Staying ahead of fraud in the corporate world can be a challenge. Expense management is one of the most easily defrauded systems in a corporation. Utilizing AI to combat fraud is an increasing necessity in an evolving world.
You don’t know what you don’t know. You may be familiar with this phrase, but it's remarkably true. We may hear stories of employees caught for fraudulent spending and think, “how does this happen?”
Recently, an employee from a major university was caught stealing millions of dollars of computers and iPads. In this case, the employee was authorized to make and approve purchases for the department below a certain threshold. The university thought it had controls in place by limiting the amount an employee could purchase. But it wasn’t enough. This illustrates why adding automated review of 100 percent of organizational spend, in addition to strong policies and procedures for corporate expense management, is critical to helping your organization to discover hidden fraud and create a culture of compliance.
In March of 2020, the Center for Audit Quality published Assessing Corporate Culture: A Proactive Approach to Deter Misconduct. In this article, they raise the question “When a corporate scandal occurs and stakeholders seek reasons and root causes, the trail often leads back to problems with the organization’s culture. But what if an organization could get ahead of those crises?” The good news is you can.
Technology has advanced in more ways than you can imagine. With Oversight, you can have end-to-end expense auditing using Artificial Intelligence (AI). Oversight allows your organization to have complete visibility into all its spend. We have helped all our customers strengthen policies and drive further compliance improvements. Read on for three, real-life examples of how spend analysis led to policy updates that help curtail risk and misuse.
1. How AI helped find a loophole in the expense management system that corporate employees were exploiting. Disable the ability for employees to change merchant information for corporate card transactions in your expense management system.
Using Oversight's system, our customer discovered a gap in its expense system that had cost them thousands of dollars. Because Oversight's analytics allow companies to compare bank details with the expense report details, our analyst noticed a card transaction for $180 that took place at a nail shop and day spa but was expensed as a group meal.
When we dug into the expense report details, we saw the nail shop and day spa transactional information, but we also saw that the “merchant name 2” field showed this expense took place at Joe’s Stone Crab Restaurant in Miami where five attendees were reportedly in attendance. We couldn’t reconcile how this could happen: How could a “merchant name 2” field differ so wildly from the merchant where the card was swiped? We reached out to the customer, who confirmed that their expense management system allows employees to change the merchant information for corporate card transactions.
Once the feature was disabled, they discovered more than $50K in fraudulent expenses for this employee alone.
2. Stay ahead of corporate fraud with AI driven expense management. Remind your approvers to look at the expense type compared to the merchant’s name.
People think they can be sneaky and clever when it comes to trying to commit fraud within expense reports. According to the ACFE 2022 Report to the Nations, CFEs estimate that organizations lose 5% of revenue to fraud each year. They go on to say that 86% of occupational fraud is committed through asset misappropriation (fictitious or overstated expenses are included in this category).
Using an AI-driven expense management audit system, you have exception types that can flag expenses when expense types do not align with what would typically be classified under the merchant category. For example, a customer’s employee used their corporate card for another employee to get an ultrasound at a hospital in Cancun, Mexico.
The employee filled out an expense report in Concur, classifying the expense type as “conferences and meetings – food and beverage.” When one of our resolution service analysts reviewed the charge on behalf of our customer, they got immediate notification of a flag to review “expense appears to be misclassified and the transaction is in a high-risk merchant category – hospitals.” Upon further investigation, our analyst caught the fraudulent expense before the report was approved.
3. Set a policy to prevent any corporate employee from sharing their expense management password.
In some cases, when an executive has an executive assistant (EA,) they give their EA all their passwords and allow them to have access to any system they use, such as emails and expenses. In most cases, the assistant will have access to the executive’s email and calendar as well as the ability to submit travel and other expenses on their behalf. In this case, our customer discovered an executive assistant, who, in any given month, had over $20,000 in Amazon purchases. The analyst noticed a trend in the receipts she was attaching to all her Amazon purchases: she provided only a summary receipt and no order number was ever referenced. The receipts also looked like they had been doctored in Microsoft Word.
These cases were immediately escalated to audit for further review. It turns out she defrauded the company out of $300,000. How did this get past the employee’s manager, you ask? She had access to her boss’s emails and his Concur account and deleted emails and approved her own corporate expense reports before he ever noticed.
So, the moral of the story is to have a policy in place, where if someone needs to submit expenses for their boss, they do it through their login on behalf of the executive. Make it against company policy to share corporate expense management passwords or allow someone to log in to your individual account.
While these are extreme fraud cases, inappropriate spend happens more often than you think. When individuals think they can get away with bad behaviors, they will continue to do so. It is crucial to make sure you have policies in place to help create a culture of compliance. You do not have to tolerate corporate fraud because you couldn't detect it. With Oversight, you can see it all, spot the patterns, and steer the future.
How can Oversight help you today? Subscribe and follow along with our Nothing Gets by You Now Blog Series or visit our website to learn more about how our end-to-end expense auditing with Artificial Intelligence product can help you automate manual processes and empower you to know what you do not know.