What Is Expense Fraud, and How Does Your Business Prevent It?



Do you think your small business is immune to expense fraud? According to a survey of 1,000 business travelers in 2016, expense fraud collectively costs companies $2.8 billion in annual revenue, with 1.1 million employees submitting fictitious expenses yearly. This averages to almost $2,500 per instance of expense reimbursement fraud.


How can you protect your small business from fraud? You can use a few digital tools to monitor and track common types of business expenses, including robotic process automation software or expense management platforms. But first, let's review a few expense fraud definitions and terms to understand the issue better.


What is expense fraud?

Expense fraud is a type of fraud that occurs when someone abuses funds not authorized for use. Someone might intentionally file a fraudulent expense report to cover various activities on a business, government, or non-profit organization's financial statements.


What are examples of expense fraud?

Expense fraud's definition covers many types of activities, some more nefarious than others.


1) Someone goes out to dinner on a business trip. The person pays for his food and the meal of the business associate. But then they also pay for the spouses of both people even though the spouses are not employees of either company involved in the business trip.


2) A person buys office supplies at a store by purchasing five reams of paper for the office. The employee keeps one for personal use at home while bringing four back to the copy room.


3) Someone submits multiple reimbursements for one purchase by submitting fake receipts without actually making a purchase. To do this, an employee might use scanning and imaging software to change the date or time on a receipt to make it appear separate from a previous one.


4) The person fills up the gas tank in a company car before driving out of town for a week-long business trip. Before heading to the destination, the employee drives 20 miles home and then 20 miles back to the office, wasting 40 miles of driving and gas the small business just paid for.


What is the punishment for expense report fraud?

Punishment for expense report fraud can include fines and jail time. Severe cases are normally prosecuted in state or local courts as crimes, although companies can file lawsuits to recover additional damages.


A good HR software suite can help take care of mundane, everyday issues with employee expenses so you can get back to running your business.


How can your small business prevent expense fraud?

Your company has several options to prevent expense fraud and expense report fraud.


1) Use a corporate credit card. This way, the person in charge of the company credit card can see exactly how much was spent and where it was spent before matching it to an expense report.


2) Call the hotels or vendors for more information. If a receipt or expense report looks fishy, call the hotel, restaurant, or vendor to find out more details. They can tell you who stayed in a room, how many people ate food, or how many items were purchased.


3) Use a robust expense reporting platform. There are several software platforms out there for small businesses, but they are only part of the solution. You must require your employees to use the platform for reporting expenses across all devices, including smartphones and apps. You also need the best data management practices to gather and analyze expense data properly before determining where to improve your processes or determine whether expense fraud occurs.


Looking for more tips, tricks, or templates?

We’ve got you covered. At Teamworks, we help companies all across the country optimize their HR processes, and we’d love to help, too. If you’re looking for more guidance, check out our HR software solution or take a look at our additional HR resources.