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Your expense report software is not enough to stop expense report fraud

June 01, 2015 / in Expense Reports Audit & Compliance / by Anant Kale
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Corporate credit cards may seem as a ‘safe’ bet to control and monitor expense report fraud. But, as the new audit conducted by the D.O.D. just found out, Pentagon employees used government credit cards for gambling, adult entertainment and other unauthorized services.



While this story has caught a lot of attention with the Pentagon being a high profile target of ‘wasteful’ government expenditure, the reality is that these expenses happen routinely even in the corporate world. We usually find out about them when high profile executives are fired for fudging expense reports  (Mark Hurd at HP or more recently Polycom CEO Andrew Miller’s expense reimbursement of personal expenses)


Many corporate veterans believe that expense issues are conveniently brought up when companies are looking for reasons to fire an employee. You just have to dig deeper in expense reports to find a cause. The fact remains that these are deeply representative of the culture and ethical elasticity that the company has (This excellent post from Ben Horowitz explains why it is important). Should the CEO’s expenses get scrutinized or should your top sales earners expenses be questioned are tough choices that CFO’s have to make.


The underlying issue is of course consistently applying the same ethical standards for expense reports misuse and violations across the organization. This requires timely scrutiny and vigorous research. Expense audits in todays expense software solutions are restricted to identifying expense policy violations (limits on hotel rates, telephone charges, meals, etc). Today’s manual audit processes fail to detect behavioral fraud or even have a contextual understanding of expenses. Manual auditor’s rely on being able to match paper receipts to expenses as the most important facet of the auditing process. In reality expense report fraud is rarely falsification of receipts (that’s so old school), some of the ways that expense reports have been misused are:


  • Expenses that are personal in nature are claimed as business expenses
  • Merchants who cleverly disguise their actual business (read adult entertainment) with legitimate business sounding establishments
  • Business expenses that are routinely padded with claims of customers meetings so that they pass through policy limits

While credit card fraud detection does very well in stopping unauthorized usage of corporate credit cards, they are just not equipped to handle fraud where the intent of the user is the problem (In fact it’s not fraudulent spend in the first place!)


Today’s expense report auditors and expense report software are just not equipped to conduct huge amounts of research. Manually reviewing expense reports for misuse and fraud is not only expensive, but also largely ineffective in identifying fraudulent behavior. 


AppZen’s big data approach to expense report audit analyzes both structured and unstructured data in expense reports, augmenting the data from expense reports to web scale data to look for patterns and spend anomalies. A holistic view of the expense report incorporates contextual information about the employee, job role, spend practices etc. to determine expense violations, unethical behavior and of course, fraud. More about this approach can be read in this white paper.


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Tags: Expense Reports Audit & Compliance


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