Expense Managers Use Tech To Improve On Fraud Vigilance

Expense managers are tapping into improved reporting technology to enhance auditing processes beyond such obvious targets as spending limits and to better hone in on corporate card fraud in areas many standard travel policies today may leave undetected.

Peter Pearson, Coca-Cola Co. TravelSmart manager, at the Association of Corporate Travel Executives global conference in May said automated expense management is the key to comprehensive fraud detection. With it, expense managers can move beyond auditing on the expense report level and instead look for larger trends that indicate fraud. Coca-Cola is moving away from exception and random audits to a more thorough review of travel and entertainment expenses, he said.

"We're headed to a world where we add continuous controls monitoring," Pearson said. "Every single transaction will be monitored by a machine."

With every expense monitored, Coca-Cola will be able to analyze trends to point out problems beyond blatant policy violations. For example, the company will be able to analyze duplicate charges, expenses right underneath the $25 threshold for receipt submission or the frequent appearance of seemingly made-up charges, which have been shown to usually end in whole dollar amounts, he said.

The company also has the potential to set average transaction levels based on cities, then ferret out transactions that are a certain number of standard deviations above that mean, Pearson said. In addition, it can easily point out such anomalies as travel on holidays, excessive tips and tolls and spending at retail outlets.

"You can incorporate multiple data feeds—the expense data, the Amex feed, the purchasing card feed, the human resources feed and the vendor feed—and pile them together and make interesting tests," he said.

Expense managers also are detecting fraud by being vigilant about certain vendors or vendor categories appearing on employees' expense reports. JPMorgan recently issued a white paper on auditing and compliance strategies for card programs in which it reported that many companies focus on retail spending, auditing statements with purchases from such retail outlets as Best Buy, Target or Wal-Mart. Starbucks, for example, keeps a list of restricted merchant category codes and a list of high-risk transactions, sending out about five e-mails daily asking cardholders to provide more data on those transactions.

The e-mails are sent to the cardholder's manager. "It is an effective control if employees sense their spending is being monitored," Starbucks accounts payable manager Raymond Williams said in the white paper.

Martin LeMay, director of administration services for investment bank Dresdner Kleinwort Wasserstein, concurred, noting it was crucial that employees be aware of rigorous expense monitoring. The bank, for example, requires receipt submission for every expense, even though every receipt is not necessarily checked, he said.

"I would describe fraud as contagious," LeMay said. "Noise is a big defense against fraud."

Some expense managers have tightened up policies to the areas of travel that are most susceptible to fraud. Taxi rides are one of the more difficult areas to control, as travelers pay most transactions in cash, and drivers often give blank receipts to travelers. Such is the case in London, LeMay said, where drivers often hand travelers entire books of receipts.

"We tendered our taxi services," LeMay said. "By pushing as much as we can through a particular taxi company, we capture a huge amount of that information."

Now the bank is able to use the cab reports also to examine wait-time penalties and deny expense requests when wait-times were more than 15 minutes, he said.

Other expense managers also are looking for trends outside standard auditing practices to find fraudulent activity. The University of North Texas audits purchases made in the evening and on weekends or any personal technology purchases, director of purchasing and payment services Joey Saxon said in the JPMorgan white paper.

Changes in spending patterns also can be an indicator of fraud. LeMay said a sharp increase in the number of late-night meal expenses filed by employees prompted further investigation. "This coincided with the opening of a local supermarket," LeMay said. "It was amazing how much cleaning fluid and lavatory paper was being consumed by our staff."

Expense managers said they also are working to establish relationships with their cardholders, be it through required training, better communication of policy or loosening restrictions for certain cardholders when required. If that relationship exists, card users often will self-report when they inadvertently do something wrong with their card, according to the white paper.

Expense managers also need upper management backing when enforcing policy. Biotechnology company Amgen, for example, recently tightened up its card policies following an instance of fraud with its meeting card, former director of meeting planning Betsy Bondurant said. An employee had used false vendor names similar to accepted vendors in order to steal a large amount of money from the company, she said.

Going after the person meant the story received media exposure, she said, but proved a point to those who would consider such a fraud scheme. "This person was prosecuted," Bondurant said. "Many times, companies don't want to do that because they don't want the word out that this is something that could happen."