Time Magazine made the news recently with an advertisement about expense report fraud designed to promote its employee ethics hotline. Some viewed the ad as Time encouraging a ‘tattletale policy’ that pushed employees to act as workplace snitches. The urge to control expense report costs is understandable. After all, it’s estimated this type of fraud costs businesses as much as $1 billion a year. However, pitting employees against each other isn’t the way to fix the issue of inflated expense reports. Instead, companies should proactively vet their expense reports to prevent fraud.
Receipts are the old way to do it, but receipts can be easy to forge, especially with all the technology available. The good news is that new strides in technology can also help to fix the problem. One way to cut down on expense report fraud is to use Remote Risk Assessment (RRA) to verify reports.
How Fake Expense Reports are Costing Companies Billions
The story of Navnoor Kang reads a bit like a movie from the 80s about the stock market. Kang worked for former New York state Comptroller Thomas DiNapoli and was in charge of a $50 billion fixed-income investment portfolio. During his time managing it, he spent most of his time partying on the government’s dime. Expense reports were used to disguise bribes and fund a lavish lifestyle. Kang was eventually caught and arrested, but not before thousands of dollars were lost.
Chances are that most of your employees aren’t using their expense reports to fund Rolexes and luxury cars. However, there’s still the risk of soft fraud. The risk is higher as people are more likely to justify charging a small item to a company credit card than they are a major purchase. These little additions add up until they cost about $1 billion a year industry-wide.
This is a type of opportunistic fraud, like time theft. It’s also hard to detect, because the amounts tend to be low. Managers need to proactively review expense reports to ensure their accuracy. The issue is that employees can use a lot of methods to get past those checks, including:
- Altered/duplicate receipts – Employees might request reimbursement for the same thing twice or actively change the receipt to make it a higher amount.
- Fake expenses – This would be a case where an employee might go out to dinner with friends, and then write it off as a sales dinner or other work related event.
- Delayed submissions – Employees might significantly delay submitting expense reports in order to make it difficult to remember if the expense-related events occurred.
- Bypassing the approval process – Someone might try to get around the standard approval process of management review entirely with another coworker’s help.
The more lax a manager is about viewing expense reports, the more likely employees are to take advantage of this. The problem is managers are busy and double checking all the expense reports every time is near impossible. Another way to vet expense reports might be to use Remote Risk Assessment (RRA) to gauge the validity via a short telephone interview.
Using Remote Risk Assessment to Locate Expense Report Fraud
Many companies are turning to technology to process expense reports. This might include using online systems and statements to process these reports, and while this technology helps to speed the process, it’s not a guarantee to prevent fraud.
Conducting audits of all submitted expense reports can be an unwieldy task for a big company. Chances are they have hundreds of these reports coming in a month. Following up on every one is too difficult and time consuming for one person to complete. As a result, many companies may randomly pull a report as a system audit, which means the chances of catching someone committing fraud are low.
However, Remote Risk Assessment technology can be used to verify expenses with minimal human intervention. RRA technology is a unique system that targets biometric responses in a person to gauge the risk level of a statement. So in this case, the employee submitting the expense report would be asked to call into an RRA center annually or bi-annually. During a fully automated interview, they would be asked questions such as “have you intentionally falsified any of your expense reports in the last six months?” or “in the last six months have you claimed as a work expense something that you know is a private expense?”
Their answer would then be recorded and assessed, in the real time, via a fully automated system. Answers classified as low risk could be used to validate the report, while answers that show higher risk could be flagged for further assessment. This allows enterprises to more efficiently target their audits of expense reports. It streamlines the process and makes it more efficient for employees who do report their expenses accurately and honestly.
AC Global Risk offers this technology as a tool for preventing expense report fraud. This technology can be rolled out on a mass scale, conducted via brief telephone interview, and offer highly accurate results. If you want to add this tool to your expense report processing, contact us today.
Lead Image Source | Flickr user Christopher Porter