Expense Reports – Best Practices for Fraud Avoidance

doug cashBy: Doug Cash, MBA, CFE, CFI, CFCI

Fraudulent expense reporting by employees continues to be a common threat to operations. A recent survey by the Association of Certified Fraud Examiners estimated the median loss from expense reimbursement fraud was $30,000 per year. This is a considerable amount of money for many NPOs!

As with most areas of internal controls, to prevent and/or detect this type of scheme, start with a solid, clear reimbursement policy and then review reimbursement requests to ensure the policy is being followed. Do you have to review 100%? Not likely. Reviewing on a sample basis, as long as the employees are aware this is happening, should be adequate to ensure the policy is being followed. By setting up this “perception of detection”, employees will be less likely to commit a fraud due to the increased chance of their misdeeds being uncovered.

Elements of a strong reimbursement policy include:

  • Timely reporting – reimbursement requests should be submitted within 30 days of the expense
  • Appropriate expenditures – the policy should be very clear as to expectations regarding reimbursement for alcoholic beverages, family members, expensive hotels and restaurants, excessive tipping
  • Proper documentation – if it is not feasible to require original receipts, have the employees responsible for retaining the original receipts so that they can be produced if a reimbursement request is chosen for review
  • Minimum receipt threshold – set a reasonable level, such as $25 or $50, below which a receipt is not required for reimbursement
  • Chargeback provisions – if undocumented expenses are found during the review process, have a clear policy regarding potential charge-back to the employee

We mentioned earlier that testing 100% of reimbursement requests may not be necessary, depending on the nature of your operations and available staff time for review. In addition to reviewing reimbursement requests in detail, which should always include all original receipts, you might consider running a report to evaluate and identify the employees having the most charges below the minimum threshold.

Prevention is always less expensive than detection and Eide Bailly can help protect your organization. Our forensic teams enjoy assisting with preventative measures including all areas of internal controls. Contact us today!

 

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