Expense fraud has consequences, as those who have been jailed, fined or vilified in newspapers can attest. Bending or breaking travel expense reimbursement rules can result in rejected submissions, and perhaps warnings or firings. But recent headlines also revealed more dire consequences.
* In a Silicon Valley courtroom in January, a federal judge is scheduled to sentence Network Appliance Corp. travel manager Bernadette Escue on a wire fraud conviction for illegally using her corporate credit card to pay $70,000 of personal expenses, including her son's private school tuition, according to the San Francisco Chronicle.
* In White Plains, N.Y., Consumers Union employee Tracy Bowen at press time faced up to 15 years in state prison after pleading guilty to grand larceny and false tax return charges. According to published reports, she submitted about $500,000 worth of false expense reports.
* An office manager for "the design division of a multibillion-dollar retail corporation" served three months in jail on a grand larceny conviction for $275,000 worth of fraudulent expense reports submitted over two years, according to a case study from "Fraud Casebook: Lessons From the Bad Side of Business," edited by Joseph T. Wells. Written by Limited Brands head of enterprise business risk management Bethmara Kessler, the case study was excerpted by the Journal of Accountancyin October. Kessler's case study used a fictitious company name, Mod Fashions.
[PULL_1]An internal audit of a year's worth of travel and expense reports at one of the company's offices revealed problems, Kessler wrote. Transactions and spending patterns of "employees with the highest travel and expense bills" were audited. An administrative assistant who served as office manager attracted attention with more than $115,000 in charges to her corporate American Express card-three times more than her boss. "Almost 95 percent of her submitted expenses were false," Kessler wrote. The fraudster used her position as office manager to gain access to receipts submitted by others, forged her boss' signature and was careful to "submit her fraudulent expenses coded to a budget line that was running below budget so that her manager would never detect the activity," Kessler explained in the book.
"The reality is a lot of travel expense fraud goes undetected," despite advances in travel and expense automation, Kessler told Procurement.travel. Expenses may look justified unless "someone [is] looking at the physical receipts" to notice time, date or other discrepancies.
Through audits and increased reliance on both automated expense reporting systems and integrated flow of charge card data, companies are finding questionable, noncompliant and outright fraudulent expense submissions. According to the Association of Certified Fraud Examiners' "2006 Report to the Nation on Occupational Fraud & Abuse," expense report fraud happened more frequently in 2006 than in prior years. About 20 percent of fraud is related to expense reimbursement, up from 14 percent in the 2004 study, said an ACFE spokesperson. Is there more fraud occurring, or are companies finding it more often? ACFE officials couldn't say for sure. Fraud of all types costs U.S. corporations about 5 percent of revenues, or more than $652 billion, ACFE said.
It also costs taxpayers who foot government travel bills, recent audits indicate. In New Jersey, the State Commission of Investigation in October blasted the "significant failures to adhere to Travel and Business Expense Report policies" at Rutgers University, which spent $43.9 million on travel for fiscal years 2004 through 2006. Surprised by the lack of automated expense reporting, the commission audited 58 expense reports and found problems on 37. "These results indicate a frequent lack of transparency, submission of questionable items and frequent failures to provide required documentations," according to the report, which examined waste and fraud at five state colleges.
In addition to ferreting out criminals, many of the investigations highlight "breakdowns in internal controls and a weak control environment," as summarized by a U.S. Government Accountability Office study revealing improper use of first- and business-class travel by federal personnel. Such misconduct cost the U.S. government $146 million during a 12-month period that ended June 2006.
Expense fraud happens. But the smart learn from their mistakes. In Kessler's ccase study, Mod Fashions changed its reimbursement policy to require original documents, prohibit "card statements and photocopies" as expense documentation and require "all employees to use a corporate credit card for business expenses."
The company's internal audit and accounts payable T&E team "expanded the use of audit software," Kessler wrote in the book excerpt. "Quarterly, team members separate big spenders from the rest of the population to look for patterns that appear odd. Weekly, they randomly select expense reports to review against a set of audit criteria."