
Algorithmic auditors are exposing employee expense fraud - denzil_correa
https://www.bloomberg.com/news/articles/2018-11-14/ai-can-now-catch-lies-on-your-expense-report
======
jasode
I found out about a worker getting fired because of this at one of the big 4
consulting firms. They used SAP Concur[0] software for travel & expense
management and the machine learning algorithm flagged an irregularity in a
recent expense reimbursement. But she wasn't actually fired for that one bad
expense. What happened was that the SAP Concur raised management's suspicions
which prompted the human accountants to go back into the _old archives of T &E
submissions from 5 years ago_ before SAP Concur was installed. They _manually_
looked at her past reimbursements and discovered a long history of fraudulent
claims. (E.g. incorrect hotel amounts.)

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.

[0] [https://www.concur.com/](https://www.concur.com/)

~~~
davio
There was the old "raincoat expense report" urban legend back when I was in
Big 4.

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.

~~~
Waterluvian
Interesting story. :)

I think businesses can he really hard on fraud without being hard on what
constitutes a valid expense.

~~~
jandrese
I wonder how expensive that raincoat was that the person thought it needed to
be its own line item on the expense. That's normally what the incidental
expenses line is for, so this is just a story of someone who filled out his
expense report incorrectly, got it rejected, and then filled it out correctly.

~~~
deepGem
A good raincoat is pretty expensive. At least $200. So the guy submits an
expense report with a $200 line item, gets rejected and splits the $200 into
probably 7 or 8 incidentals which usually have a $25 limit, probably on
different expense reports.

~~~
jandrese
I'd take a double take at a $200 line item for an emergency raincoat to
replace one that I lost on a trip. I'm not asking the guy to get a plastic
poncho for his business meeting, but he doesn't need to get it at the Gucchi
store.

------
XCabbage
These people seem to have a strange definition of "fraud". In the first two
paragraphs, they list three apparent "frauds" and then note that they were
detected _by analysing the receipts that the employees submitted_. In other
words, the employees freely disclosed what they were expensing, by the
article's own admission. There's no explanation given of why the three
expenses listed were illegitimate in any way; it seems reasonable to charge
for the cost of having a kennel take care of your dog while you travel, and I
assume the yoga and strip club were client entertainment for sales or
marketing purposes. You can very reasonably disapprove of taking clients to
strip clubs, of course, but doing so and then openly disclosing it isn't
_dishonest_.

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?

~~~
puranjay
Slightly OT, but I wonder if you should be able to claim yoga/gym or even
clothes as an expense. If being a consultant means projecting a certain image
(fit, well-dressed), shouldn't you be paid for maintaining that image?

~~~
ballenf
The IRS in the US has rules that designates things as taxable income or not
for many of these questions. Businesses can still reimburse regardless of IRS
categorization, but you may be taxed on the reimbursement as income.

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.

~~~
ghaff
Safety-related clothing is also deductible. When I worked in the oil business
I could deduct things like steel-toed boots, overall, gloves, etc. off my
taxes (or the company could have provided them for me as a business expense).
At the same time, as you say, even if I only wear a suit for work, it's not
deductible. Such is the simplicity of our tax code :-)

------
ghaff
>According to Oversight, 30 percent of employee expense claims are risky,
wasteful and potentially fraudulent.

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.

~~~
jandrese
If 30% of your employees are committing "fraud" on expense reports you either
work for a criminal organization or your expense reporting system is broken in
some way.

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.

~~~
ghaff
>For example, when you reimburse a hotel you have to manually create a second
category with an obscure label for the taxes

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.

~~~
jandrese
It's worse than that. I have to do it day by day. Hotel cost night one, hotel
taxes night one, hotel costs night two, hotel taxes night two, etc...

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.

~~~
ghaff
A company tried to do that when they put in a new expense system. People
basically rioted and that and some other requirements were dropped.

------
dcosson
Does anyone else feel like the entire system of expensing is kind of bizarre?
This is kind of a tangent, but I feel like a few examples of expense fraud are
less interesting than the fact that we're all using this deeply ingrained
system that incentivizes cheating.

