Business credit card fraud - How to detect and steps to take
A business credit card is one of the most viable solutions to managing employee expenses. Added benefits with concise spend statements feel like a financial manager’s dream, right? Unfortunately, all financial matters also come with the worry of risk and safety. In the age of the internet, it is near impossible for most data to not be susceptible to fraud. Credit card fraud is one of the most common forms of data theft. Going contactless hasn’t changed this.
What used to be concern about data theft devices installed in teller machines has now turned into data leak threats during online transactions. The simplest reason for business credit fraud is easy money-making. Entities online are always on the lookout for credit card information so that it can be sold and misused. Additionally, some employees might even indulge in manual forms of fraud by falsifying expense claims. Whatever the reason, credit card fraud (especially when unnoticed) can rack up a giant bill for a business. Understanding how it happens, and how to prevent it, is the primary tool in credit card fraud prevention.
What is business credit card fraud?
Credit card fraud is described as a type of identity theft in which unauthorized access is forced by taking one’s credit card information and further charging purchases or removing funds from it. These frauds are categorized under two groups.
How does credit card fraud happen?
It is important to understand that company credit card fraud is no longer about the physical possession of a credit card. A lot of the information linked to a card is stored online, and theft often only requires basic information about the cardholder (such as credit card number, account number, and/or the account owner’s name). This can take place through a hacked payment portal, or even email or phone calls.
As credit card theft becomes more complex, so do all the avenues to protect yourself against them. An increasingly common form of credit card fraud (for both virtual and physical cards) is an act called “skimming”. This can happen from a hacked vendor machine, or even a data leak on a payment gateway. When it happens, the information of the card is cloned for misuse, without the card owner being aware of the transactions taking place.
Similar to skimming is the classic act of stealing a credit card. Stealing might involve the physical theft of a card - in this case, until the card is blocked or the bank is made aware of it, the thief can very easily continue misusing the credit card. Many times the information is listed online (on the digital black market) for others to commit identity theft. This is because credit cards are a form of ID proof, and anyone with credit card information can pretend to be the cardholder.
Different types of business credit fraud
For instance, a thief can very easily create a credit card application in the name of an employee or company. This card is then used for their personal gain, while the liability and statement are going to the company.
In rare situations, theft might be in the form of general fraudulent activity on the credit card. Credit card payments made to ghost vendors or shell companies might use a corporate credit card to look legitimate, while someone else is pocketing all the expenses. Similarly, someone might claim an expense on a company credit card as business-related, while the actual utilization of the card was for personal reasons.
Recognizing which kinds of credit card fraud your company is susceptible to makes it much easier to train your employees in credit card fraud prevention. It also puts you in an informed position of recognising a possible fraudulent event.
How does credit card fraud affect businesses?
Credit card fraud, on an individual level, can be extremely damaging to personal expenses. While credit cards have the safety feature of not affecting your personal funds, it is still a lot of hassle to detect and correct. Additionally, it can be tons of paperwork trying to prove that your fraud claim is legitimate. On a business level, this risk and hassle become tenfold. Tons of corporate entities can get harmed in the process.
Personal damages to employees and professionals
Employees who have to take a salary cut from the financial loss suffer the most. While some might agree to take a hit, many will not be able to afford it. If you have investors and board members, they might pull out from the company as a result of the loss (even more so if it escalates to a larger scale). From the highest executives to the lowest rung of employees, everyone suffers personal damages as a result of the company being scammed or defrauded.
Stolen funds from company
Like any monetary fraud, the first impact is on the company’s treasury. If a business credit fraud is not identified in time, then a significant amount of company funds can be siphoned before any kind of action is taken. Stolen funds have a ripple impact on the entire organization. Salaries cannot be paid, vendors’ invoices cannot be cleared, inventory statistics become imbalanced. Any kind of profit margin analysis tanks - and only if you’re lucky. Many times, fraudulent activity on a credit card can lead to major losses.
Employer branding damaged
A company that has taken a financial hit will, undoubtedly, see a fall in its public image. If your company is public, it is very likely that a fraud scandal can lead to a drop in stock prices. Services get rendered useless, and the quality of the product can drop significantly while the monetary losses are recovered. Overall, there is a reduced trust in a company that lets itself become part of a scam, or becomes a victim of something that can be neutralized with the right kind of security and risk assessment. Even employees might lose faith in the employer.
