4 Ways to Manage Employee Expense Fraud

By Megha Shah - Last Updated on January 6, 2020
How to Control Employee Expense Fraud

A 2012 report given to the Nations on Occupational Fraud by the Association of Certified Fraud Examiners (ACFE) found that approximately 14.5% of asset misappropriations were investigated which involved an expense reimbursement fraud. 

Expense reimbursement fraud is on the rise and every company must be aware of the different forms and kinds of expenses that turn out to be fraud. Simply put, sometimes, employees note extra or artificial expenses incurred for work-related tasks (such as travel expenses, commute expenses, phone bills, etc.). In very many cases, these expenses turn out not to be company related and/or haven’t even been incurred. This is one way some employees embezzle company funds. This is known as employee expense fraud or employee expense reimbursement fraud.  

 4 Types of Expense Reimbursement Fraud: 

  1. Multiple reimbursement frauds: This usually takes place in organizations where executives do not gel well or communicate well. Employees take advantage of the lack of communication and get the same expense reimbursed multiple times. Most of the employees can talk their way through and successfully get the same expense reimbursed 2-3 times without much question.
  1. Fictitious expense fraud: It is very common (and easy) for employees to state expenses that never even occurred in the first place, such as fueling or maintaining the company car, taking a prospective client for dinner at a rather fancy restaurant, or purchasing stationary or unnecessary items. This is the most common form of expense fraud and is also the most difficult to verify. The employee could, in most cases, have incurred the expense, but not necessarily for work purposes. 
  1. Overstated expense fraud: This kind of expense fraud occurs when an employee overstates the expenses incurred before requesting a reimbursement. This is also common; however, it can be detected upon investigation. 
  1. Mislabeled expense fraud: This is similar to fictitious expense fraud. Here, the employee marks personal expenses as work related expenses and attempts to get a reimbursement. This is the easiest kind of fraud to commit, as many executives do not fully read an invoice before reimbursing the amount. 

These classifications cover almost all forms of expense fraud that employees commit or try to commit. Now that you are well-versed with the different types, it is important to understand the identification and prevention of such expense fraud schemes. 

The most important thing to keep in mind when trying to identify and prevent employee expense fraud is that it requires a fool-proof checking mechanism to rise above the situation.

Here are a few measures that can help to ensure your company is not a victim of employee expense fraud: 

  1. Set a reimbursement limit: This will turn out to be the most effective method to prevent an expense reimbursement fraud. Such a limit putsa cap on the amount an employee can be reimbursed. The limit can either be as an invoice percentage or as a monthly limit. Knowing there is only a certain amount that the employee can get reimbursement for, they will not be successful in any attempt to commit fraud. 
  1. Structure a review process: Create a reimbursement application and review team between the accounting or finance departments in your company. Any employee who wishes to claim any form of reimbursement must go through a formal application process in which their request will be reviewed and authenticated. Only after getting an affirmative ruling will the amount be reimbursed.
  1. Demand physical evidence: Always ask employees to submit original and authentic invoices along with requests for reimbursements. This will help to reduce the chances of employee reimbursement fraud.
  1. Create a strict policy: In cases where an employee is caught attempting to commit employee expense reimbursement fraud, develop and put in place a strict policy of charging a fine or firing in case the action is repeated. 

With these prevention tactics in place, you can ensure your company does not become a victim of employee expense reimbursement. 

Megha Shah

Megha Shah | A dreamer, traveler, aspiring entrepreneur and a bookworm beyond repair, Megha Shah is extremely fond of writing and has been doing so since she was a child. Apart from being a part-time writer, Megha is currently in college, pursuing B. Com. (Hons). Megha is an ardent follower of ‘Hardship, Hustle and Heart’ and firmly believes in the power of hard work and destiny!

Megha Shah

Megha Shah | A dreamer, traveler, aspiring entrepreneur and a bookworm beyond repair, Megha Shah is extremely fond of writing and has been doing so since she wa...

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