When An Expense Claim Becomes A Crime

When An Expense Claim Becomes A Crime

When An Expense Claim Becomes A CrimeIt is surprising how few business owners realize that they may be at risk for fraud. This includes the fallout of becoming a victim of the crime, but also of being held accountable for the crime. Expense claim fraud is the most prevalent form of corporate fraud which goes undetected. Companies take months to even years to discover that funds are being improperly used, and this means that finances have continued to be lost for that entire duration.

This prospect alone is a highly disconcerting idea, and the immediate reaction that CFOs have is that protocols are too stringent in their company for this to happen to them. However, in a case from several years ago, the US Department of Defence fell prey to an extensive expense claim fraud that claimed over a billion in funds. The instance involved a parts contractor who was submitting receipts which listed quarter inch washers, as one would find in a faucet, for over $1 million apiece.

Shockingly, the contractor was paid, and continued to supply parts and submit equally exorbitant bills. The manner in which this fraud was uncovered was through an expense claim that was submitted twice. A Department of Defence accountant caught the duplicate invoice number, and it was only then that an investigation was conducted and the contracting company was audited. By the time that the guilty parties were charged, the money had been spent, and could only be partially recovered.


Attention To Details

There are several important lessons in this situation, the first of which is that expense claim fraud is a reality and that the status or size of an organization does not preclude it from falling prey. The second lesson that is also a vital take-away is that even with a substantial accounting department, this fraud was only uncovered through a mistake on the part of the perpetrator. In extrapolating the message out to any business, it raises the stakes on accurate measures for expense reporting and monitoring.

In the case of the contracting company, the owners were actually the ones responsible for the fraud against the government. While being liable for reparations, they were also charged with treason. Even in situations where the victim is not a branch of government, penalties for expense claim fraud are still substantial, with fines and prison time. Had separate accounting personnel been employed by the contracting company, then those individuals would also have been investigated, and could have been found equally liable.

This makes it vitally important for all businesses to stay apprised of any expense claim that is filed. Fraud from other companies, including vendors, and even from employees becomes an ongoing crime, because the longer that people are able to get away with it, the more they will attempt to take. Managing expense claims and reports with certainty and accuracy is the only way to stay alert to the danger.