Proactively managing risk for corporate card programs for travel is a topic we routinely discuss with our customers. Controlling risk usually begins with a discussion around card limits and which merchant category codes (MCC) should be blocked. Managing MCCs is a balancing act. Block MCCs that might prevent too many compliant transactions from taking place and you run the risk of discouraging corporate card use. This impacts rebates and reduces the visibility into spending that corporate card programs provide. On the other hand, if unneeded MCCs are available for use, the risk of non-compliant purchases increases.
Further complicating the risk equation is the fact that merchants self-select MCCs. Some merchants select categories that are sometimes not as descriptive of their businesses as corporate travel departments might think or want. For example, "gentlemen's clubs" often use MCCs that fall into restaurant MCC categories and use legal names that don’t obviously indicate the kinds of business they really are. When the expense type is noted as a meal, the MCC seems reasonable. In other cases, such as Walmart or Home Depot, the MCC is broad and doesn't help much in terms of determining the compliance of a purchase transaction.
One of our recent customers just experienced the vagaries of MCCs in action. This Fortune 500 company automatically monitors all of their T&E transactions with Oversight Insights On Demand for T&E. As part of their system configuration, the company ranked the risks associated with different MCCs. One of the MCCs that was ranked as a "High" risk was MCC 7299 (Misc Personal Services – not elsewhere Classified). Categorizing this MCC as "High" risk does not prevent transactions from occurring. But it does contribute to narrowing the field of vision when it comes to identifying potentially non-compliant expense transactions.
In our customer's case, MCC 7299 was one of the indicators that triggered a call to review a transaction for $775. The same trigger indicated there were six similar transactions with the same MCC over the previous six weeks. When they looked at the purchases, they discovered that the purchase for $775 was made at a pet resort. The related purchases made over the previous six weeks were for pet food and pet transportation. Upon further review, these transactions were the tip of a $9,000 iceberg that grew over several months. The employee in question viewed pet boarding, pet food, and pet transportation (specialized transportation to and from the pet boarding) as reimbursable expenses. The employer, however, disagreed based on travel policy and the ways these expenses were classified. Upon investigation and review, the company terminated the employee and has initiated recovery actions.
These seven transactions represented 0.009% of all T&E transactions for the period in which they occurred and had previously escaped detection. On a relative basis, these transactions are the needles in a haystack of T&E transactions. Insights On Demand automatically inspects each of the T&E pieces of straw to identify the “sharp objects” in the haystack that indicate potential policy violations, misuse, or abuse. Some of the sharp objects are merely sharp pieces of straw that can be set aside. But understanding which sharp objects are needles allows our customer to remove them from the haystack and determine what actions to take next.