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Hybrid working will fuel expense fraud - here's how we fight it

(Image credit: Image Credit: Gustavo Frazao / Shutterstock)

More than half (60 percent) of organizations plan to embrace hybrid working once pandemic restrictions are lifted, and some - including big names such as Facebook and Twitter - plan to shift to a permanent remote working model. 

This opens up a wealth of benefits for employees and employers alike, from a dramatically improved work-life balance and more time to spend with family and friends to a reduction in costly office space leases and unnecessary meetings. At Cardlay, for example, we’ve embraced a new “assessment-based” working structure that ensures we remain ambitious, hire the best people, and give our employees the freedom to work how they want.

However, for many organizations, particularly those clinging to old-fashioned policies and legacy systems, this shift to flexible working will also create a major problem: an increase in expense fraud. The Chartered Institute of Internal Auditors has warned that this mass shift to hybrid working post-pandemic, which will see employees splitting their time between their home and the office, has created a “cultural crisis” for businesses by eroding staff loyalty, which is making it more difficult to detect expense fraud. 

Expense fraud ranks among the most commonly occurring types of employee fraud; an estimated 5 percent of revenues are typically lost to fraud around the world, and expense fraud alone accounts for 14.5 percent of all incidents of fraud that are uncovered. Similarly, the Association of Certified Fraud Examiners’ Report found that expense fraud accounts for 21 percent of fraud in small businesses (under 100 employees), and 11 percent for medium-sized businesses (over 100 employees). 

However, while expense fraud has long been a problem for organizations of all sizes, for many, it’s a problem they don’t even know they are fighting due to a failure to identify or challenge potentially fraudulent claims - particularly in the US. 

Turning a blind eye to dodgy expenses

There, expense fraud is higher than the GDP of more than 35 countries and is costing businesses more than $2.8 billion every year. According to the Global Payroll Association, the most common incidents relate to exaggerating mileage (27 percent), buying office supplies and keeping them for personal use (20 percent), and altering taxi receipts to claim a higher fare (16 percent). As a result of this new way of working, these types of claims will likely diminish, and I expected they instead could transition to overstated electricity and internet costs and fictitious office furniture claims.  

These claims are most likely to be experienced by organizations that utilize non-transparent systems with bad user intelligence for their employees, which makes it so much more difficult for employees to go through the expenses process. At the end of the day, it’s super time-consuming and it leads to a waste of relevant working time. 

Other employers tend to turn a ‘blind eye’ to dodgy expenses, which also means they’re more likely to see an increase as employees shift to dispersed working. Business culture has emerged which, all too often, tolerates and legitimizes it, despite expenses being the second highest controllable cost for the majority of businesses, second only to salary. This reluctance to tackle the issue, together with the difficulties in obtaining accurate data, has only made the problem worse.

There is a solution, however. While, in some cases, technology is enabling the growing problem of expenses fraud by enabling employees to more easily alter and modify receipts and slyly file fictitious claims, it can also be used as a powerful tool to help fight it. 

Thanks to the fintech revolution and the increasing prevalence of financial technologies, software-based expense management solutions are now available to relieve organizations of old-fashioned - and inherently insecure - manual processes. In some cases, these solutions can be used to issue, activate, load and manage cards and expenses, while others employ technologies such as artificial intelligence (AI) and machine learning (ML) to match receipts and invoices, making the expenses process far more difficult to cheat. 

Next step in digital transformation

These systems can also give admins the opportunity to stop any employee’s spending in real-time, so if they sense that something is wrong, they can immediately close the card.

Research also shows that, despite our shift away from paper for the majority of business processes, a third of employees are still turning in paper receipts to claim expenses, despite the fact that employees who use hard copies have been found twice as likely to commit fraud. Putting systems and tools in place can simplify the process, making it easier for employees to claim the right amount, and for policy to be followed.   

According to SAP Concur, 22 percent of all expenses in a traditional expense management system are flagged as exceptions, which typically needs to be handled at human resources at a high cost to the organization. Of course, this isn’t always a sign that fraud has been committed, and it could simply be an error - which is another fly in the expenses process ointment. One in five expense reports is filed incorrectly, according to the Global Business Travel Association, which found that 19 percent of all expense reports contain errors. And the same report states that it takes a further 18 minutes (on average) to correct each one.

As we move towards hybrid working, we should all be able to reap the benefits. Over the past 18 months, organizations have moved quickly with digital transformation projects - be it through the implementation of VPN software that enables employees to work from home securely, a transition from on-premise to the cloud, or a move to videoconferencing services that have removed the burden of time-consuming in-person meetings.

Expense management should be the next step in businesses’ digital transformation journey. By ensuring you have the technology in place to automate and monitor the process - as well as making it as easy as possible for employees to use - that’s one less problem you don’t have to worry about.

Jørgen Christian Juul, founder, Cardlay (opens in new tab)

Jørgen Christian Juul is the founder of Danish fintech scale up Cardlay and has extensive experience from holding executive positions in listed companies and other corporate organizations, and at the same time being an entrepreneur.