Yes, Virginia, You May Have a Few Dishonest Employees
Best practice tips for prevention fraud in T&E.April 8, 2010
by Mary Schaeffer
While no one likes to acknowledge that one of their employees might steal from them, it is a fact of life. An organization’s greatest vulnerability is not from the new employee, the one who is given little access, but rather from the long-term, trusted employee. This is, unfortunately, who commits the lion’s share of insider fraud and the losses associated with their frauds tend to be higher.
The Insider Problem
The problem for any executive concerned about this issue is that while only a few employees ever steal from their employer, there are no easy ways to tell which long-term trusted employee will actual dip into the till. That’s why so many of these crimes go on for so long. Your employees know better than anyone where the weak links are in your internal processes. Thus, they are uniquely positioned to take advantage of those lapses.
There is a side benefit from installing best practices to deter fraud and it is a big one. Many of the strategies and tactics used to deter crime will also deter duplicate payments. So by instituting fraud-deterrent practices, you will at the same time be improving your accounts payable operations and taking a whack at the duplicate payment issue, which virtually every organization also has.
The T&E Factor
If there is one area where checks and balances fall down more than any other area, it would probably be the whole travel and entertainment/expense reimbursement review process. More managers than not routinely approve their subordinates’ reimbursement requests without ever looking at the items included on the report. It doesn’t take long for an employee to figure out which managers take this lax approach.
At one point I worked for a company and was responsible for the group that got checks signed. Originally, every single check was reviewed and signed off on by the chief operating officer, a man who would stand for absolutely no fooling around. Eventually I was able to convince the company and him that we had the appropriate controls in place to permit checks under $1,000 to go out with one signature. We immediately saw an increase in T&E reimbursement requests and amazingly, most were for under $1,000. Employees quickly figured out that they could avoid his scrutiny and wrath when he found something questionable but submitting more frequent expense reports staying under the magic $1,000 number.
Fraud losses associated with T&E tend to be lower than other fraud losses. But they should be pursued ruthlessly anyway. Not only is theft wrong but many larger frauds have been identified when the crook could not resist dipping into the T&E pot as well. Typically these thefts start small and grow with each “success.”
Best Practice Prevention Tips
Companies are starting to take a stronger stand when it comes to T&E games. A number are adopting a policy of zero tolerance for any sort of malfeasance. Some organizations terminate employees who have stolen as little as $25. The following T&E best practices will not only help you run a more efficient program, they will serve as a fraud deterrent as well.
Other best practices that make fraud more difficult include:
Fraud will happen. It’s your job to make it so difficult to commit against your organization that fraudsters, both internal and external, turn their attention elsewhere.
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Mary S. Schaeffer is the author of over a dozen business books including Travel & Entertainment Best Practices (John Wiley & Sons) and Fraud in Accounts Payable: How to Prevent It (John Wiley & Sons). She is the publisher of the CFO & Controllers Accounts Payable Management Journal, a quarterly electronic journal for senior executives concerned about internal controls and cost control in their payment function, writes a monthly newsletter, a free weekly ezine e-AP News, speaks at accounts payable webinars, seminars and conferences and directs the organization’s consulting practice. Corporate Finance Insider readers should note that the views expressed in this article are solely the author’s and does not reflect the views of the AICPA or AICPA Corporate Finance Insider.