Business Credit Cards Have Legitimate Uses - and Fraud Isn’t Among Them

Posted on: 9/27/17 by Carol A. Hausamann, CPA

It seems like more and more forensic accounting cases are focusing on abuse of business credit cards by executives and sales representatives. So what enables these individuals to enrich themselves at will? Oftentimes, it comes down to two preventable factors: deficient internal controls and lax supervision.

Many common business-related embezzlement cases involve millions of dollars of theft; yet the time span of misconduct usually exceeds three to four years.

How can an executive incur such a large amount of monthly credit card charges and get away with it for so long? We’ll go out on a limb and say that no one back at the shop reviewed the credit card statements, and instead simply paid the executive’s credit card bill each time it came due. That’s a costly mistake!

Corporate credit cards are a reality in nearly every business. One option a company can consider is having employees use their personal credit cards, and requiring them to adequately substantiate the expenditure (i.e., provide receipts and clearly state the business purpose) to the company that would, in turn, reimburse the employee. This approach enables the company to avoid reimbursing the employee for unauthorized or unsubstantiated expenditures. Accordingly, that employee is then left with the responsibility of having to make the balance of the credit card payment from personal resources. This method also serves to quickly correct unacceptable credit card charging behavior on the part of those who regularly fail to provide actual transaction receipts.

Examining credit card statements and the attached charge slips can be time consuming for many accounting clerks. And before we go any further, a credit card statement alone will not pass adequate documentation requirements for the IRS, and possibly your state as well (i.e., Use Tax).

Ask yourself: Does everyone in your company know the company’s policy with regard to what an allowable charge is and how to properly document the charge? This is where investing the effort in compiling and implementing a detailed travel and entertainment policy becomes a valuable undertaking.

Below are four strategies for helping to prevent business credit card fraud:

  1. Require substantiation for all credit card charges.
  2. Establish a comprehensive travel and entertainment policy (in conjunction with your credit card policy).
  3. Require that all credit card statements and documentation be reviewed by internal accounting personnel. You can even utilize the resources of an outsourced internal auditor.
  4. For those employees who habitually fail to provide adequate substantiation, you should take away their corporate card and require them to manually submit expense reports with the required documentation.

Corporate credit cards are a tool provided to employees. They are not a benefit—nor are employees entitled to them. Most employees use corporate credit cards in compliance with the business’s rules and regulations and would never think twice of using the card for a personal purpose. Rather, it’s the employee who is noncompliant, who is a renegade, who thinks they do not have to comply, who “pushes the envelope” and compels diligent companies to remain on the alert.

Do you have questions about corporate credit card fraud? Please contact your Marvin and Company, P.C. representative.

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