Kickbacks And Credit Card Abuse: Crimes Of Convenience

Investigators from North Carolina's Bureau of Investigation arrested the former CFO of a mental health organization, charging him with nine counts of financial transaction card fraud and embezzlement.

The CFO embezzled the largest amount (over $500,000) from a scheme involving kickbacks. The CFO hired two contractors to complete renovations on the organization's buildings, paying them more than the standard charge for their services. An audit by the state found that as the contractors received payment for their work, they in turn paid money back to the CFO.

The report also uncovered misuse of the organization's credit cards, with over $157,000 charged to the cards without any accounting of the business purpose. Some of the questionable purchases made by the CFO were allegedly for boat repairs, sporting goods, and other personal items. 

The CFO spent another $143,000 on vehicles for the organization, but again had no documented business justification for the purchases. Michael Todd "Former Eastpointe CFO charged with embezzlement,"www.jdnews.com (Dec. 16, 2015).

Commentary

Kickbacks and credit card abuse are common methods of employee embezzlement. Kickbacks are essentially bribes, offers of money or something else of value used to influence the actions of another. The above article illustrates the typical kickback scheme in which an employee with purchasing responsibilities charges the vendor a higher rate for a product or service, and the contractor refunds the difference to the employee.

Most states have laws prohibiting commercial kickbacks, and any form of kickback involving a federal government official or agency is illegal under federal law. Criminal charges can be sought at the state or federal level.

Violation of the Federal Anti-Kickback Statute can result in up to 5 years in prison and criminal and civil fines of as much as $50,000 per kickback.

Employee credit card abuse occurs when the employee uses the organization’s credit card to make unauthorized purchases. Employee misuse of a credit card is a type of embezzlement.

In a 2014 report from the Association of Certified Fraud Examiners (ACFE), fraudulent expense reports and billing employers for personal expenses made up for about 39 percent of all the fraud cases examined.

Protect your organization by creating strong checks and balance procedures for all accounting activities. First, have more than one person review bank and credit card statements monthly, and immediately address any discrepancies.

If use of a business credit card is necessary in your organization, develop a policy of proper purchasing. Make sure you maintain strict enforcement of your policy, with no exceptions. Also, check into your card provider’s security features. Finally, consider spending limits on cards as well as restrictions as to what a card can purchase.