David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.
One of the most insidious types of fraud affecting small and large corporations and organizations is expense reimbursement fraud. While, for the most part, the actual amount of money wrongfully gained by each individual fraudster is relatively low, if many of your workers or volunteers are cheating on their reports, your bottom line could be taking a significant hit.
“Many employees don’t see padding their expense reports as being immoral or illegal,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley. “They think it is their right, just as much as a paid vacation or a safe work environment.”
“Some see it as a common practice their employer overlooks because the dollar amount stolen is insignificant in the greater scope of things,” said Anderson, a Certified Fraud Examiner. “Still others see the money they pocket as an unauthorized bonus for putting up with the hassles of business travel. Employees have all kinds of justifications for padding their expenses, but the bottom line is that when you add it up, companies are dealt a hard blow from expense reimbursement fraud.”
The following types of expense reimbursement schemes have been identified by forensic accounting experts as those most commonly used by employees. Following each scheme are recommendations companies can use to combat the fraud.
The Scheme: Some companies allow employees to travel in first or business class or to book coach tickets that allow flight plan changes without incurring an additional change fee. Fraud occurs when an employee buys a ticket with a personal credit card, submits the cost for reimbursement and then returns the ticket to the airline for reimbursement and replaces it with less expensive travel, according to Anderson, a forensic accountant who also is a Certified Fraud Examiner. The employee may fly coach instead of first or business class; replace a non-change fee ticket with a less expensive ticket that carries a change fee; use frequent flyer miles; or even travel by train or car instead of plane.
Fraud Deterrence Measures: Companies should book tickets and pay for them on a company credit card so if a ticket is returned, funds are applied to the company card instead of the employee’s card, Anderson said. Companies also should require employees to submit boarding passes as documented proof of the expense. A company manager well versed in boarding passes can verify the pass was used, he said. And because most airlines require boarding passes be printed within 24 hours of the scheduled flight time, it is harder for employees to print a pass and then change the ticket.
Meal and Entertainment Fraud
The Scheme: The most common fraud is for an employee to pay for meals or entertainment with cash, obtain a blank receipt from the restaurant/venue and then enter a higher amount on the blank receipt, said Anderson, a forensic accounting expert. Another scheme involves a group of people dining together and one employee charging the entire bill to a credit card while everyone else pays cash. The employee pockets the cash but submits the entire bill for reimbursement. A third method is for an employee to claim a personal meal as a business expense. Another scheme is for the employee to submit a phony restaurant receipt (available at websites such as www.salesreceiptstore.com) for an amount greater than what the employee spent.
Fraud Deterrence Measures: These schemes are difficult to detect and validate because it is impossible to know where employees ate or what they paid, Anderson said. But companies can require employees to use company credit cards for all charges, thereby eliminating the need to reimburse them for meal and entertainment expenses. Companies must scrutinize credit card charges to make sure employees do not charge personal expenses and must require employees to identify the attendees and business purpose of each charge. One other alternative that limits a company’s total meal cost is to use the per diem tables issued by the federal government and reimburse employees at the per diem rate regardless of what the actual expenses were, Anderson said.
Taxi, Parking and Tolls Fraud
The Scheme: An employee reports having paid cash for a taxi, parking or bridge/highway tolls and failing to obtain a receipt. Many companies allow claims up to $20 or $25 for each of these types of expenditures without a receipt.
Fraud Deterrence Measures: The two most effective means of combating this fraud is to require use of a company credit card or to deny reimbursement without the required receipt for these expenses. Many taxis, parking venues and toll booths produce receipts electronically now, so it is difficult for employees to claim that a receipt was not available.
The Copy of a Receipt Fraud
The Scheme: An employee submits a copy of a receipt, keeping the original receipt or another copy of it to be submitted for additional reimbursement later.
Fraud Deterrence Measures: Companies should require employees to submit original receipts and deny reimbursement for photocopies.
“Some of these fraud schemes are actually easy to prevent,” said Anderson, a forensic accountant who recommends that every organization enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. “But many companies think the loss is so low that it is not worth the effort to combat it. If they added up the ‘minor’ pilfering for each employee for the full year or multiple years, it would likely no longer be a ‘minor’ loss.”
When was the last time your expense reimbursement procedures were examined by a forensic accountant? A forensic accounting expert from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley can recommend fraud deterrence measures that will strengthen your expense reimbursement measures and help prevent losses, Anderson said.
If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.