Credit Card Fraud: The Secret Killer to a Corporation

by Ladyblogger on September 30, 2013

  • SumoMe

(US law/generally) Every year, credit card fraud costs businesses and banks over one billion dollars in direct losses. According to a 2010 report from the Board of Governors of the Federal Reserve to Congress, credit cards are used by 83 percent of small businesses.

Corporate cards are common for larger businesses and usage increases as the size of the business increases. Businesses are at great risk of victimization from credit card fraud due to a variety of internal and external factors.

External Fraud

In addition to the internal threats, businesses also have the same risks as personal users for being victims of credit card fraud, although these risks are increased by the frequency with which the card is used and multiplied by the number of cards in circulation.

Employees can lose cards through theft or negligence, cards can be skimmed while in use by innocent employees, and financial information may be stolen from the company. Having numerous cards in greater use simply amplifies these opportunities.

Additionally, the loss amounts on business credit cards can be much higher. Business owners are less likely to catch fraud in the short term due to increased frequency of use and higher spending amounts; activity that would otherwise be flagged as suspicious on an average consumer credit card will often go undetected.

Limits are often much higher on business cards as well. Some credit cards, such as many of those offered by American Express, do not have discernable limits at all. Luckily, issuers generally protect businesses from liability for unauthorized charges.

Internal Abuse

Many companies issue corporate cards to trusted employees who have a high probability of encountering regular business-related expenses. Issuing a card is more efficient than maintaining a system wherein the employee is reimbursed constantly.

However, such systems are more prone to abuse. With internal fraud on the rise, implementing such a system without adequate precautions can cost the company dearly. Businesses are generally protected from unauthorized charges made on their corporate cards. Many card issuers grant the same protections to personal and professional cardholders.

When the card is used by someone authorized to use it, the business is likely to be liable for the charges even if it would not have approved the specific charge. As a result, an employee who acts unethically is likely to create a binding legal obligation on the part of the business to pay the debt.

Identifying Internal Card Abuse

Even generally honest employees will occasionally use a corporate card for a business in which business was not discussed or pay for fuel that was not used to drive to a corporate event. Identifying whether an employee is engaging in fraud against the company is difficult and requires implementing strict usage policies.

Catching these employees requires careful auditing of receipts, mileage reports, and credit card statements. Irregularities should be noted and unusual expenses should be flagged for review.

Taking a more active role in deterring credit card abuse can help prevent it in the first place. Employees provided with corporate cards should be notified that expenses above a certain level will require approval from management.

Employers should have an internal reporting hotline for unethical or illegal conduct, allowing other employees to report abuses. Gifts purchased by sales staff for disbursement on sales calls should be verified by management and tracked.

Regardless of how carefully purchases and card usage are monitored, identifying abuse is nearly impossible without strict usage policies.The line between unethical abuse of a corporate card and outright criminal fraud will vary depending upon how clearly the employer has drafted his or her internal policies and the employee’s actions.

Employees with company vehicles often use the same gas to run errands as they use to drive to sales calls. Cardholders often take other employees to lunch and charge it to the company under the nebulous standard of facilitating teamwork. Such soft abuses can cost a company as much if not more than outright fraud.

Responding to Internal Card Abuse

Businesses have significant amounts of discretion in responding to internal fraud. Businesses may modify their policies to prohibit the offending conduct in the future, remove the employee’s right to make charges on corporate accounts without prior approval, terminate the employee, pursue criminal charges, or do any combination thereof.

Pursuing criminal charges against an employee who was authorized to use the card is unlikely to be successful. The specific course of action will depend upon the nature of the employee’s conduct and the decisions of any managers involved.

Whether an employer may pursue litigation against an employee also varies depending upon the presence of any contracts between the employer and the employee.

In this case, it is advisable that the employee seek legal counsel. For instance, if the employee resides in Orlando, Florida, they would consult with a legal professional such as an Orlando federal defense attorney. Credit card cases can become very complicated so it is important for the employee to be represented accordingly.

Pursuant to 15 USC § 1645, employers and employees may contract to the effect that if the employee misuses the card that the employee shall reimburse the company or incur a penalty provided that the company itself issues corporate cards to ten or more employees.

Most employers would not distribute a card to an employee without such an agreement in advance. However, litigation is expensive and many employees do not have the necessary assets to compensate the company after committing an ongoing fraud.

Regardless of what a business decides to do, businesses should always take action after recognizing that a corporate card is being abused. If some employees evade responsibility for abusing corporate assets, employees who would otherwise have remained honest may attempt to do the same.

This can result in a systemic fraud that can be impossible for a business to undo. Unchecked credit card abuses can poison the system, slowly damaging the company over time. It truly is a silent killer.

Jamica Bell is a freelance writer and entrepreneur. She contributes this article to shed light on the dangers of credit card fraud within a corporation. Orlando federal defense attorney, Katz & Phillips, P.A. has fought tirelessly to defend the legal rights of individuals accused or involved in credit card fraud .




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