Business charge accounts

Using an entity's credit to commit fraud, part 3


By Joseph R. Dervaes, CFE, ACFE Fellow, CIA

joseph-dervaes-80x80.jpg   Fraud's Finer Points: Case history applications 

As I wrote in Part 1 and Part 2 of this series, there are many types of fraud in which an employee uses an entity's credit for personal benefit. Unauthorized use of the entity's general credit cards (just like the ones individuals have), purchasing and travel credit cards or business charge accounts are some of the most common areas in which I've encountered fictitious expense schemes. We conclude our discussion of this topic by covering business charge accounts. 


MayJune-graph-invoice-chargeRULES FOR BUSINESS CHARGE ACCOUNTS

Rather than use a petty cash fund account for small purchases from many vendors, an entity may open a business charge account with one or more vendors it regularly does business with (for example, a hardware store) to consolidate many small maintenance department purchases into one large monthly bill. When properly authorized, the primary responsibility for employee transactions on business charge accounts rests with the entity. 

An entity should develop written policies and procedures for effectively using business charge accounts, including sample disciplinary actions it may take against employees — up to and including termination of employment — for any inappropriate use of the cards or failing to follow the rules established for their use.

The rules should be simple and straightforward to ensure employees understand how business charge account systems work. And the entity should train those employees whom 
it has authorized to make purchases 
on appropriately using business 
charge accounts. 

A vendor agreement should specify those employees who are authorized to use the business charge account and the related procedures to process all charges. Employees who purchase items simply show their organization identity cards to the vendor, sign the vendor's documents indicating receipt of merchandise, submit copies of the vendor's documents to their supervisors that show the projects or inventory accounts to be charged and then place the items into inventory or use the materials on a current project in progress. 

All vendor documents should show the purchases, who purchased them and the official business purposes of the transactions with a work order or project code. The supervisor should then review all vendor purchases turned in by employees, approve the application of the expenses to the specified work orders, projects or inventory accounts and save all documents in a file awaiting receipt of the vendors' monthly statements. 

Each vendor consolidates all monthly purchase transactions for the entity and then sends it an invoice requesting payment. The supervisor then compares all individual purchase documents on file with the vendor's monthly statement for agreement, attaches all vendor documents to the statement and sends everything to the accounts payable function for payment. The entity should never pay directly from the vendor's monthly statement without supporting documentation. This simply asks for trouble.
 


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