When does reasonable use of the Corporate credit card become fraud?

Published - June 2009

Most departments have a “reasonable use” policy in relation to departmental assets, but at what stage does “reasonable” become absolutely fraudulent?

The Independent Commission Against Corruption (ICAC) is currently investigating allegations that a former Sydney Ferries Chief Executive used corporate credit cards for more than $200,000 worth of personal expenses.

His misuse allegedly included theatre tickets, mortgage repayments, school fees and other personal items. His defence is that if he placed an ‘R’ next to certain items on the statement, they were reimbursable. To date more than $100,000 is still outstanding to Sydney Ferries.

In March 2009, five senior members of the NSW Fire Brigade faced ICAC on a similar matter involving misuse of credit cards and so-called travel rorts.

The ICAC hearings have highlighted the grey area of “misunderstanding” – whether the misuse of the corporate funds was intentional or unintentional.

WISE was involved in a recent case where a senior member of a NSW government department was found to have defrauded her department of an unknown amount. Suspicious items included personal dinners, taxi charges, clothing and groceries. Her defence was that she had been allowed to have ‘reasonable personal use’ of her card by her Department.

A similar case where a senior manager had obtained the travel codes from another branch of his organisation and used them to fly around Australia while claiming travel time for driving. A check of his corporate credit card revealed he had been charging breakfast, lunch and dinner to his Department, as well as his family grocery bills – including meat, vegetables and personal hygiene items for himself, his wife and children. His defence? It was “reasonable personal use”.

Another investigation undertaken by WISE involved the misuse of a corporate credit card by a teacher whilst overseas. Her defence was that she had used the card to buy presents for teachers at her school and felt it was a “reasonable” use of the card.

It can be difficult when a senior manager is involved in inappropriate credit card use.

In all these examples, senior managers were involved in the alleged frauds. The frauds or alleged frauds had been detected by less senior people who were unable or unwilling to raise the matter.

The accounting manager for Sydney Ferries told ICAC the acting chief financial officer told her: “She should not have put her concerns about unauthorised credit card use in writing. It was, he had said, ‘all about trust’."

So what exactly is ‘reasonable use’? We know most corporate credit card policies have a clause about use. Some organisations stipulate that any personal expenses must be noted and paid back within 21 days. This is quite risky and assumes there is a tacit approval to use the card as a personal “slush fund.”

Other organisations stipulate that any use of a corporate credit card, not related to business and not properly acquitted is considered inappropriate. With such a plethora of conflicting advice, no wonder there is confusion.

At WISE, we use the following test to determine what constitutes ‘reasonable use’.

  • What is the nature of the work? Is the expense considered reasonable in relation to the nature of the work being performed? A bottle of wine and dinner on a private executive’s corporate credit card would be considered reasonable if entertainment of clients was part of the job description. A bar tab for a public servant travelling interstate for meetings would not.
  • What is the purpose for which the card was used? Was it used in conjunction with business?
  • Was the card used whist on business? Really, doing the weekly shop with the corporate credit card or paying school fees does not fit into this category!
  • Position of the user. The higher the position. The more incumbent it is on the employee to model appropriate behaviour. In all of these examples, the inappropriate behaviour was committed by Senior Managers and discovered by subordinates.
  • Overriding all of these considerations is the matter of fair reason: ‘Was the use fair and suitable under the circumstances?’

Before using a corporate credit card consider the following ...

  • Make sure you know your organisation’s policies. If in doubt ASK! Ask what is considered fair use? Ask what is reasonable use? And find out what the circumstances are if you use the card for personal use. Try to get it in writing or at the very least, obtain a copy of your credit card policy and READ IT!
  • And finally, if you intend to go out for Friday night drinks – a word of WISE  advice – leave the corporate credit card behind. Some of the worst decisions have been made with the card late on a Friday evening!

Checks and balances are vital to prevent corporate fraud.

Most corporate credit cards are acquitted monthly. The following are indications something may be amiss...

  • No proper acquittal – that is a legal itemised tax invoice with GST component.
  • The EFTPOS receipt instead of a proper itemised tax invoice.
  • Constant pattern of late acquittal.
  • Aggravation when questioned about missing or inappropriate expenditure
  • Advice to ignore a Senior Manager’s expenditure.