The Ugly Truth About Expense Reimbursement Fraud

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The Association of Certified Fraud Examiners has a lot to say about fraud in corporate America. Their research shows that the methods and costs of occupational fraud schemes fall into consistent and clear patterns.

According to the ACFE 2014 Report to the Nation, expense reimbursement fraud occurs in 13% of the cases reported to the ACFE. This report makes it clear that expense reimbursement fraud is happening, when you least expect it.   After reading the report, you may come to the conclusion that you should take a closer look at your expense process.

The perpetrators of fraud exist at all levels in business, from the guy in the cube next door, to his manager, and unfortunately also the executives or owners of the company.  The report makes it clear that there is little that HR background checks can do to ensure that you’re hiring folks that are good stewards of the budget. Small businesses are more vulnerable, but only by 1.4%.  Expense reimbursement fraud occurs almost equally in large and small businesses (15.1% to 16.5%).   And these numbers have been holding since 2010.

Surprisingly, Religious/Charitable Organizations, Education, and Construction are the business sectors with the highest rate of expense report fraud.  The report shows the percentage of expense reimbursement fraud experienced by these sectors in the low 30s.

Yep, expense reimbursement fraud is rampant. But it is also insidious.  Although it is most common for perpetrators to act alone,  in 53.2% of cases involving expense reimbursement fraud, the perpetrator was also engaged in a billing scheme.  In 75.6% of the cases, the perpetrator was also undertaking at least one other form of occupational fraud. Expense reimbursement fraud is the tip of the iceberg, so to speak.

Unbelievably, 28% of the cases reported occurred in Accounting and Finance departments.

So what does the ACFE identify as the primary weakness in corporate expense reporting systems?  50% of the fraud committed could have been caught by implementing internal controls and management review.  This lack of control and review lets expense report fraud occur for two years before being caught. Implementing an automated expense management system can remove the burden of policy control from your administrators and auditors, help your company succeed and help your employees be better people.

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