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.

~~~
ghaff
>Why not just pay the per diem in cash?

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.

~~~
jpatokal
FWIW, I used to work for a company that paid cash per-diems on top of
accommodation.

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!

~~~
TeMPOraL
I had this in China. I could expense the hotel and taxis to and from the
office and, per Polish law, company had to pay me 55EUR per diem. Given how
cheap China is relatively, it essentially doubled my paycheck for the two
months I was there (but then those were two grueling months of 10+h/day
Monday-Saturday work).

------
bediger4000
How expensive (to a corporation) are the low-level-employee expenses,
fraudulent or not? I mean, nobody likes to waste money on fraud or strip clubs
or extra steaks, but is the cost of AI Oversight more than you'd retrieve?

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.

~~~
motohagiography
To answer the question about the value of "AI," it is a black box of pretexts
you can use for leverage.

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.

~~~
ghaff
The example that was so hilariously ludicrous that you had to have real
admiration for the PR people keeping a straight face was when Mark Hurd was
forced out at HP because he supposedly expensed a business dinner that wasn't
actually a business dinner. (Which turned out to have almost certainly been
about more than a dinner but nonetheless doubtless a trivial sum of money in
the scheme of things.)

------
ChuckMcM
This is one of those areas that I never "got" in that I just filed expense
reports for what I spent and didn't see the advantage of getting an extra $10
or $100 from the trip. And I knew people who loved to push it as far to the
limit as they could, like a manager who had a private table at a Sunnyvale
restaurant and filed a huge reimbursement request for 'team lunches' and a
baggie full of receipts. Betting that nobody would actually go and verify the
receipts.

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?

~~~
x0x0
The only time I've done anything like this is when the company did their best
-- using Concur -- to avoid paying legitimate expenses. ie we got into an
argument over whether my taxi ride home from SFO was "too expensive". I was
like, um, I got in the fucking taxi, told it my address, and paid the bill.

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.

~~~
Klathmon
Similar story here.

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.

------
anonymousDan
How about better expense claiming software so employers aren't stealing from
employees through unclaimed expenses!

~~~
chasingthewind
I have done a tiny amount of business travel in my career but recently went to
a conference in a far off land and had to wrestle with the expensing system.
First, I was required to loan my employer $3000 for a month by paying for all
the expenses (including the unavoidable very expensive hotel rate) on my
personal card. Afterwards I had to fight with the expensing system for several
hours to get everything lined up correctly so that I could have the privilege
of having my own money returned. I was scrupulously honest with my expenses
and still felt like I was being eyed suspiciously by the system.

I never once considered misrepresenting my expenses but I definitely
considered pounding my keyboard. :)

~~~
ghaff
I frequently say that the only thing I hate more than doing my expenses is not
having my money. :-) (I travel a lot so the amounts add up quickly.)

~~~
Someone1234
I know I'm hopelessly naive but I'm surprised there isn't An App for that™

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.

~~~
ghaff
There is. Concur is one that's commonly used. You're right of course that if
you keep up with things as you go along it's much easier. Some of us aren't
always disciplined like that :-) and, in practice, I usually don't want to
fuss around with taking pictures of receipts in the restaurant.

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.

------
deckar01
My mom got flagged by a system like this a few years ago. The state was in a
financial bind, so they hired an algorithmic auditing firm to claw back public
funds from medical professionals who billed Medicare/Medicaid. They had been
lax about the documentation they accepted so, they were able to claim just
about anyone was missing years worth of legally required documents. She did
in-home medical evaluations for rural communities and worked long hours. The
amount of hours and miles she billed set off red flags, so they sent her a
bill for tens of thousands of dollars and threatened her with criminal
prosecution. It took her months and who knows how much in legal costs to fight
it.

------
CPLX
What are the chances that they actually have effective AI doing this? I have a
very strong suspicion, admittedly based on nothing at all, that they just have
some simple rules based algorithms and mostly just hire cheap labor to look
over expense reports.

