The risks of working with travel agents are coming to light amid recent allegations that at least one agent in China and maybe many more used slush funds to make illicit payments on behalf of a pharmaceutical client.
While this is not the first time that travel agents’ dealings in China have come under the microscope, the allegations underscore the types of problems that can occur — ranging from disguising illegitimate payments as travel costs to documenting expenses that have never occurred.
Media reports suggest the possibility that several pharmaceutical companies were clients of some of one of travel agents, and that the pharmaceutical company under investigation has used as many as 700 travel agency and consulting firms in the past.
Because pharmaceutical companies traditionally have large travel and marketing budgets, the industry has historically been subject to greater risk than others. For several reasons, travel agencies represent a vehicle whereby employees can violate company policy.
The risk exposure typically falls to three main areas: corporate fraud, travel and entertainment fraud, and violations of company policy.
However, these risks aren’t necessarily restricted to the pharmaceutical industry. Previously consumer products companies have faced exposure to these issues. Other industries that may be exposed to the improper use of travel agents include technology, media, and telecommunications, direct sales, and manufacturing — sectors in which it may be common for companies to provide training or site visits to offices that may require significant amounts of travel.
What does this mean for compliance departments? To begin with, compliance staff may consider strengthening controls over vendors by increasing due diligence and reviewing supporting documents and contractual terms — particularly when a vendor is supplying intangible items such as tickets for air travel. It may also be important for compliance to tighten controls over reimbursement claims for travel to events by requiring supporting documents such as boarding passes, train tickets, and hotel receipts. It may no longer be sufficient, for example, if the compliance department validates travel expenses solely on the basis of tax invoices it receives from a travel agent.