Employees often incur expenses on behalf of their employer and then submit expense reports for reimbursement at a later date. This common business practice is very useful because it allows businesses to operate efficiently without unnecessary delays related to petty cash disbursements. Unfortunately, expense reports are one area that can allow easy pickings for employee theft. According to the Association of Certified Fraud Examiners, as reported in their most recent study, approximately 15% of all asset misappropriation cases were related to expense reimbursement schemes. The median loss for these schemes was $33,000 and the median duration was 24 months before the fraud was detected.
Last winter CNN reported on an employee reimbursement theft at NYU. The scheme was carried out by collecting discarded liquor store receipts and submitting them for reimbursement. It wasn’t an elaborate scheme, but just another example of ineffective controls and inadequate review policies. To minimize the chance something like this from happening at your company, I propose the following:
- Any purchases made on credit cards must include a copy of the credit card statement, the original purchase receipt, and a signature on the receipt of the supervisor responsible for approving the purchase.
- Any purchases made with cash should be subject to a daily, weekly, or monthly limit.
- Purchases should be submitted under predefined categories (office supplies, party supplies, client gifts, etc.) and trends should be reviewed.
- Comparable level employees should have their reports compared with one another to look for outliers.
- Any high level supervisors or executives should have their expense reports reviewed by an outside Certified Fraud Examiner.
While there is no way to “prevent” employee expense reimbursement fraud, there are steps that can be taken to assist in early detection and to let the potential fraudster know that they will get caught quickly. A Certified Fraud Examiner can work with management to establish a comprehensive fraud program related to internal controls, policies and procedures, and training at all levels.
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