Roundtable

Internal Auditor, June, 1997 by E. Theodore Keys, Jr.

The auditor noticed that many of the meal expenses were supported only by signed receipts for charges to the employee's corporate credit card. Often these charge slips were poorly imprinted, making it difficult or impossible to read the name of the retailer. Rarely did the slips provide any details of the purchase.

Since the charges were made with a corporate-sponsored credit card, transaction details were available to the auditor. By reviewing monthly charge account records, it was easy to determine that many of the charges were not made at the restaurant indicated but at retail establishments for purchases of merchandise. By contacting the golf courses, the auditor discovered that most of the "golfing with clients" expenses were actually purchases of clothing or golf accessories. In addition, the employee had been reimbursed for more than 33,000 miles in less than ten months. In total, expense reimbursements nearly doubled the employee's annual salary.

The employee had taken advantage of his manager's trusting nature and lack of knowledge of golf expenses and of the distance between his assigned territory and the corporate headquarters. Expense reports were handwritten and difficult to read, yet a full explanation was offered for each expense. Expenses for a particular week were sometimes spread over several expense reports, reducing the likelihood that the duplications or contradictions would be noted during review; and the reports were usually submitted three or four at a time with a request for a rush payment generally right before the charge card bill was due. Needless to say, the employee is no longer employed by the company.

Northeast Florida Chapter

* Small Differences Can Snowball

The company's janitorial contracts included a formula for adjusting monthly lump sum payments to reflect increases in the contractor's wage rates and material costs. Adjustments were made annually during the five-year contract term.

The internal auditors tested the calculations for the first initial increase and found that the contractor had applied one of the cost components incorrectly. The difference was fairly small; but the adjusted amount was carried forward each year, resulting in incorrect calculations for each subsequent year. The auditors found that the small difference had ballooned over the years to a contract overpayment amounting to $615,000! The company's management readily adopted the auditors' recommendation to carefully review each calculation and began negotiating with the contractor for recovery of the overpayment.

Mt. Diablo Chapter

* Frequent Flyer

During a routine review of employee expense reports, the auditor became curious about the fine print in the center of an airline receipt. From the corporate travel representative the auditor learned that this could be used to determine how the traveler paid for the ticket, including whether another ticket had been traded in for credit toward the purchase. By listing the ticket numbers of tickets "traded in" and comparing these numbers to the numbers of tickets submitted to the company for reimbursement, the auditor found that one employee was, in effect, being paid twice for any ticket, or portion thereof, traded in.