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Expert: How to reduce the risk of expense reimbursement fraud

Fraud prevention is an ongoing battle for businesses of all sizes, particularly when it comes to expense reimbursement.

Research from the Institute of Financial Operations & Leadership (IFOL) shows that nearly half (44 per cent) of finance teams globally know of someone who has experienced accounts payable (AP) fraud in the last three years, and two-thirds (66 per cent) don’t feel well-protected from fraud. (1)

Unfortunately, the reality is that the occasional employee will attempt to bend the rules to their advantage. Expense reimbursement fraud can also be the result of human error, which unsophisticated systems or manual review may not pick up or be able to see patterns. While the sums involved in any single instance may be small, the cumulative impact can be staggering; in fact, data shows that AU$45,000 was the median loss to a company of any size from expense report fraud in 2020. (2) Financial implications aside, the business risk also includes the erosion of trust and potential reputational damage.

Establishing the first line of defence

Businesses must build a robust defence against expense reimbursement fraud to mitigate these risks. To achieve this, business leaders should invest in a holistic approach that blends clear policies, rigorous controls, effective technology, and an organisational culture of integrity. 

There are four ways businesses of all sizes can fortify their operations:

1. Develop clear, concise policies

To keep everyone on the same page, business leaders should establish policies for expense reimbursements that are straightforward and easily understood. This includes defining what is considered a legitimate business expense, outlining and documenting the process for submitting claims, and identifying the consequences of policy breaches. Policies should also be regularly reviewed and updated to ensure they remain relevant and effective.

2. Implement rigorous approval and audit procedures

Businesses must have a strong approval process in place to combat fraudulent claims. As such, it’s essential that each expense is reviewed and approved by someone other than the person making the claim. Business leaders should establish comprehensive approval procedures to ensure there are appropriate checks and balances throughout the claims process. Beyond this, conducting regular audits—internally and externally—can help to identify inconsistencies or patterns that may indicate fraudulent activity.

3. Foster a culture of integrity 

Ethics and compliance should have deep roots in company culture, from the top-down and the bottom-up. Business leaders should model desired behaviours, encouraging all team members to act with honesty and integrity. Engaging employees with regular training around company policies, including those relating to expense reimbursements, can be instrumental in reinforcing this culture.

Additionally, employees should feel confident and safe in reporting any suspicious activity or potential instances of expense reimbursement fraud, and open communication is vital to achieve this. Business leaders should establish clear reporting mechanisms and ensure there are robust protections against retaliation.

4. Respond decisively against fraudulent behaviour

If fraud is detected, taking swift action is crucial. This reinforces the idea that the business takes fraud seriously, and that there will be consequences for rulebreakers. At the same time, it’s important to maintain fairness and respect in the process, considering the rights of anyone accused of engaging in fraudulent behaviour, as well as the integrity of the business.

How technology can help

Technology has a crucial role to play in streamlining the expense management process and detecting potential fraud. Software solutions that offer automation for expense submission, approval, and audit processes are crucial. Sophisticated, modern platforms can help businesses identify unusual spending patterns and flag suspicious claims, letting even the leanest finance teams proactively manage this risk.

Savvy business leaders can use expense management solutions to:

Capture spend as it happens: automated expense management solutions deliver real-time insight into spend and expense claims, empowering businesses to achieve more intelligent decision-making.

Minimise duplication and errors: modern platforms that automate expense management reduce the potential for human error and minimising duplication. Relevant team members can automatically cross-check receipts and invoices for duplicate claims, saving significant time.

Importantly, the latest automated expense management solutions let businesses achieve compliance and detect and prevent fraud early. Aligning smart technology solutions with established expense management policies let businesses automatically bridge gaps in their processes and procedures. With the support of more intelligent online tools, businesses can spot and stop unscrupulous behaviour quicker and more efficiently.

Navigating these challenges may not be the most glamorous part of leadership, but it is undeniably a critical one. While expense reimbursement fraud may seem like an inevitable part of doing business, it’s possible to minimise the potential impact. With the support of smart strategies and solutions, businesses of all sizes can create a more secure financial environment that will pay dividends in the long term.

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Fabian Calle

Fabian Calle

Fabian Calle is the managing director for small and medium business (SMB) at SAP Concur, Australia and New Zealand. With his extensive experience working with SMBs in the computer software industry, Fabian understands the business challenges that SMBs face and how leveraging technologies can streamline business processes.

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