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5 Simple Steps to Prevent Expense Fraud

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Consider the following expense fraud scenarios: airfare for a cancelled flight, a $50 travel meal of Ketel One and sodas, and pay-per-view movies lumped into the nightly hotel room rate.

While it's easy to believe a few dollars here and there won't hurt, expense fraud adds up over time and is difficult to detect. A recent survey conducted by the Association of Certified Fraud Examiners revealed that employees comprising the "Executive/Upper Management" level in a company account for nearly 27 percent of expense reimbursement fraud cases. The resulting disciplinary measures and dismissals of key employees can be a tremendous distraction -- just ask Hewlett Packard and Walmart.

Related: 4 Kinds of Fraud That Could Destroy Your Business

Without clear and firm guidelines for expense reports, employees are more likely to cross the line. However, following these five simple steps can mitigate the risk:

1. Start by defining your expense report policies.

Smaller companies will typically have a simpler set of policies than larger organizations. That said, the following recommendations apply to companies of all sizes:

  • require expenses be submitted within 30 to 60 days of incurring the expense
  • require receipts for all purchases over $25
  • require itemization of multi-category purchases such as hotel stays (pay-per-view movies go under "Entertainment," room service belongs to "meals", etc.)

2. Inform employees of policy violations before expense reports are submitted.

Expense report policies have traditionally resided in the employee handbook. The reality is that most employees don't refer to the handbook when preparing their reports.

Consider adding an expense report system that automatically highlights policy violations and automatically identifies duplicate transactions. This immediate feedback loop not only improves policy compliance, but also reduces the burden on supervisors and accounting to identify and reject out-of-policy expenses.

Related: 4 Simple Steps for Keeping Every Dollar You've Earned in Your Pocket

3. Design a thorough expense review and approval process.

An effective approval chain starts with including the appropriate manager(s). The primary role of the approving managers is to ensure expenses are accurate and represent bona-fide business expenses. In many cases, multiple managers may be involved.

For example, project-specific approvers and/or additional approvers based on the amount of the report may be required. When selecting expense-reporting tools, consider the routing needs of today and the future.

4. Utilize data analytics to stay on top of expense reporting trends.

Graphs and charts are handy when it comes to monitoring expense trends by employee, category and merchant. Companies should leverage their expense-report platform to identify and investigate unusual items.

5. It's all about the "tone at the top."

Although accurate expense reporting is a company-wide responsibility, the creation of a high-quality control environment is the responsibility of management. Management needs to set the tone, participate in the review process and hold themselves to the same exacting standard.

The Association of Certified Fraud Examiners survey also found that occupational fraud is estimated to cost organizations as much as 5 percent of revenue per year. Tightening up the expense-report process is an easy, but effective, way to prevent fraud at all levels.

Clear, thorough expense guidelines, as well as a commitment to ethical leadership, will keep a company's revenue and reputation on track.

Related: 6 Simple Strategies for Better Money Management

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