How to Prevent Employee Expense Fraud and Abuse

According to a survey conducted by software provider Chrome River, employee expense fraud costs American businesses more than $2.8 billion per year. About 19 out of 20 employees claim to submit accurate, honest expense reports, but those who commit fraud claim an average of $2,448 in false expenses per year. Some report as much as $25,000 per year. Just 17 percent of these expense abusers were caught.

Employee expense fraud and abuse are a major problem for businesses. Ideally, employees would be able to pay for items or services as laid out in the company policy and submit an expense report. This is far more efficient than requesting use of the company credit card or seeking permission from someone who’s authorized to sign off on the expense.

The Key Word Here Is “Policy”

If you don’t have a detailed policy governing acceptable employee expenses and reporting procedures, you open the door to fraud, abuse, and disputes.

An employee expense policy should identify what types of expenses can be claimed – travel, hotel, food, transportation, entertainment, tips, technology, etc. The policy should also detail how much an employee is permitted to expense in each category. If your company receives special discounts from a hotel or car service, for example, the policy should require the use of preferred vendors in order to expense those costs.

An employee expense policy should also include a deadline for submitting expense claims. Although it’s in the employee’s best interests to submit claims quickly so they get reimbursed quickly, some tend to drag their feet. The problem is, in many cases, the employee isn’t the only one who suffers.

Companies that rebill employee expenses to clients can’t send invoices until employees submit expense reports. In other words, delays in report submissions prevent the accounting department from billing clients for completed work, which means your company can’t get paid. In addition to fraud and abuse, the lack of an employee expense and reporting policy can create cash flow issues.

Once you have a documented policy, make sure it’s updated at least once per year. For example, if you’ve been using a car service but your employees like to use Uber, updating that part of your policy might be worth considering.

Let Technology Do the Work

Most companies still use a fairly antiquated process for submitting employee expense reports. Fill out a spreadsheet or a physical form with handwritten information, attach hard copies of all receipts, and put it on the desk of a designated person in accounting. This process is slow and prone to error.

According to the previously mentioned survey, the risk of fraud is 68 percent higher with a manual process than a technology-driven, automated process. Granted, this survey was commissioned by a provider of such technology, but common sense tells us that technology works faster and with fewer errors than humans. These solutions also eliminate piles of paper from employee expense reporting.

Expense management tools allow employees to simply snap a photo of a receipt and have an expense report automatically submitted on their behalf. They apply rules from your employee expense policy and flag expenses that might require approval from an authorized party. Some tools automatically reimburse employees within one business day. Most importantly, you gain full visibility into employee expenses so you can analyze trends, quickly respond to problems, control costs, and identify opportunities to save.

Employee Expense Reporting Problems Are Preventable

If you don’t have an employee expense and reporting policy, make it a priority to develop one in collaboration with accounting, legal and human resources. Invite input from employees so your policy empowers them to be more productive instead of slowing them down. Investigate employee expense management tools that suit your company’s specific needs and business processes. A documented policy and the right technology can go a long way towards preventing fraud and maintaining proper cash flow.

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