By Sarah Jennings, CPA, CFE, CAE
Fudge, pad, exaggerate, cushion, inflate…all of these euphemisms are used to trivialize expense report fraud. Employee fraudsters rationalize their dishonesty by minimizing the fraud and seeing it as just a normal cost of doing business–”Everyone does it, right?”
With that said, how can employers protect themselves?
Know The Schemes
Typical expense reports consist of reimbursements for meals and client/customer entertainment, mileage, training and seminars and flights. Each of these appropriate reimbursements has commonly exploited schemes that can be difficult to detect.
Meals and Entertainment
The FREE Meal – Employee Z goes to dinner at the successful conclusion of a project with a customer.
The customer picks up the tab in celebration. Employee Z snags the receipt from the table and turns it in for
personal reimbursement.
Room Service Double Up – Employee Z is traveling for business. Room service is ordered and charged to the room. Employee Z turns in the full hotel bill (with the hidden meal charge), along with a separate meal reimbursement and is paid twice for the same meal.
Joint Meal – Employee Z and Employee Y go for a night on the town. Employee Z picks up drinks and dinner and turns that in for reimbursement, indicating Employee Y as the guest. Employee Y picked up a copy of the receipt and submits that for reimbursement, indicating a significant client as the guest.
It’s a Family Affair – While traveling for business, Employee Z pays for the entire family and submits the bill for reimbursement. Generally details of the receipt are not included in the request. This is also used for entertainment charges, substituting client or prospect names for family members.
Recurring Meal – Employee Z submits the same receipt on multiple expense reimbursement requests.
Mileage and Fuel
Long Way Home – Miles are added to the trip for reimbursement.
Free Ride – Employee Z and Employee Y car pool to a training event. Both submit a request for mileage reimbursement.
Out of Body Experience – Employee Z is traveling for a client meeting and gets a rental car. The reimbursement request includes the full rental car fees along with mileage reimbursement for use of his personal vehicle. Many times the two requests are submitted in separate reports to hide the duplication.
Fill it Up! – Employee Y starts the week filling up with gas. Her husband and son line up behind her at the gas station, all charges are together on the company fuel card.
One Charge for the Price of Two – Employee Y used the company card for gas prior to the days travel. The receipt was also submitted for personal reimbursement.
Training/Seminars
Free Vacation! – Employee Z has approved travel for a training seminar in Palm Springs. The seminar was paid for, along with travel, on the personal card and submitted for reimbursement. The seminar was cancelled and refunded on the personal card. Employee Z has a week vacation with spending money compliments of the company!
Flights
Flight Switcheroo – Employee Y schedules and pays for airfare far in advance of travel to get the economical rates. Airfare is purchased for the same flight close to the date of travel at an exorbitant rate and cancelled. Reimbursement is submitted for the higher costing flight.
Downgrade – Employee Z schedules a flight with a more expensive seat or section then downgrades (from business class to coach or from an exit row to a regular seat). The original, more expensive airfare is submitted for reimbursement.
Airline Credit – A flight is scheduled and expensed for reimbursement. Plans change and the flight is cancelled with an airline credit being issued. The credit is then used for employee personal use.
Ask and Get Support
The best way to protect your business from significant and widespread expense report fraud is to require detail support for all transactions and ask questions! Some key measures to take are as follows:
- Institute a documented policy for appropriate company expenses and the process for reimbursement and/or charges. This reduces room for question on what is allowable and expected.
- Require detail receipts, not just totals for all credit card charges, hotel bills and supply orders. Review the detail for duplicates, credits and any identifying details. Elements such as date, number of people, time, shipping address and indication of completed transaction (as opposed to a preliminary quote or order) can be very useful when verifying appropriate expenditures.
- Maintain the last four digits of employee and company cards on file, make sure reimbursements are not done for company cards and compare reimbursements for duplicate transactions among employees.
- Compel supervisor reviews of expense reports. Approvals should not be done only by accounting. Immediate supervisors, who are knowledgeable on the employee activities, should review the reimbursement request.
- Another individual can be responsible for ensuring appropriate support in order to maintain efficient processes.
- Periodically compare reimbursements with employee schedules/itineraries.
- Compare reimbursement requests to other employees with similar clients or attending similar conferences.
- Consider utilizing a company-sponsored travel agency or booking service for all company travel.
- Require employees to submit start and stop locations for mileage reimbursements, periodically verifying the mileage.
The Association of Certified Fraud Examiners estimates five percent of revenues are lost annually by companies due to fraud; no one is untouched. While you may not have the staff or resources to detail review every transaction, it is important for employees to know samples are selected regularly for detail questions. One of the best defense mechanisms is people believing they could get caught.
Questions/comments? Please contact Sarah Jennings at sjennings@manercpa.com. Sarah Jennings, CPA, CFE, CAE, joined Maner Costerisan in 2003. She currently serves as a principal in the firm’s Accounting and Outsourced Solutions department, leads Maner Costerisan’s fraud and forensics practice and is a member of Maner Costerisan’s nonprofit committee.