For many of us, 10 years is a long period of time. It’s a long time to be in a relationship, live in one apartment, or answer to a single employer. 10 years can create a sense of entitlement and complacence, which is very much what was running through my mind when I read Fairfax Media’s recent article on Kambala girls’ school’s significant credit card defrauding. Ian MacCulloch, the school’s former business manager, was recently found guilty of spending in excess of $364,000 on 6 Westpac Visa credit cards across a period of 6 years. That’s over $60,000 a year on top of his probably quite decent private school salary package. Speaking as an Expense Management expert, discussions don’t get much juicier than this one.
Employee Psychology
As an employee of expense8 for 10 years, my opinion is definitely not that long-serving employees are bad news, rather that some staff need to be managed, heard and grounded. I, myself, report to a manager who has, at times, pulled me down to earth on my sense of entitlement. I admit it’s rather difficult to work with a single employer for such a long period of time and not feel entitled to a little more (money, flexibility, respect). I feel a sense of entitlement is a natural part of the employee psychology, especially for long-standing employees.
Bringing this point back into context, I can’t help but wonder if Ian MacCulloch felt he deserved his extra $60,000 per year. All I can say is that his malicious behavior isn’t reported to have commenced prior to 8 years of employment. Was he managed properly? Was he grounded? Could more guidance have avoided him turning rogue?
The Credit Card Process
This is not the first occurrence of large-scale credit card fraud I have heard, in fact, I have previously engaged with clients to help catch criminal staff in the act.
My experience tells me Kambala was running a very freeform card management process. This may be because, judging by the school’s size of approximately 950 students, they didn’t have a lot of credit cards in circulation. It’s easy to think your risk of fraud is low when you have less than 40 credit cards, and know all card holders well enough to trust them. Unfortunately low risk doesn’t equate to no risk, and every business with credit cards should consider the following credit card management process advice:
- Never allow for credit cards to be handled by anyone other than the named card holder. I’ve seen cases where a business obtains credit cards directly from the bank and distributes them to employees directly. In one such case, the individual obtaining the credit cards centrally recorded the card details and defrauded his employer of $250,000 across almost 60 different cards. You would always send credit cards directly to your staff, and they shouldn’t use any credit cards handed over in an open bank letter. Alternatively, credit cards should be collected from the local branch.
- Segregate duties where possible. The potential for multiple employees to collaboratively commit fraud is far less than an individual. Thus, when an employee leaves the business, one person should be responsible for cancelling the departed employee’s credit card, and another employee should be responsible for checking it is cancelled. Once again, I have seen cases where a single finance employee was responsible for cancelling (and cutting up) departed employees’ credit cards. Not having a second individual check cards were cancelled resulted in $150,000 fraud across a 4-year period. In one such case, the accused was committed to six months in prison.
- Ensure all policies are followed. Management can aim to reduce or mitigate risk through well-defined and documented policies and procedures and it’s just as important they are followed, respected, and non-conforming employees are reprimanded. Remember – a policy not followed is just as bad as no policy at all!
Expense Management / Reporting
Being an Expense Management expert, I would struggle to not bring this topic back to… well… Expense Management. I could type for hours on how and why a good Expense Management System could have avoided Kambala’s $364,000 nightmare, but I’ll keep it simple to three key points.
- Transparency & Accountability
Yes, I’m cheating a little by explaining ‘Transparency & Accountability’ in a single point, however they’re related and both rather important. Transparency creates Accountability, and also significantly reduces the chances of an employee committing fraud over a prolonged period of time.Though I’m not armed with the precise facts in Kambala’s situation, I can’t help wonder if $364,000 of illegitimate spend would have occurred if a transparent (and online) expense management process had been in place. Did Ian have to log into a system and reconcile his expenses on a monthly basis? Would he have felt less compelled to commit fraud if he had known his spend was detailed in a system accessible to other people?
- Approval
If all Kambala credit card transactions had undergone management review and approval, would the school still be out of pocket by over a quarter of a million dollars? I often hear that managers’ approval of credit card expenses is a waste of time. I doubt that is how Kambala’s finance team is feeling. It’s absolutely best practice for credit card expenses to be reviewed and authorized by card holders’ managers. More than anything else, on-going approval of credit card transactions ensuring card holders know their spend is being scrutinized and validated is completely necessary.
- Reporting
I’ve seen some clever reports run by expense8 clients, including a few that could have avoided a significant portion of Ian MacCulloch’s misuse. I doubt that every one of Ian’s illegitimate expenses were transacted with merchants that the school would deem ‘acceptable for business credit cards’. I’m not suggesting Ian was spending money with dodgy merchants, however I’m sure at least one or two of his transactions would have been ‘left of center’ or ‘out of policy’. Expense8 would have been able to automatically present Kambala’s finance team with a list of these expenses, which may have led them to Ian’s fraud sooner. Likewise, if Ian had been one of the highest spenders in the business (which is likely with the value of fraud committed), finance stakeholders may have recognized his actions much sooner through our ‘high spender’ report. I can think of at least five other reports that could have spoilt Ian’s fun not long after it began.
In Conclusion
I doubt Ian’s fraud would have continued as long as it did if Kambala’s credit card transactions had been run through an Expense Management System like Expense8. Though it doesn’t mean the school would have been immune to risks through other credit card management activities. Hopefully the above information will aid in preventing your business being subjected to significant amounts of fraud. After all, no business wants to be liable for internal fraud that isn’t covered by their bank’s insurance. Any money spent by a card holder is the responsibility of the business!
How Expense8 Can Help You
Expense8 integrates your Travel & Expense Policy into the system, meaning that you’ll be alerted in real time when out of the ordinary expenses occur. This means you can act on fraud now instead of later!
Here’s a guide we wrote, 3 Ways to Beat Travel & Expense Fraud, which is a quick read and easy for you to share around with your team. Click here to download this guide now!
