I hate to say it, but most business owners tend to believe that expense accounts are padded. It is fairly common in business. The question then becomes whether the abuse extends beyond the threshold of tolerance. In order to prevent companies from getting to that point, they must establish the right policies.
How it works
To stop expense padding, you need to know how it works. Expense inflation - where an employee exaggerates the amount of the actual cost of a meal or cab ride and pockets the change - may be the most common expense-padding method.
But cheaters are also capable of inventing expenses and submitting fake documentation to support them or requesting multiple reimbursements by submitting the same receipt more than once. And watch out for mischaracterized expenses. In such schemes, employees provide legitimate documentation for non-business-related expenses, such as treating friends to a night out on the town, and characterizing them as "business development" costs.
What to do
To prevent fraud, as well as simply handle expense reporting in a more accurate manner, you've got to establish and fine tune effective policies and processes. For example, if you're still relying on paper reports, switching to an electronic reporting system may make it harder for employees to cheat. Your processes need to scrutinize expense reports and supporting documentation for:
- Miscalculations, and
- Receipt doctoring
In addition, set limits such as requiring employees to fly coach class, stay in moderately priced hotels, and adhere to a daily meal expense allowance. Also, specify the types of supporting documents you'll accept - for example, original receipts, but not credit-card statements.
If expense padding becomes widespread, or its perpetuators are particularly devious, you might need to hire a fraud expert to conduct a thorough investigation. This will include examining expense records, interviewing suspect employees, and gathering evidence. Be prepared to terminate - and perhaps prosecute - guilty parties.
The best practice
Based on my experience, the best approach is to create the type of culture where employees feel a sense of loyalty and commitment to the company. When employees feel included and a part of the team and understand that it takes everyone working together to be successful, it is more likely that they will do the right thing.