11 Oct 2018

Clayton Utz Fundamentals of Financial Crime 06 Expense Reimbursement Schemes

Expense reimbursement schemes are a very common form of fraud, but can be prevented and detected through data analytics techniques.


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Deepak Pillai: Many employers are very familiar with the corporate expense reimbursement policy but it's also one of the areas where we see a lot of fraud being committed by employees.  I just wanted to talk through some examples today, of where we have investigated employees committing fraud as part of the expense policy. 

One of the examples that I have actually investigated in the past involved an employee that was purchasing flights through the corporate travel agent, getting them charged onto their corporate card but then later going and actually cancelling those flights.  So what they were actually incurring on their credit card was an initial cost for the flight as well as a reimbursement or refund for the cancellation.  The employee then continued on to claim that expense through their expense portal but only claimed the initial charge for that flight.  They didn't notify the employer of the cancellation of the flight and the reimbursement and ended up pocketing the money from the actual charge that was incurred on their credit card. 

The client has asked me how could they have identified this essentially before that fraud had occurred and we discussed a couple of controls that they could have put in place to try and identify it before it occurred.  One of the areas of weakness is actually the approver process.  What they had identified was the approver was just phantom ticking and approving the expenses that were coming to them.  He probably should have asked more questions about what the travel was for and made sure that the employee was doing the travel itself. 

Secondly, they could have actually used some data analytics to help identify this issue.  They were getting data from their corporate card provider, as well as data from the travel agent, but they weren't actually running some analysis to identify where refunds were actually occurring and if employees were actually flagging those reimbursements on their corporate credit card.  Sid, what are some of the examples you have seen of expense fraud occurring at clients as well?

Sid Mylavarapu: Well recently, we conducted an investigation for a client where one of their managers was regularly overstating expenses in relation to mileage that he has claimed.  He has also decided to claim personal expenses personal trips as business-related expenses.  And when we conducted an analysis of his emails using keywords, we found that a lot of those trips that he's claimed for were actually personal trips. 

So we then discussed with the client the controls and measures they can put in place, and the most important one was that they need to have a clear expense policy. There's no point having a policy if it's not going to be enforced what they needed to have was a mechanism of enforcing it through dealing with non-compliance. 

Another key consideration was that they needed to lead by example.  So senior leadership would actually need to follow the policy, so that people who work for them can see that the policy is being followed and is quite effective.  In this particular example, one of the issues was that there were very poor supporting documentations provided and what they really needed to do was to make sure that there is clear policy in place that sets out what exactly needs to be provided.

Deepak Pillai: I do agree, Sid, I think some strong controls at organisations will help prevent this.  And one of the added advantages of having some of these controls is it also does help pick up error and abuse as well, where potentially there could be some recoveries or some cost savings for organisations.