RISK!!! Now that I have your attention, allow me to clarify. The integrity of your organisation’s credit card scheme may be at jeopardy, or even worse, the integrity may have already diminished completely. It’s no secret that credit cards represent a significant advancement in the corporate accounts payable sphere. They’re an evolution of corporate spending capability that has both simplified payment processing and empowered employees to act in their jobs with far less red tape than ever thought possible.
Unfortunately, nothing is perfect, and corporate credit cards carry a number of risks that can bring any business to its knees. These risks are manageable and almost completely avoidable with the right policies, processes and procedures.
Before I begin – you may be thinking, “Our corporate card process is about as good as it gets – there is very little room for improvement”. I challenge you to review the following information and not see any room for improvement! In ten years of service, I have never seen a corporate credit card process that has existed without one or more of the below risks.
What Risks?
It’s impossible to fight an enemy that you don’t understand, and for that reason, it’s important to consider 3 of the biggest corporate credit card risks that can strike fear into the heart of any Financial Controller
- Risk of Internal Fraud
Fraud is fraud, right? Wrong! External fraud is, typically, covered by your card provider’s insurance. If a credit card falls into the wrong hands and those wrong hands spend your organisation’s money, it’s very likely that your card provider will return the funds drawn. Some card providers reimburse disputed transactions quicker than others, but that’s a story for another day! Internal fraud is a completely different animal. We’re talking rogue employees, named credit card holders, spending the company’s money maliciously. When a card’s rightful owner defrauds your business through their credit card, it’s your liability – and your card provider likely won’t reimburse you a cent!
- Risk of Mismanagement
Allowing for multiple employees to act as their own independent Accounts Payable can, represent a rather large risk. Having multiple employees spend business money can potentially result in: Duplicate payments that may go undetected. I’ve heard of cases in larger businesses where duplicate payments have represented millions of dollars in a single financial year! Purchases with non-preferred vendors. This may not seem like a huge deal, however it may result in lost or severely reduced vendor rebates. Non-malicious ‘out-of-policy’ expenditure. Again, they may not seem like a huge deal, however many of these cases may be identified post-spend, and the dollar-values may add up if your organisation is using a larger number of credit cards to buy high value goods and services.
- Risk of Incorrect Finance and Tax Coding
Generally speaking, organisations that implement credit cards to facilitate more efficient and autonomous employee payment processes also implement an Expense Management System to ensure each card holder can accurately account for their expenses in terms of finance and taxation coding.Having non-finance employees responsible for financial and taxation reconciliation represents a substantial risk, and a single untrained user setting incorrect account codes for their transactions could be the difference between accurate business reporting, and bogus business reporting.Combined, all above-mentioned risks can be pretty scary for your average financial controller. As local and international news networks continually remind us, even SMEs can lose hundreds of thousands of dollars through misappropriated credit card usage, and can make incorrect business decisions based on spend analysis reporting that is based on incorrectly reconciled expenses
What is the Answer?
There is no perfect answer, only a series of processes that seek to minimise risk as much as humanly possible. It is worth considering the following with relation to your organisation’s existing credit card processes.
Card Management Process
It’s rather important to implement a carefully considered and choreographed card management process. In particular, it is imperative that only a card’s named card holder should have access to their credit card. I have seen businesses lose upward of half a million dollars through processes that allow for credit cards to be distributed to employees or returned to the business (when an employee leaves) through the management/finance team. We live in an age where credit cards can be used online, without a PIN or signature. Every non-credit card holder employee that can access a card (from card creation to termination) represents a significant jump in risk of fraud.
Spend Analysis
I am very proud to admit that Expense8’s spend analysis/business intelligence capability is responsible for catching some newsworthy cases of fraud.
We recently identified an employee who was, for legitimate business reasons, using his credit card to pay for flights and accommodation. He was allowed to use his card in this manner due to the ‘fly in / fly out’ nature of his role. After staying firmly inside the realm of his employer’s loosely defined policy for a couple of years, things started to go downhill.
The employee initially started paying an extra $55.00 per flight for extra leg-room.
He then started paying an extra $30.00 for a higher floor room in the hotels he stayed.
He then started travelling with his wife, and paid an extra $50.00 (per stay) for her to access the hotel’s executive lounge.
And then he finally placed a cherry on top of his fraud sundae by often paying extra double Frequent Flyer Miles.
All in all, the employee’s evolving bad habits were costing the business $300 per week, more than $14,000 per year. His actions were finally caught after 6 years and a loss to the business of nearly $90,000. He was fired from the business, which ultimately led to his winning an unfair dismissal claim. Officially speaking, he had not signed a policy acknowledgement, and being fired for breaking loose rules isn’t all that acceptable from a Fair Work perspective.
The organization in question identified the employee’s actions by introducing a new credit card policy and a suite of business intelligence and spend analysis reports that determined airfare and accommodation expenses in excess of a reasonable (policy-defined) value. In the case of airfares, the reports considered the expense’s flight origin and destination to ensure expenses were only reported if they exceeded the route’s usual maximum cost. With employees now knowing that management was stringently analyzing their travel spending, the rules were followed with greater diligence than ever thought imaginable.
Expense Management System
Banks are a great source of leads for Expense Management Software companies like Expense8, as banks have access to statistics that clearly indicate a (usually) significant increase of card adoption post-system implementation. This fact may seem irrelevant, however its basis is very useful to understand.
Good EMS = confident employees = confident finance team = greater acceptance of credit card scheme.
Not only do Expense Management Systems facilitate spend analysis and business intelligence reporting, the good systems on the market ensure post-spend management is:
- Accurate, with finance, business and taxation rules being followed by even the less IT savvy employee. Incorrect expense coding can cause issues with internal auditing and reporting, so an EMS that can ensure accurate expense coding with minimal employee knowledge of business and finance rules is imperative!
- Transparent, with various business stakeholders being able to easily determine expenses with non-preferred suppliers, exceptions to policy and more. It takes just one employee breaking the rules for a prolonged period of time to diminish the integrity of a credit card process. The greater the transparency of the expense management system, the less chance of intentional policy breach.
Combined, these benefits can boost internal confidence in credit card transaction processes, leading to greater adoption across the organization.
What Next?
If any of the above risks make you nervous, or risk reduction suggestions seem like great ideas, the path forward is an easy one. Expense8 can help your organization by providing consulting services that assess various aspects of your existing card process and suggest a series of improvements that may be the difference between employee compliance, and a negative news headline.
Book your Free Expense Management Health Check here!
