Sunday, January 30, 2011

Per Diem Frauds

Per Diem/Daily Allowance Frauds!

Ok…I am in the midst of finalizing a foreign travel policy for a company in Delhi and hence thought to write on this interest subject.

Now, most of the companies in India have Foreign Travel Policy which typically includes fixed/at actual Per Diem/Daily allowance to meet your daily living expenses in foreign country + Local Travel expenses at actual + Hotel stay bill + residual business expenses.

At Actual means expenditures will be settled against your advance on producing the actual bills. I have assessed and monitored many travel policies on Per Diem during audit and accounting engagements. Per Diem aka Daily allowance is a popular concept for regular foreign travelers due to two reasons –

1. It is a fixed amount per day given to them with no restriction of collecting original bills. They are free to use it as per their convenience and needs.

2. For medium term and long term travels, it gives good opportunity to earn. In fact, Company prefers to give such allowance as compensation in addition to salary for staying away from home.

There are few companies who went against the above rule either to avoid Fringe Benefit Tax or to avoid possible irregularity of income tax deduction at source and hence applied policy of Per Diem at actual. It means employee needs to collect all food, laundry, office-hotel travel bills to adjust it against the travel advance. Here are the three examples of how this policy was abused by employees –

1. Pakistani Restaurant in Frankfurt: Mr. N.T.T. Sai Ramachandran (name changed) SAP BASIS Administrator- was sent onsite on the basis of his Hyderabad SAP Course Certificate to Germany. Being an Indian, he preferred for Indian style food to eat. Per Diem allowance was Euro 70 per day. i.e. He can eat/laundry maximum upto Euro 70 per day. Mr. N. T. T. Sai Ramachandran with his all-time blank face & tamil accent without correct grammar English, was injected accurately for words ‘Money’ since his birth. Smart chap… he found a Pakistani restaurant in Frankfurt. He went there and ate chicken. Paki and he translated the hungry feelings about money in no time. They entered into a verbal agreement – Ramachandran should come to his hotel every day and in return the Paki will make fake bills of Euro 70 per day.

Mr. Ramachandran was successful in both deals. Ramachandran showed Code page for every question from the German as both can’t speak English. The German customer failed to understand his own work and thought Ramachandran is a scholar and certifies him as a “Superman”. Ramachandran returns back to India with Certificate, confidence, fake bills and 4 chock-lets to accountant. He gets Best Employee of the Week/Fortnight/Marathi Calendar Month/Quarter award and with better confidence he submits those fake bills. Due to inter-departmental power awareness, accountant punches the travel claim in the system with no questions and closes the account.

2. McDonalds: Mr. Virat Sharma – Sr. Consultant (name changed), resident of a Noida, relocated to Pune. He travelled to USA with a per diem policy at actual subject to ceiling of USD 80 per day. Mr. Sharma forgot till last week of his stay in USA that he needs to collect actual bills. 80USD was more than sufficient amount to manage expenses in USA, but Mr. Sharma often went to striptease/night clubs and emptied his pocket out rightly. Now, irrespective of tons of alcohol in his body, his mind was sharp. He went to McDonalds restaurant….ordered 1 Mc Chicken Burger with extra cheese. Observed the Garbage Box near Drive Through and immediately after lunch, he took out all bills and ran away. He returned to India and submitted claim for 3200 USD (40 days) and settled easily. His friend Mr. R. P. Bhide – Project Manager submitted claim of 1200 USD and told accountant above story. Poor accountant loved the story, but again remained reluctant to bring to notice of management the policy abuse. There were three strong evidences which could have got Mr. Sharma into a big trouble –

1) Some of those bills were stamped with foot mud.
2) Mr. Sharma actually furnished bills of USD 4000 even though he was given advance of USD 3200 only.
3) Mr. Sharma furnished bills which contains dates of last 7 days of his stay in USA.

3. Son of a Politician: Mr. Sandeep Jaykar (name changed)– son of a Politician in India. He for unknown reason (or may be non-sense reason) working with Marketing Group of a Software Company. His employer had a foreign travel policy of paying Per Diem at actual with no upper ceiling. Mr. Jaykar forced his company to change the policy after his return to India. He went to USA for a business trip. He stayed in a Five Star Hotel, lunched-dined-dry-cleaned in a minimum five star hotel in USA. He washed his all clothes, sox, shoes and every possible item which can wash his employer. When poor accountant questioned him, he simply answered if you cannot afford it why didn’t you inform me? I in fact spent less since this organization does not belong to my father!

So…While auditing and accounting for foreign travel expenses, I met many people. One of my friend Mr. Raje (name changed) (Konkanstha Marathi Brahmin) made interesting comments protesting the ’at actual policy’ after his return from Hungary/Europe. He said –
a) I do not travel to foreign country for long term because I can’t get well along with my wife.
b) I do not travel to foreign country because I do not get good food at Home.
c) Honestly, I sacrifice my family and personal life and I expect to get it compensated.

Generally, it may be observed that –
a. Most of the Employees although do not wish to abuse policy, do so to make money from their sacrifice. – “Ham Chor Nahi hai….par ye Jalim Duniya hame Chor bana rahi hai”
b. Few disgruntled employees abuse policy to revenge injustice made to them.
c. Some employees have habit to abuse anything and everything from school days…they just continue.

To sum up –

1. If employee wish to abuse the policy, he/she should re-verify intent, objective and culture.
2. Organization must have a reasonable, transparent and unique foreign travel policy to avoid policy abusing.
3. Eyes and mind of an “Accountant” is far intelligent than “Travel Policy Abusers”.
4. Finance MUST have active and decision-making role in Policy making.

Disclaimer: Writer of the blog intends to alert people who had/are/will be indulged into any travel frauds. Writer never supported any fraud attitude in his career. Writer strongly condemns fraudsters and the fraudulent behaviors. The purpose of this blog is only to share thoughts as to how policies are abused.