Manage episode 374609684 series 1082451
Employees can commit expense fraud in several ways, such as using personal expenses as business, submitting fake receipts, inflating costs, duplicating submissions, falsifying mileage, and using company funds for personal use.
Why do employees commit expense fraud?
There can be multiple reasons behind expense fraud. Financial gain is the most common motivation, but some employees may do it for personal reasons, misunderstanding of policies, pressure to achieve targets, or simply apathy.
As a business owner, it is essential to understand the reasons behind expense fraud, as it can help you identify and address them proactively.
Understand The Employee Theft 10-10-80 Rule - Discovered over many years of experience and first-hand observation by auditors, accountants, fraud examiners, and anyone involved in detecting employee theft.
Ten Percent of all employees, including bookkeepers, will steal in various ways from office supplies, petty cash, graft, kickbacks, and payoffs from your suppliers, vendors, and sub-contractors, and even hundreds of thousands or even millions of dollars. They will do it regardless of how many security systems are in place because they lack integrity. They cannot be stopped, only caught! And only then, if you have systems in place and can convince the criminal justice system to take action, good luck with that!
Ten Percent of all employees, including bookkeepers, will never steal because they have integrity and a "Producer's" paradigm. Ultimately, these people will add so much value to your company that you cannot help but reward them with more money, benefits, and recognition. Because if you do not, they will be recruited by your competitors.
Eighty Percent of all employees, including bookkeepers, will steal if they feel confident they can get away with it and if circumstances allow for it due to weak integrity and a sense of "Redistributing The Wealth, But Not The Work Or The Responsibility."
Signs to watch out for your employee:
- Asks for signature authority on your checking/savings/payroll accounts
- Has a lifestyle that seems above what they are earning
- Takes Records Home to work on, or they want to work in the office when no one is around (Fraudulent activities are more accessible when nobody is around)
- Gets defensive when you or your CPA asks questions.
- Has access to your credit/debit cards
- Your bookkeeping is a complete mess, and you cannot understand it.
- Tries to explain away delinquency tax notices.
- Is the primary contact for your company's banks, auditors, creditors, etc.
- Misplaces payroll receipts, deposit records, supplier letters, and estimates.
- Makes bank deposits, and they seem to be too small.
- Show signs of drinking, drug, gambling, or family financial problems.
- Suggested they could save money by eliminating the outside accounting firm.
- Gets angry when you ask for a QuickBooks report.
- Tries to blame the previous Bookkeeper or outside accounting firm for messy QuickBooks.
- Does not get along well with other employees and staff members.
- There are more warning signs, so be aware of and action steps you can take.
The first step in preventing expense fraud is to have a comprehensive and clear expense policy. It should be up-to-date, relevant, and easily accessible for all employees.
Ensuring that the policy covers all necessary expenses, acceptable limits, documentation requirements, and reporting procedures is essential. It would be best to encourage employees to ask questions or seek clarification regarding the policy.
Require detailed receipts and proper documentation to support the expense claims. Expense receipts should be original and include the date, amount, vendor name, and a clear description of the expense. For instance, credit card statements are not acceptable as receipts because they need to provide detailed information about the payment.
Conduct regular audits of expense reports to identify any patterns or suspicious claims. Audits not only help you detect fraudulent activities but can also identify internal control gaps or process deficiencies. Providing policy training and raising awareness of employees regarding business ethics can also help prevent expense fraud. All employees should be trained on these measures and regularly communicate a zero-tolerance policy for fraud and misconduct.
Additionally, implement systems for reviewing and approving all expenses and ensure checks and balances are in place to prevent unauthorized spending. By taking these steps, we can maintain a culture of integrity and honesty in your business and protect your construction company's reputation.
You can leverage expense management software that automates the expense reporting process, thereby reducing errors and improving efficiency. It can also help monitor suspicious activities, such as multiple submissions for the same expense or expenses exceeding the allowable limit.
Preventing expense fraud requires a collective effort from construction business owners, project managers, and employees.
Having a clear and comprehensive expense policy, encouraging ethical culture, conducting regular audits, and leveraging technology can help prevent expense fraud. By implementing suitable prevention measures and promoting ethical conduct among employees, you can reduce the risk of expense fraud and protect your business from potential financial and reputational losses.
Don't let expense fraud be a hidden cost in your business. If you need help creating policies or want to review your existing expense processes, we're here to help. Reach out to us today!
About The Author:
Sharie DeHart, QPA, co-founded Business Consulting And Accounting (Fast Easy Accounting) in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations. She offers insights on managing the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or firstname.lastname@example.org