Travel & Expense Finance AI Did You Know?

From Powerpoint to Pedicures: Controlling suspicious spend in a remote working world

by Uri Kogan July 19, 2021

Our ongoing “Did you know” series highlights the capabilities and benefits of AppZen Expense Audit, bringing you deeper into what makes it tick and how you can take advantage. In this installment, we look at the challenging subject of spotting and managing suspicious employee spend.

Every organization has defined rules on which expenses employees can claim as legitimate, out-of-pocket costs. These include travel, accommodation, some meals, and client or prospect entertainment — within predefined limits. But in our new hybrid business environment that includes office work, remote work, and everything in between, expense reports are becoming more complex and difficult to audit. 

The purpose of the expense audit process is to facilitate the rapid repayment of out-of-pocket costs to employees, while checking the validity of the spend against company policies and minimizing risk. In most cases, expense reports contain entirely reasonable costs. But, on occasion, they do not.

There are various levels of suspicious spend that we commonly see in expense reports: 

  • Mistaken spend
    At the “entry” level is an expense that has been submitted based on a misunderstanding of the corporate policies by the employee. For example, perhaps an employee spends more than the allowed amount on lunch or a rail fare. These are relatively easy to spot and easy to deal with.  
  • Personal spend
    Sometimes employees spend money on personal services such as pedicures, spas, and gyms, and mistakenly believe that they can claim these as business expenses. Their argument may be that they need to look good on their video calls but that’s not really something that the organization should be covering.
  • Illegal spend
    Some employees submit expenses that are unethical, detrimental to the organization, or possibly even illegal. Claiming electricity and internet costs while using work equipment to mine bitcoin, for example, is something that will get you into a lot of hot water.

Auditing for suspicious spend

There has always been some degree of abuse of employee expenses, but the COVID-19 pandemic and remote working have expanded that. According to the ACFE, 77% of organizations have experienced an increase in fraud as a result of the pandemic, 15% of which was identified as expense fraud. When trying to manage this increased level of fraudulent activity, a key challenge is the sheer volume of items that need to be checked. 

Sampling a small percentage of expense reports, which is the most common practice across companies handling manual audits, does not cut it. To properly audit expenses, you need to check every single line against every single policy. Unfortunately, there are simply not enough hours in the day and the financial justification is not there. As a result, suspicious and sometimes even fraudulent spend slips through. 

Nor are these fraudulent claims necessarily small. Again according to research from ACFE, the average cost to a company is $31k per fraudulent case. While activity in larger enterprises may skew that number, suspicious and fraudulent expenses need to be taken seriously in organizations of all sizes.

The only way to resolve this challenge is to turn to technology such as AppZen Expense Audit. Automated auditing of expense reports not only removes the drudgery of manual processing but delivers a series of other benefits:

Investigate 100% of transactions 

AppZen Expense Audit can process a massive volume of transactions, making it extremely good at recognizing when something is off, dubious, or downright suspicious. Most of the time, these are genuine mistakes — turning in a duplicate receipt, expensing an out-of-policy item, or purchasing from a vendor that’s on a barred list. Expense Audit’s Mastermind AI can detect suspicious employee spend at prohibited merchants by combining receipt data, social reviews, suspicious merchant lists, and MCC codes across every expense item and report in your organization.

Cross-report checking

AppZen Expense Audit remembers every transaction and document it’s ever processed, so catching duplicates across expense reports over time or across departments is incredibly simple. It can identify which employees are always over the policy line; for example, those who consistently exceed the per diem meal limit. This provides an objective way to see if employees are pushing policy limits, not being diligent, or possibly committing deliberate fraud. 

Context is key

In addition to finding suspicious patterns in employee spend transactions, AppZen Expense Audit also references an unlimited number of data points from documents, business systems, and online sources to validate every transaction before payment. This allows you to catch a $50 claim from a fast-food restaurant, for example, or spot receipts from questionable merchants who perhaps disguise their true nature or have government associations. AppZen doesn’t content itself with merchant category codes or taking the employee’s word for it. In Accounts Payable, controls such as 2- and 3-way matching ensure everything checks out. Since that’s not possible in T&E expenses, AppZen looks up each merchant online to validate the business category.

Summary 

Auditing employee expense reports is required, not only to keep your employees happy but also to manage and protect your company’s reputation. No one wants to see their organization in the press because an exec has been caught spending company money at a casino — or worse. 

Automating the expense report audit process using AppZen Expense Audit allows organizations to control their employee spend and gain complete visibility over liabilities and potential risks before payment.

By ensuring employees spend money only at approved locations, prohibiting repayment of employees who use prohibited merchants, and enforcing your well-thought-out expense policies across all expense items and reports, you can effectively protect your corporate reputation and maintain transparent and open engagement with your employees.

Wondering what else AppZen Expense Audit can do? Check out the rest of our “Did You Know” series or check out AppZen Expense Audit on the web, or reach out!

Uri Kogan

Vice President of Product Marketing