Types of Expense Fraud There are four main categories of expense fraud. Some people might get creative and not fit neatly into these categories, but these are the big ones:
- Misclassification of Expenses. This is the most common form of expense fraud. The example we gave at the beginning falls under this category. It involves the submission of any expense report that contains personal or non-business related expenses (restaurants, hotels, car rentals, etc.).
- Inventing Expenses. This form of expense fraud includes fictitious expenses submitted as business expenses. For example, an employee could create fake receipts for taxi rides or client dinners and pepper them into a legitimate expense report. They spend no money, fabricate an expense, and pocket the reimbursement.
- Duplicate reimbursements. In this tricky form of expense fraud, the employee submits the same expense multiple times in different ways. They could submit a receipt from their credit card or bank AND a receipt from the merchant. They’re both the same expense, but they get reimbursed for it twice. Another example would include the sneaky employee submitting the same receipt on separate expense reports, maybe even months apart.
- The Ticket Switch. In this version of expense fraud, 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.
Tips for Searching Out and Destroying Expense FraudYou could dedicate your resources to converting your finance department into a team of super sleuths. Or, you could educate key players in the expense process to recognize the warning signs and empower them to take action within your organization.
- Unusual Behavior. Be on the lookout for actions or activities that divert from the norm. This could include cancelling flights and trips, or frequently rescheduling them, or something as simple as a drastic change in lifestyle without a pay raise (e.g., car upgrades, extravagant spending).
- Involve Management. Educate managers and employees involved in expense processing about the types of expense fraud and set up a reward system for locating discrepancies like duplicate reimbursements or frequent ticket switches (pro tip – include and anonymity clause so they don’t feel put on the spot). You can’t be everywhere, so involving your team increases your visibility.
- Audit Often. If anything looks out of the ordinary, verify receipts with vendors and institute a process that includes random expense report audits. If employees know that you are cracking down on expense fraud, it acts as a deterrent to future attempts.
- Get Divvy. Divvy’s platform eliminates filing expenses and employee reimbursement, so the incentive to defraud the system drops drastically (think zero). You can also institute controls and expense policies within your Divvy App budgets to make sure everything gets approved before employees spend. You essentially eliminate the means and opportunity for employees to commit expense fraud. Simple.