Do you reimburse your employees for business expenses? Do you have a system in place for controlling how those expenses are reimbursed? If you don’t, you could be one of the many businesses who suffer from expense reimbursement schemes that cost an average fraud loss of $33,000. The professional services industry had the highest frequency for expense reimbursement schemes followed by technology, manufacturing, government and oil.
An expense reimbursement scheme is defined by the ACFE as; any scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses. In this scheme, an employee would file a fraudulent expense report claiming personal travel and non-existent meals to name a few.
There are several types of expense reimbursement schemes identified by the ACFE
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
Today I am going to focus my article on a “Fictitious Expense”. A fictitious expense is where an employee invents an expense and then requests a reimbursement for it.
Fictitious expenses can come in the classification of
Bogus support documents
Copies of personal canceled checks
Blank receipts from vendors and restaurants
Claiming the expense of others
Meal expenses are the most common for expense reimbursement schemes which could fall under blank receipts from vendors and restaurants. Often times, an employee will have a routine where they dine out at the same restaurant. If they have a friendly relationship with a specific waitress, the waitress provides the employee with blank receipt stubs that are normally numbered. An easy method to determine whether or not your employee is expensing non-existent meal receipts is just by checking the stubs themselves against their previous month expenses. One month they submitted the stubs 10311, 10312 and then next month it was 10314, 10315, etc., it is unlikely that the stubs are legitimate expenses because they are in numerical order. Then of course the receipts are padded even more to cover a “tip”.
A not so new, but important method to inform businesses about are the “phony receipts”. I really hate to see companies who provide “novelty” items that are used specifically to defraud companies and other people.
One such website http://salesreceiptstore.com/ provides duplicated receipts from any store. Whether their products are used as novelties or are used specifically to defraud, it is not the online stores responsibility to determine how those novelties are being used (unless of course demand from government agencies forces them to stop!). It is the responsibility of the business to have safeguards in place to know what a legitimate receipt vs. a novelty or phony receipt would be. Unfortunately the likeness of the novelty receipts are hard to compare to the original so you need to create specific controls to prevent payments on phony receipts. The employee can print anything from restaurant receipts, ATM receipts, airline and hotel receipts and gas receipts. The novelty company even ads barcodes and store logos. If you view their legal disclaimer they state that the items are only used for novelties and are not violating any forgery or counterfeiting act. This website even goes as far as posting links to sites that have written about their novelty receipts. Salesreceiptstore.com comments on one such link “How dare the Examiner.com make assumptions about how our novelty items are used!”.
Some important controls that could help you prevent phony expense reimbursements
Create a maximum cap (budget) on reimbursement allowances per item
Meal expenses
Reimbursable gas
Office supplies
Travel expenses
Assets or equipment
Have written expense reimbursement procedures in place
Always review or authorize receipts before you pay them
Never issue reimbursements without a signed expense report
Original receipts – do not accept photocopies
Supporting documents
Explanation of expense and purpose
The place / location of expense
The amount
Detection methods that you can use to prevent expense reimbursement schemes
Review all reimbursements for duplicates or photo copies
Compare your employees travel dates with their vacations
Complete a detailed review of your employees expense reports
Compare expenses claimed to budget allowed
If you can not determine whether a receipt is legitimate or not, contact the actual store directly to find out if it is a true receipt. You have every right as a business to confirm the legitimacy of any expense. There will always be a new method or source for committing fraud and the best way to protect yourself, is by setting controls.
Julie A. Aydlott, CFE
Further questions, please contact Business Fraud Prevention, LLC 970-776-8395.
Mary Radiske, 47, of Thiensville, Wisconsin, has been sentenced to 5 years in prison after pleading guilty to charges she embezzling at least $617,432 from the Wisconsin Kitchen Mart where she had been employed as its longtime bookkeeper. According to authorities, over a five year period from 2005 until early 2010, Radiske wrote at least 79 checks from company coffers, made out to her husband, forging the signatures of the owners and depositing them into her own accounts. At her sentencing hearing, Radiske reportedly claimed she stole the money to "keep her husband happy." Randall Radiske, 47, has not been charged in the case and investigators do not believe he had a part in the theft. Randall Radiske has since filed for divorce. Mary Radiske must also pay restitution of $554,000.
Mark Cherubini, 44, of rural Knox County, Ohio, has been charged with embezzling nearly $1.7 million from three separate businesses owned by his high school friends for which he had served as financial manager, including Law General Contracting, RMR Holdings and Redskin Transport. According to authorities, over a period of nearly 8 years, from January 2003 until September 2010, Cherubini falsified financial ledgers and wrote fraudulent checks to a fourth company he had worked for but had been sold to foreign owners. Cherubini allegedly kept one of the old company's accounts open and used the proceeds for his own benefit. Prosecutors also allege that Cherubini owns a quarter horse farm which he purchased with the ill-gotten gains from his alleged misappropriations. Cherubini has been indicted on nine felony charges, including three counts of aggravated theft, three counts of money laundering, two counts of misuse of a credit card and one count of engaging in a pattern of corrupt activity.
Amanda Marie Boling, 30, of Lodi, California, has been arrested and charged with embezzling $137,000 from the dentist office of Dr.Kevin Fleming, where she had been employed as a bookkeeper. According to prosecutors, Boling fraudulently gave herself extra payroll in the form of "employee reimbursements." Boling's scheme is believed to have spanned a three year period. Boling, a 12 year veteran employee of the dental office, faces up to three years in prison if convicted.
Patricia "Pat" Duffey, 60, of Holliston, Massachusetts, is under investigation for allegedly embezzling as much as $370,000 from Currier Landscaping where she had been employed as a bookkeeper. According to reports, over a period of 10 years, Duffey paid for numerous personal expenses from company accounts, including her mortgage, credit cards, auto loans, kitchen remodeling, and vacation home remodeling. Duffey, who is a registered nurse and is Vice Chairwoman of the Holliston Board of Health, has denied the allegations and has not yet been charged. She is up for re-election next month.
If you want to contribute to a story, or an article please email Julie Aydlott.
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Vitalics ™ gives the Bookkeeper or Accountant resources to implement simple and effective controls not only protecting the quality of their work, but also by allowing the owner or partner to have hands on approval of the day to day financial operations.
Mary Radiske, 47, of Thiensville, Wisconsin, has been sentenced to 5 years in prison after pleading guilty to charges she embezzling at least $617,432 from the Wisconsin Kitchen Mart where she had been employed as its longtime bookkeeper. According to authorities, over a five year period from 2005 until early 2010, Radiske wrote at least 79 checks from company coffers, made out to her husband, forging the signatures of the owners and depositing them into her own accounts. At her sentencing hearing, Radiske reportedly claimed she stole the money to "keep her husband happy." Randall Radiske, 47, has not been charged in the case and investigators do not believe he had a part in the theft. Randall Radiske has since filed for divorce. Mary Radiske must also pay restitution of $554,000.
