Preventing fraudulent expense claims

Common expense frauds and how to use technology to combat them

Action Fraud, the UK’s national reporting centre for fraud and cyber-crime, claims that nearly one in five businesses have been defrauded by an employee at some point. Claiming false travel and subsistence expenses is one of the most common types of fraud committed, and most of us remember how a number of UK MPs piled in with false claims a few years ago. Parliament tightened up its processes as a result, and so should all businesses.

The National Fraud Authority estimates that companies lose over £100M each year due to travel and subsistence fraud. This is in the form of inflated or falsified expense claims. Common examples include:

• Overstating the number of miles travelled on personal car mileage claims
• Claiming personal expenses, for example, meals with friends, as business expenses
• Spending above the company policy limit, such as staying at a hotel charging £130 a night when the company policy is £100 a night, or splitting an excessive dinner bill with a colleague and then both claiming part
• Falsifying or manipulating receipts to claim more than charged
• Forging their line manager’s signature or colluding with others in the company

So how can companies prevent or limit their exposure to expenses fraud?

All companies need to have a clear and systematic expenses policy. The size of the policy will vary depending on the size of the business. For example, HMRC’s expenses policy is 49 pages long, whereas a small company’s policy may only be a page or two.

At the bare minimum, an expenses policy should describe:

• Allowable and disallowable expenses
• Compliance requirements, for example the maximum amount that can be claimed for allowable expenses
• The supporting documentation required (typically receipts) and clarification of when it’s not required, such as for personal mileage
• Mileage and fuel rates
• Personal expenditure guidelines
• The end to end process, describing the steps that take place from the creation and submission of the claim, its approval and checking, through to any reimbursement of the employee and recharging of the client, if appropriate
• The disciplinary procedure for falsified expense claims

The GIF here demonstrates a 'soft' policy coming into effect:

OTHER GOOD PRACTICES

A regular, random review of submitted expense claims by HR or Finance should be carried out to ensure that the expenses policy is being adhered to. Including this in the expenses policy can act as a deterrent to employees who may be considering committing fraud. To put that in practice, it is a good idea to collect data frequently and require reports from each department on a monthly or even weekly basis. The Zetadocs Expenses Reporting feed and its automatic data generation can make that process fast and easy. The GIF below showcases some of this reporting functionality:

Prosecuting those found guilty of breaching the expenses policy may dissuade others from acting fraudulently and will help towards creating an environment whereby all employees behave in an honest, professional and ethical manner.

A periodic review of the expenses policy and updating it where necessary can also limit a company's exposure to expenses fraud.  For example, altering the company's policy limits for subsistence costs may need revision due to inflation resulting in higher food and service costs.

Technology can come to your assistance in policing an expenses policy, and a later blog post explains how Zetadocs Expenses can help you reduce the threat of fraud. To view it, please click here.

Editor's Note: This post was originally published in January 2017 and has been update for accuracy and comprehensiveness.