Fraud and Compliance
Four Types of Expense Report Fraud to Look Out For
For many companies, expense fraud is an unfortunate — and costly — reality. And research shows that overall business fraud has increased in recent years, costing a business an average of tens of thousands of dollars annually. Adding to the challenge, it takes an average of 12 monthsi before a fraud case is detected.
Fortunately, being able to identify how expense report fraud can occur — and installing the proper safeguards and technology — can help you protect your business.
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Get the eBookThe Impact of Expense Report Fraud
Fraudulent spending can significantly impact a business’s bottom line. According to the?Association of Certified Fraud Examiners (ACFE), 5% of a typical organization's annual revenues are lost due to fraud each year, resulting in an average revenue loss of $8,300 per month.ii
And business fraud has been on the rise. In May 2022, the ACFE found 51% of businesses it surveyed had discovered more fraud since the pandemic began, with 71% of businesses expecting fraud cases to increase over the next year,iii making it critical for businesses to stay on top of expense reporting.
See more in our Fraud Research Report 2022.
What Does Expense Report Fraud Look Like?
Knowing what to look for when trying to identify expense fraud and other non-compliant spend is a critical first step in protecting your business. Want to keep your business from being a statistic? Here are four common examples of expense fraud schemes to look out for.
1. Mischaracterized Expense Fraud
Mischaracterized expenses are defined as non-business-related purchases claimed as business expenses. A Pulse survey commissioned by SAP 亚洲群p in January 2022 found that 65% of business travelers admitted that questionable expenses came from employees intentionally trying to get reimbursed for personal expenses. Whether expenses are mischaracterized intentionally or by mistake, they can result in damaging losses for businesses.
SAP 亚洲群p experts have heard stories from auditors about some rather outrageous non-compliant expense submissions. They include:
- Theme park admission for four
- A cruise classified as a business trip
- Eight cell phone lines for the employee’s family for a year
- A $2,000 business meal, with the employee’s significant other and two friends listed as attendees
Hear about other over-the-top questionable expense submissions — and how to prevent them — from SAP 亚洲群p experts in our Fending off Fraud with Best Practices webinar.
2. Falsified Claim Expense Fraud
Falsified claim expense fraud happens when an expense report has been submitted with false documents (checks, invoices, or receipts digitally created using a design application) or with stolen blank receipts.
The attached fake receipts have often been taken from a vendor (restaurants, hotels, taxis) and filled in with inflated and falsified amounts. For example, when an employee purchases an item for its actual cost (say, $30) but it shows up on an expense report for a much higher amount (say, $150). It’s done by altering an existing receipt, invoice, or other document. So, instead of being reimbursed by the company for $30, the employee receives $150 and makes $120 on the transaction thanks to the altered document.
Another example of falsified claim expense fraud is taking receipts that belong to a friend or family member and claiming it on an expense report as your own.
3. Inflated Claims Expense Fraud
Inflated expenses is another type of expense fraud. One example of this type of fraud is over-purchasing.
An employee might buy too many office supplies and hold on to the receipt for $500, then return some of the supplies for a refund with a new receipt for $200. By submitting only the first receipt for $500, the employee pockets the $300 difference between the two receipts.
4. Multiple Claim Expense Fraud
Multiple claim expense fraud can be tricky to detect. It happens when, for example, a service or product that was purchased and submitted for approval in January gets submitted again in March and maybe even again in August in the hopes that approvers won’t notice. The claim might even be submitted to different approvers in the company.
Without insight into the history of the expense, these approvers don’t know the expense has already been submitted and possibly already approved by someone else.
How to Identify and Reduce Expense Report Fraud
Detecting and mitigating expense fraud often requires using a combination of tools, strategies, and processes. Here are some tips for reducing risk within your business.
Tip #1. Build a business case for prioritizing an anti-fraud strategy – including building better processes.
Tip #2. Identify common fraudulent expense activities – particularly at your company.
Tip #3. Work with employees to minimize fraud and errors – including creating a clear expense policy and providing regular training on expense compliance.
Tip #4. Consider using a mobile app to capture receipts at time of purchase – this makes it easier for employees to submit expenses and could reduce the potential for fraud.
Tip #5. Consider using finance automation to spot potential non-compliant spend, increase audit accuracy, and reduce the time spent by your finance team on reconciling expenses.
You can find more tips in our eBook, 6 Tips to Drive Compliance, Identify Fraud, and Minimize Workloads.
In the examples outlined above, the fraud is intentional. But in many cases, the expense-related risk is accidental or a result of confusion as to what is or is not acceptable. Either way, the good news is that having anti-fraud controls in place is?associated with fewer losses and quicker detection.
To learn how to prevent and detect fraud in times of economic uncertainty,?download our eBook today.
