Company Smartphone Abuse and Fraud

What are Phones Really Costing the Business?

By Alicia Adamy, CFE



There is no doubt that advances in smartphones and other handheld devices are improving business communications and productivity, but failure to monitor the use of company-issued devices can cost employers tens of thousands of dollars. 

The biggest culprit to unanticipated expenses might occur when employees access seemingly "free" social networking sites, such as Facebook, from handheld devices. Many of these sites offer free games such as Mafia Wars, Farmville and others to increase network participation. These games are meant to engage the player and keep them on the sites longer and at more frequent intervals. The higher the engagement levels, the more users they will involve, and the more advertisements will be viewed.
This continuous rotation of viewers creates a greater incentive to increase advertising for these sponsors' services and products. To access these services and products, sometimes users are charged fees "in fine print" that are automatically added to the user's phone bill. Some gaming applications are designed so that players advance in their standings according to the charges they rack up — another incentive to accept fees. (Users can purchase game credits by providing basic phone information.) These charges, which can potentially run in excess of $200, will show up on the phone bill as Mobill Cash, Zong, Paymo or other names. But that's not all! For only $9.99 a month, phone users can receive daily trivia questions, sports information or jokes. Local news updates might cost more than $6 per month, while many daily horoscope services cost $3 per month. These charges will show up on billing statements under names like Predicto Mobile and Mobile Messenger. 

The bottom line: Businesses need to routinely review all billing statements on company phones to verify charges and prevent abuse and fraud.
To be fair, not every additional charge is an indicator that an employee has willfully misused or abused a company phone. The employee might have ordered the service without fully understanding the fee obligations. Or the employee might have tried to cancel the service, but it took several months to take effect. In some instances, it can take multiple cancellation attempts. It is all the more reason that businesses need to develop and enforce phone-use policies.  




Many nonprofits are getting into the phone application business, which has its pros and cons. The obvious advantage is that it makes soliciting donations easy and convenient for all parties. However, it can leave employers footing the bill when individuals make donations on company phones. Why? Because once a donation is confirmed, it cannot be refunded. 

When Haiti was hit with an earthquake in 2009, many organizations, such as the Red Cross, made it possible to donate through text messaging. A user simply had to text the word "Haiti" to 90999 and a $10 donation was added to that user's phone bill. The phone carrier then forwarded the donation to the Red Cross. Text message donations accounted for 14 percent (or $4.2 million) of the Red Cross's $30 million received for Haiti relief efforts. 

Organizations from UNICEF to the Salvation Army now accept donations via text messaging. Unfortunately, when individuals use company phones to support a charity, it is the employer who must accept the charge and/or insist that the employee reimburse the business.
There is a silver lining: Many of these sites offer receipts. For instance, at the mGive Foundation, you can input a phone number, verify charges associated with that number and then receive a receipt for tax purposes. It is not as desirable as a refund, but at least the employer can request a tax credit. 




Employers can take a number of proactive approaches to decrease their liabilities:


Allowances are not just for kids. Make sure your employees are aware of how many minutes and text messages they are allowed per month. If employees exceed their allotments, make sure they understand they could be held accountable and their wages could be garnished. Implementing a phone-use policy might be as easy as putting words on paper; however, you must have employee buy-in to develop a strong policy. Employees need to see top management adhering to the policy, and positive results should be shared in team meetings. 


Proactively review phone usage with employees monthly. Audit and investigate phone activity and validate the appropriateness of all charges. If your employees know you are monitoring phone use, they likely will be more cognizant of their habits.


Recognize other risks. A study conducted by Virginia Tech Transportation Institute revealed that a driver dialing a phone is 2.8 times more likely to be involved in an accident. The study also found that while reaching for a phone, drivers increase their accident risk by 1.4 times. These numbers increase dramatically for truck drivers; their accident risk is six times more likely when dialing a phone and seven times more likely when reaching for one. With mobile workforces on the rise, companies need to understand how mobile phone use can increase accident rates, financial loss, lost time at work and insurance liability.  

So, in review: Increase employee awareness, identify potential issues and review phone activity routinely. The bottom line might be your bottom line. 


Alicia Adamy, CFE, is a senior operational risk manager in Richmond, Va. 


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