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Expense fraud happens when employees deliberately exaggerate or falsify claims to receive higher reimbursements than they’re entitled to. It’s a widespread issue across industries and is considered one of the most frequent and expensive types of internal fraud. Left unchecked, it can erode company finances and damage workplace integrity.
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Quick Read
Summary generated by AI, reviewed for accuracy.
Early Detection is Critical
Identifying expense fraud quickly helps protect your company’s finances by spotting suspicious transactions before they escalate.
Automated Tools Improve Accuracy
Using automated expense management software flags potential fraud in real time, making detection faster and more reliable than manual reviews.
In this guide, we’ll break down what expense fraud really looks like, highlight the most common tactics used, and provide practical tips for spotting and stopping fraudulent expense claims before they impact your bottom line.
What Is Expense Fraud?
Expense fraud refers to the deliberate act of submitting false or inflated claims to receive unwarranted reimbursements from an employer. Sometimes called employee expense fraud or reimbursement fraud, it’s one of the most frequent forms of internal financial misconduct across organizations.
There are several deceptive tactics employees may use to commit expense fraud, such as:
- Inventing fake expenses that never occurred
- Exaggerating legitimate costs to receive more money back
- Submitting the same expense multiple times under different claims
- Editing or forging receipts to inflate amounts
- Classifying personal purchases as business-related
In each of these scenarios, the employee knowingly manipulates the reimbursement process for personal financial gain compromising both company resources and trust.
It’s essential to differentiate between intentional fraud and honest errors. For instance, an employee might input the wrong amount by mistake or be unaware of specific policy rules. While both situations can result in incorrect claims, the key distinction lies in intent. Fraud is a conscious act of deception, whereas errors stem from misunderstanding or oversight.
How Widespread and Costly Is Expense Fraud?
Expense fraud isn’t just a rare slip-up — it’s a persistent and damaging issue affecting businesses around the world. According to findings from the 2024 Report to the Nations by the Association of Certified Fraud Examiners (ACFE), expense reimbursement fraud ranks as one of the most frequent forms of asset misappropriation.
The report, which examined nearly 2,000 real-world fraud cases globally, revealed that 13% involved expense fraud, with each scheme lasting an average of 18 months before detection — making it one of the longest-running types of workplace fraud.
Even more alarming is the financial toll. The median loss per case hit $50,000, which is $10,000 higher than in the ACFE’s 2022 findings. And this isn’t limited to one sector — expense fraud is seen across nearly every industry, including tech, manufacturing, public administration, healthcare, and nonprofit services.
These numbers highlight just how critical it is for businesses to put strong expense policies, approval processes, and detection tools in place.
How Does Expense Fraud Happen?
Expense fraud doesn’t usually begin with a grand scheme — it often starts subtly, shaped by company culture and a lack of oversight. In many workplaces, especially where leadership turns a blind eye, unethical behaviour can slowly become normalized.
According to the ACFE’s 2024 global report, around 20% of small businesses (fewer than 100 employees) and 12% of larger enterprises (100+ employees) report cases of expense fraud. These numbers suggest that fraud is not just a risk — it’s a reality for companies of every size.
In some cases, employees learn from what they see. If senior staff submit padded claims or manipulate receipts without consequence, newer team members may assume this behavior is acceptable. For example, a sales rep might ask a vendor to inflate the total on a handwritten receipt — especially when paying in cash — knowing the difference won’t be reported or traced. Over time, these small unethical actions can evolve into a widespread cultural issue.
Poor internal systems also play a role. When businesses lack structured T&E policies or rely on manual processes, it becomes easier for employees to submit inflated expenses or questionable claims without being flagged.
At the end of the day, the responsibility for stopping expense fraud lies with leadership. While accounting teams can help detect unusual patterns, it’s up to business owners and managers to establish clear rules, invest in proper expense tracking tools like Expense Tracker 365, and promote a culture built on honesty and accountability.
Why Do Employees Commit Expense Fraud?
