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Sarbanes Oxley : Technology : Financial Controls

Tips and Techniques To Detect Fraud Or Errors In Expense Reports

By Rudolf Melik
Rudolf Melik

In the first article of these series you learned that timesheets can be manipulated fraudulently or in error to create a false picture of the company?s project and operational health. The article recommended a series of reports and audits that would help executives, compliance officers, and project managers detect and prevent such irregular and inappropriate activity.

This second article of the series focuses on potential expense reporting compliance violation scenarios. It recommends a set of fraud and error detection reports that will help internal and external auditors, financial managers, and company executives detect unauthorized or illegal expense reporting and achieve sustainable compliance for travel and expense management.

Expense Entry Audit

? Expense entries that were modified (created or deleted) by one user on behalf of another user. For every expense entry show new and old amount, modification time and date, the name of the person who made the original entry, as well as the modifier, and any notes describing the reason for the modification

? Expense entries that were modified (created or deleted) by one user on behalf of another user without providing a note explaining the reason for the change

? Expense entries that were modified by a project or group manager. For every expense entry display both the new and old entry, as well as any notes describing the reason for the modification

? Expense entries that were modified after having been approved

? Expense entries whose attributes were changed such as from billable to not billable, R&D to non R&D, from funded to not-funded

? Expense entries whose payable or billable amount was modified

? Unapproved expense entries in a specified date interval

Expense Report Approval and Change Audit

? Expense reports that are approved by someone other than the person that was designated to approve them

? Expense reports that have been modified after having being approved

? Expense reports that are approved by administrative staff (instead of project or group managers)

? Expense reports that are approved long after they were submitted (e.g. after the close of an expense reporting cycle)

Project Expense Reporting Activity Audit

?List of projects that exceeded expense budgets

?List of projects that show a sudden jump in travel and entertainment spending

?Billable expense entries that have not been invoiced after period closing and at the end of every quarter

Unusual Project Activity Audit

? List of users (employees or consultants) that submit expense reports that far exceed the average

? List of users (employees or consultants) that submit expense reports that far exceed the business unit?s defined expense limits and standards

? List of employees that required adjustments for X% of their expense entries

How Software Can Help
The reports above would be very hard to produce if expense is being tracked using spreadsheets, multiple disconnected systems, or an expense entry system that lacks auditing and error detection capabilities. A compliance enabled travel and expense management solution should provide:

? Definition and enforcement of expense reporting policies and rules; validations should be performed by the system at the point of entry

? Lock down of approved expense reports

? Auditing of every expense entry change, all expense reporting approvals and expense budget changes

? Notifications when expense budget thresholds have been reached

? Reports and live analysis dashboards to monitor projects/operations and to detect inappropriate, fraudulent, or inefficient activity, misallocation of expenses, or other potential problem areas

Travel and entertainment represents the second largest expense for many organizations. Weak expense reporting controls and manual processes make a company vulnerable to fraud and errors related to cost and budget allocation, and force the organization to expend considerable resources in preparation for a compliance audit. Ineffective expense tracking can also result in un-billable expenses (higher costs), longer billing cycles, higher probability of reimbursement and invoicing errors, duplication of effort and extended correction cycles, and ultimately, a potential compliance-related audit failure.

The only way a company can ensure sustainable expense management compliance and governance is for it to have the proper controls, reporting and auditing systems in place. Company?s executives and audit committee must have real-time access to error and fraud detection reports. This article provided a set of recommended expense management error and fraud detection reports that every organization should have access to and analyze on a regular basis in order to validate that its employees and consultants follow a consistent expense reporting and approval policy, are spending on authorized projects based on approved budgets and scope, and that costs are allocated to the right projects.

This article is the second in a series, see the first installment, "Tips and Techniques To Detect Fraud or Errors In Timesheets."

Rudolf Melik
Rudolf Melik, CEO Tenrox is an award winning entrepreneur and a recognized project and workforce management expert and thought leader.

For more information go to www.tenrox.com

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