As someone who owns a small business, keeping your operations running smoothly is always a top priority. Being faced with expense reimbursement fraud is something you want to avoid. It has the potential to negatively impact your business’s financial performance, as well as harm its reputation. In this article, we will go over employee expense fraud, explore its underlying causes, and, most importantly, provide practical strategies to prevent it from occurring in your business.
What is expense fraud?
Submitting falsified or inflated expense claims is known as expense fraud. This type of behaviour is done to avoid paying out of pocket or receiving reimbursement from the employer. It is important to note that this type of fraud is both unethical and illegal and can negatively impact your business.
Employees can engage in expense fraud in various ways, including claiming personal expenses as business-related, presenting fabricated receipts, exaggerating costs, submitting duplicate claims, altering mileage records, and diverting company funds for personal use.
Why do employees commit expense fraud?
This can stem from various reasons. While seeking financial gain is the primary motivation, personal reasons, misinterpretation of policies, target pressure, or apathy may also lead some employees to commit fraud.
To manage your business effectively, it’s crucial to comprehend why expense fraud occurs. This will enable you to proactively identify and address any related issues.
How can you effectively prevent business expense fraud?
- the first step is to establish a comprehensive and clearly defined expense policy to prevent such fraud. This policy should be current, appropriate, and readily available to all employees. Ensuring that the policy encompasses all required expenses, acceptable limits, documentation requirements, and reporting procedures is essential. Additionally, it is vital to encourage employees to ask any questions or seek clarification regarding the policy.
- To support the expense claims, detailed receipts and proper documentation are required. The receipts submitted for expenses should be original and contain the date, amount, vendor name, and a clear expense description. Please note that credit card statements cannot be used as receipts as they do not provide detailed information about the expense.
- Regularly review expense reports to identify unusual patterns or suspicious claims. Auditing can help uncover fraudulent activities and pinpoint gaps in internal controls or process flaws. To prevent expense fraud, it can be helpful to provide policy training and raise employee awareness of business ethics.
- Expense management software can automate the expense reporting process, leading to fewer errors and increased efficiency. This software can also help detect suspicious activities, such as submitting the same expense multiple times or exceeding the allowable limit for expenses.
Parting thoughts
Preventing fraudulent expenses involves a joint effort from the business owners, managers, and employees. A comprehensive and transparent expense policy, fostering an ethical culture, carrying out regular audits, and utilising technology can all aid in preventing fraudulent expenses. By instituting appropriate preventive measures and encouraging ethical behaviour among employees, you can minimise the possibility of expense fraud and safeguard your business from potential financial and reputational harm.
This type of can be a costly issue for any business. If you need guidance on policy creation or a review of your current expense processes, we can assist you. Contact us today to take advantage of our expertise.