A penny saved is a penny earned. But what happens when hard-earned revenue — whether that be a few pennies or millions of dollars — is squandered by doctored expense reports or other fraudulent claims? That’s precisely what happened in 2023 when the FBI discovered an Amazon employee in charge of organizing events submitted and received over $350,000 in fraudulent meal and drink expenses. The event in question? A virtual one. No food and drinks were required.
What Amazon experienced is not uncommon. Expense fraud is a nagging threat that weakens a company’s finances and tarnishes its integrity, and no organization is immune. Startups and global corporations alike must be vigilant and proactive to protect against this form of fraud.
What is expense fraud?
Expense fraud occurs when employees or other individuals intentionally misreport business expenses for personal gain. It’s a kind of employee fraud that often goes unnoticed. The act ranges in size and scope, from rounding up a few dollars for a conference taxi fare to submitting fake receipts for expensive technology equipment. And the impact stretches beyond financial loss — it can undermine employee morale, weaken a company’s reputation, and permeate an organization with a culture of distrust.
What distinguishes expense report fraud from other forms of fraud, such as embezzlement or accounting fraud, is that while those typically occur on a larger scale, expense fraud often consists of smaller, repeated transactions. And just as the Amazon case displays, it doesn’t necessarily require a team of criminal masterminds to deploy. A single employee can cause serious damage.
While other frauds might involve asset theft or manipulation of financial statements, expense fraud centers on the reimbursement of costs incurred while presumably conducting business. Organizations of all sizes are exposed, but smaller businesses with fewer formal controls as well as quickly growing companies where oversight may get lost in the hustle for success can be particularly susceptible.
Building a solid expense management foundation to prevent and react to expense fraud is essential. Here, we explore the various types of expense report fraud, including expense reimbursement, and identify organizational vulnerabilities while outlining effective strategies for detection and prevention.
The most common types of expense fraud
Expense fraud comes packaged in many creative ways, but the underlying criminality of the act remains the same. A few common examples include:
Falsifying receipts
Receipts can tell a fictitious story. Imagine the quintessential client dinner, after which an employee pays a tip in cash and then enters an inflated tip amount after signing the credit card receipt. This form of expense fraud can be simple to commit and difficult to prove.
Creating a fake receipt or submitting receipts for personal purchases falls into this category. If an organization decentralizes its expense reporting and provides a large degree of autonomy to its employees, it may be susceptible to this fraud practice.
Inflated expenses
‘Rounding up’ or brazenly lying and inflating expenses is also a common form of expense fraud. An example of this is the employee who reports mileage and is consistently incorrect in their estimation of the round-trip distance. This disparity adds up over time to significant losses. Companies that are lax about their expense policies and do not share clear guidelines on acceptable limits are at high risk of this practice becoming pervasive.
Personal expenses as business declarations
Was that trip to Bali to tour potential factory sites for business or for pleasure? Companies come out on the losing end when employees disguise personal expenses as business-related costs on an expense claim. Submitting personal receipts for meals and entertainment can quickly add up to major expenses for organizations whose expense policies aren’t well-defined or lack the proper technology to detect fraud-like patterns. These fictitious expenses labeled ‘consultant entertainment fees’ fall under this potential fraud category.
Duplicate reimbursements
The HR department never checks. Such casual oversight may be the justification an employee needs before they decide to resubmit the same expense for reimbursement. Yes, multiple reimbursements can be reported accidentally as well, but the financial impact on the company hits hard nonetheless. Manual expense reporting leaves a company open to this disparity, which is also called ‘multiple reimbursement.’
Duplicate reimbursements are also common in invoice fraud when an employee or vendor submits the same invoice multiple times for payment.
Best practices for preventing expense fraud
The best way to handle expense fraud is to catch it before it impacts the business. To do so, a proactive approach is crucial — ideally, one that is multifaceted and clear, with robust controls and continuous monitoring. Here is a step-by-step guide of best practices to follow:
Make your expense policy comprehensive
Can your employees answer this question: What is a legitimate expense to submit? A transparent expense policy is the backbone of any fraud prevention program. Dictate what constitutes a legitimate expense and make limits clear for different expense types. If certain documentation is necessary for reimbursement of an expense report item, make that document a requirement for submission.
