Traveling in High Style on the Organization's Dime, Part 2

As we covered in part one, travel fraud is one of the most common forms of fictitious expense schemes I have encountered during my career. Instead of overstating a real business expense, these employees invent travel activities and submit false expense reports.  

Which employees will file false travel vouchers with their employers? Of course, anybody conceivably could meet the criteria of the three elements of the fraud triangle. Every employee has the opportunity to commit travel fraud. Those who do commit these crimes have motivations and justifications for their behavior that most of us simply cannot understand.

TRAVEL FOR MORE THAN ONE ORGANIZATION  

It is common for travelers to take official business trips on behalf of more than one organization. However, this creates an opportunity for wayward individuals to commit travel fraud after they complete these trips. They simply submit travel vouchers to each organization claiming false, or redundant, expenses to obtain duplicate expense reimbursements from each organization. They use copies of expense receipts (versus the originals) when filing their travel vouchers. When fraud examiners find copies of travel expense documents in the file, it is usually a red flag.

In my opinion, a traveler should prepare one travel voucher for total expenses when he or she goes on an official business trip for two or more organizations. The traveler should obtain and file all original source documents (i.e., no copies, with rare exceptions) with the organization that has been declared the "host." The host organization should independently verify the authenticity of these expenses during its review of the individual's travel voucher. The host then should bill the other participating organizations for their fair share of the individual's expenses after the travel claim has been paid.

When copies of expense receipts are present with the supporting documents for any travel claim, the first question the organization should ask the traveler is: "How and where did you get these copies?" The individual usually responds by saying that he or she made copies of the original documents for the file. The next question then should be: "Where are the original documents?" The conversation generally deteriorates at this point with little additional information forthcoming from the traveler.

Do not be too eager to accept the individual's first plausible answer. Inquisitive fraud examiners should use other investigative steps to determine if the transactions are payments to valid vendors for official business purposes, including obtaining copies of travel vouchers the individual filed with other organizations sponsoring the trip.

In addition, the host organization should verify that each participating organization pays its fair share of travel expenses. This is relatively easy when the organizations agree who covers what before the trip. If, however, the responsibility is left up to the traveler, he or she should include detailed explanations with travel vouchers that describe the rationale for distributing expenses to each organization. The traveler also should submit computations for all expenses related to any personal travel days — and for any personal use of rental cars — to ensure that these amounts are deducted from the total business expenses for the trip.

An alternative procedure for the above process involves having the traveler file separate travel vouchers for the expenses applicable to each organization. However, this method often requires the individual to submit copies of supporting documents (i.e., not originals) to the funding organizations when certain expenses listed on the same receipt are split between multiple organizations. I do not recommend this procedure, because employees often use these duplicate documents to commit travel fraud.

Finally, the individual's travel voucher should include a signed certification similar to the following: "I certify under penalty of perjury that this is a true and correct claim for necessary expenses incurred by me and that no payment has been received by me on account thereof." When travelers file false travel vouchers, this certification will become an important piece of evidence during the prosecution phase of the case.

CASE NO. 1: THE DOUBLE-DIPPING COLLEGE MANAGER  

In my November/December 2009 column about altered disbursement documents I mentioned a case involving a college department director named Milton. He also worked for an international foundation, and he occasionally traveled on official business for both the college and the foundation. After each trip, he filed separate travel vouchers to each organization to obtain reimbursement for his expenses. However, in the last year of his employment with the college, he got greedy and submitted the same travel expenses to both organizations.

Milton first claimed per diem for meals on his college travel voucher, which did not require receipts. Then he submitted the actual hotel and meal receipts with his foundation travel voucher to obtain a duplicate reimbursement of these expenses. He was also reimbursed twice for gasoline purchases.

He submitted the purchase receipts on his college travel voucher when he used the college's credit card to buy gasoline for his personal vehicle. He also charged the college vicinity mileage for use of his personal automobile while on official business. Even though he already had been reimbursed twice for these expenses, he submitted copies of the gas station receipts with his travel voucher to the foundation to obtain a third reimbursement. The foundation did not question why it had paid Milton's travel claims using copies of expense documents rather than the original source documents.

During a routine travel audit, the college's internal auditor uncovered these fictitious payments by comparing the supporting documents Milton attached to his college and foundation travel vouchers. The internal auditor was inquisitive and simply wondered if the college was paying its fair share of Milton's travel expenses on these joint-purpose trips. The internal auditor received a real surprise after reviewing the travel vouchers from both organizations. Milton reimbursed the college $1,782 in unauthorized travel payments, plus audit costs and resigned. The county prosecutor declined to criminally prosecute the case because Milton paid back the college and quit.

CASE NO. 2: CHARGING FOR A FREE LUNCH  

An agency director filed for reimbursement of meals that were provided for free by the organization sponsoring the trip. He also filed for reimbursement of personal travel expenses associated with another official business trip, as well as personal travel expenses for hotel and related expenses at destinations near his residence and his office. The organization's external auditor detected these fraudulent expenses during a routine audit. The director reimbursed the agency for $8,730 in unauthorized travel payments, plus audit costs, and he then resigned. The county prosecutor declined to criminally prosecute the case because the agency had been made whole. 

