What is expense fraud? How to detect and prevent it

Expense fraud is one of the most common and costly forms of workplace fraud, threatening the financial health and trustworthiness of businesses of all sizes. Even small, recurring claims can quietly compound into tens of thousands in annual losses.

What is expense fraud?

Expense fraud happens when employees intentionally submit false, inflated, or personal expenses for reimbursement to gain money they aren't owed. Also known as expense reimbursement fraud or employee expense fraud, it's a form of asset misappropriation—employees exploiting the reimbursement process to steal from their employer. It ranges from small policy violations to deliberate, repeated theft.

At its core, expense fraud involves three elements:

• Intentional misrepresentation: Submitting claims the employee knows are false or inflated
• Personal gain: The employee receives money they wouldn't otherwise be entitled to
• Exploitation of trust: Taking advantage of expense reimbursement systems designed for legitimate business costs

There are several ways employees might commit expense fraud, including fabricating expenses, padding or inflating costs, duplicating expense claims, altering receipts, and submitting personal expenses as business-related.

It's important to distinguish between expense fraud and simple mistakes. An employee might make a typo on their claim or misunderstand your company's expense policy. While both can hurt your bottom line, the key difference is intent: Expense fraud is a deliberate attempt to gain financially, while errors are unintentional.

How common and costly is expense fraud?

According to the Association of Certified Fraud Examiners (ACFE) 2024 Report to the Nations, which analyzed nearly 2,000 cases worldwide, expense fraud is one of the most common forms of asset misappropriation. Expense reimbursement fraud appeared in 13% of cases and lasted an average of 18 months before detection, making it one of the longest-running types of fraud.

The median loss from these schemes was $50,000 per year, a $10,000 increase from the ACFE's 2022 report. Expense fraud is also one of the most common types of asset misappropriation schemes across industries, from technology and manufacturing to government and social services.

Fraudulent expenses often go undetected because individual amounts seem small, but they compound over time. The rise of remote and hybrid work has increased the risk further, since finance teams have less visibility into day-to-day spending. Beyond the direct financial drain, there's the hidden cost of time your finance team spends chasing suspicious claims instead of focusing on higher-value work.

How does expense fraud happen?

Expense fraud often stems from company culture. Employees may pick up bad habits from more senior colleagues, viewing them as simply "the way things are done."

According to the ACFE's 2024 report, 20% of small businesses (with fewer than 100 employees) and 12% of larger companies (with more than 100 employees) experience expense fraud, illustrating the deep-seated nature of these behaviors. To change this mindset, small business owners need to actively promote a culture that discourages fraud.

It starts with the little things. For instance, a sales representative might ask a merchant to write a receipt for more than what they actually paid. This is especially common with cash transactions, where the merchant is unlikely to report the sale as taxable income. Both parties are breaking the law, and over time, this "everyone does it" attitude can become systemic.

The problem can also be internal. Without proper expense tracking tools and policies, there's no effective way to stop employees from inflating claims or submitting questionable expense reports. Each seemingly harmless infraction chips away at the company's integrity and bottom line.

Ultimately, business owners and leadership are responsible for addressing expense fraud. While the accounting department can help identify suspicious claims, it's up to management to set clear policies, provide the right tools, and foster accountability across the organization.

Why do employees commit expense fraud?

In almost all cases, employees commit expense reimbursement fraud for personal financial gain. The motivations typically align with what fraud experts call the "fraud triangle"—opportunity, pressure, and rationalization. Here are the most common drivers:

• Opportunity: Weak expense policies or lack of oversight make fraud easy to commit and hard to detect
• Financial pressure: Personal financial trouble or debt can drive employees to seek additional income through fraudulent claims
• Rationalization: Some employees justify fraud by convincing themselves it's harmless—"the company can afford it" or "I deserve it for all my hard work"
• Low perceived risk: Employees may believe that small amounts won't be noticed or investigated, especially if they've seen co-workers get away with similar behavior

Increased cost of living and inflation likely contribute to the rate of expense fraud as well, which means it's more important than ever to strengthen your internal controls.

