Now Is the Golden Age of Travel-Expense Fraud
Are you the kind of person who wants to see the world and fly on the fanciest planes — but prefers to have other people pick up the bill? And are you willing to break the law, your company's code of ethics, and be a generally crappy person to do it? Then you are one of the main reasons we're living in the golden age of travel-expense fraud. Despite regular technological advances in the workplace, it's actually never been easier to steal flights, hotel suites and expensive dinners from your company.
"It's a very easy fraud to commit these days," said Craig Greene, founding partner of McGovern Greene LLP, a forensic accountancy firm based in Chicago in Las Vegas.
Dodgy trips on company or the public dime have become a major issue recently, with secretary-level administration officials, from the Treasury's Steve Mnuchin to the Interior's Ryan Zinke, coming under fire for hiring pricy private charters and commandeering military jets for personal reasons — Health and Human Services Secretary Tom Price lost his job because of the $400,000 of taxpayers' money he spent on charter flights.
But it isn't just a government problem. Last year, for example, the pharmaceutical company Provectus fired its CEO for billing the company $2.5 million for unsubstantiated travel expenses over three years, more than $2 million of which he never bothered to even submit receipts for.
The Sources of Corporate Fraud
According to the Association of Certified Fraud Examiners in a 2010 report, the average company loses five percent of its revenue every year to fraud and abuse, some 15 percent of which comes from bad expense reports.
And travel expenses, with their big-ticket items and hard-to-check "entertainment" budgets racked up far from corporate oversight, are prime targets for the enterprising conniver.
Typically, fraudulent travel expenses come in one of four forms: the fraudster says he's billing for something that isn't for business, he's padding the bill, he's submitting the same expense several times, or he's simply making up an expense out of thin air. He could be using these methods to make a personal trip for free (for him, that is — the company's footing the bill), to steal cash from the company, or to obtain goods he doesn't have to pay for.
Blame The Receipt
Key to all of these varieties of travel fraud is the receipt, and those are a cinch to manufacture now, with the easy availability of sophisticated scanners, printers and Photoshop-style software.
"The tech of today makes it really easy to make up documents," Greene said. "I book a flight on Southwest to Las Vegas from Orange County on an alleged business trip, get a quote of $226, and Southwest sends me the itinerary, which is what most people submit for their expenditures. I go into Microsoft Word and change the $226 to $426, and — boom! — I just made $200."
There are even websites that create realistic-looking hotel, restaurant and other receipts for business travelers who "forgot to ask for one." At losthotelreceipt.com, for example, you plug in the variables for the hotel name and address, the check-in and check-out times, and the dollar amount you deem appropriate. The receipt even comes with a handy gallery of stock hotel images to mimic a hotelier's letterhead. But that's perhaps going above and beyond, since most hotels now print bare-bones receipts from run-of-the-mill laser printers.
Other Damaging Abuses
Common travel-expense tricks include buying expensive plane tickets for a business trip then cancelling them and booking a cheaper flight, asking for reimbursement for the pricier flight while pocketing the difference (or not even going at all); expensing first-class or business-class flights and lying about whether cheaper seats were available; charging for a hotel room when you're really staying at a friend's for free; saying a trip is for business purposes when it's purely personal; withdrawing cash from a company credit card for undocumented "travel necessities" and bundling personal expenses with legitimate ones.
"Sometimes you'll see people put new outfits and Broadway tickets for the family on a hotel bill," Douglas Anderson, managing director of chief audit executive solutions for the Institute of Internal Auditors, said.
Though he hasn't seen a lot of fraud related to points and miles — yet — Greene said it's another field ripe for the unscrupulous.
"They put everything under the sun on the credit card just to get points, then charge accounts payable," he said. "People rack up thousands and thousands of points on the company. You just have to create fictitious receipts for airline travel."
And does your "business" trip mean a foreign journey? All the better.
"People who travel overseas will get receipts written in a language other than English, knowing that the people in the accounting department back in Indiana have no clue what they say," Greene said. "We had one gentleman who expensed $42,000 in Oriental rugs on trips that way, writing them down as 'business gifts' for clients he was visiting and putting through the expenses in Japanese."
So the methods aren't complicated — this isn't ever going to resemble an elaborate heist. But how does a thief — and let's be clear, this is what you are if you do this sort of thing — know he can get away with it?
