How does an Expense Management Software Prevent Expense Fraud?
The ACFE (Association of Certified Fraud Examiners) conducted numerous surveys with anti-fraud professionals to determine how much the pandemic has influenced expense fraud. Here’s what they found:
80% of anti-fraud professionals believed that there was a significant rise in the levels of expense fraud during the pandemic.
In addition, an Oversight spend report from November 2020 revealed that there had been a 57% increase in expense fraud in 2020.
This makes it evident that expense fraud is real, and businesses need to identify and mitigate the issue as soon as possible. This article focuses on everything business owners and Finance teams need to know to eliminate expense fraud in 2021.
Table of Contents
What is Expense Fraud?
Simply put, expense fraud is a planned and deliberate attempt by any working member of an organization to game the system and gain more reimbursements through false proof of spend.
Keep in mind that although every inaccurate expense report will cost your business, it might not always be deliberate. For example, data entry errors, miscalculations, or missing out on receipts can happen pretty frequently. This makes it even more important to first classify a false expense before taking action on your employees.
What are the different kinds of Fraudulent Expenses?
Mischaracterized expenses: When an employee submits receipts of personal expenses as proof for business expenses, it becomes a mischaracterized expense. These expenses are most commonly made in food and mileage bills as it’s often hard to differentiate between personal and business purchases based on a simple receipt.
Fictitious expenses: When an employee deliberately creates false evidence to support their claims, it becomes a fictitious expense. The most common examples here are the designing of fake receipts using software to fool Finance teams. Sadly, the creation of such receipts has become easier with tools like Custom Receipt and ExpensesReceipt.
Overstated expenses: When an employee deliberately modifies amounts in an expense report for larger reimbursements, it becomes an overstated expense. A simple example here would be changing the value of a $10 meal to $19. Howard M. Schilit, in his bestselling novel Financial Shenanigans, has elaborated in great depth how easily employees can go about doing this.
Multiple reimbursements: Multiple reimbursements happen when an employee uses an old receipt to claim for a newly made expense. These types of fraudulent reimbursements mostly happen with food bills. However, they are also most likely to slip past the watchful eyes of your Finance teams if your business still uses traditional expense management.
Why should Companies Pay Attention to Expense Fraud?
The ACFE has confirmed that the effects of expense fraud can range from organizations losing about 5% of their revenue each year to even resulting in their death in extreme cases (Enron Scandal, 2001.) This indicates the priority at which businesses must think of curbing fraud. Additionally,
- 20% of expense fraud cases result in a loss of $1 million to the company.
- Reimbursement cycles can extend over 24 months if a fraudulent expense is detected, with companies having an average loss of $31,000.
- If one fraudulent expense is detected, it is a sign that employees could have explored other options for submitting the same expense.
- Public realization of expense fraud results in a 17% decline in company stock value.
Business leaders need to understand that it isn’t enough to have CFEs audit their enterprise bi-annually. Instead, they must take a firm stance against preventing all forms of expense fraud. Additionally, they must provide Accounting and Finance teams with the right kind of training and tools they’d need to detect, mitigate, and prevent fraud right at the source of its creation.
How does an Expense Management Software help Prevent Expense Fraud?
Most of the problems Finance teams face with expense fraud come with the blindspot of using traditional means of expense management. Additionally, with spreadsheet-based expense reporting, expense fraud will always have the upper hand. This is because manual processes of any kind are always ridden with errors, bias, and a genuine lack of interest.
Thus, if business owners want to stop expense fraud, they must start with first eliminating variables that lead to fraud. These variables could be lengthy manual processes, weak enforcement of business rules and expense policies, or even a lack of automation and leveraging of technology where needed. This is where an expense software comes into play.
An expense management software makes work easier for Finance teams by automating pre-submission checks against company policies. The software also flags and notifies approvers of all expenses that violate company policy. This leads to quick identification and rectification of inaccurate expense reports.
Thus, it is safe to say, automated expense management protects your financial bottom line, boosts expense policy compliance, mitigates expense fraud, and saves multiple hours for Finance teams.
In addition, you can also make use of a Flexible client management platform to manage your clients and fulfill all their needs on time.
Expense Software Features that Prevent Expense Fraud in Real-Time:
- Real-time policy checks help ensure that employees are made aware of company policies. This is done by informing them of policy violations right away and enables them to submit compliant expenses on time.
- Centralized cloud storage makes it easier to store all your receipts in a single place with easy access during the audit process. With central storage, it makes the submission of duplicate receipts impossible.
- Expense report softwares have robust policy engines that can understand custom business rules. This enables Finance teams to tailor policies according to the company’s needs and put in no additional effort to ensure their enforcement. Have zero policy violations in a single click!
- A digital audit trail documents every action that has been taken by all the stakeholders involved in a single expense. This enables Finance teams to remain in the know before they approve of any expense.
Considering how many businesses might end up closing shop before the pandemic ends, companies need to ensure they stay vigilant against expense fraud. An ideal solution would be to switch to an expense software and combine it with the industry’s best practices. These factors will be quite the deadly combo in ensuring you stop expense fraud in your company.