Once policies are clearly defined, they can be implemented into fraud detection software to automatically detect and flag expenses that don’t fit into the criteria.
Enforce strict approval processes
That sales trip isn’t reimbursable unless it is approved by the appropriate channels. By implementing a cohesive approval process and consistently following it, expense legitimacy is regularly verified. Any expenses that fall outside of set parameters are easily flagged.
Aim to segregate duties by not allowing individuals who submit expense reports to also have the ability to approve them. It’s best to ensure two or more separate approvals are required for each expense submission. However, relying solely on human capital for the entire approval process is also risky. Humans may naturally be biased and trust certain employees over others. There’s also a chance for more errors if there’s a huge pile of expenses to get through. All of this creates scenarios where expense fraud is likely to slip through the cracks. Automation can help.
Utilize automated fraud prevention software
Automated fraud detection outperforms manual methods of detecting and preventing expense fraud by tracking expenses, enforcing policies, and identifying potential fraudulent actions.
A major benefit is creating and automating customizable expense workflows. Businesses can create approval chains that ensure expense reimbursements are reviewed, approved, and paid by different employees or departments, thus reducing the chance of fraud occurring. If a certain expense is over a set amount, say $500, it can automatically be flagged and routed to the appropriate party for review to streamline operations while proactively rooting out fraud. These rules can be adjusted to fit the needs of the business.
It also roots out more than just fraud. Clerical errors make up 45% of payment processing issues for companies. Real-time tracking helps mitigate this by validating payment details before execution and minimizing duplicate payments automatically, freeing organizations to operate more efficiently. Perhaps equally important, employees get paid reimbursements faster. It’s a win-win for all parties involved.
Connect invoicing, expense management, and payments
Fraud detection software offers a holistic solution to expense fraud risk. By showcasing a comprehensive view of financial transactions and cross-referencing with expense reports and records of payment, it offers the ability to shine a spotlight on the entire transaction cycle.
Nothing stays hidden — from order to payment to everything in between. Pattern recognition is a large attribute of the software as well. Simply automating invoices or payments does not catch the outlier transactions that can then be flagged for further analysis. The ability to identify fraud as it is happening takes fraud prevention from a reactive to a proactive endeavor, reducing blind spots thanks to the integration of the systems.
Leverage data analytics to identify trends
A robotics company notices a spike in spending for January and is unsure why. Their automated system reveals within seconds that their typical expenses have risen by 25%, particularly in software licensing. That alone isn’t a cause for concern, but a closer look into their detection software reveals it’s one employee in particular, and it’s a pattern. Every three months, there seems to be a spike in reimbursements for this type of charge.
Data analytics can identify differences in trends like these and get to the root cause quickly. AI analyzes historical spending patterns to mine data, flagging employee purchases that are out of the usual scope. What makes it so effective is the ability to analyze expenses that alone don’t look suspicious but reveal hidden patterns when compared against the larger operational and historical data set. These kinds of patterns are often missed by human auditing measures. Relying solely on human-led auditing means companies are reacting to fraud that has already occurred, not preventing it from happening.
Automate expense report auditing
Manual monitoring is time-consuming and open to user error. It evokes the old-fashioned image of an employee sitting in a cubicle for hours on end repeatedly matching expense report numbers with declared expenses, breaking for lunch, and then continuing the mind-numbing cycle. Catching any patterns or discrepancies can be tricky, especially with mid-market businesses that are scaling rapidly.
In contrast, automated expense report auditing is efficient and precise in a fraction of the time. The AI in fraud detection software can automatically calculate mileage and report any discrepancies. And when an employee photographs their dinner receipt and uploads it to the company’s spend management app, the system automatically categorizes the data, sends it to the appropriate party for review, or flags it for excess. ($86 for coffee with a client, really?)
Utilize virtual cards
Company credit cards are a great way to streamline expense processes. Employees can pay for the items they need without filing for expense reimbursements later. But, company credit cards rely on a lot of trust. Since these cards have high spending limits without many restrictions, it can be easy to sneak in non-business-related items without detection.
Virtual cards offer far greater protection. Virtual cards are digital representations of a credit card with randomly generated numbers to prevent misuse. They are assigned a specific amount and can only be used within set parameters pre-approved by the issuer. They have all the benefits of a physical card, the functionality of a check, and the efficiency of automated payments. They control how much is spent and who is paid for it, and can be used for employees and even to pay vendors.
