Algorithmic auditors are exposing employee expense fraud
bloomberg.com
bloomberg.com
After the investigation, she was promptly fired without severance and also lost her flexible medical benefits (worth at least $10k).
Fraudulent expenses are no joke. Consulting companies are very sensitive about it because many consultants' expenses are included in the invoices and directly passed onto the clients. If you let clients discover a fraudulent expense instead of your internal auditing team finding it first, it is extremely embarrassing and taints all your other invoices. Integrity has to be maintained and you don't want clients questioning all the other billable hours and expenses.
Consultant left raincoat on subway while traveling for business and ran replacement cost through on expense report. Admin rejected the expense.
Consultant submitted second expense report with exact same total without the raincoat expense line item and the cost just absorbed into the other untraceable per diem and incidental categories. "Find the raincoat now" as a comment.
Took the bus and metro home from the airport - $3 claim rejected because I didn’t get a transfer as proof (which wasn’t needed to ride on this trip).
Yet if I drove, I could have claimed 50 cents a km or something, no proof required.
I think businesses can he really hard on fraud without being hard on what constitutes a valid expense.
Why do we connect medical benefits to employers?
Because it was one of those "healthcare savings flex accounts" where the company puts in "virtual dollars" to pay for some types of health care. Unlike unused vacation days that requires payout on the last paycheck by law, or a 401k account, this type of "flex account" is really a convenient accounting category that's administered purely by corporate discretion.
If the employee gets fired for just cause, the company decided it didn't want to let him/her walk away with the flex account. For the retirees that left on good terms, they do. It's just the way they did things. I think the idea is that the the ex-employee is now viewed as a criminal so the company feels justified in withdrawing discretionary benefits.
The regular type of employee health insurance that one could extend with Obamacare or COBRA was a separate thing.
(Ninja edit to reply below: it was not an FSA or "cafeteria" plan that deducted real dollars from the employee's paycheck. It was literally "virtual dollars" that the company allocated to the employee. But the virtual money turned into real money when the retiree used it to pay Medicare premiums. If there's an industry-wide jargon for this type of virtual bank account for healthcare that the employee never directly contributed to, I don't know what it is.)
Or maybe... it's because playing the game is advantageous to those who know how to play. "To the victor belong the spoils."
[1] https://www.investopedia.com/terms/h/hra.asp
[2] http://www.aetna.com/producer/aetnalink/2009-4q/natlink_hra_...
[3] Employers have significant leeway over how the HRA is structured, what it will cover, whether you have to use any FSA funds you have beforehand, whether unused balances will rollover or reset next year, etc. My employer happens to have a really good HRA structure, including rollover balances and using HRA funds before FSA funds.
On the other hand, if you save $2500/yr in your FSA, spend it in one month after only after a little over $200 has been deducted from your paycheck, then quit, you just got an extra $2300 out of your employer you didn't pay for, so it goes both ways.
It could arguably be traced back to the war time rationing of WWII:
>To combat inflation, the 1942 Stabilization Act was passed. Designed to limit employers' freedom to raise wages and thus to compete on the basis of pay for scarce workers, the actual result of the act was that employers began to offer health benefits as incentives instead.
[0] https://www.griffinbenefits.com/employeebenefitsblog/history...
[1] https://www.chicagotribune.com/news/opinion/commentary/ct-ob...
Well all of us in the US, anyway. For some reason it doesn't work that way in most places on earth.
Medical job-lock is a real thing that happens, and most of us just discount the possibility completely until an unexpected problem crops up. AMHIK. Everyone be grateful for your health while you can, and plan for the future.
Fraudulent expenses are the first and easiest way on the manager level / c-level to check if you want to get rid of someone. If everything is ok you need to look somewhere else.
What does this mean?
The only example of employees committing fraud - that is, gaining a personal economic benefit through dishonesty - is in the final three paragraphs. In that case, somebody billed steak as food for the office python when really they were taking it home to barbecue for their family. The rest of this article is deranged; these auditors, at least as they are portrayed by Bloomberg, seem to think that submitting an expense claim that they don't approve of, entirely honestly, is somehow magically "fraud". What the hell?
To avoid that issue, most businesses will avoid reimbursing for incidentals that should be considered income. Suits or standard office clothing, I believe, are taxable in most circumstances. Uniforms are not. Of course there's lots of grey areas that keep accountants in business. I'd assume yoga would count as an exercise allowance and not be taxable, but that's just a guess.
