Auditors should test for multiple and overstated expenses when project managers can submit travel receipts for reimbursement, even if their plane tickets and hotel are prepaid. Learn the key fraud risk and how internal auditors can detect it.
Table of Contents
Question
An organization’s project managers regularly travel to various destinations. Although plane tickets and accommodations are booked and paid for by the organization, project managers can still submit for reimbursement any travel-related receipts for transportation, dining, and other miscellaneous costs. Which of the following fraud schemes should the auditor test for?
A. Multiple and overstated expenses.
B. Unauthorized expenditures.
C. Improper period recognition of expenses.
D. Concealed liabilities and expenses.
Answer
A. Multiple and overstated expenses.
Explanation
When project managers travel for work and the organization prepays their airfare and accommodations, the key fraud risk is that the project managers could:
- Submit the same receipts for transportation, meals, and incidentals to multiple expense reports (i.e. duplicate expenses).
- Alter receipts or submit fake receipts to inflate the amount of their actual expenses (i.e. overstated expenses).
Internal auditors should test for this common fraud scheme by:
- Examining a sample of project manager expense reports
- Comparing receipts across multiple reports to check for duplicates
- Validating that receipts match actual expenses incurred and have not been altered
- Analyzing expenses claimed for reasonableness and adherence to policy
The other answer choices are not the main fraud risks in this scenario:
- B. Unauthorized expenditures are less of a concern since the travel itself is authorized and centrally booked. Auditors would focus more on fraudulent receipts submitted.
- C. Improper period recognition refers to recording expenses in the wrong accounting period, which is not the key issue to test for here.
- D. Concealed liabilities and expenses are less likely since project managers are openly submitting receipts for reimbursement. The receipts themselves warrant scrutiny.
In summary, when testing project manager travel expenses, auditors should focus on duplicate or inflated reimbursement claims, even when core travel costs are prepaid.
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