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May 18, 2017

How to Prevent Paying False Expense Reports

Do you suspect some of your staff are submitting #falseExpenseReports for payment

Expense fraud might not be the first thing that comes up when you think of potential risks to your business, but the fact is that employees defraud employers of millions of dollars every year, simply by fudging their expenses.

The individual amounts may not be large, but they add up quickly, and if you’re not watching, you could find yourself losing big over time.

Fortunately, there are steps you can take to prevent and address this type of fraud, and you can start immediately. Here’s how.

Document Your Policy

If you don’t have a documented policy on expenses that are reimbursable, and how to claim them, you may find that even if you do discover false expense report fraud on a massive scale, you can’t fire the employee. At least, that’s what happened to IBM.

Make sure that your policy is absolutely clear about what is acceptable and what’s not, and what the consequences of fraudulent claims will be.

Review Immediately

One of the biggest mistakes that IBM made when dealing with the aforementioned expense fraud case was in waiting so long to act. Instead of taking immediate steps against the employee, they waited months to terminate employment. The court took this period to be acceptance of the offending behavior, and that resulted in the company losing the case.

To avoid a similar situation in your organization, make sure that you review expense claims as soon as possible after they are submitted, and query any red flags before releasing payments. By not waiting and not “condoning” questionable claims by paying them, you can avoid a similar situation.

Demand Details

One of the ways that employees get away with false expense fraud is by offering vague justification for claims. Instead of providing itemized receipts for business purchases, they present lump sum amounts from company credit cards, while using them to purchase gift cards. They might add another night onto business travel expenses that was actually for personal use.

Ensure that your policy requires detailed, documented evidence of expenses, including all itemized receipts, and again, if there are any discrepancies or expenses that don’t add up, don’t pay them. Sometimes, the mere act of paying a claim indicates acceptance, and may affect any future court proceedings.

Don’t Skip Background Checks

In 2012, Warfield and Associates, a well-known Australian firm dedicated to forensic investigations and fraud prevention conducted a study of million-dollar employee fraud cases. They studied 89 cases involving 93 perpetrators of various types of employee fraud and embezzlement, and they discovered that nearly 10% of the perpetrators of these types of crime had some former criminal record.

Another common thread between these high dollar value cases was that many of the perpetrators had gambling problems. In fact, past behavior, whether it’s criminal records or dismissal for dishonest behavior, is one of the key indicators of future behavior, and that’s why it’s so important to conduct thorough background checks.

While you can’t prevent employee false expense reports from happening altogether, there are certainly methods to prevent it from happening, and concrete steps you can take to address it when it does happen.


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