Many businesses face expense fraud, which costs them significant amounts in lost revenue each year. This type of fraud occurs when employees falsify or exaggerate business expenses to receive reimbursement.
Expense fraud can affect businesses of all sizes. However, small and medium-sized businesses are often more vulnerable due to limited resources for thorough auditing and fraud detection. Companies without formal expense management systems and those that frequently allow employees to travel or entertain clients are at higher risk, as these activities often involve significant out-of-pocket expenses, creating more opportunities for fraud.
It’s critical for businesses, large and small, to adopt preventative measures to safeguard against this type of fraud. Below, we discuss five steps you can take to prevent expense fraud.
- Implement Clear Expense Policies
A robust and clearly communicated expense policy is your first line of defence. Ensure that employees understand what qualifies as a legitimate business expense and what doesn’t. Include specifics on allowable expenses, submission deadlines, and documentation requirements (such as receipts). Regularly update the policy to reflect changes in your company’s travel, entertainment, or reimbursement procedures.
- Utilize Expense Management Software
Automating your expense tracking with reliable software reduces the risk of manual manipulation and human error. These systems allow for real-time employee expense monitoring, flagging suspicious or duplicate entries. Many platforms offer mobile integration, making it easier for employees to submit receipts instantly and for employers to verify claims efficiently.
- Conduct Regular Audits
Perform routine audits on submitted expense reports to catch any discrepancies early. This could include random spot checks or a full review of expenses for specific departments or periods. Auditing creates a deterrent effect, as employees are less likely to commit fraud if they know their submissions may be scrutinised.
- Encourage a Culture of Transparency
Fostering an environment where honesty is valued can go a long way in preventing fraud. Encourage open communication and ensure employees know there are severe consequences for dishonest behaviour. Whistleblower policies should also be in place, allowing employees to report suspicious activity without fear of retaliation.
- Segregate Duties in the Expense Approval Process
Ensure that no single employee is responsible for both submitting and approving expenses. This separation of duties makes it more difficult for employees to carry out fraudulent activity. Having multiple layers of approval ensures that all expense claims are thoroughly reviewed by individuals not involved in the submission process.
Preventing expense fraud requires vigilance, transparency, and proper systems. Establishing clear policies, using expense management tools, conducting regular audits, and fostering a culture of honesty can significantly reduce the risk of fraud in your business.