Scared Straight: Expense Fraud & 5 Ways to Prevent It

Airfare for a cancelled flight. A $50 travel meal of Ketel and sodas. Pay-per-view movies lumped into the nightly hotel room rate. Expense fraud is easily overlooked due to its seemingly insignificant financial impact relative to other risks a business faces day to day.  When committing expense fraud or turning a blind eye on an incident, it’s easy to believe a few bucks here and there won’t hurt but there is more to consider. Expense fraud affects companies far beyond the financial realm. It deteriorates ethical culture and could evolve into very serious problems if an organization ever undergoes an IRS audit. In fact, companies typically lose 5% of their revenue to fraud each year, resulting in $3.5 trillion projected to be lost globally (Association of Certified Fraud Examiners, “2012 Report to the Nations”).

Without clear and firm guidelines of expense reports, employees are left making assumptions and are more likely to inflate or submit fictitious expenses. Moreover, lack of proper documentation may result in prosecution if the company undergoes a regulatory audit.


If you’re worried about this often overlooked threat – we’re here to help. Follow these 5 easy steps and protect your company from falling victim to expense fraud:

1) Establish and enforce detailed policies for expense report submission

Define your company’s set of expense report rules. Some examples include: expense report submission within # of days post transaction; receipt requirement for expenses over $25; hotel receipt itemization coded to its respective category (pay-per-view movies go under “Entertainment,” and room service belong to “meals”), etc. With today’s latest expense report software, you can create custom policies by project and enforce expense dollar limits by category, by day or by item. The more specific the expense policy, the safer you’ll be from questionable reports or rejections, and faulty employee assumptions.

2) Have backup plans in case of an inadvertent internal policy violation

The reality is that exceptions may occur regardless of the clear guidelines. You have the choice to immediately reject the expenses, or have a protocol that specifically deals with situations like this. We recommend the latter, as the first indirectly encourages employees to provide falsified proof in order to make their expenses fly. We recommend an expense report software with out-of-policy options that immediately alert the employee of violations prior to submission – so you don’t have to waste time manually checking.

Example scenario: an employee was running late to a conference and forgot to ask for a receipt for his taxi ride. Considering a receipt is a requirement for ground transportation, what other evidence can this employee supply in place of the missing receipt?

3) Design and carry out proper expense review procedures

An effective expense review flow should involve the project manager or a supervisor, as she is familiar with what expenses are required and can spot suspicious transactions more easily. In addition, it’s ideal to have a secondary review of the expenses by a finance or accounting associate before reimbursing the employees. Rather than focusing on each expense’s necessity, this secondary reviewer identifies any noncompliances with the company’s expense policies and ensures the integrity of supplemental documentation in case of an internal or tax audit. Custom approval routing is a critical expense report software feature to invest in that automates and customizes expense review and approval based on your company’s policy.

4) Utilize data analytics to stay on top of expense reporting trends and reimbursement status

Graphs and charts are handy when it comes to viewing the distribution of expense reimbursements by category/employee/projects, etc. Maintaining a consistent expense reporting practice and staying on top of the reimbursement status also minimizes the chance of delayed or duplicate reimbursements.

5) Investigate when necessary, and remember, it’s all about the “tone at the top.”

The best practice to prevent expense fraud is diligent review, however, some perpetrators might still fall through the crack despite your best efforts. Therefore, it’s crucial to communicate company guidelines and educate the consequences of expense fraud to the employees. Two guidelines we recommend: 1) clearly convey every expense policy violation – small or large – will have consequences; and 2) demonstrate equal treatment across all levels of expense policy violators. After all, copycat behaviors are common at the workplace, and establishing the right “tone at the top” would help foster good ethical culture across the entire organization.

When considering the expense software solution that not only streamlines your company’s workflow but also safeguards you from expense fraud, Tallie successfully does both. A user-friendly mobile app, automatic data import, smart matching and categorization make expense report creation a breeze; while Tallie’s duplicate expense auto-alerts, immediate, “along the way” out-of-policy flags, custom expense limits, and policy-based approval routing will keep expense fraud incidents at bay.

Which of these 5 tips are you and your company following to protect against expense fraud?

2 thoughts on “Scared Straight: Expense Fraud & 5 Ways to Prevent It

  1. Pingback: Powerful and easy to use desktop and mobile business expense report software. | theReviewGuys

  2. Pingback: Expense Fraud Costs Companies Money | theReviewGuys

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