2020 has been an eventful a year. A global pandemic, nationwide social unrest, election year… You already know this.
The lives of many people and businesses have been upended—some are adapting and thriving, others are closing their doors, and many are somewhere in between. In times of crisis, there is often opportunity.
Unfortunately, the opportunities present in times of crisis are not always positive. In the streets, some people will turn protests into an excuse to loot legitimate businesses. In corporate culture, some employees will take advantage of their organization’s decision to let them work remotely to commit fraud.
It’s a tough topic to think about when so many people are struggling, but the burden of leadership mandates that financial leaders are cognizant of how remote work affects company expenses and fraud.
In this post, we’ll discuss your obligations to employees in terms of expense reimbursement due to remote work, ways to spot potential cases of fraud, and how you can insulate your organization from this type of fraud.
What are the Duties of an Organization to Reimburse Employees Working Remotely?
Before we get into the types of fraud you could potentially see during this period of ‘stay-at-home’ orders, let’s take a look at the types of legitimate expenses employees working from home might incur, as well as what you’re responsible for covering.
When states began passing stay-at-home orders, businesses considered “non-essential” scrambled to figure out ways to keep their organizations operational with a distributed workforce—that was the focus. Today, as the global pandemic of COVID-19 continues, businesses must look closer at the state and local labor laws that govern expenses.
Every state and local municipality is different, and Stampli is not providing legal advice, but in general, here are several common expenses that remote employees are incurring during these times that your organization will be responsible for covering:
- Internet reimbursement
- Technology reimbursement (mobile phone, personal computer, webcam, etc.)
- Software reimbursement
- Printer reimbursement
- Vehicle reimbursement
- Mask reimbursement
- Office furniture reimbursement
- Client and prospect gifts and entertainment
Only necessary expenses need to be covered—items like pencils, paper, lamps, etc. are likely not covered. However, if paperless work is not possible, the organization would be liable for pay for printer ink, for example.
Again, we are not providing legal advice and you should be advised to consult your legal counsel to ensure compliance with your own state and local laws.
Now that you have a sense of what you might be on the hook for, here are some ways that your organization might be taken advantage of in terms of fraudulent expenses.
Detecting Expense Reimbursement Fraud
Expense fraud already accounts for 21% of fraud in small businesses (fewer than 100 employees) and 11% in large businesses (100+). In situations where organizations feel they’re unprepared for the surge in remote work and lack accountability, these figures can increase.
Here are some common ways employees commit fraud according to The Association of Certified Fraud Examiners (ACFE):
- Mischaracterized expenses – These are personal expenses that are submitted as if they were business expenses.
- Multiple reimbursements – This happens when an employee submits the same cost or receipt multiple times for the same item.
- Overstated expenses – These are legitimate expenses that employees inflate. Common occurrences include mileage and the amount left on a tip.
- Fictitious expenses – These are expenses for items that have not been paid for. People often use design programs to create fake receipts or invoices and submit them as legitimate expenses.
Now that you know the manners in which you’re likely to encounter expense fraud, here are some actions you can take to mitigate your risk of exposure.
How to Deal With (and Prevent) Expense Fraud When Managing a Remote Workforce
Expense fraud is certainly part of doing business, but that doesn’t mean you should just chalk it up as an inevitable loss with no action on your part. There are a few key actions you can take to encourage responsible expense practices from your team.
1. Update your company expense policy
If you haven’t done this in a while, do it today. Your expense policy pre-COVID-19 may now be out of date and in need of some adjustments. Expense policies are not a collaborative effort between management and their teams—analyze the workflows, define your outcomes, and explain with formal writing and crystal clarity the rules for expenses, including the punishment for non-compliance. Distribute the document and require a signature of acknowledgment.
You might also consider issuing corporate credit cards to replace employees’ personal cards (and the reimbursement thereof). There are two reasons for this:
- Employees can return said item and receive a refund then intentionally not mention the refund took place or unintentionally forgot.
- As a perk, the company can earn points and rewards for corporate card usage.
2. Include management in compliance
When creating a company expense policy, make sure that the management and executive teams play by the same rules. This sets a tone that the policy is not a royal decree issued from the tallest tower in the castle while eating roasted duck—this is something the entire company is on board with and aligns with the overall best interests of the organization. Additionally, management can sign off on reimbursement for expenses.
3. Double reviews and audits
It creates an extra step, but requiring two people to review an expense before issuing reimbursement can cut down on fraud. Empower your reviewers to ask the expense submitters questions and to follow up.
Additionally, implement a regular audit schedule, even if things are going well. For minor discrepancies, go directly to the employee and offer to coach them. For blatant cases of fraud, enforce your expense policy with impunity.
It’s not being paranoid to be concerned with expense fraud—it’s your job.