Essential Guide to Expense Fraud: Detection and Prevention Strategies

10 Ways to Protect Your Company From Expense Fraud

Expense fraud might seem like a small risk compared to larger financial crimes, but its impact is far-reaching. Employee expense fraud is a deliberate form of occupational fraud and is one of the most common types of asset misappropriation, where employees abuse reimbursement processes for personal gain. According to the Association of Certified Fraud Examiners (ACFE), expense reimbursement schemes account for more than 20 percent of all occupational fraud cases — costing U.S. companies over $1 billion annually.

Expense report fraud, as defined by the ACFE, is a scheme in which an employee claims reimbursement of fictitious or inflated business expenses. These fraudulent claims can be difficult to detect, especially when manual processes are used. The finance department plays a critical role in reviewing and managing expense claims to prevent both intentional and unintentional fraud. Expense fraud often stems from company culture, where employees may adopt bad habits from colleagues, making prevention a challenge. A clear and well-communicated company's expense policy is essential for setting expectations and reducing the risk of abuse. Organizations lose around five percent of their revenue to fraud each year, with the average case resulting in over $1.7 million in losses.

What makes expense fraud particularly dangerous is that it often goes undetected for years. The ACFE’s 2024 Report to the Nations found that most expense fraud schemes last two years before discovery. That’s two years of quiet financial loss and cultural erosion.

Organizations need more than basic policy documents to protect themselves; they need a culture of accountability, strong internal controls, and the right compliance technology.

Here are 10 proven ways to prevent, detect, and respond to expense fraud and how solutions like Case IQ are helping companies safeguard against it.

Introduction to Expense Fraud

Expense fraud, often referred to as expense reimbursement fraud, occurs when employees intentionally claim false or exaggerated business expenses in order to receive unwarranted reimbursement. This form of occupational fraud can have a significant impact on organizations, with the Association of Certified Fraud Examiners (ACFE) reporting that the average loss from an expense reimbursement scheme is $152,000.

Expense fraud can take many forms, from submitting personal expenses as business expenses to inflating actual expenses or even fabricating entire transactions. Employees may use company credit cards or manipulate expense reports to conceal these activities, all for personal gain. Certified fraud examiners stress the importance of understanding how employees commit expense fraud and the various ways expense fraud occurs, as this knowledge is essential for implementing effective controls and minimizing financial losses. By recognizing the risks associated with expense reimbursement and the potential for personal expenses to be disguised as business-related, companies can take proactive steps to protect themselves.

Types of Expense Fraud

Expense fraud can manifest in several distinct ways, each posing unique challenges for detection and prevention. Understanding these types is crucial for organizations aiming to prevent expense fraud and reduce financial losses.

• Mischaracterized Expenses: This occurs when employees submit personal expenses as business expenses, such as claiming a family dinner or personal travel as a business-related cost.
• Inflated Expenses: Employees may exaggerate the cost of actual expenses, for example, by altering receipts or overstating mileage on a business trip.
• Fictitious Expenses: In these cases, employees fabricate expenses entirely, such as creating fake receipts for office supplies or services that were never purchased.
• Multiple Reimbursements: This scheme involves submitting the same expense for reimbursement more than once, often by using duplicate receipts or submitting the same receipt in different expense reports.

Certified fraud examiners recommend regular audits and ongoing employee education to help organizations detect and prevent these fraudulent activities. By understanding the various ways employees submit personal expenses as business expenses, inflate expenses, or create fictitious claims, companies can implement targeted controls and reduce the risk of financial losses.

1. Have a Clear and Accessible Expense Policy

Every prevention program begins with a strong, clearly communicated policy. Implementing robust expense policies is the first line of defense against expense fraud.

Ensure your expense policy outlines:

• Acceptable and unacceptable expenses
• Documentation requirements
• Consequences for violations

A well-defined expense management policy should clearly articulate allowable expenses.

Policies should be distributed company-wide and reviewed regularly. Most importantly, leadership should model compliance. Employees take cues from what executives do, not just what’s written in the handbook. Regular training and clear communication regarding expense policies are essential to ensure employees understand the rules and the importance of compliance.

2. Apply Controls at the Submission Stage

Strong internal controls prevent fraud before it starts. Each reimbursement claim should go through a standardized review and approval process with no exceptions for senior management, as this helps ensure compliance with expense policies.

The ACFE reports that executives and upper management commit more than 25 percent of expense fraud cases. Manual processes in expense reporting can make it difficult to identify both intentional and unintentional fraud, as human error—such as submitting duplicate receipts or entering inflated amounts—can be hard to distinguish from deliberate fraud. Automating the submission review process can help eliminate human bias, catch issues that manual reviews often miss (like duplicate receipts, inflated amounts, or out-of-policy purchases), and ensure every claim is checked objectively.

3. Empower Approvers to Question Claims

The accounting team plays a critical role in reviewing transactions, catching errors like duplicate reimbursements, and ensuring compliance through the use of automation tools. Managers and the accounting team should feel confident rejecting or flagging questionable expenses. This sends a clear signal: every claim will be reviewed thoroughly.

Encouraging employees to report suspicious activity is essential for a comprehensive expense fraud prevention strategy, fostering transparency and a culture of integrity. Senior colleagues can strongly influence company culture, as employees often model their expense reporting behavior after them—making it vital for leadership to set the right example. Watch for employee behavioral red flags, such as resisting audits or consistently having significantly higher expenses than peers.

