Organizations Continue to Lose Money From Expense Reimbursement Fraud

Supply Chain Fraud BillionPhotos.com/Adobe Stock

Expense reimbursement fraud continues to plague procurement departments, costing organizations thousands of dollars in lost revenue every year. According to the recent 2016 Global Fraud Survey by the Association of Certified Fraud Examiners, this type of fraud, which includes filing false claims for reimbursement on fictitious or inflated business expenses, costs a median loss of $40,000 every year. Employees claiming reimbursement account for about 14% of all asset misappropriation sub-schemes at companies, according to the report.

Expense reimbursement schemes typically go on for two years before they are even detected by the organization, the ACFE report also said. The longer a fraud lasts, the more money an organization loses. The ACFE estimates fraud cases that last more than five years cause a loss of about $850,000. Expense reimbursement fraud also takes longer to detect than other more frequent types of fraud like corruption, which typically takes 18 months to detect, and non-cash misappropriations, which take a median of 15 months for an organization to detect.

Fraud Controls

Overall, organizations lose about 5% of revenues every year due to various types of fraud. The nearly 42,000 CFEs surveyed for the 2016 ACFE study reported a total loss of more than $6.3 billion due to fraud, with the average loss per fraud case costing $2.7 million.

Companies are turning to anti-fraud controls to try to prevent losing money every year to cases of fraud. When implemented, anti-fraud controls lead to a 14.3% to 54% decline in fraud losses, the ACFE report said. Additionally, these solutions help companies detect fraud as much as 50% more quickly than before.

Mileage reimbursement is just one aspect of employee expenses, but one that could rack up significant costs for a company, especially if drivers are padding their miles. Austin Klein, product manager at Runzheimer, which provides mobile workforce solutions including services that automate expense reimbursement, said companies that implement technology to accurately track employee mileage typically see a 15%–20% mileage reduction on employee reimbursement claims.

Without such technology in place, employees are left to self-report the miles they drove their personal vehicle for work, whether that is to the airport for a business trip or traveling to visit a client. Often, employees round up their mileage on their expense reports, such as making the 18.2 miles they actually drove to the airport to 20 miles to get a higher reimbursement check, Klein said. That extra mile-and-a-half or so adds up over the months and number of employees driving. And, unlike other travel expenses, there is no physical receipt for the miles an employee drives, making it easier for employees to continue to misreport mileage.

“Without a policy in place or technology or a way to quantify and measure that spend, it’s going to continue to happen,” Klein said.

Do As I Say, Not as I Do

Executives and upper management are often the main offenders of expense reimbursement fraud, providing another challenge for companies to overcome in fighting it. According to the ACFE report, executives and upper management account for nearly 24% of all cases of employee reimbursement fraud at an organization. Accounting came in second with 15.8% of all expense fraud cases.

Executives accounted for more incidents of other types of fraud as well at companies. For instance, executives and upper management accounted for nearly 37% of all cases of billing fraud, more than any other group of employees. They also led in financial statement fraud cases, accounting for more than 30% of those fraud schemes.

Another interesting finding of the ACFE report is that it is slightly more typical to have multiple insiders colluding on expense reimbursement fraud cases than for a single employee to act on his or her own in the fraud. Just over 17% of cases of employee reimbursement fraud schemes have multiple insiders, the report said. About 16% involve a single insider. Also, expense reimbursements are most frequently reported in the technology, religious, charitable and social services and manufacturing industries.

Gender Differences

Men are also reportedly committed more fraud than women in the cases reported in the 2016 ACFE report. Sixty-nine percent of fraud perpetrators were male and 31% were female, reflecting similar findings in recent years. Male fraudsters caused a median loss of $187,000, while women cause $100,000 in loss. However, the ACFE points out this could be due to men making up a larger portion of the workforce in general as well as being in higher positions at an organization.

First Voice

  1. Bitter and twisted:

    Yeah but whats the cost of a draconian expense policy ?

Discuss this:

Your email address will not be published. Required fields are marked *