One of the oldest and most common corporate and industrial white-collar crimes is expense account and travel reimbursement fraud. This type of fraud drains billions of dollars from corporations each year.
Creating the Opportunity for Expense Account Fraud
Most corporate business related expense reimbursement policies are vaguely written and sometimes the only reference to them is simple written procedures in an employee handbook. The concept of travel expense reimbursement relinquishes company controls to an employee. Most companies design their travel expense reimbursement policies to meet audit and tax law requirements and not to encourage expense control.
Automobile Mileage Reimbursement Fraud
Most companies and governmental agencies today have moved away from the "company car" concept because the expense and abuse of privilege problems outweighed the advantages. When a corporation calls for employees to use their privately owned automobiles to conduct company business, its control over employees and their activities becomes limited.
The odometer mileage shown on a claim form, even when called for, cannot be relied on because the automobile does not belong to the company; nor does the company share liability or responsibility for the car. The owner can use the car as wanted even on a business trip although he or she is not authorized to claim mileage for personal activities.
Verifying Reimbursable Mileage Claims
Run a pattern of mileage on each person, going back in the records at least three years. Look for dramatic or gradual increases in the mileage those employees claimed. Normally, employees will take vacations. When they do, a temporary company representative will often service their territory. The key to detecting fraudulent mileage reimbursement claims revolves around patterns. For example, you need to:
• Check the mileage claimed by that temporary person compared to the same circuit filed by the person you are auditing. When they differ significantly, you might have a clue to systematic fraud.
• Review personnel vacation files. When a person does not take any vacations for long periods, or takes short vacations over holidays when he or she knows no temporary person will travel his or her routes, you might have a clue to fraud. Review the personnel vacation files during your audit.
• Do not jump to conclusions before you have all the facts. A dramatic or systematic increase in mileage might coincide with an increase in customers, customer development, or instructions from someone in authority.
Solutions for Controlling Mileage Reimbursement Fraud
Obtain corporate gasoline credit cards from each of the oil companies common in its travel area. Also require receipts for parking and toll fees with a note on the back showing the business relationship of the fee.
Client Entertainment Expenses
Fraud may be committed by:
• Altering receipts both cash and credit card
• Submitting personal expenses as business related
• Submitting receipts from closed or nonexistent establishments
Solutions for Controlling Client Entertainment Fraud
Corporate credit cards should be issued to authorized employees for use in customer entertainment. This credit card should be the only authorized way of paying for entertainment. The customer copy should continue to be submitted by the employee and matched with the company's statement hard copy to authenticate the purchase.
A further step should include a courtesy letter sent to the person entertained as shown on the receipts. Such as: "Our representative, [Joe] informs us that you and he recently enjoyed a dinner [lunch] with our compliments at the [Big Diner Restaurant] in [Chicago]. We value and appreciate your business and always appreciate any suggestions for how we can serve your company."
Lodging and Travel Fraud
Fraud may be committed by:
• Staying in an inexpensive motel and submitting a claim for expenses incurred at a better place.
• Returning home early and claiming to have stayed in a motel.
Solutions for Controlling Lodging and Travel Fraud
Like entertainment expenses, lodging and other actual expenses should be charged to a corporate credit card.
The company should also create realistic guidelines regarding amounts authorized for a room and meals by researching rates and prices by telephone at various motels, hotels, and restaurants in the travel area.
Verifying Lodging, Food, and Client Entertainment Receipts
Examine the receipts carefully — Look for handwriting that appears similar on receipts where it should be different. Ink color might also tip you to altered documents. Check the imprints on credit card and hotel receipts. Look at the dates and account numbers or any part of them that might create a suspicious flaw. Check the printing carefully, too. A copy made by a back-street printer will always vary from the real thing, if only slightly. Also, compare the printing on a hotel or motel billing and look for variations. Look back in the records. Although you are not checking the authenticity of a receipt filed three years ago, it might supply you with a known standard for comparing key points on receipts that you are trying to verify.
Verify the receipts — Complete this important task with a few phone calls. Do not tell the businesses that you are checking on an employee; instead use a pretext when necessary to determine first if the motel, hotel or restaurant exists. Tell motels and hotels that a friend recommended their place of business and you would like to know their rates. Ask for rate information by telephone, but say you would also like a brochure and rate list sent to you.
Air Travel Fraud
Employees having a prerogative to purchase their own air travel tickets can fabricate an excuse that they had to fly first class since coach seats were not available at the time.
The employees then purchase the first class tickets with their own cash or credit cards, and then also buy a coach ticket for travel.
When the employees submit their travel reimbursement claims, they will include the cost of "assignment essential" first class tickets in accordance with company policy.
