Guest Posts

The 2021 approach to identifying and preventing expense fraud

September 16, 2021
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Finance professionals must abide by their organization’s code of ethics and the IMA Statement of Ethical Professional Practice as per the Strategic Finance magazine. Yet, a former analyst from the Bank of America (BofA) got fired; he misused $21000 by using the company’s corporate credit card. 

Expense fraud is a common issue faced by most organizations. Unfortunately, like the BofA case, many employees risk their jobs and careers for greed and shortcuts to make more money.

While the threat is real, businesses can identify and prevent expense fraud if they leverage modern technology and software to aid Finance teams through the process. This blog covers the essentials business owners and Finance teams must know before taking up the challenge of eliminating expense fraud at their company. 

Impact of fraud expense claims on the company

Expense fraud breaks the trust of employers and HRs as they expect people to be loyal to them. Along with that, companies may experience one or more of these impacts.

1. Threat to the organization

You must have heard, ‘One bad apple can spoil the bunch.’ In the same way, one employee with greed and low moral values can affect other employees too. When employees witness other colleagues committing expense fraud, they may also steer towards committing such fraud for extra gains. 

I find the threat of monetary loss secondary. I think the real threat is the possibility of ruined company culture.

2. It’s a ‘Gateway’ for bigger fraud

When an employee or a group gets confident enough to commit expense fraud, it can potentially lead to bigger scams in the future. In such cases, monetary losses become secondary. Instead, brand value takes a more significant hit. 

When the amount is huge, public involvement becomes natural, and things start to go south. Such news impacts brand, revenue, stock values, and even the future of a business. 

3. Cause of huge loss for small business

For large companies, expense fraud is more about a hit to their image in the market. It’s a direct hit on years of marketing and branding efforts.

But it is different for small businesses. 

False claims can threaten small businesses as everyone puts their blood, sweat, and time into keeping the company afloat. When businesses run on thin margins, theft and fraud can negatively impact small business accounting and business financials. That's why small businesses, for example like restaurants, should have good restaurant accounting software along with other tools to ensure they have control over their business finances.

Now let’s take a quick look at the other side of expense fraud:

Why do employees commit expense fraud?

You must be wondering, why would an employee commit fraud and risk their job over such little money?

Well, some employees justify expense fraud as something that they deserve. Below are some justifications employees give during interrogations: 

  • Employees felt that they earned it because they did overtime at the office.
  • They're getting paid less and are making up for it by doing expense fraud.
  • It's a shortcut to make quick money.

In essence, most happy, satisfied, and motivated employees would not resort to expense fraud. So businesses must focus on understanding the why's behind their employees resorting to it. While some of the reasons may be intrinsic to the employee's current situation, others can revolve around the company work culture. 

When it comes to the company, start with rewarding your employees where it is due. Then, ensure no variables from your company's end contribute to them committing fraud. Then look into strengthening your policies and processes to identify and eliminate fraud from your end. In the end, every penny saved counts.

Most widespread practices used to commit expense fraud

Well, there are many tricks employees use to commit expense fraud. Here are the most common ones.

1. Fake expense proofs: This is a trick employees use to benefit from expenses they never incurred in the first place. To substantiate an expense that never happened, employees will submit fake receipts as proof of spend. 

2. Multiple reimbursements: Employees submit the same or copy of previously submitted receipts multiple times as proof of new expense claims. With a little bit of editing in restaurant bills or fuel receipts, employees can easily reimburse money multiple times.

3. Personal expenses: Employees submit receipts of personal expenses as business expenses. For example, they can misrepresent family trips as business travel and food bills as client dinners.

4. Inflated expenses: This is a trick of overstating prices in expense claims. Employees would be claiming higher prices for things than their actual costs. 

5. Manipulating currency exchange rates: This is a commonly used technique where remote employees of different geographic locations submit expense claims with higher exchange rates. For example, if the employer is from a developed country, employees can claim more money by manipulating the exchange rate. 

How to detect the expense fraud

It would not be very wise to reimburse expense claims without proper verification. So, take a quick look at some of the easy techniques to detect expense fraud.

Some employees spend more than others 

You may notice some employees claim higher amounts than others. In such cases, trace and compare expense claims of people having the same job profiles. 

For example, assume you have a salesperson who is claiming surprisingly larger amounts in reimbursements than others. Here, encourage your Finance teams to go through every expense receipt submitted by that person and compare them with their peers. Spot the differences, if any, and then make changes that stop them. 

We do not suggest that a few higher bills are a sign of fraud. Instead, we are pointing out that it's easy to identify patterns when comparing likes with likes. 

Employees claim non-business expenses

This is a real grey area. 

