An employee submits the same meal receipt twice and gets reimbursed both times. It seems minor, but small frauds like these add up fast. According to the Association of Certified Fraud Examiners, expense reimbursement schemes make up 11% of asset misappropriation cases, with a median loss of $40,000 per case. 

Manual reviews, inconsistent policies, and limited oversight make expense fraud easy to slip past internal controls. For finance and compliance teams, missed red flags don’t just hurt the bottom line; they weaken trust and increase audit risk.

This guide breaks down how to detect expense fraud early and build processes that prevent it from happening in the first place.

TL;DR

Expense fraud is often subtle and costly. To stay ahead, you can take the following steps:

• Use automation (OCR, AI, duplicate detection) to flag irregularities early

• Customize approval workflows to add checks where risk is higher

• Require itemized receipts and enforce consistent documentation standards

• Audit both randomly and selectively to catch evolving fraud patterns

• Encourage secure, anonymous reporting to surface what systems might miss

What Is Expense Fraud?

Expense fraud occurs when employees intentionally submit false or misleading information on expense reports to receive reimbursement they’re not entitled to. Unlike large-scale embezzlement or procurement fraud, expense fraud often appears low-risk and low-value, but it adds up quickly, especially in large organizations with decentralized approval processes.

These schemes often rely on weak internal controls, inconsistent documentation, or a lack of automated monitoring. In many cases, fraudsters exploit the assumption that low-value claims won’t be scrutinised.

Here are some common types of expense fraud:

• Falsified Receipts: Creating fake receipts or editing the amount on legitimate ones to inflate claims.

• Duplicate Submissions: Submitting the same receipt multiple times, often weeks apart, to avoid detection.

• Personal Expenses Billed as Business: Charging meals, fuel, or hotel stays from personal trips as if they were work-related.

• Exceeding Allowable Limits: Breaking up large expenses into smaller ones to bypass per diem or category caps.

• Mischaracterised Expenses: Labelling items (e.g., gifts or entertainment) under approved categories like “supplies” or “client meals.”

• Claiming Non-Reimbursable Items: Submitting costs that violate company policy, such as alcohol, luxury services, or family travel.

While each case may seem minor, collectively, these practices can result in major financial losses, reputational damage, and increased audit risk. 

Why Expense Fraud Often Goes Undetected?

Most companies miss employee expense fraud because of scattered processes and limited visibility. When expense reports pass through multiple layers of manual review, it becomes difficult to spot patterns or catch subtle inconsistencies. This creates gaps that dishonest employees can exploit.

Several factors contribute to the problem:

• Manual Review Processes: Finance teams often rely on spreadsheets or paper-based systems that make it difficult to track recurring claims or anomalies.

• Lack of Policy Enforcement: Expense policies may exist, but without automated enforcement, they’re inconsistently applied across teams and departments.

• No Centralised Oversight: Expense approvals are sometimes handled at the team level, leading to inconsistent standards and little cross-checking.

• Volume of Claims: In the medium to large organisations, reviewing hundreds or thousands of monthly submissions makes thorough verification unrealistic without automation.

• Missing or Vague Documentation: Incomplete receipts or unclear expense descriptions are often approved to keep processes moving, without proper validation.

To close these gaps and reduce risk, organizations need structured, tech-enabled controls that make fraud harder to commit and easier to catch. Here’s how you can strengthen your defence against fraudulent expense claims.

How to Automate Expense Fraud Detection with Technology

For compliance officers, internal auditors, and finance leads, automation needs to be accurate, consistent, and audit-ready. By combining multiple technologies into a unified fraud prevention strategy, you reduce human error, eliminate blind spots, and flag anomalies before they escalate.

Here’s how you can implement automation to strengthen your expense review process:

1. Incorporate Automated Expense Management Software

Modern platforms can automatically validate claims against company policy, spending limits, and approved vendors. They streamline approvals and reduce reliance on spreadsheets or email chains, helping finance teams close review cycles faster, with fewer oversights.

Here’s how it helps: 

• Instant policy checks

• Role-based approval flows

• Faster turnaround without manual bottlenecks

2. Utilize OCR for Receipts

Optical Character Recognition (OCR) extracts data directly from scanned or photographed receipts, reducing input errors and minimising manipulation. This ensures that the receipt content matches what's entered in the claim, no manual typing required.

You can use this method for:

• Receipt-to-claim matching

• Time-stamped digital records

• Less room for falsified or altered submissions

3. Deploy AI-Powered Analytics for Anomaly Detection

AI for fraud detection adds a layer of intelligence that learns what normal spending looks like and flags what doesn’t. These systems go beyond keyword or rules-based filters by detecting irregular claim patterns across time, departments, or individuals.

What it enables:

• Behavior-based flagging instead of fixed thresholds

• Real-time anomaly alerts

• Higher accuracy, fewer false positives

Here, you can implement Fortifai’s AI-driven risk scenario management to detect suspicious claims based on thresholds, behaviors, and historical patterns. It reduces false positives over time and helps teams act faster on the right cases.

4. Monitor for Duplicate Submissions

AI-powered tools can cross-reference new claims with past submissions to spot duplicates, even if details like dates or descriptions have been slightly modified. These checks are difficult to perform manually, especially in high-volume environments.

This is how you can use it:

• Prevent repeat reimbursements

• Time-based and content-based duplicate detection

• Reliable history tracking across multiple departments

Fortifai enables automated detection of duplicate or suspicious claims and ties them directly into your investigation workflow. Each flagged case includes a full audit trail and can be routed for review or escalation.

