A typical organization experiences five percent loss from revenue each year due to fraud.

This type of fraud is propagated by the firm’s own employees, and it is known as expense fraud. Expense fraud is “any scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expense.” Not all expense fraud is intentional, but the act certainly does affect a company’s bottom line, with a $140,000 average loss per year, and more than 20 percent of cases incurring losses of at least $1 million.

There are many different ways in which employees can perpetuate expense fraud. Schemes include:

  • purchases for personal use (e.g. trips, plastic surgery, and jewellery on corporate credit)
  • altered receipts
  • fictitious expenses
  • fake receipts
  • over-purchasing
  • double dipping
  • cancelled expense (airline tickets, conference fees)
  • multiple mileage (collusion)
  • overstating mileage and km rates
  • and threshold manipulation

There are a few ways to determine if an employee is engaging in expense fraud. Some red flags include:

  • missing support and/or missing approvals
  • high dollar paid in cash
  • amounts ending in “nice numbers”
  • dollar amount repetition
  • consecutive numbered receipts
  • torn or ripped receipts
  • expenses claimed when the employee did not work
  • expenses approved by someone outside the department
  • corporate credit cards regularly reaching or exceeding limits
  • and consistent delays in submitting support for corporate cards

Ways in which an organization can prevent expense fraud include:

  • setting expense policies or guidelines
  • establishing training and awareness of policies and guidelines
  • requesting original documentation
  • initiating a formal review process
  • questioning expenditures
  • auditing samples of expense reports
  • spelling out consequences of infractions (including dismissal)
  • and assigning supervisors with knowledge of employees activities to approve reports

Internal controls ultimately are designed to reduce employee fraud, but even with the best internal control system, fraud can still be perpetrated by collusion. In such instances it is difficult to detect by the organization and potential auditors.

Consider a company credit card fraud scheme. One possible way to resolve this issue is by having employees submit reports along with their expense claims. The report should require:

  • the original copy of the receipt
  • the date of the transaction
  • the amount of the transaction
  • the “G/L code” that the expense pertains to
  • a signature of a superior
  • and finally an explanation for the expense

Furthermore, ensuring segregation of duties by assigning an employee with no rights to a corporate credit card to review all expense reports can drastically reduce missed fraudulent expenses.


Written by: Steven Parker