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 are also capable of inventing expenses and submitting fake documentation to support them or requesting multiple reimbursements by submitting the same receipt more than once. And 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’ve got to establish and fine tune effective policies and processes. For example, if you’re 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’ll 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

Don’t let employees bleed your business dry with fraudulent paper cuts. Please contact us for help reviewing your expense reporting system and identifying ways to strengthen it.

© 2016


Biz Tip Topic Expert: ADAM HANSON, CPA

Adam is a Senior Manager with SVA Certified Public Accountants and works closely with business owners to advise them on accounting and tax issues, assist with accounting software implementation and support, and teach them how to better understand their financial statements in order to make critical business decisions.

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