What are 5 steps to preventing expense fraud?

1. Establish Clear Expense Policies and Guidelines

Begin by developing a comprehensive expense policy to reduce errors and discourage fraudulent claims by employees. Clearly define legitimate business expenses, required documentation, and the submission process within your policy. Additionally, communicate the repercussions of fraudulent activities, including both disciplinary and legal actions. 

Employees contemplating or engaging in fraud will reconsider once the rules and consequences are clearly conveyed. A well-defined expense policy also enables your finance team to promptly detect any fraudulent activity. Your company culture significantly contributes to preventing expense reimbursement fraud. When employees recognize the importance of integrity and honesty, and observe these values exemplified by leadership, they are more inclined to follow ethical practices. 

This involves senior management being transparent about their own expense reporting and actively discussing the significance of integrity in the workplace. Furthermore, companies can implement mandatory ethics training focusing on expense reimbursement policies, accurate reporting, and the consequences of intentional fraud. 

2. Verify Suspicious Claims

Before reimbursing employees, carefully examine their claims for indicators of potential fraud, such as:

• Excessively high costs: Claims that are significantly higher than average for similar expenses, such as hotel stays and meals, may suggest overstated expenses.

• Rounded numbers: Consistently rounded claims to the nearest dollar or higher often indicate an exaggerated expense.

• Altered or illegible receipts: Receipts that appear altered, or have unclear dates, amounts, and details, may be fabricated or manipulated. While this can sometimes be an honest mistake, it may also indicate intentional fraud.

• Duplicate expenses: Identify the same or similar expenses appearing multiple times within a short period or within the same reimbursement claim. An example would be two different receipts for hotel stays during a single business trip. 

3. Conduct Regular Audits

Regular audits are essential to ensure that expense reports adhere to your company's policies and guidelines. By implementing random reviews of expense reports to detect fraud, employees will be deterred from engaging in such activities.

Conduct monthly or quarterly spot checks, selecting a random sample of expense claims based on the size of your organization and the volume of reports.

For instance, a company with a large workforce and numerous regular expense claims would benefit from more frequent spot checks. It is also advisable to focus on high-risk reports, particularly from employees who consistently submit high expenses or frequently travel on behalf of the company.

Finally, ensure that all findings, suspicions, and verifications resulting from audits are thoroughly documented. This practice not only helps identify patterns but also provides evidence for further investigations if necessary.

4. Ask questions

If a purchase seems odd or unrelated to business use, catching it early is the best way to resolve the issue. After too much time has passed, an employee might claim to have a difficult time remembering exactly what the questionable expense was for. If in doubt about a claim, ask for supporting documentation and a clear explanation of how the expense was used for a business purpose.

5. Implement Finance Management Tools

Expense reimbursement fraud eats up your company’s resources—but so does investigating every single reimbursement claim that ends up on your desk. Instead of investing large amounts of time and effort in manually checking reimbursement reports, ask your bookkeeper to assist with implementing spend management tools.

These tools automatically track, manage, and flag suspicious claims with features like duplication detection, spending limit enforcement, and automated alerts, making it easy to identify fraud. They can be a huge asset to finance teams looking to cut down expense fraud reimbursement without having to invest all their time and energy into identifying it.