6 Signs Your Employees Are Abusing Expense Reports

By: Insperity Staff
February 4th, 2011

While expense reimbursement fraud is not a unique way to dip into the company coffers, it can give you your own special headache. With a healthy company culture and a competent finance team, you can stop most cases before they happen.

Expense reimbursement makes up about 13 percent of company fraud with a median annual loss of $25,000, according to a study released in 2008 by the Association of Certified Fraud Examiners. It takes about 24 months before expense reporting fraud is detected. With a sample of 959 cases, it was found that total organizational fraud came to $994 billion in 2008, or seven percent of companies’ annual revenue. Chris Kunze, chief operating officer at Perspectives Ltd, an employee assistance program provider, says that it’s important that employees accurately report expenses within IRS requirements.

VisionAIR Inc. incorporates its company credit card statements with its expense reports, says Sharon Smith, human resources manager at the North Carolina organization. The company has a strict policy about not using the cards to pay for personal items, even when there is the intention to reimburse the company. It could get missed – and the IRS could come down on the company, she says. There are a few tell-tale signs that your employees are taking advantage.

1. A big spender in the group. Employees in comparable positions should have similar expenses. Kunze gave this example: Employee X and employee Y both hold the same position. If employee Y expensed $8,000 or $9,000, while employee X expensed only $1,000 this month, you might want to take a closer look at employee Y’s expense reports from now on. He could be making irrelevant claims or exaggerating the dollar amounts.

An easy way to take advantage of expense reporting procedures is through travel, says Smith. It’s difficult to verify just who was at a high-ticket dinner at a tradeshow, for example. VisionAIR employees must mark down everyone at a dinner, so that people who aren’t potential clients aren’t eating on the company’s dime.

2. Claiming non-business related items. Regardless of how your employee positions it, a half-hour massage at the hotel is not a justifiable travel expense. Blair Johanson, president of the management consulting firm The Johanson Group, says businesses need to solidify what types of expenses are reimbursable.

VisionAIR found that one solution was to educate the employees and train the managers approving the reports. The managers have to be fair about what they accept, and employees may grouse when another department gets to have pizza for making its goals.

“You can definitely have morale issues. You have to stop [the pizza parties] or come up with a different way to offer incentives,” says Smith. Also, “You need to explain that sales people need to have some leverage. Communicate that to other employees, but at the same time, hold people accountable.”

3. Inflating acceptable expenses. Employees will turn a profit off of business trips by tacking on a couple of dollars to common business expenses. So a $5 taxi ride suddenly becomes $10. Since it’s such a minimal amount and a standard expense, it often gets overlooked.

Whenever possible, a receipt should accompany every claim on an expense report. To avoid getting drained by employees’ cash purchases, some businesses put a limit on the reimbursable amount allowed without a receipt.

4. Overcharging the company card. Many business owners provide corporate credit cards to employees who do a lot of traveling or entertaining, so that they don’t have to worry about reimbursement. Kunze says that corporate credit cards consolidate expenses, making it much easier for your expense department to track trends and verify charges.

But, Johanson says, when you issue corporate credit cards, there is a risk that employees will use the card for unauthorized purchases.

When the company credit card bill arrives, don’t just blindly sign a check and send it on its way. Review the charges to ensure your card hasn’t become your employees’ fun money.

5. Double billing. Some employees may try to double dip. If not monitored carefully, some employees will make a charge on their company credit cards and later, submit a receipt for the same purchase for cash claim. Kunze says that when you provide company credit cards, you need to be diligent about monitoring its usage. To avoid paying for the same purchase twice, you should regularly compare your corporate card statements to your employees’ cash claims reports.

When VisionAIR employees pay cash, they have to submit the original receipt, so there is no chance of double dipping, says Smith.

6. Exceeding the limits for allowable expenses. Employees sometimes split large amounts into two or three items on the expense report.

Instead of setting limits on individual purchases, Kunze says that his company’s expense limits are based on a per-site cost. Because the travel expenses are greater, employees who go out-of-state have a bigger budget than those who entertain partners and clients locally.

The Take Away
VisionAIR has a dedicated staff member who devotes 20 hours a month just to expense reports. Done correctly, the online expense report, with receipts, will line up, says Smith. The staffer checks that the expense report has been approved and that all receipts have been filed. A strong finance team is critical, says Smith.

“You need to have somebody keeping everyone in check,” Smith says. Experts argue that money lost is not the only issue — it’s also a matter of ethics. An employee’s abuse of expense reports may escalate and lead to more serious fraudulent acts.

A culture of integrity goes a long way toward fighting corporate corruption. If the senior management strictly adheres to the expense reporting policy, the employees are more likely to follow suit.

“If you have a culture of integrity and value, then your clients aren’t going to expect a lot of wining and dining,” says Smith.

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