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How to Create Effective Policies for Preventing Expense Reimbursement Fraud


This is the third in a series of ExpenseWatch blog posts that highlight fraud and offer guidance for companies seeking solutions to their expense management concerns. The first post, about expense report fraud discussed examples of expense fraud and how to prevent it. The second article entitled, “Five Ways to Prevent Cybercrime from Targeting Your Business” focused on cybercrime and how to lock down your systems to prevent it. This post focuses on how to put the right expense policies in place for your organization.

In recent years, the occurrence of expense reimbursement fraud is on the rise, says The Association of Certified Fraud Examiners (“ACFE”) in its 2012 Report to the Nations on Occupational Fraud and Abuse, stating that approximately 14.5% of all asset misappropriations investigated involved expense reimbursement fraud.

Fraudulent expense reimbursement is a more serious threat to mid-sized and larger companies than small ones, in part because it is more difficult to monitor larger groups of employees. That is why it is essential for middle and upper-level management to be committed to establishing company spending policies, an area where ExpenseWatch can help. Using the ExpenseWatch expense reporting module, companies can easily set up and customize the appropriate policies, all of which can have a big impact on the company’s bottom line.

How to Develop an Effective Expense Reimbursement Policy

The days of enforcing a paper-based “manual” expense management process are soon to be over. Thankfully, because such enforcement is not fun. It also puts a strain on managers who often struggle to keep up with changing technology infrastructure, tax codes, regulatory requirements and travel and expense (T&E) policies.

With ExpenseWatch’s automated system, everyone in a company is able to participate in a seamless, easier business expense reporting and reimbursement process.

Expense reimbursement policies should be fair, focusing mainly on submitting, approving and reimbursing expenses so that the process is efficient both for employees and the accounting department.

Here are few guidelines from ExpenseWatch to help you with the development of your policies and procedures.

  • Make sure your policies are not ambiguous. Make them clear. Review and update policies regularly. Make sure all the employees see them, by publicizing policies internally, and explaining them. Make processes simple. This will help ensure that employees will comply.
  • Collect relevant information. The date and cost is not enough, so make sure to outline what is expected from employees when they are completing their expense reports. An automated system can help employees remember to provide all the relevant details by creating custom attributes for each expense category created.
  • Get receipts. This is key because the Internal Revenue Services (IRS) requires receipts as proof in the case of an audit. And remember that some expenses, such as entertainment receipts, need the name of the company being entertained, the name of guests, as well as the purpose of the entertainment expense for tax purposes.
  • Timeliness is essential for expense reports. Create a published payment timetable in your expense reimbursement policy, so that employees will know when to expect reimbursement checks after they submit an expense report. An automated expense system also lets submitters check on the status of approvals, which also streamlines the process.
  • Provide training to management. Everyone responsible for approving expense reimbursements must be educated about how to spot questionable items and how to inquire about them to employees.
  • Question when appropriate. Questioning of submitted expenses informs employees that their submitted expenses are reviewed and the company is not afraid to question or deny an expense.
  • Use corporate credit cards. When corporate cards are used for expense reimbursement, companies have the ability to request individual statements for more information on reimbursement requests. You can also request activity reports to check for credits for reimbursed items.
  • Make managers accountable. Managers need to be responsible for enforcing a company’s expense policies. Give them the authority to push back in addition to approving expense reports, especially when it comes to travel expense management. Although a quick sign-off is desirable, many times employees either do not understand their company’s policies, or they push their luck, hoping an expense slides under the radar, and some actually try to submit fraudulent expenses. When there is pressure to enforce proper business traveler behavior, which is something that travel expense management software like ExpenseWatch’s expense management module does intrinsically, people commit less fraud.
  • Audit a handful of reports regularly. When you make sure to audit a small sample of reports, you can keep tabs on how well employees are complying with policies. Plus it puts employees on notice that reimbursements are monitored closely, and may thwart potential offenses.
  • Discipline expense offenders. If you find fraud, be sure you know how your company will handle it. Some companies have a zero-tolerance policy, others use corrective measures for first time offenders. When an employee is punished for fraud, it sets the correct tone that the company is serious about enforcing its policies. Make sure to work with your human resources and or legal team to establish consequences for fraud.

ExpenseWatch’s automated expense report management system will not only help establish good expense policies and procedures, but it will also help deter expense reimbursement fraud. For more information, fill in the form on the right and one of our experts will contact you shortly.

(Posted 5-12-15)

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