Expense Reimbursement Schemes by Derek Kainz

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Expense Reimbursement Schemesby Derek Kainz

• Occurs when an employee manipulates an
  organizations expense reimbursement procedures
  to generate fraudulent disbursements

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Types of Schemes

• Mischaracterized Expenses
• Overstated Expenses
• Fictitious Expenses
• Multiple Reimbursements

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Comparison of Total Losses
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Mischaracterized Expenses

• Employees submit the receipts from their personal
  expenses along with their expense reports, but
  make up business reasons for the incurred costs

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Mischaracterized Expenses

• The most common scheme is executed by requesting
  reimbursement for a personal expense by claiming
  that the expense is business related

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How to Prevent

• Require detailed expense reports
• Should require more than just receipts
• Should list what was purchased, as well as when
  and where.
• Check expense reports against employees work
  schedule
• In cases reimbursing airfare and hotel, a
  mischaracterization can be detected by checking
  dates of expenses. Often it will coincide with a
  vacation or day off.

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Overstated Expense Reports

• Can be done in a number of ways
• Altered receipts
• Fraudsters use any method to cover up original
  expense and change the original price
• Often succeed in companies that do not require
  original documentation
• The alteration will be less noticeable on a
  photocopy.

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Overstated Expense Reports cont.

• Over purchasing
• This method is typically used by employees
  seeking reimbursement for travel expenses
• Case 1

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Case 1

• Andrew Worth, a geologist, worked at Smith
  Carrington and was required to fly all over North
  America for his job.
• His over purchasing scheme was perpetrated by
  buying one ticket weeks in advance to secure the
  shortest and cheapest ticket to the destination
  and right before departure purchased a second
  ticket that was much more expensive.

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Case 1cont.

• After purchasing the second ticket, he would
  remove the passenger receipt, which was not
  required to receive a full refund from the
  airlines. He then submitted the more expensive
  flight receipt with his expense reports for
  reimbursement and then would fly on the cheaper
  flight.

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How was this detected?

• The internal auditors detected an unusually high
  amount of credits on Worths credit card, raising
  a red flag.
• Next they contacted the travel agent and found
  out that over the last four months Worth had been
  purchasing two tickets
• Total of loss was 4100 and he was not
  prosecuted, but was fired and agreed to pay the
  money back.

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Overstated Expense Reports cont.

• Overstating Another Employees Expenses
• Is done by the person handling the expense
  accounts
• More likely to occur when expenses are reimbursed
  with currency instead of check
• Orders to Overstate Expenses
• Occurs when employees are forced to overstate
  their expense reports and the supervisor takes
  the excess money

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Fictitious Expense Schemes

• Employee invents a purchase which needs to be
  reimbursed

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Fictitious Expense Schemes

• Producing Fictitious Receipts
• Can be done very easily with the use of a home
  computer and a laser printer
• Obtaining Blank Receipts from Vendors
• Go in to a vendor and ask for blank receipts or
  steal them and submit them for reimbursement
• Claiming the Expenses of Others
• Done by submitting expenses for which the
  employee did not pay (ex. The client pays for a
  hotel, but the employee submits photocopies of a
  legitimate bill)

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Multiple Reimbursements

• This scheme involves the submission of a single
  expense several times to receive multiple
  reimbursements
• This is the least common of the expense schemes

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Multiple Reimbursements

• How This Can Be Done
• Employee has two different people authorize
  expense report, such as President and Vice
  President
• If companies do not require original
  documentation of expenses, the fraudster can
  resubmit a copy of the expense multiple times
• Employee charges expense to a company credit card
  and than submits the receipt with their expense
  report

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Red Flags

• Expenses are over the budget
• No documentation of the expense
• Employees company credit card has many charges,
  but also submits expense reports
• Receipts are not folded

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How to Detect Expense Schemes

• Two basic methods
• Review and Analysis of Expense Accounts
• Detailed Review of Expense Reimbursements

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Review and Analysis of Expense Accounts

• There are two methods used to review expense
  accounts
• Historical Comparison
• Compare the balance expended in the current
  period in relation to the balance spent in prior,
  similar periods
• Comparisons with Budgeted Amounts
• First, estimate the time and money necessary to
  complete the task
• Then compare with the actual expenses and
  determine if there are any irregularities between
  the two

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Detailed Review of Expense Reimbursements

• The best way to detect expense fraud is to have a
  detailed review of all employee expense reports
• The fraud examiner should have a copy of the
  employees work schedule and the entertainment
  and travel policy set by the company

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Prevention

• Detailed Expense Reports Should Include
• Receipts or other supporting documentation
• Explanation of the expense, including specific
  business purpose
• Time period expense occurred
• Place of expenditure
• Amount
• Detailed Expense Reports Must Be Reviewed!

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How Has the First Question?