Employee Expense Reporting 1942

  • I was wondering if 404 covers employee expense reporting. I know of an employee at a large publicly traded company who has systematicaly billed the company for upward of USD20K a year for the past 2 years in false milage reimbursment, ground transportation, etc. This person was reported to the companies Audit Commitee, Investor Relations, Legal Dept over 1 month ago and yet they have not been terminated yet (FYI -they are not top management). Is the company sweeping this under the rug for fear of appearing to not be in compliance by having standards in place to stop theft such as this. Anyone know how long it takes for a large company (over 50K employees) to investigate and come to a decision? Are there any other avenues that could be explored to force said compnay to tighten their checks and balances with regards to theft of this kind as being a shareholder, and kowing of 1 person doing this the math says if one in four is doing this, that comes to over 1/4 of a billion in waste. Thanks.
    Also, does whistle blowers protection extend outside of a company? Being that I am not an employee if this company, does the investigators both within and outside of this company owe me the same protections as one of thier own? Thanks.

  • SOX only addresses fraud as an indicator of a material weakness when it applies to senior management employees. Fraud controls are to be addressed as part of an internal controls framework. The other factor to consider is materiality to the company.
    USD20,000 is probably not material to the company. Therefore, it is likely out of scope for SOX purposes. Investigations into allegations of fraud generally are not open and shut cases and could take some time. The company may be working with the employee to negotiate a settlement. It would be more difficult to do this once he is terminated.
    Whistle-blower protection would only apply to an employee of the company. I am not certain what protection a company could provide to someone who was not an employee.

  • It can easily take more than a month to properly investigate something like this. If it has been reported through the appropriate channels then you should probably leave it at that.
    If companies terminate employees without due process they are open to being sued themselves.
    Possible outcomes from the investigation may also be that conclusive proof was not found or other recourse than termination was taken e.g. written warning and employee reimburses expenses. The outcome would likely not be widely reported.

  • I would think that Mileage claims of that size would not only be a potential Sox issue, but also a potential issue for taxation purposes.
    Whilst the current issue must be detected, the following may assist in preventing the issue from arising again
    -Staff required to maintain a personal log of mileage and journeys which would then be approved by their supervisor on a timely basis. This should ensure that the mileage they claim is for relevant travel, and would allow the mileage/ distance to be checked to a valid source.
    -If the staff member is constantly out of the office and in his/ her car, then a standard mileage allowance should have been agreed in advance.

  • FYI - Her corporate Amex shows charges at Macy’s, Anne Taylor, Jet Blue for personal trips with family, hotel stays on vacation, Face Creams from Dermatologists website, Phone psychics, food shopping, toys-r-us… etc…etc. With over 20K in Amex charges, only about 1k for gas, parking etc. Claiming the same mileage to customer site from home on Cape Cod as while staying in a hotel on semi-vacation 200 miles closer to customer site. It is definitely obvious that she was faking mileage to pay for shopping sprees but being that her manager signed off on her expense report, does that free her or put them BOTH in trouble. I know this is not a clear SOX case… I apologize if some feels this doesn’t belong on this site but I wanted to know the legality of this type of false spending as it relates to SOX as well as learn from some that have insight as to what they feel will be done about this. Thanks folks.

  • You are not a company employee, yet you have insight into this employee’s company Amex? Do you know that all of the charges are being pushed through expenses versus just not requesting company reimbursement?
    Our company policy is to only use the corporate card for company expenses, but we are responsible for reporting all expenses and paying Amex directly. If we end up charging personal items through the company Amex card, we just do not include on our expense report and are not reimbursed for the spending. Payment to Amex for those items comes directly from our personal funds.
    As I stated in a previous post, if this individual is not a member of the company senior management team, then, even if this is fraud, there is probably no SOX impact due to the low materiality levels - unless this type of fraud is pervasive throughout the company. Even then, if the financial statements reflect what the company is truly paying out in overhead, there is no misstatement of the financial statements. SOX does not address poor management of the company or poor business decisions, only accuracy of the financial statements.

  • I have copies of the Amex statement going back 14 months, I also have copies of her submitted expense report going back the same distance. I came across these as a result of Subpoenas served on Amex and the company as the result of an investigation in probate court. The Amex statement says ‘corporate remittance received’ in the same exact amount as her false expenses. There are a few (very few) Amex statements that say ‘computer payment received’ as well which would be the employee’s payment. The expenses are fudged to cover her own shopping sprees, not to be reimbursed for true cost associated with her job. I was told by one of the investigators that they were matching up her expense report to her weekly submitted time card where she should be claiming some sort of ‘Customer Site meeting’ to correspond with the mileage she claimed. If her Time card only states customer conf call, internal conf call, etc, there would be know reason to be traveling. I was just wondering what the time line was for this type of investigation, whether they would try to sweep it under the rug for fear of being in some violation of SOX. As I also stated, this is only one person out of 50K . Who knows how rampant this abuse is with other employees within the company gut if 1 in 4 is doing likewise, that is 250 million in waste. I thought a figure that large, or even half that large would be of such a disenfranchising effect to investors that SOX may apply. Weather it is 1 CEO embezzling 10 mill or 10K employees embezzling 100 mil collectively… they should fall under the same act.

