The Travel Expense Billing Controversy Early in 2000, Neal A. Roberts, an employee of…

The Travel Expense Billing Controversy

Early in 2000, Neal A. Roberts, an employee of PricewaterhouseCoopers LLP, the major accounting firm, learned that his employer was earning millions of dollars a year by way of a billing practice that he thought was questionable. PricewaterhouseCoopers (PwC), the accounting Goliath, had been collecting large rebates on airline tickets and other travel expenses being charged as expenses to clients of the firm. It turns out that these rebates were not being returned to the firm’s clients in the form of savings, but rather, the firm was keeping these rebates for itself. In short, travel expenses had become a source of profits for the firm, and their unknowing clients were footing the bill.1The way this was working was that the firm would bill the clients for the full price of airline tickets and other travel-related expenses, but privately, the firm negotiated discounts and rebates that they then got at the end of the year based upon total amounts spent. The clients, of course, were unaware of the back-end discounts and rebates the firm was getting; therefore, they were being charged more than the firm’s true out of- pocket expenses for the items.

Mr. Roberts apparently made a number of attempts to object to his firm’s practice but had little or mixed success. His efforts did help to generate several private lawsuits and a government investigation into PwC’s rebate scheme. One case, in particular, was taking place in Texarkana,

Arkansas, and it resulted in the public disclosure of numerous company documents upon which the facts of the case are being publicly established. The documents have been revealing how a number of professional firms in accounting, consulting, and law have been turning reimbursable expenses such as airfare and hotel rooms into profit centers for themselves.2


The lead plaintiff in this and several other cases was Warmack-Muskogee LP. Warmack-Muskogee’s lawsuits were against PwC, KPMG, and Ernst & Young, so it wasn’t just PwC that had been accused of these practices. These three firms had been charged with billing their clients for the full face amount of certain travel expenses, such as airline tickets, hotel rooms, and car-rental expenses, while pocketing undisclosed rebates and volume discounts they received under various contracts they had with airline, car-rental, lodging, and other travel expense related vendors.3One defense these firms have frequently set forth is that everyone else is also doing it.


Though not admitting guilt, PwC agreed in December 2003 to a settlement estimated to be worth $54.5 million. PwC had once provided litigation-consulting services for Warmack- Muskogee. One-third of the settlement will go to the plaintiff’s attorneys, and the balance will be available to current and former PwC clients in the form of cash or credits for future services.4


When Neal Roberts inadvertently discovered his firm’s travel billing practices, he made an effort toaddress the problem while working within the confines of his firm. Roberts raised objections to the practice. One person responding to Robert’s concerns was Barbara Kipp, the partner in charge of PwC’s ethics department. Kipp wrote an e-mail in April 2000 to another top partner in which she said,“Al, while I appreciate the importance of managing as tight a fiscal ship as we can, I somehow feel that we are being a bit greedy here.”Kipp was addressing Albert Thiess, the New York–based partner responsible for oversight of the firm’s travel department.5Kipp also said in her e-mail that she thought the rebate policy looked like the firm was“double dipping.”6Complaint to Ethics Hotline.Roberts was not the only partner in the firm to raise questions about the travel expense rebates. Jean Joslyn, at the time a director of the firm’s health-care consulting group in Chicago, earlier wrote an e-mail in February 1999 to James F. Lennon, the firm’s global-travel director. Joslyn said in her e-mail:“My question is how this rebate will be allocated back to our clients?”Lennon’s reply was similar to Thiess’opinion:“We negotiate these deals, not our clients.”A couple days later, Joslyn, who was disturbed by the response, called the firm’s ethics hotline and left a message of concern about the practice.7

According to the firm’s documents, the ethics complaint filed by Joslyn led to a meeting in New York on March 19, 1999, in which the 14 attendees, which included members of the firm’s management committee, decided that the firm would reinstate a 12.5 percent front-end discount that would lower the ticket prices to clients. What the committee did not tell Joslyn was that the total discounts, including the back-end rebates, would continue to exist and, in some instances, would be as high as 40 percent. This meant that PwC would continue to pocket substantial amounts on many of their expenditures.8

Roberts Continues to Push.Upon learning of the discounts and rebates the firm was keeping, Roberts sent an e-mail to a partner he was working with in Dallas on litigation-consulting for the Federal Deposit Insurance Corporation. He said:“I cannot believe that such discounts exist since that would leave us open to billing fraud accusations on most government contracts and others as well.”9Next, Roberts contacted Hilary Krane, an in-house PwC lawyer, and she recommended he contact the firm’s ethics department. In addition, Krane sent Roberts a copy of an earlier e-mail she had written to one of the firm’s lawyers in Washington, DC, in which she expressed her own concern about the practice. In her e-mail, she expressed unease that the firm was billing government clients for plane tickets without telling them about the back-end discounts and rebates her firm was collecting.10

