Spending Company Dimes on Company Time: Expense Fraud

June 2011

IN THIS ISSUE

— Phony Expenses, Real Costs: Travel Fraud and Other Schemes
— Keen Eyes on Your Own Guys: How to Detect Expense Fraud

GREETINGS!

Welcome to the June edition of our newsletter! In this issue, we’ll examine the differing types of expense fraud and how your company can defend against it.

PHONY EXPENSES, REAL COSTS: TRAVEL FRAUD AND OTHER SCHEMES

In sales and other industries, travel is such a necessary part of doing business that most employers don’t give it a second thought. As long as the employee attends the meeting and closes the sale, no sum is too costly. Yet reimbursement for using a personal automobile for business purposes, as well as the booking or airfare, rental cars and other travel implements, is a common area for fraudsters to pilfer from their company. Receipts for meals and travel and records of mileage used are typically submitted and reviewed before any reimbursement is approved.

Unfortunately, many small companies (and also many larger ones) lack the internal controls and staff to adequately follow up on such requirements, especially when such activity occurs in a high volume. This is particularly difficult for companies with national or broad regional footprints, where an accounts payable clerk might not know the realities of the geography involved. Although hotel and restaurant receipts are more difficult to alter with any effectiveness, often fraudsters can take the easiest route and claim to have incurred expenses that simply did not occur at all.

KEEN EYES ON YOUR OWN GUYS: HOW TO DETECT EXPENSE FRAUD

Some of the policies that apply to detecting fraud generally will also be of particular use in combating travel fraud. For instance, if an organization is large enough to have a regional manager and national sales director, each should have to approve the invoice before it is processed. this will allow the company to have the perspective of parties that are both intimately involved with the employee and their area, as well as someone who can look at the legitimacy of transactions from a broader organizational perspective. If certain persons begin to seem like “repeat offenders” as far as the invoices they submit, an outside review by a fraud examiner of the subject’s submitted receipts — complemented by interviews of people where the subject claimed to have stayed, and a review of telephone and e-mail records — would begin to identify patterns and irregularities that would later assist in termination or prosecution proceedings.

Although vigilance has its costs, the price of lax controls over employee expenses can ultimately be much greater. By instituting stronger internal controls and using the eyes within the organization more effectively, the slow burn of expense fraud can be mitigated, if not avoided altogether.