Expense reimbursement schemes

Organizations worldwide lose an estimated five percent of their annual revenues to fraud.1 One of the easiest fraud schemes an employee can perpetrate is an expense reimbursement scheme.

Here are four expense reimbursement schemes you should be aware of that may be impacting your organization:

Mischaracterized expense reimbursement

Businesses typically reimburse their employees for out-of-pocket expenses that their policies identify as reimbursable, such as, travel, lodging and meals. In a mischaracterized expense reimbursement scheme, the perpetrator simply requests reimbursement for an expense that is not actually business-related.

For example, an employee takes his family on a vacation and requests reimbursement for his hotel stay. He submits the receipt and falsifies his expense report to indicate that the costs incurred were for business purposes. The false report prompts the organization to issue a check, reimbursing the employee for his or her personal expenses which becomes a free vacation for the employee and his or her family.

Overstated expense reimbursements

In an overstated expense reimbursement scheme, the employee inflates the cost of actual business expenses. This can be perpetrated in a variety of ways, including modifying receipts or over purchasing and benefiting from some a refund or discount. In many cases, this scheme may not be carried out by the employee but by the colleague who handles or processes expense reports.

For example, an administrative assistant who processes expense reports may alter the expense report of his or her co-worker and insert a larger dollar amount for reimbursement. He or she then passes on the reimbursement to the colleague for the amount requested and walks away with the remaining amount.

Fictitious expense reimbursements

In a fictitious expense reimbursement scheme, an employee submits a request for reimbursement for wholly fictitious expenses. The individual concocts a false expense report and submits it for reimbursement, as opposed to overstating real business expenses or seeking to be reimbursed for personal expenses.

Multiple reimbursements

In the case of a multiple reimbursement scheme, the perpetrator submits a request for reimbursement for the same expense multiple times. Most often, the fraudster will submit several forms of documentation as support for the same expense.

For example, an employee purchases a train ticket for business travel and submits the receipt generated at the ticket counter to the supervisor for reimbursement. A month or so later, he or she submits a second form of proof of payment such as an email confirmation of the reservation or a credit card statement to a different supervisor so that neither would see both expense reports. The organization ends up reimbursing the perpetrator for the travel expense twice.

Preventing expense reimbursement schemes

  • Establish a clear and concise reimbursement policy within the organization.
  • Ensure supervisors are familiar with the organization’s expense reimbursement policy.
  • Allow reimbursement only after the expense has been incurred, not prior as a cash advance.
  • Give the supervisor reviewing the expenses only this task. The same individual should not distribute funds.
  • Conduct an audit of travel and entertainment accounts periodically.

If you suspect there may be fraudulent expense reimbursement schemes within your organization, a forensic accountant can help identify, quantify and potentially recover funds. Additionally, a forensic accountant can also assist with implementing controls to prevent and detect fraudulent schemes in the future.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

1 http://www.acfe.com/press-release.aspx?id=4294968551&terms=(expense+reimbursement+schemes)+