A startup technology company, AppZen, has introduced new technology that is leveraging artificial intelligence to examine expense reports for signs of fraud.

“We are an AI company and we’ve built a solution for back-office automation,” AppZen CEO Anant Kale told me. “As part of that, our first focus area is back office expense processing, which is essentially how to find compliance issues within expenses. We are focusing on automating the research and reasoning that human auditors do today and putting it into machines.”

Kale noted that most companies don’t really audit anywhere near all of their expense reports. “Today most companies are doing some sort of random sampling or threshold-based expense audits, literally auditing 1 to 15 percent of their expense reports,” he said. “The problem we are trying to tackle is there are lots of expense automation systems, companies like Concur and Oracle, whom we partner with, which are very good at letting companies put their expense policies in, things like how much you can spend on a meal and when employees exceed that. But what they don’t really check is the truthfulness of the data that comes in. Companies expect their managers to do that when they are approving an expense report, and as we all know, managers routinely just approve expense reports.”

AppZen’s AI engine checks and reviews the expenses and extracts the data. It will look at receipts to see if alcohol was consumed and if that accords with company policy. 

“Our technology can figure out if a receipt is for a minibar or if it has the names of cocktails,” said Kale. “It can basically detect between 10,000 different brands of alcohol.”

The technology also checks to make sure the restaurants claimed on expense reports are legitimate, going so far as scanning social media sites for reviews. For outside people who are claimed as guests at meals, AppZen will check news reports and the list of prohibited people from the U.S. Treasury Department’s Office of Foreign Assets Control to find out if they are associated with criminal activity that could get a company in trouble.

“If you’re putting in a $300 expense, nobody knows if the names of the attendees are real or not,” said Kale. “It’s difficult for auditors to check.”

AppZen estimates that expense report fraud costs companies $10 billion per year, 10 times more than the amount estimated by J.P. Morgan and more than the $6 billion estimated by the Association of Certified Fraud Examiners. However, AppZen’s estimates are only based on the expense reports of its 15 original customers (the company now has about two dozen customers). Still, its customer base includes high-profile companies like Comcast, Hitachi and Cantor Fitzgerald. The company launched the product last year and in June it scored a $2.9 million seed round of funding.

“Our job is to save money for customers and to show that to the company,” said Kale. “Over a period of time employees know this is going to get caught.”