Executive-level business travelers typically travel frequently, are highly educated and technologically savvy and, compared with other types of employees, have the most authority within their organizations. And, according to a recent Association of Certified Fraud Examiners survey, employees residing in the "executive/upper management" department of an organization also account for 27 percent of expense reimbursement fraud cases.
"Twenty-seven percent of cases involving upper management included some sort of manipulation of expense report reimbursement—that's a pretty notable amount, more than a quarter of them," ACFE director of research Andi McNeal told Travel Procurement.
Austin, Texas-based ACFE examined 1,483 cases of what the group called "occupational fraud" in more than 100 countries as reported by certified fraud examiners who investigated the cases between October and December 2013. ACFE defined occupational fraud as "the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets."
Expense reimbursement fraud was classified as a subcategory of "asset misappropriation," one of three types of fraud defined in the survey, along with corruption and financial settlement. Expense reimbursement accounted for 13.8 percent of asset misappropriation fraud cases, representing an average loss of $30,000 per case, and included such incidents as mischaracterized, overstated and fictitious expenses, as well as multiple reimbursements. The expense reimbursement subcategory primarily dealt with T&E reimbursement, McNeal said.
While the 646 U.S. incidences of occupational fraud accounted for 48 percent of cases in ACFE's sample—by far the most of any country—and represented an average loss of $100,000 per case, the Eastern Europe and Western/Central Asia regions accounted for the highest average loss per case ($383,000), with 78 cases, representing about 6 percent of the total. Canada reported the second-highest average loss per case ($250,000), with 58 cases, representing 4 percent of the total.
The survey was intended to examine the details of reported fraud cases, not serve as a measure of whether overall fraud increased or decreased compared with previous years, McNeal explained. "There's no way to examine how much fraud is actually out there," she said.
High-Level Fraud Characteristics
The survey found a "strong correlation" between the level of a perpetrator's authority and the amount of losses incurred via fraud. While owners and executives accounted for 19 percent of all occupational fraud cases, each case incurred an average loss of $500,000—seven times greater than those committed by employee-level perpetrators, who accounted for 42 percent of cases but only caused an average loss of $75,000, and four times higher than average losses in cases perpetrated by lower-level managers ($130,000).
"Authority tends to be strongly correlated with loss because high-level fraudsters generally have greater access to organizational assets and are better able to evade or override controls than lower-level employees," according to the survey's authors. "Additionally, because higher-level fraudsters are typically in a better position to circumvent controls, it generally takes longer for victim organizations to detect these schemes."
Victim organizations on average took two years to detect expense reimbursement violations from the time perpetrators began defrauding their employers, according to the survey.
The report also found a strong correlation between the fraudster's tenure with the organization and the size of the fraud—the longer the tenure, the greater the loss. One potential reason for the correlation, according to the survey, was that long-term employees might have been more familiar with weaknesses in a firm's anti-fraud prevention methods and therefore could more effectively find ways to circumvent them.
"Individuals who have worked for an organization for a long time might engender trust from their coworkers or supervisors, which can mean their work is not reviewed as closely as it should be," the survey's authors explained. "And, of course, long-tenured employees might rise to higher levels of authority within their companies."
While fraudsters who held university degrees caused average losses that were 2.5 times higher than those only with high school degrees or less education, and twice as high as perpetrators with only "some university education," the report's authors believed the higher-educated fraudsters' authority—and not their degrees—most likely explained why they tended to defraud their employers for larger sums of money.
"It's also possible that more highly educated fraudsters possess greater technical knowledge and skills that help them be more successful in their fraud schemes," according to the report.
Small Businesses Suffer
About 17 percent of small businesses, classified as those with fewer than 100 employees, reported being victims of expense reimbursement fraud, compared with 13 percent of organizations with more than 100 employees.
Likewise, small businesses also were the victims of the greatest percentage of overall reported occupational fraud cases (29 percent), compared with firms with 100 to 999 employees (24 percent), companies with 1,000 to 9,999 employees (28 percent) and organizations with more than 10,000 employees (20 percent). Small businesses also experienced some of the highest average losses ($154,000), second only to firms with more than 10,000 employees, which reported average losses of $160,000.
"While the absolute median loss for the largest entities is slightly higher than that for small businesses, it is important to note that the overall impact of a $154,000 loss for many small businesses is much greater than the relative impact of a $160,000 loss at an organization with more than 10,000 employees," wrote the authors of the report.
Of the 12 industries that reported at least 40 cases of fraud, the "religious, charitable or social services" industry category experienced the "most frequent" incidence of expense reimbursement fraud (33 percent of organizations), although the category only accounted for 3 percent of total occupational fraud cases. This category was followed by education (31 percent), construction (28 percent) and healthcare (23 percent) in experiencing expense reimbursement fraud, according to the survey.
This report originally appeared in the August 2014 edition of Travel Procurement.