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.

FRAUD – Telephone Number and Signature on the Purchase Quotations

Series FRD/02/2009

Well…this is another interesting fraud case discovered during internal audit of an engineering company.
The purchasing manager of this engineering company was well accustomed with all organizational purchasing processes as well as business processes followed in the market. Smart chap, always starts the day at 9.00am, his behavior in the office was always easy going, he always believed himself in his capabilities and a sweet talking person.
The purchasing process of the organization strongly recommends to invite at least 3 quotations for purchases above INR 100,000. Mr. Manager strictly followed this process for all purchases above INR 100,000.
During purchasing audit, we found that a Purchase Order valuing INR 980,000 for purchase of Stores cupboards was supported with 3 quotations. All three quotations were apparently invited from 3 vendors and they were read as below
1. M/s Trimurti Enterprizes quoted - INR 10,95,000
2. M/s Gururaj Bros. quoted – INR 9,80,000
3. M/s Gajaraj Enterprizes quoted – INR 9,75,000
Quotation of Gururaj Bros. was selected due to lower price and their reputation in the market.
The transaction prima-facie appeared to be straight. However, a careful analysis of the quotations revealed following 5 facts–
A. All three vendors located in the same locality.
B. All three letter heads (on which quotation were given), were made up on ‘Charminar’ brand bond paper.
C. One telephone number was common in all three quotations.
D. All other telephone numbers and fax numbers other than #C above were either fake or dead.
E. Signature on all three quotations were made in blue ink, although different, careful look suggests that it appeared to be signed by same person.

All 5 facts joining together suggest that this may be a case of fraud. When the case was reported to the management, the internal investigation was carried out. It was found that Mr. Purchasing Manager had collide with another few vendors in purchasing worth INR 76,00,000 over 8 months. He confessed that he used to dump openly invited original quotations and replace them with the fake quotations given by the winning vendor.
In above case, all three quotations were forwarded by the same vendor and a kickback arrangement was made with Mr. Purchasing Manager. Above 5 silly mistakes costed that vendor not only to loose the contract, but also future business.
The Purchasing Manager also lost his job. Someone told me that he joined Chota Shakil's Dubai based Forex Office. Another insider also told me that the Investigation Chief was found guilty of accepting bribe from his colleague, about a year after this case. If that is true, then it may be considered as an example in my study of organizational cultures.

Disclaimer – As per Chartered Accountants Act, 1949, information obtained during the course of audit is confidential and cannot be shared or published without specific approval from the management. Writer of the blog is a qualified Chartered Accountant and only intend to share the fraud cases. The fraud case referred above should in no case be construed or perceived as specific to any company/organization/legal entity/association of persons/any individual. The purpose of blog post series on fraud is only for the purpose of brainstorming. Any action/inspiration based on this blog post which lead to any fraud, will be the sole responsibility of the user. Writer of the blog is a person with highest standards of ethics and honesty.

One Doctor, One Medical Rep., One Week, but Two Microwave Ovens!

Series FRD/01/2009

One Doctor, One Medical Rep., One Week, but Two Microwave Ovens!

Last week I was down with fever and cold. I carried it on for 2 days, but then went to Doctor for the check-up. I usually avoid to meet Doctor since I think that Doctor always benefits more than patient. Anyways…it was a Thursday evening, the clinic was full of patients…probably due to sudden climate change. When my turn came, Doctor invited a Medical Representative (also known as MR) of a pharmaceutical company (who was perfectly dressed up with blazer, tie and Van Husain white shirt) to come along. Doctor requested me to sleep on Patient’s bed and he asked MR to shoot with the script. That reminded me a fraud witnessed me in first year of my article-ship (audit) services. Here I start with a special blog post series on Financial Frauds experienced by me, my audit colleagues and friends during my/their audit days.

