WSJ Your Money Briefing - Expense-Report Fraud Appears to Be on the Rise

Episode Date: November 21, 2024

Fraudulent entries on expense reports cost businesses an estimated 5% of revenue on average, according to the Association of Certified Fraud Examiners. Wall Street Journal “On the Clock” columnist Callum Borchers joins host J.R. Whalen to discuss unauthorized purchases like an RV and a worker’s monthly mortgage that some employees have tried to get approved. Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges. The Goldman Sachs podcast featuring exchanges on rates, inflation, and U.S. recession risk. Exchanges on the market impact of AI. For the sharpest analysis on forces driving the markets and the economy, count on exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Here's your money briefing for Thursday, November 21. I'm JR Whalen for The Wall Street Journal. On your expense report, you might include things like your cell phone bill,

airfare for work travel, or meals with clients. You're supposed to enter the amount accurately down to the penny. But more people are trying to push unauthorized purchases past the accountants. And in some cases, it's more than just fudging the numbers. One employee disguised his mortgage lender as a legitimate business vendor and got away for a time with paying the mortgage on the company credit card.

I got a story about somebody who bought $2,500 worth of Christmas presents for his family on the company tab. I got a real kick out of the attempt to purchase an RV on the company credit card. So what happens if you get caught? We'll talk to Wall Street Journal on-the-clock columnist Callum Borschers after the break. Oh, interrupting their playlist to talk about Defying Gravity, are we? That's right, Newton. With the Bronco in Bronco Sport, gravity has met its match.

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Expense report fraud appears to be on the rise. Wall Street Journal on the clock columnist Callum Borschers joins me. Callum, every company's policy is different. What sorts of things are typically allowed to be included on expense reports? Typical categories would include business travel, of course, your flights, it could be the taxi when you go in from your hotel to the airport, business meals. And depending on how high ranking you are in the organization, you may be authorized to use your card to make large purchases of supplies or consulting services.

And that's where you can really get some of these high ticket fraudulent items. If you have a high ranking person who is fudging the receipts somehow. Do hybrid work schedules contribute to the expense abuse? This is a long running concern of managers that when employees are out of sight, it's a little bit harder to keep tabs on what they're doing. And there is little doubt that there are certain kinds of expense fraud that increased in the hybrid and remote environment. Examples would be a home office allowance

that some employees get. You could maybe use that money for unrelated home improvement expenses. That was one that SAP told me about. They make the popular expense reporting software concur. And there can be little things, JR. I got a chuckle out of one story of an employee who used to work in an office where there was free coffee. and he figured I'm entitled to free coffee on the company tab.

So when he was working at home, apparently he would just make a daily Starbucks run and expense the coffee to the company and then even tacked on the mileage for driving to and from the coffee shop. Not a high dollar amount, but those are the kinds of things that sometimes people have tried to pull in the hybrid or remote environment. You spoke to executives at several companies. But those are the kinds of things that sometimes people have tried to pull in the hybrid or remote environment. You spoke to executives at several companies. What other types of things are employees putting on the company card and how are they dealing with it? The range really just gobsmacked me, JR. I mean, one employee disguised his mortgage lender as a legitimate business vendor and got away for a time with paying the mortgage on the company credit card. I got a story about somebody who bought $2,500 worth

of Christmas presents for his family on the company tab. I got a real kick out of the attempt to purchase an RV on the company credit card. Now I'm told that transaction was declined, but the rationale was, hey, I'm going off on a six month assignment instead of putting me up in a hotel for six months. It would actually be cheaper to just buy me this RV.

Company didn't quite buy it, but it's amazing some of the things that people have tried. How do people rationalize doing this? Don't they know they might get caught? Part of the rationale is that it feels a little bit less personal to steal from a big company than it does from another person. And I think that was a theme that came through

in my conversations with the accountants who watch for this. They said that you really need to think about when somebody's feeling financial pressure, where are you going to get a little extra money? And so the way that, you know, John Warren put it to me, he, he had to fraud examiners trade group. Most of us aren't going to go out and rob a bank, as he put it. The one place that you go on a regular basis where maybe you have access to somebody else's money is your place of work.

And the people who do this typically, if they do it in small increments, right, it's not a $50,000 or $100,000 all at once. It's little drips and drops. And that's why the fraud trade group says it typically takes 12 to 18 months to catch a fraud scheme like this. So it's not something that often gets flagged right away. I don't want to give anybody any ideas, but if they know their company's accounting department might be overwhelmed at the end of the fiscal year,

could that encourage them to try to push questionable receipts through? Yeah, it could. For the story, we talked with Sarah Jane Martin, who leads the accounts receivable practice at Quadient, which is one of these software companies that makes account reporting programs. And she said, yeah, I mean, the reality is that this is the time of year when companies, a lot of them are closing the books and finance departments

can be just drowning in receipts and try as they might. It's just from a practical standpoint, hard to give every single expense as much scrutiny as they might like. So yeah, not to give any bad ideas, but this is the time of year when, you know, the scrutiny could be down a little bit. What should employees do to be sure they're submitting expenses that are within company guidelines?

I'd say one thing is to just pay attention to what the spending limits are. We were talking about cases of intentional fraud, which absolutely exists, but SAP's Concur software finds that about 15% of all submitted expenses are non-compliant with company policies. That's quite a lot. And they say most of those are honest mistakes. So it could be a typo, right? The example of a fat finger, it was a $30 lunch and you hit an extra zero and it was $300 and that wasn't really what you meant. So that can happen.

But also the cost of eating out is really high right now. You know, if your company has a relatively modest cap on how much you can spend on any given business meal, you could by an honest mistake, genuinely go over that if you're not careful. If somebody's listening to us and they realize, Oh yeah, I put on those gifts on the expense report, should they go to their boss or to the accounting department and atone for their sins and say,

hey, I'm guilty as charged? Look, generally I would say honesty is the best policy there. If you bought Christmas gifts with your company credit card, I imagine that if you fess up, you might still get canned. That's a pretty serious offense, but I think there are other ones that are a little bit more innocent. It really depends on the relationship you have with your manager.

I mean, look, if 15% of expenses that are submitted are not compliant, 15% of employees are not getting fired. There is an understanding that people do make mistakes, whether they booked the hotel room that was over the company budget or whatever it is. I think in those kinds of cases, it's probably going to be more of a wag of the finger and a stern talking to and don't do it again next time. Does an employee ever have to pay the money back? It would really depend on every company's internal policy. And as I talk to the companies that administer these programs for third party clients, they say that the rules vary widely. The big distinguishing factor there, JR, would probably be whether you have a company card that pays for the purchase upfront or whether the employee has to front the money and then

submit an expense report and ask for reimbursement. So if you have to make the purchase yourself initially and then you submit the receipt and you're asking for reimbursement from the company, the company might reject that request and say, that wasn't a legitimate purchase or it was over the limit. So no, we won't reimburse you or at least we won't reimburse you to the full amount. But if you've already charged that purchase to the company's credit card, then it's harder to recoup. That's WSJ columnist Callum Borschers, and that's it for your money briefing. This episode was produced by Ariana Asparou with supervising producer Melanie Roy.

I'm JR Whalen for The Wall Street Journal. Thanks for listening.