5 Common Types of Fraud in Business to Watch For

Fraud is a persistent issue that can siphon revenue, damage trust, and expose businesses to significant financial and reputational risks. Fraudulent activity — from falsified expense claims to cyberattacks — costs organizations billions of dollars annually. 

The Association of Certified Fraud Examiners estimates that businesses lose around 5% of their revenue to fraud each year, highlighting how pervasive the problem is.

Among the various schemes, expense fraud stands out as both common and damaging. While it’s not necessarily intentional, it may involve submitting personal purchases as business costs or inflating receipts. And such actions can go unnoticed until the financial effect is too significant to ignore. Companies without proper oversight leave themselves vulnerable, risking unnecessary losses and strained relationships with employees and stakeholders.

Fortunately, advancements in technology are shifting the tide. Modern tools like expense management software harness the power of automation and artificial intelligence to help detect and prevent fraud in real time. These solutions assist in safeguarding financial resources, streamlining processes, and improving organizational transparency.

This article explores the most common types of business fraud and underscores technology’s critical role in prevention.

Common Types of Frauds in Business

Fraud comes in many forms and can target various aspects of a business’s operations. While some schemes are blatant, others are more nuanced, making them difficult to detect without proper systems. 

Below are some of the most prevalent types of fraud in business and how they affect organizations.

Financial Statement Fraud

A misrepresentation of financial records is often used to mislead stakeholders about a company’s performance. Financial statement fraud can damage investor confidence, attract regulatory scrutiny, and lead to severe legal repercussions for businesses. This type of fraud typically involves:

• Inflating revenue: Recording nonexistent sales or prematurely recognizing revenue.
• Hiding liabilities: Concealing debts or expenses to present a healthier financial position.

Payroll Fraud

Payroll fraud occurs when employees manipulate payroll systems for personal gain. Small businesses with limited payroll oversight are particularly vulnerable, as they often need more resources for comprehensive monitoring. Common methods include:

• Ghost employees: Adding fictitious employees to the payroll and pocketing their salaries.
• Unauthorized pay raises: Illegitimately increasing wages or overtime hours.

Procurement Fraud

Procurement fraud exploits weak controls in purchasing processes. This type of fraud drains finances and undermines trust in vendor relationships and operational efficiency. Examples include:

• Kickbacks: Employees receive bribes from vendors in exchange for contracts.
• Inflated invoices: Overcharging for goods or services or billing for items not delivered.
• Unqualified vendors: Awarding contracts to suppliers who don’t need to meet necessary criteria.

Expense Fraud

Expense fraud is one of the most common and financially draining types of fraud in business. Left unchecked, expense fraud can lead to substantial financial losses, erode team morale, and damage a company’s reputation. Employees may misuse company funds by:

• Submitting personal expenses: Claiming non-work-related costs, such as personal travel or dining, as business expenses.
• Duplicating claims: Submitting the same receipt multiple times for reimbursement.
• Fabricating receipts: Creating fake documentation to support false claims.

Cyber Fraud

Digital threats pose a growing risk to businesses, especially as technology has become integral to operations. Robust cybersecurity measures and employee awareness training are essential to reduce the risk of cyber fraud. Examples of cyber fraud include:

• Phishing attacks: Fraudulent emails designed to steal sensitive information.
• Data breaches: Unauthorized access to confidential company or customer data.
• Ransomware: Malicious software that locks systems until a ransom is paid.

Understanding these typical fraud schemes can help businesses identify vulnerabilities in their processes. While traditional methods like audits and manual reviews remain valuable, modern challenges require more advanced solutions. Tools like expense management software can help businesses detect and prevent fraud before it escalates.

A Closer Look at Expense Fraud

Expense fraud represents a significant challenge for businesses. Defined as the intentional misrepresentation or falsification of expense claims for personal gain, this type of fraud has a tangible financial affect and can tarnish a company’s reputation if left unchecked.

Expense fraud can take several forms, ranging from subtle inaccuracies to outright fabrication. 