So….I was a Junior Audit Clerk, but yes...favorite of a Senior Audit Clerk in our audit company. Being a new auditor, I was ambitious and always expected different audit segment in every new engagement. I was given task of auditing travelling expenditures. It was one of largest pharma company in Asia. Medical Reps working with Pharma Company travels heavily across the country to build market. The audit was aimed at verifying all expenditure reimbursements of those MRs. I assessed the process and internal controls followed by Accounting Department before releasing reimbursement claims. The brief process was as below-
1. MR to fill up Travel Expenditure Form and should take approval of Sales Director for his region and then submit the same to Finance for claim.
2. MR is always given cash advances for his expenses and allowances.
3. MR is given fixed daily allowance and reimbursement of expenses at actuals.
4. Allowable expenses include taxi charges, phone expenses, Gifts given to Doctors to promote products and any other legitimate business expense.
5. Gifts to doctors – Many MRs prefer to gift doctors with electronic appliances or a good Zodiac Tie. Gifts promots pharma company's brand solidly in the hospital and medicine market.

Now, I always loved to read "what expenses MR has claimed". "What has he eaten at restaurant?" "Why did he ordered 3 dishes of Chicken Hyderabadi?".... thought he must have invited his local friends for dinner, but cannot challenge such things in a capacity of the auditor. I used to read even laundry expenses…..what has he dry-cleaned – handkerchief or sox pair etc.
I was also drilling down gifts made to Doctors. After about 20 reimbursement claim vouchers, Mr. Pradeep Kumar Pande (name changed) (who dry cleaned all his inner wears everyday in a Five Star Hotel), claimed Rs. 19,200/- as reimbursement after consuming his initial advance. That suspected my mind with the questions – "how and Why one employee spent 20 K from his pocket?" "Why was he given less advance?" "Why he didn’t pay large expenses by credit card – I mean no sensible person would carry cash of 40000 while travelling.". I believe these questions must have triggered in the mind of Finance executive if he was a hardcore accountant. But then he may not be able to challange due to departmental barriers.

On further analyzing the voucher, I found that gift items were purchased on cash and that too with a rough bill. Questioning rough bills to Mr. Pradeep by Accountant, he told him that he did so often to avoid sales tax and thereby saving company’s money. Accountant thanked Pradeep.
But, while analyzing list of doctors who were gifted with electronic appliances, it was observed that Dr. H. M. Bangali (name changed) was given two microwave ovens in a single week by Mr. Pradeep Kumar Pande!! Now…that was the poor mistake made by Mr. Pradeep Kumar Pande, Jr. Medical Reps. During investigation and interrogation by Accounting Department with Sales VP, Mr. Pande confessed the fraud.

We were told by one of the good friend (insider) that Mr. Pande was physically slapped by angry Sales Vice President. J I truly enjoyed those gossiping.
The audit was completed after submitting specific remarks on reimbursement policy and internal controls in the Audit Report. But that actually triggered to frame out centralized purchasing policy of gift purchasing. Gossips were also chewed that few Medical Reps (ladies especially) that they get tired with heavy weight gifts and unhappy to carry 10 gift boxes. It was also heard that few MRs made tie ups with Chaywala to keep those 10 boxes or Junior Medical Reps were exploited by expecting them to carry gift boxes with seniors.
Fraud Summary Line – One Medical Representative of a pharmaceutical company gifted Two Microwave Ovens to a single Doctor/physician in a single week!!

I will sum up the post with a famous quote from Mark Twain (1835-1910) U.S. humorist, writer, and lecturer. -
“Honesty is the best policy when there is money in it.”

Disclaimer – As per Chartered Accountants Act, 1949, information obtained during the course of audit is confidential and cannot be shared or published without specific approval from the management. Writer of the blog is a qualified Chartered Accountant and only intend to share the fraud cases. The fraud case referred above should in no case be construed or perceived as specific to any company/organization/legal entity/association of persons/any individual. The purpose of blog post series on fraud is only for the purpose of brainstorming. Any action/inspiration based on this blog post which lead to any fraud, will be the sole responsibility of the user. Writer of the blog is a person with highest standards of ethics and honesty.