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How to prevent expense fraud

Jul 16, 2015 1:24:11 PM

Piles of receipts and the process of manually filing expenses are sure to be an erroneous task for any organisation. Most of the time these errors are harmless mistakes, but occasionally there is a more malicious intent behind it. As a finance manager, you wonder 'how to prevent expense fraud?'

Unfortunately, every firm in which employees are allowed to submit expense reports is vulnerable to fraud. Hopefully it doesn’t happen in your organisation but the unfortunate fact is that 20% of employees have committed expense fraud (source: Oversight Systems, 2014). According to the same research, 82% of the total fraud was committed by 5% of the employees, suggesting that these people were able to get away with it. Association of Certified Fraud Examiners (ACFE) even reported that “27 percent of executives/upper management employees commit expense fraud”. Luckily, it has been reported that organisations that organisations that monitor policy compliance decrease fraudulent spending by 70%.


What is expense fraud?

Finance managers are generally well aware that human errors occur quite often in expense reports. Even more so, it is often this awareness that prompts them to prevent it by enforcing expense policies, such as control by the manager and finance department. However, the boundary between human error and expense fraud is crossed when the error is due to a calculated attempt to bypass rules.

Fraud is a type of criminal activity, defined as ‘intentional deception to obtain an advantage, avoid an obligation or cause loss to another person or company’ (Source: SFO). Even though expense fraud is only a sub-category of fraud, the potential cost to a business in both time and money is significant.


How to prevent expense fraud

Of course you have taken the first steps to prevent expense fraud, such as defining expense report policies and designing an approval process. It is now time to take the prevention of expense fraud to the next level with online expense reporting.


1) Start by defining more elaborate approval policies

Let’s start with the basics that you probably also have in place with paper expense reports: an approval policy. Receipts or reports have to be approved by manager that is assigned to the expense reporter. With online expense reporting, you can make policies like this more elaborate. For example: when an expense exceeds the amount of 500 euro’s, it has to be approved by two managers. Or: a junior sales representative has no permission to report hotel costs. With expense reporting software, rules like this can be easily put in place.


2) Synchronise credit card statements to match expenses with receipts

Many organisations give out corporate credit cards to employees that have make a lot of expenses. The reason is that it is easier to manage and control because the credit card statements to go directly to finance. However, from our experience it gets even more difficult to justify expenses made with corporate credit cards. Because employees are not spending their own money and thus do not have to get it reimbursed, they often loose receipts. With online expense software, the employee only has to photograph the receipt when receiving it. Almost no receipts get lost anymore. In the online expense management portal, credit card statements are automatically synchronised. It is then easy to match every expense with a receipt until all expenses are justified.


3) Use data retrieved from the software to look for unusual expenses

Using expense management software makes it easier and faster to retrieve data. Use these data to answer for example the following questions:

  • Is there someone who has higher expenses (either on receipt level or on total amount of a report) than other employees in the same position?
  • How do the receipts from this year compare to those of last year?
  • Are reports handed in on time? It is known that reports that are not handed in timely, are more likely to be tempered with.


By combining expense management software with the steps above, you are able to minimise the risk of expense fraud. SRXP is the perfect tool to help you to prevent expense fraud. Don't hesitate to plan a demo.

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Pieter Verbruggen

Pieter Verbruggen

CEO & Founder
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