Common examples include:

• Claiming personal expenses: Employees may submit costs unrelated to work, such as personal travel, meals, or entertainment, as business expenses.
• Duplicate submissions: Filing the same receipt more than once to receive additional reimbursement.
• Fabricated receipts: Creating false documentation for expenses that were never incurred.

The repercussions of expense fraud extend beyond immediate financial losses:

• Financial drain: Fraudulent claims accumulate, reducing available resources for legitimate business operations.
• Reputational harm: Exposure to fraudulent activities can diminish trust among employees, clients, and stakeholders.
• Legal consequences: Businesses may face regulatory scrutiny or lawsuits if fraudulent practices become public.

6 Key Indicators of Expense Fraud

Expense fraud often goes unnoticed, with minor discrepancies compounding into significant financial losses. Identifying suspicious patterns early is critical to mitigating risks and safeguarding company resources. 

Below are the common indicators that can signal potential fraudulent activity within expense claims.

1. Frequent Duplicate Claims

Duplicate submissions for the same expense are a frequent method of fraud. Employees might submit the same receipt multiple times under different expense categories or use slight variations in documentation to avoid detection. These claims can easily slip through without automated systems to flag these duplicates.

2. Unusually High Expense Claims

Claims that significantly exceed the norm for a specific category, such as travel or dining, can be a red flag. For example, meals that consistently exceed the company’s per diem limit or luxury hotel bookings outside company policy often indicate intentional fraud or a lack of adherence to expense guidelines.

3. Lack of Supporting Documentation

Missing or vague receipts attached to claims can be a warning sign. Fraudulent submissions often rely on incomplete documentation, making it difficult to verify the validity of the expense. Claims lacking specific dates, clear vendor information, and itemized details should be scrutinized for potential misconduct.

4. Rounded or Repeated Amounts

Patterns in expenses — ones consistently rounded to even amounts or are just below policy thresholds, say — can signal manipulation. For example, patterns like repeated submissions for $49 when the review threshold is $50 or similar expense totals across different dates without detailed justifications suggest deliberate attempts to stay under detection limits.

5. Non-Business-Related Categories

Claims that fall outside typical business needs can also indicate fraud. Examples include:

• Personal items that are categorized as business purchases.
• Entertainment expenses that don’t align with work-related activities.
• Luxury items that are unnecessary for company operations.

6. Suspicious Timing of Submissions

Regular late-night or weekend submissions may indicate attempts to bypass managerial oversight. These timing anomalies can point to employees seeking less scrutiny by submitting expenses during off-hours, when approvals may be less stringent.

How Technology Helps Prevent Fraud

Technology has transformed how businesses detect and manage fraud. Modern tools offer streamlined, automated solutions to identify suspicious activity, reduce manual oversight, and improve accuracy. Expense management software, in particular, plays a critical role in helping organizations minimize fraudulent activity and maintain compliance.

Leveraging advanced solutions like Navan’s expense management software provides:

• Automated alerts: Real-time notifications for duplicate or suspicious claims.
• AI-driven analysis: Identifies patterns and anomalies in submission data.
• Policy enforcement: Blocks out-of-policy claims before they reach the approval stage.
• OCR and receipt validation: Extracts data from receipts and verifies details.
• Real-time dashboards: Increased visibility so managers can monitor expenses as they happen.

Expense management software addresses the challenges of fraud prevention and simplifies everyday operations. By integrating technology into expense management processes, a business can gain greater visibility, reduce losses, and foster a culture of accountability.

Fight Fraud with Smarter Tools

Whether through expense manipulation, procurement schemes, or payroll inaccuracies, business fraud represents a significant threat to financial stability and operational integrity. These challenges result in direct monetary losses, erode an organization’s trust, and tarnish its reputation.

With advanced features like automated tracking, AI-powered fraud detection, and real-time visibility, robust expense management tools like Navan help businesses address fraud proactively and efficiently. These solutions save time, reduce administrative burdens, and create a transparent environment where employees feel accountable for their spending.

Take control of your business operations today. Get started with Navan.