Detecting Expense Reimbursement Fraud By Employees

An organization is no less than a family for most of the loyal and law-abiding employees. Still, it is not true in some cases where dubious professionals resort to all sorts of unethical practices to extract money from their organizations under the pretext of a reimbursement claim.

While several preventive measures can be adapted to minimize such fraudulent activities, let us first decipher how they are craftily conducted so that we are well-versed in the ways to avoid these tricks.

There are instances when employees tend to commit honest mistakes, which is understandable. Still, the challenging part is distinguishing between the vicious agenda and the real mistake. As enquiring and verifying this may cost the precious time and hard-earned assets accumulated by the company, we have some listed patterns of fictitious errors which are claimed to be done by employees with the malicious intention:

  1. Fictitious expenses: are the fake receipts generated or tampered with for reimbursement on such expenses that never happened. There are certain loopholes in the expense reporting policy as well that encourage such types of fraud within the organizations, to begin with:
  • Claiming reimbursements for office supplies, so-called lunch or dinner meetings with clients, fake fuel receipts for business-related traveling, etc.
  • Enjoy complimentary meals, rides, spa sessions, or other amenities provided by the hotels during business trips and make reimbursement claims on these non-existing expenses.
  • Seeking reimbursements on genuinely initiated expenses that later got canceled due to some unavoidable circumstances, such as canceled air tickets, registration fees on workshops or seminars that never happened, transportation allowance for a business outing that got canceled, etc.
  • Using web applications to create and design fake receipts and collaborating with vendors and suppliers to make false reimbursement claims.
  1. Mislabeled expenses: a deliberate attempt to pass personal expenses as the tool for reimbursement claims is another commonly used method by some employees.
  • While they are already spending lavish business trips at the organization’s expense, some employees prove their personal expenses incurred on such trips during shopping and other leisure activities as business-related expenses to claim reimbursement.
  • Another shady way is to produce travel receipts to list the travel-related expenses while the employee was not traveling.
  1. Duplicate reimbursements: producing the same receipts for multiple reimbursements is termed as duplicate, and it has the following characteristics:
  • In case the employee comes back from a business trip, produces some receipts for reimbursement, and purposely hides some to make a false claim in the future as an individual business trip receipt is the sheer case of duping the authorities.
  • Double-billing is another common practice of receiving illegal compensation. A fraud employee might receive two receipts for a particular purchase, a credit card receipt and the original one. So, the employee may use it twice to make separate claims, using them individually as two different expenses.
  1. Refunded expenses: making false claims for costs that already got refunded from the seller:
  • Some employees still present that expense report to claim reimbursement for the products that were purchased and later returned with a refund credited to their accounts.
  • Similarly, for flight bookings, some book two types of refundable tickets, expensive and less expensive. After receiving the reimbursement for the first one, they will cancel the first ticket, get a refund, and use the second one for business travel purposes.
  1. Inflated expenses: showing fake prices for all business-related activities conducted by the employees is one of the easiest ways to extract money from the company’s accounts. For example, padding a legitimate expense of 5K to 10K for a business dinner with a client.

Other ways of inflating expenses are:

  • Using expensive alternatives instead of cheaper ones while selecting cab rides, flight tickets, and external meeting locations.
  • Exaggerating fuel reimbursements with inflated mileage while driving for business purposes.

Generally, the quantity of such employees needs to be higher than the loyal and trustworthy ones. Still, even a small fraction of such employees within the organization can cost dearly if their malicious activities are left undetected. Therefore relying on an automated expense management software that regularly monitors the inflows and cash flows is the ideal solution for such recurring issues apart from checking on the following parameters:

  1. Maintaining strong internal controls that segregate duties among the individuals and monitor that the powers are uniformly distributed instead of major control over limited individuals.
  2. Well-defined reimbursement policies that are thoroughly conveyed and well adapted, along with eagle-eye scrutiny of related documents to authenticate reimbursement only for genuine expenses.
  3. Hiring independent external teams who conduct regular audits to recognize any loopholes or suspicious activity and help maintain transparency.

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