“I don’t think people always take the view that falsifying expense claims is a criminal act,” said John Verver, Vice-President for services and product strategy at ACL Services, a provider of financial monitoring software and expertise.
Or as Michael Bechara, managing director of the Granite Consulting Group, an internal auditing and corporate accounting firm in Brewster, New York, put it: “People say to themselves, ‘If I want to pick up some sweatshirts for the kids, or have a big dinner, that’s what the company owes me for the inconvenience of being on the road.’ ”
One of the most highly publicised cases involved Mark V Hurd, who was ousted as chief executive of Hewlett-Packard in August for authorising more than $75,000 in payments and expenses for an occasional contractor when the company’s employees traveled under more austere conditions.
The case opened the window onto the issue. “Even at Hurd’s level, this is an everyday occurrence in American business,” said Shreveport-based Louisiana State University’s accounting and business law department’s chairwoman Jo Ann McGee.
While there are no hard figures on the costs of travel expense fraud to American companies and organisations, estimates range as high as billions of dollars a year. A report last year by the Inc Business Owners Council, an organisation of family business owners, found that business fraud, over all, increased by two-thirds from 2006 to 2009.
The Association of Certified Fraud Examiners reported earlier this year that the typical company lost 5 per cent of its annual revenue to employee fraud and abuse and 15 per cent of that was tied to expense reporting fraud.
“For many companies, it’s like being nibbled away by little piranhas rather than being eaten by a big shark,” Verver said.
Fraud schemes run the gamut from the minor to the extreme, the accounting experts
said. Falsified taxi receipts are a favourite, thanks in part to the stacks of blank receipts drivers hand out in many cities. So, too, are faked business trip expenses.
“Let’s say I’m an executive and don’t have to fly coach,” Bechara said. “I’ll buy a first-class ticket. Then I’ll cash it in for two coach tickets and take my wife or my girlfriend with me. When I take them to dinner, if the bill is too high, I’ll put down that I took a customer.”
Bechara said that the tone that top executives set might also contribute. “The more lavish, the more loose they are with spending, the more likely lower-ranking people are willing to say, ‘They’re spending a lot; so will I.’ ”
Manual expense report filing systems can also contribute. “With manual forms, the guy could add up the expenses wrong on purpose and hope that nobody catches it,” Bechara said. “$100 plus $100 equals $300.”
Scanners and printers
Scanners and laser printers also make it easier to fake and alter receipts. One company Verver said he consulted with required no authorisation for reimbursements under $25.
“But, one employee managed to “rack up over $100,000 of ‘expenses’ over the course of three years,” he said. “Every day, this guy was pushing through a couple of ‘expenses.’ ”
The recession, in particular, has contributed to travel expense fraud, said Craig Fearon, senior product director at CyberShift, an employee expense software firm. “In some cases, people are more desperate and they’re looking for a way to make a few extra bucks. Maybe their commissions are down. Their spouse is unemployed. There’s an old saying in sales, ‘If you can’t sell, drive.’ You’ll get reimbursed for the mileage.”
Moreover, layoffs in accounting and internal auditing departments mean fewer employees are available to verify expense reports.
Even so, experts say, organisations can make fraud significantly less likely. “First and foremost,” said Association of Certified Fraud Examiners’ chief executive Scott Grossfeld, “make sure there’s a defined travel policy in place and that employees know what the policies are.”
Professor McGee said organisations should require employees to turn in original receipts. And, she said, “a direct supervisor should always be the one who’s approving that expense reimbursement.” Companies like Microsoft, ACL Services, CyberShift and Concur say they have software programs that provide the kind of data analysis that can make sizable cuts in fraud. (The New York Times uses Concur) Accountant Patrick Daksol accountant said that when the medical devices company he used to work for switched from manual to electronic expense reporting, “all sorts of altering of receipts got nipped in the bud.”Concur’s software even imports electronic receipts directly from hotel chains and rental car companies.
“If I get the receipt directly from Hilton,” said Concur’s president and chief operating officer, Rajeev Singh, “you can’t change it with your laser printer.” But new technologies will not eliminate travel expense fraud, the accounting experts said.
With the new technologies, Verver said, “The average person who takes liberties with their expense claims, they’re the sort of person who will stop.” But, he added, there will always be some employees “motivated enough to get away with it.”