A global issue in expense management: The changing nature of expense fraud

It’s estimated that a typical company loses 5% of its annual revenue to fraud, amounting to global losses of $2.9 trillion each year. The Association of Certified Fraud Examiners identifies payroll fraud, including employee expenses, as the number one cause. While we know the scale of this problem, more detailed information on its nature has remained frustratingly elusive.

For businesses throughout the world, expense fraud is a ghostlike presence - something we know is there but struggle to see. Just like the hidden dangers posed by an iceberg, it’s this information deficit that has made any effective fight against fraud so problematic. You can’t tackle a problem until you can properly identify it.

This report is designed to give businesses the information required to start winning the fight against global expense fraud.

The hidden challenge of expense fraud

The iceberg principle

This is the danger that's posed to businesses by having only a fraction of information required to tackle a problem. The principle takes its name from the risks posed to shipping by the fact that only one-tenth of an iceberg's mass is typically visible above the water.

The more information we have about a risk, the better we’re able to deal with it. By assessing a problem, we can develop effective strategies to mitigate threats and remove dangers. It means that the biggest risks posed to a business are from those areas where we have the least amount of knowledge. This is what has allowed employee expense fraud to pose such a global challenge to our businesses.

It’s estimated that a typical company loses 5% of its annual revenue to fraud, amounting to global losses of $2.9 trillion each year. The Association of Certified Fraud Examiners identifies payroll fraud, including employee expenses, as the number one cause.

Shining a light

While we know the scale of this problem, more detailed information on its nature has remained frustratingly elusive. For businesses throughout the world, expense fraud is a ghostlike presence - something we know is there but struggle to see. Just like the hidden dangers posed by an iceberg, it’s this information deficit that has made any effective fight against fraud so problematic. You can’t tackle a problem until you can properly identify it.

This report is designed to address that deficit; to give businesses the information required to start winning the fight against expenses fraud. In one of the largest surveys of its kind, involving more than 4,000 office workers from the UK, North America, Australia and New Zealand, we have built up a detailed picture of the global challenges and regional nuances of expense fraud.

Key findings of expense fraud

The results of the study help to highlight the cumulative threat that’s posed by expense fraud. It shows how small individual losses can become such a major drain on resources when multiplied across companies, regions and countries. Each and every falsified and exaggerated cost contributes to the global epidemic that we’re faced with today. With employees developing ever-smarter strategies to avoid detection, outdated management processes are failing to stem the tide.

There are some key statistics that help to explain how expense fraud has been allowed to become such an endemic problem. First is the data, surrounding how many employees commit expense fraud.

How common is expense fraud?

When asked a straightforward question about whether they commit fraud, it initially appears to be confined to a minority of employees:

12% admit falsifying expense reimbursements

But dig a little further into the results and a different story emerges. The most striking example is when employees are asked about attitudes towards mileage expenses:

47 percent add extra mileage claims

It highlights the ambiguous moral nature of expense fraud. The practice of submitting ‘creative’ mileage claims can become so normalized that it’s no longer perceived as a dishonest act.

How often does it take place?

In terms of frequency, it was found globally that:

Employees commit expense fraud 9 times per year

With most expense reports submitted on a monthly basis, it means the majority of submissions from an employee will include falsified or exaggerated costs. While a significant section of the workforce repeatedly submits deceitful costs, a substaintal finding of the survey was that:

86 percent never have expense reports challenged

This ranged from a high of 90% for New Zealand employees to the lowest levels of 84% for North American office workers. This lack of checks highlight the hidden nature of expense fraud - the majority of falsified reports are never challenged, or even identified, by approvers. It means that organizations throughout the globe continue to feel the negative impact of expense fraud without ever fully identifying or tackling the underlying cause.

Ineffective monitoring

The lack of adequate checks and balances to ensure that expense costs are legitimate was a trend found throughout the global results. It’s particularly significant that:

53 percent easy expense fraud

Each time a fraudulent expense gets processed, it emboldens the employee - giving them the confidence to find more effective ways to ‘game the system’. They know that only the most blatant acts of deceit are ever likely to be challenged. The longer this situation is allowed to persist, the worse the problem becomes as expense fraud becomes increasingly normalized within a workplace culture. But not all illegitimate claims are necessarily fraudulent, the survey findings demonstrate a general lack of awareness amongst employees of the company expense policy.

It was found globally that:

61 percent not reviewed expense policy

This ranged from the highest levels in the UK (65%) to the lowest in North America was just over half of the employees (53%) said they had read the expense policy in the previous year.

Outdated processes

The research highlights a link between inadequate monitoring and the management processes a business uses to manage expenses. Despite the emergence of more secure cloud-based digital systems, the majority of businesses still rely on traditional manual processing and paper-based methods.

It was found that globally:

With the vast majority of companies still relying on the traditional spreadsheet and paper-based processes, it creates painstakingly slow ways of working. It was found:

When this figure is multiplied by the number of employees within an organization, the cumulative time lost to outdated processes is considerable. Typically, employees submit expenses at the end of each month, collating information from a bundle of paper receipts.

