What you need to know about the security of employee expense cards

In this blog, we’ll take a look at the security considerations for employee expense cards and how they can be controlled. 

For many businesses, the employee expense card is regarded as a symbol of efficiency, and a seamless way to manage business spending. No more fiddling with personal credit cards, waiting for reimbursements, or drowning in a sea of paper receipts. On the surface, it’s a ‘win-win’ - employees get the flexibility they need, and finance teams gain better visibility into spending.

But it’s important to acknowledge (and manage) the risks associated with employee expense cards. Whilst employee expense cards can streamline operations, they also open up potential avenues for security threats, ranging from innocent misuse to fraud.

So, how can you harness the power of these handy cards without leaving your business vulnerable? It’s all about understanding the potential risks and implementing robust security measures. 

Here’s our ‘what you need to know’ blog about the security of employee expense cards.

What are the common security risks with employee expense cards? 

Think of your company’s financial health as a well-guarded fort. Every employee expense card represents a potential entry point, and it’s crucial to understand who might try to get in and how. 

The threats generally fall into two categories: internal and external. Let’s take a look at the risk categories and then think about how to manage those risks.

What are the internal risks with employee expense cards? 

Sometimes, the biggest risks come from within, even if unintentionally.

Misuse, not malice (usually)

This is often the most common scenario. An employee might genuinely forget a policy, make an honest mistake, or simply not understand the nuances of what constitutes a legitimate business expense. They might use the card for a quick coffee run that’s technically personal, or accidentally charge a friend’s meal to the company account. While not malicious, these add up and erode financial control.

Fraudulent claims: the sneaky side

This is where intent comes into play. An employee might inflate expense reports, submit claims for services never received, or even create "ghost purchases" that don't exist. This can be as subtle as adding an extra tip to a restaurant bill or as brazen as submitting fake invoices.

Collusion

In some unfortunate and rare cases, multiple employees might conspire to defraud the company. This could involve creating fake vendors, splitting purchases to stay under approval thresholds, or manipulating expense reports together.

What are the external risks with employee expense cards? 

Beyond internal risks, your cards could also be targets for professional criminals.

Skimming and phishing: the digital traps

Skimming involves devices that steal card data from card readers (like at petrol stations or ATMs). Phishing, on the other hand, is a digital con where criminals send fake emails or messages designed to trick employees into revealing card details or login credentials. 

Lost or stolen cards

This is perhaps the most obvious and urgent threat. A lost or stolen card is a direct invitation for unauthorised spending, and every minute counts until it's deactivated.

Online vulnerabilities

When employees use expense cards for online purchases, they’re relying on the security of the vendor’s website and payment gateway. Weak security measures on a third-party site can expose card data to hackers.

Identity theft

If the security of an employee expense card is compromised, it can sometimes be a stepping stone to broader identity theft, putting the employee and potentially the company at greater risk.

The human element

Underpinning both internal and external threats is the human factor.

• Lack of awareness: employees might not be fully aware of the security protocols or the potential consequences of not following them.

• Carelessness: leaving cards unattended in public, writing down PINs, or sharing card details over unsecured channels are all recipes for disaster.

• Social engineering: highly skilled fraudsters can manipulate employees into revealing sensitive information through seemingly innocent conversations or requests.

Understanding these risks isn't about creating paranoia; it's about building a strong foundation for prevention.

How can I manage the risks of employee expense cards? 

Now that we’ve identified the risks, let’s talk about strengthening your defences. A proactive approach to fraud prevention is always more effective (and less costly) than reacting to a breach.

Establishing clear policies and procedures

Every successful team needs a rule book, and your expense card system is no different.

• The "Rulebook": create a clear, concise, and comprehensive expense policy. This document should explicitly state what types of expenses are permissible, what isn't, and the consequences of policy violations. It should be easily accessible to all employees.

• Expense categories: clearly define legitimate business expenses. This helps employees understand what they can and cannot use the card for and simplifies auditing.

• Receipt requirements: ensure clear and detailed receipt submissions for all transactions. This is your primary defence against fraudulent claims and allows for easy verification.

• Regular training: keep everyone in the loop. Don’t just hand out a card and a policy document and expect everyone to be a security expert. Regular training sessions – at onboarding, and periodically, are crucial. These sessions should cover policy adherence, security best practices, and how to report suspicious activity.

Smart card management practices: go beyond the basics

Effective management of the physical cards themselves is paramount.

• Issue and revoke cards with precision: employee expense cards should be issued only when needed, and revoked promptly when an employee leaves or there is a change in their role. Delays here can create a significant risk.

• Card activation and deactivation protocols: establish clear steps for activating new cards and deactivating old ones.

• Secure storage of card Information: beyond the physical card, ensure that any digital records of card numbers, expiration dates, or other sensitive information are stored securely and accessed only by authorised personnel.

• Periodic audits: the regular check-up. Implement a schedule for periodic audits of expense reports and card usage. These can be random spot checks or deeper audits of specific departments or spending patterns. Audits act as a deterrent and help uncover anomalies.

