Expense Fraud: Right Controls and Prevention Strategies

You process hundreds or even thousands of reimbursements on a monthly basis, and while probably most of them get approved, there may be a few expenses that violated your policies or don’t have the receipts attached. But what if your employee is intentionally submitting fictitious expenses or inflating expenses while reporting? Unfortunately, this very commonly happens. So, how do you prevent this from happening?

Expense Fraud

Most admins feel that organizations do not provide any room for expense fraud. According to the survey conducted by the Association of Certified Fraud Examiners, most businesses are losing $6.3 billion in corporate fraud charges. Therefore, businesses have to take appropriate actions to combat expense fraud.

Old-fashioned Expense Reporting Promotes Fraud

The way expense reporting is handled in most organizations is to be blamed for expense fraud. In paper-based expense reporting, fraudulent expenses easily go unnoticed by the finance department. But, the question is how do such claims go undetected?

With tight deadlines and hundreds of expense reports to process, admins find themselves over piled with paper reports. Admins have to verify the legitimacy of each expense report and review expenses with the receipts attached. As they battle with hundreds of expense reports, do not blame the admin if they overlook a few fraudulent expenses every month.

How Does Expense Fraud happen?

Expense fraud can happen in multiple ways. Some of the most common fraudulent activities are:

Fictitious Reimbursements

Employees submit expense reports along with receipts. There are companies that create counterfeit receipts for any date, or amount, so employees can submit such receipts to claim more than actually expensed.

Mischaracterized Reimbursements

Expense reimbursements can be done only for expenses that were incurred for business purpose. Some employees would submit receipts for personal expenses as if they were business expenses. Such expenses are very common, as it is difficult to validate whether the expense incurred is personal or for business purpose.

Altered Expense Claims

Employees can alter the receipt amount and claims for a legitimate business expense. For instance, claiming more tip amount on a meal expense so there are higher expense claims.

Duplicate Reimbursements

Employees can submit the same expense claims more than one time. Let’s say two employees went for a team lunch and both of them submit the receipt for reimbursement.

The Expense Fraud Curve

Too many employees are committing expense fraud – around one in five travelers. The fraud curve is increasing day-by-day with instances of committing fraud climbing from blue collar to white collar and even occurring at manager level. The instances of fraud rated to be high, with around 10% of CEOs confessing to faking expenses.

How Expense Fraud can be Prevented?

Value Culture

Lack of internal controls will not deter fraud if management does not cultivate the value of culture. Enforcing anti-fraud policies, conducting business ethically, and offering some best ways to report suspicion can help prevent employees from being demotivated.

Mandate Receipts

One can easily manipulate paper receipts before scanning or attaching to the expense report. Digital receipts and credit card integration can help automatically import transactions to credit cards, so you no longer need to deal with manipulated paper receipts.


At least one additional review and approval should happen before the claims are reimbursed. Double-checking expense reports can identify duplicate expenses, out-of-policy claims and overage spending. This way you can easily eliminate expense fraud from happening.

Outline a Reimbursement Policy

The policy terms should be outlined clearly and every aspect from booking travel to per diem limits, should be specified in the policy. The policy should cover all the guidelines and be tailored to all employee levels.

Audit Trails

Periodic reviews of employee expense reports can help spot anomalies and ensure that proper documentation exists for all expenses. Conducting audits on a regular basis can help determine why spending is going out of control.

Identify Fraudsters

Employees who violate expense policies or manipulate reports should be questioned according to the severity of the error. If you don’t question, others will view the activities as acceptable.

Employ the Right Tools

Giving your employees the right tools can empower them to submit expenses easily and effortlessly. Automating the expense reporting process can work wonders and help to reduce expense fraud. Expense report software allows your employees to report expenses on-the-go and track all paper receipts, allowing for quick audits. Automation can easily detect duplicates or fraudulent expenses without the need for manual intervention.

Embedded artificial intelligence can spot spending patterns, flag fraudulent expenses and mark out-of-policy expenses for review. Expense software can also automate the process of verification and validation by integrating with travel booking and corporate cards. You can also define business rules to avoid out-of-policy expenses from being submitted. Therefore, think about deploying the proper system and put tools in place to make it easier for employees to claim expenses and for CFOs to keep track of spending.

Simplify Approvals

Getting approvals from the respective managers can be time-consuming. Approvers review expense reports with the eye of an auditor. Again, a clumsy approval workflow allows fraudulent expense claims to be reimbursed. Expense reporting software facilitates the approval process by allowing managers and admins to review and approve the report anytime. The manager can then approve the expense report without having to interact with the key stakeholders.

Consider taking the support from HR managers; make sure managers and high-level authorities are being given counsel on the appropriate penalties that help to deter the fraud. Honest employees simply need the right guidance and tools to get their work done and as such, they don’t indulge in any fraudulent activities.

The above-mentioned steps will not eliminate expense report altogether – but certainly alleviate the possibilities of committing expense fraud.

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