How to prevent fraudulent expense claims in your business

Majority of employees working in your company would be the honest ones. This is because it is common sense that your career is more important than a few more dollars in your pocket. Risking your job for some petty cash isn’t worth it. However, there are employees who won’t mind risking it. 


Expense fraud is very easy to commit and is equally difficult to detect. Although some fraudulent expense claims may be genuine mistakes, there are many cases in which people intentionally set a plan to earn money by making illegitimate expense claims. Expense fraud detection can become an impossible task if your company is still using the conventional spreadsheet and hard-copy receipt submitting process. Your finance team will have to spend ages reviewing and cross-checking all the receipts and transactions.


According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations, 21% of frauds committed in small businesses are expense reimbursement frauds and 11 percent in large scale businesses. However, businesses using automated expense solutions can easily prevent fraudulent expense claims by preventing false claims from being submitted and also can smartly spot and warn about potential fraud.

Impact of expense fraud on companies

To establish the intensity of damage fraudulent expense claims cause to a company, Let’s look at some facts: 


1. An approximate amount of $2448 annually, is the false expenses claim committed by employees in a company. 

2. Only 17% of those who commit expense fraud are actually caught. 

3. Generally, the role with the highest rate of business expense fraud is a senior vice president with 13.9%


Once you seriously analyse all the statistics, it becomes very clear that this is a large percentage of fraud that can cause serious financial harm to any company. There is already a big amount being spent on official business travels, hotels, restaurants, etc., if employees add extra fraudulent expenses to it, the business ends up losing a major amount of cash. 


Expense fraud is damaging for all sizes of companies, but small businesses are impacted the most. According to ACFE, approximately $33,000 is lost in expense reimbursement fraud which clearly indicates that this amount can destroy the operating process of any small-scale company. On top of this, small organizations with less than 100 employees record more fraudulent expense claims than any large company. The reasons behind this could be a lack of proper monitoring systems, weak policies and culture, and/or not enough resources for expense fraud detection

Types of expense frauds in businesses

Out-of-policy expenses

Sometimes our expenses are not included under the business reimbursement policy. Even if your company has a strong expense policy, it can be difficult to ensure that all employees abide by those policies. If the policy violations are not large, they don’t even get noticed. You need to make sure that your expense policy is in place and that for every business expense fraud small or big the employee will have to face strict consequences for the violation of the rules. Some of the common types of out-of-policy expenses are alcohol and cigarettes

Fictitious expenses

Fictitious expenses are those which were never made but receipts of those purchases have been presented. Employees often submit fake receipts of non-incurred purchases and once you find these do not mistake them for human error. These are outright indications that the employee is trying to defraud the company. Dishonest employees can easily take advantage of your money if your company does not have an expense policy that mandates showing receipts of expenses no matter what amount.

Multiple reimbursements

Multiple reimbursements or double-billing is another simple and popular trick to claim fraudulent expenses. This happens when an employee shows more than one proof for an expense such as a credit card receipt and an original receipt. These can be submitted under the same or different categories to get reimbursed twice. An example of such an instance can be when two employees dine together and both receive a receipt but instead of splitting the bill, they both submit the total amount. 

Mischaracterized expenses

The easiest type of expense account fraud is when employees try to secretly include personal expenses into business or official ones. The employees just simply submit a personal expense receipt as reimbursement. These expenses cannot be labeled as human error. Many a time on business trips people buy personal items and frame them as a business expense. 

Personal expenses

Employees often have the tendency to make personal expenses look like business ones. This is again not basic human error. In such a case, employees are detected to be spending more than the amount allowed. Your company policies must be very clear in stating the amount employees are allowed to spend, and on what and when they can spend it.

Expenses that were refunded or credits that were not used

There are many situations where an employee purchases an item but is later refunded for it, but still submit a receipt for that expense in order to be reimbursed. This commonly happens with rescheduled or canceled flights or accommodations and refunded products. 

