Expense claim fiddles

IT'S the fear every business owner has – that a trusted employee is somehow stealing your company's money. And as last week's resignation of Hewlett Packard chief executive Mike Hurd showed, it's a problem companies of all shapes and sizes must confront.

The computer manufacturer confirmed Hurd actually inflated or fabricated, expenses in order to conceal a relationship he was having with a female contractor. Reports suggest the amount was about $US20,000 and was spent on travel, food, and getting the contractor paid for work she didn't actually do.

"The investigation revealed numerous instances where the contractor received compensation and/or expense reimbursement where there was not a legitimate business purpose," HP general counsel Michael Holston said on a company conference call last month.

"And the investigation found numerous instances where inaccurate expense reports were submitted by Mark or on his behalf that intended to or had the effect of concealing Mark's personal relationship with the contractor."

Chump change for a billion-dollar company, but a potential catastrophe for a struggling SME.

Andrew Firth from Rushmore Forensic says these types of fraud are "so common" they pop up all the time on forensic accounts.

"It's actually one of the easiest frauds to detect. Most other cases of employee fraud are actually quite hard to spot, but these types are easy if you know what you're looking for. With the clients I work with, it's one of the first things I spot."

Gary Gill, head of forensic at KPMG, says while many of these expenses tend to be fairly small, they are potentially serious problems. The issue is not necessarily the amount, but the employee's trustworthiness.

"We've run into a number of areas where these fiddles have run into the hundreds of thousands of dollars."

"A lot of these occur when employees are given their own credit cards for expenses, and they pay the bill on their own and are then reimbursed for that. Fraud can happen there, and where the company pays that bill directly, there is more potential for abuse.

Make sure your business isn't being taken for a free ride. Here are five of the most popular expense fiddles you need to be watching out for.

Car expenses

Vehicle expenses is probably the most common form of employee expense claims, but experts say it's also one of the key areas where employees can run up a hefty bill on your behalf. Business owners need to be vigilant.

Arnold Shields from Doleman Bateman says the more common abuses here are fake or incorrect petrol dockets being handed in by the employee, who will then be reimbursed.

"Most of these claims come through petrol dockets, so an employee hands them in and then they get reimbursed. But often they'll just throw in their partner's dockets, or someone else's, and they'll try and get in on the payment. It's more popular than you'd think."

"This is why a lot of companies have got cards they use to pay for petrol, or they make sure you can only get reimbursed after handing in a log, or so on. They often give a card to an employee and it can only be used for a particular vehicle or for petrol only. That often works."

The key here is surveillance. Watch the amount of petrol an employee is claiming, and consider confronting the employee if you think they're just spending too much, as this could be a tip-off of a deeper problem.

Travel expenses

Whether your employees are travelling by taxi, train or in the air, there are always little ways they could be sneaking in an extra expense claim.

Slade Sherman, founder and chief executive of online discount and coupon service Myzerr, says he knows of an organisation which had to crack down on its employees handing in discarded train tickets that weren't actually theirs at all.

"You often see people leaving their train tickets around at the station if they've been used up for the day. I knew an organisation which had to stop its employees from actually taking those and getting reimbursed for them."

The business didn't bother to check whether these train tickets were actually being used or not, until the boss finally caught wind of the situation.

"The boss would bring someone into his office and say, 'you're brilliant, you've actually managed to be in two places at once. How did you do it?'"

Train tickets aren't the only travel expense being take advantage of here. Taxis are a particularly common trouble area, KPMH's Gary Gill says.

"Taxi fares are another area that really gets abused. There's only one real abuse here, and that's using the taxi outside of company time and going to places they shouldn't have."

"Certainly we've experienced some very interesting situations here where someone has gone somewhere inappropriate, and then claimed it on company time."

Gill admits these are harder to catch. But Firth says the idea is to keep a watchful eye on your employee's schedules, and "watch for anything out of the ordinary, or something that wouldn't usually be done on company time... question it all."

