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How to banish the expenses ‘devils’ from your business

Win the workplace battle against expenses fraud

The environment in which employees work has a huge impact on how they act. And there’s no better example of this than our attitudes towards expenses. It helps to explain why so many people, who consider themselves to be honest and law-abiding, are willing to carry out expense fraud in the workplace. Global research commissioned by Webexpenses shows that at least 47% of employees have committed an act of expense fraud.

It’s a problem which has become deeply embedded within the business world – one which is costing companies in excess of $2.9 trillion each year.

What’s the ‘devil’ problem?

Expense management has traditionally been a cumbersome and slow process with organisations unable to devote the time or resources required to properly maintain an expenses policy. Instead, companies have grudgingly tolerated a certain level of expenses ‘fiddling’. By failing to tackle this problem, it has created a toxic business environment in which expenses fraud has become accepted as normal and legitimate.

What’s the ‘angel’ solution?

The barriers which prevented organisations from tackling expenses fraud in the past, no longer exist. Old paper-based processes have been replaced by fast and efficient digital management systems. These provide the tools required for any organisation to be able to manage and monitor employee expenses, to identify fraud and maintain company compliance.

The purpose of this guide is to pull together all of the information you need to make this happen. From finding the right system for your organisation to the nuts and bolts of creating an effective expenses policy.

The expenses battleground

We all have them – those imaginary angels and devils that sit on our shoulder, competing to advise us on the best course of action for any given situation. They help to decide whether we should have ‘just one more’ drink before calling it a night or whether it’s acceptable to stray over the speed limit. These are the internal debates between our ‘good’ and ‘bad’ selves which occur each time an employee makes an expense claim.

And our research has shown that, for too many employees, it’s the side dressed in red holding a pitchfork that continues to dominate this moral power struggle.

Identifying issues in expense fraud

Recently we commissioned a research project that put expense fraud in the spotlight. Shockingly, we found that 47% of employees admitted to regularly exaggerating and falsifying their expense reimbursements. It’s a problem that contributes to the $2.9 trillion that is lost globally each year as a result of expense fraud.

47 percent of employees admit expense fraud

So what’s going on? And more importantly, how do we stop it?

We’ve dedicated this research into taking a closer look at the factors which influence workplace fraud and the battle between an employee’s inner expenses angels and devils. The results provide valuable insight into the nature of the challenge and how a better understanding of the problem can help reclaim your organization from the expenses ‘dark side’.

Employee expense fraud survey findings

To gain a better understanding of why employees carry out expense fraud, we started by commissioning one of the largest surveys ever carried out into the problem. The global research involved interviews with more than 4,000 expense-claiming employees. Respondents were asked whether they had ever falsified or exaggerated an expense report.

Just under half (47%) admitted to having submitted at least one dishonest claim for mileage expenses. The most common forms of fraud were:

The average number of illicit expense reports submitted each year was nine. Multiply this by the number of employees within an organization and it highlights how significant losses can quickly accumulate.

The average number of illicit expense reports submitted each year was nine. Multiply this by the number of employees within an organization and it highlights how significant losses can quickly accumulate.

Expense survey findings

Expense problems and solutions

The respondents were asked a series of questions to gauge their reasons for committing expenses fraud. The results provide valuable insight into the conflicting factors that influence an employee’s judgement when making a reimbursement claim.

These are the competing factors which play a major role in determining whether a person will submit a fraudulent claim. High levels of expense fraud occur within organizations where there’s an imbalance between these positive and negative influences.

We will take a closer look at some of the main ‘devils’, or problems, highlighted by the research, looking into the driving forces behind employees trying to justify their expense fraud. We shall also look at the practical ways your company can tackle each of these negative influences with an ‘angel’ solution.

Workplace culture affects expense fraud

‘Everyone does it’

Problem:

The most common justification for expense fraud is simply because: well, everyone does it.