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How does credit card fraud detection work?
Precaution and prevention are always better than resolution. Thankfully, credit card fraud prevention is easier than you would believe. Although there is no 100% foolproof method of avoiding a scam, there are many measures you can take to reduce your risk. Preventing susceptibility to fraud can also discourage thieves from trying to extract your data unlawfully.
Securing details, constantly encrypting your data, and teaching employees how to protect their cards can go a long way in ensuring that any frauds are caught early. Unauthorized transactions can be flagged with the help of regular statement scans. Your finance department, managers, and compliance officers also need to be made aware of fraud threats and how to recognize them.
It is important to also equip yourself with a safety hatchet in the situation in which you have been defrauded. There is a limited window in which you can report a scam, and while your file is being processed, you need to be prepared for the worst. Simple steps such as immediately highlighting mysterious transactions, having your bank information on file, and having employee/card owner ID proof ready can reduce a lot of the work.
It is also a good idea to vet your vendors and subscription management portals. A lot of data theft occurs due to badly secured gateways. Protecting your data while paying vendors can also stop data from leaking. Have a look at some of the tried and tested ways to avoid fraudulent activity on a credit card.
How to avoid credit card fraud?
Thoroughly reviewing card statements
It’s integral to have a thorough reviewing system in place for all your financial statements. Ensure that you have a fortnightly or monthly process of going through every transaction on a business credit card.
Additionally, if it’s possible for you to preauthorize or limit your card spending, then it becomes easier to notice anything amiss. Make sure that any employee that is given a company credit card is made aware of card fraud prevention measures, as well as budget and spending policies.
Many banking portals also have features for you to flag suspicious transactions. Expense management tools like Volopay let you request additional details for a transaction (receipt, cause of payment, invoice, etc.) so that you can verify any transaction as legitimate.
Thoroughly reviewing card statements is crucial not only for identifying potential fraudulent transactions but also for better corporate credit card management. Learn more about managing corporate cards effectively in our detailed guide to corporate credit card management.
Securing your card data
Business card data is very sensitive information - especially if it is a credit card. Physical credit cards should be secured in a safe location, as should any bank statements associated with them (such as letters containing card numbers or PINs). If the data is backed online for the department to verify, then keep it encrypted and password protected.
A lot of card information theft these days is conducted by remote EMV readers. Make sure that you provide credit card protection wallets that do not allow remote devices to read magnetic stripe data. Requesting physical cards with EMV chips also makes them more secure, since only a low limit wireless tap or a unique PIN will allow a transaction to occur.
It is also important to not share card information with unknown entities, especially information like the entire card number or the CVV. Keep this information protected, and ensure that you do not accidentally post it anywhere online, either. If your card is used primarily for online transactions, then check if the site SSL data is verified (a green secure lock should be present beside the browser name). There are also apps to secure your card account passwords for mobile app usage.
Becoming picky with card access
A good way of credit card fraud prevention is to give cards to people that are reliable. By default, most companies do not hand over business credit cards to every employee. Rather, new employees, rotating employees, or employees who rarely need access to funds have to follow a reimbursement model for fund access.
Make sure that you only give cards to employees who are trustworthy and truly require them. Volopay also offers unlimited virtual cards for this purpose. You can assign single-use cards that expire as soon as their purpose is fulfilled. You can also create burner cards and set low limits if you need to give them to multiple employees.
Thorough vendor verification
It’s quite common for credit card theft to occur due to a bad portal or merchant machine. Before providing your card information to a vendor, do a thorough check to make sure they have a way to securely store your data. This can be by means of a verified online payment portal, the option to not save your data for future transactions, or even a verified website.
If your transaction is taking place over a phone call, then make sure that you are speaking to the correct entity. Do not provide your card information to anyone who calls you - instead, you should be calling the dedicated company number (with vendors, and with banking services).
Lastly, if there is an option to tap & pay, then utilize that. Many smaller merchants & shops might not have secure machines. Pay wirelessly to prevent EMV chip or magnet strip data from being stolen. Also utilize mobile apps or online banking services to check your balance, make credit card payments, etc. It can protect you from theft devices installed in ATMs.