Doing so and then submitting the expense as a steakhouse is dishonest at the _minimum_.
If you disagree, would you also consider it dishonest to submit receipts for the client's transport to and from the steakhouse under the same heading? Or drinks in a bar afterwards? If not, why not?
Who says it wasn't itemized as such? We know nothing about how the expenses system in question works, and a hierarchical submission that looks like
------
# Steakhouse business dinner
* Client taxi fare to steakhouse - $xxx
* Steakhouse bill - $xxx
* Strip club bill - $xxx
* Client taxi fare to hotel - $xxx
------
with a receipt for each seems perfectly reasonable (to me; apparently you think that it's dishonest for 3 out of 4 of those items to be there) and is consistent with the nonspecific description of events in the article. Evidently, the employee provided enough information for it to be clear that this was a strip club bill, because the auditing system could tell that it was a strip club bill. In order to create a narrative of dishonesty, you're having to add in details that aren't specified in the article and seem to fly in the face of the fact that an audit looking purely at the information submitted identified that it was a strip club bill.
Somehow I just assumed it was universally agreed upon that strip clubs are not something that you go to for business reason.
And if a sales person invites a client to a strip club, they would do so understanding that it's a questionable thing to do, and that they would be smart enough not to file it in their expense report.
Even if their manager said it's okay. I mean, that would just be a perfect reason for the company to fire both the employee and the manager for colluding to defraud a totally ethical company.
Don't presume the sales person is inviting the client.
I do consulting now, and periodically have to go to client sites for presentations and training sessions. There's almost always a big client dinner one of the days we're there. Where we go out to eat, and what we do afterward, is usually driven by client suggestions. In my case, the "after dinner" activities almost always entailed some form of bar hopping, and has never included strip clubs. But that doesn't mean it wouldn't include strip clubs if that's what the client wanted, just that the specific clients I've serviced haven't ever had that particular inclination.
Note that I've only ever been the most senior person present from my company once, and therefore responsible for expensing the client-servicing night. The only direction I was given that time was to keep the client happy and to not blow past the budget for that trip (which had about $5k worth of cushion, after anticipated employee travel expenses). Most of the expenses are passed through to the client however (which is what dictates the budget), and some client agreements do have very strict stipulations on allowable pass-through expenses.
> I just assumed it was universally agreed upon that strip clubs are not something that you go to for business reason.
Not for personal benefit, but in the interest of winning over a client, coke-fueled stripper parties are fair game.
Presumably a coke dealer is dealing in illegal drugs.
It's still SOP for many investment firms...
So, no, he's not trolling you. Since the article didn't provide details, it's very possible that the expense was submitted during the transition time when there was no firm policy banning taking clients to strip clubs.
As an analog I would also consider it dishonest if a company fibs its accounts by booking items into different categories.
There is usually no other reason then to hide an expense, which should not be there.
If a company approves taking customers to strip clubs then there's no reason not to itemize it as such.
> One employee traveling for work checked his dog into a kennel and billed it to his boss as a hotel expense.
I read this as "employee pretended that the kennel expense was a _human_ hotel expense". (And, presumably, the employee stayed with friends/family)
Seems like great software if your goal as an employer is to make your employees outright refuse work-travel or to find a different job without it.
Don't misunderstand: Outright fraud is wrong. But in a lot of cases employer's travel expenditure policy was never fit for purpose, and employees worked around the problems by submitting mis-characterized claims like the dog-kennel example.
Instead of fixing the policy, they'd prefer to ignore WHY employees are doing these things (i.e. talk to them) and just lash out with punitive measures.
Because it's not the sort of expense that companies normally cover. Especially people who travel a lot have all sorts of second and third-order expenses resulting from the fact that they're away from home, may have to dress up for client meetings, etc. that are rarely covered by expense policies. They're also working extra hours when they travel. As partial compensation, many are also expensing fancier meals than they'd have at home--and are presumably being paid a competitive salary that reflects a fair bit of business travel.
Whether all this is "fair" is at least somewhat a value judgement but has been the approximate norm since I first traveled for work a very long time ago.
Which is precisely what my post was saying was an issue with existing policy. I find it a little odd that you'd respond to point out the norm, to a post complaining about the norm, and expect the norm to be in and of itself a justification.
