Business expense fraud is the corporate world’s version of a rotten apple. It creeps in and, without a peeled eye (spend control), lies undetected. Before you know it, it spoils the pack. In this article, we’ll teach how to spot, stop, and block expense fraud while managing business spend and spend policy with ease.
Picture this. It’s early Monday morning, and your sales team has just returned from a week-long trade show. Things went without a hitch, except for expenses, that is. Soon, you’re hauling in your colleagues to account for some shady-looking purchases and the classic — missing receipts. Not fun.
The dodgy figures are probably an innocent mistake. But what if they aren’t? Business expense fraud accounts for a worrying 14.5% of all exposed fraud worldwide.
Expense fraud is one of the latest dramas to hit the city. CitiBank recently won a wrongful dismissal battle against its former employee who had expensed two sandwiches and two coffees, initially claiming he had eaten them alone. The employee later admitted his girlfriend had also consumed some.
In this article, we’ll address corporate expense fraud and how it can affect your organization. We’ll also share some handy tips to make your team’s jobs easier and more efficient when managing business spend.
Business expense fraud, a.k.a. expense fiddling or an expense reimbursement scheme, occurs when an employee claims expenses they have no grounds to receive. The issue is rife. 85% of UK employees admit telling tales on their expense reports, and 5% lie on every claim.
Worse still, employees can get away with expense fraud in many ways. For example, it could look like:
Let’s zoom in on some of the most popular forms of expense fraud:
Haunted houses aren’t the only places with ghosts; they can also show up in your workforce.
Staff can poof imaginary workers into existence to siphon resources. For example, in 2021, two UK workers were convicted of setting up phantom employees to defraud Oadby and Wigston Borough Council and the former charity Coping with Cancer of more than £40,000.
It’s also not uncommon to see timesheet padding. Here, the employee adds unworked hours to their timesheet, often in small amounts to go unnoticed.
These days, credit card fraud is a fact of life, especially in Ireland and the UK, which rank number one and two, respectively, on the Credit Card Fraud Capitals of Europe list. But what might surprise you is an employee going rogue with a corporate credit card.
For instance, an employee could coerce a colleague to make personal purchases using their corporate credit card. A staff member could also steal a business credit card, rack up a bill, or use their own but fail to disclose the purchases.
Another popular way expense fraud creeps in is through the opportunity to exaggerate claims. From facing financial difficulties to viewing expense fraud as no big deal, the rationale behind employees committing expense fraud varies. Worse still, a combination of relaxed spend control rules, inconsistent checks, and archaic documenting processes leave the door open for such expense manipulation.
A close cousin of inflated expenses is fictional invoices and statements; in fact, these are the most common types of expense fraud. For example, an employee could:
Not all partnerships are a match made in heaven. Some can be hellish, for your company at least. Why? Employees working in cahoots with suppliers to defraud through a transaction. For instance, let’s say your company buys stationery in bulk. An employee could order goods, have a vendor overstate the cost on the invoice, claim the funds, and split the proceeds with them.
While there’s no exact formula for expense fraud, some elements make it easier to occur. Here are a few:
Tools that control operational costs, monitor spending, analyze expenses, and collect proof of purchase are also critical.
Yet, many businesses have subpar setups due to a lack of digitalization. Often, managers lack insight into each team member's spending, and they're overloaded with admin. Combine this with lax supervision, and you have the perfect storm brewing.
With a looming recession and cost of living crisis to contend with, businesses are feeling the pinch. The market instability has translated into tight budgets that aren’t always realistic. So, managers find themselves constantly over budget or stretching resources too thin to be effective. Think about budgeting $20,000 for a project that actually costs $45,000. These problems can tempt workers to commit expense fraud to cover the shortfall.
Expense fraud is a crime, but not everyone sees it that way. A corporate culture that ignores expense fiddling or encourages it can make some employees feel okay with claiming money they aren’t entitled to. For instance, you could have managers who set a bad example to other staff by purposefully flouting the company’s expense policy and signing off expenses they know are fake.
With AI technology and advanced tech sweeping the expense management world, using paper and manual tools like Excel and email should be a thing of the past. Sadly, they aren’t. Only a small fraction of finance teams leverage cutting-edge tech and AI-backed solutions like Payhawk for internal fraud detection. Whether it’s a lack of awareness of available tools, resistance to change, or a combination of both, one thing is clear: archaic technology leaves businesses vulnerable to expense reimbursement fraud.