Manage expense claims easily with Volopay

How to identify fraudulent expense claims

Validate your purchases

There are a lot of fake receipts submitted for reimbursements as explained above. To make sure that none of these fraudulent expense claims is validated, you have to match all the receipts to the money sanctioned by the company and the areas it was allowed. Any purchase or expense that does not coincide with the official amount or terms should be immediately flagged and rejected.

Look for out-of-policy vendors

Employees who defraud the company have a trick to add fictional vendor details in an attempt to create fake receipts which cannot be cross-checked. However, if your company has a specific vendor for different things, this cannot happen. While auditing always looks for authentic vendor-specific details like taxID, store location, and other information. Be very careful with the store location because it could turn out to be a completely out-of-the-league city.

Look for anomalies in spending patterns

Once you are able to prudently analyze all your expense reports in different ways, and create all the reports according to your company’s specific needs, you can easily identify fraud expense reimbursement coverage by detecting anomalies in the spending patterns of employees or teams.

Look for discrepancies in date and time

Your expense management system should be able to immediately flag expenses that do not match the timeline and date of the expense claims. There is a modern technology that enables you to tie expense spend with the business’s results which gives you the benefit to associate receipts to a particular cause.

Check for receipts with required fields missing

There are certain rules set by the government which specify the particular details that must be mentioned in the receipts. While auditing, ensure that all the receipts contain every important detail. If any of the fields are missing in any receipts, there is a high possibility that the receipts are fake.

Steps to prevent fraudulent expense claims

1
Maintain travel and expense policy

It is extremely important to have an expense policy to help your employees understand the terms and conditions of reimbursement in the company. Create a simple and inclusive expense policy that coincides with the need for spending and gives flexibility in different valid circumstances.

2
Implement use of corporate cards

When your employees make any expense on the corporate card, you can see the real-time transaction details. This transaction feed is your authentic proof of all the expenses incurred by your employees and you can tally these against the expense claim reports submitted. 

3
Store documents and receipts digitally

Storing documents and receipts digitally can help you easily cross-check the claimed reimbursements in your receipts management software. Along with this, you can eliminate the condition of losing receipts because with the help of different apps you can simply scan and upload all the receipts. If you choose the best software according to your organization type, you get the facility to obtain a detailed digital audit trail where you can track and see every change made to the claim in the audit log.

4
Make regular audits part of your expenses

Make it a rule to audit your expense reports every now and then. This could be maybe quarterly or half-yearly. While you do your in-house audits, it is always advisable to get an external audit team, which will help you identify the fraud entries you may not have noticed. Along with this, feedback from a third party can be beneficial in improving your business processes.

5
Prosecute offenders

Once you spot any deliberate fraudulent expense claims, always ensure to take strict action against the offenders. If you let any expense fraud pass by, it becomes an example for other employees and encourages them to do the same.

6
Create custom approval workflows

With the help of modern technology expense management solutions, you can create an effective approval process with two or more steps. Customize the approval workflow according to your company’s requirements.

How Volopay can help protect your company from fraudulent expense claims?

Volopay is the best expense management software to help you save time from doing tedious tasks which are prone to human error and also keep your company secure from expense fraud. With us all your receipt interpretation is automated which helps in appropriate expense filing, eliminating fraud, and flexibility in creating expense reports and expense fraud reports.


Additionally, Volopay's reimbursement software will not be a time-intensive process with features like digital auto scanning, automatic receipt forwarding, bulk import, and auto-tracking receipts. Volopay’s expense management automation system does not let any receipt go undetected and all your reimbursements claims can be done with just a click.


Furthermore, you will never lose a receipt because all of them are stored digitally in your Volopay account and with the multilevel approval process the admin and finance team members can easily accept or deny any reimbursement request on the basis of its genuinity. You can also implement the expense policy of your organization through our platform so that everything is transparent and all your employees can understand the expense reimbursement policies clearly. 


Related Page: Prepaid expenses: Best practices to manage employee expenses

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