What is expense fraud? How to find and prevent it

Expense fraud happens when employees deliberately claim false, inflated, or personal expenses as business costs to get reimbursed by their company. It's intentional deception for financial gain, also known as expense report fraud or expense reimbursement fraud. This type of occupational fraud falls under asset misappropriation, where employees steal company resources through seemingly legitimate channels.

The key word here is intentional. An employee who accidentally miscategorizes a receipt or misunderstands a policy isn't committing fraud. They're making an error. Fraud requires deliberate deception, like submitting a family dinner receipt as a client meal or creating fake taxi receipts for trips that never happened.

This matters because expense fraud quietly drains company resources while eroding trust. The Association of Certified Fraud Examiners reports that expense reimbursement schemes account for about 15% of all asset misappropriation cases, with median losses around $33,000 per incident. For enterprise expense management teams overseeing thousands of transactions monthly, these losses multiply quickly. But the damage goes deeper than dollars. When expense fraud goes unchecked, it signals that the company either doesn't notice or doesn't care about financial integrity. That message spreads quickly through an organization.

Employees who commit expense fraud usually face a combination of personal pressure, opportunity, and rationalization. Someone drowning in credit card debt might see padded expense reports as a temporary solution to their financial crisis. An underpaid worker might feel the company owes them more and justify taking a little extra through inflated mileage claims. A traveling sales rep might think everyone else is doing it, so why shouldn't they?

These three factors form what fraud investigators call the fraud triangle. Pressure creates the motivation, whether that's mounting bills, a gambling problem, or keeping up with an expensive lifestyle. Opportunity arises when companies have weak controls or lax oversight. Maybe nobody checks receipts under $50, or the boss always rubber-stamps expense reports without looking. Rationalization is the mental gymnastics people do to justify their actions. They tell themselves they deserve it, they'll pay it back later, or the company won't even notice such small amounts.

Company culture plays a huge role in whether these factors lead to actual fraud. If leadership regularly bends expense rules or finance teams ignore minor violations, employees pick up on those signals. They learn what they can get away with. When economic pressures increase through inflation or rising costs of living, more employees find themselves in that pressure zone where fraud starts to look like an option.

The truth is that expense fraud rarely starts with someone planning to steal thousands. It usually begins small, with one questionable expense that gets approved. Maybe it's adding a few extra miles to a client visit, something that would be caught if the company used a mileage reimbursement calculator, but instead goes unnoticed. Success breeds confidence, and soon the employee is submitting bigger and bolder fraudulent claims. Understanding these motivations helps companies address the root causes rather than just catching fraud after it happens.

Expense fraud takes many forms, from subtle padding to outright fabrication of costs. Each scheme exploits different weaknesses in expense management tools and relies on the assumption that nobody's watching closely.

Mischaracterized expenses

This happens when employees claim personal or non-business costs as legitimate business expenses. An employee might submit their family vacation hotel bill as a business trip expense, or try to pass off a personal spa treatment as a client entertainment cost. Sometimes employees genuinely misunderstand what qualifies as a business expense, but often they know exactly what they're doing. Even small mischaracterizations add up quickly when multiple employees engage in this behavior.

Overstated or inflated expenses

Employees submit legitimate business expenses but inflate the amounts to pocket the difference. They might alter a restaurant receipt to show $200 instead of the actual $50 spent, or claim they tipped 30% when they actually tipped 15%. Some employees get creative with photo editing apps to modify digital receipts. Others simply handwrite higher amounts on blank receipt templates they find online. The expense itself is real, but the amount claimed is fraudulent.

Fictitious expenses

These are completely fabricated expenses for things that never happened. An employee creates a fake taxi receipt for a trip they never took, or claims a client dinner that never occurred. They might use receipt generator websites or save blank receipts from previous legitimate purchases to fill out later. This is outright theft disguised as a business expense. Some employees even set up fake vendor companies to submit invoices for services never rendered.

