Solomon & Hoover CPAs, PLLC Blog - Financial Guidance to Help Your Business Succeed

Solomon & Hoover CPAs, PLLC Blog

Financial Guidance to Help Your Business Succeed

BMSsp13_3Like inflating income tax deductions, padding expense account reports is something everyone knows is wrong, but many do anyway. According to the Association of Certified Fraud Examiners’ 2012 Report to the Nations, expense fraud makes up 15% of all occupational fraud cases. And while each incident may seem minor, the median annual loss for surveyed companies was $26,000 — a loss few businesses can afford.

Cheating methods

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.

Systemic problems

By scrutinizing expense reports and supporting documentation for inconsistencies, “bad math” and receipt doctoring, you’re likely to catch some of the less-sophisticated cheats. But if the problem is widespread or its perpetrators are experienced, you may need to hire a fraud expert to conduct a thorough investigation of expense records, interview suspect employees and gather evidence needed to fire, and perhaps prosecute, guilty parties.

A fraud expert can also help you develop policies and processes that prevent expense fraud in the future. For example, if you’re still relying on paper reports, switching to an electronic reporting system may make it harder for employees to cheat.

At a minimum, you’ll want to set some 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.

Managing fraud risk

Don’t let employees bleed your business dry with paper cuts. Thoroughly review their reimbursement requests and, if you suspect large-scale losses or a systemic problem, call in a fraud expert.

© 2012 Michele M. Hoover, CPA. Alexander & Hoover, P.A., Certified Public Accountants, specializes in providing a wide range of diversified accounting, tax, finance, and consulting services to individuals and businesses. 

To learn more, contact Michele M. Hoover, CPA at 239.481.4114 or visit

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