1 of 35 © 2017 Association of Certified Fraud Examiners, Inc.

Expense Report Fraud: A Threat to

Organizations, an Opportunity for Fraud

Examiners

John Tonsick

Deputy General Auditor

Metropolitan Water District of Southern California

Expense Report FraudA Threat to Organizations, an Opportunity for Fraud Examiners

Everybody Does It

Resources

• “How To Pad Your Expense Report…And Get Away With It!” – Employee X, Ea$y Money Pre$$, 1996, 2003, 2005

• Maloney & Porcelli – 50th Street, New York, NY

• Receipt Generators - expressexpense.com

The Dark Side

• Multiple fraud schemes• SOX 302• Even immaterial fraud by some must be

reported

Techniques

• Fictitious expenses• Inflated expenses• Personal expenses• Multiple reimbursements

Tonsick’s Fraudster Hall of Shame

Technology companyRapid growthInternational operationsTwo noteworthy frauds

Expense Reporting System

• ERP with expense-reporting module• Corporate Amex card• Personal expenditures prohibited• Cash or personal credit card permitted in

some cases• No receipt required for expenditures

under $25

Finding Suspects

• Data analytics• Cash expenditures• Personal credit card expenditures• All transactions without a receipt

• All transactions for preceding 12 months• We found dozens• We also caught a couple of whales

Top Spot in Tonsick’s Hall of Shame

• Top executive• Highly regarded “super star”• Board member for professional

organization• Author• Frequent speaker at trade and

professional conferences

A Man Without Shame

• Breakfast and lunch• Cab fares/car service• Wi-Fi• Gasoline• Multiple expense reports

Building a Timeline

•Expense Report 1 3/1 Breakfast at McDonald’s $24•Expense Report 2 3/1 Breakfast at McDonald’s $24•Expense Report 1 3/1 Lunch at Subway $20•Expense Report 2 3/1 Lunch at Subway $20•Expense Report 3 3/1 Gasoline $30•Expense Report 4 3/1 Client dinner - Morton's $200•Expense Report 1 3/1 Dinner at hotel $75•Email from girlfriend3/1 Arriving on 3/2•Expense Report 2 3/2 Cab to Airport $23.75•Expense Report 4 3/2 Rental Car $350•Phone call to girlfriend 3/2 At flight arrival time

Saturday:

• Cash breakfast at McDonald’s –$23

• Cash lunch at Subway – $20• Cash dinner at “Italian Bistro” –

$24• Car service to SFO – $150. • Flight to Orlando departed at

10:55 p.m.• Cash for in-flight Wi-Fi – $18

Sunday

• Cab fare from airport to hotel – $23.78 – 9:00 a.m. arrival

• Cash breakfast at McDonald’s – $23• Cash lunch at Subway – $20• Cash dinner at “Local Deli” – $24• Cash cab fare to conference – $20• Cash cab fare to hotel – $20• Cash Internet charge – $18• Additional conference fee – $300

Monday

• Cash Internet charge – $18• Cash breakfast at McDonald’s – $23• Cash cab fare to conference – $20• Cash lunch at Subway – $20• Cash cab fare back to hotel – $20• Personal credit card – dinner with

colleagues – $75

Tuesday

• Cash Internet charge – $18• Cash breakfast at Starbucks – $24• Cash cab fare to conference – $20• Cash lunch at Subway – $20• Cash cab fare back to hotel – $20• Personal credit card – dinner with

colleagues at “Alchemy” – $300

Wednesday• Cash Internet charge – $18• Cash breakfast at Starbucks – $24• Cash cab fare to conference – $20

• Cash lunch at Subway – $20• Cash cab fare back to hotel – $20• Cash dinner at “local deli”– $24 • Conference ended at noon

Thursday• Cash Internet charge – $18• Two cash breakfasts at Starbucks – $24 each• Cab fare from hotel to airport – $24 – 10:00

a.m.• Rental car at Orlando Airport – 10:30 a.m.• Will’s girlfriend landed at 10:50 a.m.• Late check out with additional fee – 2:30 p.m.• Two cash lunches at Subway – $20 each• Gasoline purchase – $29.78 – 3:30 p.m.• Hotel charge – The Breakers in West Palm

Beach• Dinner with colleagues at Morton’s – $250

Rental Car

• Rental car receipt didn’t foot

Friday• Cash Internet charge – $18• Cash breakfast at McDonald’s – $24• Cash breakfast at Starbucks – $24 • Late check out at Breakers• Debit card gasoline purchase in Ft. Lauderdale

– $43.75 – 1:30 p.m.• Cash lunch at Subway – $20• Cash lunch at Subway – $20• Hotel charge at Crowne Plaza in Miami’s South

Beach district• Dinner and drinks with colleagues at Fleming’s

– $250

Saturday

• Late check out from Crowne Plaza• Two cash breakfasts at McDonald’s – $24• Two cash lunches at Subway – $20• Cash gasoline purchase in Miami at 3:00

p.m. – $42• No hotel expense, but a cash Internet charge

– $18• Dinner with colleagues at La Trattoria in Key

West – $300

Sunday• Two cash gasoline purchases totaling $50• Returned the rental car in Orlando with a

nearly empty tank and a re-fueling charge.• Cash for in-flight Wi-Fi – $18• Car service home – $150.

But Wait! There’s More!

Conference expenses also reimbursed by professional organization

“Colleagues” never attended conference

Every single expense report:• Cash expenditures• Daily cab fares• Bogus car service and Wi-Fi• Late nights drinking, hookah lounges, and clubs• Elite airline status• Personal travel to New York, Brussels, Hong Kong,

and London

How He Got Away With It

• Personal credit card and cash expenditures

• Scanned receipts• Unreceipted expenditures• Multiple expense reports• Lax supervision

It Often Goes Further

Charlie• Inflated and fictitious expenses• Buyer• Taking vendors to lunch• Not buying from vendors

An Acquisition

• Small firm built prototypes• 80 Engineers• CEO Fred – $2MM• Vendor websites • 120% markup• $8 MM over two years

Take-Aways for Fraud Examiners

• Data analytics• Personal credit cards• Cash• No receipts• Receipts include a wealth of Information• Scanned receipts are not reliable• Confirm with vendors• Search company email and phone records

when possible

Take-Aways for Clients and Employers

• Meaningful approvals• Train approvers• Hold approvals accountable

33 of 35 © 2017 Association of Certified Fraud Examiners, Inc.

Expense Report Fraud: A Threat to

Organizations, an Opportunity for Fraud

Examiners

John Tonsick

Deputy General Auditor

Metropolitan Water District of Southern California