Reducing Employee Expense Fraud – Strategies and Tools for HR Leaders

Almost 94 percent of employees say that they always only submit accurate and legitimate expenses. The five percent who admit to falsifying their expenses claim to get away with about $2,500 each per year. As a result, it’s estimated that expense fraud committed by employees adds up to nearly $3 billion per year across North America.

For some, it may be just the occasional expense, such as a $30 personal taxi receipt that’s snuck in as a legitimate charge, after the employee has taken public transport to a business meeting. It may be viewed by the individual as no big deal. After all, what about all those unpaid hours that they put in? On the other end of the scale, an executive could buy a full-fare business class airline ticket (which is allowable under the expense policy) submit the receipt for reimbursement, and then cancel the ticket and purchase a cheaper economy fare on the same flight. Again, the employee may see little real harm done, as the company was willing to pay for the expensive ticket, so it’s not like they’re costing them any more money.

Related: How could your organization be exposed to expense fraud?

While these employees may think they aren’t doing anything particularly wrong, in both the eyes of the law and also corporate HR teams who will have to deal with them, these are clear-cut cases of fraud, and are grounds for both termination and possibly prosecution.

There are, of course, also employees who deliberately inflate and manipulate expenses as a calculated effort to defraud their employer. Creating, falsifying or editing receipts to increase reimbursed amounts, deliberately resubmitting receipts and colluding with others to submit and approve false expense reports are all relatively commonplace.

Prevention is better than cure

Any police officer will tell you that it’s more effective to prevent a crime from taking place, than finding and then prosecuting a criminal. The same holds true for expense fraud – no HR professional enjoys the experience of terminating an employee, and would much rather any fraud be stopped before it occurs. In fact, a significant amount of expense fraud is opportunistic as opposed to calculated. Maybe it’s viewed as only a few dollars that nobody will notice, or it’s in the case of the economy flight mentioned above, it’s money that would be spent anyway.

In this instance, educating employees and removing the temptation to easily submit false expenses will likely be enough deterrent. Creating a realistic, fair (this is important, so employees don’t feel aggrieved at employers’ perceived stinginess) and well-communicated travel policy is a major first step. If your organization still uses a manual expense reporting solution, upgrading to expense management software is also critical. This allows companies to automate expense policy rules, so that, for example, restaurant expenses have a fixed per-person limit and require submitters to name each person who dined with them. Simply by letting employees know that all of this data is required can often give them the nudge they need to be truthful with their reporting.

Related: How Can You Maximize Expense Policy Compliance and Maintain Traveler Happiness?

As another example, it’s relatively common to overstate personal driving reimbursement with manual expense reporting, as it can often be hard to verify mileage claims without manually inputting addresses into Google Maps, which is extremenly tedious. Expense report software can incorporate an automated mileage calculator, showing a map of the route taken and automatically calculating the distance. Again, making it easier to be honest, and ensuring that it’s simple to spot a potentially false mileage claim is often enough of a deterrent.

However, there is still a hardcore group that will deliberately try to submit fraudulent expenses, and may collude with a supervisor for them to knowingly approve a false claim. Technology can also play a role here, both in preventing the submission of fake expenses, as well as spotting expenses if they can make it through the submission process. One example for collusion is when a manager and their subordinate have a meal together, for which the subordinate deliberately submits an inflated expense amount. The manager then approves the expense, and the two will share the excess. In this case, an intelligent expense management system will know the approval hierarchy, and enforce a business rule whereby an expense for the meal would need to be submitted by the most senior attendee, and then approved by their own boss, thereby removing the chance of collusion. In-line audit capabilities can also be built into a system, so an expense report that fits a certain set of criteria could automatically be flagged for audit (e.g. by a corporate controller) before approval.

Related: Father Knows Best (Especially When It Comes to Expense Reports)

Removing the temptation to inflate expenses and making it easy for employees to make the good decisions can take many forms, but creating an environment where travelers are guided to do the right thing (whether through education or technology) will always deliver positive results. Whether it’s helping prevent the otherwise star employee from ruining their career over a $100 expense report, or reducing the stress on the HR manager who has to deliver that news, an ounce of prevention is better than a pound of cure.  

Note: This article first appeared in the May 2017 edition of HR Professional magazine.