As an employer, you want your employees to be loyal to the company always, also you trust your employees to produce their expense reports honestly. But experts say that the most trusted employees do the most expenditure fraud. It may look small at the beginning, but expense reimbursement fraud can create thousands or lakhs of rupees loss to the company.

Expense Reimbursement Fraud

An expense reimbursement fraud is when an employee produces a claim for reimbursement of non-real or inflated business expenses. This fraudulent reimbursement expense falls under several categories:

• Mischaracterized expense
• Overstated or inflated expenses
• Fictitious expenses
• Multiple reimbursements

Mischaracterized Expenses: Mischaracterized expense schemes are the most commonly happened expense fraud. Mischaracterized expense is when an employee submits a fake claim to the employer usually by submitting a personal expense as a business or expense related to work. Mischaracterized expenses include items that don’t have a business connection, food expenses when employees are not working or not on a business journey, items or meals for children, establishments in the employee’s neighborhood.

Overstated Expenses: Overstated expenses are when an employee changes the amount on a bill, or loses a receipt, and asks for a claim of a higher amount than what is actually spent. Another scenario is when an employee produces a fake bill or a higher amount bill than actual and gets them issued with the help of a merchant and split the profit. Some of the situations considered as overstated expenses are incomplete expense reports, documents such as the bill or receipt seem to be suspicious or show the signs of false or fabrication in the receipt.

Fictitious Expenses: Fictitious expenses are when an employee submits for reimbursement of service or product they did not receive. A simple example of a fictitious expense is an employee getting a blank receipt from a taxi driver and filling in the information and claiming for that. Or make a receipt with the help of a merchant for a non-existent purchase.

Multiple Reimbursement: Multiple reimbursements are submitting the same expenses on multiple reports. For example, an employee may submit a claim for a travel expense, such as a flight ticket or taxi bill, then again claim for reimbursement of the distance as if he or she drove to the location.

How to avoid expense reimbursement fraud?

Preventing expense fraud is way cheaper than the loss it makes once happened. Good prevention methods save a lot of time and money. Below discussion of some of the techniques to protect the company from expense fraud.

Employ a proper Internal Expense Policy

Create a rule which is equal for all, regardless of the department or level, and have a formal written policy to make sure that every employee is aware of that. Do not forget to include the information on how the company responds to breaches and fraudulent activities like expense reimbursement claims. Make them very clear about the aftermath of fraudulent activities for the employee.

Implement controls at the beginning stage

Without considering who is filing the claim, the controls must be applicable to everyone. Check every information thoroughly and clearly to avoid fraud. Apply a two-stage approval process of all expense claims to avoid errors.

Approver authority

Provide authority to approvers to question employees in case they find fabrication in the claim. Deny any expenses that don’t come under the guidelines of the company expense policy.

Some other methods to prevent expense reimbursement fraud are conducting regular audits of reimbursements, providing company credit cards to employees who travel on a regular basis for business needs, controlling employees who violate the expense policy, and implementing software for managing expenses.

By using tools like Trst Score, you can find the true face of every employee. Also, in case if you find any money fraud the employer can easily report the activity in the platform and avoid the same scenarios in the future.

Make compliance a company culture

The management should demonstrate the commitment to the expense policy to employees openly and on a positive note. When the top-level people follow the rules and policies, it will motivate other employees too.