When managed properly, the use of credit cards in any business can reduce time spent on purchasing activities, and accumulate rewards and extend payment terms. The ease of ordering online or grabbing small items as needed makes a business credit card a must-have for many businesses. However, small businesses are at the highest risk for certain types of fraud due to lack of internal control and limited personnel to provide oversight and the use of credit cards can increase risk.

According to the Association of Certified Fraud Examiners’ Report to the Nations 2020 Global Study on Occupational Fraud and Abuse small businesses face greater fraud consequences.

  • Check and payment tampering are FOUR times more likely in businesses with less than 100 employees.
  • Small businesses have the highest median loss of $150,000.
  • Long-term employees stole a median of $200,000/
  • The typical fraud case s not identified for 14 months and causes a monthly loss of $8,300.
  • 5% of all revenue is lost to fraud each year.

Management must decide the risk they and their current or future investors can absorb.  Finding creative solutions to provide oversight is a prerequisite for reducing future loss.

What steps can small businesses take to reduce credit card fraud?

1

Establish a credit card policy. Determine, enforce and monitor the rules regarding the use of the credit card.

2

Assign credit cards in an employee’s name.  When a credit card statement arrives with an unknown purchase, the purchaser is easily identifiable.

3

Set spending limits. Putting a cap on how much an employee can spend without action from an administrator reduces potential losses.

4

Limit the number of credit cards issued. The fewer credit cards floating around, the less risk of fraud or abuse.

5

Require itemized receipts for every transaction. Did I buy cases of paper or a TV for my bedroom at the local superstore? Itemized receipts also show taxes paid, which can be very important for any tax audit.

6

Reconcile credit card statements monthly. Verify that receipts have been submitted for each transaction that match to the statement to create accountability and controls to identify questionable transactions.

7

Develop an approval process. Approval (ideally before the purchase is made, but afterwards is better than nothing) shows cardholders there is accountability and oversight and ensures only needed purchases are made.

8

Compare credit card purchases to expense reimbursement requests. A common tactic is to purchase something on a company credit card and then ask for reimbursement of the same purchase through an expense reimbursement request.

Policies and procedures for credit card regulation and monitoring must be tailored to the needs and risk appetite of the company. Small businesses have limited resources and must compare the cost of controls to the benefit of implementing them.

Shannon Bloom
CPA & Certified Fraud Examiner (CFE) at SMB Accounting and Consulting, LLC | 321-775-3724 | info@smbaccountant.com | Website

Shannon Bloom, a CPA and certified fraud examiner (CFE), owns SMB Accounting and Consulting, LLC. After leaving her role as a civilian accountant for the USAF, Shannon began helping local small businesses with controller/CFO and government compliance for contractors.