Using this technique of fraud, employees can accumulate several first class tickets, and cash them in, pocketing the difference between the amount paid for the coach tickets and those in first class.
Verifying Air Travel Claims or Issued Ticket Usage
Normally, the company travel policy calls for a user's copy of the ticket, however there are ways of manipulating that seemingly foolproof procedure. The receipt or user's copy of the ticket does not verify who used the ticket. The following investigative audit techniques will normally supply a clue that fraudulent activity occurred in this area of travel expenses:
• When the user copy of the airline ticket is attached to the travel claim, examine it for the date stamp of usage. Does that match the time of travel?
• Next look at other receipts for that date (for example, a hotel billing coupled with a cash or credit card receipt). Do the dates match with the air travel?
• Also, look for receipts that show travel from the airport to the hotel, or the time shown on car rental receipts.
When there is no user-copy of the company-issued airline ticket, you will have to track it down through the travel agency or airline to get the information and a copy for your files.
You can also ask the airline to send you copies of the ticket used for comparison with the user receipt.
Solutions for Air Travel Fraud
Control the tickets — If using a direct or travel agency ticketing arrangement, have the tickets printed in your company name, not the name of the employee who will use them. If the airline needs the employee's name on the ticket, arrange for the agency to stamp the ticket with the word nonnegotiable to prevent employees from cashing them in or exchanging them for other tickets. This means that any transaction other than use by an employee must be approved by an authorized representative of the company travel section, on file with the airlines.
Control field purchases — When employees need freedom of movement while on the road (for example, they are sent to another assignment not scheduled before they left), then use the company credit card method noted earlier. The employee must turn in the entire ticker and the purchaser's receipt from the credit card.
Create a specific company policy — White collar crime committed by employees normally stem from their company giving control or losing control of events. The company has an obligation to inform employees exactly what to do in a given situation; this evolves from a clear, specific company policy about the matter coupled with a statement of understanding signed by the employee.
Ground Transportation Fraud
Use of taxis allows the greatest opportunities for fraud in travel expense reimbursement. Most taxi drivers supply an informal receipt, normally just a slip of paper with the Cab Company identified by a rubber stamp. Rarely will a cab driver put the amount on the slip; instead when the rider asks for a receipt, he or she will receive a blank rubber stamped slip. This enables a person to substitute whatever amount he or she desires.
The employee may also take a bus from an airport to the city and submit a travel claim supported by a cab receipt showing use of a taxi as transportation from the airport to the city.
Companies allowing reimbursement for rental cars paid for by the employee also enable varied dollar amounts of fraud. The most common technique involves altering the carbon-printed receipt supplied by the rental agency when returning the car. It's not always possible to do this, and it's difficult with the larger car rental agencies that use sophisticated computerized systems.
Solutions for Ground Transportation Fraud.
You can control or eliminate employee fraud in commercial ground transportation categories with three positive solutions:
Use company-arranged rental cars — Whenever possible have the Personnel Travel Section arrange for the cars.
Use company credit cards or direct billing — Use a company credit card removes options for the employees to alter the billing statement.
Use prearranged commercial transportation — When your employees travel to the same locales regularly, arrange corporate accounts with specific taxi companies. In your arrangement, have the company bill the company directly including the name of the passenger, pickup and drop off points, and amount of fare plus gratuity.
MODEL TRAVEL AND EXPENSE POLICY
An employee of ABC, Incorporated required to travel and conduct corporate business will follow the procedures outlined in this policy.
Privately Owned Automobiles or Motor Vehicles
A variety of gasoline credit cards with billing direct to the ABC corporation are issued to employees required to travel using their privately owned automobiles or motor vehicles to conduct corporate business. The ABC Corporation will be solely responsible for payment of authorized charges on these cards, and employees so authorized will have no liability for the payment. These employees must use the corporate credit cards to purchase all gasoline needed during the time they conduct official company business. No reimbursement is authorized for purchases made with personal credit cards or cash. The corporate credit cards are not authorized for use by employees when not on official company business. The following procedure will apply:
The employee is authorized to fill their privately owned motor vehicle with fuel before departing on company business Mondays and upon return Fridays. The dates of use for these cards coupled with reported mileage will be subject to audit.
Under emergency of unforeseen circumstances, exceptions to this policy will be granted only with written or verbal approval of the employee's department manager. Before filing the weekly expense report claiming reimbursement under this exception, a letter signed by the employee's manager will accompany any claim within this provision.
Each Monday morning or the next business day when Monday falls on a holiday, authorized employees will file expense reports and reimbursement claims for the preceding week when applicable using ABC Form 100-E. They will attach all receipts from the corporate credit cards to the report. Exceptions will be granted only upon verbal permission of the employee's department manager followed by a signed memorandum to the Company Travel Department manager.