Leveraging technology: your digital armour

Modern technology offers powerful tools to enhance your card security.

• Dedicated expense management software. This isn't just about streamlining expense reporting; it’s a robust security tool. Expense management platforms can automate policy enforcement, flag out-of-policy spending, detect duplicate expenses, and often integrate with real-time monitoring.

• Tokenisation and encryption: when choosing expense card providers or payment processors, look for those that utilise tokenisation and encryption. Tokenisation replaces sensitive card data with a unique, non-sensitive identifier (a "token"), while encryption scrambles data to prevent unauthorised access during transactions.

The power of real-time monitoring

Imagine having a security guard watching every single transaction as it happens. That's the power of real-time monitoring. 

Why real-time monitoring matters: speed is your ally

• Speed is key: the faster you detect suspicious activity, the faster you can act to mitigate the damage. A few minutes can be the difference between a minor inconvenience and a significant financial loss.

• Minimising loss: real-time alerts allow you to freeze or cancel a compromised card almost immediately, preventing further unauthorised transactions.

• Immediate action: when an alert is received, your finance team can instantly investigate, contact the employee, and take decisive action.

Card alerts: what to look for and set alerts for 

Sophisticated expense management systems allow you to set up customised alerts for a wide range of suspicious activities.

• Unusual spending patterns: is an employee who usually spends modest amounts suddenly making large, out-of-character purchases? Are there frequent small transactions that could indicate testing a stolen card?

• Out-of-hours transactions: purchases made in the middle of the night or on weekends, especially if the employee isn't travelling, can be a red flag.

• Multiple transactions in quick succession: this could indicate that a card is being tested or used fraudulently.

• Transactions in high-risk categories or merchants. Certain merchant categories (e.g., gambling, adult entertainment, even specific online retailers known for fraud) might warrant closer scrutiny. Consider using an employee expense card provider that can  disable card use in high-risk categories or merchants. 

• Transactions exceeding set limits: an immediate alert if a single transaction breaches a pre-defined limit.

How it works: the seamless integration

Typically, real-time monitoring is integrated directly into your expense management system or provided by your card issuer.  Dashboards provide a comprehensive overview of all card activity, making it easy to spot trends and anomalies.

Building the wall: setting robust security protocols

Beyond monitoring, you need a strong foundation of security measures to deter misuse and protect card data.

PIN power: your first line of defence

• Mandatory PIN use: always opt for cards that require a PIN for transactions, especially for in-person purchases. A PIN adds a crucial layer of security that a signature alone cannot provide.

• Strong PIN practices: educate employees on creating strong, unique PINs. Discourage easy-to-guess combinations like birthdays, anniversaries, or sequential numbers.

• Discouraging sharing: emphasise that PINs are personal and should never be shared with anyone, not even colleagues or managers.

Spending limits and restrictions: the financial guardrails

These are your practical controls to prevent excessive spending or unauthorised purchases.

• Daily/weekly/monthly Limits: define overall spending caps for different timeframes.

• Merchant restrictions: many card providers allow you to block transactions at specific merchant categories. This can be very effective for preventing inappropriate use.

• User permissions and roles: implement granular control within your expense management system. Define different roles with varying levels of access and authorisation capabilities. 

• Regular security reviews: the security threat landscape is constantly evolving. Schedule regular reviews of your security protocols to assess new vulnerabilities, stay informed about emerging threats, and update your measures accordingly.

How can I deal with employee expense card security breaches?

Despite all your best efforts, security incidents can happen. The key is to have a clear, well-rehearsed plan for dealing with them. Think of it like a fire drill: everyone knows their role and what to do when the alarm sounds.

Immediate action: act fast

• Lost or stolen card:

• Compromised card (suspicious activity):

Post-breach procedures: learning and recovering

The incident doesn't end when the card is cancelled.

• Documentation: maintain detailed records of the incident, including timelines, actions taken, communications, and any financial losses. This is vital for audits, insurance claims, and future learning.

• Root cause analysis: once the immediate threat is contained, conduct a thorough root cause analysis. How did this happen? What vulnerabilities were exploited? This is a critical step for preventing similar incidents in the future.

• Employee support: ensure the affected employee receives practical support, and if a new card is needed, ensure it’s issued speedily. 

• Review and update protocols: use every security breach as a learning opportunity. Review your existing security routines and update them, based on the lessons learned from the incident.

• Communication: maintain transparent internal communication about the incident (while respecting privacy). If necessary, collaborate with the police or other external parties.

So, encourage a culture of security awareness, leverage smart technology, establish clear policies, and have a practical plan for when things go wrong. 

We hope that this blog has helped you to understand the common risks, and the value of prevention strategies, real-time monitoring, and knowing how to respond to breaches. With care and planning, you can safeguard your business from financial loss and ensure that your employee expense cards remain a convenience, not a liability. 

Want to read more? Take a look at our web page on Employee Cards. 

And remember that our blogs cover all aspects of expense management. 

Disclaimer: This is not legal, accounting, or tax advice - it's simply a guide. If you need help, check with your accountant or contact HMRC directly.