5 Ways to Protect your Business from Employee Expense Fraud

By Linda RoperMay 19, 2021
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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. In this guide we discuss what business expense fraud is and the different types, before we share 5 ways how employers can prevent expense reimbursement fraud from happening.

The image shows the words fraud prevention in red on a key on a computer keyboard

What is expense fraud?

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 travel 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.

Preventing expense report 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.

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 take the appropriate actions, so this won’t happen again with other employees following suit.

Infographic: 5 ways to protect your business from employee expense fraud