~~~
jakobegger

        if (expense_for_flight > 2 * average_expense_for_flight) {
            flag_for_review()
        }

~~~
gnulinux
"AI"

------
blue_pancake
This is unnerving. I don't really have an issue with people who commit fraud
being caught in the act. It still bothers me that we're closing out the 2010s
and most of what we've achieved as an industry is make it easier for employers
to surveil their people.

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.

~~~
mc32
Being able to find reference material, how-tos, self-paced, self-led education
seems like a really good thing we’ve achieved as asiciety. Obvs this carries
over from the last years of prev century, but it’s now uniquitous.

------
CaptainZapp
I never really got it why people cheat on expenses. Apart from the fact that
theft (at least in this case) is morally repugnant it's a sure fire way to get
fired if your employer needs any reason at all.

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!

~~~
dpwm
It depends on the environment and the employee.

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.

~~~
CaptainZapp
_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.

~~~
dpwm
> I think that's fundamentally wrong and should - at least in an ideal world -
> never happen.

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.

------
bsenftner
As remote employment grows, I sense a larger and larger amount of office
business expenses being invisibly pushed to the remote employees, while the
business saves on the expense of less or no office space. The entire area of
"expenses" is ripe for an inspection revolution and formalization on all
sides.

~~~
ghaff
Many companies do have policies with respect to certain home office expenses.

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.

~~~
op00to
I've audited my home office expenses as a remote worker, and I save way more
money by not commuting and not having to take time off for minor illnesses. It
turns out that the actual cost of my home office space (dedicated room % of
montage) is really not enough for me to even calculate and deduct. At least in
my case, I come out ahead.

~~~
Retric
Depends on where the home office is and what you do. It’s not hard to break
1,000$ a month including a modest space inside an apartment in an expensive
city. People that are 100% remote often live in cheap areas, but that’s not
always the case.

------
mrlucax
There is a similar project here in Brazil [1]. They analyse public records of
government officials and detects discrepancies with their refound requests for
their "official" expenses. It's a civil society totally open project.

[1] [https://github.com/okfn-brasil/serenata-de-amor](https://github.com/okfn-
brasil/serenata-de-amor)

------
halite
> While the snake could be justified, the employee’s purchase of $1,200 worth
> of steak as snake food could not. Pythons only consume live prey.

How would AI solve / detect this anomaly? I am curious.

~~~
jpatokal
Most expense reports don't involve buying $1200 of groceries.

------
rozim
I hope it uses Benford's law as a signal.

------
jpatokal
I've used Concur as both a user and expense report approver, and I suspect
these "AI" claims are overblown. What actually happens is that Concur can
import transactions directly from a corp credit card and identify a lot of
them (airlines, hotels, restaurants) automatically. From what I've been told,
the auditing bit consists of looking for anomalously high charges in
categories ($1000 flight OK, $1000 restaurant bill not so much) and checking
against a blacklist of banned establishments (gambling, adult entertainment,
etc).

------
mv4
this quote:

“The python was a legitimate business purchase,” van Drunen says. “But the
steak was for his family barbecues.”

~~~
crooked-v
If the boss is reasonably convinced that having a python in the office will
entertain or impress clients when they come in, well, there's your python.

------
number_six
I just got a job with a corporate card, and we have SAP Concur, I assume that
everything will be scrutinized by some kind of AI - as it automatically reads
the receipts and essentially tells me that it is doing so. One steak dinner is
not worth my job...

------
thrower123
I don't think this is worthwhile. Most of the time employees are getting back
their unpaid overtime and other unpaid work in their expense accounts.

~~~
sigi45
What? Why? Wtf?

~~~
CaptainZapp
I'm also slightly surprised by the first two replies.

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.

~~~
dmurray
The GP might be suggesting that it benefits both the employer and the employee
here. The employee gets a better tax treatment and the employer can have a
permissive approach to expenses when it might be politically difficult to
officially give a raise.

~~~
CaptainZapp
Ah, OK. Thanks.

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.

~~~
candiodari
You are assuming the employer - at least the first level manager, but more
likely all the way up - isn't _aware_ of this, and approves.

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)

