Fuel and Transportation Expense Fraud

A handful of city employees recently found a way to save on gas and supplement their incomes by distributing their city-owned fuel credit cards and pass codes to friends and family members.

City officials knew that increasing gas prices and worsening economic conditions might tempt some workers to defraud the city so they conducted a proactive audit. They found several instances of suspicious activity and began investigations. Law enforcement found many people illegally using the fuel cards to the tune of more than $50,000 in only two months. If the city hadn't conducted the audit, the losses could have been huge. Two city employees handed cards to five individuals; seven were arrested.

All organizations are affected by fluctuating fuel and transportation costs. Everybody is looking for ways to soften the pain at the pump. Carpooling and fuel conservation are two of the top choices for saving money. But there are growing numbers who are turning to fuel and transportation fraud.

When fuel was cheaper, the risk for fraud was relatively low. But, of course, the situation has varied considerably in the past four years. According to gasoline price data kept by the Energy Information Administration of the U.S. Department of Energy, U.S. regular conventional retail gasoline prices were approximately $1.83 per gallon in September of 2004. Four years later, prices were up more than 100 percent (though they have greatly decreased recently because of the worldwide economic downturn).

In June of 2008, The New York Times published a graphical representation of the percentage of income spent on gas for citizens living in the United States; the figures range from 2 percent to as high as 16 percent of personal income being spent on fuel. The impact on your employees could be so significant that some might be resorting to devious alternatives.

We're trained to recognize that where there's more opportunity and pressure, there's also an increased propensity for rationalization and fraud. Opportunities have increased as organizations expand into the national and global economies.

In many situations, employees are having to travel more. It might be easy for some employees to rationalize taking advantage of a fuel or transportation reimbursement program.

Ask several questions when assessing your organization's fuel and transportation fraud risks. Does your organization keep complete and accurate data that's easily accessible? Does a single group or several, decentralized entities monitor the data and expenditures from your reimbursement programs? Is anything even being monitored? Do you have to overcome any ingrained assumptions that the risks are relatively low and a review isn't warranted?

If you determine that you might have some fraud risks, it's time to delve into the details and discover the facts. This article will focus on these fuel reimbursement methods:

• Fuel credit cards 
• Mileage reimbursement programs 
• Take-home vehicles 
• Fuel depots 
• Combination schemes using some or all of the above

We'll discuss the fuel reimbursement methods as they relate to the data and information needed to conduct a review, the schemes that could be perpetrated, ways to identify the presence of fraud, and how to shore up and control weaknesses.

FUEL CREDIT CARDS 

Fuel credit cards usually are gas cards for a particular vendor like Shell or Exxon or a companywide fuel credit card program such as Fleet or FuelMan. Your company might also issue a regular company credit card that could be used to purchase fuel.

Data Needed
To complete an effective review, you'll need access to: 

• At a minimum, the detailed information on transaction date and time, purchase amount, gallons filled, and the location of the fill up, if possible 
• Total gas capacity of the employee vehicle 
• Employee time sheets and/or work schedules 
• Mileage logs 
• Average miles per gallon or mpg (You can get mpg information from your organization-wide management system, or you can recreate it if your organization requires employees to keep a mileage log.) 

• Employee fills up personal vehicle at the end of the workday and then fills up company vehicle the next morning, or vice versa. 
• Employee fills up an additional vehicle while filling up company vehicle. 
• Employee fills up second vehicle directly after company vehicle, filling up to the same amount so as to appear as a duplicate. 
• Employee makes several fuel purchases in the same day, usually for smaller amounts to conceal the fraud.
• Employee fills up five-gallon container in addition to the normal purchase. 
• Employee alters mileage logs to conceal fraud. 
• Employee sells fill-ups for cash directly at the pump.

How to Identify Fraud or Theft
Compare the number of gallons purchased to the tank's capacity and identify the impossible instances. For example, when 32 gallons are filled and the vehicle only holds 20 gallons.

Compare average mpg obtained and look for variances. A good rule of thumb is to set average mpg thresholds to plus or minus 10 percent of the average mpg of the vehicle. You'll need historical or maintenance information to determine this. For a vehicle with an average of 24 mpg of, you'd want to review instances in which the average mpg is above 26.5 or below 21.5.

For example, a vehicle with a 15-gallon tank and a 24 mpg average is recorded as obtaining the following mpg for the week: 

• Monday: 24.1 mpg 
• Tuesday: 27.3 mpg 
• Wednesday: 16.8 mpg 
• Thursday: 25.3 mpg 
• Friday: 22.9 mpg 

We'd expect that on a full tank, the vehicle should be able to obtain approximately 360 miles. Wednesday would be a likely choice for further review. If additional fuel was fraudulently purchased and used or taken elsewhere, this would adversely affect the average mpg achieved because the vehicle still traveled 360 miles between fill-ups but was less fuel efficient.