CASES NOS. 3, 4 AND 5  

A county sheriff was paid twice for travel expenses while attending a federal training academy. The FBI paid the expenses first, followed by the individual's employer ($974 in duplicate charges).
Another county sheriff was paid twice for travel expenses while attending a state training academy. The state of Washington paid the expenses first, followed by the individual's employer ($184 in duplicate charges).

A city clerk-treasurer made four joint-purpose trips and filed duplicate travel expenses with her employer and a private association by using copies of expense documents ($978 in false charges). The organization's external auditor detected these fraudulent expenses during routine audits. These individuals reimbursed their employers for the unauthorized travel payments, plus audit costs, and then they resigned. The county prosecutors declined to criminally prosecute these cases because the organizations had been made whole.

BEWARE THE CREDIT CARD RECEIPT  

Travelers often decide to seek duplicate reimbursement for expenses by using copies of credit card receipts or other expense documents that do not represent original source documents for the actual transaction. They do this by using copies of travel receipts or a variety of other receipts obtained from vendors for the same transaction when filing their travel vouchers.

Because credit cards are often used to conceal fraudulent activity, organizations should require individuals to submit original source document receipts for all charges with their travel vouchers. Individual credit card slips and monthly credit card company billing statements are not sufficient evidence to support expense reimbursements. Instead, restaurant cash register tapes are the original source documents for these transactions. Travelers should try to obtain these documents when they are issued by sources.

CASES NO. 6, 7, 8 AND 9  

In addition to being reimbursed for travel mileage for official business trips, several administrators of one organization also charged gasoline purchases for those same trips to their employer's credit card accounts. These administrators also used the organization's credit cards to pay for personal trips. And they claimed reimbursement for personal telephone calls and snacks ($425 in unauthorized expenses) that were not authorized by organization policy.

Three elected members from different local government agencies filed false travel vouchers with their employers and state associations. They received duplicate reimbursements from both the agencies and the associations by falsifying credit card receipts and submitting copies of other supporting travel documents. External auditors detected these fraudulent expenses during routine audits. The individuals reimbursed their employers for the unauthorized travel payments, plus audit costs, and then resigned. The county prosecutors declined to criminally prosecute these cases because the organizations were made whole.

PROFESSIONAL CONFERENCE CASH COW  

Travelers attending professional conferences sometimes try to get duplicate reimbursements for expenses by filing for trip expenses that were included in the registration fees. First, the employer pays in advance for the conference fees, which include — let us say — all lunches. Then the company pays for those lunches again when the traveler files his or her travel voucher for falsified lunch expenses. (The traveler simply claims these expenses when he or she did not actually pay for them.) This usually happens when employees travel on per diem, because the organization does not require meal expense receipts when the traveler uses this reimbursement method.

Organizations should require travelers to submit conference brochures with their travel vouchers so managers can review what the conference registration fees actually cover. 

CASE NO. 10  

An administrator submitted fraudulent travel claims for reimbursement of expenses he never incurred. This case included the multiple use of the same receipt, payment for meals that were provided at conferences, expenses while on personal trips and other unauthorized travel expenses. The administrator altered and falsified travel documents in this case ($3,004 in false charges). The organization's external auditor detected these fraudulent expenses during a routine audit. The administrator reimbursed the organization for the unauthorized travel payments, plus audit costs, and then resigned. The county prosecutor declined to criminally prosecute this case because the organization was made whole.

LESSONS LEARNED  

The prosecution outcomes of these relatively small travel fraud cases are sometimes discouraging to fraud examiners. After all, auditors and fraud examiners have invested a great deal of time documenting and reporting these losses. However, we must always remember that prosecutors have criminal case priorities designed to protect the public from perpetrators of more serious crimes. As a result, prosecutors often do not go after small white-collar crimes, such as the ones included in this column, even if they are appropriately "gift-wrapped" for them by auditors. We must respect their decisions and move along to the next fraud case. However, all organizations should report these unauthorized travel activities and their consequences in internal newsletters to deter other employees from taking similar actions in the future.

Let us review some of the finer points of fraud detection from these relatively small travel fraud cases. Each one is an example of employees who submit false or altered supporting documents to their employers to obtain reimbursement for unauthorized or fictitious travel expenses. 

• When one individual performs official travel that benefits multiple organizations, one organization should act as the "host" to pay all expenses the traveler reports at the conclusion of the trip. The host organization then should bill the other participating organizations for their fair share of the individual's travel expenses. 
• The employee's travel voucher should always include a signed certification stating under penalty of perjury that this is a true and correct claim for necessary expenses.
• Organizations should require all travelers to submit the original source document receipts for all charges with their travel vouchers. Copies of these documents should rarely be accepted.
• Organizations should require all travelers to submit with their travel vouchers the brochures associated with the professional conferences they attended.
• All organizations should report falsified travel expense reports and their consequences in internal newsletters to deter other employees from taking similar actions in the future.

TRAVEL FRAUD CAN BE ANYWHERE  

Anyone in any department can commit travel fraud. These crimes can become systemic in organizations with poor internal controls. Thus, managers and fraud examiners must always be vigilant because it might happen when and where you least expect it.

The final column on this topic will conclude our discussion about the most common internal control weaknesses associated with travel fraud you might encounter within your organization.

Regent Emeritus Joseph R. Dervaes, CFE, CIA, ACFE Fellow, is retired after more than 42 years of government service. He is the president of the ACFE's Pacific Northwest Chapter. His email address is: joeandpeggydervaes@centurytel.net.