The top three reasons people commit expense fraud and how to put a stop to it
Expense fraud is a concept that most businesses wince at, the idea of it festering right under any finance professionals nose is a truly unbearable thought. But why does fraud take place in some organisations and not others? Could it be some financial processes are ineffective, enticing employees to try their luck or that employees feel undervalued or could it just be part of the company culture? What is clear, is each case is unique and therefore the solutions may alter depending on why it happens.
2017 research on expense fraud commissioned by webexpenses found there were three prominent types of people that committed fraud. With exaggerated and falsified reimbursements costs contributing to global workplace fraud losses of $2.9 trillion each year, it seems the right time to delve deep into exactly why employees are willing to steal from their own company.
The subtle opportunist type
86% of global office workers said that they have never had any of their expense claims challenged or declined.
These are the type of employees that are aware that the businesses they work for are without suitable controls and checks in place to spot ‘little and often’ fraud. Enabling them to subtly fall under the radar and not be pulled up for their falsified claims. The longer they get away with it, the less guilty they feel. This technique is most commonly spotted with businesses still using a manual expenses process, relying solely on the human eye to recognise any errors.
I’ve earnt this reward type
39% of those polled agreed if they are travelling for work they deserve a little treat on company expenses.
The type that travel for work and feel they deserve a treat as a reward. Some employees may feel unappreciated or perhaps that their company expense policy is outdated and therefore if they are working away from home they see themselves worthy of an extra meal, alcoholic drink or treat.
Everyone exaggerates so it’s okay type
61% agreed with the statement ‘most people increase the miles/kilometres travelled when claiming expenses’.
The type that are simply carried along with the crowd, most commonly associated with exaggerating a mileage claims due to it being so common with 47 percent of global office workers admitting to having done it. With “just adding a couple of miles on” becoming ingrained into the business culture, its allows it to be less fraudulent and more accepted, but built up over time this can have a tremendous impact of company finances.
So what can businesses do to stomp out fraud?
Ultimately you cannot quickly alter or change a mindset of an employee that wants to commit fraud, you can however instil a culture in which expense fraud is neither expected nor tolerated, a clear, transparent & equitable approach to expense management.
You can start with the company expense policy, the foundations for an effective process. 2017 research found that 61% of office workers were unaware of their organisation’s policy or had read it in the past year. It’s essential for businesses to regularly update, check and transparently communicate their policy to make sure it fairly represents price inflation, legislation updates.
The next stage is auditing your expense process to evaluate the effectiveness of your current management controls. Shifting to digital system enables full visibility of each claim, with real-time reports and out-of-policy alerts highlighting any suspicious expenses before they have been submitted. Utilising technology within the finance function not only reduces processing times by 25 percent and cuts expense losses by 10 percent, but it also removes the temptation of exaggerating or making a rough mileage estimates with automatic mileage calculations.
Digitising expense management transforms it from being a hazy area perfect for fraud to manifest to a fully transparent process removing opportunity for noncompliance. With an efficient,fair and easy to use tool, businesses can create a new type of employee that is content and complying.
Webexpenses provides a smarter way to manage employee expenses. Find out how it can help your business by requesting a free demo. You can also download our global report that explores the changing nature of expense fraud here.