Work created an additional cost via required travel. It isn't at all similar to your "clothing for meetings" example because you'd need those without the travel component. When travel itself creates additional costs: those costs should be compensated.
Maybe the norm is wrong and a company should cover those things. (And the kennel seems to be more directly connected to travel than my other examples.) But it's not really surprising that most don't.
I did work for a company once that had an "offshore inconvenience allowance" fr when we were on rigs and shipyards. It was mostly in the vein of living conditions aren't great and you're working long hours, so here's some extra money. So that's one relatively fair comp mechanism you can use. But mostly it's just baked into people's normal comp plans.
Should've used the tool to select the right category instead of making a human select a category and then dinging them for it. Then Finance can approve or whatever.
The real thievery is the time expense software is stealing from the company by making people pick among all these categories.
If it takes you an hour to fill in expenses, that task just cost the company half a grand.
Oh yes. At my first workplace, I ended up using Emacs keyboard macros to convert from a bank statement dump to a format that could be imported into expense reporting system, and it took me less time than it would take to type in everything manually, because the system UI was so broken.
The article implies that at least some of those receipts were faked.
There's a good chance this company had humans review the receipts and calls it "AI".
Seriously? 30 percent? That seems quite unbelievable unless you're defining your terms to include reimbursements that are within most normal travel policies. EDITED e.g. employees book their preferred airlines, hotel chains, etc. even if they're not the absolute cheapest.
Additionally, in corporate America there used to be somewhat of an understood agreement that when traveling for work (and being away from your family, not getting paid for a 24hr day, etc) that that burden would be partially be made up for by nice hotels, meals, etc.
ADDED: Class of airfare is a tough one because the delta $$ are so much most of the time. Business class travel does become something of a perk for people above a certain level. It's true those people do tend to travel more and are more tightly scheduled but it's a loose correlation.
But for hotels and meals, it's always been pretty much common sense for me. No one expects me to stay in Fleabag Motel but eyebrows would doubtless be raised if I made a habit of staying at a $1,000 per night high-end hotel unless there were special circumstances such as an event at an isolated location. (Or it was in Silicon Valley--saw a Marriott Courtyard going for $1100/night the other week :-))
The companies I worked for it was usually depending on the travel time. Currently we get to fly in business for flights > 3 hours (which I think is generous). Managing directors probably get to fly first class on such flights, though
Seat upgrades on planes are pretty hard to come by these days. The only time I've managed it is when literally all of the flights into a city were booked and the only seats left were first class. Also, weirdly the price delta on those first class seats were way lower than I expected, only a couple hundred bucks.
Yeah, I have pretty good status on United (Platinum) and I almost never get an upgrade unless I'm flying at some off-hour over the weekend these days. I was barely even able to use a couple of free upgrade certificates this year and I've even tried to do a miles + cash upgrade for a couple international flights and nothing's been available. Most flights are near capacity these days.
I wouldn't be surprised if a lot of what they are counting as fraud is simple errors due to a badly designed expense system. For example, when you reimburse a hotel you have to manually create a second category with an obscure label for the taxes, and anybody who hasn't been told about it never knows, so they put the whole cost of the hotel room in the hotel line and suddenly are both overbilling (the room charge) and underbilling (the taxes).
Another easy way to commit fraud is to forget to include your travel hours in your expenses. So you aren't charging them for the time sitting on the plane, which is a violation of reporting guidelines and expense charging guidelines.
There are tons of ways an ordinary employee can screw up their expense report without realizing it. This is why they are supposed to be checked by a knowledgeable third party before being committed. If the person in the example was blatantly overcharging for hotel rooms for years without being caught then that's a failure of the expense reporting system.
That's a function of your expense system/requirement. I certainly don't take the time to itemize every line item on a multi-day hotel bill. I just put the amount and the number of days.
>Another easy way to commit fraud is to forget to include your travel hours in your expenses.
That assumes you're charging a client by time--including travel time. I must say it was nice the one time I did some legal work to be able to bill for travel and random administrivia related to the case.
I have occasionally run into hotels where the price per night changes while I'm staying there. Las Vegas has hotels that do this for example. It's kind of weird to have to ask for permission to go over your limit for 2 of your 5 nights. Fortunately, every hotel receipt I've ever received has the nights and taxes broken out so it's just copying numbers onto the form.