Also, check our blog, Generative AI for Fraud Detection

Strengthen Controls Through Process Design

Even the best tools fall short without the right process behind them. Below are key process-level controls to create a system that reduces guesswork and flags non-compliant behaviour before it escalates.

• Implement Customizable Approval Workflows: Design multi-tiered approvals based on expense category, amount, or employee role. This ensures that higher-risk claims receive added scrutiny, while routine expenses move quickly through predefined paths. When integrated with automation, these workflows improve accountability and reduce approval bias.

• Require Detailed Receipts and Justifications: Incomplete or vague receipts make it easy for false claims to go unnoticed. Requiring itemized receipts, along with clear business justifications, makes it harder to disguise personal spending as business-related. Systems should flag missing documentation automatically to prevent reimbursements from slipping through without review.

• Enforce Strong Expense Policies and Regular Training: A written policy isn’t enough. Employees need clarity on what’s allowed, what’s not, and why. Regular training sessions, especially during onboarding or policy updates, help reinforce rules and reduce the likelihood of unintentional violations. Policy acknowledgement mechanisms can be built into claim submission systems to ensure ongoing compliance.

Fortifai supports these process controls by managing the full lifecycle of flagged claims right from initial detection to closure while maintaining a complete audit trail for internal investigators. With built-in workflows and role-based assignments, teams can act on suspicious claims faster and with confidence.

Drive Accountability Through Oversight

Preventive controls are essential, but so is the ability to detect issues that slip through. Oversight mechanisms like audits and behaviour monitoring help surface hidden patterns, identify repeat offenders, and drive accountability across teams.

Here are two detective and corrective strategies that strengthen your control environment:

• Perform Random and Targeted Audits: Scheduled audits alone are not enough to deter fraud. Random audits introduce unpredictability, making employees less likely to take risks. Targeted audits, on the other hand, focus on high-risk individuals, departments, or spending categories. Combining both approaches gives internal audit teams broader visibility and sharper focus where needed.

• Analyse Employee Behaviour and Spending Patterns: Trends matter more than one-off claims. An employee who consistently pushes the boundaries of policy, submitting just-below-threshold expenses or splitting large claims, may be testing controls. Monitoring behavioral patterns over time helps spot early warning signs that static rules can miss.

Fortifai supports oversight functions through centralised dashboards, digital investigation trails, and built-in KPI tracking. These tools help internal auditors detect patterns, measure investigation outcomes and maintain transparency across the full lifecycle of flagged expense activity.

Promote Transparency Through Safe Reporting

Many expense fraud cases surface because someone inside the organization notices irregularities. But without a safe and well-structured reporting channel, these concerns may never reach your compliance team. Building a trusted internal reporting system helps surface valuable signals that technology alone might miss. 

Here's what to focus on:

• Enable anonymous reporting options: Employees are more likely to report misconduct if they know their identity will be protected.

• Make reporting channels visible and easy to access: Ensure employees know how and where to report, whether it's through a secure portal, hotline, or internal tool.

• Define a clear process for follow-up: Every report should trigger a defined response, triage, assignment, and investigation, so employees know concerns won’t be ignored.

• Track and document all whistleblower inputs: Keeping a complete record of reports, actions, and outcomes helps enforce accountability and meet compliance requirements.

Fortifai integrates seamlessly with whistleblower portals, routing incoming reports directly into its investigation case management system. Each submission is logged, assigned, and tracked with a full digital audit trail, giving internal teams the tools to act quickly, consistently, and with complete transparency.

Conclusion

Expense fraud is a recurring risk that grows with scale, decentralization, and weak oversight. Manual reviews and reactive policies leave too much room for error. To protect margins, maintain compliance, and strengthen trust, organisations need systems that go beyond detection, ones that drive visibility, accountability, and faster resolution.

Fortifai brings structure to what’s often a fragmented process. From AI-powered anomaly detection and real-time monitoring to investigation case management and whistleblower integration, Fortifai helps internal teams respond to fraud signals with speed and clarity. Each claim, report, and audit is backed by a full digital trail, so nothing is missed, and everything is defensible.

Schedule a demo today to see how Fortifai can support your compliance and finance teams and detect expense fraud early to manage investigations all the way through closure.

FAQs

Q1: What are the common signs that an employee may be committing expense fraud?

A1: Red flags include frequent rounding of amounts, repeated “lost receipt” claims, use of personal vendors, submitting expenses just under approval thresholds, and unusually high spending compared to peers in similar roles.

Q2. How do employees typically bypass approval workflows to submit fraudulent claims?

A2: They may exploit policy gaps, split larger expenses across multiple claims, or submit expenses during periods of high volume (e.g., quarter-end) when reviewers are less attentive. Weak documentation requirements also make fraud easier to slip through.

Q3. How often should expense policies be updated to stay effective?

A3: Ideally, once a year or whenever there's a major shift in operations, travel, or reimbursement structures. Frequent exceptions or employee confusion are also signs it’s time to revisit your policy.

Q4: Can automation help with compliance beyond detecting fraud?

A4: Yes. Automated systems help enforce documentation standards, maintain audit trails, and ensure policy adherence, supporting broader compliance efforts, especially in regulated industries. Fortifai enables this by combining real-time monitoring, case management, and audit-ready investigation workflows to help organizations meet both internal policy and external regulatory demands.