A culture of accountability — where supervisors actively ask questions — significantly deters fraud. According to a study in Journal of Business Ethics, the perception of oversight is one of the strongest behavioral deterrents in corporate fraud prevention.

4. Implement Secondary Review Controls

Fraud detection is as much about patterns as it is about individual transactions. Monthly analytics can help you spot anomalies, such as repeated high-value meal expenses or inflated mileage claims.

When teams analyze trends by department, expense type, or total amount claimed, it becomes easier to identify outliers. Case management platforms like Case IQ can automate these analytics and flag potential risks for review.

5. Conduct Regular Audits of Expense Reports

Routine audits are a proven deterrent. Regularly reviewing reimbursements ensures that employees follow company policy and helps uncover violations early.

Even communicating that audits occur is powerful — employees who know their expenses are reviewed are far less likely to submit fraudulent claims.

6. Issue Corporate Credit Cards for Business Expenses

Corporate credit cards give companies direct visibility into employee spending and make reconciliation easier.
Statements should be sent directly to the accounting department for verification and matched against receipts. This centralization of spending data helps finance teams identify inconsistencies and supports accurate reporting for tax and compliance purposes.

7. Enforce Discipline for Policy Violations

When misconduct goes unpunished, it spreads. Enforcing disciplinary action for fraudulent or unauthorized claims — regardless of position or tenure — reinforces your organization’s commitment to fairness.

In fact, not using consistent discipline can be illegal. According to the attorneys at Barrera & Associates, "A company can only legally enforce rules that it enforces uniformly for everyone. Selective rule enforcement is often a sign of discrimination or mistreatment of the employee(s) singled out for discipline."

8. Provide Regular Fraud Prevention Training

Fraud prevention is a shared responsibility. Employees involved in expense approvals or reimbursements should receive regular training on policy updates, fraud tactics, and ethical decision-making.

Refresher sessions also help staff recognize red flags and maintain vigilance. In fact, Case IQ's recent global compliance survey found that over 90 percent of American employees received compliance training in the past year, and the majority of them found it helpful in guiding their behavior.

9. Leverage Technology for Expense Management

Manual expense management is slow, error-prone, and difficult to audit. Implementing case management or expense automation software eliminates manual bottlenecks and introduces data-driven fraud detection.

Systems like Case IQ combine case tracking, analytics, and investigation management, enabling finance and compliance teams to identify suspicious transactions, document investigations, and generate insights for prevention.

10. Embed Compliance into Company Culture

Ultimately, technology and policy are only effective if supported by an ethical culture. Leadership must demonstrate compliance with the same rigor expected of staff.

Expense fraud often stems from company culture, where employees may adopt bad habits from colleagues. It is crucial to take proactive steps to stop expense fraud before it results in financial loss. Employees may commit fraud for their own benefit, diverting company resources or submitting false expenses for personal gain.

When executives consistently follow the rules (e.g., submitting complete receipts, declining inappropriate reimbursements) it sets the tone for everyone else.

Embedding compliance into daily behavior transforms expense management from a cost-control function into a trust-building practice.

Allowable Expenses: Defining What’s Acceptable

Allowable expenses are business-related costs that are eligible for reimbursement under a company’s expense policy. Clearly defining what constitutes an allowable expense is essential for preventing expense fraud and ensuring compliance with company guidelines.

Organizations should establish comprehensive guidelines that specify which expenses are considered allowable, set spending limits, and outline the required documentation and approval process for expense reports. Regular training and employee education are key to making sure employees understand what expenses are permitted and how to submit their claims correctly.

Implementing expense management software can further streamline the process, helping to automate expense reporting, enforce spending limits, and flag potential fraud. By combining clear policies, regular training, and intelligent automation, companies can ensure that only legitimate expenses are reimbursed and minimize the risk of fraudulent claims.

How Case IQ Helps Organizations Detect and Prevent Expense Fraud

Case IQ enables organizations to manage all forms of workplace misconduct, including expense fraud, through a centralized and secure platform.

With integrated intake, workflow automation, analytics, corrective actions, and trend reporting, compliance teams can:

• Identify suspicious claims early
• Automate expense fraud investigations
• Standardize documentation and reporting
• Strengthen internal controls and culture

By connecting prevention, detection, and remediation, Case IQ helps organizations move from reactive investigations to proactive compliance management.

Frequently Asked Questions (FAQ)

What is expense fraud?

Expense fraud occurs when employees intentionally falsify or exaggerate business expenses for personal gain. Common examples include submitting fake receipts, inflating mileage, or misclassifying personal expenses as business-related.

How common is expense fraud?

Expense fraud is one of the most common occupational frauds, costing U.S. organizations more than $1 billion per year, according to the ACFE.

How can case management software help prevent expense fraud?

Case management software like Case IQ centralizes reporting, flags anomalies, and streamlines investigations, making it easier to detect suspicious activity and ensure consistent enforcement.

What are signs of potential expense fraud?

Red flags include frequent “lost receipt” claims, unusually high reimbursements, repetitive expenses, or identical amounts claimed across months.

What’s the best way to build a fraud-resistant culture?

Leadership must lead by example, enforcing policies equally and embedding compliance into company culture through training, transparency, and regular communication.

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