Professional Services Accounting ARTICLE -

Expense Report Cheating Is Both Easy And Common

Target Audience: Legal Professionals, Professional Service Firms, Law Firm Partners, Law Firm Accounting

You probably think lawyers would know better. But the fact is that expense report padding is rampant in many law firms. And it’s easy to see why. Lawyers and support staff travel and work offsite frequently, and they have plenty of opportunity to accrue legitimate — and invent illegitimate — expenses for reimbursement. What’s more, the long hours, stress and time away from home may lead some to cheat because they “deserve” a little extra for their trouble.

Expense report padding may seem like a minor offense. But it’s still fraud and it can harm your firm’s profitability — not to mention your reputation.

Creative schemes

Inflated car mileage or exaggerated restaurant gratuities typically add only a few extra dollars per report. Over time, however, a few dollars can become thousands. And some common expense-related fraud schemes can get costly very quickly, such as when employees claim expenses related to:

• Business trips that have been extended for leisure,
• Meals and travel for family and friends,
• Canceled trips,
• Nonreimbursable expenses such as entertainment and alcohol, and
• Supplies, technology equipment and other items purchased for personal use.

Attorneys and staff might also claim small “cash” items that come in just under the amount that requires a receipt. Or they might “double bill” by submitting both a receipt and a credit card statement for the same expense or bypass individual item limits by breaking expenses into several pieces.

Don’t make it easy

One cheat can cost you a lot of money, but firms with lax ethical environments and weak internal controls usually have more than one. That’s why the first step in preventing expense account fraud is to write, communicate and enforce an expense report policy.

Be specific about which expenses are reimbursable and to what amount. For example, will you pay for first-class plane tickets or only the cost of a coach seat? Can attorneys submit for reimbursement bar tabs accrued while waiting for a dinner table? Whatever you decide to allow, be sure you revisit your policy annually to keep pace with inflation and other changing circumstances.

Your policy should also specify acceptable forms of documentation. For example, you might accept original receipts for every expense over $25, but not photocopies or credit card statements. Require direct supervisors to review and approve each report. Larger expense reports should also be reviewed by a managing partner.

If you’re still using a manual expense reporting system, consider switching to an electronic one. They make it almost impossible for employees to alter receipts, and some software is capable of importing receipts directly from hotels and rental car companies. These systems can flag suspicious items and trends that a supervisor or accounting staff member might overlook, such as numerous receipts that come in just under the amount that requires authorization or that have similar totals every month.

Insult to injury

It’s bad enough that expense report fraud can hurt profitability, but when you bill clients for those purportedly case-related expenses, it’s even worse. You may face lawsuits, and the damage to your reputation could drive other clients away. Keep this from happening by putting fraud prevention policies in place now.

Who cheats?

Unfortunately, fraud perpetrators don’t wear nametags that say, “Hi, I’m a cheat.” Attorneys and staff who steal — via expense reports or other methods of occupational fraud — typically don’t have criminal records. Often, they’re otherwise honest people taking advantage of a work culture where “everybody does it” without repercussion. Or personal problems, such as gambling debts, addiction or divorce, may motivate them.

Many lawyers also dig themselves into debt trying to maintain appearances. The recent recession has driven down salaries, bonuses and partner shares in many firms. Attorneys who drive expensive luxury cars and maintain second homes — even when they no longer can afford to — may have a powerful incentive to steal.

Find out how our expertise in professional services accounting can add value to your business. Email us or call us at 1 (888) 875-9770.

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