Expense report fraud involves employees falsifying, exaggerating, misrepresenting or improperly claiming expenses for reimbursement by their employer through other means. Expense report fraud usually involves one (or more) of the following:

  • Fake Expense Claims
  • Inflated Expense Claims
  • Personal Expense Claims
  • Duplicate Expense Claims
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Fake Expense Claims

Fake Expense Claims

In a fake expense claim, an employee will submit a claim for reimbursement for expenses that he or she did not actually incur.

Fake expense claims are arguably the most egregious form of expense report fraud, since these claims involve a palpable intent to deceive and cannot be justified under any circumstances.

Fictitious expense claims can include:

  • Fabricated or falsified supporting documentation such as receipts, invoices and order confirmations. The employee may have forged these documents themselves by using online tools or common software such as word processing or desktop publishing programs
  • Recording a description of the fabricated expense as well as a trumped-up amount of the expense incurred onto stolen and blank receipts (supporting documentation) from vendors such as taxis or restaurants
  • The fraudulent claim by an employee that money obtained through an ATM withdrawal or credit card cash advance was spent on a variety of smaller business-related transactions for which supporting documentation was not available or not retained, when in reality, this money was used for personal use
  • Legitimate, unaltered documentation related to actual purchases made by people other than the employee who submitted the claim. Most often, this will be a family member or friend of the employee. However, the fraud could also develop through the careless actions of others. For instance, a fraudster taking advantage of a stranger who left behind a receipt at a bar or restaurant

Expense report fraud can be deterred or detected by utilizing and implementing:

  • Effective internal controls, policies and procedures
  • An organizational culture that encourages compliance and accountability, while discouraging the falsification of expense reports;
  • Periodic reviews and spot checks
  • Data analytics to identify unusual trends when examining the expense claims and reports of employees

Red Flags:

  • Employees with similar responsibilities have submitted a substantially greater number of expense claims
  • The amounts claimed for incurred expenses by employees are significantly higher than those claimed by other employees for similar types of expenses
  • Supporting documentation indicates inconsistencies regarding the times that the expenses were claimed with the working schedule of the claimants. For example, evenings, weekends or while on vacation. These expense claims are unlikely to be associated with legitimate business expenses
  • Expenses claimed are not consistent with the duties associated with the job description of the employee. For instance, significant transportation expenses claimed by an employee who rarely has meetings outside of the office
  • The supporting documentation for the claims submitted is absent, incomplete, inconsistent, illegible, or shows signs of being altered
  • The amount of the claims are often just below a certain threshold for review or approval
  • Claims are submitted late or at irregular intervals
  • An employee is frequently inaccurate in their expense reports. These inaccuracies include claiming incorrect amounts, improper expenses, or attempting to claim the same expense on more than one occasion

Inflated Expense Claims

Inflated Expense Claims

An inflated expense claim occurs when an employee incurs an actual and authorized expense, but submits a reimbursement claim for an amount higher than the actual cost he or she incurred.

Inflated expense claims often involve an intent to deceive, but could, in some cases, not be the result of any ill-intent from the employee. For example, an employee may have incorrectly recorded the improper amount on an expense claim by incorrectly reading a receipt.

Intentional and fraudulently inflated expense claims can include:

  • Underlying supporting documentation for the claim that the employee has altered – either by hand or using computer software – so that it reflects the higher amount claimed
  • The submission of an expense claim for goods and services that were purchased for a legitimate, business-related matter (such as office supplies or an airfare) and also attempting to refund or receive credit for the original amount of these expenses
  • An employee who relies on: (i) the illegibility or complexity of the supporting documentation, (ii) the negligence of those who are responsible for reviewing expense claims, or (iii) the belief that noted discrepancies may be considered an oversight when endeavouring to claim an amount that is greater than the cost that was incurred by the employee

Personal Expense Claims

Personal Expense Claims

A personal expense claim occurs when an employee attempts to be reimbursed for expenses that are not business-related.

At times, when a personal expense claim is submitted in error, it can be attributed to confusion regarding which expenses can be justifiably claimed. However, they are more often due to the fraudulent intent of the employee in question.

