Are Your Travel Expenses Monitored?

Have you ever wondered, “Are my travel expenses being reviewed?” Fraudsters who have been successful at defrauding companies through the submission of fictitious travel expenses most likely have.

September 2013 

By Misty Norris-Carter, CFE, CIA 

Have you ever wondered, “Are my travel expenses being reviewed?” Fraudsters who have been successful at defrauding companies through the submission of fictitious travel expenses most likely have. If management, though, has never considered this question from the employee’s perspective, they might unknowingly be paying out thousands of dollars to fund a fraudster’s lifestyle – that fraudster being one of their own employees.

Unfortunately, this was the case with New York State Assemblyman William Boyland, Jr. Boyland, indicted on charges of allegedly filing tens of thousands of dollars’ worth of fraudulent travel expenses, claimed he had been traveling on legislative business in Albany, New York, between January 2007 and December 2011 when he allegedly was not (as reported in Metropolis, a Wall Street Journal blog). In fact, in some of the instances where he allegedly claimed he was traveling to Albany, he was in New York City meeting with undercover investigators who were building an unrelated bribery case against him.

While the exact dollar amount falsely claimed by Boyland is still uncertain, an audit found no record of him being in Albany 609 of the 975 days he claimed he had traveled there. Based on these audit findings, Boyland is required to repay the state $67,497 in mileage reimbursement and per-diem payments. In addition to the indictment for submitting fraudulent travel expenses, Boyland has two other pending charges against him related to bribery and mail fraud.

This is just one example of many where employees abuse company or tax-payer dollars through expense reimbursement schemes. According to the 2012 Report to the Nations, expense reimbursement fraud schemes made up 14.5 percent of the asset misappropriation schemes with an average loss of $26,000. The Report also noted that these frauds lasted a median of 24 months before being detected, as was the case with Boyland.

Common Travel and Expense Reimbursement Fraud Schemes 

When employees decide to defraud their employers by submitting fraudulent expenses, they usually begin by submitting a few low-dollar expenses to test the water. If they are successful, they gradually increase the dollar amount and eventually introduce new expense reimbursement schemes. The fraudulent expenses submitted in each individual expense report might not seem material, but the total amount over time can prove to be significant – especially if several employees are involved. Although companies differ in how they handle travel expenses, fraud examiners from an array of industries encounter similar reimbursement schemes. The following are a few scheme types common to many organizations:

Unassigned or unused credits – This scheme involves the personal use of credits owed to the company, and employees who undertake this scheme usually do so unknowingly at first. They might have been issued a credit from a refunded or returned item and notice a credit balance on their account. A few months pass and they notice no one has questioned the credit balance. They begin to charge a few personal items to decrease the balance. Over time they make more purchases until the entire credit has been used. Since they were successful and no questions were asked, they might get into the habit of intentionally making purchases, expensing them, and then having them refunded to obtain the credit. Many employees use airline tickets in this scheme, especially if they travel a lot on company business. For example, an employee books an international flight and charges it to the company credit card. The employee later cancels the flight, and a credit for the amount of the ticket is issued to the card; the employee now has a credit balance on his card. Instead of submitting the credit on an expense report or returning it to the company, the employee charges personal items on the card to offset the credit balance. 

Duplicate or fictitious expenses – This scheme involves the submission of a second (or third or fourth) claim for reimbursement for a single transaction. Employees involved in this scheme might submit duplicate expenses using the same receipt or collude with another employee or third party to submit a duplicate expense. These fictitious expenses are usually submitted in separate expense reports so as to not raise suspicion. For example, an employee could have a legitimate business meal with a coworker. One employee pays for both meals using the company credit card. The coworker submits a request for reimbursement using a copy of the original receipt as supporting documentation, and the employees split the proceeds. 

Cash advances – This scheme involves use of a company-issued credit card to withdraw cash directly from an ATM or bank for personal use. Employees involved in such schemes generally do not intend to pay back the funds. For example, an employee might travel several times a month on company business. While traveling, he likes to use some down time to shop, and he uses the company credit card to withdraw cash at an ATM to purchase personal items. When the cash advance payment is due, the employee submits fraudulent cash expenses to offset the cash advances taken. In order to not raise suspicion, the employee might also include legitimate business expenses in this same expense report. 

Tips to Help Prevent and Detect Fraudulent Travel Expense Activity 

Even though the detection and prevention of fraudulent employee expenses can seem overwhelming, there are controls that management can put in place to mitigate risk in this area. The following tips can aid in the detection, prevention and deterrence of this type of fraud:

Implement continuous control monitoring software. This software is automated and can review 100 percent of expense data. It can be configured to identify outliers or areas where fraud and noncompliance are most likely to be detected. Data reported from these monitoring solutions can help decrease fraudulent expense activity through trend reviews of anomalies. Employees might also be deterred from attempting a fraud if they know that a tool is in place to review all expenses submitted. 

Implement a formal travel and entertainment expense policy. It is important for management to develop a clear travel and entertainment expense policy and communicate it to their employees. Management should also ensure employees are aware of their expectations toward policy adherence and establish consequences for failure to comply with policy requirements. 

Hold management accountable. Management might be lax in its review and approval of employee expenses, but if held accountable for approving fraudulent expenses, they might spend more time reviewing them. Approving managers should also consider occasionally questioning employees about expenses they submitted. This practice can actually have a deterrent effect: if employees know someone is actually reviewing what they submit, they are less likely to submit a fraudulent expense. 

Although expense reimbursement fraud is rampant, it can be minimized if the proper action is taken. Management must be proactive and implement the necessary controls to help deter employees from committing schemes and detect if they do occur. Failing to take action can be detrimental to the company and leave it exposed to this and other types of fraud schemes.