The title of this blog post might give you the impression that you’re going to be reading a how to get your employer to pay for your entire wedding. Sadly no, this article is about something a little more serious… expense fraud!
I recently visited a soon to be Expense8 customer, who told me a story of expense fraud that left me completely astonished! This fraud highlighted major gaps in this company’s culture and in their procedures. The fraud occurred over a 6-month period and involved an employee’s wedding.
An Unreliable Solution
Unfortunately, not all employees are good, honest and trustworthy people. The situation arose through a fairly common mistake in large organisations where an executive delegates authorisation of all expenses to one person. The same person also had access to the corporate credit card to book flights, accommodation and other expenses. This meant that she was given full access to purchase and approve expenses by herself.
Having identified how much power she actually had, the employee began to make small purchases on her boss’ corporate credit card without his knowledge. The transactions would appear in the company’s Expense Management System for reconciliation, which she would then process and approve herself. Nobody ever saw these transactions and nobody ever asked any questions.
Then Came The Wedding
Her wedding was fast approaching and like many of us, who have been through this before, you’ll know how expenses start piling up, budgets are blown and money quickly becomes tight. So she started to put some smaller items for the wedding on her boss’s corporate credit card. First the invitations were charged, nothing was said. Then the flowers were charged on the card, and similarly nothing was noticed or said. Then the wedding cars were also purchased on this same card, and again nobody found out. She went a step further and put the entire $30,000 wedding reception on that same credit card. Finally, it was brought to someone’s attention after noticing such an absurdly, large transaction being put on the card and coded to their cost centre!
There were two key takeaways from this example:
(1) Trust is not a control!
We all like to believe our staff are loyal, they love the company and would never do anything fraudulent. But the reality is sometimes different! Statistically speaking it is next to impossible for any medium to large company to eliminate fraud. However, there’s a well discussed theory on employee fraud known as the 80-10-10 Rule of Employee Fraud:
- 10 percent of employees are honest and loyal, and will not steal under any circumstance, even if there was a guarantee they wouldn’t get caught.
- 10 percent of employees will steal, given any opportunity and with very little motive or need. These types of employees will look to create an opportunity.
- The other 80 percent of employees are on the fence and, if the opportunity and need arise simultaneously, they will rationalise the fraud and be tempted to steal.
In the story above, the employee in question was given the opportunity (given full access to make and approve transactions) and the need arose (her wedding).
(2) Nobody starts by stealing $1,000,000
In almost all cases of employee fraud, the employee starts off small, and then works his or her way up to bigger transactions. Starting off with smaller frauds allows them to suss out the landscape. In the story above, the employee had been making increasingly larger and larger fraudulent purchases until it reached a point where somebody actually noticed.
What Happened Afterwards?
This particular fraud led to a change in the organisation’s culture and procedures in how they enforce their Travel & Expense Policy. Reports were developed to identify any out of the ordinary transactions. The first day these were run, 50 employees were identified as having spent money on iTunes with their corporate credit card in the past month. The organisation then had frank conversations with these employees, directing them to their Travel & Expense Policy and making sure that they understood what was the acceptable use and unacceptable use of a corporate credit card. As I mentioned earlier, most fraud happens over time and will increase in scale. While a 99 cent transaction on iTunes may seem insignificant, there are some people who will realise they got away with it, and then think “What if a put on a $5 transaction…then $10, then $50….” and so on.
How We Can Help You
Expense8 integrates your Travel & Expense Policy into the system, meaning that you’ll be alerted in real time when out of the ordinary expenses occur. This means you can act on fraud now instead of later! We’ve also helped many organisations on how to deal with expense fraud. Here’s a guide we wrote, 3 Ways to Beat Travel & Expense Fraud, which is an quick read and easy for you to share around with your team. Click here to download this guide now!