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How to identify expense report fraud

Expense fraud is both easy to commit and difficult to detect but the implications for a company’s bottom line can be profound.

Whilst most instances of fraud are honest mistakes by employees who don’t intend to defraud their employer, there are those who intentionally set out to gain money from illegitimate expense claims. More often, they are simply small acts not even viewed as fraud such as extra mileage which they think go unnoticed. More serious instances of fraud also happen though, with employees going so far as to booking personal holidays on company credit cards and claiming it as a business trip.

Paying for coffee

Either way, expense fraud is a widespread problem and whether intentional or unintentional, it usually falls into one of the following four actions:

Mischaracterised expenses
This is where expenses suggest they are one thing but are actually another. For example, a meal taken with friends but put through as a business meeting.

Inflated or overstated expenses
This is where someone might claim a higher cost for something they’ve purchased, perhaps by altering a receipt or invoice. Or if allowed to claim for tips, an employee might claim for a tip higher than that which was paid. Or it could be adding a few extra miles on to a journey for that extra fuel cost.

Fictitious or false claims
This is where expenses are completely made up. Someone might use a fake receipt or take receipts from friends and family to pass off as their own. Someone might claim for mileage for a trip they never undertook.

Duplicate claims
This is where someone submits the same claim more than once, perhaps after a lengthy period of time so that the approver doesn’t recall they had already approved it. It could also be employees who collude to claim for the same thing with separate receipts.

12 tips to help identify expense report fraud

There are many steps finance teams should consider to help cut down instances of expense fraud and to minimise the impact on their company’s bottom line:

1. Maintain an expense policy

Without an expense policy to follow, employees won’t know whether the business considers their activity fraudulent or not. Creating a clear and easy-to-understand expense policy will set the expectations for everyone. [link this to the expense template FAQ] Consider using a dynamic expenses management policy, which assesses the need for spend in the first instance and allows for greater flexibility based on the circumstances of the trip. For example, a dinner at an expensive restaurant may look excessive, but the expense may be warranted if the meeting is with a high-revenue client and generates a positive ROI for your business in return.

2. Establish a culture of honesty from the top of your business

If leaders at the top of your business abide by the expenses policy, then others will follow. Having an open approach to expenses management, where expense claims can be viewed by anyone in the business, associated with business outcomes like opportunities, customers, marketing campaigns, may help ensure employees comply so that they aren’t seen as opposing the rules by their peers.

3. Use a cloud-based expenses management system

It goes without saying that these days running your expenses via paper-based methods is not only time consuming but also creates a poor employee experience. Using a cloud-based, mobile-enabled expense management system allows employees to submit expenses on the go, wherever they might be and managers or finance don’t need to receive paper copies of everything for review.

4. Use digital receipts and OCR

Make it easier for employees to submit expenses by uploading photos of receipts or scanning them in. By uploading photos of receipts, employees can submit expenses on the move. Using OCR technology to do this pre-populates fields,minimising unintentional errors and improving accuracy whilst saving valuable time for your employees and finance teams

5. Look out for time and date anomalies

Expense receipts that don’t match the time and date of the expense claim line item should be automatically flagged by your expenses management system. Using a modern system that ties expense spend to business outcomes allows you to associate receipts to a specific purpose. For example, in order to close a sales opportunity, your sales manager is likely to attend a face to face business meeting. That meeting would show as a task against the opportunity, and the associated receipt(s) for travel too making it easier to check for discrepancies. You could also automatically flag claims made for spend on weekends – of course it’s entirely reasonable someone may need to travel on a weekend for work, especially if flying abroad, but if in your company’s case this is rare, make sure to flag this kind of date issues.

6. Location anomalies

As mentioned above, if your expense relates to an opportunity, and you travel to a particular customer location, any receipts associated with the claim would be en route or in that location. So by checking for location anomalies i.e. you claim for a receipt related to a London cafe but you were actually in Edinburgh, this should be flagged.

7. Flag duplicate receipts / claims

Having a system that will flag whether a receipt and claim looks the same as one already submitted previously helps to minimise duplication of claims. Of course, the mistake may be innocent and your expenses system should enable employees to merge expense records.

8. Use smart workflows

Using an online expense management system allows you to create workflows to flag up any issues outside of your expense policy.

9. Using analytics to compare spending patterns across teams

Being able to analyse your travel and expenses data in multiple ways, and having the flexibility to create reports that suit your specific needs, means that you can identify anomalies in spending patterns between employees or teams and flag up anything unusual.

10. Audit random samples of expense claims on a regular basis

Make sure to audit expense claims on a regular basis. You should select claims at random to audit so that everyone understands that their expenses could be audited at some point.

11. Enable automatic imports of corporate and personal card transactions

If you issue corporate credit cards at your company, automatic feeds will place transactions directly into your expenses system. Likewise, the ability to import personal card transactions in just a few clicks, won’t hold up expense submission and reimbursement which can increase the opportunity for fraud. Once imported, the system automatically creates an expense record for each transaction and associates it to the relevant trip or business purpose ensuring it’s a valid reason for spend.

12. Prosecute offenders

If you find intentional fraudulent expense claims, make sure to prosecute offenders. If you allow fraudulent expenses to pass, others may see that they can do the same.

By incorporating all or many of the above tips for expense management in your business, you can minimise the chances of expense fraud and quickly identify it when it does occur.

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