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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
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Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Shruti J. Shah
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Enforcement Alert: ‘Little frauds’ are the feds’ new focus

With the U.S. government encouraging businesses to earn cooperation credit at the penalty phase of enforcement actions through the “naming of names” at the onset of investigations, there might be momentum for more executives being held personally accountable in regulatory enforcements.

Some types of behaviors that have gotten executives in trouble are not as flashy as some of the market misconduct or financial crime matters that have ensnared others.

These types of frauds might seem more trivial, but they highlight significant breakdowns in the companies’ abilities (at the time) to monitor employees and their own recordkeeping, plus create a corporate culture that deters employees from going down these cheating paths in the first place.


Reimbursement fraud. Last September, Wells Fargo & Co. terminated more than a dozen employees at its investment bank over violations of its expense reimbursement policy for after-hours meals. The actions involved employees ranging from analysts to managing directors in New York, San Francisco and Charlotte, North Carolina who were fired, suspended or allowed to resign after they doctored receipts on dinners that they charged to the bank.

Like many other large financial services firms, Wells Fargo has a policy that reimburses employees for their dinner expenses when they work after 6:30 p.m. on deals and other client matters. But the program was abused when employees allegedly altered time stamps to obtain reimbursements for meals taken earlier than 6:30 p.m., when the program benefits would kick in.

The incident is the second such headline-making employee reimbursement scandal to hit the U.S. financial sector this year.

In May 2018, Fidelity Investments separated more than 200 employees over alleged misuse of workplace-benefit programs. A company audit of computer-buying and physical-fitness benefit programs over the course of the year found misuse of them in Fidelity offices across the country.

Also last year, the Securities and Exchange Commission said several executives took advantage of their company’s weak internal controls to repeatedly misappropriate funds, obtaining what they labeled as reimbursements from the company for money supposedly paid to third-party vendors. 

The company, a credit and debit-card payment processing firm called iPayment, had a policy permitting executives to incur expenses on their personal credit cards and obtain reimbursement. The executives charged included a chief operating officer, a VP of information technology, and a corporate controller. Many of the executives’ charges purported to be for computer equipment, but the SEC found that the invoices and credit card receipts were fake.

Each of the executives netted between $193,000 and $1.3 million in this fake reimbursement scheme. Each was barred from serving as an officer and director of any public company.

Trying to get that pre-inspection edge. In June, accounting firm KPMG LLP reached a $50 million settlement with the SEC over charges that former partners used stolen information to learn about surprise regulatory inspections and cheated on mandatory exams. The corporate settlement with the SEC followed related charges brought against six individuals last year for their role in misappropriating and using confidential information about the upcoming regulatory inspections.

The SEC’s charges noted that, from 2015 to 2017, now-former senior members of KPMG’s Audit Quality and Professional Practice Group improperly obtained information about the focus areas of the Public Company Accounting Oversight Board’s (PCAOB’s) inspections and its inspection schedule. The SEC’s order stated that KPMG personnel sought this information because the firm had a high rate of audit deficiencies in prior PCAOB inspections and had made improving its inspection results a priority.

The order also charged that KPMG audit professionals who had passed training exams sent their answers to colleagues to help them attain passing scores. These continuing education exams are required by the PCAOB, the federal agency which oversees audits of public companies, and they cover topics such as ethics and integrity.


What’s the fix? Strong warnings and good examples set by top managers are starting points to avoiding expense and required training misconduct. Technology is also essential in monitoring and preventing improprieties. The existing behavioral-compliance arsenal might provide some of those tools. For reimbursements, a policy must be specifically articulated, with spot-checking built into the program and clearly explained.

In addition, handing employees a check might not be the wisest way of reimbursing employees when a payroll credit could be assigned, as the more formal aspect of payroll crediting and payroll recordkeeping should give at least some employees pause. Corporate credit cards have a similar function — they can dissuade any misuse because they create a lasting, formal record of purchases that need managerial approval.

An effective routine to fight reimbursement fraud could be to scrutinize the purchases of a select group of employees using the program, and letting employees know this will be a regular effort. Personnel should be sufficiently trained and compelled by their superiors to report possible wrongdoing, plus pointedly discouraged to cheat by upper managers — pointing out how even low-dollar frauds hurt the company in terms of its reputation.

Awareness can be raised by having employees sign attestations agreeing to follow program policies or face consequences including dismissal.


Small deceptions are a poor cultural indicator that may prompt regulators to look a lot more closely at the wider business. After all, if employees are cheating on their expenses and lying about training courses completed, what other policies might they be circumventing?

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