They can probably claim a credit on the sales taxes they’ve paid on the sales taxes they have to remit on their own sales (VAT/GST/HST).
Now it depends if the sales tax they paid is eligible for that (in country or foreign).
I'm sure this is the kind of fraud that this thing would detect. "Ah, you split your meal between two different food stands! That is fraud!"
I'm thinking just about travel expenses here, obviously taking out clients is somewhat different. But most companies will have a per diem for travel but you still have to itemize every cost within that range. It's a pain for employees, and they are forced to lend the company sometimes thousands of dollars for a month or two at 0% interest. I think you could also argue that it's a pretty regressive cost as I'd imagine it could be hard in some cases for lower-income employees or people with extenuating circumstances to front the cost of their work travel before getting reimbursed. There's also the constant effort of deciding what should and should not qualify as a valid expense, which isn't always black and white.
Why not just pay the per diem in cash? Even aside from any actual fraud, I'm sure everyone has seen a lot of wastefulness when it comes to work travel, like going to relatively fancy restaurants every night or ordering extra rounds of drinks because you can expense it. Why should it matter to the company whether I'm doing that stuff or eating cheaply and pocketing the money? Why should it matter to the government for tax purposes whether I'm doing one or the other?
I have no idea what a different system would look like, since this is a pretty fundamental part of how individuals and businesses are taxed. But it seems like there should be a better way.
It's sometimes done. But, when there's a system like that, the per diem amount is usually low enough that you'd have to stay at a low-end hotel and eat fast food if you don't want to be out of pocket.
>I'm sure everyone has seen a lot of wastefulness when it comes to work travel, like going to relatively fancy restaurants every night or ordering extra rounds of drinks because you can expense it.
You call it wastefulness. I call it a small compensation for being away from home, dealing with airports, and otherwise living out of a suitcase.
Worked out a treat on an extended gig to Thailand, where I was pulling in $70/day while my actual expenses were closer to $5!
For the most part, employees paid per diems choose the cheapest option for food and pocket the difference. The people eating fancy are the ones, like the C-suite, that get to expense their meals since the per diem limits don't apply to those expenses.
And let's face it: if your company is making you travel away from home for work, they need to provide a little something to make up for it. Letting the employees eat fancy meals on company dime is just part of it.
The government is strongly incentivized to make sure that employers can't give employees untaxed money.
I know in my case, most expenses are itemized but you can expense a small fixed daily amount if you stay with friends. (I assume the thinking is that you buy some groceries, a bottle of wine, etc. when you stay with people that you can't really expense.)
I used to work in state government and at a fed contractor. Travel department booked our hotel, generally subject to said per diem amounts (interestingly, our hotel contracts were almost almost exactly the limit) and we never got to pocket anything on that.
Food we just got paid the IRS limit (including calculation for partial days and otherwise provided meals) and we did not have to submit receipts on that. It was certainly enough to eat well enough and go home with a little extra, especially since I don't really eat breakfast.
It's really note enough to hit the booze hard on, though. People who drank on trips hated it, people who don't drink much came out ok. Some of my poorer/cheaper co-workers would pick up food at a corner store, make sandwiches in their room, and end a week trip with $150 in their pocket and were stoked about it.
My current job just reimburses actual expenses up to a daily limit. On my very first trip, I bought my bag of groceries on day one and it ended up at about double the limit. They told me that that violated the policy, but they'd make an exception and approve just that once. Now I just eat out like everyone else and don't bother with groceries :/
This may be technically true, but in practice people charge things to their credit cards and don't actually pay the expenses until a month later anyway. And my company reimburses me within a few days, I always assumed that was normal.
How about expenses for directors/VP/Executive VP/CxO? Does this AI look over their expense reports, too? I would guess that even legit expenses from that level look a bit odd, but having AI audit employee expenses but not management expenses could contribute to a morale problem.
Another place that this AI oversight could help society as a whole is having corporations/companies get audited for wage theft. Wage theft is supposedly the largest dollar amount of theft in the US, and it probably exists because audits are so seldom done. AI wage theft audits could have a large beneficial effect for employees.
