How to Prevent Expense Fraud

Employee expense reimbursement fraud is costly to businesses- and in 2021 it was estimated that the average cost to businesses (with fewer than 100 employees) was in the realm of $30,000 per year.  Not to mention, that if one or more employees commits lower-level expense fraud (such as expensing meals and/or fictitious mileage reimbursement requests), that could be a gateway for larger, future attempts.

The best way to prevent expense fraud is to develop clear, easy-to-understand reimbursement policies. Below are just a few of the policies that we recommend.

  • Set a reporting timeline. If employees need to submit expense reports, give them a firm deadline to do it. Most companies require staff to submit expense reports within 15-30 days.
  • Require staff to categorize their expenses. If John Doe needs to travel to Miami to meet with clients, have him break down his expenses into relevant categories, such as hotel expenses, plane tickets, meals, rental car expenses, gas, meals, mileage, rideshare (such as Uber and Lyft), and client entertainment expenses, such as client diners and/or golf outings.  Establish specific reimbursement limits for each category.
  • Make receipts mandatory. Although some companies require staff to submit receipts for all expenses over $20, other companies require expense receipts for everything, down to a $2.25 cup of coffee. Additionally, when it comes to meal expenses (and this is especially important if your company does not allow staff to expense alcoholic beverages), make sure that all restaurant and meal receipts are itemized. This will help ensure that a $35 dinner expense receipt is for food, not a small appetizer and several cocktails.
  • Establish consequences for violations. When you onboard staff (and/or you transition existing staff members into positions that require expense reporting), make sure they know that the company has established consequences and penalties for expense report violations.
  • Audit reports on a regular basis. Although some expense report mistakes are a result of human error (i.e., an employee requests a $25.31 reimbursement for a $23.51 receipt), others may be more brazen. Consequently, you may want to establish an auditing process that involves randomized checks. If you believe you’ve found suspicious activity, you may want to go back and re-check that employee’s prior expense reports to determine if you can establish a pattern.


In closing

One of the best ways to prevent expense fraud is to work with a qualified, experienced accountant. For more information about the benefit of outsourcing your company’s accounting processes, call our office today to schedule a free, no-cost consultation.