A recent article by Callum Borchers in the Wall Street Journal provides a litany of fraudulent expenses, ranging from seemingly innocent charges to large-scale embezzlement schemes. The examples illustrate elements of the “fraud triangle” theory that three conditions must be present for fraud to occur: motivation, opportunity, and rationalization. Motivation refers to the pressure or incentive to commit fraud. Opportunity refers to the ability to commit fraud without getting caught. Rationalization refers to the ability to justify the fraud, such as believing that the victim deserves it.
The article describes opportunity in the limited oversight of corporate credit card charges, especially during the end of the year crunch. Motivation can include financial hardship, addiction, divorce and medical bills. The article mentioned a Jacksonville Jaguar football team employee who skimmed $22 million over three years from travel and catering expenses to pay for his alcohol and gambling addictions. Employees may rationalize the fraud as an entitlement or that the company won’t miss it, such as the remote employee who charged mileage and his Starbucks coffee because he had free coffee when working in the office.
Limiting opportunity is the most effective means of reducing the risk of fraud. Robust expense management policies and procedures, including multiple layers of review and approval may help combat expense fraud. Utilizing AI and machine learning coupled with regular audits and monitoring expense reports can help identify and prevent fraudulent expenses as well. Employee awareness and training is important in creating an environment in which rationalization of fraud is limited.
Overall, expense fraud is a persistent threat that businesses must be vigilant about addressing. By implementing effective prevention and detection measures, companies can protect their bottom line and maintain financial integrity.
Read the Wall Street Journal article here. (May be behind a paywall.)
