Detecting Fraud in Employee Expense Claims

When I’m asked what is the easiest fraud to detect in a business? Expense Claim Fraud is always the answer. The use of keyword databases, random audits and automated alerts can quickly uncover employee abuse.

Many business managers think that employee expense claims represent a small percentage of their total spend and believe that there is only a small risk to their business. However on closer examination, many businesses find that over 10% of their total expenditure is processed through employee reimbursements and some employees are being reimbursed more than $10,000 per month.

Expense claim anomalies generally fall into 1 of 2 categories.

The first is a breach in the company’s policies. This can range from an employee failing to sign the expense claim cover sheet to more serious issues such as breaches in the organisations delegation of authority. It is common for employees to also claim for expense types that are prohibited by the company. This can include use of limousines; hire cars; charter flights and expenditure at adult entertainment venues.

The second category of expense claim anomalies that we encounter is fraud and personal expenses. Recently we have discovered employees claiming iTune song downloads, DVDs, local restaurants, and other electronic purchases.

Whilst it is a relatively straight forward process to detect employee expense fraud, organisations need to ensure that their policies and procedures comply with relevant statutory and common law requirements. We recommend that a Workplace Relations Specialist is consulted from the outset. We also recommend that organisations implement a process to ensure that fraudulent claims are recovered from the individuals concerned.

Some of the high risk categories that we use to categorise potential employee fraud in a keywords database include: Clubs, Cash Withdrawal, Donations, Duty Free, Internet site, Limousines & Hire Cars, Memberships, Seminars, Restaurants, Weekend Transactions, Overseas (e.g. Thailand, Chonburi etc), Large values (e.g. over $2,000), Resorts, and Exclusive Stores.

My final piece of advice to finance and other managers in organisations is to find where the expense claims are being filed and at random intervals spend a couple of hours reviewing the claims in detail. I guarantee that the time invested in reviewing the claims will be well spent.

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