Firth also says while airplane travel is slightly more difficult to claim as an expense, there are still areas where employees can claim an extra frequent flyer mile here and there without your knowledge.

"There are situations where an employee may travel between two cities regularly, such as Melbourne and Sydney, and they'll book a flight, cancel it, and then sometimes receive a credit for the cancelled ticket and use that for their own personal use."

"Another more unusual one is that someone went overseas, lost their suitcase, and then claimed a suit for business while he was overseas – then he claimed the luggage on insurance. He got reimbursed twice, when only once was sufficient. However, that's harder to detect, and you're more likely to find something unusual if you're constantly monitoring bookings."

Food expenses

It's always tempting to stretch your long lunch and claim it on company time, but these experts say this is actually a significant problem, specifically among middle-manager types who are starting to get more responsibility on their way up the corporate ladder.

"I had a case about six months ago where I found that there were people going out to dinner, and they were with clients so that was fine, but at the end of the meal they were offered a wine membership. It was $199 per person, and they purchased two – not hard to miss," Shields says.

Gill says this is probably one of the areas that has the potential to be abused the most, because the lines between business and recreation can often be thin. "There's probably more activity in the entertainment area, dining out, food and drinks and that sort of thing".

However, Firth says there are some tell-tale signs that your employees are enjoying themselves on the company dollar.

"If I see something happening on a Monday to Friday, I generally won't investigate it further. It's too hard to detect. But if I see something on a weekend, I look further, because the weekend is when these more spurious claims could be made and that's when they're often happening, or otherwise very late at night."

"Really it just comes down to monitoring. If you're constantly looking at these things and checking them against benchmarks then it's not going to be easy at all to allow these things to slip past."
Timesheets

If your employees enjoy the benefit of overtime, then you need to be especially careful to make sure those extra hours aren't being added illegitimately.

These experts say timesheet fraud occurs more often than you'd think, and especially if you have employees writing in their own hours with no oversight. Gill says the most common timesheet frauds are those that aren't out of the ordinary – just an extra hour or two at first.

The problem is that these soon add up, and all of a sudden you've paid out dozens of overtime hours that haven't actually been worked.

"Timesheet fraud is actually something that I think is potentially, quite a big problem, and a lot of the bigger organisations don't really pay attention to it a lot," Gill says, adding that he is actually investigating the matter for a client.

"Typically it may only be an hour here, and an hour there, but this can really add up to a substantial sum and if you don't have good controls in place, like constant monitoring, this can be really problematic and drag on your costs."

Ghost employee

Is your payroll being haunted by a ghost? Rather than simply inflating an existing expense, the payroll ghost is a much more vicious form of fraud. A ghost is simply a fictional employee put on the payroll, with the inventor using the disguise to collect payments.

As accounting group Worrel's points out on its website, this is intentional, cold-blooded theft. "The cumulative loss over a year of one or more ghost employees can be significant."

Some tell-tale signs you've been paying a ghost include employee files with missing information, more than one employee using the same bank account, unexplained turnover of staff and an employee name that does not have a specified job description.

The person creating the ghost is usually someone who has access to the payroll system, who can add and delete employees at their will.

Payroll officers have a large

amount of power, as was highlighted by the incident that occurred last year at Clive Peeter's, which lost $20 million to a payroll officer who directed payments to herself.

While a ghost employee is often a more sophisticated ruse, Worrel's points out there are still things you can do. These include refusing to pay in cash, setting up rigorous approval methods for new employees and regular performance reviews based on the payroll list.

"Have supervisors approve payroll payments to their direct employees on a random basis. This should highlight names on the payroll register that nobody recognises."

"Have management check the payroll listing from time to time looking for suspicious names and addresses, and randomly meet employees on the payroll register. For businesses with manageable numbers of employees, have a non-payroll person randomly walk around with a payroll list and meet every employee on the list."

This article first appeared onSmartCompany.com.au, Australia’s premier site for business advice, news, forums and blogs.

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