Investigating Travel Reimbursement Fraud

Posted on October 31, 2011 by Debra L. Reilly

For best investigative results, travel fraud audits should be performed by an employer on at least a yearly basis if possible.  The reason for this is that major hotels routinely purge their systems on a 6-month to yearly basis, so it can be difficult for an investigator to obtain detailed hotel expense information after a year.

This problem came up for me recently when asked to conduct an audit of travel expenses going back several years.  In instances where the employee had submitted a non-itemized hotel receipt more than a year prior to the investigation, it was difficult to ascertain whether the employee had made fraudulent or padded hotel charges, including exorbitant hotel restaurant charges.  Whereas more recent itemized hotel receipts could be obtained and they revealed meals for a spouse, children, and other guests at the hotel restaurant and excessive alcohol charges.  Further, the itemized hotel receipts showed that meal expenses were charged to the hotel bill (which the employer reimbursed) even though the employee requested money back for the same meal in a separate entry on the expense report, and even though the employee had also received an advance "per diem" payment prior to the business trip to cover meals.  In this case, the employee was obtaining a triple recovery for the same meal!

I recently heard a story about an employee somehow obtaining a handful of blank receipts from a restaurant and subsequently handing them out to co-workers who needed forms to submit expense receipts for meals.  Employees have also been known to alter a duplicate copy of a receipt and change the document number, or change the dollar amount, for example, changing a "1" to a "4" or "7", or adding an extra digit to the front of an existing number, or cutting off the top the business name or logo of a document to hide an irregularity. 

Another scam is to charge the employer for coach or business class airplane fare (on an expense receipt or using a company P-Card), obtain a refund on the ticket, then purchase a super-saver ticket for the same flight, and pocket the difference.  Or worse, booking a trip and getting reimbursed for it by the employer, getting a refund from the airline, and not traveling at all.  Or, an employee might claim he is attending a conference out of state, but then the meal receipts he submits (which are sometimes time-stamped by restaurants) reflect that he was dining in the middle of the day at location miles away from the business conference he was supposedly attending.  In these types of cases, an employee has essentially received a full paid vacation out of town (free airfare, free hotel, free meals, plus salary) and is skipping the conference.  

In sum, a strong monthly review and periodic audit process are essential to circumvent travel reimbursement fraud by employees. 

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Fraud: Investigating Procurement Card Abuse

Posted on October 27, 2011 by Debra L. Reilly

A "procurement card" or "purchasing card" (also abbreviated as PCard or P-Card) is a form of company charge card that allows goods and services to be procured without utilizing a traditional purchasing process.  P-Cards help employers manage high volumes of small purchases by employees that might otherwise overwhelm accounts payable departments.  P-Cards are an area of great fraud potential in companies, and employers should perform periodic audits to determine if fraud is occurring.  

I recently completed a large investigation involving P-Card abuse by multiple employees.  This blog entry will point out some red flags to look for:

  • Employee is typically late turning in (or fails to turn in) monthly reconciliations to support the charges made.
  • Employee fails to attach any receipts at all, claiming they were lost.
  • Employee attaches a receipt, but not the itemized receipt presented to Employee at the time of purchase.  Employee only submits the receipt showing the total amount charged, so as to avoid showing the specific items purchased.  For example, Employee goes to Office Depot and claims he bought "office supplies", when in reality, Office Depot sells many personal items that Employee could have purchased for personal use at home or school supplies that Employee gives to his children.  If you catch this fraud early enough, the vendor may be able to provide you with the detailed receipt and you can see exactly what was purchased.  If you see Disney DVDs (or similar) on the receipt, then you know you've got a problem.  If you see printer toner cartridges that don't match the model of printers at the employer's business, then Employee is likely using company funds to supply his home office (which may not be allowed by company policy).
  • Employee was recently placed on probation or knows he is in danger of termination, which may motivate Employee to cheat the Employer out of money pre-termination.
  • Employee presents multiple monthly reconciliations at one time right before the deadline believing that the documentation will undergo very little scrutiny due to the last minute submittal. 
  • Employees submits receipt with long list of items hoping to bury personal items in the long list.
  • Employee makes purchases at restaurants for multiple people, and you see children's dinners ordered, or alcohol purchases that may be against company policy.
  • Employee makes multiple gas or food purchases over the weekend when he is not traveling for business.  
  • The person in charge of reviewing the P-Card purchases has a reporting relationship to the Employee submitting the monthly reconciliations, and simply signs off on the reconciliations in fear of retaliation if the reconciliation is scrutinized or questioned.  Similarly, if the Employee submitting the reconciliation is the same person in charge of reviewing the reconciliations, this is a situation of the fox guarding the hen house and must be avoided.   For example, the CEO or CFO should not be in charge of reviewing his own reconciliations.

These are just some examples of potential fraud indicators, and they don't necessarily mean that fraud is actually occurring every time one of these indicators pops up.  Employers can implement controls to prevent this type of abuse, but that is beyond the scope of this entry.  

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