-This article was last updated on 14 October 2022-
Employers need to be able to trust their employees while they work, and as the global pandemic has forced many of us into the home office, this has become even more crucial.
Business expense fraud is understandably among an employer’s top concerns as more employees turn to working remotely.
In this guide we discuss what business expense fraud is, its different types, and how to identify it within your own workplace. We also share the top 5 ways employers can prevent business expense fraud from happening in their organisation.
What is Business Expense Fraud?
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Generally speaking, fraud occurs when an employee makes claims for expenses which they are not entitled to. Business expense fraud can end up costing companies a lot of money. It is estimated by NatWest that fraud costs UK businesses £190m a year with 40% of that figure stolen by staff. According to the Global Payroll Association, one in 10 UK employees admit to submitting fraudulent expense claims all the time, whereas one in five do so irregularly. At the top of the list of fraudulent expense claims sit exaggerated mileage claims (27%), followed by buying office supplies for personal use (20%) and increasing the cost of a taxi journey to claim more money back (16%).
Different Types of Business Expense Fraud Explained
There are several different types of business expense fraud, including expense misclassification, which is one of the most common types of expense fraud. This is when an employee claims personal expenses as a business expense. An example of this would be going out for dinner with friends and claiming expenses as if it was a business meeting with a client.
Another type of business expense fraud is fictitious expenses, which is when the employee completely fabricates the expense. A common example of this is asking taxi drivers for blank receipts, filling these out and submitting these as an expense.
Some employees also make multiple claims for the same expense, but in different formats. For instance, submitting an expense for overseas client trips twice, using both an airline ticket and bank statement as evidence. In large organisations in particular, it is often impossible for finance teams to fully check every single receipt, which is something employees who commit expense fraud are all too aware of.
(To learn more about the type of expenses busy sales reps can claim while being on the road, you can refer to our more in-depth guide to travel expense control in sales here.)
How to Identify Business Expense Fraud
Fraudulent expense claims are often easy to spot, as the key is knowing what red flags to look out for. We’ve included each of these common signs below.
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Address any missing receipts
If you notice that a receipt is missing for an expense, it's important to ask the employee for the proof of purchase. If they can't provide one, that may indicate fraud on their part.
If the employee is reluctant to provide a receipt, it may indicate that they were never in fact at the business or establishment listed on the receipt. If you can't get an answer from your employee, that could be a red flag.
Look for duplicate claims
You need to make sure that you are not paying the same expense twice. For example, if you've booked a hotel room for your employee’s business trip and included it in their costs, you need to ensure that they do not then submit an expense claim for the same amount.
Be aware of "commingling" personal and business expenses
There are countless cases where employees have been caught using corporate funds for their own needs—or even worse, stealing money from the company and then claiming they paid themselves back later on. Along with carefully reviewing receipts, be sure to cross-check every claim against your company’s expense policy to ensure it meets compliance.
Pay attention to late filing
If you find that an employee has been filing their expense claims late, this may be a red flag for business expense fraud. Late filing can be penalised and there are many reasons why an employee might file their expense claims late. However, if there is no clear reason why the employee was late in submitting their expense report, it could indicate that they are trying to hide something.
Don’t accept receipts with required fields missing
If you find receipts without all of the required fields, it can also be a sign of employee expense fraud.
As a general rule, receipts should have the following required fields:
Date of purchase or service
Amount paid (including total price, sales tax, and tip)
Merchant name and address (if applicable)
Ensure your expense policy necessitates all required fields before approving expense reports with receipts. Rather than doing this manually, however, you can use software such as ExpenseIn to set up automated policies and save you time.
How to Prevent Business Expense Fraud in Companies
So, the question now is, what can help prevent fraudulent employee expense claims? Here are our five top tips:
1. Maintain expense reimbursement policy and guidelines
As employee expense fraud can end up costing businesses hundreds if not millions of pounds, it is worthwhile for organisations to incorporate strict policies to prevent or at least reduce expense reimbursement fraud. The expense process should be clearly defined, and employees should be aware of the implications of committing expense fraud, as this may make them less likely to do it. For example, in your expense policy, you can limit the maximum claim value or adjust the requirements for the presence of a receipt. Your expense policy should also state when your employees will get reimbursed for their out-of-pocket expenses, so they are not feeling the financial pinch and are tempted to commit expense fraud.
2. Create a formal review and approval process
It is also important to have a formal and transparent review and approval process in place that is clearly communicated with employees, as this makes the procedure much stricter and thus, reduces the loss associated with employee expense fraud. For example, there could be a structured approval process, whereby the expense is not authorised unless it’s approved by various levels of management.
3. Request a copy of the original receipt
Every time a member of your staff submits an expense claim, make sure that they submit a copy of the original receipt with it. This goes back to creating a transparent expense policy that you share with your employees from day one when they join your business, because having to constantly beat staff with a stick over the misguided use of their expense accounts is counterproductive.
4. Implement cloud solutions
Many companies simply don’t have the resources to manage employee expenses, which is where cloud-based expense solutions like ExpenseIn can be useful. Employees can use cloud software for receipt scanning and can upload their expenses quickly and easily, rather than having to send them or hand them into the finance department. This can be much more efficient as it helps to ensure receipts and claims don’t get lost. It makes it easier for employees, as they don’t have to visit the office or pay the cost of postage for sending in claims, for example after a business trip. The system can also automatically flag up any company policy non-compliances as the expenses are submitted.
5. Prosecute offenders
And last but not least, it is also crucial that you question your employees about abnormal spend and follow up with any breaches in a timely manner. If someone is found to falsify expense claims, make sure that you investigate the breach and confront the employee in question about the alleged expense fraud. Only when you take the appropriate actions, you can ensure that this won’t happen again with other employees following suit.
How ExpenseIn Can Help to Prevent Business Expense Fraud
Identifying fraudulent expense claims is a routine part of most expense management systems, including ExpenseIn. With features such as receipt scanning, advanced approvals, and automated policies, ExpenseIn increases policy compliance and reduces employee expense fraud.
By staying vigilant and making sure that employees are following best practices when it comes to expense reporting procedures, you can ensure that your company will be protected from employee expense fraud moving forward.
