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Protecting Your Business From Expense Reimbursement Fraud


Keeping control of your business’ expenses is a vital part of making a business successful. While you might always make sure to keep careful track of your spending in order to make your business grow, not everyone involved with your company will have the same goal. Some people are only looking out for themselves, and they’ll often look for loopholes that allow them to get money that they don’t deserve. One of the most common ways that this can be done is through expense reimbursement fraud.

What is reimbursement fraud?


Reimbursement fraud is a frighteningly common type of scam used by employees to get money from a business for expenses that are either invalid or that did not occur at all. This type of fraud is predicated on the idea that the company approves certain types of expenditures on the part of employees and will reimburse the employee at a later date. This is a necessary and useful part of doing business in many fields, but it’s also one that can be easily abused.


Related: Payroll Fraud Prevention Guide

Fictitious expenses and inflated expenses


Most types of expense fraud tend to take advantage of the basic flaws in the expense reimbursement process. The most overt types of fraud involve fictitious expenses- that is, expenses that are either entirely made up or that would not qualify under the usual rules of the reimbursement process. This might include making up a fake dinner with a client and expensing it to the company, or even going out to dinner on one’s own and counting it as a necessary business expense.


expense reimbursement fraud


Inflated expenses are fraud, even if some employees don’t understand that this is the case. Employees might spend a certain amount of money on an expense, but then claim that they have spent the maximum amount allowed by the company. This allows the employee to pocket the difference between the two amounts and can cause major losses to his or her department. This type of fraud is often harder to catch because there was a legitimate expense, albeit not for the same monetary amount as was reported.


Preventing expense reimbursement fraud


There are multiple ways that a business can prevent expense reimbursement fraud. The good news is that most of these methods don’t require any kind of complex software, and they can be implemented with relatively small costs involved. All of the methods of dealing with fraud can be time-intensive, though, and they always require that the department in charge of reimbursement stays up to date with new rules. The goal here is to place more attention on reimbursement so that flagrant abuses of the system will not fall through the cracks.


Methods of dealing with expense reimbursement fraud typically fall into one of three categories. The first is education, which teaches employees what they are supposed to do. The second is documentation, which provides useful data that the company can use for reimbursement procedures. The final method is observation, which helps to ensure that reimbursements are monitored and that those who do attempt to commit fraud are caught before they can cause more damage.


Implement reimbursement guide


The first step in making sure that this type of fraud doesn’t occur is to let your employees know about your company’s reimbursement procedures. While it might be hard to believe, the truth is that many instances of expense reimbursement fraud actually occur because employees don’t understand exactly which types of expenses are actually eligible for reimbursement. Making sure that this is part of your employee training will help to cut down on accidental fraud.


expense reimbursement fraud


Creating a guide also helps to establish procedures for what happens when mistakes (or fraudulent activities) are discovered. This makes it clear to employees that falsifying an expense report isn’t something that the company takes lightly. This type of education can serve to scare many people off of even making an attempt to commit fraud while spelling out exactly what will happen to those who might be reckless enough to test it out. Once your policies are on paper, the company will be prepared for what comes next.


Formally document, disburse and review


The next step involves paperwork. While very small companies might feel like reimbursement can be done on an honor system, the truth is that documentation helps everyone. Not only will it ensure that your company is able to account for all the money spent by its employees, but it will ensure that your employees are fairly compensated when they make approved expenditures. Every penny that is meant to be reimbursed should be formally documented, preferably with not only a company document, but also the physical receipt for the purchase.


Once the documentation is received, the company should disburse the funds. This should also be done formally, with documentation sent to both the relevant accounting department as well as the employee that the disbursement is made. When the disbursements are made, this information should be reviewed by all responsible parties and then signed again. This ensures that someone is acknowledging the money trail at each step.


Monitor and audit


The paperwork used during the documentation step should be monitored, preferably by someone other than the person who physically disburses the money. While it may not be possible to physically monitor every expense report during the working day, someone should be keeping an eye out for trends. Any expense report that seems out of the ordinary should be pulled and examined to make sure that it is valid. In most cases, the examiner will find that everything is above board and things should go back to normal.


expense reimbursement fraud


In addition to regular monitoring, audits should take place at frequent but randomized intervals. Expense reports for departments or even individual employees should be analyzed to determine if spending is within normal parameters. This not only allows the company to be on the lookout for possible fraud, but it also gives the company a better idea of the kind of money that is being spent by its departments.




Expense reimbursement fraud can be a major problem. If you’re willing to put in a bit of work to educate your employees and monitor their expenditures, though, you’ll be able to eliminate all but the most sophisticated methods of defrauding your company. If you’re ready to make a change in the way your company deals with money, your first step should always be to see how well your current solutions hold up. When you’re ready, make sure to visit PayTech and to take the Payroll Security Quiz today.