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Outrageous Expense Reports and What They Mean for Business

By
Matt D'Angelo
,
business.com writer
| Last Modified
Feb 21, 2019
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The absurd business expense report is a corporate tale as old as time. It's no secret that the corporate credit card is often used as if it's limitless to impress clients. Some employees just don't seem to grasp that there are (and should be) limits to company spending. Gentlemen's clubs, basketball games, late-night poker sessions, Michelin-starred restaurants – it's amazing what some employees have tried to expense on business trips. While there are limits to company spending, there are no limits to what some people think is appropriate to expense.

A spontaneous rainforest journey

Patricia Campbell, human resources director for Pro Bono Legal Advice, once had an employee leave the city where he was supposed to be entertaining clients.

"I once had an employee submit a $3,000 expense for taking a private limousine to a petrified rainforest three hours away from the city where he was supposed to be entertaining clients," she said. "Obviously, this employee was terminated upon submission of this expense report. Over-padding an expense report is akin to embezzlement … It is unlawful." [Interested in better managing your business's expenses? Find out how to choose the right business expense tracking service.]

 

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How to violate a $2,000 preapproved budget

Matt Schmidt, CEO of Diabetes365, used to work as a financial advisor for a large financial institution. At the beginning of his career with the company, rumors surfaced after a fellow employee was abruptly fired. As details emerged, it became very clear to Schmidt and everyone else at the company what had happened.

"He used the company corporate card to host a happy-hour event for clients and prospects," Schmidt said. "All of this was preapproved ahead of time, including, I believe, a limit of up to $2,000 ... My co-worker hosted an event at a gentlemen's club, and when [the financial institution] got the statement, he got shown the door."

Competition woes?

Competition in the business world can drive people to do crazy things. Daniel Herrmann, co-founder of Germany-based Monokel Consulting, used to work for a boutique energy consultancy. Three partners were vying for the CEO position, and one candidate "went wild with expenses."

He started staying at luxury hotels, such as the Hotel Adlon in Berlin. He was also "inviting clients and prospects to restaurants, which were rated with Michelin stars," Herrmann said. "Like all the places you ever wanted to go but would never go within reason. Expenses included bottles of wine for several hundred bucks. Also turned out some of the clients or leads didn't even work in the energy industry – probably just some of his friends."

Why expense fraud matters and what it looks like

Expensing outrageous purchases, or simply padding normal purchases, can have a big impact on small business. The Association of Certified Fraud Examiners found that expense reimbursement makes up 14.5 percent of business fraud. This means businesses of all sizes need to stay on the lookout to ensure expense reports are accurate and honest. Expense report fraud can come in several different forms, including padding existing expenses or expensing fictitious purchases.

Padding existing reports

Padding expense reports involves either adding costs to an existing purchase or unnecessarily opting for more expensive products or services. As detailed in a blog post from Ernst & Young, this can be adding a tip when the tip is already included for a meal, going to an unnecessarily upscale restaurant, or opting for limo service when public transport or a taxi would suffice. Padding existing reports means claiming an item or service cost more than it did in an expense report. Properly managing receipts and requiring a paper trail with employees can help in both these instances.

Fictitious purchases

Fictitious purchases occur when an employee either expenses a personal item to the company or claims to purchase something they never actually purchased. According to the same post from EY, this commonly occurs when employees modify or falsify receipts when filing their expense reports.

How to avoid expense fraud

Expense report fraud may seem like an obvious problem to combat – why not just hold employees accountable when they overstep their boundaries? In larger companies, this may be easier said than done. However, even small companies can struggle to hold people accountable and enforce a reasonable, legitimate expense report policy.

Clearly defining and implementing a policy can be the best first step toward managing expense report fraud. Vague language in employee handbooks, or rules and regulations established to meet tax or audit guidelines as opposed to company ethics guidelines, can provide ample opportunity for both confusion and malice when it comes to expense reports. Defining your policy is half the battle, and implementing it can be one of your biggest challenges. As with most business policies, the key is holding managers accountable for these policies. If your managers aren't going to work within a reasonable business expense policy, it's unlikely any of your other employees will.

In the end, protecting your business against expense report fraud comes down to managing employee expectations and staying vigilant about employee spending.  

Matt D'Angelo
Matt D'Angelo
Matt D'Angelo is a staff writer covering small business for Business.com and Business News Daily. After graduating from James Madison University with a degree in journalism, Matt gained experience as a copy editor and writer for newspapers and various online publications. In addition to his writing and reporting, Matt edits articles. He reviews small business services, including PEOs, small business loans and GPS fleet tracking services. He's been with Business.com and Business News Daily since 2017.
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