Multiple reimbursements (duplicate claims)

Employees submit the same expense multiple times hoping to get paid twice. They might file the same hotel bill on two different monthly reports, betting that nobody will notice. Or they'll charge something to the corporate card and also submit a manual reimbursement request for the same item. Without proper tracking processes, these duplicate payments can slip through for months. Some employees test the waters with small duplicates before attempting larger ones.

Over-purchasing and returns

An employee buys more than needed with company money, then returns items for personal cash or credit after getting reimbursed for the full amount. They might purchase $500 in office supplies, return $300 worth to the store for a gift card, but still claim the entire $500 from the company. This scheme works particularly well with electronics, software licenses, and other high-value items that stores accept for return.

Misuse of company cards

Corporate card abuse goes outside traditional reimbursement fraud. Employees charge personal purchases directly to the company business credit card, hoping nobody scrutinizes the statements. An executive might use the company card for luxury hotel upgrades, expensive personal meals, or even shopping sprees, then bury these charges among legitimate expenses. They might claim these personal charges were business-related if questioned, but often the charges simply go unnoticed in busy accounting departments.

Finance teams need to stay alert for warning signs in expense reports and employee behavior. While one red flag doesn't prove fraud, patterns of suspicious activity warrant investigation. The following indicators often signal that someone is gaming the expense tracking software.

Outlier spending patterns

One employee consistently claims significantly higher expenses than peers in similar roles. If most sales reps spend $1,000 on travel each month and one routinely claims $5,000, that discrepancy needs examination. Sometimes there's a legitimate reason, like covering difficult territory or managing key accounts. But often, outlier spending reveals someone who's discovered how to milk the expense tracking app. Compare expenses across similar roles, departments, and time periods to spot these anomalies.

Non-business expenses

Reimbursement requests for items that don't clearly relate to work should raise immediate concerns. Personal entertainment, spa services, luxury goods, or family activities appearing on expense reports likely violate policy. Some employees get bold, assuming nobody actually reviews the details. Others try to disguise personal expenses with vague descriptions like "client relations" or "team building." If an expense doesn't have an obvious business purpose, it probably doesn't.

Round numbers or just-under limits

Many expenses ending in neat, round figures suggest fabrication. Real expense receipts rarely total exactly $100.00 or $50.00. Similarly, watch for expenses repeatedly just below receipt thresholds. If your policy requires receipts for expenses over $50, and an employee consistently submits $49 claims, they're likely avoiding documentation requirements. This pattern often indicates someone creating fake expenses within the zones where they won't face scrutiny.

Duplicate receipts

The same receipt appearing twice, similar amounts for the same date, or identical expense descriptions in different reports all suggest duplicate reimbursement attempts. Also watch for employees with corporate cards who submit manual reimbursement requests for the same expenses. Some employees accidentally submit duplicates, but repeated instances indicate intentional double-dipping. The best expense management software can catch many duplicates automatically, but manual reviews still matter for sophisticated schemes.

Split expenses to bypass limits

Employees breaking large expenses into multiple smaller claims to stay under approval limits are circumventing controls. A $600 dinner might become three separate $200 "client meetings" spread across different dates. Or a $5,000 purchase gets divided into ten $500 transactions to avoid executive approval. This behavior shows someone actively working to avoid oversight, which usually means they have something to hide.

Unusual timing or frequency

Watch for employees who frequently submit expenses at the last minute or consistently claim expenses after long delays. They might hope reviewers forget details or rush through approvals. An uptick in claims right before year-end, policy changes, or budget reviews also merits attention. Some employees submit fraudulent expenses just before leaving the company, hoping to cash out before anyone notices. Regular submission patterns that suddenly change often signal either personal financial pressure or discovered opportunities for fraud.

Reluctance to provide documentation

An employee who regularly "loses receipts," provides blurry photos, or resists giving detailed proof for expenses is likely hiding something. They might claim their phone camera doesn't work, the receipt machine was broken, or they accidentally threw away documentation. Once or twice happens to everyone. But patterns of missing documentation, especially for large expenses, indicate either extreme carelessness or deliberate deception. Either way, it's a problem that needs addressing.