Policy Is Revised.By October 2000, a working group, including Kipp, Krane, Thiess, and several others, met and made the decision to do something. They decided to shift most of the discounts up front so their clients could benefit from the reduced prices. Under their revised policy, PwC would seek front-end discounts of 28 percent with 8 percent rebates remaining to“cover our costs.”Under this policy, the firm would still get to keep 8 percent savings. The group announced its new policy to be effective January 1, 2001, but decided there was no need to reimburse their clients for the millions they had collected previously on the earlier rebates.11


Roberts was still not satisfied with the firm’s decision, and he continued to press it to refund previous clients an amount equal to the back-end rebates the firm had received. By late 2000, Roberts engaged a law firm, Packard, Packard, & Johnson, of Salt Lake City, that specialized in filing False Claims lawsuits against federal contractors, such as his firm.12

False Claims Act.The False Claims Act is a piece of federal legislation that is designed to helpthe government ferret out fraud on the part of firms with which it does business. Under the Federal False Claims Act, private citizens who know of people or companies that are defrauding the government may sue on the government’s behalf and share in the proceeds of the suit. Citizens who bring these causes of actions do so under thequi tamprovisions of the Act.13The qui tamprovisions allow an individual, frequently acting in the role of a whistle-blower, to bring suit and share in the damages recovered as a result of the lawsuit. Over the past decade or more, hundreds of qui tamlawsuits have been filed, and these have resulted in $4 billion in recoveries for the United States Treasury. The whistle-blowers who filed these suits may collect between 15 to 30 percent of the recovered taxes and penalties, and this has resulted in more than $100 million for their efforts over this time span.14In 2003 alone, the lawsuits filed under this act recovered $1.5 billion.15Back to Robert’s Situation.From this point on, Roberts had a financial interest in his lawsuit against his own firm. He started cooperating with investigators who began looking into the activities of his firm. During this period, Roberts reported that his pay and status at the firm were declining, and he complained that he was being urged to retire early. His annual pay was cut by 50 percent, but a spokesman for the firm said that the pay cut started before his first complaints in early 2000. He was told by partners that he was not producing enough business for the firm. Mr. Roberts retired from PwC in May 2001. On October 1, 2001, the firm stopped taking airline rebates completely. The company started structuring all discounts as front-end price reductions that would be passed on to the clients. They also decided to charge clients $25 to $60 per ticket for“transaction” fees that are disclosed to the clients.16In 2005, PwC agreed to pay $41.9 million to settle the allegations that it made false claims to the United States in connection with claims it made to federal agencies for travel reimbursements. Mr. Roberts was to receive an amount to be determined at a later time.17

Questions for Discussion

1. Identify the ethical issues in this case.

2. Who are the stakeholders and what are their stakes?

3. What is your appraisal of the ethics of the travel expense billing practices described in the case? What are the ethical arguments for and against them?

4. Did Roberts’s complaint to the ethics department help or not? Did his firm seem receptive to his concerns?

5. What does the travel billing practice tell you about thecultureof professional firms such as accountants, consultants, lawyers? Does it make you wonder what other practices are being used in which the clients are not being informed?

6. The case ended with the company paying a huge settlement and eventually providing the discounts to the clients that Roberts and others were calling for. Is this a case of a firm’s greed and self-interest getting in the way of their sense of fairness to their customers?

7. What is your assessment of thequi tamprovisions of the False Claims Act? Does this provide a financial incentive for employees to want to gather“dirt” on their employers and use it for their own financial gain? What are the strengths and weaknesses of such a law?

Case Endnotes

1. Jonathan Weil,“Court Files Offer Inside Look at Pricewaterhouse Billing Clash,” Wall Street Journal(January 5, 2004), A1.


3. LuAnn Bean,“Rebates: Do the Big Four Need an Ethics Audit?”Journal of Corporate Accounting & Finance(May/June 2004), 37.

4. Weil, A1.

5. Jonathan Weil,“PricewaterhouseCoopers Partners Criticized Travel Billing,”Wall Street Journal(September 30, 2003), C1.

6. Weil, January 5, 2004, A10.







13. The False Claims Act Resource Center, http://www.falseclaims

14.Ibid.,“Qui Tam Provisions of the False Claims Act.”

15.“IRS May Offer Co Whistle-Blowers Share of Recovered Taxes,” Wall Street Journal Online(June 19, 2004),

16. Weil, January 5, 2004, A10.

17. Department of Justice press release,“PricewaterhouseCoopers, LLP to Pay U.S. $41.9 Million to Settle False Claims Involving Claims for Travel,”, retrieved September 9, 2007.

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