Compensation Strategies

Prevent Expense Account Padding with the Right Policies

Ask employees whether padding expense account reports is wrong and just about everyone will say ‘yes.’ Yet inflated expenses continue to cost businesses thousands of dollars annually. For this reason, every company must establish the right policies to stop it.

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 also are capable of inventing expenses and submitting fake documentation to support them or requesting multiple reimbursements by submitting the same receipt more than once. Also, 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 characterize them as ‘business development’ costs.

What to do

To prevent fraud, as well as simply handle expense reporting in a more accurate manner, you have to establish and fine tune effective policies and processes. For example, if you are 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:

  • Inconsistencies
  • Miscalculations
  • 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 will accept — for example, original receipts, but not credit-card statements.

If expense padding becomes widespread, or its perpetrators are particularly devious, you may 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.

Stop the bleeding

Do not let employees bleed your business dry with fraudulent paper cuts. Our team of business advisors can review your expense reporting system and identify ways to strengthen it. Contact us today to see how we can partner with you.

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