Expense Report Fraud: Warning Signs Every Business Should Know

It may come as a surprise, but the influence of expense report fraud on businesses can be significant. This type of occupational fraud — which may involve inflated receipts and fabricated claims — can cost organizations substantial amounts of money annually, often slipping through cracks created by outdated processes.

Consider this: Organizations lose approximately 5% of their annual revenue to occupational fraud, according to the Association of Certified Fraud Examiners (ACFE), with expense report fraud playing a significant role. 

Ultimately, tackling expense fraud is about more than just saving money — it’s about protecting resources, maintaining trust, and ensuring operational efficiency. For companies of all sizes, the resulting losses can hinder profitability, limit growth potential, and erode trust within teams. 

Whether you’re a small business owner or part of a large enterprise, understanding and addressing expense report fraud is critical for safeguarding your organization’s future.

What Is Expense Report Fraud?

Expense report fraud occurs when employees intentionally submit false or inflated claims for reimbursement. This form of occupational fraud is widespread, can be challenging to effectively detect and address, and can lead to unnecessary financial losses for any employer.

Common Methods of Expense Report Fraud

Understanding how expense report fraud occurs is the first step in combating it. Below are common tactics employees may use to manipulate reimbursement processes:

• Inflated receipts: Altering receipts to reflect higher amounts than were spent.
• Duplicate submissions: Filing the same expense multiple times, often with slight modifications to the documentation.
• Non-business expenses: Submitting personal purchases, such as meals or travel, as business-related costs.
• Fictitious claims: Fabricating expenses, such as fake receipts for services or travel that never occurred.

The Ripple Effect Caused By Expense Report Fraud

Expense report fraud can carry significant implications for businesses, ranging from financial losses to reputational damage. Understanding its effect is essential for implementing effective prevention strategies.

Financial Losses

The financial toll of expense fraud is substantial. Even minor fraudulent claims can significantly strain organizations with tight budgets and divert resources away from growth opportunities.

Operational Disruptions

Fraudulent expense claims disrupt daily operations by increasing the workload for finance teams. Time spent investigating irregularities and reconciling discrepancies could be allocated to strategic initiatives instead. This inefficiency slows down approval processes and creates bottlenecks that affect overall productivity.

Erosion of Trust

Expense fraud undermines trust between employees and management. When fraudulent behavior is uncovered, it can cast doubt on internal controls and transparency. Stakeholders, clients, and employees may question the organization’s commitment to ethical practices, which can harm long-term relationships and employee morale.

Reputational Risks

Public exposure to fraudulent activities can damage a company’s reputation. Clients and investors may perceive a lack of oversight as a broader issue, potentially deterring future partnerships. The reputational fallout can take years to repair, with lingering effects on the organization’s credibility and market position.

By identifying red flags early and implementing robust preventative measures, businesses can minimize risks and maintain trust within their teams and external stakeholders.

Six Common Warning Signs of Expense Report Fraud

Detecting expense report fraud early can save businesses from significant financial losses and operational disruptions. Here are the most common warning signs that may indicate fraudulent activity in employee expense claims:

1. Duplicate Claims

Submitting the same expense multiple times is a common tactic used to inflate reimbursements. Fraudsters may use slight variations, such as changing submission dates or altering receipt formats, to bypass manual checks. Automated systems can flag these duplicates, saving time and reducing errors.

2. Unusually High or Frequent Expenses

Significantly higher claims in categories like travel, dining, or lodging should raise red flags. For example, employees who consistently exceed per diem limits or claim reimbursement for luxury accommodations could indicate deliberate policy violations.

3. Missing or Vague Documentation

Incomplete or unclear receipts can be a sign of fraud. For instance, receipts without specific dates, itemized details, or vendor names make verifying the validity of expenses difficult. Requiring detailed documentation helps prevent such fraudulent submissions.

4. Rounded or Just-Below-Threshold Amounts

Patterns of rounded numbers or expenses consistently falling just below approval thresholds can suggest manipulation. For example, repeated claims of $49 when the review threshold is $50 may indicate an attempt to avoid scrutiny.

5. Personal Expenses Misclassified as Business

Employees may disguise personal purchases as business-related to secure reimbursement. Examples include claiming non-work-related meals or entertainment expenses. Regular audits and clear expense categories can help identify and address these issues.

6. Suspicious Timing of Submissions

Late-night or weekend expense submissions could indicate an attempt to avoid immediate review by managers. Unusual submission timings should prompt closer inspection to help ensure compliance with company policies.

By staying vigilant for these warning signs, businesses can mitigate the risk of fraud and maintain financial integrity. Integrating advanced expense management tools can enhance detection capabilities, streamline oversight, and promote accountability across teams.

Best Practices for Preventing Expense Report Fraud

Expense report fraud can drain business resources and erode trust within an organization. Implementing a robust fraud prevention strategy involves more than just manual reviews — it requires clear policies, ongoing employee training, and advanced tools to monitor and flag suspicious claims. Here are actionable steps that businesses can take to prevent fraudulent activity:

1. Develop Clear Expense Policies

Creating detailed and transparent expense policies gives employees clear guidelines for submitting reimbursement requests. Policies should outline:

• What qualifies as a reimbursable expense
• Required documentation for each claim (e.g., itemized receipts)
• The timeline for submitting expense reports

Providing employees with a clear framework reduces misunderstandings and helps establish accountability.

