Expense Fraud: What Is It And What To Do To Prevent It

Written by: Alex Bulmer

Pop quiz! Who is more at risk for expense fraud? Big businesses with more than 100 employees or small businesses with less than 100 employees? You may be surprised to learn that it’s actually the little guy. If your company still relies on expense processes with paper receipts and spreadsheets, it’s very likely your company is experiencing fraud as well!  

people eating inside of cafeteria during daytime

Fraud expenses occur when an employee makes a claim for reimbursement that is fictitious or inflated. In 2018, the Association of Certified Fraud Examiners conducted a study on fraudulent expense reimbursements and found it accounts for 21% of all fraud in small businesses and 11% in large businesses.

There are 4 common types of expense fraud:

  1. Fake Expenses– making up fake expenses.
  2. Personal Expenses– employees may try to write off personal expenses as business expenses. 
  3. Multiple Reimbursements– submitting receipts more than once. 
  4. Overstated Expenses– legitimate expenses that have been inflated.

How to identify and prevent expense fraud:

Start with a policy– set a clear and fair expense policy for all employees to follow. 

Give your employees the right tools– putting tools and systems in place can simplify the process.     Oddly enough using hard copies, employees have been found twice as likely to commit fraud. 

Change how you do expenses– try to incorporate the use of a corporate charge card for greater control of reimbursement charges. 

Audit Selectivity– Make sure all new hires understand the company policy by auditing their first ten expense claims.

Bring in HR support– expense fraud can be a learned behavior- make sure managers and their managers are receiving reliable advice and information. 

Finally, one of the best ways to avoid employee expense fraud is to be sure your companies’ rates are fair and up to date and enforce a strict “no excuse” policy.

About the author:

Alex Bulmer

Alex has over 23 years in the restaurant industry and 7 years’ experience in the bookkeeping & accounting industry. He’s also a QuickBooks Pro Advisor.

As a restaurant owner for over 16 years, Alex knows how daunting accounting can be for the small business owner, but he also knows the importance of understanding the numbers to run the operations of a business efficiently. Either you are too busy running the operations of your business, or perhaps there is a simple lack of knowing what all is involved when it comes to payroll, or perhaps it is a severe case of paralysis of analysis. In either case, it is his aim to be that trusted partner and consultant (CFO if you will) to aid in the financial, payroll and human resources part of the business so you can focus on why you got into business for yourself in the first place – enjoyment.

Alex Bulmer
Three Pillars Bookkeeping and Three Pillars Business Services

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