Ripping apart the evidence: corporate travelers pump up gas receipts, and a routine compliance audit yields unexpected results - Roundtable

Internal Auditor, Dec, 2002 by Phoenix Chapter

DURING A REVIEW OF VEHICLE expense reports, the auditor noticed several suspicious-looking gasoline receipts submitted by one particular employee. Some of the receipts were carbon copies rather than originals, and many did not include a purchase date, as the top portion of these receipts had been torn off. Furthermore, an analysis of this individual's gas use showed that his vehicle's fuel efficiency was 10 miles per gallon less than any other vehicle in the fleet.

Despite these findings, the auditor had no evidence of actual fraud other than the questionable support documents. She brought the documents to the attention of her manager, seeking assistance with her investigation.

Convinced that he could help the auditor find a "smoking gun" within the employee's file, the manager spent the rest of his day pouring over the expense receipts. Because his efforts did not yield any additional evidence, he then decided to take the file home for further scrutiny.

That evening, after finishing his dinner, the manager began looking through the expense records once more. Still unable to find any concrete evidence of fraud, he decided a fresh perspective might help and asked his wife--an accountant--to look at the file. She examined the paperwork for about two minutes and said, "Did you notice that the receipt numbers on these two items are the same?"

The manager then realized why the employee in question had removed the upper portion of certain sales receipts: to prevent the receipt numbers from being compared. However, the bottom portion of some of these numbers was still intact just below the tear, which enabled the manager s wife to recognize the duplicate items. A subsequent review of other expense-report files in this same department revealed that another employee was also using this method to defraud the company.

When the employees were confronted about the audit findings, they admitted to the expense-report scheme and were then terminated immediately. They effectively lost their jobs over an additional $20 to $40 per month. Internal auditing advised all supervisors and managers to be more diligent in reviewing expenses and to no longer allow questionable receipts. Furthermore, both the auditor and her manager gained an appreciation for the value of an objective opinion.

PHOENIX CHAPTER

DO-IT-YOURSELF PROGRAMMING

An organization supported a system of data extraction and analysis capabilities, but did not employ any dedicated programmers for this purpose. Departments were required to request reports informally, which the company's general programmers would complete as their time allowed. Because of the programmers' busy schedules, however, requests for such reports were generally treated as a low priority.

The slow turnaround affected many departments, including internal auditing. The auditors frequently requested reports to support their work on current assignments. By the time their requests were fulfilled, however, the results were often outdated and not usable.

Frustrated by the inefficiency of this system, audit management resolved to take matters into their own hands. They stopped relying on the programming department and instead obtained database-query training for members of the audit department. Auditors are now able to write their own queries, resulting in more timely reports, greater flexibility in report writing, and increased confidence in test results.

OCEAN STATE [RHODE ISLAND] CHAPTER

WHO'S KEEPING TRACK OF THE TRAINING?

To ensure compliance with state regulations, the internal auditor was assigned to review his organization's sales-personnel licensing procedures. In general, he found that controls were effective and saw no problems related to the establishment of employee licenses. A questionable finding, however, led the auditor to investigate beyond the original scope of his assignment.

The sales force was grouped into several districts, each led by a manager responsible for recruiting and training. The districts sent all of their documentation to a centralized administration department, where it was checked and processed. To ensure all items were being received on a timely basis, the manager of this department performed a quality control review of the document-handling process every quarter.

While reviewing the administration manager's records, the auditor noticed that areas related to training were marked as "not applicable" on each quarterly report. It was this finding that prompted him to expand the focus of the audit.

Upon further investigation, the auditor learned that the administration department personnel did not examine training-related items during their review of sales documents. Because the local district managers were responsible for training, the administrative employees did not feel this was their responsibility. Troubled by this finding, the auditor decided to speak with the administrative manager.

Upon questioning, the manager revealed that he had serious concerns about the quality of training received by the sales force, even though his department had no accountability for this area. The manager had noticed problems during his quarterly reviews and was planning on investigating ways to address them during annual training meetings. However, he had not issued any formal reports regarding these concerns. Furthermore, he had never expressed his concerns to the local district managers.