Each employee needs to understand the kinds of expenses that their business permits. For example, an employee might permit a tech to report supplies and fuel needed to make service visits but not meals.
  • Employees need to understand that their actions can impact their employer in a serious way over time. Padding expense accounts might mean that no employees get raises or that the company has to report a loss when they had planned for a profit.
  • Employees should also understand that they will face consequences for participating in employee reimbursement schemes. Consequences may range from counseling and a mark on an employee performance report to a demotion or even firing.

Automated Solutions to Expense Abuse

These days, business owners and managers may not have to devote a lot of time to pouring over expense reports for fraud or mistakes. They can even avoid having the uncomfortable situation of speaking with employees about expense report padding. In fact, some smart and automated tools may help stop a lot of employee fraud before it even starts and also give employees a more convenient way to pay for the things that they need to work efficiently.

These days, companies can order business debit or credit cards in the name of each employee. These cards may come with apps that allow the employer to set rules to control how the card may be used. For instance, a manager can specify that the card can only be used at certain kinds of merchants. In addition, each employee may have a daily or weekly limit.

This gives employees the freedom to make routine purchases that they need to make; however, if an unusual situation happens, the employee will need to call in to get settings changed to make other purchases. Many employees will prefer the convenience of a debit or credit card over having to pay for things out of their own pockets and then wait for reimbursement.

If the employee violates the settings, the merchant will automatically decline the card. Also, the manager will receive an automated report of each decline. The manager also gets a complete report of all approved purchases that can easily be synced with accounting systems, so the system can help make bookkeeping more efficient too. Managers and owners have an easy way to see exactly what each employee purchased to do their job, and this can help to detect expense abuse and overall cash management.

Find Talent that Manages Your Expenses

Don't let expese fraud get in your way. Allow your business to keep growing. Savvy businesses may use employee training, good company policies, and automated tools to help manage employee expenses and curb abuse. This effort may take cooperation from IT, accounting, human resources, and other departments. All of that talent won't appear by itself. Contact us today at ICS to start hiring.

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