The research found that almost a quarter (24%) of respondents used this as a justification, believing that expense fraud was commonplace within their organization. While 61% of those surveyed thought that most of their colleagues exaggerate costs when claiming fuel reimbursements for road travel journeys.

By allowing a perception to grow that ‘everyone’ falsifies their claims, it helps to normalize and legitimize the act of fraud. It creates a self-perpetuating problem – the more expense abuse occurs, the more it’s likely to occur.

This environmental influence on employees may help to explain why fraud appears to increase over time, as individuals slowly conform to the workplace culture that surrounds them.

Solution:

To effectively tackle the problem, an organization needs to challenge those aspects of the workplace culture which help to condone or encourage fraud. It requires a holistic approach, a top-down change in mindset which filters down throughout the business – a commitment to robustly tackle the problem.

We now have the tools required to allow any organization to achieve this. Digital expense management systems are transforming the way companies are able to manage and monitor
employee expenses.

Instead of an expenses policy being a static document, a digital management system allows it to become an interactive part of each employees’ working life, with expenses checks, limits, and reminders provided all throughout the system as well as on the smartphone app.

By creating a robust and reasonable expenses policy which is properly maintained, companies are able to reduce the level of expenses fraud and begin the task of fundamentally changing the company mindset.

Management and monitoring expenses

Establishing risk-free fraud

Problem:
Over eight-in-ten respondents (84%) said they had never had any of their submitted expense reports challenged or rejected. The lack of active policy checks or enforcement provides an environment in which expense fraud can thrive.

37 percent, expense fraud

It helps to explain why 37% of employees said that if they were ‘sensible’ with a fraudulent claim, it was unlikely to ever be disputed. Fraudsters adapt strategies designed to stay ‘under the radar’ of account monitors.

The two main methods identified were:

  1. Little and often: Employees will submit relatively low-level fraudulent costs, but they will do so regularly and frequently. While the amounts being claimed are low, the chances of costs being challenged are minimal.
  2. Mix and match: Legitimate business expenses will be merged with fraudulent costs to make it difficult for finance teams to untangle. Typical examples of this are adding to overnight accommodation costs with claims for friends and partners. The lack of risk perceived by employees is compounded when they don’t fear the consequences of getting caught. For many companies, the only repercussion will be the fraudulent claim being rejected.

Solution:

When managing expenses required processing mounds of paperwork and bundles of receipts, companies rarely had the time or resources need to effectively monitor policy. The arrival of digital systems and automated processes means this is no longer the case.

One of the most important changes for account managers is the move away from the monthly surge of paper-based claims to a system of real-time monitoring. They are able to see details of each new claim, as and when it’s made.

The system enables the setting up of integrated checks and notifications to ensure that all employee expenses fall within the company policy. The ability to create these automated alerts means that account managers know instantly whenever a policy limit is breached or compliance issues detected.

Righting the wrongs of expenses

Overclaim as the unofficial ‘bonus’ system

Problem:

A common reason given by survey respondents for expense fraud was that that it’s a way to ‘right’ a perceived wrong. This was highlighted by the fact that 39% of workers viewed exaggerating a mileage claim as a legitimate ‘treat’.

It was seen as a way for employees to compensate for the inconvenience of business travel and working away from their office. In a similar way, low wages and disagreements with senior staff were used as mitigating factors.

It’s in this way that employee expenses can start to become a kind of unofficial bonus system, with fraud rationalised as a form of worker compensation.

Solution:

The perception of expenses as a supplement to an employee’s basic salary is something many organizations allow to exist. It creates a dangerous grey area where even the most honest of employees can find themselves justifying fraudulent claims.

Clear guidance is required to forge the idea of expenses being a fair, open and transparent way to reimburse employees for legitimate costs – not as a toxic battleground. The key to this is a robust and well-maintained expenses policy – something which is simple, accessible and fundamentally fair. By creating a robust and reasonable expenses policy which is properly maintained, companies are able to reduce the level of expenses fraud and begin the task of fundamentally changing the company mindset.

 

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