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 transaction fraud increase at their organization over the past year. Within that group, 48% reported fraud in the form of employee embezzlement—specifically expense or invoice fraud. And overall, 81% of respondents said they saw more fraud during downturns.
Despite this significant increase in fraud, only 22% of those surveyed reported increased spending on fraud detection, while just 17% expected fraud prevention spending to increase in the future.
At the same time, 34% of organizations had eliminated some fraud prevention controls, making it even easier for rogue employees to get away with picking their company’s pockets.
In today’s non-stop economic rollercoaster (with a potential recession on the horizon), it’s likely we may see a similar scenario play out.
According to Dr. Joseph T. Wells, CFE, CPA, chairman of the board of the Association of Certified Fraud Examiners, the key drivers of business fraud are:
- Increased (and often severe) financial needs
- Decreased loyalty to the company because of real or potential layoffs
- Increased opportunity for fraud due to the elimination of “nonessential” positions such as auditors and fraud examiners
With these factors in play, what can organizations do to eliminate expense and invoice fraud?
Make it harder to get away with fraud in the first place
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 fake invoice for a non-existent service provider, submit a 20% tip on a meal when you only gave 10%, provide a receipt for an expensive, fully refundable plane ticket that you canceled in favor of a cheaper one...when you think about it, there are a lot of ways to spend more company money than you should.
However, an easy way to prevent much of this under-the-radar fraud is by deploying an expense automation solution, especially one that integrates with corporate cards.
With built-in safeguards such as automated policy enforcement to prevent these types of fraudulent transactions from being submitted for reimbursement, organizations can vastly reduce expense fraud.
Outsource the auditing process completely
It’s important to note that people often grow more desperate as financial pressures increase before and during a recession. Some employees, for example, may be more willing to take risks with sophisticated, high-value fraud schemes.
That’s why it’s critical for organizations to deploy tighter controls that help maximize spend compliance. Doing so, however, can often become a major timesuck at any organization where expense management is mostly manual.
Read more: Avoid Becoming the Next Victim of Invoice Fraud
Outsourcing the auditing process, on the other hand, can result in huge cost savings because it cuts employee fraud down to almost zero.
Instead of relying on an overstretched, unmotivated team of overworked human auditors (who may not always know what to look for), just deploy one highly trained, automated auditor (who never forgets anything it’s been taught and also doesn’t need to sleep).
Empower team members to focus on higher-value work
With that kind of support, the actual audit team can focus on thoroughly reviewing flagged transactions and receipts. This ensures that reimbursement requests always adhere to corporate expense policies. It makes it much easier to 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. A neutral third-party auditor (or an automated one) operates without any bias, and can’t be easily intimidated into not doing their job.
Removing the need for in-house teams to manually audit spend also frees up their time to focus on more high-value initiatives, such as analyzing aggregate costs to identify potential savings opportunities, or to renegotiate vendor contracts.
Where do I sign up for a 3rd-party auditor who doesn’t sleep?
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 your bottom line.