Higher fuel efficiency spikes could be indicators of those times when the employee isn't committing fraud. The employee might also be entering or documenting erroneous start-and-stop mileage to cause widely fluctuating average mpg values to be reported. Consider fuel spikes to be red flags; fuel fraud could be rampant.

Compare fill-up times to time sheets and work schedules. You might identify instances in which fill-ups are occurring when the employee isn't scheduled to work.

For example, the employee fills up Friday afternoon but reports no time worked or traveled over the weekend until reporting to work Monday morning. In reviewing the purchase data, you see that the employee fills up on Sunday evening or Monday morning when reporting to work. The second fill-up might be unjustified.

Compare the number of fuel purchases occurring in a single day. Examine the number and frequency, and specifically question the fill-ups that are less than half the tank capacity. Review transaction times and locations.

Compare transaction amounts to determine if double purchases are occurring. If confronted, the employee might indicate that the station swiped the card twice and this is a duplicate. This seldom happens, so if you identify more than one or two of these incidents, consider them as red flags.

If mileage logs are used, compare the log entries to the vehicle's actual mileage. You might identify a huge discrepancy between the most recent ending mileage reported and the actual mileage. The employee might be doctoring the mileage logs to conceal fuel fraud.

Examine the card issued to the employee. In some instances, your company might allow fuel cards to be checked out and used by multiple employees, so it might be difficult to find fraud. But if you do find possible fraud, first determine which employee was using the card at the time of the fraudulent act(s).

Control and Reporting Improvements
Unfortunately, there's not a single one-size-fits-all approach to controlling fuel credit card fraud because your organization's needs and business environment will dictate how employees purchase fuel. However, you can implement some controls and reporting functions to minimize and flag possible fraud.

If feasible, use a fleet management and/or a fuel purchase software program in which you'll have access to routine reports and data for analysis. There are several companies that can offer these services. If this isn't an option, then the next alternative is to require employees to use the organization's fuel credit card. This will give you the rights and privileges to ask for purchase data directly from the credit card company.

The last option, and, unfortunately, the most widely used, is the employee expense report. Require employees to submit receipts for fuel especially if they're traveling routinely. It's easier to conceal fuel credit card fraud when there are more purchases. If the fuel receipts don't meet your organization's documentation requirement threshold, then require employees to submit a mileage log and/or fuel purchase log with the basic information such as tank capacity, gallons filled, purchase date/time, and amount.

You'll also need various types of established baseline data to help identify fuel credit card fraud. Some of these will include the fuel capacity of the vehicles, average mpg, and the routine driving habits of the employees such as when they drive during the day, approximate mileage, average cost, and home base location. Identifying fuel purchasing variances will be difficult without accurate baseline data.

MILEAGE REIMBURSEMENT PROGRAMS 

Mechanisms for reimbursing travel expenses exist in government, nonprofit, and public/private entities. As gasoline prices have increased, so have the recognized reimbursement amounts that range from 30 cents per mile to as high as 60 cents. The reporting of false mileage can become profitable for a dishonest employee in a short period of time and costly for your organization.

If your reimbursement policies are poorly written or non-existent, a perpetrator can spin the alleged fraud as a result of miscommunication, ignorance, or as a simple mistake. Therefore, ask these questions: What mileage is considered reimbursable? Should commuting mileage be deducted from the work mileage? Is mileage only reimbursable for out-of-town travel? Is there a maximum mileage threshold? Should a cost benefit be conducted before allowing the use of personal vehicles for company business?

Data Needed for Reimbursement Review
To complete an effective review, you will need access to:

• Mileage request for reimbursement  
• Starting and ending locations with complete addresses 
• Documented business purpose 
• Employee time sheets or work schedules 
• Employee expense account records 
• Detailed review of rental, company vehicle and/or fuel card records 
• Online map tool to verify distances 
• The current mileage reimbursement rate being applied 
• Data on any previous mileage reimbursement rates and the change date 

Possible Reimbursement Schemes: 

• Employee holds off reporting mileage reimbursement until the company reimbursement rate increases. 
• Employee reports false mileage not taken. 
• Employee doesn't deduct commuting mileage. 
• Employee adds additional mileage not actually driven. 
• Employee charges mileage in addition to a rental car or company vehicle. 
• Employee takes longer routes or documents a longer route to seek a larger reimbursement. 
• Multiple employees ride in a single vehicle and all seek reimbursement for mileage taken. 

