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Employees are usually reimbursed for work-related expenses. When you file or report these expenses, it’s important to make sure the numbers are as accurate as possible. Over-claiming expenses, turning in receipts for unused items, or even spending more than the allowed amount are common expense fraud offenses. Whether you’re an employer or employee, it’s important to understand what can be determined as reimbursement fraud to avoid mistakes and spot schemes as they occur.

What are examples of expense and reimbursement fraud?

A typo or honest mistake can be fixed, but ongoing fraudulent numbers can significantly hurt a company over time. Actual expense fraud is deliberate and usually a premediated attempt to inflate reimbursements. See some examples below:

  • Claims for items that weren’t purchased (office supplies, lunches, etc.)
  • Bills for canceled trips, such as hotel costs and travel tickets.
  • Bills for non-reimbursable expenses (anything that isn’t work-related or is done in leisure)
  • Separate mileage bills from employees who travel together
  • Inflated totals for any of the above expenses. For example, if an employee were to take a trip that costs $415.00, but the employee rounds up to $420.00 on the bill. This would be an act of expense fraud.

Employees often don’t associate these acts with fraud because the word “fraud” sounds so heinous. Poor judgement can easily become a case, so it’s important that companies have a clear expense policy. Expense policies are put into place to dissolve any confusion about protocols and procedures when dealing with company money.

The 4 Types of Expense Fraud

The above examples of expense and reimbursement fraud can be categorized into one of the four types outlined by the Association of Certified Fraud Examiners:

  1. Mischaracterized expenses. This occurs when an employee mixes their personal expenses with business expenses.
  2. Fictitious expenses occurs when the employee submits fake receipts.
  3. Overstated expenses are inflated costs.
  4. Multiple reimbursements occur when an employee submits multiple receipts for the same item.

How to avoid expense fraud in your company

  • It’s good to start with a clear and concise expense policy. Employees should be able to understand exactly what is expected when turning in reports and receipts.
  • Provide tools for employees to easily report expenses. Simplify the process with software, or similar resources to make reporting easy and accurate.
  • Consider your current system’s efficiency. Company cards or virtual transactions are easy to track.
  • Audit occasionally to encourage honest reporting.
  • Fair allowance rates can also prevent expense fraud. When your employees travel out of town, consider the rates of where they are and ensure the allowance can cover those expenses. Sometimes, an employee may consider expense fraud as a last resort.

Do you owe back taxes and want to regain compliance with the IRS?

Optima Tax Relief offers free consultations over the phone for tax debt assistance. Give us a call today at 800-536-0734.