To make money, businesses first must spend money—and this often takes the form of business trips, meals with clients and supplies to support their activities. As a business grows, this usually means that employees spend their own money and request reimbursement through the use of expense reports.
Most business owners trust the employees they hire to be honest on the reports they turn in. But even if you follow expert-recommended policies, such as requiring itemized receipts, you may eventually have reason to question a report. Here are a few signs to look for as you go through reimbursement requests.
1. Non-Itemized Receipts
Many companies require that each submitted expense item include an itemized receipt. This is not the credit card receipt that restaurants and markets often hand over, but a receipt that clearly lists each item that was purchased. This will help ensure employees aren't sneaking personal items or alcoholic beverages into their reimbursement requests when they wouldn't otherwise be covered. While an employee may occasionally forget to pick up the itemized receipt, repeat instances can throw up red flags. You might want to consider reimbursing without itemization as a rare exception, not the rule.
2. Purchases Without Documentation
Tracking expenses can be laborious, especially for a top performer who is always on the go. You may find the very people bringing the most into your company are the ones who tend to be the most lax about gathering paperwork and submitting reports in a timely manner. However, like itemized receipts, it's important to make exceptions to the rules as rare as possible. Make it clear that you expect documentation for each expense. If an employee makes a habit of losing or forgetting receipts, consider cracking down on that employee and closely monitoring reported expenses moving forward.
3. Fake Receipt Numbers
Thanks to technology, realistic-looking receipts can easily be generated and scanned or photographed to attach to expense reports. Pay close attention to the receipt numbers employees are using, looking for signs that an employee may not be very creative if they manufacture them. One tip is to look for sequential numbers that may have come from a receipt book they purchased at an office supply store or numbers that always tend to hover within a similar range. If you begin to have doubts, you can even contact the issuer of the receipt to verify that it is, indeed, authentic.
4. Digitally Altered Receipts
With today's photo editing software, it's easier than ever to make changes to a receipt that can't be detected. This is especially true if receipts are scanned or snapped by mobile device and sent. Workers can capture the actual receipt and make subtle changes using a photo editor, adjusting numbers, item information and more. One way to prevent this type of fraud is to look for an app that connects to an employee's credit card and verifies that the item balances match. This may require issuing a business credit card rather than relying on an employee's personal cards, but if it cuts down on your risk, it may be well worth it.
5. Duplicates
Unless you're paying close attention, a worker can easily submit duplicate receipts, sometimes even within the same time period. It's important to make sure your software is set up to make it easy for you to identify when an employee has put a receipt through multiple times. Often duplicate receipts aren't even intentional. An employee may accidentally double-submit an expense, especially if someone is trying to track a large number of items each month. If you do find a duplication, approach it as though it were a mistake but continue to monitor that particular worker's submissions closely.
6. Personal Purchases
When an employee is traveling, it can become difficult to distinguish between personal purchases and those that should be covered by the business. Those guidelines should be set in your employee handbook and distributed to employees before they are in a position to claim expenses. It's important to know the IRS rules when it comes to employee expenses to avoid issues with audits, but primarily, you can give your employees leeway when traveling. A magazine purchased at the airport is okay, for instance, but a stop at a clothing boutique to buy a new wardrobe isn't.
It's important to note that not all expense alteration comes from bad intentions. In some cases, employees are simply trying to make up for a receipt they misplaced or failed to obtain at the time of purchase. If you have a case where an employee is found to be altering reports, carefully audit other expense claims from that worker to see if this is an isolated issue or an ongoing problem. You may even find that a forensic accountant can take a look at the employee's past expenses and pinpoint issues you can't find at your level of experience.
The chances your business will deal with employee expense issues are slim, but it's important to make sure accounting practices are in place to prevent it. This will not only help to keep you from falling prey to expense fraud, but also help identify the more likely instances where employees innocently submit duplicate receipts or erroneous information. The more organized your expense reporting process is, the easier it can be to file taxes and deal with audits.
Photo: Getty Images
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