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Unfortunately, expense fraud is a growing challenge, and one that businesses cannot afford to ignore.
The Association of Certified Fraud Examiners (ACFE) estimates that businesses lose 5% of their annual revenue to fraud; meanwhile, 20% of small businesses and 12% of larger businesses experience expense fraud.
These fraudulent activities can derail operations, erode profits, and damage trust within the organisation. But it doesn’t have to be this way.
Modern expense management software like ExpenseOnDemand simplify expense approval systems and streamline expense policy management, helping organisations detect and prevent expense fraud.
In this guide, we’ll explore the types of fraud to watch for, red flags to recognise, and how automation can protect your business.
Expense fraud refers to the act of submitting false or exaggerated claims to receive unauthorised reimbursement. It can range from inflating costs on a genuine receipt to creating completely fake expenses – unlike honest mistakes or human errors, fraud involves deliberate intent to deceive.
In essence, it’s theft disguised as legitimate claims, and businesses of all sizes are at risk.
Without proper controls, these fraudulent activities can go undetected for months, even years, leading to significant financial and reputational losses.
The fallout from expense fraud can be severe, affecting both individuals and businesses.
- Financial losses: Fraudulent claims can drain company resources, harming profitability and impacting other areas of operation.
- Legal penalties: Submitting or reimbursing false claims may breach tax laws, resulting in fines, audits, or worse.
- Reputational damage: Fraud undermines trust among employees, clients, and stakeholders, potentially tarnishing the company’s image.
- Operational strain: Investigating fraud takes time and resources, diverting attention from core business objectives.
For employees, committing reimbursement fraud can result in termination, loss of professional credibility, and legal consequences, including criminal charges.
Understanding the motives behind expense fraud doesn’t necessarily help to prevent it, but it can illuminate the situation, and establish things in their wider context. Common reasons include:
- Financial pressure: Struggling with personal finances, some employees see fraud as a solution to their problems.
- Lack of oversight: Weak internal controls create opportunities for fraud to occur unnoticed.
- Entitlement mentality: Some individuals rationalise their actions, believing they deserve extra compensation.
- Opportunity: Fraud thrives when systems rely on outdated manual processes, or lack robust monitoring.
Fraudulent claims take many forms, some more sophisticated than others.
Below, we outline the most prevalent types of expense fraud and how they impact businesses.
Employee expense fraud is among the most common types, where employees manipulate or falsify their claims to gain unwarranted reimbursements.
Example:
An employee attends a client meeting but claims additional meals and transport costs unrelated to the trip.
Unchecked, this type of fraud can snowball, especially if multiple employees engage in it. Regular audits, along with automated tools like ExpenseOnDemand, can mitigate these risks by flagging anomalies and ensuring policy compliance.
Fictitious claims involve submitting fake or fabricated expenses for reimbursement. This is often done using altered receipts, fake invoices, or false mileage logs.
Example:
A salesperson submits a receipt for a “business dinner” that never occurred, or logs mileage for a personal trip disguised as work-related.
To combat this, businesses should adopt systems that verify claims through corroborating evidence, such as calendars, email logs, or GPS tracking for mileage.
Submitting the same claim more than once to receive multiple payouts is another common form of fraud. This often happens when paper-based processes or disjointed systems are in place.
Example:
An employee submits a hotel invoice through their expense claim and charges the same amount to their company credit card.
Automated expense management systems can flag duplicate claims instantly, helping businesses avoid paying twice for the same expense.
This category includes inflating costs or misrepresenting the purpose of an expense. Fraudulent claims are harder to spot, as they often involve real receipts or partial truths.
Example:
An employee who takes a£20 taxi ride submits a receipt claiming £50, pocketing the difference as profit.
Establishing clear expense policies with defined thresholds and requiring detailed receipts can help identify and prevent these claims.
Although not inherently fraudulent, human errors can lead to over payments or discrepancies in financial records. Mistakes in manual data entry, such as decimal misplacement or incorrect categorisation, are common.
Example:
An employee accidentally selects the wrong project code when submitting an expense, charging it to the wrong department.
Automation minimises such errors, ensuring data accuracy and reducing opportunities for fraud disguised as mistakes.
Sometimes employees submit claims for personal expenses, either accidentally or intentionally. This can include personal meals, entertainment, or even luxury items.
