Fraud costs organizations millions of dollars, causes employee embarrassment, damages corporate image, and intensifies legal and regulatory liabilities. Because many employees have the ability to charge Travel and Entertainment ("T&E") expenses, and the opportunity exists, T&E fraud is an unknown epidemic in many organizations. Let's look through a magnifying glass into T&E fraud triggered by employees and understand who may be the perpetrators, why the fraud occurs, what type of fraudulent actions are common, how much it costs, and how to control it.
Employees who feel disenchanted with their job, or may need extra money, are not the only offenders of T&E fraud. In the Occupational Fraud and Abuse Classification System,* conflicts of interests and bribery are categorized as corruption. In fact, some unethical behaviors that may be deemed a conflict of interest, such as personally redeeming meeting planner points that result from organization spend, and belong to the organization, may appear rational unless the company policy states that the points should be used to benefit the organization, not the individual. If the action appears sensible, the difference between fraud and unethical behavior often lies within the company policies and guidelines. Too often, fraud may result purposely by employees who know their wrongdoings, or innocently by employees who do not know about or understand company policy. Countless types of T&E fraud and unethical behavior occurs everyday in organizations.
The following examples do not represent an all-inclusive list of T&E fraudulent activities. Fraud or unethical behavior results from employees who:
1. create fictitious hotel bills or other bills and expense it
2. copy, and reclaim, receipts in a future expense report
3. expense false "below the line" expenses when receipts are not required
4. overstate charges by expensing more than the actual costs
5. take friends and family for meals, to entertainment venues, or on trips and expense the charges erroneously
6. pay for products or services that are wholly or partially used for personal use
7. collect hotel or vendor commissions that are due to the company
8. collect and personally use meeting planner points (which are different than individual hotel rewards points) for placing meetings and events at properties
9. use their corporate cards for personal use in order to collect rewards points that cost the organization more money for the contract with the financial services company
10. use meeting and event suppliers that may provide something personal in return such as free trips, room nights, spa service, car service, floral service, entertainment, extra rewards points, or other amenities
11. book company-expensed airline tickets, cancel the trip, and use the unused credit for personal travel
According to a recent survey asset misappropriation represents 88% of all fraud and corruption and bribery represents 16% of fraud. Many organizations use internal audits as their primary investigative method; yet, many internal audit teams do not know how to find, monitor or value the fraud listed in numbers 7 through 11 above.
Without a managed travel, meetings and entertainment program in place that aids in pre-empting these fraudulent practices, companies are vulnerable. Seven percent of an organization's annual revenues are lost to fraud according to the Association of Certified Fraud Examiners 2008 Report to the Nation on Occupational Fraud & Abuse. How much is your organization losing because of T&E fraud? And, how can you reduce it?
While some organization leaders may be cavalier about the loss of revenue because they do not believe the lost value is excessive, there are more reasons to cauterize fraud. Organizations may breach competition laws or stimulate SEC scrutiny with even small-value incidents. One example using the four-step process on how to Prevent, Identify, Mitigate and Educate (PIME) is shown below:
|
HOW TO: |
Prevent |
Identify |
Mitigate |
Educate |
|
Identify the value of the meeting planner points that are redeemed for personal use |
Centrally collect all meeting planner points to use for company business travel, donate to the charity of choice, or disallow all meeting planner points |
Review meeting and events contracts with properties and audit the points received for redemption activity |
a) Strengthen the strategic meeting management program so that designated staff procure meetings and events b) Centralize all meeting and event processes and procurement through technology to gain visibility into total volume |
a) revise policy b) communicate and market that meeting planners points must be used for business use |
Fraud increases during economic downturns. As such, it is more important now than ever before to focus efforts on how to reduce fraud in your organization. If you want help with T&E fraud, please contact me.
Debi Scholar, GLP, CMM, CMP, CTE, CTT
* Association of Certified Fraud Examiners 2008 Report to the Nation on Occupational Fraud & Abuse
Thank you for visiting the T&E Plus Blog on expense management, travel management, business meetings, events, incentives, strategic meetings management, entertainment, virtual meetings, tickets, hotels, airlines, ground transportation, T&E policy, plus more...
Debi has the following designations:
· Wharton Aresty Executive Education/National Business Travel Association (NBTA) Global Leadership Professional (GLP)
· Meeting Professionals International Certificate in Meetings Management (CMM)
· Convention Industry Council Certified Meeting Professional (CMP)
· NBTA Corporate Travel Expert (CTE)
· Six Sigma Green Belt
· Chauncey Certified Technical Trainer (CTT)
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