Six Tips to Reducing Employee Credit Card Abuse (E3)

August 4, 2017  •   Embezzlement and Internal Fraud  •   0 comment

If you think business credit card fraud in operations such as yours is not a problem, think again. This form of internal fraud/embezzlement is not only widespread — it’s legendary. Simply Google the words, “business credit card fraud” and don’t be surprised to find results showing “about 16,200,000”. My studies show that any employer’s credit card program—if abused— can quickly become a double-edge sword. First let me say that more often than not the employer is liable if the cards are misused. In the eyes of the provider, you requested the cards and then distributed them to your “authorized” users. So, don’t be surprised if the provider looks to you for making good on the amount due. To possibly help negate the risk of you being placed in such an uncertain position, I am providing six tips to reducing business credit card fraud for your consideration.

On the positive side, most of us know that a businesses’ credit card program helps to make its operations more efficient, simplifies the purchasing process, and strengthen your operation’s negotiating power with travel-related vendors — and this is good. However, such a program also has its share of risks. If improperly used, company credit cards can cause irreversible damage. No matter how trustworthy you perceive your workers —there is always the risk of business credit card fraud. Below are seven real world examples:

• Bookkeeper charged with embezzling $160,000 by charging ATM transactions to a business credit card and transferring the money to her personal debit card.
• Employee receives prison sentence for using his company’s credit card to purchase over $600,000 in equipment for his personal business.
• A credit card company’s call regarding an overdue bill of $60,000 uncovered a $900,000 scheme an employee was perpetrating by using his business credit card to obtain fraudulent loans.
• Police charged a city’s former superintendent of streets with 46 counts of business credit card fraud. Three other city employees were terminated for fuel theft, and more arrests are coming.
• Seventeen-year city employee arrested/charged with credit card abuse after a “tip” was received revealing that this employee had purchased thousands of dollars in items for his personal use.
• Police arrested a former employee after his previous employer discovered nearly $6,000 in unauthorized charges allegedly made on a company credit card.
• Over a period of four years, forty federal government employees were fired from the Interior Department for business credit card fraud.

Six tips to help prevent business credit card fraud:

1. Meet with your credit card provider. Identify what anti-abuse/fraud strategies can be provided by that source. For example, most providers will allow you to set different spending limits for each individual card holder. Ask about providing notification “alerts” for trends or unusual transactions to minimize potential fraudulent activity; Establish with the provider that NO cash advances be allowed. Consider having all credit card holders be listed on a single statement. (This helps to ID someone who has access to information and stop that person from fraudulently obtaining and making purchases on a stolen credit card.) Ask about potential additional controls, such as restricting shipping addresses on credit card orders. (One popular method of fraud is to have purchases sent to a personal address instead of a business location.) To prevent fraudulent altering of charge card invoices, have the provider send credit card statements to a non-card holder/impartial employee for purchases review.
2. Establish a formal credit card use policy. You need to determine how the card is to be issued. Will cards be issued to specific personnel, or will a single credit card be kept onsite and used solely as the need arises? It is wise to restrict issuance of all credit cards to as few employees as possible.
3. Take nothing for granted regarding the operation’s policy/requirements pertaining to the use of company credit cards. Define what the card may be used for, and what purchases are not covered. Make it clear that your operation’s credit cards are to be properly safeguarded and not to be used for personal purchases. (Make sure you review this new policy with your attorney prior to implementing.)

   Your formal written policy should also state what will happen if an employee fails to properly safeguard or misuses the card. (I know of at least one situation where the card holder presented a defense that she mistakenly pulled out her company’s credit card instead of her personal charge card and used it for personal purchases. She also cited that she had not received adequate training on use of the company’s credit card and was not aware of her employer’s zero tolerance policy on misuse.)

   You are encouraged to personally review each of those specifics and standards of your policy “one-on-one” with the designated credit card holder. Once the review is completed have the card holder sign, date and acknowledge this review on the form. This form should be placed in the employee’s human resources folder.

4. As noted in Tip 1, it is wise to establish separate purchase limits for different employees. When setting these limits evaluate the normal duties of each individual. For example, an employee who entertains and/or travels (T & E) extensively will likely have a greater need for a higher limit than one involved in local purchases. As a word of caution, be aware that the T & E area is generally know to be relatively easy to abuse or cheat the system. In addition, don’t simply approve credit card statements when they arrive. Before writing the payment check, always closely review the charges; let your employees know that you are consistently monitoring purchases.
5. Require original receipts. Do not allow a vendor’s invoice or the credit card statement serve as proof of purchase. The credit card transaction is the means of payment. In addition, keep in mind that allowing copies of the card transaction increases your risk to fraudulent alterations or “double dipping.” (A dishonest employee would have the ability to resubmit the original receipt with a cash reimbursement voucher.) In those instances where entertainment and/or gifts, etc. are charged, consider having your employee record the name of client(s) benefiting from the purchase.
6. It is critically important that the card-holding employee have a clear understanding of your credit card policy and that their issued card is for company use only and not for personal use by the employee. As explained in Tip 3, you are encouraged that your policy be in a written format and be personally reviewed with and signed by the employee. Your signed copy should be kept in a secure file along with other sensitive employment information.

Reduce the Risk of Business Credit Card Fraud

Business credit card fraud is serious risk that can be minimized. In addition to requiring reasonable controls and a strong purchase review process be in place, management should always set a most positive example.

Spread the Word About Business Credit Card Fraud

If you haven’t already done so, please forward my blog site (https://jacklhayes.com/blog/) to your business friends and associates. In addition, I particularly encourage any college student taking courses in business management, accounting and/or entrepreneurial studies to also join-in. These are lessons that must not be ignored.

The information provided in this post is intended for informational purposes only. No further representation is made.