Question

What began as an addiction for fine jewelry and clothing, ended in a major expense reimbursement fraud totaling $240,000. The perpetrator became a first-time offender shortly after acquiring a management position in a worldwide consulting firm in Chicago. Her position created an opportunity to abuse expense reimbursements. She rationalized her exorbitant purchases of consumer goods as the only remedy for her severe depression.

Beginning in the summer of 2001, Jennifer Childe submitted false and inflated expense reports to her new employer, Andrew Consulting. Even with her $150,000 salary and her husband's ample attorney income, when the opportunity to commit fraud increased then her appetite for spending grew proportionately. It appears that Childe believed she could get away with this fraud when she sought reimbursement for fees paid in advance for attendance at an upcoming conference. After she was unable to attend, she received a refund from the conference planners for the same amount that Andrew had previously reimbursed. Childe decided to keep the extra money and pay off some credit card debt. Because this crime was easy, she then falsified other expense documents. First, she filled her pockets with almost $19,000 by inflating her legitimate expenses 160 times. She also received roughly $89,000 by billing for about 100 airfares that were already charged to the company. She padded her bank account with another $115,000 by requesting funds for 25 conferences that she never attended. She generated an additional $16,000 by resubmitting receipts for expenses previously reimbursed. Finally, she gained another $1,000 from labeling many personal expenses as business charges.

The firm finally discovered her crimes but not until Childe committed 323 acts of fraud against Andrew Consulting over a three-year period ending April 2005. (Later in 2009, she was caught shoplifting at Neiman Marcus, pleaded guilty, and was put on probation.) Childe was promptly fired and company officials called the FBI. Before the judgment, she had to sell stock and take out a second mortgage on her condo to pay back Andrew. On May 23, 2006, Childe was sentenced to five years of probation, six months’ worth of weekend home confinement, six weeks of service in a Salvation Army work release center, and a small $30,000 fine. Additionally, the judge prohibited acquirement of any credit cards and required counseling for her problem. In July 2008, the Seventh Circuit Court of Appeals didn't agree with this decision and remanded the case for jail sentencing. After doing her time, she now works as a consultant for the Computer Science Corporation and earns $25,000 more than her $150,000 salary at Andrew. She's receiving psychotherapy for her shopaholic tendencies and her new employer keeps a close eye on her expense reports!

Overpurchasing resulted when Childe requested and received reimbursement from Andrew for conferences that she later canceled and then also collected refunds from the planners of the conferences.

Additionally, Childe submitted expenses multiple times to receive duplicate payments. Furthermore, she submitted plane ticket receipts for purchases the company already paid, receiving double reimbursement for the same expense. Finally, Childe mischaracterized some of her personal expenses as business expenses for reimbursement.

Required: Describe ways in which employees can commit expense reimbursement fraud? How could the company have prevented and detected the various schemes that Childe used?

Answer 1

What is explained above is common in corporate world and hence strong internal controls and checks are of utmost importance.

Ways in which employees can commit expense reimbursement fraud and how they can be avoided

1. Collecting the refund where expense has been incurred by the company: It all started when Childe received reimbursement from Andrew for conferences that she later canceled and then also collected refunds from the planners of the conferences. The company should have a reimbursement policy of paying the amount only after the event has happened and the proof of attendance has been submitted along with the request for reimbursement. If company is booking the tickets on its own (no reimbursement), then the cancellation right should be only with the company and not with the attendee.
2. Submitting expense claims multiple times: Childe submitted expenses multiple times to receive duplicate payments. The reimbursement request should be accompanied by original copies of the expense vouchers to avoid duplicate payments.
3. Claiming the reimbursement for the expenses incurred directly by the company: Childe submitted plane ticket receipts for purchases the company already paid, receiving double reimbursement for the same expense. Each business trip should be well documented and the policy should be consistent that whether plane tickets would be booked by the company OR would be reimbursed to the employee. In the absence of a consistent rule such duplications might happen. In case of extraordinary circumstances a thorough cross check with the trip details should be performed in order to avoid double payment.
4. Claiming personal as busniess expenses: Childe mischaracterized some of her personal expenses as business expenses for reimbursement. All of the expense vouchers submitted for reimbursement should be well explained with purpose, time and date of business along with client details wherever possible.