Fraud specialists calculate that 5% of revenues in US businesses are lost annually to fraud. More than one-fifth of this fraud is related to reimbursement schemes. While the financial repercussions are clearly significant, they are only a part of the equation. Tough IRS scrutiny and rigorous SOX audits mean that companies must maintain flawless financial controls not simply to minimize losses, but to meet strict federal regulations. To decrease policy violations and curb fraud, companies must know where and how fraud is occurring. The single most important factor for exerting tighter controls and driving compliance is visibility, and the most effective way to achieve visibility is to standardize policies, automate processes, and aggregate data. A life cycle approach to expense management will give companies the actionable intelligence they need to deter fraud, refine policies, drive compliance, support better decision-making, and gain and maintain control.
Astronomical Losses
People may sometimes lie, but the numbers don’t. About US$652bn is lost annually by US businesses to fraud. Median losses range from US$150-US$190m, and in more than 40% of fraud cases, not a penny is recovered (2006 ACFE Report to the Nation on Occupational Fraud & Abuse, Association of Certified Fraud Examiners, 2007). While there are many types of fraud schemes, recent reports indicate that at least 21% of a company’s fraud is related to expense reimbursement (Fraud Examiner’s Report, ACFE, 2006).
Compounding the problem, a surprising number of business travelers (25%) admit to booking travel outside of company policy, and although not every unauthorized expense constitutes fraud, there can be a fine line between out-of-policy spending and fraud – 20% of companies say that it is common for travelers to file reports that include completely false expenses (Tracking: How Corporations are Cracking Down on Expense-Report Abuse, T&E magazine, February 2006).
The Most Common Reimbursement Schemes
Filing totally fictitious expenses is, perhaps, the most serious of the common travel and entertainment (T&E) reimbursement schemes – the others are claiming a personal expense as a business expense, filing the same item on different reports, and overstating expenses – but any false claim constitutes a loss. (Fraud Examiners Report, ACFE, 2006) Every act of fraud affects the bottom line.
The financial losses are clearly significant, but they’re only part of the compliance picture. Intense IRS scrutiny and tough Sarbanes-Oxley audits mean that companies must be certain their internal financial controls are flawless and there is no room for error. As we have seen, executives have been sent to jail over expense account abuses. From employees who travel around the country or around the globe to conduct the company’s business, to accounts payable professionals who monitor and execute expenditures and payments, everyone has a role to play in guarantying compliance, reducing fraud, and protecting the company’s assets.
To curb fraud and policy violations you need to know where and how they are occurring. Are employees booking airline tickets and turning them in for cash? Are travelers buying tickets, exchanging them for lower priced ones, and pocketing the difference? Are employees claiming in-room movies or long distance calls as expenses (even though company policy prohibits these expenses) because these charges are hidden if a hotel bill is paid in cash? Are employees purchasing out-of-policy when company clearly specifies use of authorized vendors with whom you have negotiated preferred rates?
Exerting Tighter Controls
The single most important factor for any business in exerting tighter controls, driving compliance, and reducing fraud is visibility. And the most effective way to achieve visibility is to standardize policies, automate processes, and aggregate data. A comprehensive view of all of your expense and travel data will give you the actionable intelligence you need to deter fraud, refine your policies, drive compliance, and support better decision-making.
Automating the expense reporting process with an on demand solution is a good start. On-line reporting is efficient (it saves time), cost effective (it costs more than twice as much to process a report manually as it does electronically), and accurate (these days expense reporting can be a virtually touchless process, greatly reducing the potential for error). On demand expense management solutions can be configured for your business practices and policies, including automated approval routing, and built-in spend categories and limits.
The Expense Management Life Cycle
Nevertheless, automating expense reporting is just the first step. When it comes to achieving tighter controls and deterring fraud, it’s important to consider the complete expense management life cycle: expense report filing and reimbursement, receipt management and auditing, reporting and analytics, strategic decision-making, reporting filing, receipts and auditing, and so forth as you continue to move through the cycle.
Automating the expense reporting process alerts users to problems, limits opportunities for fraud, and gives you reliable real-time data; a third-party audit guarantees an accurate, objective and unbiased result; robust reporting and analytics provide visibility into spend across the enterprise; unified insights – a global understanding of your aggregated expense and travel data – allow you to assess your processes, practices, and policies, and, finally, to make better business decisions, decisions that will subsequently decrease opportunities for fraud, increase compliance, and even help drive healthy growth. Deterring fraud should be part of a comprehensive expense management strategy that optimizes data and minimizes risks.
The Most Reliable and Comprehensive Data
Reducing fraud depends on having the most reliable data available. Integrating your corporate card program and your expense reporting solution can give you real-time access to Level I, II, and III data (hotel folio data), and you can implement tighter controls around card usage that can deter fraud. Because card integration requires fewer touch points for employees, it drives card spend, which, in turn, maximizes opportunities for access to the most reliable data.
It is not only accurate data, but comprehensive data that is important to minimize fraud and increase compliance. The insights you gain from aggregated data that help you create T&E policies that support your financial objectives and your company’s work culture. It is important for your expense management provider to serve as your true business partner, bringing together expense and travel data from whatever sources you choose for a comprehensive view.
It’s No Accident
Just over 25% of fraud is discovered by accident (2006 ACFE Report to the Nation on Occupational Fraud & Abuse, Association of Certified Fraud Examiners, 2007) but it’s no accident that companies with an on-demand expense management solution are able to drive compliance and reduce the risk of fraud. When you manage expenses with an automated life cycle approach, you don’t have to rely on a lucky break to discover fraud – you’re always in control.