Finding expense fraud requires a mix of technology, process, and human judgment. Smart companies layer multiple detection methods to catch different types of schemes as part of their overall spend management strategy. The goal is to identify fraudulent expenses quickly, before losses mount and bad behavior spreads through the organization.

Automated expense monitoring

Modern expense management tools can automatically flag anomalies in real time, catching issues that humans might miss. These tools compare claims against actual transaction data, spotting altered receipts or mismatched amounts immediately. If an employee changes a receipt from $50 to $150, the software detects the discrepancy and alerts management before reimbursement occurs. Expense management automation also identifies patterns across thousands of transactions, like unusual merchant categories or spending spikes. They can flag out-of-policy expenses instantly, blocking payment until someone investigates. This technology turns expense review from a tedious monthly task into continuous monitoring that catches fraud as it happens.

Manual audits and spot checks

Technology shouldn't replace human oversight entirely. Regular manual reviews catch sophisticated fraud that might fool automated software. Finance teams should randomly select expense reports for detailed examination, verifying that receipts match claims and checking for altered documents. Look for inconsistencies in dates, sequential receipt numbers that seem too convenient, or expenses that don't align with an employee's calendar. Internal audit teams should also conduct deeper investigations periodically, perhaps reviewing all expenses from high-risk employees or departments. Manual reviews often uncover fraud rings where multiple employees collaborate, sharing receipts or covering for each other's false claims.

Data analysis and comparison

Comparing expense patterns across employees, departments, and time periods reveals hidden fraud. An individual's expenses rising 50% without a clear business reason warrants investigation. Similarly, comparing reported mileage to known routes, or travel days to actual meetings, can expose false claims. Year-over-year analysis catches gradual inflation of expenses that might otherwise seem normal. Benchmark analysis against industry standards or similar companies also helps. If your sales team's travel expenses are double the industry average, something's wrong. These comparisons work best when you establish baselines during normal operations, then watch for deviations.

Whistleblower mechanisms

Many fraud cases surface through tips from honest employees who notice their colleagues cheating. Companies need safe, anonymous ways for staff to report suspicious activity without fear of retaliation. This might be a hotline, an online portal, or a third-party service that protects whistleblower identity. Make sure employees know these channels exist and that the company takes reports seriously. Train managers to watch for retaliation against anyone who raises concerns. When tips lead to confirmed fraud cases, consider sharing sanitized success stories to encourage more reporting. Sometimes the best detection process is an ethical employee who's paying attention.

Prevention beats detection every time. Building strong defenses against expense fraud saves money, time, and trust. The best approach combines clear expectations, smart processes, and a culture that values financial integrity.

Clear expense policies

Companies need expense policies that spell out exactly what's allowed and what isn't. Skip the vague language about "reasonable expenses" and get specific. State that spa treatments, personal entertainment, and family meals are non-reimbursable expenses. Set clear limits for different expense categories and require business receipts for everything above a specific threshold. Include concrete examples in your policy, like "client dinners are reimbursable up to $100 per person, alcohol included" or "economy class flights only for trips under 4 hours." When employees understand the rules and see them consistently enforced, there's less room for creative interpretation. Update the policy annually to address new schemes or business changes, and make sure every employee acknowledges they've read and understood it.

Training and ethical culture

Regular training ensures all employees and managers understand expense policies and the consequences of fraud. Don't make it a boring compliance exercise. Use real examples of expense fraud from your industry, showing how small violations escalate into serious crimes. More importantly, leadership must model the right behavior. If the CEO meticulously follows expense rules and executives face the same scrutiny as entry-level staff, that message resonates. When employees see that even minor violations get addressed, they're less likely to rationalize misconduct. Build a culture where financial integrity matters as much as revenue growth. Make it clear that expense fraud isn't just stealing from the company, it's stealing from colleagues and shareholders.

Internal controls and reviews

Strong controls remove easy opportunities for fraud. Require original receipts for all expenses above a modest threshold, not just credit card statements. Implement multi-level approval where managers review their team's expenses and finance spot-checks the managers. Never let executives approve their own expenses. Segregate duties so the person approving expenses isn't the same one processing payments. Regularly reconcile corporate card statements with submitted receipts to catch personal charges. Set up tracking alerts for high-risk transactions or policy violations. Review and test these controls quarterly, because fraudsters constantly look for weaknesses. The goal isn't to create bureaucracy but to ensure someone's always watching.

