Accounting | Fraud

5 top tips to stop outrageous employee expense claims

With the rise in telecommuting and outsourced talent, there is an increased risk of expensing fraud, say experts

A Facebook IconFacebook A Twitter IconTwitter A Linkedin IconLinkedin An Email IconEmail

Business people having lunch at restaurant while studying business paperworkFalse expense claims are a form of occupational fraud, and are on the rise, according to a recent survey by Robert Half Management Resources (Getty Images/poba)

If you’ve worked in a finance department, you’ve likely seen it before. An employee expense form claiming exaggerated mileage, drinks disguised as dinner, or an extra airfare tagged onto a business trip. 

Questionable expense claims can be as subtle as much as they can be outlandish, and they’re rising in frequency, according to a recent survey by Robert Half Management Resources. Of the more than 300 CFOs from Canadian companies (with 20 or more employees) surveyed, 58 per cent reported an increase in inappropriate reimbursement submissions over the past three years.

Here are five tips to help your business curb those numbers. 

1) KNOW THE IMPLICATIONS

From spa days to speeding tickets, some employees will try anything to offset personal expenses, says Evangeline Berube, branch manager and vice-president at Robert Half Management Resources in Edmonton. 

“To some people who are new to the corporate world or expensing items…[they] just don’t know what’s appropriate,” says Berube. “That being said…there are some people who might think, ‘Well, I think our controls might be a little lax here, so let’s see what line we can push.’”

In either case, claiming false expenses could be occupational fraud, especially if a company credit card is used. 

Not only does this impact a company’s bottom line, claiming false expenses could also have potential tax implications, warns Brian Ludwig, CPA, of Crown Tax Services in Regina. 

“They [companies] want to make sure they are compliant with the CRA and tax reporting because even though their employees try to claim it and they pay it, CRA will come along and say, ‘Oh no, you can’t write off those types of expenses” says Ludwig. “We [CPAs] definitely provide some guidance there.” 

2) PREPARE YOUR STAFF

Employers should have a clear expense-claiming policy that is accessible (as a document) and understood, says Berube. 

“Part of what leads to that sort of behaviour…is organizations not being clear on what the policy is…or not having that open line of communication with management, so they can even ask the question,” she says. 

Berube recommends outlining, with training, what items can be expensed, how to submit them, as well as the approval, evaluation and reimbursement process. Rules around other reimbursements programs offered on items such as fitness memberships, parking or transit passes should also be communicated. 

Reminders—either in an email, newsletter or posted on the company intranet—are a good way to keep everyone on track, according to the survey. 

3) REVIEW AUTOMATED PROCESSES

Technology reigns supreme, with 90 per cent of firms using digital-based solutions in the expense-reporting process, according to the survey. Of those firms, 51 per cent have internally developed systems while 39 per cent have integrated with third-party systems.

“Technology is great, because it can streamline the process, so people aren’t cutting and pasting, photocopying,” Berube says. “[But] the review still needs be there to ensure that it’s complying.”

For smaller firms, the manual process may make more sense from an investment standpoint, Ludwig adds. According to the survey, when questioning just the small firms (20-49 employees), 21 per cent reported using manual systems. 

“It could be more of a con because it’s an expensive add-on for them and they might not be set up for that,” he says. “There could also be potential pitfalls too. How are the original receipts submitted? ...[Errors] could easily get pass them [finance], if they are not closely checking from one expense form to the next.” 

4) MONITOR AND EVALUATE

In an age of telecommuting, outsourced talent and shared workspaces, employees are working remotely more than ever. This out-of-sight, out-of-mind phenomenon increases the risk for expensing errors, notes Berube. 

“There has got to be a little more due diligence now because of people not being within eyesight of others,” she says. “Definitely more controls need to be in place.” 

Mitigate this with vigorous monitoring, especially with expense submissions from freelancers, contractors and consultants, as well as sales staff and those who travel for business, advises Ludwig. Look out for errors with mileage claims, fuel and car-rental receipts, restaurant bills and other entertainment expenses, where things can get fudged, he adds. Make it clear whether your company covers home-office items, such as internet, supplies and commuting costs.

“Make them [employees] put down extra information,” he says. “If they are claiming mileage, where did they go and [what was] the purpose of the trip? Same thing with meals: keep track of who they met with and the purpose of the meeting.

“It’s the same as the information the CRA requests from the business owner,” he says. “In this case, the business owner expects the same thing from employees.”

5) BE UPFRONT AND DIRECT

If an expense submission is flagged, follow up with the employee responsible as soon as possible, says Ludwig. Ask for claim details, reinforce the company policy, and warn about repercussions if there are future discrepancies. 

“They [companies] just have to have a conversation with that employee,” he says. “There might be a warning by saying, ‘No, we are not going to be allowing any future expenditures like this.’ It’s about good communication between the employee and the business.”

GET IT RIGHT

Running a business in volatile economic times is no small feat. From building your cashflow to measuring profits, CPA Canada offers a wealth of resources for small- to medium-sized businesses.