What is expense fraud and how can you prevent it?

What is expense fraud?

Expense fraud is what happens when employees deliberately make a claim for a refund of expenses money that they know they are not entitled to. It’s not the same as a genuine error, or an oversight, it’s the act of being motivated to obtain their employer’s money under false pretences. 

It's tempting to believe that expense fraud is a minor issue for businesses. However, this doesn’t  mean it’s not worth management attention. It’s important to remember that every pound that’s fraudulently claimed took a lot of earning, for the firm, and can represent significant gross revenues and organisation effort. 

How costly is expense fraud? 

It’s estimated that expense fraud accounts for about 21% of fraud in smaller business and 11% in larger firms. 

Why do employees commit expense fraud?

Staff do not necessarily commit expense fraud because they have a burning issue with the company, or want to revenge an ill. They do it because they can; because there are insufficient controls in place to prevent them doing it. Expense fraud is opportunistic theft, so to reduce the fraud it’s important to reduce the opportunity.

How can I prevent expense fraud?

There are three practical ways to prevent expense fraud: 

1. Use expense management software.

2. Correct the culture that regards expense fraud as trivial and acceptable.

3. Create and implement a clear expense policy.

1️⃣ Use expense management software

The rapid and successful development of expense management software has enabled expense management to be automated, much more controllable, and more easily auditable. 

In a traditional paper receipts-led process it is difficult to spot and manage suspect expense claims. However, expense management software such as the Expend Mobile App means that business managers can create and implement clear rules and guidelines, that can control expense claims, and match photos of relevant receipts, to enable the claim to be authorised in real time, processed and automatically reimbursed.

2️⃣ Correct the culture that regards expense fraud as trivial and acceptable

With the control tool of expense management software, it’s possible to educate staff that deliberately mis-claiming expenses is a serious disciplinary matter. 

Provide staff with examples of  typical fraudulent expense claims and demonstrate how the expense management software can identify and control these. 

3️⃣ Create and implement a clear expense policy

Businesses do not deserve expense fraud, but the lack of a definitive expense policy means that some firms create an ‘own goal’ against themselves. 

Ambiguity about what is claimable, lack of process visibility, and poor controls can encourage opportunistic employees to test the expense claims system, and if discovered, they can use the lack of a clear policy as an excuse or defence. 

What is an expense policy? 

An expense policy provides the rules for validating and managing expenses claims across  a business. The policy provides details of what expenses are claimable, in what circumstances, and through what process. The policy might include variations for different types of role. 

Why is an expense policy important? 

An expense policy is important because it provides structure for, and control of, expense claims in a business. When implemented alongside expense management software it provides security for a business and improves the company's protection against the risks of expense fraud. For further guidance see our blog What should be in an expense policy? 

Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.