Steps to take if you get into credit card fraud
How swiftly and concisely you report a business credit fraud can go a long way in deciding how quickly your claim will be resolved. Many countries and banks have a very low liability for unauthorized transactions (a liability that can even be waived if you prove identity theft and/or before any transaction takes place). Here are the important steps to take if you suspect (or know for sure) that you are a victim of company credit card fraud.
If your card is linked to your bank account, then make sure to update all your PINs, passwords, and login information. You can even go one step further and reset passwords to your devices and email addresses (something that is recommended for credit card protection). If your card information is saved on a browser or device, then scrub the cache and cookies clean.
Thoroughly scan your credit card statement. If you know your card has been compromised then you should be on the lookout for any kind of suspicious activity. This can be a questionable vendor transaction, a suspicious amount, or even a merchant location. Being able to pinpoint unauthorized transactions can make it easier to identify how and where the fraud occurred (and which transactions to report).
Aside from informing the police and the card provider, you also need to get in touch with the legal authorities that handle credit-related matters in your country. This could be a bureau or any kind of union/association. These are the people who will help you file your claims, protect you in the future. Most importantly - they will also make sure that your credit score is not terribly affected by the fraud.
Contacting the bank or credit card company is the first step. If you suspect your card has either been stolen or its data compromised, then contact the company. Your card will likely be blocked, and all numbers deactivated until you can verify them again. While company investigates the fraud, all unauthorized transactions will be removed from your statement, as well.
Is your credit line insured? Some companies’ insurance providers have a cover for credit card theft. If you do, then this will be how you stop any kind of major fund loss or disruption in the company’s work. Contact your insurance company to find out if credit card theft is covered. If it is, then they can help you file a claim accordingly, and put together the supporting documents needed for quick processing and payout.
The major step in protecting yourself is to find out who is responsible for company credit card fraud. You can take help from the police, bureau, and your company in identifying the person. If the breach is from within the organization, then compliance and human resources departments need to take the necessary steps. If the breach is from outside, it is best to give all data to the cyber and financial crime units of the correct authorities.
How does expense management system mitigate business credit card security risks?
An expense management system is an excellent bet on credit card fraud prevention. Systems like Volopay are designed to not only provide you with secure transactions but also create transparency for you to have information on-hand and ready.
Some of Volopay’s offerings include preloaded debit cards and virtual credit cards. Preloaded cards can prevent any kind of additional funds from being drained. These cards are not linked to your bank account either, so there is no need for you to worry about banking data being compromised.
Similarly, virtual cards are an easy-to-manage alternative to physical credit cards. There is no risk of physical theft or card loss. You can also assign specific expiration dates, set limits within compliance, and have policies to auto-decline transactions.
You can also create burner cards or vendor-specific cards so you can trace any card to a single portal of use. Multi-level approvers are delegated to authorize every transaction - anything that doesn’t meet company standards can be declined.
Having an overarching, cohesive expense software makes security a much tighter bet compared to a manual system. Volopay, for instance, lets you scan and export reports in real-time. Any kind of suspicious activity would be extremely easy to tackle.
The knowledge database is accessible to all employees, which also discourages intra-departmental scams or data theft. This kind of financial software is an investment in credit card protection.
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FAQs
Depending on the laws of your country, you or your business are not liable for company credit card fraud. However, there might be certain limitations on when you can claim fraud. Certain credit card companies might have a time frame within which a fraud claim has to be filed, and absolute proof that it is an unauthorized transaction. Additionally, if you have been negligent in protecting your data (openly available card information, CVV numbers, PINs, etc.) then your claim might not hold.
An unauthorized charge is something that the company has not approved of. This could be a transaction that none of the delegated approvers have signed off on or a reimbursement claim that has been denied.
Banks and card providers have up to 45 days to investigate and resolve a fraud claim. Of these 45 days, they must resolve any lost funds and return the money within a 10 day period.
Recovering from business credit fraud is possible, but it might take some time. Your credit line will likely be blocked until new cards can be issued. Any vendor payments, payrolls, or SaaS subscriptions linked to those cards would need to be linked to an alternate form of payment until a new card can be attached. If your employees use corporate cards, and you need to replace them, then the employees will have to rely on personal funds and reimbursements until they can be provided a different line of company fund access.
Yes, administrators can freeze cards whenever they would like, and also block them. If you wish to create a card for limited use, you can even set an expiration date of your choice so you don’t have to block it later. These single-use/burner cards are a reliable form of credit card protection.