Putting expense fraud under the microscope.

• Author: Schaeffer, Mary S.
• Position: Travel and entertainment fraud - Survey

Financial executives don't like to think about it or admit it could happen in their company. But the harsh fact is employees stealing from their employers--specifically via the travel and entertain budget--happens at most organizations and in many cases more than once.

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In a recent survey by the industry newsletter Accounts Payable Now & Tomorrow, almost 40 percent of the respondents indicated they were aware of T&E fraud in their organizations. The Association of Certified Fraud Examiners (ACFE) reports that almost 20 percent of all frauds committed by employees are expense reimbursement fraud. It isn't just small items, such as a movie charged to a hotel bill or a glass of wine on a restaurant bill when alcohol is expressly forbidden by the policy.

The average loss related to T&E, according to ACFE is $25,000 per scheme, or the total loss until the fraud is uncovered and not per expense report. For example, an employee might steal an extra $500 per expense report over two years. This would result in a median of about $25,000.

Though that may not seem like a huge amount, consider that many larger frauds were first detected after a T&E fraud investigation was launched and an employee stealing in other ways from the company was found to be cheating on his or her expense report.

While some of the stories are ingenious, other T&E abusers aren't too bright. The following illustrates some "real life" stories and then focuses on the controls and best practices that will prevent this from recurring. First, one more fact to ponder: Most frauds are committed by long-term, trusted employees, not newcomers.

Dual Reimbursements

An employee with a corporate purchasing card did not turn in all his receipts on his purchasing log, but instead submitted them on his T&E report. The company thus paid the expenses twice. This particular fraud was discovered, as many are, by accident.

Variations on this theme include getting reimbursed from the company petty cash box or requesting a check be sent to the vendor through the accounts payable process, while asking for reimbursement on the T&E expense report.

This type of fraud can be thwarted by establishing a strict schedule of which vendors are paid by purchasing cards, which are paid by check and which should be submitted on a T&E expense reimbursement request. Of course, if an issue had been made of the missing receipts, the fraud might have stopped.

Any unusual...