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Credit Card Fraud

One of the most common fraud schemes that we see is the misuse of credit cards, whether with corporate cards or personal cards used for business expenses. This misuse can take many forms but most frequently involves either travel expenses or the purchase of personal items on a business card. It also very often starts out small, as with most fraud, and then grows quickly over time. The fraudster may even accidentally include a personal item on their expense report and then when it goes unnoticed they realize how easy it is to “sneak things through”. The fraudster then typically gradually increases the personal items so as not to draw any undue attention and soon they are significantly supplementing their salary with fraudulent expenses.

If your organization uses corporate cards that are paid directly this can be very difficult to catch. In fact often times it is not caught until after the credit card bill has been paid. As a result, we always recommend that organizations discontinue the use of corporate credit cards and require employees to use personal cards and then submit for reimbursement. While we realize that this will not be practical for all organizations, it may be possible to limit the corporate cards to only a very few number of people.

As is always the case the best way to prevent this type of fraud is to have a robust system of internal controls that creates the fear of being caught in the potential fraudster. These controls should include requiring receipts to be submitted for all charges (either on corporate card or expense report) by all employees. It is especially important that this apply to everyone so as to set the proper tone at the top.

It is equally important that a detailed review of the credit card statement or expense report be done timely. The potential fraudster needs to think that any attempted fraud will be caught before the expenses are paid. If your organization uses corporate cards, there also needs to be a procedure in place to ensure that there is no “double dipping”. This is a situation where an individual charges something on their corporate card, which the organization plays directly, and also submits the same receipt on an expense report for direct reimbursement. Lastly, the organization should have a documented policy on the usage of credit cards and what type items will be reimbursed. This should include items such as spousal travel, business meals and allowable class of travel.

By: Shawn H. Miller, CPA, CFE | Partner

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