Expenses policies are usually grey enough that if you want someone out of the company without significant severance, using the expenses policy as a pretext imposes costs on the target they probably won't fight. If a company wants to keep someone, there is no end to the excesses they will tolerate barring any liabilities greater than the value they bring. If they want to get rid of someone, the mechanism and the true reason are usually very different.
Useful rule is to treat any company expense as a vulnerability that will be used against you in a severance negotiation.
Arguably, a more accurate Turing test would be one where instead of being indifferent as to whether we are communicating with a human or machine - we decide that a machine is sufficiently intelligent if it can provide us with pretexts for political leverage against other people.
Knew someone who sold his company and agreed to stay on for X months handover period. The new owners tried to go back and prove from previous expense claims that fraudulent activity had occurred and that they shouldn't pay some amount previously agreed. You need to be careful.
A long time ago, a project manager was paid 3X per month for a flat in Germany because at their level that was what they were entitled to. Then new junior person on same project came in, and happened to take over same flat and claimed X (with receipts). At the time this was just ignored - different folks different rules.
So at some point you have to be in a somewhat adversarial relationship with the company right? I suppose if you felt the company was taking advantage of you this would make sense as a way to 'get back', but wouldn't you rather be working somewhere else instead?
My employer used Concur and stupid rules to argue me into giving up and just paying the taxi ride out-of-pocket. I'm pretty sure that was the point, and many of the stupid expense "fraud" companies would notch that as a win. But I made my $57 back elsewhere, don't worry.
And yeah, the fix was get an employer that wasn't ass.
I work remotely, and my previous employer wanted me to come up to the office for a few days as we did every now and then.
But I didn't really want to go this time, I had other obligations, but ended up going anyway.
Expense report time comes around, and they complain that I don't have the receipt from the rental car company that includes the gas refill information, so they aren't paying that, and they pushed back on the $7-per-day economy parking I had my car in for the week.
So I looked over the handbook and some stuff in Concur, saw that I was entitled to like $10 for a breakfast each morning, and like $20 for dinner each night without a receipt. So I added a couple of those in there, it all added up, and they happily paid it...
And while that alone wasn't a major reason I left the company, stupid penny-pinching stuff like it was a big part of it.
I never once considered misrepresenting my expenses but I definitely considered pounding my keyboard. :)
This is the part that kills me. In my org people frequently travel at the last minute to Asia for weeks at a time. Those claims sometimes end up into the five figure range depending on the time of year. People have been almost stranded because they've maxed out their personal cards.
So, if you end-up lending $3000 of your own money to your employer, you are doing it wrong.
That being said it can be pretty risky if your accounting department loses a check
Instead of filing expenses when you get back home/a month later, you whip out the app while still travelling, take a picture of the receipts/invoice, and then filling in a short form. The app posts the item to the trip (along with photographic evidence) and that's one less thing to do upon your return.
For more complicated trips, it's not always completely straightforward though. It's not uncommon for me to mix some pleasure with business so it's often not as simple as just expensing everything.
if (expense_for_flight > 2 * average_expense_for_flight) {
flag_for_review()
}The story of the 20th century included a moon landing and ubiquitous personal computers. The 21st century's story seems to be about advertisers, health insurers, and employers using technology to get every edge on the common people that they can get.
Expenses, as implied in the name, are meant to reimburse employees for expenses fronted for their employers. It's not an enrichment scheme to pad your salary or to lay off unrelated expenses on your employer.
Bonus for those geniuses, which expense strip club visits. This seems the expense equivalent of surfing porn at work; stupid!
In the cases I personally know of, there was at least an element of the employee believing they had been cheated out of something: perks being removed, legitimate expenses being denied for seemingly arbitrary reasons.
I think that's fundamentally wrong and should - at least in an ideal world - never happen.
I just don't think that fibbing expenses is a good way to get back at your employer.
I'm aware that this reply has a certain whiff of Euro centrism, where such things are less likely to happen and workers really have better recourse to get back at their employers.
Shit like mandatory arbitration agreements would be laughed out of court herearound.
Agreed. But it does. Some of the perks removed were never perks but a form of negligence. Some of the expenses being denied for seemingly arbitrary reasons were denied because there is no way they can be justified as business expenses, but somebody in the past authorized them.
> I just don't think that fibbing expenses is a good way to get back at your employer.
We're in agreement on that. Just like theft from employer, it can only realistically have one outcome regarding employment once discovered -- no matter how small.
