Why staff credit cards can bolster expense fraud defences

Every year, businesses lose billions of pounds to expense reimbursement fraud, and travel-related expenses are one of the easier expenses for employees to inflate for profit. While the majority of business travellers are honest, that doesn’t mean organizations shouldn’t put systems in place to stop the few who aren’t – and avoid major financial and reputational losses in the process.

A recent survey we conducted at Chrome River Technologies showed that, of the employees who admitted falsifying expense claims, the most commonly fudged expense is over-claiming for restaurant tips – cited by more than half of the group. This is easy to do: for example, employees add a 10% tip on their copy of the credit card slip, which they then submit for reimbursement. However, on the slip they leave at the table, they just add a 5% tip. It may seem like a small amount, but for an account manager who takes customers out for an expensive lunch a couple of times a week, the amount can easily add up. Not only is it likely that the employee doesn’t really view this as fraud, but it’s also likely that such as small amount each time will slip past an approver.

Tip fraud was closely followed in the research by filing charges for cancelled trips or returned items. While a little padding here and there may seem innocent enough, those who admitted expense fraud revealed an average of more than £240 over-claimed per report. Now, imagine having 100 travelling employees, each taking three trips per month, and you can see how quickly that adds up to impact a business’ bottom line.

Curbing many types of fraudulent expense claims can be as straightforward as it was for that employee to commit the fraud in the first place

Off the tracks

Consider another fairly easy ‘fraud’ scheme: your employee buys a £145 refundable train ticket for a meeting in Manchester. The meeting is cancelled, and the employee is able to get a refund on the ticket. But they still have the original receipt, so they file the expense claim anyway, and you’ve just been defrauded out of £145.

In cases like this, fraud is both easy to commit and difficult to detect. First, there’s a gap in time between the purchase and the expense claim, and the record of each is completely separate from the other. Second, the purchase is made by the employee with personal funds. This means the employer only sees what the employee wants them to see – which in this case, is a £145 charge, but not a £145 refund.

The good news is that curbing many types of fraudulent expense claims can be as straightforward as it was for that employee to commit the fraud in the first place. How? By giving your travelling employees corporate credit cards.

The first reaction many have to this idea is, “isn’t this giving them keys to the kingdom?” The answer is an unequivocal ‘no’. It would take a pretty brazen – or foolish – employee to embrace the issuance of a corporate credit card by going out on a spending spree. In fact, companies require employees to sign a form confirming that they are personally liable for unauthorised charges, and these can, if necessary, be deducted from their pay.

When an employee uses a corporate card, both the timing and visibility issues that make falsifying claims so easy no longer exist. The employer knows when an charge happens and can also reconcile with statements at a later date. Not only this, but there is no incentive to commit this type of fraud when any refund would automatically be credited back to the corporate card, not a personal card.

When an employee uses a corporate card, both the timing and visibility issues that make falsifying claims so easy no longer exist

So how do you start implementing a corporate card policy? First, you determine which type of programme best suits your needs:

A corporate card: just like a personal card, the employee uses a card linked to the corporate account to pay for travel and entertainment expenses incurred on behalf of the organisation. These can either have 100% corporate liability (for payments) or can have liability shared between the organisation and the individual. They can be used at any location, and the employer has full visibility into times, places and amounts.

A procurement card / purchasing card (commonly known as a ‘p-card’): these are a bit more limited in their use, with restrictions that they be used for purchases from a predefined set of vendors, such as a specific office supply store or with a pre-approved list of preferred suppliers. Since they are fairly restrictive, it’s unlikely an employee would even have the opportunity to make personal purchases.

A one-card: these are effectively a hybrid of a p-card and a corporate card. The employee can use the one-card like a normal corporate card, but the organization can also implement spending and vendor restrictions.

This range of options makes it convenient for business owners and finance teams to assign different cards to different employee types. For example, a p-card could be handed to someone who purchases small office supplies, while an employee who frequently travels long-haul could use a corporate card.

In addition to the positive deterrent to expense fraud that a corporate card programme conveys, organizations can realize residual benefits, like cash rebates of between one and five percent. For a company with £3m in annual expenses, this could be an extra £50,000 on the bottom line.

On an anecdotal note, I’d suggest that issuing corporate cards can even boost employee morale. Employees handed company credit cards tend to be happier, more productive workers, not because they engage in profligate spending, but because they revel in the trust bestowed upon them and because they are absolved from the burden of incurring business expenses through their personal accounts – something which can be a cause of financial stress for many workers.

Nick Ludlow is general manager for EMEA, Chrome River Technologies.