How to identify reimbursement fraud/theft
Compare the dates of your reimbursement rate changes to the reported dates of mileage to determine if mileage was held in anticipation of a rate increase.

Compare mileage reimbursement requests to time sheets, work schedules, and employee calendars. Mileage might be reported for dates when the employee was on vacation, in all-day training, or was obviously in the office.

If your organization requires that commuting mileage be excluded prior to seeking reimbursement, obtain the employee's home address and calculate the distance from the home residence to the work site. Review the mileage submitted along with the start and ending locations. Determine if the mileage appears inflated by using online map services. You can use this same test on all submitted mileage as a check to see if additional mileage is being added to the reimbursement request. Review employee expense reports to determine if the employee used a rental car on the same day that the employee submitted mileage for reimbursement. Review company pool vehicle logs or take-home vehicle records. The employee might be trying to seek reimbursement for mileage for which the organization is already paying through the use of company vehicles. Calculate the total mileage that would have been reasonable from the starting to the ending location and compare to mileage being reported. Interview the employee for explanations on any discrepancies. Compare the business purpose of the trips to other employees' mileage reimbursement requests and/or business purpose attendee lists. Determine if employees attended the same event and reported the same travel mileage. Interview employees to determine if they traveled in the same vehicle. Compare computer access or building access records to days when mileage was reported. For example, could the employee have driven 200 miles when he or she was in the building all day?

Control and Reporting Improvements
The first and most important requirement for managing a mileage reimbursement program is ensuring that well-documented policies and procedures are in place and are communicated to the employees. This might be outside your realm of control, but research to determine if these policies exist and have been properly communicated. If they don't exist or haven't been communicated, work with management to get these in place to guard against potential abuse.

A good mileage reimbursement program should require employees to document precise starting and ending locations including street addresses. Documenting only the destination city isn't sufficient especially when some metropolitan areas can be as large as 20 to 30 miles across.

Also, employees should be required to enter the start and ending mileage for each location visited during the day. Simply beginning with the primary starting point and the final destination point, which in some instances is the same location, doesn't provide enough detailed information to identify reimbursement fraud. This simplified process actually aids fraud concealment.

Consider instituting maximums on mileage reimbursement if employee mileage patterns are fairly consistent. However, if your company does institute maximums, review available data to determine those employees who routinely get close to the max because they may be taking advantage of the system.

TAKE-HOME VEHICLES 

Many organizations overlook take-home vehicle plans as potential fraud areas. A comprehensive plan with policies and procedures should be in place. If that organization doesn't plainly communicate that plan to employees, they can plead "misunderstandings" if you uncover fraud or serious errors.

Data Needed for Take-home Vehicle Review
To complete an effective review, you will need access to:

• Take-home vehicle policy, if one is used 
• Vehicle assignment including vehicle number, employee name, and home location 
• Vehicle and maintenance reports, mileage logs, tank capacity, and average mpg 
• Vehicle's assigned fuel card, if one is assigned 
• Fuel data: the detailed information on transaction date and time, purchase amount, gallons filled, and the location of the fill-up, if possible 

Possible Fraud Schemes:

• Employee uses the take-home vehicle for personal use outside the normal business usage. 
• Employee uses the company vehicle for a side business. 
• Employee allows friends and/or family members to use the company vehicle. 
• Employee uses the company vehicle as a carpool vehicle and collects cash from the carpoolers. 
• Two or more employees with take-home vehicles occasionally carpool together and then use the expected routine fill-ups for their personal vehicles. 
• Employee uses the take-home vehicle's assigned fuel card to make personal fill-ups. (See the previous section on fuel credit cards for related schemes.) 

How to Identify Take-home Vehicle Fraud/Theft
Use many of the same checks and tests that were identified in the fuel credit cards section: average mpg tests, fill-up capacity tests, etc.

Compare the vehicle usage to other employees engaged in the same activity. Identify outliers or those employees who appear to be driving more compared to their peers.

Review maintenance cost reports. A vehicle's increased maintenance costs and repairs when compared to maintenance costs on similar vehicles could be the result of additional personal use of the vehicle.

Conduct spot inspections of vehicles. This test is often overlooked but could provide relevant information.

Control and Reporting Improvements
As with the mileage reimbursement program, your company's take-home vehicle policies and procedures must be robust, well-controlled, and communicated to employees. You can deter and detect fraud by requiring and reviewing accurate vehicle records. Consider training maintenance personnel to identify red flags. Don't overlook possible fraud by maintenance personnel.

BULK FUEL PURCHASES AND FUEL DEPOTS 

Check to see that you are getting what you paid for. Many wholesalers use third-party distributing companies to deliver the fuel. While you might have an excellent relationship with your contracted provider, the company or driver delivering the fuel might be different each week. If compensating controls aren't present, the risks of skimming, shorting, and product substitution are high. Some employees might also be skimming fuel. 

