The split transaction is one of the most common recurring instances of non-compliance that finance, auditing, and procurement professionals run into. A split transaction itself is relatively easy to define: it’s essentially when a transaction is “split up” into 2+ transactions with the intent of getting around a corporate credit card transaction authorization limit. There are several different split transaction types that fall under this definition.
Now, of course those limits are put in place for a reason. They are based on spending habits and budgeting that each department, and therefore, each person, receives. There may be a legitimate reason for going over the transaction limit, but in that case, cardholders should simply request a limit increase, or the purchase should be made by somebody with a higher spending limit. Trying to get around the limit by splitting the transaction is underhanded, and when people do this, they are likely being furtive for a reason. It can signal fraud, or even a bad actor gaining access to the account and trying to rack up as much spending as they can without hitting the transaction limit and being noticed.
The “same day, same vendor” split
This is the most common split transaction type, and the easiest to catch. This happens when a cardholder, on the same day, makes a similar purchase to the same vendor more than once, and the total exceeds their transaction limit. With the proper controls in place, this should set of
f several red flags as a likely split transaction scenario.
It’s important to remember that when this happens, it’s not always at the sole intention of the cardholder. Any party in the transaction — the cardholder, the cardholder’s supervisor or department manager, the vendor, or all of the above — could be responsible for splitting a single transaction into multiple expenses. That being said, the responsibility for the charges on the card ultimately lies with the cardholder. It could also be a simple case of misuse on their part: “I didn’t know that was against policy.” But it’s against policy nonetheless, and it’s the job of internal controls within the department to catch it before it becomes a larger issue.
When a cardholder engages in a “same day, same vendor” split transaction, they are not really attempting to cover their tracks whatsoever, which gives credence to the idea that it’s an instance of misuse, rather than outright fraud. However, that’s not always the case, which we’ll see as we discuss other types of split transactions.
Split transactions involving multiple days and vendors
This split transaction type is a bit trickier. This involves going to multiple vendors for the same, or similar, types of purchase, all within the same day while the total of these smaller purchases exceeds the transaction limit, a particular goods limit, or a balance limit on the card. A cardholder who knows that they are likely to be flagged by splitting the transaction at the same vendor may try this approach instead — but strong internal controls will incorporate Level III data to see what is actually being purchased at these different vendors, and thus identifying the split transaction.
A cardholder may also try and spread these transactions out through the same (or even multiple) vendors over multiple days. Strong internal controls will catch this just as well, as the Level III data will reveal similar products or services in an amount that exceeds a transaction limit being purchased over a period of time.
Split transactions involving multiple cardholders
Split transactions can even be coordinated among multiple cardholders. It most commonly occurs with cardholders under the same supervision purchasing the same, or similar, items within the same day or a specified time period. Strong internal controls will notice this too, and it’s all thanks to that Level III data. Visibility into department spend can help identify this too.
If you’d like to read more about split transactions and other similar policy violations, the U.S. Army Federal Acquisition Regulation Supplement (AFARS) has their policy publicly available here, and they do a good job of defining different types of split transactions, as well as instances that are not considered split transactions. Your organization’s policy is likely similar.
Strengthening internal controls
Organizations have a lot of spend data to go through, and things can get missed. Shoring up your internal controls are a great way to ensure that you catch split transactions and other policy violations before they become a larger problem. Card Integrity can help: we have the controls and the professional know-how to monitor your spend and protect your organization from wasteful spending.
Download our free Policy Primer, which includes findings, best practices, and a checklist of policy practices and do’s and don’ts that keep your policies fresh and relevant.
