We delve into how businesses can identify and prevent expense fraud in the workplace and protect their business from the associated costs. Here are 6 signs to watch for and how to prevent expense fraud.

Every company faces it at some point: employees taking advantage of your expense management process. Expense fraud committed by employees is estimated to cost U.S. businesses more than $2.8 billion per year, according to a recent survey by Chrome River. Their reasons may vary, but the result is the same – trusted employees commit fraud and businesses feel betrayed. Business suffer the consequences leading to the need to reexamine policies and procedures. Spend fraud, or expense reimbursement fraud, makes up about 15 percent of business fraud, and is responsible for losses in the millions of dollars across the U.S. according to a study by the Association of Certified Fraud Examiners (ACFE).

Being alert to potential problems can help you develop better policies and catch minor infractions before they become more serious. The following is a list of six common issues to watch for and actions to take if you suspect expense fraud.

6 Types of Expense Fraud

1. Inflating acceptable expenses

Most employees strive to be honest and do the right thing. But even a good employee can be tempted to fudge their spend and expense reports by just a few dollars, especially when using their personal account to cover business expenses. When using their personal accounts is necessary, an employee could earn a little extra from business trips by tacking on a couple of dollars to common business expenses. For example, an $8 taxi ride can suddenly become $12. Since it’s such a minimal amount and a standard expense, it’s easy to overlook.

Recommendation: Whenever possible, a receipt should accompany every claim on any spend report. To avoid getting drained by employees’ cash purchases, some businesses put a limit on the reimbursable amount allowed without a receipt. The smaller that amount is, the more protected the company is. Be sure to reinforce to employees the need for receipts to accompany any purchase.

2. Employees in comparable positions should have similar expenses.

John and Jack both hold the same sales position within your company. If John expensed $5,750, while Jack expensed only $1,500 this month, you may want to take a closer look at John’s expense reports. He could be making exaggerated claims or manipulating the dollar amounts. It’s common sense that employees in similar positions would have similar expenses. A significant discrepancy is a good indicator of a problem.

Recommendation: You should already be monitoring spend reports and have a history of each employee or position. Look at spending trends over time and how they correlate with your ROI. Higher charges should be coming from a high performer who understands the best way to make your dollars count. If you don’t see that correlation in an employee’s spending, you may want to take a closer look.

Be sure you provide clear guidance and training for your employees on the types of places they should stay while traveling or go for business meals. Having specific instruction provided to your employees is an important first step toward avoiding mistakes or outright fraud.

3. Claiming non-business related items

Regardless of how your employee positions it, a laser light show most likely does not fit within your spend policy. To avoid the temptation of frivolous spending, your company needs to expressly state which types of expenses are allowed to be charged to the business and which types are not. A clear policy helps prevent expense fraud, especially the unintentional variety. 

Recommendation: Providing training to both managers and employees alike can go a long way to avoiding any confusion or temptation. By leaving some areas unclear, you may be inviting employees to use their own judgement, encouraging them to opt for asking forgiveness rather than ensuring they have permission. While sales people or other employees may need to have some flexibility on spending, other roles in your organization may not. Look at the ROI on your expenses to determine what makes the most sense for your business. Communicate that to all your employees, but at the same time, ensure you hold people accountable.

4. Overcharging the company card

Many business owners provide corporate credit cards to employees who do a lot of traveling or entertaining so they don’t have to worry about reimbursement. Corporate credit cards consolidate expenses and spend management, making it easier for your finance department to track trends and verify charges.

However, when you issue corporate credit cards, there’s a risk that employees will spend more than necessary. When the company credit card bill arrives, blindly signing a check and sending it on its way is a risky practice. Review the charges to ensure your card hasn’t become your employees’ personal income subsidy.

Recommendation: One option is to set specific spending budgets for trips ahead of time. This helps to deter employees from overspending, keeps them budget conscious, and encourages accountability.

5. Double dipping

Some employees may list the same charge twice but under different trips. It could be an honest mistake, or it could be an attempt at double-dipping.

When you provide company credit cards to employees, you need to be especially diligent about monitoring usage. If not monitored carefully, some employees may make a charge on their company credit cards and later submit a receipt for the same purchase as a cash expense.

Recommendation: Using automated spend management software, it’s possible to put controls in place which automatically alert you to duplicate transactions. This eliminates the need for your finance department to sift through paper statements or old spreadsheets in search of duplicates. It also alerts you more quickly to employee errors or potential expense fraud.

6. Exceeding the limits for allowable expenses

Employees sometimes split large charges into two or three items on the expense report. This can be confusing or even lead to mistakes. Instead of setting limits on individual purchases, you might consider setting spend limits based on a per-trip or per-category cost basis.

Recommendation: Employees who travel for the company will likely have a larger budget than those who entertain partners and clients locally. Establishing this difference in advance will save the confusion of splitting charges on the expense report and doesn’t encourage employees to be creative in submitting their expenses.

In Summary

Educating employees in advance about your company spending policies and accountability can minimize the risk of employee mistakes or fraud.

When those policies are accompanied by an automated spend management system that alerts you to issues in employee spending, it can dramatically reduce the chances your company will fall victim to fraudulent expense report reimbursement and the need for disciplinary action.

About Divvy

We dug deep to create the world’s first free, fully-automated budgeting and expense management platform, and it gives you instantaneous visibility into company-wide spend. Born from loathing a truly broken process, Divvy turned that legitimate dislike into the catalyst to reinvent. Not even innovate: burn to the ground, salt the earth, and build something that works on new ground—from scratch.

Divvy is the first free and fully automated spend management platform. Join us in ridding the world of busywork, one fewer expense report at a time.

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