Mileage reimbursement will remain in effect and be reviewed annually to ensure that the amount coincides with the maximum allowable deduction amount by the Internal Revenue Service.
Lodging and Meals and Client Entertainment Allowances
Certain employees of ABC, Incorporated will be issued a corporate credit card for use in payment for lodging and meals during authorized travel. Use of employee credit cards and cash will not be authorized and not allowed reimbursement. Special arrangements made by the ABC corporation with hospitality services in the cities and areas served by the ABC corporation and attached to this policy will be the only authorized lodging and meals locations (including customer entertainment, unless otherwise stated or authorized by the employee's department manager). Any authorized exception to this policy by a department manager may be verbal to the employee, with a written and signed memorandum about the exception forwarded to the Corporate Travel Department manager, supplying the reasons and purpose. A list of authorized lodging and restaurants for using the corporate credit card is attached to this policy and will be updated and furnished to traveling employees as necessary.
Further guidance regarding meal cost limitations is attached to this policy and will be updated annually or before as necessary and furnished to traveling employees. The following procedures apply for reporting these expenses:
1. Applicable employees must file a report of corporate credit card usage to the Corporate Travel Department of ABC, Incorporated each Monday morning for travel and expenses of the preceding week. An exception will be when Monday falls on a holiday, with the report due on the next business day after that day.
2. Employee lodging, meals and customer entertainment expenses will be filed on ABC, Incorporated Form 101-E. When an employee begins vacation or for other valid reason will not be available on Monday morning or the next business day after, he or she will file expense reports the preceding Friday or business day, or mail them to his or her department manager, who will send them to the Corporate Travel Department.
Client Entertainment Guidelines
1. The field representative will schedule customer entertainment or other authorized employees of the ABC corporation at lease two weeks before and will be approved by the employee's department manger. A copy of the authorized, approved customer entertainment will be forwarded to the Corporate Travel Department for its files and audits. Exceptions are authorized only when the department manager gives verbal approval and submits a written, signed memorandum to the Corporate Travel Department citing the reason for a nonscheduled entertainment or substitution.
2. All customer entertainment cost will remain within the guidelines attached to this policy. These guidelines will be reviewed and updated annually or before…
3. Each Monday morning or the next business day when Monday falls on a holiday, authorized employees will file expense reports and reimbursement claims for the preceding week when applicable using ABC Form 100-E. Applicable employees will attach all receipts from the corporate credit cards to their report, to be compared with hard copies received by the Company upon billing. Exceptions will be granted only upon verbal permission of the employee's department manager followed by a signed memorandum to the Travel Accounting Department manager.
Air Travel and Related Expenses
Employees of the ABC Corporation traveling by commercial aircraft will use the proper issued corporate credit card to purchase tickets. Unless otherwise approved verbally and in a signed memorandum to the Corporate Travel Department, employees authorized to travel by air will purchase only coach class tickets. Other procedures regarding this travel category follow:
1. When employees purchase tickets for authorized travel but their trip is unexpectedly postponed or cancelled, they will deliver the ticket to the Corporate Travel Department immediately through their department manager. When employees prepare to travel on company business by air, they must first contact the Corporate Travel Department if feasible to determine availability of turn-in tickets before purchasing a ticket.
2. Employees traveling on company business by commercial airlines will be authorized to use rental cars from authorized companies as noted in the list attached to this policy, and which is updated annually or as necessary. Employees traveling will be supplied with that list. Using rental cars from other agencies will not be authorized without approval of the employee's department manager verbally followed by a written and signed memorandum to the Company Corporate Travel Department. Unless otherwise approved, employees will only use a corporate credit card to pay for rental cars while traveling. Use of personal credit cards or cash for rental cars used for company business will not be reimbursed.
3. Authorized traveling employees on company business may use taxis for limited travel and will pay cash for that service. The Corporate Travel Department will reimburse the amounts paid, but only when the expense claim includes an attached validated receipt. Extensive use of taxis is discouraged and subject to justification when such use is deemed unnecessary. Exceptions to this policy must have approval by the employee's department manager verbally, followed with a written and signed memorandum to the Corporate travel Department.
4. Miscellaneous expenses related to business and approved by the employee's department manager will be reimbursed to the employee.
5. Each Monday morning or the next business day when Monday falls on a holiday, authorized employees will file expense reports and reimbursement claims for the preceding week when applicable using ABC Form 102-E. They will attach receipts from corporate credit cards to the report for comparison with hard copies received by the Company when billing arrives from the credit card issuer. Exceptions are granted only upon verbal permission of the employee's department manager followed by a signed memorandum to the Travel Accounting Department manager.
6. The Corporate Travel Department will issue employees not traveling regularly for the Company the necessary corporate credit cards and guidance before departure.
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