How to identify and prevent expense fraud

Every business is, unfortunately, vulnerable to employee fraud. In 2025, US bosses reported losses of the equivalent of 9.8% of revenue due to fraud, a 46% increase from 2024. 

Whether expense fraud is being undertaken maliciously or as the result of human error,  it’s essential to ensure your expense process is easy to use and minimizes opportunities for honest mistakes, while also being transparent enough to spot and investigate suspicious claims quickly. 

In this article, we’ll outline what employers need to know about expense fraud, how it could affect their business, and how to prevent it from happening altogether. 

Watch the video below for a quick overview before we dive into the details.

What is expense fraud?

Expense fraud refers to a deliberate attempt at inflating reimbursements. It occurs when an employee knowingly completes inaccurate expense claims. 

This can include things like:

• Over-claiming for restaurant tips

• Submitting receipts above per diem limits

• Turning in receipts for unused items

• Expensing old receipts for a second time, to claim twice

• Disguising personal expenses as business ones

• Claiming for things that were provided free of charge

It’s important to note that expense fraud is often committed by people who don’t recognize their actions as being fraudulent. However, there are a limited number of cases where there are genuine ‘bad actors’ when it comes to cases of expense fraud, but it’s still an issue that needs to be monitored. 

How big a problem is expense fraud?

Expense fraud accounts for around 13% of all occupational fraud cases. It is riskier in companies where individuals have direct access to funds and reporting with little oversight. 

The departments with the highest rates of expense fraud on average include:

• Executive/upper management (24%)

• Accounting (21%)

• Administrative support (17%)

• Finance (17%)

A 2018 study from the Association of Certified Fraud Examiners concluded that expense reimbursement fraud accounts for 21% of fraud in small businesses (those with less than 100 employees), and 11% in large businesses (those with 100 or more employees).

Expense fraud can also be a sign of a larger problem within your business, such as:

• Culture problems where if one person commits expense fraud, others are willing to copy.

• Gaps in your expense reporting process

• The need for extra training to prevent slips

Common types of expense fraud

Knowing and understanding the types of expense fraud will empower your finance teams to spot anything unusual. Let’s take a look at the most common types of expense fraud and some possible business scenarios.

Mischaracterized expenses

This is where a worker submits personal expenses under the guise of a business expense. Claims like this easily slip through the net, as there is usually no way of categorizing the claim as fraudulent by only looking at the submitted receipt. 

Research suggests that most expense receipts are approved without question: 86% of global office workers said that they have never had any of their expense claims challenged or declined.

Overstated or inflated expenses

Overstated or inflated expenses are where legitimate travel expenses are manipulated to claim more money back than what was actually spent, for example, padding mileage or showing a larger tip than what was actually paid.

Fictitious or fabricated expenses

Fabricated expenses are fake receipts that appear to be genuine. Work travelers might use a range of tactics, such as using stolen blank receipts from taxis to claim for journeys that never happened, or expensing a meal that was provided free of charge.

Multiple reimbursements 

Multiple reimbursements, or duplicate claims, are where a traveler submits the same receipt for an item multiple times, hoping that the finance team doesn't notice and approve duplicate payments.

Why do people commit expense fraud?

Companies might wonder what the motivation is behind their workers choosing to take such a big risk for seemingly so little reward. Many people justify expense fraud with one of the following arguments:

• If the reimbursement cycle doesn't happen fast enough, some workers may feel entitled to ‘surcharge interest’ on the debt

• Others may feel they’ve earned the right to do it because they put in a lot of overtime or have spent time away from their family. 39% of people agreed that if they’re traveling for work, they deserve a little treat at their company’s expense

• Their colleagues are getting away with claiming false expenses, so why shouldn’t they also take advantage?

• They’re not happy with their remuneration and see claiming false expenses as an opportunity to make this right

The rising cost of living may also embolden some employees who have only taken a chance with minor amounts historically. And during times of economic downturn, the uncertainty of the period may tempt employees who have never committed expense fraud to supplement their incomes in a relatively easy way.

