A news story earlier this fall – documenting how a Bay Area strip club was suing Oracle after it allegedly refused to pay a $33,540 bill racked up on the company credit card – has a lot of companies thinking about how they can better examine their employees’ compliance with travel and expense policies.
Most corporate policies prohibit “gentlemen’s clubs” from reimbursement as entertainment. The challenge for most organizations is to identify when corporate resources are being used to entertain customers, prospects, and business partners in these establishments. The clubs make it tricky to be tracked. Normally, these clubs use restaurant-oriented merchant category codes (MCC) and will often change their legal names to make detection more difficult. Disputing the charges with the clubs after-the-fact can be a losing proposition since the charges were made by authorized cardholders. It’s tough to argue fraud when the cardholder was the person authorized to use the card.
The best practice for all corporate card programs is to inspect what the company expects. Monitoring and analyzing all corporate card and associated expense transactions is the best approach to ensuring that corporate travel and expense policies are followed. When all expense transactions are monitored, out-of-compliance spending will be identified and managers, human resource professionals, and offices of general counsel can take action as appropriate. In our company’s experience, an effective monitoring and analysis program can have immediate impacts on out-of-policy spending by identifying non-compliant transactions prior to expense reports being submitted. Cardholding employees can be reminded prior to expense submission to mark personal expenses as personal. If the timing doesn’t work out for proactive communications, suspicious expenses can be flagged and questions asked before compensation is made to the employee or prior to the payment being made by the company to the credit card company.
And it’s not just gentlemen’s clubs that are the issue. We have seen travelers expense online psychics, pet boarding, online dating services, multiple visits per week to the liquor store, funerals, family vacations, and wedding receptions. Sometimes, employees will unwittingly use the incorrect card. Often, the wrong card is used on purpose. Research shows that people behave differently when they know they are being watched. This “Hawthorn Effect” has resulted in a reduction in out-of-policy transactions of up to 70% in our customers who routinely monitor and analyze expense transactions.