Stopping Fraud From the Inside Out: A Conversation

In every crisis, there are people who can take advantage of the situation. While we want to assume positive intent, we must acknowledge that we are working, often, in wholly new environments. The pandemic has created new challenges in compliance, with new policies and expense types creating opportunities for mistakes and misuse.  Traditional audit approaches, like human-based sampling are not always the most effective. Technology exists today to allow you to review all your expense reports, helping ensure you are identifying your problem areas.

My collaborator on this blog, Connie Hoen, Director of Audit Services for SAP Concur, joined me for a conversation about how fraud can be detected given the significant shift in working environments. She explained it this way, “Once an employee is called out for a potentially fraudulent transaction, they often claim it was an error—unintentional. But, when the same ‘erroneous’ submission is in report after report, the realization hits that this is no longer an innocent mistake—now it’s turned into a behavior-change requirement.”

The 2020 Report to the Nations of the Association of Certified Fraud Examiners (ACFE) shared some recent trends:

• 14 months: The duration of the typical fraud scheme before detection at the cost of $8300  per month.
• 5% of annual revenues: Estimated operational losses each year due to fraud.
• Billing fraud, payroll and check and payment tampering: The most likely fraud risks to small businesses as opposed to enterprise companies.
• The four sources of over 50% of corporate fraud: Operations 15%, Accounting 14%, Executive and Upper Management 12%, and Sales 11%.

In the full report, the ACFE also states that the presence of anti-fraud controls is associated with lower fraud losses and quicker detection. 

In our discussion, I asked Connie to share her perspectives on this topic and what her teams are starting to see, as well as what she is hearing from customers in the wake of COVID-19.

Ralph: HI! Connie, thank you for joining us today.  First, please tell us what you are hearing from customers and what your teams are observing currently.

Connie:

Thank you, Ralph, and happy to share some perspective.

We have heard loud and clear from customers that their focus last year was to ensure their employees remained safe and healthy, which resulted in many of them shifting to a remote working environment. While those shifts happened quickly, there were changes that people were not aware of or understand.

Ralph:

What did you focus on to help customers manage remote or hybrid work-related spend?

Connie:

One way we assisted customers during the change was we suggested they make updates to their travel & expense policies that added work-from-home expense types.Doing so continues to help them manage COVID-19 and remote work-related expenses; it also makes it easier to identify non-compliant spend in those categories.

Ralph:

From your experience, are there practical actions that travel and expense managers can take to help decrease potential fraudulent exposure?

Connie:

Absolutely! Here are some actions companies can take:

1. At a minimum, conduct random checks of expense reports: say, any report more than a certain amount turned in over a certain number of times per year. If you’re not performing a 100% audit selection, we recommend a random audit of some percentage of regularly submitted reports (commonly, companies look at 50%, 30%, 20%, or 10%). Other methods that can trigger audit target lists include specific dollar amounts, key expense categories, and reports resubmitted due to an earlier exception identified.
2. Don’t take things at face value……dig a little deeper in the data. Here is an example: When I was working with an Expense Administrator on compliance topics, we ran a report showing the spend across all expense types. She noticed one department with a higher spend in the “Florist” expense category. This expense category should have been used to send flowers to the employees who had a life event: a new baby, a wedding, funeral, or anniversary. When the Expense Administrator dug further into this, she uncovered that an employee was expensing her personal wedding flowers through her corporate card and expensing it under the department “florist” expense category!
3. Keep a list of habitual abusers and review them often. You’ll probably find where there’s smoke, there’s fire. The SAP Concur Audit Service has a configuration available to select an employee to have 100% of their submitted reports processed through audit. We also have reporting to show compliance exception ranking across all employees that have submitted an expense report.

Ralph:

Great advice! Thanks, Connie. Any other tips?

Connie:

Sure. Here are a few that could save hassle and heartache:

• Make certain Expense Administrators who have signature authority for their bosses are not approving their own expense reports.  That’s not great compliance control, to say the least!
• If you have a corporate credit card program, ask the supplier to run a monthly insights report to monitor high risk questionable spend and compliance. You’ll be surprised what you see. Remember, SAP Concur also has a suite of reports available related to Compliance/Fraud activities.
• Post a pandemic review of insights from compliance data into a higher level of unauthorized spend submissions on expense reports. This sets them apart and increases visibility.
  Some examples of non-compliant spend our SAP Concur auditors have seen include paint and painting supplies, pet kenneling, home internet, family plans, wall art, office furniture. And my favorite – mileage for daily Starbuck runs.
• Add Intelligent Audit and Machine Learning (AI/ML) to your current compliance program. It’s a smart move. It allows for higher accuracy and faster identifications of non-compliance spend.
• Reviewing receipts attached to expense report line items – even if not at receipt required values – can identify receipt data alterations.

Ralph:

Connie, this is great advice. Thank you for sharing your wisdom with us!

Connie:

It’s my pleasure! In fact, it’s my job. This is a reality in the business world we contend with daily. We want to eliminate as much of this exposure as possible, whenever possible.

That’s why SAP Concur has such a wealth of solutions to fight fraud, in addition to our partners who work to increase the effectiveness and resilience of expense programs as our customers navigate the ever-changing expense auditing landscape.

Ready for more? Learn about our Financial Service Integrator Partners and how they can help. Also, check out our eBook More Than a Matter of Safety and see why business resilience begins with SAP Concur solutions.