Expense Reimbursement Schemes

Travel and expense budgets are a common target for occupational fraud. Employees may falsify information about their expenses and cause their employers to overcompensate them in the form of inflated expense reimbursements. Travel and entertainment expenses are incurred at every level of employment, whether they are for sales, training, meetings, or attending conferences. Typically, those that incur the highest travel and entertainment expenses would be those in sales-related functions and executives of the company. Any person who is in a position to incur travel or business entertainment expenses is potentially capable of committing expense reimbursement fraud.

Expense reimbursement fraud could be four types in general:

• Mischaracterized expenses. Receipts are submitted as business expenses when they are actually personal purchases.
• Fictitious expenses. Bogus receipts that appear genuine. Computer programs, design skills and even legitimate companies make it easy to create fake documents.
• Overstated expenses. The employee inflates the cost of a legitimate expense, such as padding mileage or showing a larger tip than was paid.
• Multiple reimbursements. An employee who remits the same receipt for an item more than once, thus receiving duplicate payments.

Detection of Expense Reimbursement Schemes

Analysis can initially be done on historical, budget, or other employee comparisons for an overview. These analyses may display unusual items or patterns. One must be familiar with the company’s travel policy and procedures in order to distinguish between acceptable or improper expense claims.

Detection methods for expense reimbursement schemes include:

1. Set the “tone at the top.” Internal controls will only go so far if the business owner makes unethical decisions. Management should model the behavior they expect from their staff, enforce anti-fraud policies and provide a safe way for whistleblowers to report suspicious actions.
2. Establish travel reimbursement guidelines. At its most basic, the policy should outline what expenses will not be reimbursable and limits for meals and hotel rates.
3. Require original receipts for all reimbursable expenses. Photocopied receipts are more easily manipulated than originals.
4. Require a second review. Even if the business has just a few employees, one of the easiest ways to prevent fraud is to require a double review before any reimbursable expenses are paid. In order to do that, always get approval from a superior before paying the expense report.