Auditors are missing the numbers in travel pay fraud

Overwhelmed by the volume of travel and entertainment payments, human auditors consistently overlook recurring types of expense report misconduct like duplicate charges, mileage padding and overcharges for taxi or ride-sharing services.

The problem comes from high-risk expenses and fraud that are hiding in expense reports. According to our data, we found that the average company processed 4,374 reports, with each report containing an average of 11 line items.

Of all of the expenses in these reports, 10 percent were classified as high risk: They either weren’t compliant with company policy or they were flagged as potentially incorrect, wasteful or fraudulent spend.

A common problem is duplicate receipts. We’ve frequently seen situations where employees with two different managers submit the same receipt for a meal together, knowing that their managers don't cross-reference other teams' expense reports. If you’re an auditor tasked with catching these high-risk expenses manually, parsing through expense reports can feel like finding the proverbial needle in a haystack. Financial teams often resort to randomly sampling 10 percent of submitted expense reports and hope for the best. Sampling only 10 percent of spend when only 10 percent of expenses are high-risk yields a near-zero probability (5.7769042e-14, to be exact) that you’ll find all high-risk spend.

Overworked back-office staff may turn a blind eye to nickel-and-dime misconduct, but our platforms, which has scanned several million expense reports, reveals a much more serious problem.

Only about 18 percent of line items flagged by AppZen for scrutiny are for less than $20. But almost 43 percent of all flagged line items are for more than $100. And a line item flagged for potential misconduct is just as likely to be for more than $500 than it is for less than $20. In other words, the average instance of employee fraud is much bigger than you think.

Money isn’t the only risk, either. Could your organization afford the hit to its reputation if certain types of hidden employee spending came to light? Employees have submitted expense reimbursement requests for tattoos, jewelry, dog kennels and even bullets. None of these would look good in your local newspaper.

Many risky expenses are hard to find without AI. Risky businesses sometimes have generic, “brown paper wrapper” names on their receipts. AI provides can provide visibility into expenses and a method for identifying fraud.