How to prevent fraudulent expense reporting
An expense claim is a document that allows employees to be reimbursed for business expenses incurred while at work. Since this reimbursement system is largely based on trust, it's not uncommon for some employees to abuse it. Unfortunately, expense claim fraud is not an exceptional occurrence – it's estimated to account for 15% of business expenses. VSEs and SMEs, which do not always have an established expense claim management policy, are the most exposed to this risk.
So, how can you protect yourself from it? Here we present an analysis of the most common fraud techniques, along with our recommendations for putting a stop to them.
False expense claims – what are the risks?
The figures speak for themselves: A 2018 PwC study shows that 71% of French companies are affected by fraudulent expense claims, and a third of French people admit to regularly cheating to get reimbursed for undue expenses, especially when it comes to travel and meals.
However, this terrible practice responsible for real losses in company earnings remains largely unnoticed. So what has allowed it to become so entrenched? Are employers hesitant to address such a complex and delicate subject, or even afraid of exposing their own shortcomings? Either way, expense reporting fraud is not inevitable.
Let's start by measuring the risks. First of all, neglecting fraudulent expense reporting exposes you to significant financial loss. In fact, it's estimated that in France, the annual fraud related to expense claims amounts to 600 million euros! But that's not all: companies also suffer in terms of productivity, since employees spend their working hours submitting fraudulent claims. This can even reach a point where they become completely detached from the job in question.
More concretely, in France for example, fraudulent expense reporting also exposes companies to an inspection by the URSSAF (national social security contributions collection agency). In the event of proven fraud, these companies may be hit with a tax adjustment or have to pay social security contributions on the excess reimbursed amount.
When it's the managers themselves involved in the fraud (especially in small and medium-sized companies), mixing their personal and business finances, they make themselves criminally liable by being guilty of misappropriation of assets. In the event of an accusation or inspection, the legal implications can be significant (a court-ordered management ban, for example).
This is why it's so important to be compliant. To achieve this, there needs to be an established business expenses policy in place, with solid verification procedures and regular checks.
Automation using a dedicated expense claim management tool is obviously an ideal solution since it makes it possible to centralize business expenses, create different levels of verification, and quickly detect potential abnormalities. Implementing automatic monitoring processes will allow you to reduce the risk of expense claim fraud while saving time and benefiting from gains in efficiency.
Finally, it is important to put an end to the impunity of fraudulent employees, who only act in this way because they are given the chance. A policy of deterrence and punishment can be effective if accompanied by clear communication on the subject. The company can, for example, set a scale of punishments in the event of proven fraud, and inform its employees through its communication tools or dedicated training. Naturally, the punishments will have to be proportionate to the actions, with a one-time mistake not being treated in the same way as repeated fraud.
What are the most common ways of committing fraud?
In this area, the creativity of employees is without bounds! Most false expense claims are straightforward frauds (the most common being mileage allowance fraud, or submitting fake receipts), but some are more sophisticated and therefore more difficult to detect. Since it's important to know your enemy before going into battle, here are some examples of frauds, categorized by level of difficulty:
Difficulty level 1
- Invite a friend or partner to a restaurant pretending they are a customer
- Get an expense claim reimbursed twice by submitting a copy
- Get reimbursed for a personal expense (e.g. a full tank of fuel) by passing it off as a business expense
Difficulty level 2
- Submit a receipt written in a foreign language, or in a non-Latin alphabet, lying about what it is
- Calculate costs using a more beneficial exchange rate when traveling abroad
- Give business gifts to imaginary customers
Difficulty level 3
- Issue an invoice to a fake supplier
- Submit a fake invoice to your employer
- Buy expensive equipment or furniture for yourself, pretending it's a business expense
As you can see, the ways used to make fraudulent expense claims can be ranked by their frequency and inventiveness, which makes them difficult to detect. Nevertheless, there are effective ways to combat this type of fraud.
How Jenji can help you fight expense fraud
Lack of oversight, failure to consider the problem in risk management policy, as well as using an unsuitable business expense management system (such as email or paper files) are all factors that make companies more vulnerable to internal fraud. It is therefore important, first and foremost, to be aware of the extent of the problem, and secondly, to utilize tools that will help you effectively combat the practice. This is where Jenji comes in.
The automated management of expense claims offered by our AI-driven software enables access to functions including automatic data entry, currency conversion, and calculation of mileage allowances. With the help of our compliance monitoring algorithm, the risk of expense report fraud is greatly reduced.
The Jenji solution lets companies automate the centralization of business expenses, allowing the data to be analyzed in real-time and reduce risks to an absolute minimum. Once the data is in one central location, it can be assessed, compared, and checked with precision. Jenji, therefore, provides powerful financial analysis tools letting you not only monitor, but also optimize your internal costs.
The fight against fraudulent expense claims is not always companies' first priority, whether due to lack of awareness or lack of resources. However, the giant sums that result from this fraud are deserving of a robust response. The solution lies in a tool that digitizes expense reporting, allowing much stricter control of business expenses while also simplifying the company's management processes.