Now You See It, But Now You Don’t
Back early in my career, I served in a large corporation and part of my job was reviewing employee reimbursements. I decided to gather the employee data and built testing sets by using three years of data and putting it into columns, including check registers, business transaction support (names of vendors, dates of purchases/expenses, type of items or services, cashiers, or salespersons noted, where the items were purchased from, and the delivery method specified). I further detailed information such as discounts received, the tax charged, original payment method and the amount paid. Once I built the sets, I used algorithms to sort this data and analyzed it.
So, what were the results?
In one instance, I discovered an employee who purchased supplies for the company and was using a loophole for their own profit. In this case, the data showed they purchased supplies regularly from three different vendors during a 25-month period. However, during the last 11 months, the data showed that a fourth vendor was added, and it was the only vendor this employee used during that time. I investigated the invoices and was able to track the fourth vendor to an online platform that the employee purchased the goods from. Now, the company had a rule that allowed employees to be reimbursed up to $50 if they purchased from vendors outside of the normal business accounts. In this case, the employee discovered a weakness in the system and process. They exploited the company by creating their own online store and selling like-items that they often purchased from the previous three vendors before setting up this account. After establishing the online store, the employee purchased and then sold those items to themselves through themselves as the fourth vendor, and then they turned in a receipt for reimbursement at the marked-up rate.
To give an example of how they used the inflated prices to their advantage, say the company ordered pencils at $3 – $5 per box 1-2 times per month. The employee would buy the same item through the fourth vendor, only at $8 – $12 per box 7 to 12 times per month. The fraudster would then submit a request for reimbursement for the company purchases, and they recycled the scheme over and over for several months – profiting from overpriced items and purchasing items that weren’t even necessary. They were clever to use two different accounts to acquire the goods and even gave themselves a 5-star rating for each transaction. So, the scheme was compounded several ways.
Other issues that I found were employees waiting several months before submitting receipts to get reimbursed – in a few instances, the employees waited an entire year. A few reimbursements were made to employees who turned in receipts but the receipts didn’t even match the employee’s name. For example, the purchases were made on a credit card that didn’t match their name. I found one instance in which the employee no longer worked for the organization, so the business office was not able to determine if the employee was related to the person listed on the receipt or if the former employee submitted fraudulent support. A few of the receipts I reviewed weren’t legible, and in a few instances the transaction support was missing and/or altered.
For some of the faded receipts, the supervisors that approved them swore the receipts were once legible. It was like a magic trick – now you see it, but now you don’t. Fortunately, I’d learned a handy method to bring those receipts back to life and showed them. I set a hairdryer on low (or you can hold a receipt above a lightbulb, something that generates low heat), and we were able to get the imaging to re-appear. The irony when using this method is to know that – as receipts are now printed on thermal paper – the receipt turns black, but the lettering and numbers now turn white, due to a chemical reaction from the paper. Since the paper is sensitive to heat and UV lighting, extended exposure will cause them to fade. Other issues that cause receipts to fade are oil and humidity (you’ve probably noticed fast food receipts fading after touching them from the oil on your hands). Also, a pen highlighter can cause the ink on a receipt to disappear – if you highlight the information on the receipt.
I hope you can learn from these various findings and make sure your reconciliation processes are always timely, carefully documented, and verified.
1252.3 – University of North Carolina at Chapel Hill Procedure on Reconciling a Purchase Card (P-Card)
The Group Approver challenges or approves each purchase and confirms allocation of transactions is to the appropriate ConnectCarolina fund source.
If a receipt is not available, the Accountholder must submit a Missing Receipt Affidavit, signed by the Department Head or Business Manager and load it to the related transaction in Works.
Four Types of Expense Report Fraud to Look Out For
SAP Concur Team Article, December 12, 2021
Fraudulent spending has the potential to significantly impact a business’s bottom line. According to the Association of Certified Fraud Examiners (ACFE), 5% of a typical organization’s annual revenues are lost due to fraud each year, while the median loss from asset misappropriation is $154,000. Being able to identify where potential leakage can occur can help you prevent it. Here are four types of expense fraud schemes to look out for.
Three Tips to Help Prevent and Detect Fraudulent Travel Expense Activity
Misty Carter, ACFE Research Specialist, ACFE Insights February 21, 2017
Have you ever wondered, “Are my travel expenses being reviewed?” Fraudsters who have been successful at defrauding companies through the submission of fictitious travel expenses most likely have. If management, though, has never considered this question from the employee’s perspective, they might unknowingly be paying out thousands of dollars to fund a fraudster’s lifestyle – that fraudster being one of their own employees.