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FCPA Travel & Expense

Misconduct Tales for the Oversight Vault

on February 26, 2015

I confess to having grown weary of companies in the data analysis and/or compliance business that scream tales of fear, uncertainty, and doubt (AKA, “FUD”), as hyperbole often reigns the day when it comes to these stories. Still, I pay attention when I see evidence of the fire behind the smoke.

Matt Kelly’s Compliance Week article “More Misconduct Tales to Tell Your Company” provides anecdotal proof of the impacts of bribery and incompetence undetected by internal controls.  Kelly cites the examples Petrobras in Brazil and Federal Employment and Guidance Service (FEGS) in New York City.

Petrobras is on the brink of bankruptcy due to a bribery scandal involving a scheme by company executives to conspire with construction firms to inflate the value of Petrobras contracts by 3%.  And because bribing contractors wasn’t enough, they took the proceeds and used them to funnel cash into the pockets of politicians in Brasilia.  As Mr. Kelly goes on to explain, these events in concert with several others have combined to put not only Petrobras at risk, but also the Brazilian economy.

On the other hand, FEGS is an story of flat-out incompetence.  FEGS discovered a funding gap of several hundred thousand dollars in 2013 that has somehow ballooned to $19.4 million (8% of their annual budget).  Poor internal controls led to a situation where FEGS warned employees it may need to file for bankruptcy.

In both cases, people have lost their jobs, customers have suffered losses, and investors have lost money.  If someone were watching and cared enough to act when they saw things amiss, the stories would probably be different.  The first key to prevention is that the problem has to be visible, and the second is that someone has to care enough to act.

No one wants to believe that fraud, waste, and abuse is happening in their organization.  Statistics from Oversight’s own Spend Analysis Report for T&E states that less than 5% of employees are responsible for over 80% of the fraudulent activities that occur in T&E. Statistics from the Association of Certified Fraud Examiners (ACFE) indicate that 75% of the employees involved in T&E expense fraud are involved in something shady elsewhere in their work activities. The challenge is to identify this 5% and take action, before they move on to something else.

A great example of this scenario is one of our customers who discovered a highly entitled employee who decided that it was OK to expense the boarding of his dog whenever he traveled.  Expensing was no problem as he entered the expenditure as a hotel expense.  Growing bolder over time, this employee started taking advantage of the pickup and return service offered by the doggie daycare.  When discovered, the total bill for “Fido” was over $12,000.  When the company widened its investigation of this employee they discovered an additional fraud involving the sale of company IT hardware on eBay totaling over $200,000!

Thankfully, there is a new way to approach both large-scale fraud (Bribes and anti-corruption) and employee theft, and it is my favorite motto called – “inspect what you expect.”  

Imagine a company that automatically audits 100% of its T&E and purchase card transactions.  This allows them to proactively address high-risk individuals and patterns of behavior.  They can make changes in the purchase card program knowing that they can identify any attempts to circumvent the changes by spending on the travel card rather than the purchase card.  They have increased the level of assurance within their purchase card program to the extent that they have been comfortable increasing their purchase card spending by over double and decreasing their accounts payable costs while increasing their purchase card rebates.

Better yet, they have decreased the cost of monitoring compliance in both the purchase card and T&E programs by over 50% as a result of automating the compliance process. Think this sounds impossible? It actually isn’t, not if you leverage a technology solution like Oversight’s Insight On Demand, which automatically scans your company’s transactions for non-compliant behavior via an integrated case management tool that allows you to follow up on the findings.

Our customers love it. And you can bet they don’t have any misconduct tales in their crypts anymore.

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