Is Your Organisation Taking Fraud Seriously Enough?

Sleuths at CNBC recently spotted that Tesla has an opening for a “Manager, Financial (Anti-Fraud) Analytics & Investigation” who will oversee a recently established Global Fraud Management Team.

One of the first things that springs to mind is that it’s surprising a 45,000+-employee, $20+ billion-dollar-revenue organisation only just set up a dedicated team to manage fraud. If a company of Tesla’s size and sophistication is this late to the game, what does that mean for other organisations which have significantly fewer resources?

Thankfully, most organisations face far fewer fraud risks than publicly-listed multinationals such as Tesla, and likely don’t require a dedicated team to address them. However, there are several types of fraud that every organisation faces, regardless of their size. Two of these are employee expense fraud and billing/invoice fraud, and together they form 34 percent of all asset misappropriation schemes, according to the ACFE (Association of Certified Fraud Examiners) 2018 Report to the Nations. Each incidence of these schemes has average losses of Rs 23 lakh (expense) and Rs 75 lakh (billing/invoice).

Employee expense fraud can take many forms, from submitting receipts for personal expenses, to claiming for ticket purchases that were subsequently refunded, or claiming the same expense twice by submitting a receipt on multiple expense claims. Most people who commit expense fraud do so opportunistically, as opposed to a concerted effort to defraud their employers. The individual monthly amounts they steal are typically quite low, and as such they are able to get away with it for a long time. ACFE reports that the average expense fraud lasts for two years, and most of those who commit expense fraud are never caught.

One of the primary reasons that so few expense fraud perpetrators are caught is that roughly 50% of companies still use manual expense processes. As such, this requires approvers’ keen eyes to catch and flag any illegitimate expense, ultimately leading to many of them being missed and subsequently reimbursed. It’s therefore not surprising that employees who submit expenses manually self-report submitting fraudulent expenses at more than twice the rate of those who use expense management solutions.

Read more: What Makes People Commit Expense Fraud?

Simply by implementing an automated expense management solution, organisations can drastically reduce the incidence of fraud by eliminating human error. Whereas an approver will likely not notice that a receipt has been submitted the month before – among 20 other claims that they review each month – it can be immediately flagged by an automated solution. Similarly, a manager is unlikely to notice that the distance claimed for mileage reimbursement is 150 kilometres off each month, but a system which automatically calculates distances with Google Maps based on the start and end of a trip will ensure that mileage is always accurate and legitimate. Even though only five percent of employees admit to submitting fraudulent expenses, with the average illegitimate amount claimed being close to Rs 7,500 per expense claim submitted, the technology investment can almost be recouped simply by cutting out these losses.

Invoice fraud can be far more sophisticated, and organisations also face the challenge that it is both an internal and external threat. In addition to employees’ own schemes, which may either be perpetrated on their own or by colluding with a third party, organisations are also at risk of sophisticated external fraud initiatives. More alarming is that it’s not just small companies with manual processes who fall victim to these schemes. Earlier this year, a man was found guilty of defrauding Google and Facebook to the tune of Rs 916 crore, using a highly-sophisticated scheme involving fraudulent invoices, corporate stamps and contracts.

As sophisticated as this type of fraud is, it’s still not impossible to stop, and with the right combination of technology and processes it can be detected long before money is lost. In this case, the scammer sent invoices for goods which were never received, backed up with fraudulent contracts. Similar to spotting false expenses, an invoice approval process which relies on human intervention to detect fraudulent invoices is deeply fallible. However, much like an expense automation solution is able to automatically identify illegitimate transactions, an invoice automation solution can easily detect attempts to defraud the organisation.

In addition to the checks and balances put in place by a multi-layered approval process with a full audit trail, invoice automation solutions can automatically match invoices with POs created by the purchasing department, and flag any discrepancies. Organisations which purchase physical goods can also use an automated three-way matching process to bring together POs, invoices and also packing lists supplied with the goods that are received. If any of these are either missing or don’t match the other two documents, the invoice will be flagged as potentially fraudulent.

Read more: Avoid Becoming the Next Victim of Invoice Fraud

Even if your company isn’t at the scale where it requires a dedicated fraud management team, this doesn’t mean that there aren't steps that you should take to prevent asset misappropriation schemes. Continuing to rely on outdated and highly manual processes for processing employee expenses and invoices needlessly introduces an unacceptable level of risk.

The benefits of moving your outdated and risk-laden financial processes away from spreadsheets and onto modern, mobile-centric solutions goes far beyond improving employee productivity. Between the savings that the data insights can offer and eliminating the potential for internal or external fraud, the question isn’t “can we afford to make this investment?” but “can we afford NOT to make this investment?”