Employee Credit Card Fraud: Can it Happen to You?

By Karen B. Fortune, CPA/CFF, CGMA, MAcc
IAG Forensics & Valuation
karen@iagforensics.com

How many different ways are there to commit fraud in a small business? The possibilities, unfortunately, can be endless when owners and management do not have solid internal controls in place or the willingness to acknowledge that “it could happen to me.” In this article, we will look at credit card and debit card schemes, one of various fraud schemes employed, sadly, by those you most trust.

Credit card and debit card schemes are common fraud schemes employed, sadly, by those you most trust.”

One of the most common issues we have seen when called to perform fraud investigations can be obvious if you knew to look for it – personal use of corporate funds. This can take on many forms.

Many organizations provide company personnel with corporate credit or debit cards, rather than creating and implementing expense report policies and procedures. While corporate credit cards can be a good management tool, if there are not checks and balances, they can simply serve as direct access into the company funds. The following are actual credit and debit card frauds that can serve as a warning:

CFO used organization’s credit card to frequent golf courses, bars and adult entertainment venues which had no relevance or benefit to the organization. The CFO submitted front pages of the credit card statements (showing just the summary activity and total amount owed) with amounts pre-coded to expense accounts for easy entry by the bookkeeper. The organization paid the bill without ever obtaining the extra pages or examining the detail.

Bookkeeper had a personal credit card in the name of a major phone company. Each month, she would enter the amount in as an additional payment to the phone company. The scheme went undetected for over a year until the auditor found a duplicate copy of a phone bill attached to the check and noticed that the memo line was an account number that differed from the company’s landline and cell phone accounts.

Controller overpaid on each project manager’s credit cards each month, buried the costs in their construction in progress reports and instructed the credit card company to apply any overpayments to the master account card. She then used this card to fund her vacations and lifestyle.

Company personnel were issued debit cards to use for any legitimate company business. During our investigation, we discovered numerous purchases, recorded on the bank statements, from major retailers (e.g., WalMart, Target, Office Depot, etc.) and gas stations. While these purchases could have been legitimate, no receipts were submitted to support the expenditures, which were excessive based on the operations of the entity. There was no feasible way for the company to determine what amounts were legitimate versus personal expenses.

The unfortunate common thread in each of these scenarios is that ownership and management were stunned that anything like this could happen in their businesses. Preventative measures can be taken to mitigate the risk of this happening in your organization/company. Some preventative measures that can be taken include:

• Independently obtain (online or otherwise) copies of bank statements and credit card statements for all company accounts. Make it known that you are doing this – it can be an effective deterrent.

• Actually examine the activity to determine whether it is appropriate for your business.

• Require original invoices or receipts for each transaction to verify the underlying activities. For example, a hotel bill will itemize on-demand movies and trips to the spa, bar and gift shop, while the credit card statement will reflect only the total amount expended.

• Perform spot checks on transactions that appear questionable and/or where there are multiple payments in a given period. Determine whether there is appropriate supporting detail and/or duplicate payments and follow up on questions/discrepancies.

The keys to fraud prevention are keeping an open mind that “it can happen to me,” proactively instituting controls and creating an environment that make such behavior less attractive and less available. If you have any questions or need assistance in a fraud matter, please call Karen Fortune at 770-635-1699 or Pat Salem at 770-635-1698. Initial consultations are offered free of charge.