A global breakdown of expense fraud

The research data allows us to take a closer look at the exact makeup of expense fraud - to identify those ‘hotspots’ within our organizations which pose the greatest risks. While the global challenges faced in each of the regions are similar, the findings highlight some regional variation.

The results also show the multitude of different ways that dishonest employees are finding to subvert expense systems. Alongside traditional risk areas such as mileage reimbursements, there’s a move to more sophisticated strategies - adding personal/family expenditures onto business costs.

Fraud hotspots

Most common forms of expense fraud:

Changing nature

The survey results show the evolving nature of expense fraud as new ways are found to exploit outdated systems. One trend that can be detected is the way legitimate business claims are liable to be ‘bumped up’ with added personal costs. Around one-in-five employees admitted to doing this. It was particularly noticeable that in North America and Australia, reimbursements falsely claimed for family and friends were actually higher than costs to cover the claimant’s own expenses. These additional costs included claims for goods, meals and accommodation.

Mileage misery

The global theme found throughout the survey data was the widespread challenge that’s posed by mileage fraud. Throughout the regions, this was the number one cause of expense fraud - by a sizeable margin. The practice of exaggerating and falsifying road travel distances appears to be so commonplace that many don’t perceive it as fraud. While around half of the respondents have submitted false mileage reports, only one-in-ten admit to committing fraud.

Global solutions to business expense fraud

The research shows that despite the regional nuances, the core challenges facing all businesses are the same when it comes to tackling expense fraud. It’s a problem which is caused by a continued reliance on outdated management systems and inadequate monitoring.

The global epidemic we face today is the cumulative result of each and every falsified cost and exaggerated claim that goes unchallenged. It’s the legacy of the business world relying on paper-based systems which require reimbursements costs to be manually handled. With expense information scattered throughout an organization, on a multitude of documents and spreadsheets, it stifles effective expense management and provides a workplace environment in which dishonesty can flourish.

Fighting fraud

To face this global challenge, companies need to move away from traditional approaches and start to explore the advantages provided by digital expense systems which allow businesses of any size to regain control of costs. A cloud-based system such as Webexpenses reduces processing times by around 25% and cuts T&E costs by 10%. It does this by automating manual processes and virtually removing the need for cumbersome and error-prone paperwork. As a weapon against workplace fraud, it provides:

Active Policy Checks and Alerts

The real-time nature of the system allows a company’s expense policy to become an active part of employees’ workflow. Policy warnings and reminders are delivered to claimants via on-screen notifications. Automated checks can also be created to ensure that expense costs comply with specific company policies. If any pre-defined limit is breached, an alert is sent to the finance team who are able to verify if costs are legitimate.

Mastering Mileage Expenses

The problems of falsified and exaggerated mileage costs that have been highlighted by the research are effectively eliminated when using Webexpenses. Instead of relying on employee estimates, a smartphone app tracks the exact route and distance of a road journey. It clamps down on the commonplace practices of claiming for imaginary trips or ‘rounding up’ distances. With accurate travel data, finance teams can also accurately identify those elements of the journey which are for personal or business purposes.

Powerful Reporting Tools

To harness the wealth of data that are generated on every aspect of reimbursement costs, Webexpenses includes a range of reporting tools. Information that would have taken hours or even days to collate with a traditional system can be created in minutes. It allows finance professionals to manage and manipulate expense data in ways that have not previously been possible - highlighting suspicious trends and patterns which would otherwise have remained hidden.

Effective Compliance Controls

In addition to ensuring compliance with internal policy compliance, Webexpenses provides everything a business needs to avoid any external compliance breaches. With each stage of the approvals process stored digitally, it provides a detailed log of compliance procedures. It provides a reassuring level of detail that provides proof to tax authorities that you have carried out adequate checks to make sure all reimbursements are legitimate. In doing so, it helps minimize the risks of triggering an audit or investigation.

With the right tools and a better understanding of the global challenge that’s posed to our businesses by expense fraud, we have the opportunity to start fighting the global epidemic. Just as the problem is caused by each and every fraudulent expense that goes unchallenged - the solution lies in the hands of all of us.

About Webexpenses

From day one, Webexpenses has had one objective - to make expenses something that you effortlessly control, not a costly drudge your organization has to battle against. It’s a successful approach which has seen Webexpenses become the tried and tested solution for clients throughout the globe - from small startups to large multi-nationals. By giving organizations the tools they need to control expenditures, Webexpenses clients are able to increase efficiency, stabilise T&E spend and reduce operational costs; providing a speedy return on investment.

Exceeding expectations

The foundation of Webexpenses’ success is our powerful and robust system but the heart of the company lies in our commitment to exceeding expectations - to go that bit further to ensure our clients’ needs are met. Each and every one of our clients, no matter how large or small the organization, is given the same level of personal service from our support team. This commitment has allowed Webexpenses to record some of the industry’s highest ratings for customer support and a 99% client retention rate over the past five years.

Next steps
For more information on how we could help you manage your expenses, contact us.

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