Data Needed for Bulk Fuel Fraud
To complete an effective review, you'll need access to: 

• Fuel contracts stipulating wholesale prices, purchase order amounts, and fuel grades 
• Onsite tank capacities 
• Tank usage reports, fuel deposited, and fuel withdrawn 
• Fuel delivery receipts and invoices plus purchase receipts and invoices 
• Delivery company information to identify trends such as specific companies, drivers, and truck numbers. 

Review the timing of the invoices to ensure that billing isn't delayed to take advantage of higher market prices for fuel.

Review actual invoices and compare contracted rates to billed rates and identify discrepancies.

Determine the maximum capacity vehicle in the fleet and run usage reports to identify fuel fill-ups exceeding this number.

Periodically take samples of the delivered fuel and have it independently tested to ensure that you're getting what you're paying for. Based on your fleet's usage of the fuel depot, review off-peak fueling data to determine if there are fill-ups occurring at odd or off hours.

Verify the fuel delivery company's certificate of calibration or other documents that certify off-load readings.

Control and Reporting Improvements
At the very minimum, your fuel depots must have adequate security, tracking, and reporting mechanisms. Unfortunately, there are many fuel depots that lack any security other than physical gate security. Conduct a routine and thorough review and analysis on your bulk fuel deliveries, usage, and invoicing. Consider installing computing, tracking, and reporting software.

Don't forget about routine audits and inspections of the tanks, delivery companies, usage reports, and corresponding purchase data. In some instances, this information can be spread across various departments, so make sure you review all the data together.

FUEL AND TRANSPORTATION FRAUD COMBINATIONS 

Generally, the larger the organization, the more reimbursement mechanisms available to employees. Obviously, fraud is more probable if controls are lax and reimbursement mechanisms are spread across the company or housed in different departments. If possible, refrain from allowing employees to routinely purchase fuel on their personal credit cards because it prevents you from having access to records. Consequently, some companies have made it a requirement that all fuel credit card transaction data accompany the expense report.

Possible Fraud Schemes: 

• Employee charges mileage reimbursement when issued a company vehicle or uses a rental car. 
• Employee charges personal fuel expenses on fuel card and has access to fuel depot; fuel card charges are reviewed separately from fuel depot expenses. 
• Employee siphons fuel from take-home vehicle and transfers to personal vehicle; average mpg for take-home vehicle appears lower when compared to other vehicles similar in make, model, and function. 
• Employee includes personal gas receipts for rental car even though the rental was returned empty and the fuel surcharge was assessed. (Always review the details of the rental receipt and compare rental drop-off time to the fill-up purchase time for the rental.) 

GET THAT DATA AND BE READY FOR EMPLOYEE RESPONSES  

Obtain as much data as possible whether it be in digital form or from receipts, purchase dates and times, or other paper documents.

Be ready for typical defensive responses from suspected employees. If you're not prepared, their smoke screens might make you doubt your findings or make management prematurely end the investigation or audit.

If your organization reimburses for fuel and transportation expenses, you have fraudsters. The amount and exposure depends on the controls in place, the variety of reimbursement mechanisms, and if you're conducting proactive and detective reporting and analysis.

Ryan C. Hubbs, CFE, CIA, CCSA, PHR, CFS, is the senior lead internal auditor/fraud investigator at Entergy in New Orleans, La. He's the president of the New Orleans ACFE Chapter. 

A Fillup for the Company Truck and a Little Extra 

Brandon was a driver for a local delivery company. When he wasn't delivering packages, he managed his family's farm. As fuel prices began to increase, it became difficult for him to fuel all of the farm vehicles. To soften the financial blow and keep the family farm stable, when he fueled his company truck, he would have his wife pull her personal vehicle up to the adjacent pump at the local gas station. It wasn't hard to hand the nozzle to her across the island before completing the fill-up. Management received weekly and monthly fuel reports but didn't review them carefully. The fuel fraud scheme continued for many months until a tipster alerted the company.

Delivering Fuel to Gas Stations and Cash to Their Pockets 

Bob, Mitch, and Levi delivered fuel to local gas stations for a fuel distributor. As gas demands increased, it was easy for them to find people and businesses willing to pay cash for fuel at a steep discount. The drivers, working together, doctored fuel delivery slips to make it appear that they had delivered the missing fuel to a company with a large fleet and fuel needs. The company they charged was unaware that they were being billed for fuel they didn't receive. Bob, Mitch, and Levi were indicted for a false billing scheme. They were only caught when an anonymous tipster reported them

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