FRAUD SPECIALISTS CALCULATE that 5 percent of revenues in U.S. businesses are lost annually to fraud. More than a fifth of this fraud is related to reimbursement schemes. While the financial repercussions are clearly significant, they’re only a part of the equation. Tough IRS scrutiny and rigorous Sarbanes-Oxley audits mean that companies must maintain flawless financial controls not just to minimize losses but also to meet strict federal regulations. To decrease policy violations and curb fraud, companies must know where and how fraud is occurring. The single most important factor for exerting tighter controls and driving compliance is visibility, and the most effective way to achieve visibility is to standardize policies, automate processes, and aggregate data for analysis. A life-cycle approach to expense management will give companies the intelligence they need to deter fraud, refine policies, drive compliance, support better decision-making, and gain and maintain control.

Astronomical losses
People may sometimes lie, but the numbers never do. Annually, a whopping $652 billion is lost by U.S. businesses to fraud. Median losses range from $150 million to $190 million, and in more than 40 percent of fraud cases, not a penny is recovered (2006 ACFE Report to the Nation on Occupational Fraud & Abuse, Association of Certified Fraud Examiners). While there are many types of fraud schemes, recent reports indicate that at least 21 percent of a company’s fraud is related to expense reimbursement (2006 ACFE Fraud Examiner’s Report).

Compounding the problem, a surprising number of business travelers (25 percent) admit to booking travel outside of company policy. Although not every unauthorized expense constitutes fraud, there can be a fine line between out-of policy spending and fraud; 20 percent of companies say that it is common for travelers to file reports that include completely false expenses (Tracking: How Corporations are Cracking Down on Expense-Report Abuse, T&E Magazine, February 2006).

Common Schemes
Filing fictitious expenses is, perhaps, the most serious of the common T&E reimbursement schemes. Claiming a personal expense as a business expense, filing the same item on different reports, and overstating expenses are other examples. But, any false claim constitutes a loss and affects a company’s bottom line.

While the financial losses are clearly significant, they’re only part of the compliance picture. In today’s environment, there’s no room for error. As we have seen, executives have been sent to jail over expense account abuses. From employees who travel around the country or the world to conduct business, to AP professionals who monitor and execute expenditures and payments, everyone has a role to play in guaranteeing compliance, reducing fraud, and protecting company assets.

The first step is to determine where and how fraud and policy violations are occurring. Are employees booking airline tickets and turning them in for cash? Are they buying tickets, exchanging them for lower priced ones, and pocketing the difference? Are they expensing prohibited items, such as in-room movies or long distance calls, because these charges may be hidden if a hotel bill is paid in cash? Are they purchasing from authorized vendors with whom their company has negotiated preferred rates?

T&E Life Cycle
An important factor for many businesses in driving compliance and deterring fraud is visibility. To achieve visibility across the enterprise, it’s important to consider every aspect of the expense management life cycle: expense report filing and reimbursement, receipt management, auditing, and gaining a comprehensive understanding of the aggregated data to make strategic business decisions. Automating the expense reporting process through the use of an on-demand (Web-based) solution can go a long way toward successfully managing the overall expense management life-cycle. On-demand solutions allow travelers to file expense reports anywhere they have Internet connectivity. Online reporting is efficient (saves time), cost effective (less than half the cost of manual processing), accurate (a virtually touch-less process greatly reduces the potential for error), and speedy (travelers can be reimbursed in as few as three days). On-demand solutions can alert users to problems, limit opportunities for fraud, and offer reliable real-time data.

On-demand expense management solutions can be configured for your business practices and policies, including automated approval routing and built-in spend categories and limits. And, integrating your corporate card program with your expense reporting solution can provide additional spend information, such as hotel folio data (Level I, II, and III card information), and facilitate tighter controls around card usage.

Equally important are robust reporting and analytics to enable spend visibility across the enterprise. Visibility into comprehensive T&E spend will allow you to make better business decisions – decisions that will subsequently decrease opportunities for fraud, increase compliance, and even help drive healthy growth.

It’s No Accident
Just over 25 percent of fraud is discovered by accident but, it’s no accident that companies managing T&E expenses with a life-cycle approach are able to drive compliance and reduce the risk of fraud. They don’t have to rely on a lucky break to discover fraud because they’re always in control.

This article was originally published in the April-May, 2008, issue of AP Matters. IAPP members can read this and all back issues of AP Matters online.

Tim Thurn is a former member of the IAPP Contributing Writers Committee.