Expense Abuse: Is It an Employee or Policy Problem?

By Jessica Sillers

Expense fraud is an expensive problem that goes unnoticed all too easily. The Association of Certified Fraud Examiners (ACFE) reports that expense reimbursement fraud costs companies a median of $40,000, and takes roughly 2 years to catch.

If you’re noticing questionable expenses and suspect expense fraud is an issue, you know you need to act swiftly. Often, the best solution is to address the issue at both the employee and policy level, to protect your business more effectively in the future.

Guarding Your Expense Policy Against Abuse

Starting with well-defined procedures can help you prevent expense abuse when possible, and it can make spending issues easier to catch. You should of course address expense reimbursement fraud directly with the offending employee (we’ll get to that a little later), but expense issues are good reason to reevaluate the strength of your current expense policy.

Don’t Change Company Policy Right Away

An unscrupulous employee can sabotage an otherwise good system for everyone. You should definitely aim to write an expense policy that protects company interests, but beware of over-complication. Adding lots of new rules to hem one individual in creates extra work and can dampen morale for many others. Making the expense filing process too arduous can even lead to additional issues if employees stop completing expense reports in a timely fashion.

Handle discipline with the problem employee, and choose policy changes that improve compliance across the board without weighing down your process.

Increase Policy Clarity

While you can’t realistically anticipate every possible expense, vague or confusing language weakens your policy. If a pub crawl can kind of fit under the broad umbrella of “conference-related activities,” you might find yourself with a hefty bar tab on your hands!

As much as you can, try to provide examples of allowable and non-allowable expenses. What if employees want to buy groceries to prepare instead of eating meals out, for example? You could end up paying for toiletries and other items, so some companies may choose not to allow this expense. Specify that “hotel costs” don’t include paid amenities, like premium TV channels or hotel spa treatments.

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If certain expenses are okay sometimes and not others, set clear parameters. For example, maybe the company will reimburse up to two alcoholic beverages as part of a restaurant meal with a client, but alcohol is not reimbursable at other times.

Setting your own clear standards won’t prevent every possible instance of expense abuse. It can avoid many misunderstandings and make it much harder to deny if someone breaks policy.

Add Receipt Review

It’s smart practice to collect receipts on reimbursable purchases, but many companies also set a dollar amount that doesn’t require a receipt to be reimbursed. Reimbursing a few dollars here and there without a receipt is good for convenience, but it’s also easier for employees to inflate or double-dip purchases.

Checking all receipts is the best way to avoid inaccurate “estimates.” Using photos, rather than keeping physical receipts, is quicker and more convenient. If you really want to continue making some expenses receipt-free, note that the company can spot-check receipts at its discretion. Including practices for fraud prevention may dissuade some employees from taking advantage of the system. It also gives managers a clear process to stay proactive and handle questionable expenses before they become a major issue.

Solving Employee Spending Issues

Disciplining an employee is never pleasant, especially over a serious concern like fraud. Here are a few ideas to help the process go as smoothly as possible.

Address the Core Issue

In some cases, expense abuse is obvious. Trying to slip personal purchases under the radar or blowing a budget are way over the line. It’s trickier to know how to frame the conversation when an employee is technically within limits, but still appears to be abusing the policy.

You can still have a conversation about spending, even if the employee is just barely keeping within limits. Rather than focusing exclusively on the dollar amount, it might be worth addressing the underlying problems that concern you. A conversation where you let the employee know, “We can see patterns that look like an attempt to milk the system, and it’s making us concerned about professional judgment, integrity, or enthusiasm in the role” might be a wake-up call.

Know Where Your Line Is

Most of the time, expense fraud can be a fireable offense. Anytime you catch an employee showing this level of dishonesty, you have serious cause to rethink their fit with the company. But any company has exceptions. There have been cases where top performers have been allowed to get away with maxing out meal allowances or other relatively minor policy abuses, because the value that they bring into the company is so high.

It’s important for you to think carefully about what level of misdemeanor could potentially be forgivable, and when you’d fire an unethical employee, so you don’t get caught up in a slippery slope when you’re faced with a real situation.

Preventing expense reimbursement fraud can save your company tens of thousands of dollars. A well-written policy is your best first step. Need help creating a policy or integrating it into a system that works for your company? We’re happy to lend a hand.

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