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- August 04, 2016
- Donna Wilczek
In the paper-based world, the fraction of business travelers who were so inclined had many opportunities to profit illegitimately through various expense reimbursement fraud schemes. Some even managed to turn expense report fraud into a significant source of income.
With business travel spend projected to reach $318B in 2016, fraud potential is at an all time high. However, new advances in travel expense management technology combined with proper internal controls can help businesses reduce fraud and control their travel costs.
Here are some of the fraud schemes businesses can now curtail with smart applications of technology:
1. Profitable per-diems
Per-diems, or daily allowances, used to be common. They came about because of the difficulty of managing receipts and filling out expense reports. Rather than have highly skilled people spending their time on paperwork, the company would just pay them a set amount per day for travel expenses.
This could turn into a nice source of profit even for ethical travelers. For example, let’s say the per diem is $75. An employee may go to a conference that includes breakfast, lunch, and dinner in the conference fees. The employee has no food costs, but still pockets the $75 per day. Over a the course of a 4-day conference, that’s $300.
As technology makes it easier for employees to manage receipts and fill out expense reports, the use of per diems, and the opportunity to profit from them, are steadily decreasing.
2. Mileage padding
Padding mileage reimbursements used to be a common way to generate cash. With paper log books, it’s hard to validate that the mileage claimed was actually put on the car, and most businesses don’t spend the time and effort. That leaves it wide open for fraudsters to pad by a little—or a lot.
For example, if employee might write that they drove from Chicago to Rockford. However, they might claim mileage from north Chicago to southern Rockford (230 miles), when they actually drove from south Chicago to northern Rockford (195 miles). Make that a round trip and there is a difference of 70 miles. Apply the GSA mileage reimbursement rate of .54 cents per mile and the employee just made $37.80 for miles never driven.
With new expense report apps that have GPS tracking capabilities, the employee can tell their smartphone when they are starting and ending a trip and it will record the actual mileage based on the distance traveled. Technology reduces the fraud potential, however businesses must back up the technology with a policy of only accepting mileage submissions that come in through GPS tracking. If employees forget to turn it on, they don’t get reimbursed.
3. Fake expenses
Another way for businesses to ease the burden of expense reporting for employees has been to only ask for receipts over a certain dollar amount, leaving plenty of opportunity to submit false expenses for amounts under the threshold. Let’s say the no-receipt limit for breakfast is $15. If the employee stays for a week at the Westin, eats the daily free breakfast and then submits a reimbursement for $14 every day, the employee makes $70 ($14 for five days).
These days, it takes ten seconds to snap a picture of a receipt with a smartphone and upload it to an expense report. Or, expense apps that make it even easier by using smartphone voice technology to create a receipt in seconds. Businesses using these types of smart expense apps can see a reduction in expenses if they lower their no-receipt tolerance to $10, or even $5.
Expense report technology has made receipt management so easy that it’s feasible and reasonable for businesses to ask employees to take ten seconds to tell them what they spent company money on.
4. Phantom attendees
Adding attendees who weren’t really there to a meal receipt doesn’t generate cash, but has long been a way for people to give themselves an upgrade. In the past, business travelers just had to report the number of attendees and it was difficult for Accounts Payables departments to validate.
For example, if policy is $45 per person per dinner, an employee could say they had three other people attend and expense the full $180 for dinner when it was really just the employee, steak, lobster, and a nice bottle of wine.
New expense report technology with attendee tracking capabilities can help put a stop to this expense fraud. If the employee puts themself and a colleague at a dinner at a certain place and time, and that colleague submits the same expense, or a different expense during the same time frame that would be caught and flagged. This isn’t perfect yet because it only works within a company, but it does diminish a commonly exploited fraud opportunity.
5. Unused airline tickets
Travel booking technology is now starting to address the management of unused airline tickets, which used to be a good way for fraud-minded employees to get themselves a free airline ticket.
A typical opportunity is when an employee books and expenses a flight for a future meeting, which subsequently gets cancelled. One month later the meeting is back on. The employee books and expenses another ticket, even though they could pay a change fee and use the original ticket. The employee now has a free airline trip courtesy of the company.
Historically there has been no way for a company to keep track of that, but new technology can. There still isn’t a way to manage transferring the ticket back to the company for someone else to use. It’s of use to that employee only, but the company knows who has what tickets and can automatically apply the unused ticket the next time the employee travels.
6. Last-minute flight booking schemes
Late airline bookings have always presented a fraud opportunity. Savvy travelers know that there are different grades of fares depending on when purchase is made. The closer to travel time they purchase the ticket, the more it costs. Those more expensive tickets are easier to upgrade.
In 2015, airlines made a change to their loyalty programs made this opportunity even richer. Most major airlines no longer determine the frequent flier miles by the total miles flown but instead determine it by how much is spent on the ticket. So, less ethical fliers could score upgrades and flier rewards through last minute bookings.
There are a couple new ways expense reporting technology can combat this. Embedded analytics can pull information from the “day purchased” and “day traveled” fields on expense reports and flag managers when there is a pattern of habitual late booking.
In addition, technology has made approval workflows so much smoother that it’s now practical to require pre-trip approval. Before the employee can book a flight, they must provide an estimated dollar amount for the trip. Yes, there are legitimate reasons for last minute bookings, but technology and policy can help companies weed out fraudulent ones.
Fraudsters are endlessly creative, but opportunities in travel and expense reimbursement are becoming fewer and farther between. Anyone looking for fat profits and rich perks from expense report fraud will have to look elsewhere if their company uses smart expense report technology.