At its core, expense fraud is driven by the desire for personal financial benefit. But what makes an employee risk their reputation — or even their job — for what often appears to be a minor gain? The motivations can differ from person to person, but some common themes tend to emerge:
Financial Stress
When employees are struggling with personal debt, unexpected expenses, or a tight household budget, the temptation to “borrow” from the company via inflated or false claims can become hard to resist.
Justifying the Behaviour
Some employees convince themselves they’re owed more than what they earn — that underappreciation or overwork entitles them to “a little extra.” This mindset can lead them to see fraud not as theft, but as a form of balancing the scales.
Belief That They Won’t Get Caught
In environments with weak oversight or manual reimbursement processes, employees may assume their actions will slip through the cracks. Small amounts may seem harmless, and over time, this emboldens repeat behavior.
Toxic Norms in the Workplace
Culture matters. If others in the organization regularly exaggerate expenses and face no consequences, that behaviour can quickly spread. When dishonesty becomes the norm, ethical boundaries blur — especially among new or impressionable team members.
While every case is different, a common thread is the absence of strong policies, real-time monitoring, and accountability. With the right tools — like Expense Tracker 365 — companies can not only detect fraud faster but also reduce the chances of it occurring in the first place.
Common Types of Expense Fraud
Expense fraud can take many forms, and while not every case is deliberate, each one can chip away at your company’s financial health. Below are some of the most frequent ways fraudulent or unauthorized claims show up in expense reports:
1. Faked Business Expenses
In some cases, employees request reimbursement for costs that were never incurred. For example, someone might claim they dined at an upscale restaurant but ate at a much cheaper place — submitting a fabricated or altered receipt to boost the reimbursement amount. Others might claim a taxi ride when they used a much cheaper bus or train service.
2. Personal Expenses Disguised as Business
Mislabelling personal spending as work-related is another red flag. This might be intentional, or simply due to confusion — like using a personal credit card for a work lunch and later submitting it without realizing it’s outside of policy.
3. Duplicate Claims
Submitting the same expense more than once — such as attaching a hotel bill in two different reports — is usually accidental. But when undetected, these duplicate entries can add up. With proper checks in place, finance teams can usually catch these through cross-referencing dates and receipts.
4. Overstated Expenses
Instead of fabricating entire expenses, some employees exaggerate real ones. Think: rounding up mileage, inflating meal tips, or listing more items than were purchased. While a real transaction occurred, the inflated amount becomes a form of theft.
5. Receipt Manipulation
One of the most common forms of fraud identified in the 2024 ACFE report is the alteration of receipts — either digitally or manually. This might include modifying totals, boosting tip amounts, or editing out items (like alcohol) that fall outside of company policy.
6. Policy Violations (aka Maverick Spending)
Even when expenses are valid, ignoring company guidelines can cause problems. For example, using non-approved vendors, booking outside budget limits, or bypassing required approvals all fall under “maverick” behaviour. It’s not fraud in the traditional sense, but it still goes against your T&E policy.
7. Zombie Spending
Not all expense issues come from employee claims. Sometimes, companies continue to pay for tools, services, or software they no longer use. This “zombie spending” — like forgotten SaaS subscriptions or unused travel credits — can drain budgets quietly over time. It can also result in employees adopting unauthorized apps (shadow IT), introducing compliance and security risks.
While many of these cases stem from oversight or misunderstanding, others reflect deeper issues in policy enforcement or company culture. Either way, businesses need tools like Expense Tracker 365 to detect, manage, and prevent these financial leaks — intentional or not.
How to Spot Expense Fraud
Catching expense fraud early can protect your business from unnecessary losses. While manual checks can help identify basic issues, automated systems now offer faster, more reliable ways to uncover suspicious patterns.
Use Smart Automation Tools
Modern expense management tools come equipped with built-in fraud detection. These systems continuously scan expense reports and flag anything unusual—like claims that go over limits, mismatched receipts, or duplicate entries. Automation reduces the chances of human error and helps finance teams catch fraud that would slip through manual reviews.
