4 Ways for Preventing Payment and Expense Fraud Within Your Organization

Each and every business entity, from a small individually-run enterprise to a large-scale multinational conglomerate, is vulnerable to some kind of payment or expense fraud. The debit and credit card fraud statistics are truly alarming. The reliance on internet-based/online transactions, payments and shopping has been consistently increasing. Thus, fraudsters and scammers get more and more opportunities to steal and embezzle enormous sums.

Most big businesses have high-tech security systems in place to curb such fraudulent financial activities in their organizations. Smaller enterprises, however, have neither the funds nor enough qualified employees to set up and man such systems. Hence, they need to be much more vigilant and be prepared to deal with fraud, if it occurs.

Fraud prevention

Here are four things small businesses can do for preventing payment and expense fraud effectively:

1. Use apps for online transaction fraud prevention

The main issue with online transactions is that several unknown, unauthorized persons/parties can access sensitive data related to your bank accounts and credit cards. This is fraudsters’ main window of opportunity. So, you need to take precautions in the form of safe online banking and payments.

Such applications help you to automatically create invoices and send directly to clients, generate periodic bills and salary slips, and facilitate payments and receipts. They also help you coordinate between various payment methods as well as ensure the confidentiality of your sensitive data. They are safe, hassle-free, save your valuable time and improve your functional efficiency.

Every organization, irrespective of its size, should have stringent and comprehensive fraud prevention practices and policies in place. In a lot of cases, fraud occurs internally within organizations. Even global statistics in this category of fraud are shocking.

According to the Association of Certified Fraud Examiners (ACFE), which periodically publishes a number of fraud reports and statistics, 5 percent of organizations’ annual revenue is lost globally to employee fraud. And this report takes into account only cases that are actually reported.

Good business communication

2. Build relationships with employees

Usually, thorough background checks are an important part of the hiring process. While that is an effective step to prevent people with criminal background from entering your organization, your caution must not end once an employee is hired, as is the common practice.

Management should constantly interact with employees to get to know them better, and monitor them closely. Any changes in attitudes, behavior and communication patterns should be taken note of. Any signs of frustrations or disappointments with the work, colleagues or boss, should alert you and be dealt with tactfully. The adage, ‘prevention is better than cure’, holds cent percent true in this context.

3. Train employees for fraud detection and reporting

Every employee of your organization should be trained to recognize the signs of fraud and to report any suspicious activities to the concerned department/person. Incentives may be given to employees who help prevent any losses due to fraud and scams. Even the most advanced fraud control technology cannot eliminate the need for human vigilance.

Employees should also be made aware of fraud control and prevention measures as well as punitive steps taken by the organization, as that could act an inhibitor to potential miscreants. Further, perpetrators of fraud should be dealt with severely, so that other employees realize that you take fraud very seriously and your actions act as a deterrent to them.

The most common types of frauds within organizations occur in the form of asset misappropriation, corruption, and financial statements fraud. Among these, asset misappropriation is the most commonly reported, accounting for 91 percent of all fraud cases, according to ACFE.

Expense report approval - cartoon

4. Deal with expenses fraud

Expenses fraud, which is often placed under the category of asset misappropriation, is one that proves the most daunting challenging to any organization. Employees take undue advantage of their organization’s expenses reimbursement policies, both by incurring undue expenses and misquoting/falsifying their expenses.

The best way to prevent expense fraud is to have stringent reimbursement policies that define a clear cap on various expense items individually and clearly stipulate the required authorizations for any spending over the cap. Limits should be established for various levels. For example, lower level staff should travel by economy class and stay in 3 star hotels while traveling. Similar restrictions can be imposed on meal expenses and public transportation (cabs or taxis).

Policies should include clear demarcations on what would be considered official expenditures and what items would fall under the category of personal expenditure by the employees.

Each and every expense report should be properly scrutinized before it is approval. A thorough evaluation of each item of expenses with corresponding receipt should be carried out. The expense reimbursement in charge should look out various ways travel expenses are inflated or falsified. Present expenses should also be compared to past expenses data to check their credibility.


Ideally every organization should establish a trend over the years on various expense items, and any deviations from the same should be seriously looked into. However, despite best efforts at prevention, frauds do occur in organizations. In such cases, organizations should not hesitate to take the severest actions against perpetrators, including legal proceedings.