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I recently uncovered a great Entrepreneur article on five ways to reduce expense fraud. Although we have extensively covered this topic in a few of our white papers, I thought this article did a great job of explaining in great detail some of the “nuts and bolts” of the actions companies can take to prevent expense fraud.
In our Fall 2014 Oversight T&E Spend Analysis report we quoted an ACFE study which showed that 75.6% of the people who commit T&E fraud are also committing at least one other form of occupational fraud. This is why it is really important that we find those bad apples. As the ACFE also points out, the serious offenders are likely doing more than cheating on one expense report, they are cheating on many expense reports. The Oversight Spend Analysis report echoes similar data with 5% of the travelers surveyed were committing over 80% of the fraudulent acts.
It is especially important to carefully examine your expenditures and policies as the holidays approach. With electronics, software, and jewelry stores some of the most prominent places where non-compliant spending occurs, it is important to audit employees to ensure their Christmas shopping doesn’t end up on the company tab.
While I thoroughly agree with the premise of the Entrepreneur article, especially step #4, I found that step #2, informing an employee of a violation before expense reports are submitted to be great in theory, but troublesome in execution. It’s laborious to follow through on every out of policy item of every expense report. Quite frankly, it’s just not worth the trouble.
Through the years at Oversight we have found that an effective way to find these bad actors is to look for patterns of activity through time. You do this by looking at behavior across expense reports. One technique is to identify statistically unusual patterns of out of pocket expense submissions, particularly those below the receipt threshold.
I’d even argue that identifying patterns is the most important thing you can do to both catch fraudsters and reduce the instance of non-compliant spending. People behave differently when they know their transactions are also being scrutinized by a system proven to detect instances of fraud, waste, and misuse within travel data.
It’s hard for a reviewing manager to notice the big picture pattern as they approve one expense report at a time week after week, but sophisticated analytics can analyze 100% of transactions, and bubble the exceptional patterns to the top. Having an automatic analysis of the transaction data allows travel managers to spend less time doing manual reviews, and more time investing patterns of behavior that have a higher impact on the bottom line.