The Association of Certified Fraud Examiners (ACFE) defines occupational fraud as “the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.” In ACFE’s 2016 Global Fraud Study, Report to the Nations on Occupational Fraud and Abuse, they estimated that worldwide, organizations lose up to 5 percent or $3.7 trillion of their annual revenue due to occupational fraud.
According to the same report, expense reimbursement fraud ranked as the fifth highest category for corporate occupational fraud (see Figure 8 below). A lack of corporate travel policy can leave the door wide open for dishonest travelers to commit expense reimbursement fraud unless proper controls are put in place.
Image Source: Scheme Types by Region: Report to the Nations on Occupational Fraud and Abuse
Two examples of expense reimbursement fraud regarding business travel include: misrepresented expenses (personal expenses, falsified receipts, etc.) and inflation of actual business expenses (flying first class, inflated mileage, inflated tip amounts, meals exceeding per diem limits). According to the MDD Forensics Accounting website, some common scams used by travelers to commit occupational fraud in Travel and Expense (T&E) reporting systems, include:
- Using a personal credit card for travel expenses. A traveler purchases and charges high-priced tickets on their expense account and provides a receipt. After submitting the receipt to the finance department, the traveler cancels that ticket and purchases a cheaper one and pockets the difference.
- Duplicate or fictitious expenses. A traveler or a group of travelers collude to submit the same business dinner receipt. For example, one traveler puts both meals on the company credit card. The other traveler makes a copy of the original receipt and also submits a request for reimbursement. The travelers split the proceeds.
- Cash advances. A traveler withdraws cash from an ATM using his or her corporate credit card and enters fraudulent business transactions in their expense report.
- Unnecessary and unapproved upgrades on business trips. Travelers use preferred suppliers to upgrade and improve their personal status levels at an unreasonable cost to the company.
A lack of procedures and training surrounding corporate travel policy establishes an environment that emboldens corrupt travelers to commit fraud, resulting in corporate waste. Even though the detection and prevention of fraudulent traveler expenses can seem overwhelming, a Travel Management Company (TMC) will use their expertise to help detect and prevent risk in this area. The following tips can aid in the detection, prevention and deterrence of occupational fraud, especially in the area of travel expense reimbursement:
- Establish and implement a clear travel policy. An effective travel policy combined with policy enforcement technology ensures that the policy and procedures for all business travelers is followed.
- Implement travel management Travel management software tools save time and ensure compliance, allowing companies to better control expenses.
- Automate pre-trip Pre-trip authorization provides a system of checks, balances and exceptions. A Travel Management Company will have automated pre-trip authorization available through an online booking tool, giving the administrator/approver the information they need, including justifications for exceptions, that allows them to approve or disapprove the booking. These approvals discourage over-priced or fraudulent bookings by travelers.
- Integrate travel and expense management. A Travel Management Company can provide integrated expense and reporting tools tailored to a business’ precise objectives. When selecting a booking tool, a TMC can customize it to meet the specifications of an organization’s corporate travel policy. When completely integrated, this system ensures policies are enforced while travelers make their arrangements, providing the organization with increased control from the outset.
- Expose business travel abuse. TMCs can identify areas susceptible to unnecessary costs including: last minute seat upgrades, unapproved hotel expenses, and taking friends out on company credit cards.
- Generate loss savings analysis report. These reports compare the price of the purchased fare to other fares at the time of booking to disclose abuse. Reports on spending data, supplier information, unused ticket tracking, and change management are available to uncover expense reimbursement fraud.
- Benchmark data. The exercise of evaluating how a business measures up to industry peers highlights areas for improvement and reveals potential vulnerabilities to expense reimbursement fraud.
Expense reimbursement fraud is one of the easiest ways dishonest travelers can commit corporate fraud. Organizations that are not explicit in their travel policy and do not have the correct travel tools, technology and travel management software (including pre-trip authorization, benchmark data and loss savings analysis reports) to support and enforce corporate travel policy, are those that suffer the most from occupational fraud and abuse.
A TMC can introduce best practices for travel policies and procedures that are proven to reduce expense reimbursement fraud associated with corporate travel. To learn how to manage corporate travel and take control of your T&E expenses, download our Whitepaper, 5 Key Strategies for CFOs to Take Control of Travel and Expense Management today.
This whitepaper will guide you through challenges and corresponding strategies so you can take control of Travel and Expense Management and balance the financial priorities of your organization with the needs of your travelers.