Common types of expense fraud

Expense fraud takes many forms—some obvious, others harder to spot. Here's a breakdown of the most common schemes and what they look like in practice.

Fabricated or fictitious expenses

This occurs when employees request reimbursement for business expenses they never actually incurred. For instance, an employee might create or obtain a fake receipt for a luxury dinner at a high-end restaurant that never happened. They may also provide false receipts for expenses such as taxi rides, claiming they used a cab service when they actually took public transportation.

Inflated or overstated expenses

Rather than entirely fabricating expenses, some employees inflate legitimate ones. This includes overstating their mileage log, changing a $50 meal receipt to $150, or claiming a larger tip than they actually paid. In these cases, employees do incur the business expense but intentionally submit a claim for more than they actually spent.

Mischaracterized personal expenses

Claiming personal purchases as business-related is a common example of misrepresentation of income and expenses. An employee might submit a family dinner as "client entertainment" or personal clothing as a uniform purchase. While this can sometimes happen accidentally—for example, when an employee uses their personal credit card for business purchases—intentional mischaracterization is fraud.

Duplicate expense reimbursements

Submitting the same expense more than once is sometimes an error rather than an intentional act. For example, an employee might submit a paper receipt and then a digital copy in separate expense reports, or file the same hotel stay in 2 different months. Your finance or accounting team can catch this by checking dates and documentation.

Receipt fraud and altered documentation

According to the ACFE's 2024 report, altering physical or digital documents is one of the most common methods employees use to conceal fraudulent activity. An employee could manipulate a receipt by adding a few dollars to the total, showing a larger tip than they actually paid, or digitally removing alcohol from a receipt if it's out of policy.

AI-generated fake receipts are an emerging threat. Employees can now create convincing fake documentation using simple tools, making it harder for manual reviewers to spot forgeries without the help of technology.

Travel expense fraud

Travel expense fraud involves specific schemes related to business travel. Common examples include booking refundable flights then canceling and pocketing the refund, inflating per diem claims, or submitting expenses for trips that were partially personal. Because travel expenses tend to be higher-dollar and harder to verify, they're a frequent target for fraud.

Maverick spending

Maverick spending refers to employees submitting accurate reimbursement requests but ignoring company expense policies or spending guidelines. For example, they might use unapproved vendors or exceed category limits despite otherwise legitimate expenses.

Zombie spending

Zombie spending happens when your company continuously spends money on goods or services you no longer use, such as SaaS subscriptions. It can also lead to shadow IT, where employees sign up for unauthorized SaaS programs or download apps outside your company system, potentially exposing you to malware or other cyber risks.

Many of the examples listed above are oversights rather than intentional fraud. Still, each instance of unauthorized spending, whether intentional or unintentional, erodes your company's bottom line and contributes to the cultural acceptance of these behaviors among employees.

How to detect expense fraud

Catching fraudulent expenses requires a combination of knowing what to look for and having the right tools. Manual reviews can uncover some red flags, but automated tools make expense report fraud detection faster and more reliable.

Red flags and warning signs of fraudulent expenses

Certain patterns show up again and again in fraudulent expense reports. Train your team to watch for these:

• Amounts just below approval thresholds: Expenses consistently at $49 when $50 requires a receipt
• Round numbers: Real receipts rarely total exactly $100 or $200
• Missing or incomplete receipt details: Vendor name, itemization, or date missing
• Unusual vendors: Purchases from unfamiliar or personal-sounding businesses
• Timing patterns: Multiple expenses submitted at once after long gaps
• Out-of-policy spending: Frequent claims that don't align with company guidelines

AI-powered expense report fraud detection

Expense management fraud detection with AI automates the review process in ways manual checks simply can't match. AI-powered tools flag duplicates, detect altered images, identify spending anomalies, and catch policy violations in real time, before reimbursement happens. This approach is far more effective than manual review for catching subtle patterns across large volumes of transactions.

