4 Steps to Prevent Corporate Credit Card Fraud

Business fraud costs organizations billions of dollars every year. While employees are often at the heart of these losses due to cybercrime schemes such as phishing and identity theft, 17% of all business fraud is due to expense reimbursements.

Many large corporations give commercial credit cards to their employees to allow them to make purchases while traveling or working remotely. The practice results in more agility as workers can make rapid purchasing decisions on behalf of the company and comes with an expectation that workers will responsibly procure items for exclusively business purposes.

The reality is that corporate credit card fraud can and does happen, leading to legal challenges and significant losses. Let’s explore how companies can prevent it and what steps should be taken to safeguard companies in the future.

Has Corporate Credit Card Fraud Increased?

Expense report misuse is not new, but reports following the COVID-19 pandemic revealed an uptick in recent years. As companies transitioned to remote and hybrid operations, employees were often given wide permissions to acquire what they needed for this new working environment.

This scenario created opportunities for workers to spend business funds on illegitimate equipment and meals. As a result, corporate credit card fraud incidents increased. In 2020, these expenses resulted in more than 25% of spending violations that year.

Also read: How to Tackle VPN Security Risks

What Types of Fraud Can Occur?

Corporate credit card fraud occurs in four different categories.

  • Miscategorized: An expense for a product that was not business-related.
  • Fictitious: When an employee submits an expense for a product or service that did not happen.
  • Overvalued: A claim for an item that should be lower in value.
  • Duplicated: When a claim for an expense is for the same item as a previous reimbursement claim.

All four categories have challenges in tracking and monitoring, as the process is based on trust, and complete oversight is difficult. To combat this, businesses should ensure they are following process best practices.

1: Implement a Credit Card Policy

Before issuing a commercial credit card, ensure all workers understand the company’s policies. Educate your workforce on appropriate situations to use the card and what benefits come with the privilege of having one. Only select workers should be eligible according to predetermined criteria that have been communicated to everyone, and there should be a process in place for requesting a card.

Ensure policies cover even minor details, from reporting stolen cards to defining any consequences of misusing one. All workers should be aware of the actions that will be taken against them in an instance of corporate credit card fraud.

2: Set Strict Controls

One of the best ways to curb credit card fraud is to set spending limits. While the negative side is that a worker’s purchase might be declined, it prevents excessive spending and makes the workforce more aware of their purchasing decisions.

Businesses can put spending limits on:

  • Transactions: Limits can be based on each worker’s unique requirements and responsibilities. Perhaps there is a daily or monthly spending or transaction limit. By making limits unique to each worker, it also becomes easier to track misuse when it does occur.
  • Merchants: Businesses can restrict transactions to certain merchants, such as airlines or hotel rooms. This limits a worker’s flexibility in making illegitimate purchases.

3: Mandate Receipts

Receipts prevent misuse and ensure a business has better budget oversight to allocate its expenditures more effectively. Every business should require both a scanned copy of a receipt and a record of the expenses made by the card.

The benefit of receipts for workers is that accountability is built into the process of submitting receipts. As every figure must be backed up with a paper trail, it becomes harder to commit fraud. The side effect for the business is that it has to perform expense report reviews.

Every business should keep an eye out for red flags during reviews, such as:

  • Missing expenses or incorrectly submitted documents
  • Suspiciously high costs for items that do not align with a worker’s responsibilities
  • Repeated purchases at one merchant
  • One expense split into multiple to circumvent spending limits

4: Take action

All companies should have a clearly communicated plan that outlines the company’s response if corporate credit card fraud occurs. The purpose is not to create a workplace environment where everyone fears remediation but to leave no room for misinterpretation of the pre-established policies and their consequences.

Steps to follow include:

  • Canceling the card immediately
  • Recording the category of corporate credit card fraud
  • Gathering evidence, from receipts to worker documentation
  • Taking disciplinary action as outlined by the businesses’ policies
  • Setting a repayment plan
  • Resorting to further action, such as police reports as needed

Also read: Technology Risk Management for Accounting Firms and CPAs

Protect Your Business with Employee Dishonesty Liability Insurance

Following the right processes, from setting policies to outlining consequences, will help curb corporate credit card fraud. To further safeguard your organization, consider investing in Employee Dishonesty Liability Insurance from McGowanPRO.

Securing a high-quality insurance policy provides companies with coverage for:

  • Losses, such as money, securities, and other property
  • Workers when off-premises
  • Automatic Credit Card Forgery
  • Optional Crime Coverage
  • ERISA bond, canceling out the need for a stand-alone ERISA bond
  • Acceptance of fraudulent funds

Decades of experience providing highly customizable coverage enables us to provide the protection and support our clients need to thrive.

Contact a McGowanPRO expert today.