Most people write off business lunches and work travel on their company expenses, but a new study says they also try invoicing their companies for late-night dips into the mini bar, car washes and — yes — lunches that take place in strip clubs.
The study released Monday by AppZen, which used artificial intelligence to analyze more than 3 million expense reports and flag suspicious receipts, says 46% of companies reimburse for gifts for clients and 39% do so for golf, even though playing golf for business reasons has gone the way of the three-martini lunch, particularly among younger workers. Only 16% of businesses reimburse employees for room service and 15% for drinks from the hotel mini bar. Employees are, these results suggest, trying to expense some personal items. The most scandalous included a Tiffany receipt (a gift for a woman who was not the employee’s wife) to gambling losses.
One trick includes two employees having lunch together and, afterwards, one submits the credit-card receipt, while the other submits the check. Others involve workers having ‘lunch’ in a strip club.
The sheer volume of expense reports helps suspect submissions slip through if they’re rubber-stamped by hand in the back office amid a pile of receipts, according to the report. Last quarter, the average enterprise processed 4,374 expense reports. Each report contained an average of 11 expenses, the study found. Other “creative” expenses that employees submitted for reimbursement last quarter included dog kennels, cigarettes and “brown paper wrapper” online vendors.
Other tricks include two employees having lunch together and, when they both get back to the office, one submits the credit-card receipt, while the other submits the actual check, perhaps making the totals slightly different by omitting or adding a different tip. Another expense included 20 Grey Goose vodka receipts. The team was reportedly celebrating a corporate deal, but bringing money into the company did not justify the after party, the latest study found. (The system does not track expenses filed by gender.)
AI can sort through such expense reports faster than auditors ferreting out questionable purchases by hand, Jamie Barnett, chief marketing officer at AppZen, told MarketWatch. Strip club expenses are not uncommon. “If it looks like a perfectly respectable establishment, AI will usually find out that it’s a strip club,” she says.
And yet companies do approve some surprising expense reports. Some 24% do so for car washes, and 19% for clothing. One in 10 suspect expenses equate to around 30% of their entire dollar value in the last quarter. Barnett recommends auditors examine the highest value expenses or lowest value that occur regularly. Did the lunch take place during work hours? Was there a receipt for the meal or a non-itemized credit-card receipt, which could have been used for alcohol? (Cell phone expenses are among the most common expenses and yet only 41% are approved.)
High-profile expense scandals
There have been several high-profile egregious expenses in recent years. After making headlines on his Instagram
account and then in news outlets, then-Illinois Republican Congressman Aaron Schock resigned from office in 2015 after being dogged by questions about his personal finances and expenses. The story of Schock’s glamorous, jet-setting lifestyle gained him 17,800 followers on Instagram, which is now public again after being made private at the time, but a Washington Post story about his “Downton Abbey”-inspired office brought his expenses under renewed spotlight.
A Morgan Stanley broker was fired, alleging he submitted false expenses. He fabricated 10 restaurant receipts in 2008, totaling $3,301 and 17 bogus receipts, totaling $3,448
“The constant questions over the last six weeks have proven a great distraction that has made it too difficult for me to serve the people of the 18th District with the high standards that they deserve and which I have set for myself,” he said in a statement at the time. Schock is currently due to stand trial in June on federal corruption charges in Chicago related to his expenses while congressman. (Shock has pleaded not guilty to the federal charges, according to an October 2018 report of the upcoming case by the Chicago Tribune.)
In 2012, Port of Oakland officials suspended its then maritime director, James Kwon, alleging that he filed a $4,537 expense report for a drinks and dinner reception in 2008 with clients at an establishment called D. Houston Inc. Turns out, that’s the corporate name of Treasures, a Houston-based strip club. Kwon, who is now director of marketing at City Ocean International, according to his LinkedIn profile, stepped down from his role after an internal audit. (Kwon didn’t immediately respond to request for comment.)
A Morgan Stanley
broker was fired in 2009, alleging that he submitted false expenses. He fabricated 10 restaurant receipts in 2008, totaling $3,301— and another 17 bogus receipts, totaling $3,448, according to a 2012 hearing by the Financial Industry Regulatory Authority. He was only reimbursed $808. The employee told investigators he submitted false expense reports, but he denied misappropriating funds. He argued that once he qualified for an expense allowance award, he was entitled to the full amount as part of his compensation package. A spokesman for Morgan Stanley said, “The FINRA hearing decision speaks for itself.”
Why do they do it?
Employees could be making up for what they perceive as not being paid a high enough salary, ego or simply annoyance that they don’t get reimbursed in time for expenses, experts say. Company “rainmakers” are likely to be more bullish with their expenses, Barnett says, believing that they’re too important to the company to be questioned over extravagant expenses. The other reason could be related to the clichéd disgruntled worker. “You’re traveling,” she says, “and you’re shelling out money and some employees may think, ‘Am I ever going to get paid back for that?”
Company ‘rainmakers’ are perhaps more likely to be more bullish with their expenses, believing that they’re too important to be questioned over receipts. Others are simply disgruntled.
Others might file outrageous expenses on their way out of the company. “I’ve had to deal with a ton of terminations in my career of people who went crazy on expenses and they fall into two camps,” says Tim Sackett, president of HRU Technical Resources, an information technology and engineering staffing firm in Lansing, Mich. The first reason why people go for it with their expense accounts? “I’m getting fired anyway, so might as well put that new iPhone
on my corporate credit card, somehow believing that it’s not the same thing as theft.”
Company culture may also play a role, Sackett says. He calls it “learned behavior that kept going one step farther.” He says the employee in question might think, “Well, my boss took a client out for a really expensive steak dinner. When I turned in a similar steak dinner and tickets to the theater for a client it got signed off. I mean, I thought also taking that client to the casino and giving them a $1,000 limit on the card would also be fine.” He describes it as “road warrior travel” where employees lose touch with reality and justify all sorts of treats.
Often times, it’s a combination of old-fashioned ego and self-entitlement. “We once fired an employee who was turning in gas station expenses for travel that seemed high, but not crazy, and it was just the credit-card receipt for the total,” Sackett adds. “Someone dug into the credit-card details and found each time he got gas, he put a $10 Amazon
gift card. He was constantly on the road, so this was $50 to $100 per week in gift cards. He said he felt like it was owed to him because of all the work he did, even though he also said he thought his salary was good.”
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