At the height of the Great Recession in 2009, the Association of Certified Fraud Examiners conducted research into the impact of an economic downturn on business fraud. The survey found that 55% of respondents had seen fraud increase at their organization over the past year. Of that, 48% took the form of employee embezzlement, such as expense or invoice fraud. Overall, 81% of respondents said they saw more fraud during downturns.
Despite this significant increase, only 22% of those surveyed said that spending on fraud detection increased, and just 17% expected fraud prevention spending to increase. At the same time, 34% of organizations had eliminated some fraud prevention controls, making it even easier for rogue employees to get away with their crimes.
As 2020 looks set to have an even more severe downturn than the Great Recession, it’s likely that we will see a similar scenario, as the perfect storm of fraud drivers is likely to occur again. According to Dr. Joseph T. Wells, CFE, CPA, chairman of the board of the Association of Certified Fraud Examiners, these key drivers are:
With these factors in play, what can organizations do to eliminate expense and invoice fraud? The first and most obvious step is to make it harder to submit fraudulent expenses and invoices. Many of those who commit expense fraud do so simply because it’s easy, or they don’t think they’ll get caught. Slip in an extra receipt to pad an expense report; create a fictitious invoice for a non-existent service provider; submit for a 20% tip on a meal when you only give 10%; provide a receipt for an expensive, fully refundable plane ticket that you canceled and booked the cheaper restricted ticket. These are all simple to do, but an easy way to prevent much of this is by deploying an expense automation solution, especially if combined with a corporate card. With built-in safeguards such as automated policy enforcement, to prevent these types of fraudulent transactions being submitted for reimbursement, organizations can vastly reduce the level of expense fraud.
However, with the increased financial pressure that recession brings, the more desperate people become. They are willing to take more risks with sophisticated, high-value fraud schemes. It’s therefore critical that organizations deploy tighter controls to maximize spend compliance and reduce fraud. This can, however, often come with a significant amount of extra clerical work for your employees and become a major time burden.
Outsourcing this process can deliver huge cost savings by cutting employee fraud to near zero. Instead of relying on overstretched internal team members (who may not even really know what to look for), deploying an external, highly trained auditor adds an extra layer between the expense tool’s built-in fraud prevention capabilities and the internal approver. The audit team can provide a thorough independent review of receipts, ensure reimbursement requests adhere to corporate policies, resolve queries directly with employees, and spot duplicate or missing invoice data.
Putting the external auditor between the expense submitter and the internal approver also eliminates the potential for collusion in knowingly approving fraudulent expenses or invoices. As an outside, disinterested party, these auditors operate without bias based on role or position in the organization. They also avoid the potential for intimidation, should a report need to be returned to a senior executive, for example.
In addition to stopping individual instances of fraud, by leveraging an external team that understands the causes of fraud, organizations can analyze data to identify potential red flags, such evaluating spend risk based on industry trends.
Removing the need for in-house teams to spend time manually auditing spend also frees up their time to focus on more high-value initiatives, such as analyzing costs to identify other potential cost savings, such as renegotiating vendor contracts. At a time when finance teams will likely be stretched very thin, redeploying internal resources to more value-generating activities could double the benefit to the bottom line.