Why Expense Policies Fail: A Deep Dive Into Workplace Psychology

In their most simple forms, expense policies are designed to control costs, ensure fairness and reduce financial risk. On paper, most organisations already have these documents in place, often reviewed annually and signed off by finance and HR teams. In theory, they should provide clarity and consistency.

In practice, however, many expense policies fail to deliver the control they promised at the offset. Spend becomes unpredictable, enforcement slips into inconsistency, and finance teams are left responding to problems rather than preventing them.

It’s easy to assume that this failure stems from careless or dishonest employees. Humans are, after all, only human. In most cases, however, expense-related issues are far more likely to be the result of policies built around assumptions that do not reflect how people actually think, decide, and behave in real working environments.

To understand why expense policies break down, we need to look beyond the documents themselves, and examine the psychological and social forces shaping everyday spending decisions at work. That’s quite a hefty task, so we’ve parachuted in the aid of expense management software specialists at Webexpenses to assist with exploring this topic further.

Flawed assumptions lead to flawed systems

Most company policies are written for a hypothetical, “best-case” employee: rational, attentive, well-rested, and operating in a low-pressure environment. They assume employees will read the rules carefully, remember them, and apply them consistently at the point of purchase.

As appealing as this assumption may be, it bears little resemblance to how real workplaces operate. Expense decisions are frequently made at the end of long days, during travel, or between meetings, when time and attention are limited. By the time an expense is submitted, the decision has already been made – often quickly, with incomplete information and little cognitive bandwidth.

Behavioural economics describes this pattern as bounded rationality. When mental resources are constrained, people simplify decisions rather than optimise them. They rely on habits, prior approvals, and social cues instead of consulting formal policy documents. The gap between assumption and reality is reflected in the data.

From a governance perspective, this is important because expense policies aren’t operating in isolation. Instead, they’re competing with faster, more intuitive decision-making processes that often win.

Vaguery creates fragmentation, not flexibility

Many expense policies hinge on terms such as “reasonable”, “appropriate”, or “within limits”. These “legalese” buzzwords are intended to provide flexibility, but in reality, they invite ambiguity. Ambiguity forces interpretation, and interpretation is shaped by context rather than policy wording.

When boundaries are unclear, employees will start looking for guidance elsewhere: what their manager approved previously, what colleagues typically submit, or what appears acceptable within their team. Phrases like “I just submit it like this” override the written rule.

Over time, these informal cues become the “street” rules your employees – both old and new – will follow. Your policy documents may say one thing, but in the face of ambiguity, different teams will inevitably develop different interpretations of the same rules, influenced by culture, seniority, and precedent.

For finance teams, this fragmentation has tangible consequences. Inconsistent interpretation makes spending harder to forecast, harder to benchmark across departments and harder to challenge without appearing arbitrary. In plain terms, ambiguity does not allow for flexibility, and it does not reduce disputes; it simply pushes them downstream, after the money has already been spent.

Social pressure outweighs financial rules

Expense decisions are rarely confined to the consistent sphere of cold, mathematical calculations – emotions and social elements also play a part.

Choices around travel, accommodation, and client entertainment are tied to perceptions of professionalism, competence, and status. In many roles, particularly client-facing ones, employees feel pressure to meet (or exceed) unspoken benchmarks about what is “appropriate” for the situation. People use money to signal competence, generosity, seniority, or professionalism – especially around clients and travel.

Being forced to book the cheapest option can lead employees to feel as though they’re undervalued. If they have the ability to apply upgrades, this can be done with a sense of feeling like they’ve earned the right. Picking a nicer venue for a client lunch may be justified as “representing the brand” in the best possible light.

When expense policies fail to acknowledge these social dynamics, employees are left balancing formal rules against informal expectations. In these moments, the immediate risk of appearing unprofessional or out of step can feel more pressing than the abstract risk of breaching policy.

This dynamic shows up in reported behaviour. Surveys indicate that nearly one in four employees admit to having misreported or bent an expense claim, while broader reviews of improper claims suggest that around 13% involve deliberate reimbursement irregularities, often in socially sensitive categories such as travel and entertainment.

It might be easy to boil this down to opportunistic and dishonest behaviours, and while that may be the driving factor behind a small number of cases, it’s not typically the underlying issue.

Inconsistent enforcement undermines policy legitimacy

Even well-designed policies struggle when enforcement is unpredictable.

If similar claims receive different outcomes depending on who approves them, employees quickly conclude that the system is inconsistent. Once that perception takes hold, behaviour changes; claims become more defensive, more heavily justified, or disengaged altogether.

Reimbursement delays compound this effect, and when employees are regularly left out of pocket, expense processes stop feeling administrative and start feeling adversarial.

From a governance standpoint, trust functions as an informal control mechanism. When employees believe the system is fair and predictable, they are more likely to self-regulate. When trust erodes, formal rules lose authority and administrative costs increase.

Policies fall behind modern working practices

Many expense policies fail not because they are ignored, but because they are outdated.

Hybrid working, remote travel, and digital-first transactions have introduced new scenarios that older policy frameworks were never designed to address. Grey areas multiply, and employees are forced to rely on judgement rather than guidance.

At the same time, technological change has reshaped the risk landscape. Digital documentation and AI-generated receipts have made manual verification less reliable. In 2025, industry reporting found that AI-generated fake receipts accounted for around 14% of flagged fraudulent documentation, a rapid shift that legacy control processes were not built to handle.

In this context, policy failure is often a matter of misalignment rather than misconduct. Controls that do not reflect how work is actually done lose relevance, and relevance is a prerequisite for compliance.

Adding more rules often makes things worse

When expense issues arise, the instinctive response is to tighten control: more rules, more exceptions, more detailed guidance. While understandable, this approach often backfires.

Long, complex policies increase cognitive load. Faced with dense documentation, employees are less likely to consult it in real time. Instead, they rely on memory, precedent, or judgement. Attempts to cover every edge case can make everyday decisions harder rather than clearer.

Effective policies focus on clarity where it matters most: common scenarios, clear examples, and predictable outcomes. Simplicity, in this context, is not a lack of rigour but a deliberate design choice.

What makes an expense policy effective?

Expense policies work best when they are designed around real – rather than idealised – behaviour. This means recognising cognitive limits, social pressures, and the realities of modern working environments.

Clear examples outperform abstract rules, consistent enforcement builds legitimacy, and predictable reimbursement reinforces trust. Systems that support judgement, rather than relying solely on manual oversight, reduce friction and error.

Ultimately, expense policies are not just financial controls. They are signals about how an organisation balances trust, accountability, and practicality. When they align with how people actually operate, they become effective tools for cost control. When they do not, they risk becoming well-written documents that fail quietly in practice.