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Mary Schaeffer
Mary Schaeffer
Travel and Expenses in 2010

Tax compliance and stronger fraud prevention.

July 9, 2009
by Mary Schaeffer

As I printed out my boarding pass on my home computer before heading out to the airport for a recent business trip it occurred to me how easy it would be for someone to falsify a boarding pass. Even someone with only a modicum of technological savvy can falsify a boarding pass printed at home. This is unfortunate because a number of airlines have been encouraging home printing for those looking to avoid long check-in lines.

Regrettably, widespread adoption of this cost and timesaving approach comes just at the point in time when fraud is on the rise. Forbidding employees to use this tactic is not the answer. The issue is part of a larger concern regarding stronger internal controls around traveling and increasingly stringent tax and auditing concerns regarding business travel.

The Issue

So, what’s the problem you ask? In the business world and the travel and expense (T&E) environs the boarding pass is used for more than airline business. To prove that a traveler has actually taken the trip for which he or she is asking reimbursement, many organizations require that the traveler submit their boarding pass. It occurs to me that if you can print out a boarding pass on your computer at home, checking such boarding passes is worthless as a fraud deterrent or as a method of determining whether an employee really took the trip.

The boarding pass can be printed and not used or worse, easily altered.
The problem is two-fold:

  • Determining whether the employee actually took the trip; and
  • Determining whether the employee actually took the flight indicated on the boarding pass or a less expensive one.

This comes as organizations are placing increased focus on managers who take their approval responsibilities lightly, authorizing anything put in front of them without even looking at the details.

The Paperwork Solution

If you are scratching your head trying to figure out a solution to these emerging issues, you are not alone. When a conference is involved, there are partial solutions at hand. The most obvious: require employees to turn in their conference badges. But that’s not the only way to handle this particular part of the problem. Here’s how Donna Robinson of College of the Sequoias solves the issue. “We always require something from the conference itself — preferably the agenda, or the cover of the book they receive when they check into the conference,” she says. “It usually gives the name of the conference, location and dates, and we compare that to the dates of travel claimed.”

When the trip involves a customer visit or some other travel on company business, it is obvious that the above solutions won’t work. And, frankly, we don’t have a good recommendation here. The solution to the second issue is relatively straightforward. The only way an employee can gain from booking several flights and canceling all but the cheapest (while putting in for reimbursement for the most expensive) is when they use a personal credit card. This type of fraud just doesn’t work when using a company credit card, even if employees are responsible for the payment. Thus, the answer here might simply be to insist on use of a company credit card.

The Accountability Issue

In growing numbers, organizations are adopting a policy of zero tolerance with regard to T&E reimbursements. This means 100 percent uniform policy compliance for everyone. A survey conducted by Accounts Payable Now & Tomorrow found 80 percent of the respondents enforced the policy across the board. Unfortunately, just under a quarter (20%) didn’t.

A policy of zero tolerance not only applies to policy compliance but fraud. A few organizations upon discovering employees had stolen under $100 via T&E reimbursement fraud have terminated their employment rather than demand restitution or simply look the other way.

The increased accountability and compliance is being enforced in a growing number of companies by:

  • Making the manager responsible, occasionally financially, for everything approved; and
  • Requiring two approvals on some reimbursement requests, usually over a certain dollar amount.

The Tax Issue

Effective January 2007, employers who pay per-diems in excess of the federal rates and do not:

  • Track allowances;
  • Require employees to substantiate expenses and turn back excess amounts; and
  • Include the excess in the employee’s income …

are subject to income and employment tax on the entire amount of the expense allowance. This is just one more reason to rein in inappropriate travel and entertainment expenditures.

Conclusion

It is unfortunate that a few bad apples make this type of checking necessary. Very few employees would have the nerve to put in for reimbursement for a trip not taken or a meal eaten with family or friends. But, alas since a few do exist, it is necessary for accounts payable departments to go the extra mile and make sure everyone claiming conference attendance actually got there.

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Mary S. Schaeffer is the author of more than a dozen business books including Controller and CFO’s Guide to Accounts Payable. She is currently working on a book about fraud. (2007 John Wiley & Sons). She serves as the editorial director of Accounts Payable Now & Tomorrow, a newsletter for professionals interested in payment issues, writes a free weekly ezine e-AP News, speaks at accounts payable seminars and conferences and directs the organization’s consulting practice.