Example:
An employee purchases anew laptop for personal use but lists it as a “business expense.”
Clear communication of acceptable expenses, combined with regular oversight, can reduce these instances.
Expense fraud can have devastating effects on an organisation, leading to financial losses, diminished trust, and a tarnished reputation. But with the right tools in place, businesses can not only prevent fraud but also streamline operations and enhance compliance.
ExpenseOnDemand allows businesses to track expenses in real-time, providing an immediate view of all submitted claims. This transparency ensures that no claim goes unchecked, and any discrepancies can be flagged immediately. By monitoring expenses as they occur, finance teams can detect and address potential fraud before it escalates.
Example:
An employee submits a claim for travel expenses that exceeds the typical amount for the specified route. The system flags the anomaly, prompting a review before there imbursement is approved.
Manual approvals can lead to errors, delays, and opportunities for fraudulent claims to slip through. ExpenseOnDemand eliminates this risk with automated approval workflows.
Predefined rules ensure that claims outside of policy thresholds are flagged for managerial review, reducing the likelihood of human oversight errors.
Key features:
- Multi-level approvals based on claim size or category.
- Automatic rejection of claims missing required documentation.
- Notifications to approvers for quick action on flagged claims.
By automating approvals, businesses save time while enforcing compliance with their expense policies.
A strong defense against fraudulent claims starts with understanding your spending patterns. ExpenseOnDemand provides comprehensive analytics and reporting, helping organisations identify trends and anomalies over time.
Benefits of analytics:
- Spot recurring offenders who consistently make errors or inflate claims.
- Analyse department-specific trends to pinpoint areas of concern.
- Gain insights into average expenditure, enabling realistic policy limits.
Data transparency empowers businesses to make informed decisions and address potential fraud systematically.
One of the most common types of reimbursement fraud is submitting the same claim multiple times. ExpenseOnDemand's advanced algorithms automatically scan claims for duplicates, ensuring that no two reimbursements are processed for the same expense.
Example:
An employee submits a receipt for a hotel stay through their online claim system and also attaches it to their company credit card statement. The system detects the duplicate and prevents an overpayment from occurring.
ExpenseOnDemand allows businesses to customise their expense policies and integrate them directly in to the system. Employees are required to adhere to these guidelines, and any out-of-policy claims are flagged immediately.
Policy enforcement features:
- Hard stops for non-compliant claims.
- Automated reminders for missing documentation, such as receipts.
- Predefined spending caps for specific categories, such as meals or travel.
By embedding policy enforcement into the expense management workflow, organisations reduce the likelihood of personal purchases or inflated expenses being reimbursed.
ExpenseOnDemand integrates seamlessly with accounting and ERP systems, ensuring a streamlined data flow. This reduces the risk of manual errors or fraudulent entries during reconciliation.
Integration also supports a unified view of financial data, making audits easier and more accurate.
When employees know their claims are closely monitored and backed by automation, they’re less likely to attempt fraud. Here at ExpenseOnDemand, we champion a culture of accountability, where both employees and managers have visibility into the expense process.
Be alert for these warning signs:
- Claims submitted without receipts or with vague descriptions.
- Patterns of excessive spending or frequent small claims just below approval thresholds.
- Expense reports that don’t align with business activities, such as meetings or trips.
- Duplicate claims or recurring errors from the same employees.
Regularly reviewing claims for these indicators can help finance teams address fraud before it escalates.
With its comprehensive suite of features, ExpenseOnDemand is designed to detect and prevent expense fraud effectively.
- Real-time tracking: Spot inconsistencies as they occur.
- Automated approvals: Reduce human oversight errors while maintaining policy compliance.
- Data transparency: Detailed records for every claim simplify audits and enhance accountability.
Whether you're a small business or a global enterprise, ExpenseOnDemand helps you safeguard your finances while streamlining expense management.
Expense fraud poses a significant threat to businesses, draining resources and damaging trust. By understanding the common types, recognising red flags, and implementing robust controls, organisations can protect themselves against financial losses and reputational harm.
With solutions like ExpenseOnDemand, you can automate processes, enforce policies, and ensure every claim is legitimate.
Ready to safeguard your business? Book a demo today and start experiencing seam less expense management with built-in fraud prevention.
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