T&E Expense Fraud and How to Prevent It

Most businesses incur employee expenses, more specifically, travel and entertainment (T&E) expenses.

While these expenditures are necessary for day-to-day operations, the tracking, managing, and auditing of these expenses is no small feat, and it’s safe to say that it’s a necessary evil for accounting departments.

In addition, the threat of expense fraud is always prevalent, whether in the form of forged receipts, personal expenses reported as business, or multiple reimbursement requests for the same expense, to name a few.

Below, I will discuss expense fraud, how to spot it, and how expense management software can help with auditing and automating the entire process.

The importance of reporting expenses

There are numerous reasons why organizations need to track employee expenses. Tracking how much they spend on items from travel and entertainment to home office purchases can help create or refine spending policies and identify areas where they can cut costs.

Another important reason for reporting expenses accurately and timely is for tax filing.

Many business expenses are tax deductible as long as they’re “ordinary and necessary.” This means they are common and accepted within the industry and helpful or appropriate to the business, assuming the company can show documentation categorizing these expenses and stating their purpose.

The unfortunate need to guard against T&E expense fraud is another significant reason why expenses need to be reported on a regular basis. In fact, according to the  Association of Certified Fraud Examiners (ACFE), 5% of a typical organization's annual revenues are lost due to fraud each year, resulting in an average revenue loss of $8,300 per month.

The next section highlights the most common types of T&E expense scams, what to look for on statements and reports, and how expense management software can help minimize financial loss.

Common red flags of expense scams

The following is a list of some of the most common expense scams that businesses need to look out for constantly:

• Forged or modified receipts
• Personal expenses reported as business
• Multiple reimbursement requests for the same expense
• Charges for airline upgrades
• Weekend stays
• Expenditures in amounts just under approval or receipt thresholds

However, there are details in bank statements and expense reports that can help spot these falsified expense submissions before they are processed, costing companies thousands of dollars.

• Identical expenses requested by multiple employees: Audits should be conducted to identify any identical expenses being claimed by multiple employees, which may indicate collaboration in fraudulent activities.
• Reimbursement requests for canceled trips: Instances where employees seek reimbursement for canceled trips should be looked into.
• Unusual travel patterns: Abnormal travel patterns, such as being in too many places within a short time frame, can be red flags.
• Easily returnable purchased items: The expensing and reimbursement system can be exploited by purchasing items that can be easily returned after obtaining reimbursement.

How expense management software helps tackle expense fraud

Expense management software can help curb expense fraud through methods like auditing and ACH reimbursement. Let's dive in deeper below,

Auditing

Expense management software can automate the collection of expense data using OCR (optical character recognition) technology to quickly and accurately capture data, reducing the possibility of manual errors in data entry and making it easier to track and verify expenses during an audit.

With built-in policy controls, this software can flag and restrict expenses that violate company policies, as well as track who submitted an expense, the approval history, and any modifications made, creating an audit trail and an end-to-end view of the expense lifecycle. 

Using this data, the software can create detailed reports on spending trends, violations, and individual expense habits to assist auditors.

The G2 Expense Management category has 31 feature questions, allowing reviewers to rate additional features (from 1-7) offered by many of the products in the category. 

One such question is about Policy Compliance Management and asks: "Does this product enable administrators to create rules that enforce compliance with corporate time and expense policies?"

We can see that since 2020, the average score has steadily increased year over year while receiving an average of nearly 450 responses per year. This highlights not only the importance of expense compliance features for users but also how vendors are continuously improving these features to fulfill the needs of their customers.

ACH reimbursement

When an employee needs financial reimbursement for a work-related expense, many organizations favor doing so through ACH (automated clearing house), which is simply an electronic transfer of funds from one bank to another. 

This form of reimbursement is affordable (often free), efficient, and reduces the risk of fraud (confirming the recipient's account is open, valid, and able to receive ACH transfers). 

Accounting departments can make ACH payments directly to an employee's checking account (think direct deposit for paychecks) or tack on the funds to a future paycheck. Both processes give visibility and control to the payers, although the latter might take longer to be processed.

Audit and automate T&E expenses to manage the constant threat of fraud

Effectively managing employee expenses, particularly in travel and entertainment, will continue to be a challenge for businesses, requiring continuous tracking and auditing to address the constant threat of fraud.

Integrating expense management software is essential for minimizing financial losses, ensuring compliance, and maintaining transparency.

Learn more about new integrated expense management features to help prevent fraud.

Edited by Jigmee Bhutia