Manual audits and spot checks

Even with automation, periodic manual audits play an important role. Random sampling of expense reports keeps employees accountable and can identify subtler issues or emerging patterns that automated systems might overlook. Train reviewers to look for the red flags listed above, and use manual audits to complement your automated systems by catching context that software might miss.

Employee training and awareness

Educating employees about your expense policies and the risks of fraud can also help. When employees understand what's acceptable and what's not, they're less likely to engage in risky behavior.

How to prevent expense fraud

Prevention is more cost-effective than detection. A proactive approach helps you stop expense fraud before it happens and builds a culture of accountability and trust.

1. Establish clear expense policies

Well-documented and easy-to-access expense reimbursement policies are the foundation of prevention. Define exactly what's reimbursable and what isn't, require itemized receipts for all expenses—not just credit card slips—and include specific examples to avoid confusion. Write your policies in plain language so employees can actually reference them.

2. Implement real-time spending controls

This is how businesses prevent fraudulent reimbursements before they happen—by blocking out-of-policy spending at the point of sale. Set category-level limits, merchant restrictions, and require pre-approval for high-risk expense types. Integrating these controls with your accounting software ensures accurate, real-time tracking.

3. Automate receipt matching and verification

Use software to automatically match submitted receipts to card transactions. This flags discrepancies, duplicates, and missing documentation without manual effort, and it's how you prevent expense reimbursement fraud at scale.

4. Require manager approval for high-risk expenses

Build approval workflows for larger amounts or certain categories such as entertainment and travel. The key here: Approvers should actually review submissions, not rubber-stamp them. A culture of accountability sends a strong message that you won't tolerate fraud.

5. Conduct regular expense audits

Schedule periodic reviews of expense reports across your organization. Look for patterns—are certain employees, departments, or expense categories flagged more often? Use findings to refine your policies and close gaps.

6. Train employees on expense compliance

Ongoing employee training keeps policies top of mind and gives employees a chance to ask questions or report concerns. Regular training reinforces expectations and signals that your company takes fraud seriously. Prevention starts with awareness.

How Ramp stops expense fraud before it happens

Expense reimbursement fraud costs businesses millions annually, yet many finance teams still rely on manual reviews and outdated spreadsheets to catch suspicious activity.

You're left playing detective after the fact, combing through receipts and trying to spot duplicate submissions, inflated amounts, or personal expenses disguised as business costs, all while legitimate reimbursements pile up in your queue.

Ramp's expense management software transforms this reactive approach into proactive fraud prevention through intelligent automation and real-time controls. Here's what that looks like in practice:

• Real-time spending controls: Block out-of-policy purchases at the point of sale—before the money leaves your account
• AI-powered detection: Flags duplicates, anomalies, and suspicious patterns automatically, so you're not manually hunting for problems
• Automated receipt matching: Compares submitted receipts to transaction amounts and catches inflated claims or mismatches before they're approved
• Built-in policy enforcement: Ensures employees can only spend within approved limits, categories, and vendors
• Complete audit trails: Create an unalterable record of every transaction, showing who approved what and when

These automated controls don't just catch fraud—they prevent it from happening. Ramp makes policy violations immediately visible, creating friction for would-be fraudsters while making the process easier for honest employees.

Put an end to expense fraud with Ramp

With Ramp's modern finance operations platform, the days of manual expense reports and fake receipts are over. Upload your expense policy and set spend controls that only allow purchases from certain vendors or expense categories.

We also provide an online dashboard where you can track expenses in real time with an API you can use to connect your expense platform to your accounting software. Automatically process, record, verify, categorize, and register expenses on the general ledger.

Ready to curb expense fraud? Try an interactive demo and see why more than 50,000 businesses, from family farms to space startups, choose Ramp for their finance operations.