In 2010, the New York Times wrote a scathing article about the corporate world’s open secret; most corporate accountants knew that if abuses in a company’s finances were going to occur, expense report fraud was one of the prime targets for exploitation.
Because the report was written in 2010, there was a big list of reasons for why such abuses were occurring, with a distinct theme of a lack of good expense report software being a common cause. When reports had to be manually filled, it was far easier to modify, fabricate or inflate the results of an expense report.
However, what was most disappointing about that NYT report was that so many of these abuses took place at the top, with upper management of companies being the most prolific abusers. Mark V. Hurd, who was ejected from his position as Vice President of Hewlett-Packard, authorised payments and travel expenses of $75,000 to a favored contractor, while regular employees worked and traveled under far more Spartan conditions.
Other tactics that executives at the top level employed were far more personal. One strategy, for example, was for an executive who normally flew business or first class to exchange the ticket for two economy class tickets instead, so as to bring the spouse or other partner along for the trip. Said partner would also dine in restaurants at the company expense, and if the bill was particularly high, the executive would write it up in the expense report as dinner with a client or customer.
The Domino Effect
The result of seeing those kinds of abuses at the highest level of management—and being unable to do anything about it, because these are superiors—is to decide, “If they can do it, I can too.” One report suggests that from 2006-2009, 5% of most corporate loss was due to employee fraud, and of that 5%, 15% was due to exploiting expense reports. An executive at one financial auditing company described it as “being nibbled by little piranhas rather than eaten by a big shark.”
Much of this is the result of inefficient expense reporting. A manual system is easy to exploit, and even when people are being honest, collecting all necessary documentation and filling a form out at the end of a trip is a recipe for missing some transactions here and there. However, with a firm expense report policy in place, and more stringent measures such as expense report software, this can have a big effect on the accuracy of these reports.
Ultimately, however, management is also about leadership, and leadership sets examples. If executives in a company flaunt the rules and the other employees know about it, this will affect both company morale and company ethics. Once employees know their bosses have no issue with taking advantage of corporate funds, employees have little reason to not to do the same.
Expense report software makes travel expenses easy to track and account for, but that respect for honesty and compliance can’t be the sole responsibility of employees. Management needs to value it too.