Many companies have policies in place for times when an employee makes a business-related purchase for the benefit of the company. Some employees attempt and can be successful at taking advantage of these policies by adding personal expenses to his or her expense report or company credit card, and having the company pay for them by way of reimbursement or direct payment of the credit card. We have seen this happen a number of times using various schemes, which we will explore below, but they all have the same outcome – the company unknowingly pays for thousands of dollars of employees’ personal expenses.
Before we can discuss the different fraud schemes, we must first discuss the scenarios by which employees can have business and non-business purchases paid for by the company:
- The employee uses his/her personal credit card (or cash) for a purchase and requests reimbursement through an expense report;
- The company issues the employee a corporate credit card to use for purchases, the balance of which is directly paid by the company to the credit card company every month;
- A hybrid of the two above scenarios, the company issues the employee a corporate-sponsored credit card in the employee’s name, but the employee is responsible for paying his or her balance every month by requesting reimbursement through an expense report.
Under any of these scenarios, it can be very easy for an employee to disguise a personal expense as a business expense and have it paid for, in one way another, by the company. We will discuss four common schemes below.
One common scheme we have seen is an approver not thoroughly reviewing an expense report or credit card statement prior to approving. When one or just a few people in an office have the ability to approve expense reports, reviewing every receipt and every mileage map of every expense report can quickly turn into a chore. It can be easier to just sign the expense report and get back to the real work, right? Wrong. When an employee is aware that supporting documentation is not thoroughly reviewed and has the desire to exploit the company, it makes it very easy for him or her to include a restaurant receipt for a dinner with his or her spouse while passing it off as a business dinner on the expense report. One common theme about fraudsters is they tend to get more bold and greedy as time goes on, so what may begin as getting away with one $60 dinner with a spouse could turn into a few $100 non-business dinners per month on the expense report. If someone is not actually reviewing this, the company will continue to pay for these personal expenses. We have also seen this happen when employees purchase airline tickets for personal travel. If an item on an expense report is being categorized as a travel expense, review the receipt for the ticket purchase to confirm the name(s) of the passenger(s) and destination.
Another common scheme we have come across is a lack of supporting documentation submitted with an expense report. This is sort of a “what they don’t know won’t hurt them” mentality. This happens often with companies that issue company-sponsored credit cards to some or all employees, but it can happen in companies that do not have this policy as well. Often the employee’s company credit card statement serves as the expense report. While this may be seen as efficient, it can also be taken advantage of. Depending upon the employee’s position, a credit card charge to a grocery store may seem legitimate, especially if the employee is responsible for buying food and drinks for the office. However, a closer inspection of the store receipt may show items were purchased that have no business purpose whatsoever, such as pet food, or items were purchased that never made an appearance in the office. Furthering the example of the airline ticket purchase in the preceding paragraph, in addition to the receipt from the airline, supporting documentation may also include an email chain confirming an out of town meeting or a conference brochure, etc. There is no such thing as over-documentation in this case.
We have also worked on cases where documents were forged and made to look like real supporting documentation. This scheme is very difficult to uncover and usually takes the longest amount of time to come to light. This scheme also requires extreme attention to detail by the fraudster, who, luckily for the company, is likely to falter at some point. A person committing this scheme is not going to waste his or her time creating shoddy documentation. As I stated earlier, fraudsters become bolder as time goes on and as the stress of keeping up with this scheme gets to him or her, it is likely he or she will begin to make small but revealing mistakes. Receipts from stores or restaurants are pretty difficult to replicate considering the shape, size, and printer used to print these types of receipts, but receipts from hotels, banquet halls, and certain online purchases are often in document form and printed by a standard printer than can easily be found in an office or in a person’s home. As supporting documentation is being reviewed, carefully look for misspellings, formatting discrepancies, and formatting patterns. We once worked on a case where the person we were investigating created a banquet/conference hall reservation and deposit template on their work computer and used that template with different hotel and other conference center letterheads to make it appear like the deposit form was legitimate. She used this as supporting documentation in her expense reports in order to get “reimbursed” for thousands of dollars at a time.
The last scheme is the result of a lapse in a company’s internal controls: an employee fails to turn in an approved expense report or a credit card statement, but the company still pays for all of the business and non-business purchases made. In order for this to happen, the fraudster would have to be in charge of paying the company’s credit card bill and inputting the expenses into the company’s accounting system. These two accounting duties should be segregated between two different people in order to prevent this scheme from happening. Furthermore, the person reviewing and approving expense reports should not be the same person who has access to the company’s accounting system. Like the previous scheme, this scheme may fester for a while before it is uncovered and is often not discovered until the fraudster is out of the office for an extended period or is terminated for some other reason.
Strong internal controls surrounding expense reporting and reimbursement is paramount in preventing expense reporting fraud. An employee can easily commit any of the above schemes when a company has weak or non-existent controls. This can cost the company thousands of dollars or more over time. Every single person in the organization, from staff to upper-management, should have their expense reports and credit card statements very carefully reviewed and approved prior to reimbursement or payment.
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