Trouble in travel: one university was paying for more than policy allowed--that is, until the...

AMANTHA, A UNIVERSITY auditor, was assigned to review the travel records for the coaches and recruiters in the school's athletic program. As Sam delved into the many files and papers associated with her task, she found problems typical of most travel forms: a lack of sufficient documentation

for expenditures, the occasional use of first class or luxury rental vehicles, and a few instances of disallowable expenditures such as beer mixed in with a gas bill or a movie on a hotel bill. There was really only one point she was going to make in her report, so as she was preparing to wrap up, she decided to discuss the potential finding with the athletic department's director.

The university's policy allowed staff to charge mileage when they used their personal vehicles and to expense gas when they used a rental car. Yet, Sam noted, "the athletic department coaches and recruiters never charge for mileage." As she talked to file director, she showed him several entries for gas purchases that didn't have corresponding rental car invoices. In reply, the director nonchalantly explained that most of the recruiters' travel was to attend high school and community college games or to meet with potential instate recruits. The recruiters were assigned vehicles that had been donated by local car dealers and were provided with department-issued gasoline credit cards to reduce their out-of-pocket expenditures for gasoline reimbursements. The gas bills included on the travel vouchers were for those times when there was no nearby gas station that accepted the gasoline credit card.

Still, something stuck in Sam's craw, so she decided to request copies of the gasoline reimbursements made during the audit period to verify that the gasoline charges included in the travel vouchers were not also on the departmental charge cards. When picking up the copies from the administrative assistant, Sam asked how she determined the bill was accurate prior to payment. The administrative assistant replied that coaches were supposed to send her the actual charge receipts they received from the gas station so that she could compare them to the monthly bill she received from the credit card company.

The receipts included the card used, date of use, location, and dollar amount, which was usually enough to match the receipt to the bill. Knowing that the travel administrator was constantly dealing with the problem of lost or missing receipts, Sam then asked the administrative assistant how she got the recruiters to turn in the slips. The administrative assistant indicated that she frequently approved invoices without all of the receipts because there were recruiters who never turned them in on thee. In reality, she reviewed the invoices for reasonableness and processed them for payment.

As she explained the process, she indicated that she was not particularly concerned about the accuracy of the billings because most of the receipts were eventually turned in, and they always agreed with the invoices. She also indicated that, at one thee, she had tried to follow up, but learned that the director did not like her to contact the recruiters when they were on the road because they "had more important things to do."

When Sam asked the administrative assistant who she had the most trouble getting receipts from, the assistant explained that the more a coach or recruiter traveled, the harder it was to get the receipts from him or her. A quick review of travel assignments showed that the head coaches and the assistant coaches were consistently the high-volume travelers.

To help sort through this arcane process, Sam reviewed the credit card receipts provided to the administrative assistant and was able to match them to the corresponding invoices. The receipts were either machine-generated or manually written and signed by the recruiter. Sam didn't question the presence of manual receipts from the gas station because it was a locally owned shop, and she assumed the owner did not use an electronic credit card processing machine. Although several of the receipts looked like they were rounded to the nearest dollar, Sam knew that many people put $10 or $20 worth of gas into their cars. She did note, however, that some receipts appeared to be for large quantities of gas and made a mental note to follow up on those items to see if the vehicle in question was a truck or van.

Sam had developed a spreadsheet of the recruiters' travel and, using a list of assigned cards, matched gasoline charges on the invoice to the trips taken. Her objective was to ensure there were no double billings and that the invoice charges were business-related based on the travel charges submitted. This test proved very enlightening, as it identified several unusual patterns in the gasoline charges:

* Gas was charged in one county of the state when, according to the travel voucher, the coach was actually in another county.

* There were two charges on the same charge card on the same day in two different cities or states. Geographically, the cities were located too far apart to visit both in the same day or the mileage between them did not justify the gasoline usage.

* There were "batches" of sequentially numbered receipts from the same local gas station, but the dates were scattered.

* The charges on numerically sequenced receipts were all round numbers (e.g., $20.00 or $25.00).

* There were charges for gasoline in which the gallons purchased exceeded the capacity of the vehicle. The auditor suspected that either the gasoline credit card numbers had been stolen or that the coaches and recruiters were sharing the numbers with relatives, associates, athletes, or potential recruits. Because such an allegation would have resulted in fraudulent charges against the university as well as serious U.S. National Collegiate Athletic Association (NCAA) violations related to payments and gifts to recruits and student athletes, Sam knew she had to be sure of her facts.

