Expense Report Padding Could Cost You Your Job

We’ve all heard about the big cases of fraud that have recently made headlines.  Enron, WorldComm, and even the United Way have harbored employees who misappropriated assets, produced fraudulent statements or ran some sort of corrupt scheme that illegally lined the wrong pockets.  But what about the little cases of fraud, the ones where an employee misrepresents a personal meal as a business meal, or tacks an extra ten dollars onto a taxi cab fare? The news is not good for low-level employees who use expense reports to supplement their salaries.  Companies are becoming more adept at catching small-time fraudsters, and in this post-Enron world of zero tolerance for fraud, more willing to prosecute to the fullest extent of the law.  According to the Association for Certified Fraud Examiners, low-level employees represent 50% of the reported fraud cases, and over two-thirds are referred to law enforcement. But isn’t it easier to get away with small-time fraud than the extravagant schemes that put Jeffrey Skilling and Kenneth Lay in the headlines with a guilty verdict?  Not necessarily.  Sarbanes-Oxley legislation, a set of rules designed to prevent income and expenses from falling through the cracks, has inspired a rush of expense control management tools that flag expenses that appear out of line.  Exemplified by on-demand services such as expensewatch.com, the tools allow companies to detect misdeeds by automating internal financial controls, creating real-time financial visibility and closely managing approval processes.  Financial executives are making use of these new tools, too.  American Express found in a poll of more than 250 companies that 30% of financial executives consider employee compliance a “burning issue” for 2006, and 63% are reviewing T&E expenses more closely.  So, do you consider yourself a small-time fraudster?  Most employees would say no.  However, many employees and managers disregard the over-padding of expense reports with a wink, and even consider it a reward for good performance.  A recent survey conducted by the Gallup organization revealed that one out of every four employees believe it acceptable to exaggerate expenses, while one out of three think their co-workers pad expense reports.  Of those who do pad their expense reports, 39% did not label it “fraud” in the criminal sense if the exaggerated amount was 10% or less of the total.  This suggests that many employees do not know what constitutes fraud, and are unaware that they are breaking the law. Expense report padding creeps in unintentionally as well.  Anyone who has filled out one or more expense reports knows the job is tedious.  Sometimes it is simply easier to file expense reports quickly and allow inaccuracies to creep in, or to file them only infrequently, after much of the detail is lost. Regardless of whether it is intentional or not, expense report fraud tends to fall into four categories.  Mischaracterized expenses represent the most common type of expense report fraud, at approximately 35% of the total amount.  They occur when employees submit personal expenses as business expenses.  In other words, you shouldn’t play golf as a friend and call it a sales meeting.  The second most common type of expense report fraud involves overstated and fictitious expenses, at about 28% each.  Overstated expense report fraud occurs when you tack an extra ten bucks onto your taxi cab fare, and fictitious expense report fraud describes situations where you submit a phony receipt for goods or services never purchased.  The least common type of expense report fraud, with 10% occurrence rate, is multiple reimbursements, where you enter an identical receipt on two or more expense reports. Companies, law enforcement officials and auditors are aware of these schemes and others like them.  They are primed to look for similar situations and they’re not winking anymore.  So if you have a blank expense report in front of you, a stack of receipts and what seems like an opportunity to enhance your salary, think twice.  There is an increasingly better chance that you will be caught.  Not only would the “fraudster” label ruin your professional reputation—think once a cheater, always a cheater—but it could cost you your job.  Or even a visit with local law enforcement officials.