A lot comes down to the company you're working for. Bigger companies are less likely to notice the actions of any individual employee. Corporate culture, which can range from laissez-faire or chaotic to obsessive, plays a huge role in how easy it is to defraud. But most important of all are the specific policies in place: Every company has a different set of rules about what's acceptable for work travel and what's not.
On order for fraud to be an ongoing thing — and basically everyone starts out thinking it's a one-time deal — there must be accomplices, whether they know it or not. It could be someone in the accounting department who's a conscious partner in crime, but it's more likely someone who doesn't know how they are being used, or is unwilling to speak out.
"I had one case where he was the managing partner of a large law firm," Greene said. "He submitted his travel expenses to some 28-year-old kid in accounts payable. Do you think this kid is going to question anything the managing partner's doing? The partner would photocopy the top of his Amex bills but not allow anyone to see the actual expenses, which he would handwrite."
The offender charged over $1 million to the firm over years that way before anyone challenged him, Greene said.
Another typical scenario is for a boss to make her assistant put questionable flights and travel expenses on his own account, while reaping the benefits herself. The assistant often has no idea how he's being used to essentially launder embezzled money.
"If you're in a position of power and authority, you can do whatever the hell you want," Greene said. "Nobody's going to question it."
And the accounting department that's supposed to serve as a check on unethical executives? These days they're largely rubber-stamp clerks in an undermanned, overwhelmed department that's just trying to shovel itself out of the daily avalanche of paperwork.
"You put a little expense through that you know is not true, and then they don't ask you about it, then you send the next one, and the next one," Anderson said. "You can stay at the Ritz one trip and then resubmit the same documents later, and they don't even look at the dates. With a sea of expenses, how do you find the ones out there that are bad?"
Well, for one, the people who commit this kind of fraud can often be pretty obvious about it. If you've got a gambling problem or a drug addiction, or have been splashing around a lot of cash on new cars and expensive girlfriends, it's going to get back to someone at work. The hoary cliché of the CEO who went through a nasty, costly divorce and has a new trophy wife with a penchant for designer handbags? It's not just an overused plot twist on Law & Order, it's also a red flag to auditors trying to figure out why the ledger doesn't balance out.
Easy Clues to Spot
Successful cheats inevitably become sloppy, not bothering to attend to the little details that someone finally notices. In one of Greene's cases, a businessman submitted a fake invoice that he created by splicing together two real ones. He was caught when he neglected to alter the fine print on the bottom half to match the hotel name on the letterhead. In one of Anderson's, an employee got so lazy that he didn't bother to alter the numbers on the receipts he was handing in.
"They were sequentially numbered from 1011 to 1033 straight in sequence, as if he'd been the only customer this restaurant had for an entire year," he said.
Some are turned in by the people who once helped them. That managing partner at the law firm? He got in a fight with his wife, a fellow lawyer at the firm who was also benefiting from his "business trips," and she angrily fessed up to the other partners about his scheme.
And sometimes the company just wises up. The globetrotting, rug-loving executive was found out when the accounting department finally decided to bring in someone who could read Japanese.
Being caught isn't necessarily the end of the world, though. Both companies and criminal prosecutors do a cost-benefit analysis, and if they decide you're not worth it, you may well get off with only having lost your job, your dignity, your work friends and pretty much any chance of finding a job in the same field again.
"In white-collar matters that don't involve huge sums of money, prosecutors often decide it does not rise to the level of a criminal case," Steven Molo, founding partner of the New York law firm MoloLamken and defense attorney for former New York State Assembly Speaker Sheldon Silver, said.
From the corporate point of view, there's little reason to attract media attention and spend hundreds of thousands or more on civil litigation if the now former employee is never going to be able to pay the company back at least that much. Perversely, that means that, if you're going to steal money from your company through bogus travel charges, it's in your interest to blow through it all and not save any of it.
"If you get caught, a lot of companies may just quietly let you go," Greene said.
"That's true; you can't get blood from a stone," Molo said.
The calculus is harder the higher profile you are, though. If the corporate board or prosecutors decide an example has to be set, a profligate CEO's a much juicier target than some schmo in sales. Is the person of interest a public official accused of wasting taxpayers' money? Even better.
But no matter where you are in the hierarchy, tricking other people into paying for your travels and travel-related expenses boils down to the same thing in the end.
"All this is stealing," Anderson said.
Have you ever encountered travel-related fraud at work? What happened?