Expense reimbursement fraud often appears relatively simple. Yet according to Juan Martinez, Managing Director at YA Group, that simplicity is part of what makes these schemes worth examining. Despite established expense policies, monthly reconciliations and internal reviews, organizations can still allow fraudulent activity to continue undetected long enough to generate significant losses.
Martinez has seen firsthand how quickly those losses can escalate. In one high-profile matter involving a major sports organization, alleged expense reimbursement fraud approached $4 million. The scheme itself was not particularly sophisticated, but numerous red flags emerged over time, raising a larger question: How does relatively straightforward fraud reach that scale before it is stopped?
Recognizing the Pattern
Expense reimbursement fraud typically falls under asset misappropriation, one of the primary categories of occupational fraud. Individual transactions may initially appear insignificant or blend into legitimate business activity, making patterns especially important.
For example, if an employee historically submits approximately $5,000 in annual expenses and that figure suddenly rises to $100,000, the increase may have a legitimate explanation. But according to Martinez, it should warrant further review.
That is where effective internal controls go beyond simply requiring approvals. Organizations should be able to identify meaningful deviations from historical spending, repeated policy exceptions and other unusual activity, all while having a clear process for escalating those concerns.
The objective is not to assume every anomaly represents fraud. Irregularities can also result from poor recordkeeping, inadequate training, or human error. Rather, organizations should identify unusual activity early enough to determine what is actually occurring.
Closing the Gap Between Detection and Action
Controls are only effective when organizations act on the information they produce. In some cases, employees may recognize questionable activity without concerns being adequately investigated or escalated. Over time, what could have been a manageable loss can grow substantially.
“The goal is to detect it when it’s $50,000 versus $1 million,” Martinez explains.
Organizations can reduce that exposure through clearly defined review thresholds, consistent reconciliation procedures, escalation protocols and confidential reporting mechanisms such as employee fraud hotlines. Just as importantly, they should periodically evaluate whether those controls are functioning as intended rather than simply existing on paper.
When suspected fraud does surface, a thorough investigation is equally important. An unusual transaction or accounting discrepancy does not by itself establish intent. Determining whether activity represents deliberate misappropriation, an operational breakdown or human error requires following the evidence objectively.
For Martinez, that distinction underscores the broader lesson of expense reimbursement fraud: organizations do not necessarily need more complicated controls to combat increasingly complicated schemes. Sometimes, they need to become better at both recognizing and acting on the warning signs that are already presented.