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Common T&E Expense Reporting Frauds

MIS-CHARACTERIZED EXPENSES

   “A simple scheme, amounting to little more than fibbing.” ~ Joseph Wells, certified fraud examiner, Association of Certified Fraud Examiners

    How it works:  The traveler books a personal flight, eats a non-business-related dinner or purchases a personal item and claims the expense as business-related, receiving a reimbursement from the company.

    How to control/detect:  “In cases involving airfare and overnight travel, a mischaracterization can sometimes be detected by simply comparing the employee’s expense reports to his work schedule,” according to ACFE.  Require travelers to submit more detailed expense reports that include what was purchased, when it was purchased and where it was purchased.  Also, if “entertainment” is the reason for the expense, travelers should name whom they were entertaining.

    Example:  In the course of two years, two mid-level managers accumulated $1 million in personal expenses.  The company ultimately paid for personal travel, lavish entertainment of friends and expensive gifts before the fraudsters were caught.  “They do not always deal with a free lunch here or there, but instead may involve very large sums of money,” Wells said.

OVERSTATED EXPENSES

    “Instead of seeking reimbursement for personal expenses, some employees overstate the cost of actual business expenses.” ~ ACFE

    How it works:  This type of expense fraud can range from travelers who doctor receipts to make business expenses look more costly, to travelers who over purchase and receive reimbursements for returned items.  In some cases, managers have made employees overstate expenses and used the proceeds to line their own pockets.

    How to control/detect:  ACFE suggests demanding support materials such as receipts or invoices, with expense reports.  “In companies where supporting documents are not required, for example, fraudsters simply lie about how much they paid for a business expense.  With no support available, it may be very difficult to disprove an employee’s false expense claims,” ACFE said.  Also, setting and enforcing spending limits for such expenses as meals and hotels can be effective in keeping an eye on overstated expenses.

    Example:  One fraudster purchased two tickets when traveling for business—one expensive ticket and one cheap ticket.  He then returned the expensive ticket for a refund and hung onto the receipt and passenger itinerary.  While the traveler used the cheaper ticket to fly, the receipt for the expensive one was used when filing the expense report.

FICTITIOUS EXPENSES

    “Expense reimbursements are sometimes sought by employees for wholly fictitious items.  Instead of overstating a real business expense or seeking reimbursement for a personal expense, an employee just invents a purchase that needs to be reimbursed.” ~ACFE.

    How it works:  Travelers have gotten creative with this one.  Sometimes they produce false receipts or create other “bogus support documents,” according to ACFE.  Some travelers have claimed the expense of others, using receipts from items that already were paid for, such as client meals, hotel rooms or airfares.  Others have stolen blank receipts from restaurants, bars and hotels and used them to file fictitious expenses.

    How to control/detect:  Like the other schemes commonly perpetrated by business travelers, a company can keep an eye on this one by requiring support materials to accompany expense reports.

    Example:  “An employee claimed hotel expenses that actually had been paid for by his client.  Photocopies of legitimate hotel bills were attached to the expense report as though the employee had paid for his own room,” ACFE said.

MULTIPLE REIMBURSEMENTS

    “The least common of the expense schemes.” ~  Wells

    How it works:  Travelers will state the same expense on separate expense reports, getting reimbursed several times for a single purchase.

    How to control/detect:  Audit, audit, audit.

    Example:  For this scheme, a traveler may submit several types of support for a single expense.  An employee used an airline ticket stub as support on one expense report but used the travel agency invoice for the same purchase on another, so as to get reimbursed for the same expense.  “The fraudster would have his division president authorize one report and have the vice president approve the other so neither would see both reports,” ACFE said.  The traveler also waited a month to file the expense on the next expense report.

(Thanks to Business Travel News, Aug.11, 2003, for these tips to business managers.)