Perform Regular Manual Reviews
Even the most advanced systems can’t replace human judgment. Routine manual audits and random checks remain important for spotting more subtle patterns. During these reviews, look for:
- Repeated or almost-identical receipts
- Even dollar amounts that feel “rounded off”
- A pattern of frequent small claims just below the approval limit
Train Employees and Raise Awareness
Preventing fraud also starts with education. Clear communication about your company’s expense rules, combined with regular training, reduces the chances of accidental misuse and discourages intentional abuse. Employees are less likely to file sketchy claims when they understand the risks and know that oversight is in place.
How to Prevent Expense Fraud from the Start
Rather than waiting for fraud to happen, build a system that makes it harder in the first place. Here’s how:
- Publish Clear Guidelines
Well-written expense policies are your first line of defines. Be specific—don’t just say “reasonable meals”; define dollar limits and give examples. Make these policies easy to find and simple to understand. - Be Consistent with Enforcement
Rules only matter if you enforce them. Make sure policy violations result in real consequences. When leadership models good behaviour and acts when issues arise, it sends a message that dishonesty won’t fly. - Use Purpose-Built Technology
Smart platforms allow you to set category caps, define allowed vendors, and automatically flag anything out of line. When integrated with your accounting software, these systems keep reporting clean, accurate, and real-time—removing the manual burden from finance teams. - Maintain Ongoing Training
Offer refresher courses every few months. A quick team meeting or internal newsletter update can remind everyone of the rules. This also gives employees a safe way to ask questions or report anything suspicious.
ET 365: Making Expense Fraud Nearly Impossible
Despite rising fraud risks, many teams still rely on spreadsheets or paper receipts to catch problems leaving them scrambling after the damage is done. ET365 changes that.
Expense tracker 365 software flips the script from reactive to proactive. With built-in AI, ET 365 flags issues before approvals happen. Let’s say someone tries to submit a $180 dinner when the card transaction was only $60. Expense Tracker 365 instantly detects the mismatch and blocks the reimbursement until it’s resolved.
It also prevents common errors like duplicate entries. If someone reuses a receipt in two different reports, ET365 spots it across reports—even if the submission happens months apart.
ET365 customizable controls let you go further. You can:
- Set limits per user, department, or category
- Require added approvals above certain thresholds
- Restrict spending to approved vendors
- Enforce your policy automatically
If your meal cap is $75, ET365 won’t allow approvals for anything beyond that unless a manager intervenes. Every action—from submission to approval—is tracked in an audit trail so nothing can be deleted or modified in secret.
This doesn’t just help you catch fraud—it makes it harder to even attempt it.
Stay One Step Ahead with Expense Tracker 365
With Expense Tracker 365 your team doesn’t need to chase receipts or verify reimbursements line by line. Upload your policy, set spend rules and let the software handle enforcement in real time.
An intuitive dashboard lets you track all expenses live. You can also use Expense Tracker 365 API to plug into your accounting system and:
- Automatically record transactions
- Match expenses to categories
- Sync everything with your ledger
- Eliminate manual entry errors
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Frequently Asked Questions
What exactly is expense fraud?
Expense fraud happens when employees intentionally submit false, inflated, or personal expenses for reimbursement. This can include faking receipts, inflating costs, or submitting the same expense multiple times to get extra money from the company.
How can businesses detect expense fraud early?
Using automated tools like Expense Tracker 365 helps flag suspicious activity quickly—such as duplicate receipts, expenses outside policy limits, or unusual spending patterns. Combined with periodic manual reviews and employee training, this approach improves fraud detection.
Are all expense fraud cases deliberate?
No. Some are honest mistakes like submitting personal expenses by accident or misunderstanding the policy. However, deliberate manipulation of claims—like altering receipts or inflating costs—is true expense fraud and poses a serious risk to companies.
What common warning signs indicate expense fraud?
Look for repeated claims of the same expense, oddly round amounts, frequent small claims just under approval thresholds, altered receipts, and spending outside approved categories or vendors.
How does Expense Tracker 365 help prevent expense fraud?
Expense Tracker 365 automates expense approvals, flags out-of-policy spending, detects duplicates, and enforces company policies in real time. Its detailed audit trails and reporting give finance teams full visibility and control to minimize fraud risk.
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