What the public sector's expense fraud headaches can teach the private sector.

• Author: Rich, Alan
• Position: FRAUD

Earlier this fall, in a story that made headlines around the country, a senior executive at the federal government's General Services Administration (GSA) agency was indicted by a federal grand jury on five counts. His crime: expense fraud.

The public sector is not alone in combating expense fraud; in fact, the private sector's annual bill for expense fraud is estimated at $5 billion.

What can we in the private sector learn from the public sector when it comes to expense fraud? First, let's look at why the public sector is particularly ripe for fraud.

A major factor is what I like to call the "No Police Syndrome."

As an example, say you move to a new neighborhood. When leaving your house, you come to a four-way intersection. You observe the stop sign every time you leave the house, wanting to be safe, and avoid a ticket for doing a "California roll" and sliding through, or running it altogether. After a few weeks, though, you realize there is hardly ever another car at this intersection at the times of day you approach it.

Add to that the fact that you have never seen a police car in the vicinity, and suddenly you start finding yourself coming to a slow stop and rolling through. Or maybe you look both ways as your approach, and then you drive through without even stopping.

In the public sector, there are very few software "cops" preventing expense fraud, so the same type of disregard for potential consequences can set in.

As an example, as reported by The Department of the Treasury's Office of Inspector General last year, auditors looked at a sample of 130 travel claims by government employees. It found a whopping 531 potential policy violations in 129 of the 130 reviewed claims. This means only one claim out of the 130 was free of any expense policy violations.

What we find in the public sector--and what we in the private sector must avoid--is "the rolling stop" syndrome running rampant. The private sector has a structural advantage going for it out of the gate--companies are only as successful as their financial bottom lines, and to protect that bottom line, the private sector needs lots of cops.

The good news: We've got them, primarily in the form of compliance software that does most of the police work for you. But what about the companies using onerous expense reimbursement processes that are handled primarily via paper or spreadsheets? Or even worse, businesses where individual receipts must be preserved, copied or glued to sheets of...