Many employees, mainly the ones leading a team, take their teams out for dinner, trips, and even short vacations. Scenarios like these can be tricky. The best way to avoid possible fraud in such cases is to set clear guidelines. 

Ensure to communicate to team leads on what are acceptable business expenses and their corresponding limits. So, dinner at a restaurant is acceptable, but dinner at a 5-star resort on a beach is not.

Lastly, if your Finance teams get expense claim requests from any employee who doesn't follow the company guidelines, ensure an investigation and make necessary amends.

Employees avoid cheaper options

In the guise of business meetings or entertaining clients, some employees may pick lavish hotels, bars, or cafes. For these employees, it is more of a habit than a fraud. To avoid this, Finance teams can relook existing policies, enforce compliance and educate employees on how to navigate this.

But for other employees, it is an opportunity to make money. As a result, fraudsters will display costlier bills, while the reality could be different. To be sure, once in a while, call such hotels, bars, or cafes and ask for their pricing. See if the prices match with the claims. 


How can businesses prevent expense fraud? 

There is enough evidence to prove expense fraud negatively impacts your company. As a result, it’s time to strengthen the company structure by streamlining processes without leaving any loopholes.

Start with paying heed to internal controls and check whether they’re effective or not. Then make necessary changes to ensure that such errors don’t go unnoticed. 

Business owners can also involve Finance teams in discussions to share their inputs as they handle all expenses and incomes. All this put together will help businesses create a well-rounded plan around effectively eliminating expense fraud.

Ways businesses can eliminate expense fraud in 2021:

1. Create an easy-to-digest expense reimbursement policy 

Work gets done in a streamlined manner when guidelines and policies back it. So, define an expense reimbursement policy that mandates employees to follow the guidelines whenever reporting any expenses.

Below are examples of how you can set up an expense report policy: 

  • Report expenses within 30 days of incurring them.
  • Categorize expenses incurred on a trip or in an event. (Eg. cab fare, food expense, hotel stay, etc.).
  • Make receipts mandatory for expenses over the value of $20.
  • Set limits for different expenses (Eg. not more than $100 for hotel/night.)
  • Exact consequences for policy violations.

By clearly designing an expense reimbursement policy that suits your business needs, most employees will abide by it, and there will be fewer chances of fraud or errors.

2. Craft a solid expense approval process

One of the main reasons why expense fraud happens is because there’s a lack of defined processes. This gives an employee the chance to mess with the expenses. 

So, assign the responsibilities to department heads as per the hierarchy and ensure that every expense reported goes through a streamlined process.

3. Audit your expense reports frequently

Manual processes always open doors to mistakes. Thus, it is essential to note that some errors might be unintentional. Nevertheless, as a best practice, businesses can perform regular audits that can help identify and fix these errors.  

You can start with a randomized check of auditing the first five claims reported and then audit every 5th or 10th claim to ensure that everyone complies with the company policy.

You can also take an open approach. Pick ten claims from a lot and investigate them from top to bottom. Follow this method now and then, as you may find some fraudulent claims in a few cycles. Once you find something suspicious, dig the older entries from the same employee to find a pattern.

4.Use an expense software to eliminate fraud

Companies big or small cannot keep a check on every expense reported manually. Thus it’s best to switch to an expense software that can help you eliminate manual tasks and add a layer of efficiency and accuracy.

Depending on your business goals and challenges, pick an expense software that best suits your needs. Also, nudge teams to go beyond legacy software in the market. While legacy software stands out due to their brand, new and budding software genuinely understand and solve business problems.

5. Keep the HR in the loop

For a growing company, every employee is valuable. But, sometimes, mistakes happen, and people learn from them.

So, with the support of HR, you can make the employees aware of expense fraud and how any person that commits expense fraud will be penalized. In addition, having tight control over your employees will prevent any such scams in the future. 

6. Appreciate and reward your employees

Remember the section where we discussed why employees commit expense fraud? Yes, it is because nobody recognized their efforts.

Provide monetary rewards or gift coupons to your employees upon achievement of their targets. Let them feel recognized. This will ensure they do not look for other means to feel the same sense of reward. 

A happy employee is less likely to commit expense fraud, so always acknowledge their growth, encourage them and keep the spirits high.


Nowadays, more and more companies are becoming aware of expense fraud and are taking necessary measures to prevent it. 

No one can control human behavior. But as company management, what you can do is take adequate steps such as implementing clear expense guidelines, establishing consequences of policy violations, switching to automated expense software, and appreciating employees for what they deserve.

Effortless expense management for all business spends. Earned time, saved costs, improved productivity, happy employees - achieve it all with a single software.

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