Q1/Q2 report – firms experiencing higher levels of spend fraud risk

spend fraud

As we said earlier this week, August is traditionally a month of fewer meetings, conferences and so on in the European workplace calendar - a chance to catch up on things, make plans, read more, and get ready for whatever the second half of the year throws at us. So during this month we are highlighting some good reading for procurement professionals as they get prepared for the next sudden turn of events in the autumn - today we are talking spend fraud risk and introducing you to the ‘2020 Spend Insights Report’ from spend management technology firm Oversight.

It focuses on the findings of its second-quarter business cycle of data, which suggests from year-on-year analysis that spend risk has more than doubled since the beginning of the coronavirus pandemic.

While organisations are understandably spending less during the crisis, with the work from home environment typically meaning less spending on travel and expense (spend has decreased more than 60% in this area according to the findings) and in many cases on services and supplies too, it’s reasonable to assume that spend risk would decline with it. But fraud and misuse of spend, particularly in T&E, has grown. In fact, the T&E spend violation rate is two times greater than in pre-COVID times. So the report aims to discover where these violations are coming from and what some firms are doing to monitor and prevent them.

More than half of the risk identified in Q2 2020 is tied to five spend violations, fraudulent activity, excessive meals, out of pocket, expense threshold and expense outlier. Here’s a description of the first two of the top five fraud findings:

Home office – “the setup of home offices likely presented the opportunity for fraudulent spend as transactions at electronic and computer stores accounted for much of the fraud activity detected in Q2. In fact, we’ve heard of outlandish items, such as big screen TVs and sound systems, that employees have attempted to expense for their home offices. Spend for cable and other paid TV services also accounted for fraudulent spend as did alcohol purchases.”

New challenges and policy limitations – “The pandemic introduced unique challenges, shedding light on gray areas in expense policies and uncovering the need for new ones altogether. This likely explains why a high number of spend violations in Q2 are attributed to excessive meal charges. For instance, in pre-COVID times some organizations allowed meals to be expensed while working late. But now that many employees are working from home, companies no longer permit this type of meal allowance. More than 60% of expense outlier violations were also tied to spend at eating establishments.”

The report gives some recommendations on how to tackle the problem, given that remote work is likely to continue. It also lists the top five spend categories for May and June, showing how spend patterns have changed, including how purchase activity decreased in the categories of miscellaneous stores and mail/phone orders, which have historically been associated with risky spend.

“Purchase activity in these two categories has been elevated since the pandemic and was driven primarily by the shift to remote work. In June, these two spend categories were absent from the top 5, signaling that the initial and more costly expenditures for home office setups, such as desk chairs and laptops, could be trending down. Spend instead shifted to wholesale trade and transportation …”

Oversight continues to monitor purchase activity for the months ahead, in the meantime, CEO Terrence McCrossan said:

“The Second Quarter was a learning experience for businesses around the globe. Organizations grappled for the first time with an entirely new set of expenditures made by an entirely new group of spenders.” The July Spend Insights Report clearly shows that spend levels and risk can be inversely correlated. In fact, even while spend is down for many organizations, spend risk has significantly increased. Our July spend report highlights this change and recommends actions that businesses can take today to implement more informed policies and targeted risk profiles.”

For further reading download the 2020 Spend Insights Report.


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