How to tackle expense fraud – a guide for business owners

Did you know that businesses in the UK lose approximately £2 billion to employee theft each year? The majority of those losses are due to fraudulent expense claims.

Surveys put the proportion of employees who regularly claim more than they should at anywhere between 40% and 80%. Although that might sound high, it can only mean one thing: it is highly possible expense fraud is already occurring inside your business.

In this article, we show you what expense fraud looks like, how you can identify it in your business, and what you can do to protect yourself from it.

To learn more about employee fraud more generally, check out our blog post.

So, what can you do about expense fraud?

Expense fraud is difficult to detect, but not impossible.

The person committing it rarely considers it as theft. Often, otherwise, honest employees happily inflate expense claims simply because ‘everyone else does it’.

In addition, it tends to involve relatively small amounts, which can be easily overlooked.

But, neither of these reasons should put you off trying to get to grips with it, because the longer the fraud goes on, the bigger the dent it will put in your bottom line.

A multi-pronged approach to expense fraud

There’s no one-size-fits-all solution to combatting expense fraud, you need to adopt a multi-tiered approach. This should include:

• Ensuring employees understand their responsibilities
• A straightforward, transparent and accountable way of filing expenses
• Appropriate checks
• Appropriate ways of dealing with offenders

Although there is no foolproof way of ensuring all fraudsters will be stopped or caught, having these in place should reduce fraud to a minimum.

Different types of expense fraud

Expense fraud comes in many different shapes and sizes. But, regardless of the specific act, they all tend to fall into two distinct categories: inflated expenses and fictitious expenses.

Inflated expenses

Perhaps the easiest to commit, these claims involve the employee overstating the cost of a legitimate expense.

Some common examples of inflated expenses include:

• Exaggerating the number of miles traveled on a mileage claim.
• Accounting for tips that were never actually provided.
• Unnecessarily purchasing first-class tickets when more modest means were available.

Fictitious expenses

These types of claims can be hard to detect and involve falsifying documents in order to claim for an expense that didn’t happen.

Some common examples of fictitious expense claims include:

• Using design software to create bogus receipts (or manipulating existing receipts) and then using them in an expense claim.
• Taking receipts from establishments and using them as their own.
• Seeking reimbursement even though a refund was received.

Other types of expense fraud

Not all expense fraud is malicious. In many cases, employees are not properly educated on what they can and can’t purchase on behalf of the company. Whether it’s purchase limits or expense category restrictions, if your employees are not informed of the rules then the rules are open for interpretation.

Some common examples are:

Purchasing premium fuel for vehicles unnecessarily. Buying alcohol with meals. Spending too much for specific expense types.

5 top tips to detect and tackle expense fraud

Expense fraud tends to flourish in organisations where little attention is given to the policing of expenses.

A healthy mix of policy, procedure, and technology can be all that is required to alleviate the situation and put you firmly back in control of your business expenses.

We’ve put together our five top tips that, should you implement, will discourage future abuse and fraudulent activity, ultimately helping to safeguard the future of your business.

1. Write an Expense policy

Combatting expense fraud starts with a policy. It’s vital that this is transparent, easy to follow, unambiguous, and accessible. A policy that is vague or open to interpretation is open to abuse.

Setting clear expectations and boundaries is often all that is needed to ensure most people working for you do not fiddle their expenses.

Defining limits and restrictions is a key ingredient to an effective expense policy. Employees are more likely to spend appropriately if there are tighter expectations and controls in place.

Have you checked over your policies recently? If not, we recommend you take a look!

Learn how to write an effective expense policy.

2. Audit your expenses regularly

Regular auditing is an essential part of detecting expense fraud. This can be a laborious task, but it is important, particularly when it comes to new hires.

Regularly auditing their expense reports will enable you to find out if they understand your policy and are complying with it. Picking up any transgressions at this point means they will quickly learn their responsibilities, and realise checks are in place.

It’s also important to keep an eye on your more established employees. Often, those who have been in the business longest and understand the culture get away with the most. Expense fraudsters justify their actions because they put in overtime and feel they are owed that extra pay. This is common from senior employees.

3. Define your procedures for catching a thief

Making it clear from the outset what happens when your trust is abused not only makes it easier to manage when the unfortunate situation does arise, but it will make your employees think twice about exaggerating that next claim.

If you find evidence of expense fraud, then HR should be your first port of call.

Don’t worry if you don’t have an internal HR department, there are plenty of skilled, independent practitioners available who will be able to help. Consult Google or ask your network for recommendations.

A word of warning, though. Unless you’re confident you have the right skills, we wouldn’t recommend dealing with it yourself. Employment law is complicated and is easy to fall foul of.

4. Leverage technology

If you’re really serious about combatting expense fraud, it’s time to ditch the paper receipts and expense reports, and instead, invest in expense management software.

Studies show that employees who submit paper receipts are more than twice as likely to commit expense fraud as those using digital platforms.

Investing in expense software will pay dividends when it comes to reducing fraud. There are a number of tools available to businesses to help them manage their expenses, from simple receipt tracker apps through to full-service expense management platforms, much like Expensemate.

5. Combat expense fraud with Expensemate

Effective expense management is fundamental to combating expense fraud in your business. However, implementing a successful programme can often require time and dedication – a resource not always readily available.

So how do you gain tighter control of spending, improve accountability and visibility without devoting countless hours each month?

Well, the answer is Expensemate.

Greater control of spending

Empower your teams to purchase everything they need, but nothing more.

Expensemate gives your team a tool to make payments without spending their own money, all the while improving transparency and your ability to control spend.

With Expensemate you can:

• Set spend individual spend limits and expense category restrictions
• Approve or reject transactions on the go
• Identify your biggest spenders
• Review all transactions at card, group, or company level

Real-time visibility of spend

If you don’t have a mechanism to see fraudulent activity as it happens, the damage could be significant by time you identify the problem.

With Expensemate, all transactions come through to the manager’s app instantly. So, if you see something that doesn’t look right, you can take immediate action.

Often, with traditional expense management processes, the context surrounding the expenses can be blurred, especially if you’re reviewing the transaction weeks or months after the fact.

Not with Expensemate. Front-end users can apply notes to transactions to provide further detail, improving a manager’s ability to hold their team accountable for their purchases.

In addition, thanks to the security features in the software, instances of employees going rogue can be stopped immediately with the cancel or block card features.

Reduce reliance on paper

All front-end users of Expensemate are required to upload receipts against their transactions in the Expensemate app. Once this task is completed, the receipt along with all the transaction data sits in the cloud-ready and waiting for when you need to leverage the information.

Accountants can easily export the transaction information into their accounting software and employees no longer need to submit old-fashioned expense reports.

Not only will it lessen the administrative burden when you’re auditing your expenses, but it will help the wider organisation too freeing up more time to focus on areas such as spotting fraud, instead of frantically processing reports.

Make your team accountable for their spend

Thanks to the digital nature of Expensemate, finding individual employee transaction history takes seconds, not hours, just with a few clicks. Although the product mitigates the chance of unauthorised spending, if it does happen you’ll have all the necessary tools at your disposal to efficiently review spending history and take informed action.

Conclusion

By following the guidance in this blog, you might not eradicate expense fraud altogether, but you will significantly reduce it, as well as its impact on your bottom line. Add in a tool like Expensemate, and you’ll realise efficiencies that have the power to transform your business while unlocking vital information about where all your money is going.