In many of our recent dealings with South African companies, there has been a common issue with abuse and fraud committed by employees on their company issued credit cards. These cards are generally provided to employees on the understanding that they are to be used for business expenses only, and in most cases this is reinforced by either the company’s policies or a specific “cardholder use” agreement signed by the employee.

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Prevention is Better Than Cure.
In many of our recent dealings with South African companies, there has been a common issue
with abuse and fraud committed by employees on their company issued credit cards. These
cards are generally provided to employees on the understanding that they are to be used for
business expenses only, and in most cases this is reinforced by either the company’s policies or
a specific “cardholder use” agreement signed by the employee. How is it then that this fraud and
abuse is so widespread? I think one of the answers lies in the tendency of companies to not bring
the full weight of their policies to bear through disciplinary action, especially in fear of losing
otherwise productive employees. This is contrasted by the view held by a German counterpart
who told me, at a commercial card conference, that if employees were to commit fraud, or abuse
their company credit cards, that “we would fire them”! Perhaps that goes some way to explaining
why they don’t have problems with fraud and abuse!
One of our clients was faced with this problem. They had in excess of four hundred company
credit cards, all of which were settled by the company. These cards were what are known as
“Company Liability/Company Billed”, where the credit is “scored” against the company and the
company settles all the card accounts directly with the bank. They were utilising a web-based tool
that was provided by the card association however this had not been implemented properly by
the association’s appointed implementer and as a result the company was not enjoying all the
benefits of the web-based tool. Used correctly, it should have been instrumental in detecting and
preventing the fraud and abuse that was taking place. The proverbial horse had bolted and the
CEO was under pressure to implement changes to eliminate this problem.
This is when Transaction Technology Solutions was engaged, to undertake a review of the T&E
framework at the client, and to make recommendations on the most effective remedial action. We
utilised two primary analysis models; the “Transaction Technology Solutions T&E Framework
Cube” and the “Aberdeen T&E Management Lifecycle”.
Figure 1: T&E Analysis Cube Figure 2: Aberdeen T&E Lifecycle
Subsistence Itinerary
Development
Entertainment Travel/Trip
/Comparison
Approval
Accommodation of Options
Ground Transportation
Airline
T&E Sourcing Book Travel
Preferred Suppliers
(Air, Hotel, Car)
Continuous
Regular Compliance
T&E Expense Data Monitoring &
(Actual Charges) Auditing
Travel Booking
Data
(Expected
Charges)
Trip
Data
Irregular Matching
Expenses
Expense Expense
Reimbursement Report
Creation
Expense
Report
Domestic Foreign Processing/
Approval
These tools are effective in understanding
1. What arrangements are in place for the management of T&E in the company; and
2. How these arrangements benchmark to best practices.
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2. The over-riding findings were that the company was generally operating at a best practice level in
most categories. The payment mechanisms used for the various categories of spend were as per
Figure 3.
Figure 3: Methods of Payment in use
Corporate Card (Company Billed)
Cash/Own Card
Bill Back/Pre-Paid by Agency
The main problems were:
1. The poorly implemented and supported web-based management tool;
2. Inadequate and inconsistent application of the company’s policies, which did in fact allow
censure for incorrect use;
3. The company allowed the use of the company credit card for Subsistence, as well as
paying a Per Diem out of town allowance in cash;
4. The company also allowed the use of the cards for personal expenses when overseas,
which was making the application of the policies difficult to enforce; and
5. Reclaiming personal expenses from the employees was creating additional work for the
Finance Dept, especially from employees in financial difficulty.
The initial recommendation was to amend the policies to enable the following payment
mechanisms:
Figure 4: Proposed Methods of Payment
Lodge Card
Corporate Card (Individual Billed)
Cash/Own Card (Expense Claim)
TMC Bill-Back
Pre-Approved Cash Advance
Subsistence Allowance
In this framework, among other things:
1. All airline transactions would be processed via Lodge Cards. This would enable the
company to reduce the credit limits on all of the cards, thus reducing the potential impact
of fraud and abuse.
2. Company credit cards would only be issued to regular international travellers or “special
cases”, thus dramatically reducing the number of cards issued.
3. These cards would also be “Company Liability/Individual Billed” which means, whilst it is
the Company’s “credit”, settlement is drawn from the individual’s bank account.
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3. 4. The travellers would receive a daily travel allowance for all personal and subsistence
needs, and the cards would only be used for direct business expenses.
This should have addressed all of the problems, however the following issues still persisted:
1. Cardholders still had the capacity to commit fraud and abuse;
2. The company still had the administration problems of recovering fraud, abuse and
personal expenses posted to the cards;
3. There were intense “political” debates over who qualified for the cards.
Ultimately, the CEO approved the following framework:
Figure 5: Approved Methods of Payment
Lodge Card
Cash/Own Card (Expense Claim)
TMC Bill-back
Subsistence Allowance
Pre-Approved Cash Advance
In this framework:
1. There would be no company credit cards at all, save for a few at Executive level.
2. The rigour around processing would be transferred to the “pre-approval” stage, where
everything, including Entertainment, would have to be pre-approved. This would be done
via the T&E Management modules in the company’s existing ERP system. (The CEO
made the point that much rigour was applied to ensure the traveller hired the correct
vehicle, costing a few hundred Rand, yet the same traveller was able, at their own
discretion, to spend thousands of Rand on entertainment.)
3. Employees would be paid cash advances based on approved Trip/Entertainment
Requests, where appropriate. (They are presently investigating a pre-paid debit card
solution for this).
4. All expense claims are to be processed via the same ERP system, drawn down from
what was pre-approved.
The direct cash benefits the company has achieved are as follows:
1. An immediate 45% reduction in Entertainment costs, as the discretion of the employee
has been eliminated from the decision making;
2. A saving of R48’000 in annual card fees;
3. A saving of R42’000 in annual fees for use of the card association’s web-based
management tool; and
4. An annual savings in external facilitators costs for disciplinary hearings associated with
fraud and abuse of the cards.
There were also indirect benefits of:
1. Reduction in business processing costs associated with:
a. Possessing card statements;
b. Managing delinquent cardholders; and
c. Managing the difficult bank relationship in respect of
i. Replacing lost and stolen cards,
ii. Managing non-employee fraud,
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4. iii. Managing card renewals,
iv. Erratic card deliveries, and
v. Recovering cards from departing employees.
2. No more hassles with the card association’s approved service and support partner, as
everything was now processed via the ERP system.
Through this project, the CEO and the Group Travel team have delivered more control and
compliance to the organisation, along with significant cost savings. This has been achieved
without the use of company credit cards or additional business systems; although the company
has recognised that it may need to invest in specific T&E management systems as it goes
forward. This would have been required, even if they had stayed with the company credit cards.
The CEO’s final word on the matter was that
“Prevention is better than cure, and therefore, regardless of the claims of the control and
compliance benefits of company credit cards, I would rather prevent fraud and abuse,
than to spend money and time trying to detect and manage it”.
About the Author
Julian Curtiss is Managing Director of Transaction Technology Solutions. He
has consulted to some of South Africa’s largest corporations on the benefits of
financial process reengineering. Julian has been involved in financial projects
for over 12 years, incorporating work in the UAE, United Kingdom, Zimbabwe,
Kenya, Uganda and South Africa. These have included the implementation of
Business Management Systems such as Sage Software, ERP systems such
as JDEdwards (Softline), E-Procurement systems such as SAP Enterprise
Buyer, and card management systems such as VISA’s Information Source ™
and MasterCard’s SmartData Online ™. Julian is a regular speaker at industry
conferences and a regular contributor to many industry journals.
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April 6, 2009