As Sam reviewed the local gasoline vendors' receipts with her supervisor, the two of them decided to interview the station owner to get an explanation for the discrepancies. This might tip off the coaches and recruiters if they were involved in inappropriate activities, but the audit shop decided to risk it and exercised the university's right to audit, as provided by state law, and reviewed the gas station's books and records. Although the auditors could have obtained the missing charge slips directly from the credit card company, this approach would have taken significantly more thee and been more costly. In addition, the station owner could likely explain some of the discrepancies, whereas the credit card company would only be able to provide documentation.

The disclosed objective of the meeting with the gas station owner was a routine audit of credit card transactions to identify some missing gas receipts. The vendor cooperated with the auditors and was forthcoming when asked about the unusual billing discrepancies identified in relation to his operations. The station owner provided the following explanations:

* Recruiters frequently sent people to his station for routine car repairs or maintenance items. Sometimes, especially at the end of the semester and the beginning of spring break, people were also sent to the station to fill up their cars with gasoline. As instructed by the coaches, the station owner did not have any of these individuals sign for the charges.

* The station owner was also instructed to keep track of the charges, divide the charges into reasonable payment amounts each month, and charge the recruiter's credit card for gasoline purchases. This, thought Sam, explained the even dollar charges.

* The station owner would complete a stack of credit card charge slips all at the same thee. This explained the sequential receipts. The receipts were dated randomly over the month and submitted to the credit card company once the dates actually occurred. This explained how charges were occurring locally when the recruiters were actually out of town.

* Because the service station owner only had the recruiter's credit card number, not the actual credit card, charge slips had to be completed manually and that required the recruiter's signature. Periodically, the recruiter would stop by the station to sign the receipts and get topics of those processed in his or her absence. This would explain the thee delay in submitting the receipts to the administrative assistant.

* When asked about the excessive gallons of gas charged, the station owner indicated that the recruiters would fill up their business and personal vehicles, or perhaps one of their vehicles and someone else's vehicle at the same thee.

The station owner claimed there was no personal benefit for his part in the arrangement, that he billed the university only for services and gasoline provided, and that he did it solely in support of the program.

The meeting with the local vendor still did not provide an explanation of why there were charges in states in which the recruiters were not present. The auditors suspected that other vendors had accepted the coaches' credit card numbers from the same individuals, but it was not cost-effective to contact and interview these vendors because of the value of the purchases processed through these locations. There was also no evidence to indicate that the cardholders had "approved" the use of their card.

As a result of this and other audit findings, the university self-reported the violations to the appropriate officials and made significant changes in the management and control structures to prevent future problems. The university decided not to take legal action against the individuals involved in the irregularities or the service station owner because he cooperated with the investigation. The funds were never recovered, nor was restitution requested. Limiting business to the vendor was not possible because of the use of a credit card to pay for services. Generally, credit card companies are not willing to "suspend" vendors when they personally did not sustain a loss.

LESSONS LEARNED

* Whenever expenditures are reviewed for "reasonableness" and receipts are not verified against invoices, opportunity for irregularities to go unnoticed increases.

* It is not enough to agree receipts to invoices; a review of the appropriateness of the item purchased should also be performed.

* Auditors should follow up on the reasons for noncompliance with established policies. If the auditor had chosen to simply "write-up" the unit for failure to provide documentation, the irregularities may not have been identified.

* Administrative staff can often provide valuable information related to why irregularities are occurring and can provide clues as to whether or not controls to prevent or detect significant problems are being followed. They also can provide valuable information on the behavior of suspected perpetrators.

* Sometimes it is necessary to involve external parties in an investigation. It can be tempting to offer immunity to those interviewed but, in reality, auditors do not usually have the authority to grant such immunity. Executive management, general counsel, and internal security--or, in this case, campus police--should be involved in decisions to interview external parties suspected of irregularities. Agreeing not to refer to law enforcement can be a problem. In some situations, failure to report criminal acts to appropriate authorities may be a criminal act itself, exposing decision makers to prosecution.

* If immunity is granted to an external vendor, it is still wise to remove that vendor from the approved vendor list. The vendor's participation in the fraud may have a negative effect on the university's liability insurance if the university fails to take reasonable precautions to prevent future irregularities. In addition, allowing the vendor to continue in serve the institution would scud an inappropriate message to other local vendors.

* Decisions to report to law enforcement or seek prosecution of employees and vendors are usually not vested in the audit staff. Auditors must be willing to accept that success may be limited to "breaking up the party" in those instances where management chooses not to pursue the case.

* A post-mortem review of policies and procedures that may have contributed to the irregularities is a critical part of the auditor's job, as it helps to ensure that future risks to the organization are minimized.

* Please send your fraud findings to: COURTENAY THOMPSON & ASSOCIATES 10,000 North Central Expressway Suite 1006, Dallas, TX 75231 +1-2t4-361-8346 Fax: +1-214-361-0632 E-mail: CMT@ctassoc.com