Expense reimbursements. In our world, we call it "low hanging fruit." In other words, if we are asked to look into allegations of fraud, we always ask for the suspect's expense reimbursements, too. It is not unusual to find additional fraud in plain sight on employee expense reimbursement forms.
I have seen several million-dollar expense reimbursement schemes (yes, you read that correctly) involving high level executives. These individuals had W-2 forms that would be the envy of most, yet they expensed everything from their daily Egg McMuffins, to their Thanksgiving dinner at the country club, to their personal trips to Hawaii. I have seen priests expense personal items through a church's coffers, and I have seen low-level employees alter receipts. Expense reimbursements are easily perpetrated by all members of an organization.
All for the purpose of securing additional cash.
Recently, a client of mine found that their second in command (and likely next CEO) had forged the CEO's signature on his expense reimbursements. They thought it was an error in judgment, for the purpose of getting his reimbursement through the system more quickly.
They thought wrong.
Within a few hours, using the employee's reimbursement forms, his calendar, and conducting a key interview, we discovered a fraud scheme that resulted in losses of $1,450,000 to our client. That executive traded in his extraordinary and comfortable lifestyle for a jumpsuit and a prisoner number in a federal penitentiary in Washington.
Expense reimbursements come in varying forms, including:
- Fictitious Reimbursements: Employee remits reimbursement for expenses that never occurred.
- Mischaracterized Reimbursements: Employee remits reimbursement for personal expenses as if they are a business expense (e.g. a receipt for a pink toy remitted as a meal expense).
- Altered Reimbursements: Employee alters a receipt for a legitimate business expense (e.g. writing in a larger tip amount on a meal expense or altering a cab fare).
- Duplicate Reimbursements: Employee remits a receipt for the same expenditure more than once or returns the item for cash after already reimbursed for the expense.
Expense reimbursements (including P-Card purchases) should be considered as necessary for higher-level scrutiny in all organizations. This includes at least one additional review and approval before the expenses are paid, spot checking "audits" of employee expense reimbursement forms, and a robust and enforced policy that includes the remittance of timely and original receipts and copies of credit card statements.
Proper oversight of expense reimbursements is as critical as internal controls over incoming cash and outgoing disbursements. And remember, when employees know that significant scrutiny is applied to their reimbursements, they will be less likely to manipulate them.
EXPENSE REIMBURSEMENT BEST PRACTICES:
- Require original receipts be presented for all expenses.
- Require original signatures on all reimbursement forms.
- Ensure meal expenses include names of participants and business purpose of meal.
- Compare an employee's calendar with purported business travel.
- Use simple online searches to verify prices match remitted receipts.
- Use analytics to monitor employee reimbursements (e.g. total paid to employees over time, budget to actual reports, etc.)
- Request copies of credit card statements be remitted along with receipts.