Expense Reporting & Fraud: What You Need to Know

By Eide Bailly’s Forensics Dept. 

We all know fraud happens. Whether it be with money, identity or even politics, fraud is constantly happening, and many people aren’t even aware of it. Unfortunately, fraud can hit close to home for many business owners. The main reason for this is fraudulent expense reporting by employees.

A recent survey conducted by the Association of Certified Fraud examiners found that the median loss from expense reimbursement fraud was a whopping $30,000 per year. In other words, this could really hurt your business’s bottom line.

My employees are great; this would never happen to me…

Five percent of employees commit 82 percent of all expense fraud, according to an Oversight Systems report. While not a staggering number, this amount still shows that expense fraud is happening within businesses, and people are getting away with it.

Okay, so how can I be on the lookout and prevent this from happening to me?

We’re glad you asked. As with most internal controls, creating a solid, clear policy is a great starting point. It’s also a good idea to have a reviewing policy for reimbursement requests as well.

Do you have to review everything 100%? Not likely. Reviewing on a random sample basis, as long as employees know this is taking place, should be enough to ensure the policy is being followed. By setting up this “perception of detection,” employees will be less likely to sneak around due to the increased chance of them getting caught.

What should a reimbursement policy look like?

There is no one-size-fits-all type of policy. Your specific policy should match up with the needs of your business. However, there are some elements to consider including to create a strong reimbursement policy:

  • Timely Reporting – Have a set amount of days the expense needs to be submitted within.
  • Appropriate Expenses – The policy should be clear on expectations regarding controversial charges, such as alcohol, family meals, expensive hotels, etc.
  • Proper Documentation – Require the employees to submit actual receipts, whether it be the original or a reprint. Seeing the amount clearly documented leaves less room for error.
  • Minimum Receipt Amount – Some amounts may not require a receipt. Set a reasonable receipt level, such as $25, below which a receipt isn’t needed.
  • Chargeback Rules – If any undocumented charges are found during a review, consider having a clear policy regarding how these expenses will be potentially charged back to the employee.

The moral of the story…

Prevention is much easier (and less expensive) than detection. Creating a reimbursement policy can help ensure expense fraud isn’t stealing from your business’s bottom line. If you need help creating this policy, or just want to learn more, our forensics team is here to help!

A version of the post was first published on Eide Bailly’s Nonprofit Newsletter.

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