Fraud creeps around on little cat toes and sneaks into every aspect of running your organization. Even a little money slipping away quietly can impact your organization’s finances. One area to lookout for is expense reimbursement fraud.
Twenty percent of fraud in businesses with fewer than 100 employees is attributed to expense reimbursement. Businesses with more than 100 employees experience 11 percent reimbursement fraud. Even when the missing money is a small amount, it all adds up quickly. The Association of Certified Fraud Examiners’ 2018 Report to the Nations states that the average loss is $31,000. This can be significant for a nonprofit organization.
Even though expense reimbursement fraud is common and may seem trivial, it could be an indicator of larger fraud activities. Red flags may indicate a need for further investigation. If an individual commits a small petty theft, he or she is likely to commit other frauds.
The Association of Certified Fraud Examiners has identified four groups of expense reimbursements that often fall into fraud status:
Fake Expenses -- Phony receipts and digitally-produced documents
Add-ins -- Slipping-in personal expenses as business expenses
Padded Expenses -- Adding miles to a mileage report, stating that a tip was larger than the actual amount
Multi Submissions -- Offering the same receipt for reimbursement more than one time; getting paid over-and-over for the same expense
Controlling expense reimbursement fraud begins with organizational policies which discourage defrauding your organization.
Put these five items in your policies:
Be the Model: Have management set-the-tone and be the model of appropriate behavior. Begin by enforcing your anti-fraud policies, and provide a safe haven for whistleblowers who come forward with notions of suspected fraud.
Provide Written Guidelines for Travel: Keep the guidelines simple. Begin by stating what expenses your organization will NOT reimburse, such as spouse travel or alcohol. Establish per diem amounts for hotels, transportation and meals. For travel mileage, require employees to provide driving directions and established mileage from a website that gives map mileage.
Accept Only Original Receipts: Do not allow digital reproductions, facsimiles, or photocopies as receipts. Have employee identify each receipt with the date, items purchased, and purpose.
Double Check: Assign a second staff member to double check all items accompanying reimbursement requests. Do this before paying the expense. Occasionally run an audit of all organizational expenses and make sure their documentation is accurate.
Go to Authorities: Firmly stand behind your policies regarding reimbursement. When things go wrong take it to the authorities. Report the fraud. Let it be known that the organization will prosecute employees who steal or intentionally submit false documents for reimbursement. Reporting fraud to authorities sets an example for other staff that the organization has a zero-tolerance policy for dishonesty.
It is important for your organization to keep an eye on monies being paid and on incoming cash.
Know what you have and where it goes
. . . and who is spending it.
Keep your accounting firm in the loop and let them now if you suspect any reimbursement fraud. Likewise, your accountant may be the first to notice discrepancies in your reimbursement statement. Working together, you and your accountant can identify and help recover lost monies.
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If you have questions about reimbursement fraud, keep in touch with our blog. We have ideas to share and solutions to management questions. If you have questions about any other not-for-profit industry topics, contact our not-for-profit team leader at trent@tbfosteraccounting.com.