In November 2024, it was reported that a Macy’s employee used unethical accounting practices for years, which allowed him to hide over $150 million in falsified expenses. According to the US retailer, the employee was responsible for small-package delivery expense accounting and intentionally made errors in bookkeeping entries since late 2021. This real case is just one example that shows how expense fraud can impact even the largest companies.
Imagine a scenario where an employee submits an expense for a business lunch that significantly exceeds the approved spending limit. Or someone claims travel expenses for a personal weekend trip with manipulated dates on the hotel receipt. These are the kinds of schemes finance teams deal with every day.
Expense reporting is essential for keeping spending under control, ensuring transparency, and enabling smarter business decisions. But it also introduces risk. Fraudulent claims can result in serious financial loss, reputational damage, and internal distrust. That’s why understanding what expense fraud looks like and how to stop it is critical. And that’s where modern and advanced technology comes into play.
What is expense fraud?
The Association of Certified Fraud Examiners (ACFE) defines expense fraud as “a scheme in which an employee claims reimbursement of fictitious or inflated business expenses.” Also known as expense reimbursement fraud, it’s the deliberate act of misrepresenting or submitting out-of-policy expenses for personal gain.
Understanding what expense fraud looks like and how to stop it is critical, and that’s where technology comes into play.
Expense fraud can take many forms: fabricated expenses, inflated costs, duplicate claims, or submitting personal expenses as business ones. However, it’s important to differentiate these from honest mistakes such as typos, misunderstanding of expense policies, or missing documentation. While errors and fraud can impact the company’s financial health, the intent of the action is quite different. Errors are unintentional; fraud is deliberate.
How can expense fraud impact an organisation?
According to Cifas, a UK fraud prevention service, fraudulent conduct reports rose by 14% in 2024 — 421,000 cases were reported, the highest number to date.
The ACFE estimates that organisations lose around 5% of their revenue to fraud each year, with the average case resulting in over $1.7 million in losses. These include not just direct reimbursements but also administrative costs and insurance premium increases that follow.
But the cost goes beyond financial losses. Fraud weakens trust within teams, discourages top talent, and risks reputational damage. Moreover, it impacts relationships with investors, who rely on accurate reporting. If a business shows signs of weak internal controls, it could affect funding and long-term growth.
Most common types of expense fraud
Fabricated expenses
Fabricated expenses are claims for spending that never happened. It’s the most deliberate form of expense fraud and are often supported by fake or tampered receipts. These are rare, but high-risk for audits and legal consequences.
Inflated expenses
These happen when employees purposely exaggerate the cost of legitimate expenses. This can range from bumping up the meal total or adding personal charges to business receipts. They can happen due to human error but quickly turn into a deliberate action.
Personal expenses
Submitting personal costs under the guise of business activity, like meals with friends listed as client meetings or personal travel passed off as business trips. Unlike human error, this type of fraud involves consciously misrepresenting the nature of an expense to gain personal financial benefit.
Fraud weakens trust within teams, discourages top talent, and risks reputational damage.
Duplicated expenses
This happens when employees submit the same expense claim multiple times, whether by re-uploading the same receipt or using different submission channels. It can be easily attributed to human error and overlooked, especially with manual expense processes.
Receipt alteration
Employees can alter an existing receipt, whether digitally or on paper, to raise the amount or conceal out-of-policy items such as alcohol, which poses a risk. Much like duplicated expenses, these claims can easily slip through the cracks without the proper system in place.
AI-generated receipts: the new challenge
Advancements in generative AI have created new challenges for finance teams. The most concerning? The rise of AI-generated receipts and how easily accessible the technology has become.
In March 2025, OpenAI unveiled a major upgrade to ChatGPT’s image-generation capabilities, allowing for more accurate and detailed outputs. As users started testing it, it quickly became clear that it would become a challenge for finance teams.
Fraudulent claims made using AI-generated receipts may result in financial losses and undermine the effectiveness of internal controls.
These fake documents can convincingly replicate the layout, fonts, and even formatting of actual receipts, making them harder to detect through manual review. With the right prompt, employees can fabricate an expense report that appears authentic at first glance. And because most organisations still rely on manual checks or surface-level OCR tools, fakes are often missed.
AI-generated expense fraud is taking its first steps, but is expected to grow. In 2023 alone, deepfake incidents increased 700%, and a 2024 report from Deloitte Center for Financial Services estimates that fraud losses could total about $11.5 billion by 2027.
Fraudulent claims made using AI-generated receipts may result in financial losses and undermine the effectiveness of internal controls. As this trend accelerates, organisations must consider smarter, more proactive approaches to validating receipts and enforcing policy.
Tools equipped with AI-based detection models, specifically designed to identify this type of generated document, are quickly becoming essential to mitigate this threat.
How can organisations defend themselves against expense fraud?
Expense fraud can seriously threaten an organisation’s financial health, and data shows it will continue to increase. However, there are proactive measures that can minimise the risk.
It all starts with a strong expense policy. Clear guidelines on what’s reimbursable, spending limits and required documentation can reduce confusion and provide a baseline for enforcement.
Employee education is just as important. Regular training and clear communication help ensure everyone understands the rules and why they matter. Creating a culture of integrity and encouraging employees to report suspicious activity without fear of backlash can be an added line of defence.
Understanding expense fraud is the first step to avoid it.
Then comes the technology. Smart expense management software like Rydoo uses AI to fight AI. Rydoo Smart Audit advanced AI-powered expense monitoring assistant analyses all expense claims, detecting duplicates and non-compliant expenses, and even manipulated and AI-generated receipts before they reach the approver. Whenever a potential issue is detected, the platform sends policy warnings to flag the issue in real-time so teams can take immediate action.
This reduces manual checks and increases confidence in the approval process. Every claim is backed by consistent data, automated checks, and a digital trail, helping finance teams improve expense control in a fraction of the time.
Expense fraud poses a significant threat to a company’s financial well-being. It also risks the company’s reputation, team culture, and long-term success.
Understanding expense fraud is the first step to avoid it. By combining that knowledge with the right mix of policy, automation and education, finance teams have all they need to stay one step ahead of fraudsters.
Technology plays a big role in this equation, and software like Rydoo gives finance teams the tools they need to protect their organisations against fraud. By combining policy enforcement with AI-monitoring to detect issues before they become real problems.
Want to know how Rydoo Smart Audit can help your team fight expense fraud? Book a demo to see it in action.