If you are concerned that fraud may be occurring in your place of business, a good first place to check is in the area of employee expense reimbursement. Employees that state false information on their expense reports are likely to be committing some other type of fraud. There are four types of expense reimbursement fraud, which are: mischaracterized expenses, overstated expenses, fictitious expenses, and multiple reimbursements.

Mischaracterized expenses are the most common and occur when the employee seeks reimbursement for ineligible non-business expenses. A common example is lunch with a friend that is classified as a business development lunch.

Overstated expenses occur when employees overstate their expenses to receive top dollar on their expense report. This often occurs when a business does not require documentation be attached to expense reports. Even when support is required, employees can still alter the supporting documents by photocopying receipts, obtaining blank receipts from vendors, or generating phony ones on a personal computer.

Fictitious expenses are expenses that were never incurred or were paid by another person. This often occurs when multiple employees go on the same business trip and all employees state they paid for the same expenses.

Multiple reimbursement schemes are when expenses are reimbursed two or three times for the same expense.  A common scheme is an individual paying for a trip on the company credit card and keeping the receipts. The individual will then enter the receipts on his/her expense report to be paid for again.

If an employee commits expense reimbursement fraud they may not commit other types of fraud, however, studies have shown that a correlation exists. If you suspect fraud is occurring within your organization, these are the employees you may want to scrutinize first.

If you are concerned about fraud in your business, contact Kit Powell today.

Kit Powell
Certified Fraud Examiner
231.924.8035
kitp@hscompanies.com