2. Leverage Advanced Technology

Automated expense management software is essential for preventing fraud. These systems can:

• Use AI to detect duplicate or out-of-policy claims in real time
• Leverage optical character recognition (OCR) to verify receipt details
• Apply rule-based checks to flag anomalies and prevent human error

These tools help businesses save time while increasing accuracy in fraud detection.

3. Conduct Regular Audits

Periodic audits should be part of every company’s expense review process. Audits help identify patterns of suspicious behavior and help ensure compliance with internal policies. Assigning specialized teams to monitor fraud can increase the efficiency of audits and identify irregularities before they escalate.

4. Train Employees and Managers

Ongoing education plays a critical role in preventing fraud. Regular training sessions should:

• Explain the importance of accurate reporting
• Emphasize the legal and professional consequences of fraudulent behavior
• Reinforce company expense policies

Educating managers and finance teams about common fraud indicators further enhances oversight and fosters a culture of compliance.

5. Enforce Clear Penalties for Violations

Outlining the consequences of fraudulent expense claims can serve as a deterrent. Employees should understand that violations may result in disciplinary action, including termination if necessary. When policies are consistently enforced, businesses build a culture of integrity.

By adopting these best practices, companies can minimize financial losses while promoting ethical behavior within their workforce. Combined with modern technology and proactive oversight, these strategies help ensure financial accountability and operational efficiency.

How Technology Can Help Detect and Prevent Expense Report Fraud

Expense report fraud poses a significant challenge for businesses. Modern technology offers robust solutions to combat fraudulent activities, streamline expense management, and enhance oversight. 

Below are key technologies and strategies that help businesses stay ahead of potential fraud:

Automated Expense Management Systems

Automated tools eliminate much of the manual effort in processing expense reports, reducing human error and minimizing opportunities for fraud. These systems:

• Flag out-of-policy claims in real time.
• Detect duplicate submissions by cross-referencing previous entries.
• Enforce policy compliance through predefined rules.

For example, claims exceeding daily travel allowances or non-reimbursable expenses can be automatically identified and flagged for review.

Artificial Intelligence (AI) and Machine Learning (ML)

AI-powered solutions enhance fraud detection by analyzing patterns and anomalies across vast data. Key capabilities include:

• Identifying unusual spending habits, such as repeated purchases at a single vendor
• Detecting outlier claims, such as inflated costs or suspicious timing of submissions
• Learning from historical data to improve fraud detection accuracy over time

AI and ML allow businesses to move beyond reactive measures and proactively monitor expense activity.

Optical Character Recognition (OCR) Technology

OCR technology simplifies receipt processing by scanning and extracting key details from receipts, invoices, and other documents. This helps ensure:

• Accurate validation of claims against receipts
• Faster processing and reconciliation of expenses
• Immediate flagging of incomplete or altered documentation

OCR eliminates the need for manual receipt reviews, saving time while improving accuracy.

Real-Time Monitoring and Alerts

Real-time monitoring systems track transactions as they occur, providing immediate insights into potential issues. Features include:

• Instant alerts for flagged expenses, such as duplicate claims or unusually high amounts
• Notifications for claims submitted during non-working hours or outside standard practices
• Dashboards that allow managers to review anomalies at a glance

This approach allows businesses to address discrepancies as they arise, helping to prevent minor issues from escalating.

Integrated Travel and Expense Management Platforms

Seamless integration between travel booking systems, corporate cards, and expense management tools creates a unified data flow. These platforms:

• Automatically categorize expenses by type and policy compliance
• Match corporate card transactions with submitted receipts
• Provide centralized visibility into all spending activity

By connecting travel and expense management with an all-in-one solution like Navan, businesses can eliminate data silos and enhance oversight.

Navan’s Technology Solutions for Expense Fraud Prevention

Navan’s all-in-one platform combines advanced technologies with user-friendly features to help businesses address expense fraud proactively:

• Customizable expense policies: Tailor expense rules to align with company-specific needs such as employee roles, expense types, and trip categories.
• AI-powered fraud detection: The software identifies anomalies, such as duplicate receipts or inflated claims, in real time.
• Real-time reporting: Gain instant insights into spending patterns and out-of-policy expenses through intuitive dashboards.
• Automated receipt validation: Receipts are matched to claims with OCR technology, helping to ensure compliance and accuracy.

Safeguarding Resources and Building Trust

Expense report fraud can quietly erode financial stability and operational efficiency; it’s essential that businesses address the issue with robust prevention strategies. Organizations can mitigate risks and protect their resources by recognizing common warning signs, implementing clear expense policies, and leveraging advanced technology.

The combination of automated tools, regular audits, and a culture of transparency reduces the likelihood of fraudulent activity and fosters accountability across teams. With Navan Expense, businesses access an AI-driven solution to help detect and prevent fraud while simplifying the expense management process. Navan equips finance teams with the tools to operate more efficiently and confidently, from automated anomaly detection to integrated real-time reporting.

Take the First Step Toward Fraud Prevention

Don’t let expense fraud drain your resources or disrupt operations. Explore Navan’s expense management platform to learn how these tools can help safeguard your business against expense fraud.