Leverage technology and limits

Smart technology can prevent fraud before it happens. Corporate cards with built-in spending limits and merchant restrictions stop unauthorized purchases at the point of sale. Expense management software can block claims that violate policies, require receipt photos at purchase time, and flag suspicious patterns automatically. Prepaid employee expense cards for travel eliminate reimbursement fraud since employees can't spend more than what's loaded. Some platforms use AI to learn normal spending patterns and flag anomalies immediately. Configure these tools to match your policies, then let them handle the heavy lifting of enforcement. Technology can't replace human judgment, but it can make fraud much harder to commit and easier to catch.

Encourage reporting and oversight

Make it easy and safe for employees to report suspected fraud. Publicize your anonymous hotline or reporting portal, and protect whistleblowers from retaliation. Share general statistics about fraud prevention wins to show the software works. Generate monthly expense reports for leadership that highlight trends, outliers, and policy violations. This keeps expense fraud visible as a business risk rather than letting it fade into the background. Some companies purchase fidelity insurance to cover losses from employee theft, which provides financial protection while signaling that fraud is taken seriously. Regular communication about expense integrity, combined with visible consequences for violations, creates an environment where fraud becomes both harder to commit and easier to detect.

Finding potential expense fraud puts you in a tricky position. You need to act quickly but carefully. Following the right steps protects both your company and the employee's rights while you figure out what's actually happening.

Verify and gather evidence

Start by quietly reviewing the questionable expense reports in detail. Pull receipts, credit card statements, travel logs, and any other relevant records. Cross-check dates against calendars to see if that client dinner actually happened when the employee was supposedly traveling. Compare submitted receipts against original vendor records if possible. Document everything you find, including screenshots and copies of all suspicious materials. Don't confront the employee yet or share your suspicions with colleagues. You're fact-finding, not prosecuting. If you're wrong, loose talk could damage someone's reputation unfairly.

Report through proper channels

Once you've gathered initial evidence, alert the right people in your organization. This might be your finance director, internal audit team, or compliance officer. Many companies have confidential fraud hotlines specifically for these situations. Don't try to handle it yourself or keep it within your department. Expense fraud is a serious matter that needs formal investigation. Document your report in writing, including what you found and why it concerns you. This creates a paper trail and ensures nothing gets swept under the rug. If you're unsure who to contact, start with HR or your company's legal counsel.

Initiate a formal investigation

The company should launch a proper investigation quickly but discreetly. Internal audit or HR typically leads this process, sometimes with outside forensic accountants for serious cases. They'll examine records systematically, interview the employee and any witnesses, and determine what really happened. The investigation must stay confidential to protect everyone involved. Don't discuss it at the water cooler or warn the suspected employee that they're under scrutiny. Let the professionals handle it. They know how to preserve evidence, maintain legal compliance, and reach fair conclusions based on facts rather than assumptions.

Take appropriate action if fraud is confirmed

When investigation confirms expense fraud, swift action is essential. The employee should repay all fraudulent expenses immediately. Depending on the severity and your company's policies, termination is often the outcome. For significant fraud, you might pursue criminal charges or civil litigation to recover losses. Document everything about the case and how it was handled. Then examine how the fraud happened. What control failures allowed it? Which policies need strengthening? Use these lessons to prevent future incidents. Communicate the outcome appropriately within the organization, balancing transparency with privacy concerns. Other employees need to know fraud has consequences, but they don't need every detail.

Expense reimbursement fraud quietly drains company finances. Fast-growing startups face particular risk since they're often running lean back-office teams with informal processes. Brex addresses these vulnerabilities with a single spend management software that builds fraud prevention directly into expense workflows.