Personal expense claims can include:

  • Expense report descriptions that mischaracterize the nature of the expense. For instance, an employee could take their family out for dinner but claim in their expense report that the meal was with a client with the intent to generate business
  • Altering the underlying supporting documentation to make it appear as though an expense was business-related. For example, altering the content of a travel itinerary to remove any reference to a three-day stopover in another city before a legitimate business trip
  • Claiming that all expenses that were incurred on a business trip were related to the business that was to be conducted on this trip, even though particular expenses – such as entertainment or souvenir purchases – were personal in nature

Duplicate Expense Claims

Duplicate Expense Claims

A duplicate expense claim occurs when an employee submits the same expense for reimbursement more than once.

Duplicate expense claims could be the result of either fraudulent intent or human error. It would stand to reason that when duplicate expense claims are submitted frequently by the same employee, one could correctly deduce that fraudulent intent is the more likely explanation.

Duplicate expense claims can include:

  • The same expense being included more than once within the same expense report
  • The same expense being included in more than one expense report. For instance, it may be submitted in two different months or to two different approvers
  • The same expense being claimed by more than one employee
  • The use of various supporting documentation when claiming the expense more than once, either on the same expense report or on a future expense report. For example, an itemized restaurant receipt, a credit card receipt or a credit card statement
  • Submitting a claim for reimbursement and also incurring a charge for the same expense on their corporate credit card
  • An employee receiving payment in advance to fund an expense – such as a business trip – and then submitting a claim for reimbursement at a later date for the same expense without the occurrence of reconciliation

Expense Report Fraud Case Study

Mandy Marshall’s fraud scheme began like many others. Mandy unintentionally committed an error by filling out a taxi receipt for $20 instead of the correct amount of $10. When the expense report was approved without question, it gave her cause for thought. Mandy surmised that the review and approval process by her supervisor was superficial, at best. With substantial debt as her motivator, and forced to resolve massive credit card bills due to what she would later describe to forensic accountants as ‘retail therapy’, she hatched the seemingly perfect plan, or so she thought. Mandy began to submit expense claims for personal meals that she disguised as business expenses by providing only the credit card receipt (and altering the time of the transaction to 12:00pm, a likely time for lunch). She even created fictitious meeting entries in her Outlook calendar to support, and were consistent with her expense claims.

With her scheme now an unmitigated success, Mandy became more bold and brazen, as most fraudsters tend to be. This is especially true when greed or desperation set in. In Mandy’s case, advances were processed for her through Accounts Payable, while her expense reports were processed through the payroll department.

Mandy would also requisition an advance several months prior to an overseas business trip to purchase the airfare at the best rates, which was in accordance with the company’s employee travel policy at the time. When it came time to prepare her expense report following her return from this business trip, she would submit the expenses, but conveniently neglect to consider the advance that she received several months ago. Since Mandy’s advance and expense reports were approved by two different individuals working in separate departments, this fraud was not detected for several months.

Over the course of several weeks, an attentive colleague observed a marked improvement in Mandy’s wardrobe. This, of course, was noteworthy, since Mandy had neither been promoted, nor had she received a pay raise. Her stunning new dresses were also inconsistent with her frequent complaints about how she had financial issues. With all of this taken into consideration, Mandy’s co-worker decided to call the company’s whistleblower hotline to report her. Mandy Marshall’s charade came to its predictable conclusion in the same manner as many other fraudulent schemes do. Surveys have consistently and repeatedly indicated that tips are the most common way by which to expose a fraud.

Relevant Evidence:

  • Securing and reviewing all of Mandy’s expense reports that were submitted during a prescribed period of time (a time frame that encompassed the period during which the suspected fraud took place)
  • Acquiring and reviewing all cheques issued to Mandy from Accounts Payable as well as any documentation supporting her advances – such as requisitions, cancelled cheques and bank statements
  • Obtaining a forensic image and analyzing Mandy’s company-issued computer as well as other electronic communications such as texts and emails for relevant evidence
  • Reconciling Mandy’s expenses to her Outlook calendar, timesheets, security pass and other relevant sources. This would determine what would constitute a reasonable amount of claimed expenses for Mandy, relative to her authorized business-related activities
  • When possible, determining if the costs that Mandy incurred are legitimate by confirming – or rejecting – this with the third parties that she has listed in the expense report
  • Conducting a formal interview of Mandy

To determine whether your organization may be susceptible to expense report fraud, take the following brief survey: