Archives For November 30, 1999

I’m a big fan of both expense reports and Palm Pre (which means now I’m a big hesitant fan of HP), so when I heard the CEO of HP was fired for submitting a series of fake expense reports I couldn’t help but ask: what was in those reports, and could we have detected it before he got fired?

It says they were submitted to conceal a relationship — but how do you use an expense report for that?  I can think of a couple of ways:

  • Claim to be somewhere you weren’t by submitting a fake expense at some other location.
  • Claim to be somewhere on a date you weren’t by submitting a real expense, but claiming it happened on a different day.
  • Claim to be at work when you’re at play by having a personal meal and claiming it was for work.

I’m sure there are others, but these are all I can think of at this moment.  But the next question is: how could those expenses have been flagged for closer review and hopefully detected before it got out of control?  Taking each in turn:

  1. Require all company purchases to be made by credit card, and require that expense reports be submitted from a service that imports credit cards.  This makes it essentially impossible for an employee to invent expenses out of thin air because only actual, legitimate purchases taken straight from the bank are allowed to be expensed.
  2. Review expenses with modified dates and ask why the date was changed.  If it’s off by a day or so it could be just the natural delays of credit cards, but if it’s off by a large amount — many days or weeks — then it  might be some other expense (personal or otherwise) being “time-shifted” into the report so as to create a false trail.
  3. The third one is really hard: how do differentiate between an actual business dinner with clients versus a personal dinner with a friend.  The credit card record looks essentially the same… I’m not sure how to catch this on an individual basis, but if it happens on a recurring basis (which it sounds like was the case) then some signature might be detected over time.  What can you suggest?

Obviously no company should get paranoid about its employees — the vast, vast majority of expenses are totally legit.  Even the overwhelming majority of policy violations are due to simple error, either when entering the expense or incurring it.  But in this vast sea of proper expenditure are many, many individual instances of fraud.  And the better equipped you are to detect them, the more likely your employees won’t bother trying in the first place.

Anyway, if I have two pieces of advice for the new CEO:

  • File your expense reports accurately and on time,
  • Make a better phone than the Palm Pre!  WebOS is awesome, and I love the Palm’s form factor and keyboard, but dude!  Give this thing more RAM and a better processor, your loyal fans are dying here!


PS: I’d be remiss if I didn’t mention that Expensify’s anti-fraud protections would have automatically prevented the first and highlighted the second.  As for the third… we’re working on that.