27 Nov 2014

How to stamp out travel expense fraud

by Glen Bartlett, Annabelle Lesage

Having a travel expense policy in place is the passport to preventing and detecting fraud and abuse.

With the ever-increasing globalisation of business, travel expense fraud and abuse are on the rise.

The first step to safeguarding against it is to have a fair, clear and unambiguous travel expense policy. The exact nature of the policy will vary from one employer to the next, but all policies should break the expenses down under appropriately specific headings (air travel, motor vehicle travel, accommodation, entertainment, etc.), state which expenses are reimbursable and explain prohibited activity.

Policies should also answer those frequently asked questions, some of which reflect business travel’s inherent unpredictability, for example, “Can my partner travel with me?” and “What if I forget or lose my corporate card?”

The policy should include:

  • Who it applies to and the date of implementation.
  • What is expected of employees and what they should do to comply.
  • What is expected of managers and how to approve claims.
  • Consequences of non-compliance.
  • The employer’s stance on fraud, including a definition of fraud; assurance that all allegations of fraud will be investigated, and the consequences of engaging in fraud.

The two primary travel fraud schemes perpetrated by employees are claiming reimbursement for fictitious expenses and inflating actual expenses.

Examples of fictitious expenses that appear on expense reports include:

  • charging for items used for personal reasons (petrol, groceries, hotels, etc);
  • billing for travel and expenses that never materialised (cancelled airline tickets or conference registration fees, training fees for courses that were cancelled or never attended, etc);
  • seeking reimbursement for items that were never purchased (office supplies, gifts for clients, etc);
  • collusion among employees who travelled together, but bill separately for mileage, etc.;
  • outright falsifying or manipulating receipts; and
  • abuse of below-the-line expenses where receipts are not required to prove the expense.

Inflating or manipulating business expenses can be found when employees:

  • claim meals and entertainment reimbursement that may be in excess of the allowed maximum cap, or for items not reimbursable under the employer's policy (alcohol, leisure activities, sports tickets, etc);
  • add tips to their reimbursement claims that were greater than what was actually left;
  • fly first class or use limousines when more modest means may have been available and more applicable;
  • use inflated mileage totals when seeking reimbursement for motor vehicle travel; or
  • downgrade premium travel. For travellers who are allowed by policy to buy premium-class flights, there is the ability to downgrade at the counter, or directly through the airline, and get reimbursed for the difference, or use the difference to buy a ticket for a companion.

Means of prevention

Employers can limit the opportunity to commit travel expense fraud by adopting stringent policies and procedures, enforcing compliance, investigating breaches and punishing perpetrators.

Specifically, employers should:

  • maintain a travel expense policy which deals specifically with fraud and ensure that it’s reviewed, updated and accessible;
  • educate employees on the policies and procedures to raise awareness and reduce the risk of an employee arguing a lack of knowledge and/or training;
  • require original receipts to be submitted with the reports or maintained for a period of time for audit processes;
  • initiate a formal process whereby all disbursements are made and reviewed in a formal manner. Managers should review all expense reports and be accountable for ensuring their veracity. Payroll or HR should also be required to sign off on all expense reports;
  • routinely question expenditures that look extraordinary or abnormal. Waiting for a larger problem to build will only be more difficult and costly to resolve later. Adopt a no-tolerance approach even with small indiscretions to remind employees of the serious obligation to comply with policies and procedures;
  • implement the use of corporate credit cards for greater control. Employers can query each card individually and ask the card issuing company to provide credit activity reports which can be compared to actual expense reports;
  • annually audit employees' expense reports. Be sure that proper documentation exists to support requested expenditure;
  • treat reimbursement activities consistently by having employees pay expenditures and seek reimbursement, or by having the company pay expenses directly. Flip-flopping between the two can allow for duplicate reimbursement;
  • investigate, prosecute and/or discipline offenders found to be violating or falsifying their expense reports. If they are allowed to escape unpunished, others will follow their actions.
  • use a designated online booking tool to ensure that low-cost alternatives are considered. Changes and cancellations should be made only through the booking provider and/or preferred booking agent; and
  • invest in automated expense tools which allow for seamless integration of travel expense policy and corporate card data, and inform users when a report is in violation of a company policy.

Even with tightened controls, employers won’t be able to eliminate travel fraud and abuse completely. But continued program vigilance and the right policy implementation can substantially decrease the impact on the corporate bottom line.

This article was first published in ahri.com.au, November 2014

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.