  • I was just wondering what the time line was for this type of investigation, whether they would try to sweep it under the rug for fear of being in some violation of SOX.
    Timelines can vary. Each company will approach differently based on prioritization with other projects going on. I have seen some cases of fraud in our company take a year to resolve and others about a month. If multiple employees are involved (the employee you are asking about, her supervisor, other direct reports of this supervisor, etc.), the company may take no action until everything is resolved as they may lose leverage in getting testimony from an employee if he/she is terminated too quickly.
    From a SOX perspective, this would likely only be disclosed if it involved management or amounted to a material financial statement misstatement. Employee terminations generally do not get any publicity unless they involve high-profile employees or end up in litigation, which would be a matter of public record.

  • No SOX impact due to this one fraudulent act.
    There is a control failure as there was no internal check when approving and authorising these transactions for payment. We may have to select a suitable sample size to make sure that no other employees have taken advantage of the laxity in controls. Because, if this misappropriation is pervasive, the very financial statements would be distorted as well as safeguard of assets is in question.

  • I’m more of an IT person, but also agree with the other SOX experts. This is more of an ‘HR violation’ than a SOX related issue with overall financial accountability and controls for the corporation.
    Unfortunately, some folks will try to cheat the system sometimes and it will cost this employee dearly as well 😞 Internal T-and-E controls should be improved, so that it’ll take one month, not 14 months to discover any future issues (even though most folks are honest in their expense reporting) 😞 Although not SOX related, I’d recommend strengthening the T-and-E program controls and promoting awareness to employees.

  • These are all great posts. However, I do not agree that this matter is not relevant to SOX.
    According to the Act, management is required to evaluate the design of the controls that it has implemented to determine whether they adequately address the risk that a material misstatement in the financial statements would not be prevented or detected in a timely manner. Management must have reasonable assurance that the proper controls are in place.
    Albie, whilst this is true I think you would struggle to find a public company where employee expenses in total were material enough to be in scope for SOX.
    No one is suggesting that this stuff is not important, just being realistic that this will not register in most cases as a SOX issue.

  • Thanks Albie for sharing a good point. I was thinking from a SOX 302 perspective (signoff on financials as a whole) that this one-time mistake had a small impact. Also, hopefully it’s a very rare occurrence when looking at Risk Management factors.
    Still as Albie suggested, it’s worthwhile to shore up policies, procedures, and strengthening the verification processes (e.g., actual checking of T-and-Es so that lightening doesn’t strike twice). An ‘ounce of prevention is worth a pound of cure’ 🙂

  • This is outside the scope of SOX, but I’ll share anyway.
    As I just got back from a business trip to our home office in N.J. As I thought about our own company controls, below are perhaps a few T-and-E controls that might help:

    • The company might want to obtain a standard credit card (e.g., corporate AMEX is what we use) for all frequent travelers
    • Encourage everyone to use cards for all applicable purchases and obtain receipts where expenses are over a certain limit (e.g., USD25)
    • Going a step further, it might be better to encourage everyone to always obtain receipts, where they can. I personally do this so that I can remember and provide an honest accountability of my expenses. I even have the company cafeteria and toll road operators provide me with one 😉 If I can’t get one or forgot, I’ll write it down and add it as documentation in the receipt package.
    • Someone on the corporate must check consolidated AMEX reports for all employees to look anything unusual (large USD or other items that don’t fit the norm)
    • Update the T-and-E policy, publish it on the corporate Interet, and send a letter to all employees annually to promote awareness (and give you a leg to stand on if something went to court that they know what’s expected).
    • Folks who don’t initially comply with tighter procedures (e.g., using their AMEX card and obtaining receipts) need feedback to encourage them to do a better job next time, so that the system begins to work
    • The policy must have some teeth in it from an enforcement standpoint, including warnings, probation, or termination language.
      Folks can still cheat the system no matter what controls are instituted. For example as I rented a car for a week to drive up, I could partially fill up one of my cars instead of the rental car and charge it to the company. I could also fudge on meals. Still, I try to abide by the highest ethical standards I can. I would not want to risk my job or reputation for a few USDUSDUSD. That’s the key balance in conduct folks need to see, so they are not tempted by the ‘dark side of the force’ 🙂

Log in to reply