How Can Your Business Prevent Expense Fraud?


There are hundreds of thousands, if not millions, of businesses across the world who are operating successfully but almost all of them will, at one point or another, be vulnerable to expense fraud.

Small businesses, especially, can be heavily impacted by expense fraud, usually, because their budgets are far smaller and only a set amount of money will be put aside to cover their workers’ expenses while away on business. But what exactly is expense fraud, why do people do it and how can you prevent it? RLTP Accountants are on hand to help.

What is expense fraud?

Expense fraud is the deliberate, often pre-planned, act of claiming money from a company for costs incurred while away on business. Whether it be a day away from the office for promotional reasons or an entire week in another country with back-to-back meetings, expenses can be claimed for almost anything and, sometimes, this can be taken advantage of to an enormous extent.

As expected, this can have a huge impact financially on businesses, especially if they’re small or just starting out. This can be made even worse if more than one employee is committing expense fraud. Some of the things a dishonest employee can claim reimbursements for include but are not limited to, the following:

  • Bills for trips that they have not taken, such as airline tickets or hotel payments
  • Money for items they haven’t actually purchased, such as office supplies
  • The cost of transportation such as car mileage, train tickets, taxi fare
  • Money for inflated car mileage – claiming back the price for fuel that was never used
    Bills for expenses that aren’t normally reimbursed while on business, including alcoholic drinks and leisure or spa activities (such as those you’d find at a hotel)

Where some employees look to deliberately benefit financially by inflating their expenses, others might have done so accidentally, not being aware that they’re actually defrauding the company. So it’s important to note that not every worker who has claimed more money back is dishonest. But despite this, it’s still a major issue that needs to be monitored and tackled accordingly.

Why do people commit expense fraud?

You would think that the reason why people commit expense fraud is rather obvious – money. But it’s not actually as clear cut as that when it comes to why people defraud their company out of cash by claiming illegitimate expenses. The reasons as to why this happens will vary greatly from person-to-person and from business-to-business.

People might commit expenses fraud for the following reasons:

  • They feel as though their company owes them – according to Soldo, 57% of employees who were surveyed in the UK claimed they were owed money for work-related expenses
  • They feel as if they’ve earned the right to do it as they’ve worked overtime or spent a considerable amount of time away from loved ones
  • Their colleagues are getting away with false expense claims so they thought they’d take advantage of the opportunity
  • They aren’t happy with remunerations and so they see expense fraud as giving themselves a pay rise
  • The rise of the cost of living can cause people to make decisions that they might not have done had inflation remained the same
  • Economic downturn can cause people to commit expense fraud in order to supplement their incomes

The different types of expense fraud?

According to the Association of Certified Fraud Examiners, there are four main types of expense fraud, including the following:

Mischaracterised expenses

This is where the employee will submit personal expenses to the business in order to get their money back. Mischaracterised expenses fraud is one of the most common types of expense fraud out there and for one simple reason – there’s no fool-proof way of categorising the claim.

The only “evidence” a business owner has to look at is a receipt so this particular type of expense fraud is relatively easy to get away with. According to AccountingWeb, 86% of office workers surveyed across the globe said they never had expenses claims declined or questioned.

Fictitious expenses

The employee in this case can submit false receipts that might appear to be completely genuine. With the right computer programmes and design skills, it can be easy for an employee to submit fake documents and have them approved without question.

Overstated expenses

An employee might well have incurred a legitimate cost whilst out on business, but the amount they submit is inflated in comparison to the actual amount they’re owed. It could be anything from over-priced petrol mileage and extortionate taxi fares to restaurant bills and hotel costs.

Multiple reimbursements

This is when an employee keeps submitting the same receipt for one thing. This then means that the accounting team will approve duplicate reimbursements where the employee should have only received one payment to cover the cost of a business expense.

How to identify & prevent expense fraud

As there are many types of expense fraud and with an increasing number of people seemingly getting away with it, it’s important that all businesses are doing what they can to prevent it and deal with dishonest employees appropriately. Where the discipline procedure for this particular issue will differ from company-to-company, the methods used to identify and prevent it can be used universally and they are as follows:

Start with a policy

An expense policy needs to be clearly and fairly outlined and relayed to all of your employees. It should be completely free of ambiguity whilst still showing understanding for employees who need to claim back business expenses, especially those who need to frequently travel as part of their role.

If there are any prohibited activities, tickets, food, drink etc then these should be evidently outlined in the policy.Your accounting team needs to be made aware of these prohibited expenses also, otherwise, you could still be paying out for things that haven’t benefited the company in any way.

Provide your employees with the right tools

Many businesses these days will still turn in paper receipts in order to claim back business expenses. Bring your company into the 21st century by providing them with efficient and effective online tools where receipts can be scanned in and digitally uploaded. This way, everything is on record and it can also then be vetted for authenticity, if you so wish.

Change how you manage your expenses

Implement corporate charge cards in order to regain control of the business expenses people are claiming for. With a corporate charge card, you’ll be able to analyse each card and the transactions made in detail in order to get a grasp on where overspending is occurring and who is doing it. You’ll also have the option to receive monthly credit activity reports from the company who issued the card.

Carry out selective auditing

It’s common practice to audit the first ten expense claims of new employees. This helps to reiterate to them that all expense claims will be treated the same and that they’ll be rigorously checked before any money changes hands by way of reimbursement. It also shows that you’re complying with the policy you have set out regarding expenses claims.

Monitoring and auditing, even after the first ten expenses claims, should still continue in order to keep track of where your money is being spent and whether it has been done so legitimately and for the good of the business.

Outsource the management of your financial accounts

Bringing in a third party accounting team, such as the professional, highly-qualified experts here at RLTP Accountants will help to keep track of any and all expenses claims throughout your business.

We’ll be able to manage your finances in several different ways with our first-class accountancy services, including budgeting and forecasting, so you’ll be able to expand or refine the funds you have available for business expenses. There aren’t many companies out there who have a bottomless pit of money reserved for business expenses, so it’s important that you’re only paying for legitimate claims.

For more information about how RLTP Accountants can help you to manage your finances and ensure your business expenses budget isn’t drained by illegitimate claims, get in touch with a member of our specialist team of fully-trained, highly-skilled accountants today – we’re always happy to hear from you.