Even better? Businesses can connect these cards to their spend management platform or software, enabling automatic reconciliation. If fraudulent activity is suspected, these cards can easily be deactivated and suspended without impacting the company’s bank account.
How fraud detection software helps prevent expense fraud
Fraud detection software uses a powerful financial gatekeeper: AI. A mix of machine learning and automation analyzes expense reports in real time by scanning receipts, flagging suspicious transactions, and detecting anomalies. By providing instant alerts and detailed audit trails, fraud detection software helps businesses catch fraudulent claims before they’re approved, saving time and money.
Here’s how it works.
Tailor-made workflows
Customizable expense workflows automate the approval process by enforcing predefined rules and hierarchy-based reviews. Instead of manually reviewing each expense, the software routes the request to the appropriate party based on company policy, risk factors, and employee roles.
Some possible rules to consider include:
- Under $150: Automatically approved if policy-complaint
- Over $150: Requires manager approval
- Above $500: Requires finance and senior management approval
- Claims without a receipt: Requires justification and manager approval
- Expense reports that exceed the department budget: Send to finance for deeper review
- Manager and executives: Higher expense limits, but flagged for out-of-policy claims
SpendGuard™, Coupa’s fraud detection software, provides drag-and-drop functionality to quickly create and alter approval workflows as business needs change. All non-compliant spend is automatically flagged and sent to the appropriate auditor for review, ensuring nothing slips through the cracks.
Optical character recognition (OCR) speeds up processing
OCR is a technology that converts printed or handwritten text in images (think receipts, invoices, and documents) into machine-readable text. To combat expense fraud, OCR helps automate verification by scanning, extracting, and analyzing receipt data without requiring manual entry or intervention.
With SpendGuard, employees can upload receipts by taking pictures directly on their phones. It accepts receipts by email, mobile uploads, PDFs, or electronically scanned physical copies. SpendGuard extracts the merchant’s name, dates, amounts, tax details, and payment methods. That data is then matched to the expense entry to check for discrepancies. Duplicates, errors, and potential fraudulent charges are flagged for review.
AI analysis with historical backing
The software displays invoices, purchase orders, and expense reports as a single snapshot instead of in isolation. AI and machine learning analyze spending data to identify and flag potential fraud. It can detect:
- Duplicate expense submissions
- Altered receipts, such as pixel inconsistencies and changes in fonts or formatting
- Inflated expense amounts, such as an employee routinely rounding up costs
- Frequent last-minute submissions that indicate employee might be batch-submitting expenses before deadlines to avoid scrutiny
- Personal versus business spend misclassification by analyzing historical business spending trends
- Excess high-volume cash claims for certain employees or departments
SpendGuard’s AI is community-generated and derived from a proprietary data reservoir of $7 trillion in real-world business transactions. That’s 10+ million sellers and buyers to compare and contrast with your company’s actions. It can detect emerging expense fraud techniques and compare trends in your industry and company size to help you stay ahead of fraud.
Data-driven insights
Beyond just identifying fraud, continuous AI-powered monitoring generates valuable data-driven insights to help companies optimize financial control, budgeting, and compliance. The software can surface:
- Spending trends and employee behavior patterns: Identify which employees, teams, or departments spend the most on specific categories and whether claims align with their role.
- Policy compliance issues: Identify which policies are broken most frequently. It might be fraud, or the policy itself needs to be altered to accommodate changing operational needs.
- Reimbursement efficiency: Identity bottlenecks, such as HR taking five days longer than finance to approve expenses, that slow reimbursements down. It also measures expense rejection rates and reasons so you can improve employee guidance.
- Cost optimization: Identify categories where overspending may occur and predict future expense trends based on historical data to adjust budgets accordingly.
Use your spend management software to automate your policies and procedures so you can plug those directly into the business logic and go further. By going beyond automation to AI and predictive analytics, SpendGuard serves as the expense fraud auditor who is always on duty.
Protect your bottom line with Coupa’s SpendGuard.
*Association of Certified Fraud Examiners, Occupational Fraud 2024: A Report To The Nations®, 2024
**PYMNTS Intelligence + Coupa, 2025 Certainty Project Report, 2025
