How To Quickly And Correctly Identify Expense Fraud

You’ve heard it before, you go to lunch with a friend (or colleague for that matter) and after discussing everything except work, they utter the phrase, “My company’s got this” as they pick up the tab. You weren’t a client or even a prospective client, but your pal reached for the bill and charged the corporate card. [pullquote]Seemingly harmless, the charge is actually an example of expense fraud, and it’s more common than you might think.[/pullquote] Oftentimes employees view expense fraud as a victimless crime; they think that insurance covers it, or see small discrepancies as meaningless in a large budget, or think that the company budget accounts for overspend.

However, those small “harmless” charges add up, and some estimate that U.S. companies lose a gargantuan $2.8 billion a year to expense fraud. Wildly enough, 40% of that typically goes undetected. For small businesses, mid to upper-level executives carry out the majority of expense fraud, but it usually takes two years for the company to catch it, costing businesses, on average,  $33,000 before they even detect the expense fraud. That amount of lost revenue could cripple a small business. It’s a widespread issue, but there are ways to identify and eliminate it from your equation.

Types Of Expense Fraud

  1. Expense Misclassification. The example at the beginning of this article falls under this category. The submission of any expense report that contains personal or non-business related expenses falls under “misclassification” (i.e. restaurants, car rentals, hotels).
  2. Expense Inventing. The spender creates fictitious expenses submitted as business expenses. For example, an employee creates a fake receipt for a hotel room or uber ride and sprinkles them into a legitimate expense report. They never spent the money, but fabricated an expense, and pocketed the reimbursement.
  3. Duplicating reimbursement. This is where it gets tricky. The employee submits the same expense multiple times in different ways. They could submit a receipt from their bank or credit card AND a merchant receipt. Both forms of proof cover the same expense, but the employee gets reimbursed for it twice. Another example: the sneaky employee submits the same receipt on separate expense reports, sometimes months apart.
  4. Ticket Switching. The perpetrator purchases an airline ticket cancels it, then submits a reimbursement request. They could also purchase a higher-priced ticket, change the reservation for a lower amount and request a voucher for the difference in fare, but still file an expense report for the higher amount.

Well, now that we’ve probably given you a healthy dose of trepidation (sorry about that), how do you search this out and cease all expense fraud in your organization?

Tips For Finding And Preventing Expense Fraud

You might think your best option is dedicating your time, energy and money to converting your finance department into a team of stealthy sleuths. Or, you could train your finance team in the expense process so they can recognize the warning signs. Way more effective.

  • Out-of-the-ordinary Behavior. Look out for activities or purchases that diverge from the norm. This could include canceling flights, frequently rescheduling trips, or something as obvious as a drastic change in lifestyle without a pay raise (e.g., newer, nicer cars, extravagant upgrades and spending).
  • Get Management Involved. Educate leaders and employees involved in processing expenses on the types of expense fraud and set up a reward system for identifying suspicious behavior and discrepancies such as duplicate reimbursements or unnecessary ticket changes (pro tip – make sure to include an anonymity clause, otherwise employees will feel put on the spot). You can’t be everywhere at once, so involve your team in order to increase your visibility.
  • Frequently Audit. If you find suspicious activity, double-check receipts with vendors and arrange a system that includes expense report audits at random. Keep your employees in the know to prevent future attempts at expense fraud.
  • Automate the Process. By using a system to track expenses, you can reduce the time you spend combing through expense reports and quickly see where your money is being spent. You can also watch out for spikes in certain budgets. A few options are detailed in the next section.

Mother Necessity Drives Innovation

Expense reports have been the bane of finance professionals since the dawn of small business. Spreadsheets made the process easier but were eventually replaced by SaaS programs to automate certain parts of the process. Over the years, expense fraud and the hassle of keeping track of expenses have inspired numerous expense report automation services.  Expense management systems still force employees and finance teams to work through expenditures and process payments. Another option is Divvy, a free expense management app that allows budget controllers to control money at the point of spending. It’s kind of like venom for business; the platform allows employees and managers to send and receive funds through an app. Divvy takes away filing expense reports and makes reimbursement obsolete, thus taking one giant leap towards expense fraud elimination for good.


Any small business owner can take control of their employee’s expenses by keeping their eyes peeled for suspicious behavior, recruiting managers to hold employees accountable, auditing frequently, and using technology to track your expenses. By making yourself aware, you can save your share of the $2.8 billion lost to expense fraud every year.

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How To Quickly And Correctly Identify Expense Fraud

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