We know employees siphoning cash through illicit expensing is damaging, but what exactly can it impact? Let’s examine some consequences of expense fraud:
Since expense fraud can come from many different angles, it's critical to take a multifaceted approach to combat it. To give you a headstart, we’ve compiled some essential moves to make:
First up is a systems upgrade. Examine your current expensing processes and policies. Then, clarify rules and tighten up controls. As a rule of thumb, you should have a(n):
For instance, Chaos Group, an international provider of 3D rendering solutions, now saves five days per month in admin since optimizing its processes with Payhawk’s corporate expense solution. Chaos Group’s finance team can now use this time and energy on other mission-critical tasks.
If you ever find spending checks taking so long you can’t get to other items on your to-do list, you’re not alone. But to combat expense fraud, it’s time to start over. Build an effective audit process and commit to a realistic monitoring schedule to stay informed on business spend. It’ll take a team effort, so get everyone involved. Here are some ways to level up your expensing reviews:
Want to build a healthy corporate spending culture? Educate, educate, educate. The reality is that most employees don’t understand the risks of fraud to the company and themselves. Yet, only a small portion of businesses have training in place to prevent fraud and raise awareness. And get this: some employees believe expense fraud is acceptable because their company doesn’t seem to care about expenses.
Clearly, there’s a disconnect between what some businesses say and do when managing expenses. Clear your stance on business spending and expense through comprehensive and regular training in accessible formats. Then, polish this off with internal business expense fraud awareness campaigns.
In your fight against expense fraud, state-of-the-art technology will be the sharpest tool in your arsenal. So, look for solutions that make managing expenses quick and easy for everyone. Check out some emerging trends and technologies that combat expense fraud like:
Data analytics and AI for fraud detection: The AI revolution in fraud detection makes trend analysis a breeze. Businesses are slashing the time they spend managing expenses and pinpointing fraud more accurately. This advancement frees up resources to reinvest elsewhere. Also, many companies leveraging AI in their fraud prevention strategies are still growing, creating a substantial competitive edge for early adoptees.
Digital receipts for transparency: You probably know all too well how common lost receipts are and their impact on spend control. But thanks to new technology, missing data can be an issue of the past. For example, with Payhawk, you can easily upload unpaid bills to our platform directly from your inbox. You can also use our AI camera on our mobile app to extract receipt data automatically.
Automated accounting: Don’t let your team rely on memory when managing expenses. Use technology to set expense approvals, spend reimbursements, budget controls, spend alerts, and submission reminders on autopilot.
As the saying goes, “Experience is the best teacher”. So, let’s examine some high-profile expense fraud cases and the lessons learned from these successful investigations.
Former Chief Executive Pierin Vincenz was fined and jailed in one of Switzerland's most noteworthy expense reimbursement fraud cases. His crime? Misusing corporate funds for some eyebrow-raising activities. A judge ruled that Vincenz’s expenses had crossed the line and weren’t in the company’s best interest. Vincenz’s spending spree included (in Swiss Franc (CHF))*:
*We calculated CHF to USD conversions using current rates in 2024 so that they may vary slightly from the original figures.
It’s hard to talk about expense fraud without mentioning the UK’s MP scandal that shook the nation during a global recession. Some MPs spotted loopholes in the government's expense policies, leading to widespread misuse. Unwarranted second home allowance claims, nanny services, TV sets, and property developments were all in the mix. Criminal charges, firings, resignations, fines, and repayments soon followed.
Business expense fraud is common, and the fallout can be ugly. Knowing what to look out for will help your company pinpoint schemes faster and have the tools ready to fight back.
Thanks to technological advancements, your options for tackling expense fraud have skyrocketed. So, do away with manual, labor-intensive tools and processes and let a purpose-built spend management solution do the heavy lifting. Educate your employees and keep iterating your spending policy. Soon, you’ll have an expense fraud management system that’s a force to be reckoned with, keeping your company’s cash away from sticky fingers.
Are you curious about how an expense management solution could pay off in your business? Book a demo.
Trish Toovey works across the UK and US markets to craft content at Payhawk. Covering anything from ad copy to video scripting, Trish leans on a super varied background in copy and content creation for the finance, fashion, and travel industries.