Professional Documents
Culture Documents
Travel Expenses
Travel Expenses
Travel Expenses
Travel Expenses
Many auditors have stopped auditing travel expenses because of the materiality of
the expense. While there is no argument that an individual expense report is not
material or that total travel expenses are not material to the company, there are
other reasons to audit travel expenses. Primarily, it seems that fraud investigations
involving management usually include travel expenses. Consequently, travel
expense fraud by management may be an excellent and inexpensive fraud risk
assessment procedure. The logic being: if managers are committing travel fraud,
then what other frauds are they committing? In addition, many fraud auditors have
indicated that frauds start small and grow. To prevent such growth, catching or
discourag-ing an individual from committing travel fraud may act as a fraud deter-
rent. Lastly, the audit of travel expenses works as an integrity barometer of the
organization.
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138 Travel Expenses
Typically, the employee does not view the reimbursement as inappropriate, but
rather the reimbursement policy as too restrictive. The abuse is con-cealed in the
same manner as the travel fraud or by circumventing the approval process.
As with most fraud schemes, the auditors need to apply the fraud theory to travel
expenses. The red flags are specific to the type of travel expense fraud scheme.
• Location. Auditors must verify that the travel expense occurred in the city
associated with the trip or company location.
• Manual receipts versus credit card receipts. Concerning manual receipts,
auditors should note the handwriting style and signs of alter-ation. Alteration
can be noted by looking for multiple blunt point ends and signs of lines
having different thicknesses.
• Method of payment is not consistent with known credit card numbers.
Auditors should ensure all credit card numbers on submitted credit card
receipts match known employee credit card numbers.
• Receipts missing information. Credit card receipts typically indicate the
name of the restaurant at the top of the receipt. In fraud, the trav-eler tears
off the top portion to disguise the fact that the meal expense was incurred at
a local restaurant.
• Cash-based expenses versus credit card receipts. Cash-based expenses are
easier to disguise than credit card receipts. Auditors should note the
handwriting style.
• Consistency in reporting the business purpose or description of the
event. Travelers committing travel expense fraud tend to commit the same
scheme on several expense reports.
140 Travel Expenses
Direct Bill Arrangement Scheme In the direct bill fraud, travelers sub-mit a
travel receipt with their expense report that is also billed to the com-pany through
the accounts payable process. Common areas for this scheme are hotel, car or
limousine services, or all-inclusive travel events, when the traveler is on an
extended business trip. The travel receipt may reference a purchase order number
or some other company account number.
Travelers may also have multiple company credit cards. Procurement cards
are a popular tool to eliminate small-dollar purchases from being proc-essed
through accounts payable. Travelers may charge the expense to their procurement
cards, then submit a duplicate receipt with their expense reports.
2. Employees are traveling together, and each one seeks reimbursement for the
same expense. Cab fares and meals are a common area for this scheme.
Audit Examination of Travel Expenses 141
The receipt is submitted as a travel expense, when in fact the expense was not
incurred in travel status.
Disguised personal trips are hidden by falsely representing the nature of the
trip. Typically, the length of the stay is not consistent with the stated business
purpose. There is a difference between structuring a personal trip around a valid
business trip and a business trip created for personal rea-sons. A red flag is
triggered when the length of the stay is not consistent with the business trip,
expenses are not included in the expense reimburse-ment, or knowledge of the
traveler’s personal life.
Cash Conversion Scheme In the cash conversion scheme, the traveler obtains
cash or a vendor gift receipt and submits a credit card receipt from the vendor
supporting the expense. The expenditure would be represented as a meal expense
or entertainment expense. Many restaurants now have shops at their location. The
traveler purchases clothes, and then seeks reimbursement as a meal expense. A red
flag would be an even amount on the credit card receipt or frequency of going to
the same restaurant. The cash conversion scheme does not typically occur at chain
restaurants. Unfortunately, there is no obvious red flag of the event. Some
organiza-tions now require a detailed receipt to be submitted with every credit card
receipt. Auditors should understand if a restaurant owner is willing to pro-vide
cash to the traveler, they would most likely provide a false meal receipt as well.
Sex Shop Scheme The names of many gentlemen’s clubs sound like res-taurants.
The vendor code is a restaurant code rather than a nightclub. In these schemes, the
traveler visits the club and submits the reimbursement as a meal expense. Unless
auditors recognize the names of the clubs, there is no obvious red flag of the event.
Rental Car Receipt Scheme In this scheme, the traveler rents an automo-bile for sightseeing rather than for
business. The red flag is that the miles driven are not consistent with the intended business purpose. In addition, the
gas reimbursement is not consistent with the miles driven.
Taxicab Receipt Scheme This scheme occurs because cab drivers may provide several blank receipts to the
traveler. Therefore; auditors should be alert to the reasonableness of the amount, and whether a second traveler also
submitted a receipt for the same expenditure.