THROUGH EXPENSE REIMBURSEMENT
4. Duplicate Expenses
In the earlier example involving Monica S., our fraudster generated most of her ill-gotten gains by submitting duplicate travel receipts. Two basic situations foster the success of this type of scheme. The first situation ex- ists when multiple entities sponsor the trip or employ the individual.
Monica’s case involved an employer and a professional organization, but
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the fraud can also occur with parent and subsidiary organizations. The risk of fraud arises in these cases because there is no communication or coordination between the entities.
A second situation that fosters multiple, fraudulent reimbursements is illustrated by Monica’s employer. The lack of internal control and finan- cial oversight meant that bills were paid without any stringent review.
Because no one examined her lodging bills closely, and because there was no corporate memory concerning what had been paid in the past, it was a simple matter for Monica to resubmit the same bill after enough time had passed for the board members to forget that they had already paid it.
Reimbursements for Items Other Than Travel
Travel expenses are the most common form of employee reimbursement, but they are not the only ones. Employees frequently submit claims for other expenses such as office supplies, program materials, or long-distance calls. The more frequently the library allows this to happen and the greater the range of expenses that employees pay for out of pocket, the greater the risk that some error or fraud will occur. It is poor manage- ment and unfair to your employees to have them incur expenses on be- half of the library even if no fraud ever occurs.
Detecting and Preventing Expense Reimbursement Frauds Segregate Duties
Because travel and other personal expense reimbursement is a purchase, the same segregation of duties that we have discussed earlier should apply.
Employees should not be able to approve their own requests for travel or approve requests for reimbursement at the conclusion of the trip. Even more important for travel and reimbursement, however, is to closely scru- tinize the details of the trip to ensure the expenses are reasonable and work related. This places more responsibility on the person who signs the check (usually a board member). Too often the person who approves reimburse- ment looks only at the bottom line and not at the individual expenses.
Require Preauthorization for Travel
Travel is a purchase made on behalf of the library, and, like any other major purchase, it should be properly authorized. Some organizations actually use a purchase order, and indeed many travel expenses such as conference fees can be paid via a PO. This isn’t a bad system if you have
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vendors who are willing to accept it; it gives the library control over the purchase and it keeps the employee from incurring too many out-of- pocket expenses for work.
For many travel services such as airline tickets, however, the only workable system may be to have the employee make the reservation and request reimbursement. In cases where the employee is making his or her own arrangements, the library should still require preapproval for the trip. If a purchase order can’t be used, the library can substitute a travel request form or memo from the employee. (Many organizations simply have a policy that requires a letter or memo outlining the request, which is dated and countersigned by a supervisor. The key is to ensure that the request is made and approved before the trip is taken, which may require the use of a date/time stamp rather than a sequential form such as a PO.) Require Original Receipts for Reimbursement
Photocopies invite abuse of the expense reimbursement system. It’s al- ways a good idea to use the original receipts. Remember, however, that the point of the requirement is to verify that the expense was actually in- curred by the employee at the amount he or she is requesting. I mention this because many travel expenses no longer produce what we think of as an original receipt. When travel arrangements are made on the Web, the only document may be an e-mail receipt. In such cases, there’s usu- ally additional documentation such as a credit card bill that shows the employee paid for the item.
Require Petty Cash or Purchase Orders for Any Work-Related Purchases
Employees should use their personal funds for work-related purchases only rarely. Don’t get in the habit of letting your employees pay for work-related purchases with their own money. Apart from the fact that it isn’t fair to the employees, it creates an environment that is ripe for abuse. Once you start reimbursing your employees, it’s that much harder to keep track of the expenses. The problems don’t even have to include fraud. The point of petty cash vouchers and purchase orders is to main- tain control of expenses. The library loses that control once employees can make purchases without prior approval.
Regularly Review Travel Expenses for Reasonableness
Travel is normally a small part of library budgets. Any abuses should ap- pear quickly as deviations from the budget if employees are padding their
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travel expenses or making unauthorized trips. Reviewing travel expenses is also good politically. If the library is a publicly funded institution, be aware that there’s something about travel that especially arouses public ire. (No doubt it’s the images of all the riotous ALA conventions they’ve heard about.) Abuses in personal expenses seem to carry a dispropor- tionate weight, so it’s a good idea to keep close control.
Don’t Help Your Employees Act Dishonestly
Stealing from an employer is never the right thing to do, but employers often seem to go out of their way to make it easy for their employees to rationalize fraud. Let me provide an example. I have a friend who once traveled frequently for her employer. In order to save money on airfare, she was frequently asked to stay over a weekend and leave for work again on Monday. Although this separated her from her friends and family and was a considerable hardship, she did her best to accommo- date the request. She quit finally. The company lost a good employee, and the final straw that sent her out the door was laundry. When she stayed over the weekend, she had no opportunity to use her own washing machine or visit the dry cleaners. It was nearly impossible to bring enough work clothing, so she faced the dilemma of starting Monday’s work on the road with wrinkled, dirty clothing or sending her clothes out. The company, however, refused to pay for laundry expenses under any circumstances. As a result, she was forced to pad her taxi and meal expenses to pay for her out-of-town cleaning costs, costs she’d incurred for the sake of her employer.
Why, you may ask, is this something to be concerned about? The problem is that employers can be unreasonably cheap about travel. Often, the first place an organization looks when it wants to cut costs is travel.
This is fine up to a point, but it creates problems when an employer re- fuses to pay reasonable and legitimate costs. The real difficulty is that em- ployees begin to look for ways to “game” the system in order to recoup what they see (correctly in many cases) as legitimate expenses. This not only creates an environment in which cheating your employer comes to look reasonable, but it breeds feelings of resentment that create other frauds. Recall that a major cause of frauds is to right perceived inequities.
At the very least, an organization should consider expense policies that don’t foster dishonest behavior. Many organizations, for example, simply give employees a blanket per diem to cover all daily expenses. The employee keeps the daily payment regardless of what he or she actually spends. Assuming the amount is realistic for survival ($50 per day to cover
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all expenses in New York City probably isn’t, for example), employees be- come remarkably frugal when they can keep any leftover travel money.
A second problem that employers create for themselves is misdi- recting their internal controls. There’s something about frauds involving expense reimbursement that drives employers over the edge. I don’t mean to minimize the problems with expense reimbursement; they exist and create extensive losses to employers. But the truth is, compared to billing or payroll frauds, they don’t cause that much damage. Employers, how- ever, seem to devote an inordinate amount of time and energy to pre- venting their employees from charging breakfast if the trip started after 7:30 a.m. By all means scrutinize expense reports, but remember that re- sources for internal control are finite. In many cases, some of the effort to control travel expenses would be better spent paying closer attention to billing or payroll.