Expense account padding

Prevent expense account padding with the right policies

| Business Briefs

By Sarah Seacat     Ask employees whether padding expense account reports is wrong and just about everyone will say “yes.” Yet, inflated expenses continue to cost businesses thousands of dollars annually. Based on the 2016 Association of Certified Fraud Examiners’ Report to the Nations on Occupation Fraud and Abuse, the average loss related to expense reimbursement is $40,000. For this reason, every company must establish the right policies to stop it.

How it works

To stop expense padding, you need to know how it works. Expense inflation — where an employee exaggerates the amount of the actual cost of a meal or cab ride and pockets the change — may be the most common expense-padding method.

But cheaters are also capable of inventing expenses and submitting fake documentation to support them or requesting multiple reimbursements by submitting the same receipt more than once. And watch out for mischaracterized expenses. In such schemes, employees provide legitimate documentation for non-business-related expenses, such as treating friends to a night out on the town, and characterize them as “business development” costs.

What to do

To prevent fraud, as well as simply handle expense reporting in a more accurate manner, you’ve got to establish and fine tune effective policies and processes. For example, if you’re still relying on paper reports, switching to an electronic reporting system may make it harder for employees to cheat. Your processes need to scrutinize expense reports and supporting documentation for:

  • Inconsistencies,
  • Miscalculations, and
  • Receipt doctoring.

In addition, set limits such as requiring employees to fly coach class, stay in moderately-priced hotels and adhere to a daily meal expense allowance. Also, specify the types of supporting documents you’ll accept — for example, original receipts, but not credit card statements.

If expense padding becomes widespread, or its perpetrators are particularly devious, you may need to hire a fraud expert to conduct a thorough investigation. This will include examining expense records, interviewing suspect employees and gathering evidence. Be prepared to terminate — and perhaps prosecute — guilty parties.

Stop the bleeding

Don’t let employees bleed your business dry with fraudulent paper cuts. Need help reviewing your expense reporting system and identifying ways to strengthen it? Contact Sarah Seacat, CPA and Certified Fraud Examiner, at 317-569-4181 ext. 235 or sseacat@alerdingcpagroup.com.

This post was written by:

Sarah Seacat, CPA, CFE
Audit Manager

Sarah is responsible for reviewing, planning and participating in fieldwork as well as client management regarding annual financial reporting and general consulting services. She is also a Certified Fraud Examiner and specializes in employee benefit plans, litigation support services and works with many not-for-profits throughout Indiana.
See Sarah Seacat’s Full Bio ►

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