Seven ways employees steal through expense reimbursements

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

In December 2014, two executives from a Maryland government contractor pleaded guilty to stealing more than $1 million through fraudulent expense claims over a seven-year period.  They bought luxury bedding, a dog sofa and a time-share in Barbados. 

How did they do it?  Expense Reimbursement Fraud!  They charged the personal expenses on their company credit cards and then forged receipts to misrepresent the items as business expenses.

Could this happen in your nonprofit?  You bet.  Expense reimbursement fraud is one of the most frequent asset misappropriation schemes facing nonprofits today, with victim nonprofits losing more than $40,000 on average according to the Association of Certified Fraud Examiners.*

Here are seven ways employees steal using company credit cards and expense reimbursements:

Returns.  Employee buys an airline ticket and gets a receipt.  Employee cashes in the ticket for a cheaper flight.  Employee still hands in the more expensive receipt requesting reimbursement.  You reimburse employee more than the travel really cost.

Duplicate claims.  Employee requests reimbursement for a car service trip, and then requests a mileage reimbursement for the same trip two months later.

Made up claim.  Employee requests mileage reimbursement for trips not taken.

Cash advances.  Employee uses company card for a cash advance at an ATM while on travel, then uses cash for personal expenses and represents them as business expenses. 

Personal charges represented as business.  Employee uses company card for personal purchases.  Employee fails to submit receipts, alters receipts or misrepresents the items as business-related.   

Personal charges never reimbursed.  Employee with accounting access uses company card for personal purchases and records them as employee receivable, but never repays company for personal charges.  Employee later buries receivable balance in some other account.

Personal card paid from company.  Employee prepares payment for company credit card, obtains signature on check and then sends payment to her own credit card.  Company card has outstanding balance, paid with a larger payment in the following month.

What can we learn?

There’s a lot you can do to reduce your risk of loss through fraudulent expense reimbursements:

Use a corporate purchasing account whenever possible for travel and supplies.  Any refunds for returned items will go to your corporate account.

Centralize purchasing so that employees are not buying supplies or airline tickets and requesting reimbursement. 

Require credit card users to use an app like Concur to capture receipt images for credit card charges allowing you to spend more time analyzing expense charges and less time matching up charges with receipts.

Group all reimbursed expenses by month.  Set a time limit for late reimbursements.  Compare any late submissions to that month’s reimbursement request.

Have an immediate supervisor review reimbursement requests from employees who travel frequently.

Limit the use of cash advances to special situations requiring advance approval.

Limit access to company credit cards. 

Have informed individual review credit card documentation and follow up on items susceptible to personal use.  Set up an independent review process for everyone’s card.

Discourage or prohibit personal use of company card.  Require employees to repay within 30 days.  Follow up on outstanding balances until repaid.  Set up an independent review process for everyone’s card.

Review credit card statements for a current payment every month.  Follow up on overdue status or unpaid balances carried forward. 

Review bank activity online to identify unexpected payments and ensure expected payments go to company accounts.

Write a detailed expense reimbursement policy.

Set the right tone at the top avoiding the appearance that top leadership spends extravagantly.

Learn more about fraud prevention controls in our in our 501(c)(fit!) PLUS on-demand webinar, You Just Lost $1 Million—fraud prevention for CEOs. 

Learn about fraud warning signs in our FIT! TIP from May 8, 2017, Fraud Flags?

Learn more about fraud perpetrators in our FIT! TIP from May 2, 2017, Façade for Fraud?

Get more FIT! TIPS.  Join our 501(c)(fit!) community. 

*yes, it’s true, per the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse 2106 Global Fraud Study. 

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