Fraud Can Happen to You!
It’s true. The fact is that fraud could happen to anyone of us. Though there are some common traits for individuals who commit fraud, it’s normally not a crime linked to a specific type of person. Fraud is a crime that can be committed by different people in varying circumstances. Whether in a personal or corporate setting, it’s difficult to eliminate fraud completely. If you’ve experienced fraud before, you’ll know how much inconvenience it causes for both the business and individuals involved.
My Awesome Ibiza Holiday
I’ve actually been a victim of fraud, having once had a credit card that was seldom used, and never internationally. It was my ‘break glass in case of emergency’ card, and I was alarmed to see a ‘declined’ message when I used it for the first time in many months. Digging a little deeper, I found that my card had been defrauded to the tune of 2,000 euros at a beach bar in Ibiza. I don’t know about you, but I would’ve actually really liked to have been on that beach in Ibiza spending that money! Having not been there (unfortunately), I of course immediately reported it to my bank. It took them a whopping 45 days to issue a refund despite it being obvious that I had nothing to do with the transaction.
The Biggest Risk of Fraud
When I consider organisations that transact much larger amounts than I did on my ‘break glass in case of emergency’ card, I can’t help consider the higher risks of fraud in a business landscape. Not only is the risk of fraud greater at a corporate level due to the number of credit cards in circulation, there is also a risk of employees misusing corporate cards. To me, this particular risk is far greater than an individual outside the business spending money on the beach in Ibiza. Internal fraud is the greater risk for two reasons:
- Employees are spending money that isn’t theirs on credit cards that are in their name. It’s easy to forget you are spending business money when the card is in your name.
- Employee generated fraud is not insured by the card provider. If an employee spends business money on the wrong thing, it’s the business’ liability, which understandably makes this a nightmare for business owners.
Fraud committed by an external source constitutes time, effort and annoyance for the business and the cardholder. However internal fraud can be a greater pain, as it represents a breach in policy and requires disciplinary action to boot.
Expense Management Reporting to the Rescue!
There are a few different ways in which internal fraud can be significantly reduced, one of which is Expense Management System Reporting. It’s important to use an Expense Management System that can be configured to generate Exception reports based on the right criteria. In many organisations, different ‘job positions’ are entitled to spend money in different ways. A member of the Accounts Payable team, for example, may be entitled to spend money with any merchant in any part of the world. An Executive Assistant, on the other hand, may only be able to spend money on a specific set of merchant categories, locally. ‘Job position based rules’ can be considered over doing it, but in my opinion this is actually a great way of ensuring the business’ expectations are clear on how employees can spend company money.
Let’s assume your organisation has a Travel & Expense Policy with a chapter on credit card usage, it’s the Expense Management System’s job to ensure these exceptions are raised to internal stakeholder for review and action. This is important for two reasons:
- Find exceptions and deal with them before they become acceptable. If exceptions aren’t found and dealt with by the business, they will become acceptable. If a cardholder is not reprimanded for using his/her corporate card at a beach bar on Ibiza, it will be very difficult to reprimand another employee the next time this happens. Unenforced policy can drive complacence and a culture of disrespect for the rules.
- Monitor through Expense Management Reporting, and act upon information. If a serious credit card policy exception is found and dealt with, other credit card holders will likely respect policy in future. I’m not guaranteeing policy exceptions won’t occur from time to time, but they will most definitely occur less if reporting and policy compliance is driven through the Expense Management System.
We Recommend: 3 Types of Reports
Finally, it is worth elaborating on the type of reporting that should be run to both catch and mitigate internal fraud. Through the years, some of our clients have dictated the following clever reporting requirements, which I think everyone should consider:
- ‘Merchant Type’ by ‘Job Position’ or ‘Department’. Fraudulent expenses can be detected by viewing any exceptions to a ‘Type of Merchant by Job Position or Department’ matrix. Our customers use this to identify employee spent money outside of their list of acceptable merchant types.
- High Spenders Report. Fraudulent expenses can be detected by reviewing high credit card spenders on a weekly or monthly basis. This may occur with ‘permitted merchants’, for example an employee who is allowed to pay for accommodation spending money on extra nights, room service, valet parking etc. I once heard of internal fraud being detected through a high spenders report – the employee in question was paying a significant amount of money for double miles through United Airlines and the Hilton Hotel.
- Excessive Amounts per Merchant Category. Fraudulent expenses can be detected by reporting on obviously high amounts per Merchant Category. We’re talking Taxi expenses over $100, or Meals over $150 per person. Expense8 can determine the ‘per head’ amount for meals if the expenses are split during coding.
The Last Shout
Fraud will always be a risk when using credit cards. It’s best to reduce the risk of internal fraud through exception reporting and follow up, leaving the risk of fraud to whoever spent my money on the beach in Ibiza. At least the bank will reimburse your business for that money.
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