> I'm aware that this reply has a certain whiff of Euro centrism, where such things are less likely to happen and workers really have better recourse to get back at their employers.
My experiences relate to the UK -- albeit during the period where the recourse to get back at employers required paying for an employment tribunal to hear your case. Even after that was reversed, most disgruntled employees don't go to employment tribunals.
> Shit like mandatory arbitration agreements would be laughed out of court herearound.
Agreed. But you don't need those for injustices to be felt. Most employees don't really consider that expenses have to be a justifiable expense by the employer for tax purposes and that the people authorizing them are possibly over-worked and only distrust few people enough to check every item.
You might have to fly at weird hours and be tired or jetlagged, and you miss a few nights away from your family. Maybe you're traveling during the work day so you are being paid for that time, but you might have had to wake up earlier than usual, or sit in traffic on the way to the airport, or all kinds of other things that aren't compensated by the company. Even if nothing does go wrong, traveling is still somewhat stressful for a lot of people just because you're aware of the risk that something might go wrong.
Not to mention the fact that you're forced to lend the company money for a month or two at 0% interest.
If you have no problem with this imbalance between the company and employee, that's great for you. But IMO it's very easy to see why employees are incentivized to stretch their reimbursements as far as possible to help make some of it back. It's hard for me to see this as morally repugnant.
It used to be a chore keeping up with it so if they ever came out and looked at my odometer it wasn't obvious what was going on since I had to account for my actual commute to/from work but I managed to keep corporate happy which kept my boss happy which made that crappy job somewhat bearable.
If nobody even reviews your expenses you can get away with buying alcohol (as is the case at our company...) or as you say strip club visits.
When travelling on business this was completely acceptable as long as it wasn't excessive or stand-alone bar bills. A bottle of reasonable wine, or a couple beers with dinner was considered a no-brainer and fully reimbursed.
On a sidenote: When I was on training in New York dinners tended to be expensive. Often, but not always, more expensive than what I would consider reasonable. For example: 80$ (in 1996 $) for a nice steak dinner is not something I would consder reasonable.
When I came back to home office I made them aware that there where a couple or three of such dinners and they should just reimburse me what they deem reasonable, or reflected in the expense policy. I was reimbursed for the full amount. (Probably a number of 7$ deli lunches helped).
That was the Swiss subsidiary of an American software vendor.
But what's "fair" with respect to expenses generally is a bit tricky. Yes, there are home office expenses--maybe trivial, maybe a lot if you need to set up a room for the purpose. On the other hand, you're reducing or eliminating perhaps substantial commuting expenses.
Even with respect to travel, there are some perks with meals, etc. On the other hand, if you travel a lot you probably have to pay for various home services that you might otherwise not have to.
How would AI solve / detect this anomaly? I am curious.
“The python was a legitimate business purchase,” van Drunen says. “But the steak was for his family barbecues.”
It's kind of annoying actually, because it means feeling guilty if you aren't working while on the plane, but at the same time I can't work because the seats are too close together and the guy ahead of me has reclined all the way so I can't even open my laptop.
If you have a true expense account, you're likely on the robbing side, not the robbed.
Expenses should definitely not be a method to get back at your employer for perceived and real sleighs. Probably, if your employer steals from you this problem should be corrected at source and not via expense claims.
For what it's worth: I think that (as a for example) an Amazon employee stands in the queue for half an hour, in order to get security checked, and is not paid for that that's wage theft. Plain and simple. No matter if the courts disagree.
Nevertheless you shouldn't fib expenses (as if those folks could) to get back at your employer.
For what it's worth: I didn't downvote.
Nevertheless there seems to be an attitude in certain circles that expenses ar a form of free for all.
My assumption is that you have a relationship with your employer, which pays you for work provided. If something stinks in that relationship then it's the stink, which should be removed.
I'm aware that this is an idealized view. Especially in the US where courts seem to be overly employer friendly, or, even worse, where employees are completely shafted by mandatory arbitration clauses.
Allowing expenses as pay is very common, widely practiced and normal. From buying books to hotel room stays to letting family travel along for long trips (and providing entertainment for them). Seems to happen all the time.
Hell, isn't the white house an example of it ?
(I would also like to point out that buying meat for a snake might simply be a mistake. I certainly would have tried feeding a python something dead first, wtf)