Paul Dunham worked with PACE Worldwide as COO and President while his wife Sandra Dunham was the Director of Sales and Marketing with the European subsidiary before moving to the PACE US branch. The couple was entitled to travel and other business expense reimbursements and sometimes used corporate credit cards to cover corporate expenses.
It was later revealed that they committed expense reimbursement fraud worth over $1 million during their tenure between 2002 and 2009. Paul was imprisoned for 4 years and his partner received a home confinement verdict for 18 days on the charges of conspiracy and money laundering.
Expense reimbursement schemes are prevalent in the corporate world with Australian businesses with over 100 employees experiencing annual losses of $30,000, whereas the losses are 28% more when it comes to small businesses with less than 100 employees.
While some businesses offer corporate credit cards to executive-level employees, other companies entrust their employees to self-report expenses they incurred for business purposes and receive reimbursement to cover costs.
Dishonest employees may use the opportunity to commit fraud through fake expense receipts.
Reporting the same expense multiple times and applying for multiple reimbursements can hurt the financial interests of a business.
Employees may obtain multiple proofs of payment for a single expense such as the original receipt of buying a product and credit card receipt. Once their reimbursement claim is approved, they may apply with the duplicate receipt a few months later, claiming that they had misplaced it and forgot to add the expense earlier.
Another form of this fraud is when two salespeople attend the same dinner meeting but separately claim the full expense instead of dividing it amongst them.
When it comes to expense reimbursement schemes, employees may exaggerate the expenses incurred by manipulating expenditure receipts. As a result, a $20 lunch would be represented as a $50 meal on receipts and the employee would pocket the difference. Also, they may report additional non-approved items such as alcohol after meals despite this being in breach of company policy.
Another fraudulent practise is to choose expensive travelling modes when cheaper options were easily available. Such employees may also upgrade flight seats without authorisation and report inflated car mileage when travelling through their own vehicle.
Whether an employee uses a corporate credit card or manually reports business expenses for reimbursement, it’s important to ensure that personal expenses aren’t labelled as a business expense.
Employee expense fraud often involves misreporting business expenses. For instance, when an employee travels for a business meeting, they may try to add the cost of air tickets for their family to the reimbursement report or may mask family dinner expenses as a business expense.
When working from home, your employees may report the need to purchase a new work laptop or get a faster internet connection to streamline business processes. But it’d be considered employee theft if they use the system for personal use instead of carrying out work-related tasks.
In some cases, an employee may purchase an item for business use such as return air tickets, office supplies, or booking a room for stay whilst travelling for business. However, some of these items may no longer be required and are returned for a refund, however, the original receipt is still submitted for an expense reimbursement.
When reporting business expenses, employees can sometimes make genuine mistakes such as losing the receipt. However, here are a few signs that can indicate potential employee fraud risk:
• An employee frequently reports a generous tipping amount with ride-sharing or meal receipts
• The travel expense by an employee often exceeds the allocated amount
• When multiple employees report expenses, one of them has unusually high expenses as compared to other employees in similar roles
• Unexplained car mileage reported as business travel
Implement an Effective Reimbursement Policy
The lack of a formal reimbursement policy can make it difficult for employees to report accurate details and they may end up making mistakes. It is therefore prudent to implement a company-wide policy and educate employees to help them understand these guidelines.
Employees should have a clear understanding of the policy and they should be warned about consequences such as strict disciplinary action against those who violate the rules.
It’s also recommended to encourage employees to use corporate credit cards instead of personal cards. This approach makes it easier to track expenses and ensure it’s not a refund scheme.
Automate the process with a cloud-based expense management tool, so employees can easily report expenses and the management can review and approve reports. This increased visibility increases accountability and reduces the risk of employee theft.
Annual internal audit is also crucial where auditors can review documents to identify potential discrepancies. However, make sure they have unlimited access to financial documents and electronic records.
During the process, employees should be required to submit original expenditure documents to ensure they didn’t manipulate the information and questions should be asked about suspicious reports.
While reimbursement policies and internal audits reduce the risk of fraud, there’s no guarantee these actions will prevent employee fraud cases. When you are suspicious an employee may have committed expense reimbursement fraud, you should consider hiring a PI for an in-depth investigation.
The private investigator would look into suspicious expense reports and contact relevant parties to extract relevant and authentic information.
They may conduct a digital investigation by looking into the online activity and social media profiles of the subject to determine whether they actually travelled to the said place for business purposes. Further, surveillance and forensic investigation can also assist in gathering proof of potential fraud such as edited documents on their work or personal computer.
Curious to learn more about how private investigation firms investigate expense reimbursement schemes? Then our Corporate Investigation services can provide you answers!