How to safeguard your business from employee expense fraud
As a small business owner, you always look to keep your business running efficiently. Expense reimbursement fraud is the last thing you want to face. Not only can it hurt your bottom line, but it can also damage your company’s reputation. Here we discuss what is employee expense fraud, reasons behind it, and most importantly, how to prevent it from happening to your business.
What is expense fraud?
Expense fraud is the act of submitting falsified or inflated expense claims to receive reimbursement from the employer or avoid paying out of pocket. It is illegal, unethical, and detrimental to your business.
Employees can commit expense fraud in several ways, such as using personal expenses as business, submitting fake receipts, inflating costs, duplicating submissions, falsifying mileage, and using company funds for personal use.
Why do employees commit expense fraud?
There can be multiple reasons behind expense fraud. Financial gain is the most common motivation, but some employees may do it for personal reasons, misunderstanding of policies, pressure to achieve targets, or simply apathy.
As a business owner, it is essential to understand the reasons behind expense fraud, as it can help you identify and address them proactively.
How can you effectively prevent expense fraud?
- The first step in preventing expense fraud is to have a comprehensive and clear expense policy. It should be up-to-date, relevant, and easily accessible for all employees. It is essential to ensure that the policy covers all necessary expenses, acceptable limits, documentation requirements, and reporting procedures. You should also encourage employees to ask any questions or seek clarification regarding the policy.
- Require detailed receipts and proper documentation to support the expense claims. Expense receipts should be original and include the date, amount, vendor name, and a clear description of the expense. For instance, credit card statements are not acceptable as receipts because they do not provide detailed information about the expense.
- Conduct regular audits of expense reports to identify any patterns or any suspicious claims. Audits not only help you detect fraudulent activities but can also identify internal control gaps or process deficiencies. Providing policy training and raising awareness of employees regarding business ethics can also help prevent expense fraud.
- You can leverage expense management software that automates the expense reporting process, thereby reducing errors and improving efficiency. It can also help in monitoring suspicious activities, such as multiple submissions for the same expense or expenses exceeding the allowable limit.
Preventing expense fraud requires a collective effort from the business owners, managers, and employees.
Having a clear and comprehensive expense policy, encouraging ethical culture, conducting regular audits, and leveraging technology can help prevent expense fraud. By implementing suitable prevention measures and promoting ethical conduct among employees, you can reduce the risk of expense fraud and protect your business from potential financial and reputational losses.
Don’t let expense fraud be a hidden cost in your business. If you’re unsure about where to start with creating policies, or you’d like a review of your existing expense processes, we’re here to help. Reach out to us today!