Brex's automated expense categorization and policy enforcement takes the guesswork out of expense reporting. Transactions automatically get categorized to the proper expense type using merchant data and learned patterns, making it harder for employees to mislabel personal spending as business costs. You can configure your spending policies directly into Brex, setting limits by category, per-diem caps, and meal allowances. When someone tries to exceed a travel meal limit or submit an out-of-policy expense, Brex flags it immediately and requires justification. The platform acts as an always-on watchdog, catching improper expenses before they become problems instead of relying on manual review after the fact.

The Brex corporate card comes with spending controls that stop fraud at the point of purchase. You can set individual spending limits by employee role and project, ensuring nobody charges more than what's authorized. The card allows merchant category and location restrictions, so you can block entire categories of vendors. If someone tries using the company card at a casino or unapproved retailer, the transaction gets declined and management gets alerted. Since employees put expenses on the corporate card instead of seeking reimbursement, there's no opportunity to submit fake receipts or inflated claims. Every dollar spent gets tracked with predefined limits and oversight.

Real-time transaction tracking gives you immediate visibility into all business spending. Every purchase posts to the Brex expense management software instantly, showing who spent what, where, and when. If an employee makes an unauthorized purchase like personal electronics or a suspicious weekend charge, you'll know right away and can investigate or freeze the card immediately. This real-time monitoring transforms expense management from a reactive monthly chore into proactive defense.

Brex's receipt matching technology eliminates common fraud tactics around fudging receipts. Every card purchase either generates an e-receipt automatically or prompts the user to upload a photo via the mobile app. The platform uses OCR and intelligent matching to link receipts to transactions, comparing amounts, dates, and merchant names. Any discrepancy between a receipt and the transaction gets flagged immediately. The software also recognizes duplicate submissions. If someone tries claiming the same dinner twice, even weeks apart, Brex catches it instantly.

For startup leaders stretched thin on administrative bandwidth, Brex's integrated approach is particularly valuable. All these features work together within a single software, minimizing manual oversight needs. Instead of juggling spreadsheets and paper receipts, startups rely on Brex's platform to automate controls. The software scales seamlessly from a handful of employees to hundreds without dropping compliance or increasing admin burden. By catching issues early and standardizing compliance, Brex ensures small expense leaks don't turn into massive losses as you grow. It's essentially an outsourced internal control software solution that tirelessly enforces policies and alerts you to anomalies while requiring minimal manual intervention.

Expense fraud might hide in routine processes, but it costs companies real money and erodes trust throughout the organization. The good news is that vigilance pays off. Companies that invest in clear policies, ethical culture, and strong oversight see fewer fraud cases and catch problems much sooner when they do occur.

The strategies we've outlined aren't complicated or expensive to implement. Start with a clear expense policy that leaves no room for interpretation. Build controls that make fraud difficult to commit and easy to detect. Use technology to automate monitoring and flag suspicious patterns. Most importantly, create a culture where financial integrity matters and everyone understands that expense fraud has consequences.

With the right combination of prevention, detection, and response measures, finance leaders can protect their organizations from expense fraud's hidden costs. You'll spend less time investigating suspicious claims and more time on strategic work that drives growth. Your honest employees will appreciate working for a company that values integrity and fairness. The steps are straightforward, the tools are available, and the benefits are immediate. There's no reason to let expense fraud continue draining resources from your business.

Companies already using modern expense management solutions are seeing these benefits firsthand. As Rafa Tihanyi, Sr. Director of Operations, explains: "Brex was the obvious choice for us when we started looking at the different expense management solutions out there. As a fully remote team with people all over the US and the world, being able to easily track expenses, approve reimbursements, and create virtual cards has been a game changer for our operations team." This real-world experience shows how the right platform transforms expense management from a fraud vulnerability into a competitive advantage.

Brex makes expense fraud prevention simple by combining corporate cards with built-in controls, expense management automation that catches policy violations instantly, and accounting automation that eliminates manual reconciliation. Instead of piecing together multiple tools and hoping they work well together, you get a platform that handles spending controls, receipt matching, real-time monitoring, and automated policy enforcement from day one. Your finance team gets hours back each week while fraud risk drops dramatically.

Sign up for Brex today and see how automated expense management transforms your company's financial operations from vulnerable to bulletproof.