In the U.S., travel and expense fraud has been in the news lately due to a variety of scandals featuring government leaders traveling around the world in secret with taxpayer money.
On the corporate level, however, most expense fraud goes undetected due to the small dollar amounts involved when employees decide they deserve a few extra bucks.
Research from expense technology provider Chrome River found expense fraud costs U.S. companies $1.9 billion each year. Mid-level employees are the most frequent offenders, particularly men under the age of 44.
The average amount employees admitted to stealing was between $100 and $499 annually, and those who got caught said they usually received a warning instead of more severe consequences.
“The fascinating human element of this is that usually the amount of money that people are stealing through expense fraud is small, but the risk they are taking for their personal lives and career is very large,” said Alan Rich, CEO of Chrome River. “I had one come up this week where a company noticed on our system that the amount on a receipt didn’t match the data that came in from one of the suppliers like Uber or Lyft. Our support people were thinking there was a bug, but it turned out that the user had used Photoshop and changed the amount on the receipt. It was for $9, and the fellow made it $18.”
So people tend to not book extra flights or hotel stays on their corporate cards, and if they do, it is likely to slip under the wire unless it stands out as a ludicrous expenditure. More traditional forms of corruption and fraud are what worries the financial professionals in most organizations.
The Association of Certified Fraud Examiners finds that good old fashioned corruption and asset misappropriation are the biggest fraud risks for global organizations. Go big or go home. In Europe, for example, expense reimbursement fraud accounted for about 10 percent of fraud schemes, compared to 55.1 percent for corruption, in 2016.
Using expense management software helps cut down on the risk for companies when compared to the annoying old method of spreadsheets and receipts taped onto pieces of paper for submission. The use of corporate booking tools with connections to travel providers also helps.
Chrome River’s Rich said there are two kind of people who commit errors or expense fraud: people who mess up when putting their expense into the system, usually by accident due to fatigue or too many cocktails, and those who have concocted a scheme to earn a little extra money over time. For people in the second category, the risk isn’t really worth the reward now that companies have automated systems for tracking expenses.
“It was part of this fascinating human element that why is someone taking their $50,000 job or something and putting it at risk for $10?” asked Rich. “Even if they did it 10 times, or 100 times, they’re still making a trivial amount of money compared to the damage they’re doing to their career. Expense fraud is more prevalent because people self-justify it. They are working beyond normal hours [when traveling for work], so the company owes them.”
The small amounts at stake make it hard to predict expense fraud, even if apps and new systems make it easier to detect.
“There really are not any specific trends to identifying fraud,” said Certify CEO Bob Neveu, another expense and travel booking technology provider. “Companies adopting travel and expense software typically are doing so to decrease the time and effort spent by employees submitting and managers approving expense reports. The overall growth in the travel and expense reporting industry clearly indicates a desire to better control spend and decrease fraudulent spend as well.”
More advanced systems, powered by artificial intelligence and machine learning, are on the way. One prominent travel and expense company told Skift earlier this year that it has trialed new software that compares expenses based on the purchase amount and where the purchase was made to suss out charges that stand out automatically.
It can also match data between the expense report and someone’s corporate card to find purchases that never actually get reported. The system, for instance, quickly found an executive who was buying jewelry for his wife every couple months that was never reported.
This kind of automation will be extremely useful once widely available, since it reduces the time spent by auditors and accountants poring over expense reports.
“Expense fraud happens over time and companies need to be able to compare spending habits of employees in similar roles, comparing expenses claimed across expense reports, identifying duplicate expenses, and tracking mileage to ensure employees are being reimbursed for claims within a reasonable driving range,” said Neveu. “The use of artificial intelligence in the auditing and analysis phase of expense reporting continues to grow. Multiple vendors continue to grow and expand their AI capabilities to better identify fraudulent spend.”
From the travel management side, catching fraud isn’t a big focus for companies. Most people travel for business infrequently that they don’t think they can really get away with booking extra flights or hotel stays.
“We are not seeing a lot of demand for anti-expense fraud systems from our clients,” said Eric Tyree, Carlson Wagonlit Travel’s chief data scientist. “The feeling seems to be that it’s relatively rare and low-level where it does occur. The vast majority of concerns out there are around leakage, breaking travel policy, booking offline (not using the TMC) as opposed to outright fraud.”
Tyree thinks, though, that there is more fraud going on than companies are willing to admit. Perhaps it just comes with the territory when sending people on the road, or the dollar value involved doesn’t make the issue worth solving.
“I reckon, based on previous experience in the financial industry, that there is probably a bit more fraud out there than people realize,” said Tyree. “If a system can be exploited there is a small percentage of the population that will attempt to exploit it. However, investment in anti-fraud systems needs to be proportionate to the risk it represents to the business. Audits can be used to determine risk and calibrate an appropriate response.”
So, it seems employees are getting away with expense fraud, but it isn’t worth it to devote hours of time to detect a few dollars per trip. In the future, though, automation will be used to catch the people who are charging their company $10 for a $5 frappuccino.