Case Study: Employee Expense Fraud Diagnostic for a Services Company
Identifying Rs 4.8 lakh of fabricated, inflated and duplicated employee expense claims
Executive Mandate Summary
Key Transaction & Governance Challenges
- •Employee expenses were individually small and processed through a routine manager-approval and accounting workflow, making systematic verification difficult.
- •The business had no system for analysing all expense claims for patterns or anomalies.
- •Travel-and-entertainment expenditure had grown 45% year-on-year, compared with 20% headcount growth and 15% growth in client meetings.
- •The Rs 500 receipt threshold created an opportunity for claims to be structured just below the control threshold.
Northrop Execution Architecture & Methodology
Section 1 - The Central Issue
Employee expense reimbursement was operating as a high-volume, low-scrutiny process. Employees submitted claims, managers approved them and the accountant processed payment, but there was no systematic mechanism for identifying abnormal patterns.
The founder became concerned after travel-and-entertainment expenses increased 45% year-on-year while headcount increased 20% and client meetings increased 15%.
Section 2 - Full-Population Analysis
Northrop analysed all 2,400 expense claims submitted by 18 employees over 12 months.
Rather than relying on random sampling, the entire expense population was tested for recurring anomalies and behavioural patterns.
Section 3 - Detecting Duplicate Claims
Duplicate analysis identified 14 claims worth Rs 68,000. Two were attributable to system processing errors, while twelve represented deliberate resubmissions of already reimbursed expenses.
Section 4 - Detecting Threshold Manipulation
The Rs 500 receipt threshold created a measurable behavioural pattern. Of the 2,400 claims, 340 were between Rs 450 and Rs 499.
Further vendor-pattern analysis identified one employee submitting 48 restaurant claims at exactly Rs 490 over the year.
Verifiable Institutional Outcomes & Value Realized
- Rs 4.8 lakh of annual expense leakage identified.
- The identified Rs 4.8 lakh annual leakage was eliminated after controls were implemented.
- Travel-and-entertainment expenses were 35% lower than the prior period during the six months following implementation.
- Expense monitoring shifted from manual, trust-based review to recurring analytical testing of the full expense population.
Ashish Chaudhary
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