How to identify expense fraud

The Association of Certified Fraud Examiners data shows that a typical worker committing fraud at work was able to do so for a full year before being apprehended. Fraud at work caught within the first six months had a median loss of $30,000, compared to $250,000 for fraud that lasted between two and three years. So, early detection of expense fraud is critical for damage limitation. 

Start with policy

You cannot attempt to identify expense fraud without a clear policy in place. A well-written policy and an expense management system that flags irregularities will help you identify anything amiss.

Fraud red flags

There may be some patterns of behavior when it comes to expense reporting that could indicate that something isn’t right. However, you must have robust physical evidence and involve HR if you suspect someone of committing expense fraud. A ‘gut feeling’ or a standalone behavior change is not enough to accuse someone of expense fraud.

That said, here are some signs to take note of:

Avoiding providing documentation 

• A worker might often lose their receipts or claim that they accidentally threw them away. They might submit damaged paper receipts or blurry photographs of documents 

Submitting expenses late

• A pattern of submitting expenses at the very last minute could indicate a hope that finance teams will be too hurried to look into the details, or may have forgotten some key context. 

Exploiting approval thresholds

• Some workers might habitually submit receipts that are just under the threshold for needing managerial approval, or submit lots of low-value purchases

Vague details

• Expenses might be submitted with only vague details, such as ‘client meeting,’ in an attempt to disguise personal transactions

Signs of struggling

• It may be that your team member is undergoing financial hardship and needs support. Domestic abuse is also a risk factor here, as if the worker is a victim of financial abuse, they may be vulnerable and desperate to find money elsewhere.

Expense fraud prevention tips

Safeguarding your organization from becoming a victim of expense report fraud doesn’t have to be complicated, however there’s no quick solution.

It’s important to start by maintaining strong internal control. There are a few key steps finance teams can take into consideration to help cut down instances and minimize impact when it comes to balancing the books.

Here's a quick look at how AI is reshaping expense fraud risk:

Communicate your policy 

Your expense policy should be regularly communicated to your employees, and provide detailed info on prohibited activities and per diem amounts.  

Employees will think twice if the rules and the consequences are clear, and finance teams can investigate out-of-policy claims quickly and efficiently.

This communication doesn’t start and end with unveiling your policy. Prioritize ongoing anti-fraud training with your team, educating them on types of fraud, the effect on the business and best practices.

Give your employees the right tools

According to a survey by Banyan, 6 out of 10 business travelers spend at least 20 minutes organizing materials to file an expense report. Putting systems and tools in place can simplify the process, making it easier for employees to claim the right amount and for the policy to be followed.

Using an all-in-one travel management platform will make it easier for your teams to flag any issues and identify out-of-policy spending.

With Perk, workers can submit single expenses just by snapping the receipt with the mobile app. Perk's AI functionality then verifies the expense for compliance with the regulations configured by your business. 

Simplify expense management

Ultimately, more than half of all occupational fraud happens because of an ‘insufficient system of internal controls’, so your expense management processes are a great place to start. 

Think about implementing the use of corporate credit cards for greater control. With corporate cards, companies can query each card individually and get better oversight on spending patterns. You’ll also receive credit activity reports on a monthly basis from the issuing company.

For even greater transparency, P-cards are a great option for certain business expenses. These cards are restricted by pre-defined limitations, such as spend category or vendor type, allowing for real-time spend control.

Keep allowance rates up to date

One of the best ways to avoid employees submitting forms for additional expenses is to keep your rates fair, and up-to-date. Consider the age of your expense rates and if they are still applicable. There will also be regional variances in the cost of living: a meal in New York is likely to cost more than the same meal in Kansas City. Using a travel management solution like Perk will allow you to update these travel policies centrally, so they’re easily accessible for your team. 

Leverage automated expense reporting to prevent fraud

The key to minimizing expense fraud is implementing an automated process that digitizes many of the touchpoints where fraud could occur.

Perk’s all-in-one platform is designed to help to prevent expense fraud by streamlining the reporting process with AI-driven compliance and custom workflows. This provides a level of automation, transparency and accuracy that eliminates the shadow work that could cause errors leading to accidental expense fraud. 

To discover what Perk’s expense management solution can do for your business, book a demo today.