Sweat the Small Stuff



February 16 , 2017 | Posted by Nathan Oswald |

Sweat the Small Stuff

How to detect and prevent expense reimbursement fraud

Companies often overlook expense reimbursement fraud because of the relatively small amounts involved. But these amounts can add up quickly, particularly if employees believe that management is “looking the other way.” They can also be a way for dishonest employees to test the waters: If successful, they may graduate to bolder, costlier schemes. Expense reimbursement schemes are common, accounting for nearly 14% of all occupational frauds and resulting in a median loss of $30,000, according to the Association of Certified Fraud Examiners (ACFE).

Most common methods

According to the ACFE, expense reimbursement schemes generally fall into one of these four categories:

  1. Mischaracterized expenses. This involves requesting reimbursement for a personal expense by claiming that it’s business-related. For example, an employee takes a family vacation and requests reimbursement for meal and hotel expenses by submitting actual receipts and a false expense report.
  1. Overstated expenses. Overstating expenses involves inflating the cost of actual business expenses — for example, by altering receipts or obtaining a refund for a portion of the expense. A common scheme is to buy a first- or business-class airline ticket with a personal credit card, submit the expense for reimbursement, and then return the ticket and replace it with a coach ticket.
  1. Fictitious expenses. Obtaining reimbursement for nonexistent expenses by submitting false expense reports and fake receipts or other documentation would fall under the category of fictitious expenses. A common technique is to obtain a stockpile of blank receipts from taxicab companies or other vendors and submit them over time.
  1. Multiple reimbursements. This scam involves requesting reimbursement for the same expense several times — typically by submitting photocopied receipts or different forms of supporting documentation (for example, receipts, email confirmations, canceled checks, tickets and invoices).

These schemes tend to continue for long periods of time before they’re detected. The ACFE reports that the median duration of employee reimbursement frauds is 24 months.

Detection methods

Cassady Schiller can use a variety of techniques to detect employee reimbursement fraud. For example, we might review reimbursement documentation to look for photocopies, duplicates or fakes; compare employees’ expense reports and supporting documentation to check for multiple claims for the same expenses; and compare the times and dates of claimed expenses to work schedules and calendars to look for inconsistencies, such as expenses claimed during vacations.

Cassady Schiller can also search for red flags that may signal fraudulent activity or warrant further investigation. For example, we might look for employees who:

  • Claim disproportionately larger reimbursements than other employees in comparable positions,
  • Pay large expenses in cash despite access to a company credit card,
  • Submit consecutively numbered receipts over long periods of time, and
  • Consistently submit expenses at or just under the company’s reimbursement limit for undocumented claims.

Another technique is to look for employees whose expense patterns violate Benford’s Law — a statistical analysis tool that can reveal fabricated numbers.

An ounce of prevention

In addition to detecting expense reimbursement fraud, Cassady Schiller can help companies implement preventive measures. These include written expense reimbursement policies and procedures requiring detailed expense reports that set forth amounts, times, places, people in attendance and specific business purposes. Employees also should be asked to use company credit cards, submit original, detailed receipts (no photocopies), and provide boarding passes for air travel. Periodic audits of travel and entertainment expense accounts also can have a powerful deterrent effect. Please contact Cassady Schiller to schedule a surprise audit or to review your current policies and procedures for reimbursing employees for out-of-pocket business expenses.