by
James Marasco, CPA, CFE,
CIA
Director, Corporate Services
StoneBridge Business Partners
Reprinted with permission from Fraud
Matters Newsletter of CPA America.
One of the easiest ways to steal from a company is through
expense reimbursements.
The Association of Certified Fraud Examiners determined in
its 2004 Report to the Nation on Occupational Fraud and Abuse
that approximately 22 percent of all fraudulent disbursement
schemes investigated involved expense reimbursement fraud.
Keeping your organization safe from pilfering employees demands
strong controls, tough actions against perpetrators and management
leading by example.
Whether you’re a multinational corporation employing
sales representatives traveling throughout the world or a
small not-for-profit organization, you can fall victim to
expense reimbursement fraud.
Fraud Schemes
The two primary schemes perpetrated are employees claiming
reimbursement for fictitious expenses or inflating actual
business expenses.
Examples of fictitious expenses that have been known to appear
on expense reports include:
Charging for items used for personal reasons (gas, groceries,
hotels, etc.)
Billing for travel and expenses that never materialized
(canceled airline tickets, seminar or convention registration
fees, tuition reimbursement and professional dues payments)
Seeking reimbursement for items that were never purchased
(office supplies, gifts for clients)
Collusion among employees who both bill separately for travel
or mileage reimbursement when they traveled together
Outright falsifying or manipulating receipts
Inflating business expenses can be found when employees:
Claim meals and entertainment reimbursement that may be
in excess of allowed per diems or items not reimbursable under
your policy (alcohol, leisure activities, sports tickets).
Add tips to reimbursement when tips were already included.
Add tips to their reimbursement copies that were greater
than what was actually left.
Fly first class or use limousines when modest means may
be available and more applicable.
Use inflated mileage totals when seeking reimbursement for
auto travel.
Safeguards to Prevent Fraud
Safeguarding your organization from becoming a victim to
expense report fraud isn’t complicated. Start by maintaining
strong internal controls.
1. Maintain a travel reimbursement policy or guidelines
that govern this activity. prohibited activity and per diem
amounts should be detailed in this policy and regularly communicated
to your employees.
2. Require original documentation to be either
submitted with the reports or maintained for a period of time
for audit purposes.
3. Initiate a formal review process in which
a department manager or equivalent reviews employees’
reports. Payroll or human resources should perform a cursory
review as well.
4. Routinely question expenditures that look
extraordinary or abnormal. Waiting for a larger problem to
build will only be more difficult and costly to resolve later.
5. Have all disbursements made in a formal manner
through either accounts payable or payroll. Cash shouldn’t
be advanced to employees, if at all possible.
6. Implement the use of corporate charge cards
for greater control. With corporate cards, companies can query
each card individually and ensure that payments are being
made against them.
7. Receive credit activity reports on a monthly basis
from the issuing company, if using corporate charge cards.
These reports can help you determine how many charges are
being cancelled or credited back to the accounts. This activity
can be compared to actual expense reports to determine if
it is being accurately reported.
8. Annually audit a sample of employees’ expense
reports to ensure they meet the company’s established
guidelines. Be sure that proper documentation exists to support
the expenditures that were requested. If a company card is
used, verify that the balance is being paid promptly.
9. Treat reimbursement activities consistently
by having employees pay expenditures and seek reimbursement,
or by having the company pay these expenses directly. Flip-flopping
between the two could allow for duplicate reimbursement to
occur.
10. Prosecute offenders found to be violating
or falsifying their expense reports. If they are allowed to
escape unpunished, others will follow their actions.
Expense reports could represent a significant risk exposure
for certain organizations. In most cases, employees are assumed
to be honest and trustworthy, and their reports go unexamined.
Maintaining tight controls and frequently reviewing expense
reports for compliance can alleviate dealing with larger problems
down the road.
Remember also to lead by example. Employees follow the actions
of their supervisors or management. The tone is set at the
top. If travel and expense guidelines exist, everyone must
follow them, including top management.
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