How Fuel Fraud Affects the Fleet Industry

Properly managing fuel spend is an extremely important business practice for fleet managers, but with many fleets noting a rise in fuel fraud in recent years, doing so effectively and efficiently has become a daunting task.

Some examples of fleet fuel fraud, or other misuses of fuel funds, include drivers using their fuel card to make personal purchases, the sharing of fuel card personal identification numbers (PIN) between drivers, fuel purchases made that exceed a vehicle’s tank capacity, and more.

When added up together, these actions can take a heavy toll on the company’s bottom line and cause funding issues for its fleet department.

Misuse, slippage, and fraud are the three major terms used to define forms of fuel fraud. These three concepts act as umbrella terms for the numerous issues that occur, as there are many ways that fleet fuel fraud can be broken down and observed.

Among these three terms, several fleets have reported seeing external fuel fraud as a burgeoning issue.

External Fraud and Skimming

Approximately 65% of companies reported having experienced fraudulent attacks that were attempted by an outside entity during 2015, according to a study from the Association of Financial Professionals. Meanwhile, 50% were the targets of fraudulent email solicitations, and another 15% reported hacks that were related to organized crime.

Indeed, in addition to other forms of fuel card misuse, third-party fraud has been a concern for fleets, which many fleets are observing via data skimmers.

“What we’re finding is that we’re having about two to three instances a month where we will see where a card that is normally fueling everything in Knoxville, Tenn., is suddenly in Tampa Bay, Fla.,” said David McCauley North America fleet manager for Service Experts Heating & Air Conditioning. “And it’s always somewhere between $100 and $150 for the transaction. The only thing we can assume is it’s got to be skimming; we have the card in our possession, so it’s somebody doing it without the card, and somehow they either figured out a PIN or are using a PIN to get the transaction approved.”

Skimming, as a form of fraud, has been rampant for many fleets in recent years. A skimming device is designed to look like a credit card scanner. When a credit card is swiped, the skimming device electronically captures cardholder data.

From here, McCauley, whose fleet uses a WEX fuel card, said the skimmers will use the card and PIN info that was obtained illegally and use the information to obtain fuel in at a new location.

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Related: Fuel Card Fraud Is on the Increase 

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These instances of skimming that McCauley observed in his fleet seemed to occur more in Texas and Tennessee than any place else.

Another, anonymous, fleet manager also reported several incidents of skimming for his drivers. Cards from vehicles in three locations found fraud charges being made on the vehicle at one location, which was in Houston.

“In the latest incident, they were all diesel charges even though our vehicles use regular unleaded gas,” said the anonymous fleet manager. “They occurred at several gas stations in the Houston area. None of our drivers noticed anything suspicious about the credit card area at the pumps, but all of the charges showed they happened at the pump.”

However, the fleet manager said he wasn’t completely sure that it was a skimming issue.

“I’m not 100% convinced this is correct. I do not rule out the possibility that our card provider was hacked,” he said.

Meanwhile, Blair Schober, fleet manager for Red Hawk Fire and Security, said that his fleet has also experienced issues of skimming, and has been an issue due to the recent rise in fuel prices. His fleet also noticed that the fraud charges made were for diesel fuel

“I have seen four cards skimmed over the past six months,” said Schober. “All cards skimmed were then used for significant amounts of diesel fuel. We do not have many vehicles in fleet with over 30 gallon fuel tanks. We also have about five or six vehicles that use diesel. Seeing two back to back $250 transactions for diesel in a state we do not operate in sticks out a bit. We dispute the transactions and we usually receive a credit.”

McCauley also mentioned working with his fuel card provider to dispute the skimming charges.

“What normally happens after the first time, WEX, who monitors the account, will catch that $150 as an abnormal transaction. So they’ll cut off the card and send us an emailing saying, ‘we think there is a fraudulent transaction, please verify whether or not this is a legitimate transaction,’” said McCauley.

McCauley said after he files a report with WEX they attempt to recover the stolen funds. Because of these concerns, McCauley said he is directing his drivers to fuel up at higher profile stations, as these stations are more closely monitored than smaller-scale stations.

With that being said, McCauley said that his fleet has not had much issue with internal customers engaging in fuel fraud.

A separate anonymous fleet manager mentioned that because of his issues with skimming, he has implemented a new practice for his drivers to help identify skimming devices.

“Something new that we started doing is to have our drivers look at the devices on the pumps where they swipe their cards,” he said. “We’ve asked them to tug on the protrusion where they insert or swipe their cards. If it’s a skimmer, it is supposed to pop off. So far, no one’s found one yet, but if they do, I’ve asked them to take a photo of the skimmer for me.”

How to Spot Skimmers

Here is some advice to spot potential skimming, according to Comdata:

• Skimming devices are placed inside the fuel terminal and attached to the card swipe/pin pad to capture data.
• Data is either stored or transmitted via Bluetooth.
• Devices are typically in pumps that are further away from the cashier.
• Many terminals have a sticker seal that if broken can indicate potential fraud (note that this can be replicated by someone performing fraud so be cautious).
• Be sure to fully examine the pump area for incorrect spacing or loose components of the terminal.
• If anything seems suspicious, move to a different pump or station and potentially alert the cashier of potential skimming activity.

A Closer Look at Fuel Fraud

A study from WEX detailed how there are multiple ways that fuel fraud can take place in a fleet, and looked at two primary subcategories: internal and external fuel fraud.

Internal Fraud

Fleet cards personal use: This would be when an employee uses the company fuel card to make non-work related purchases. For example, an employee uses their cards to purchase fuel or maintenance services on a personal vehicle, makes “slippage” purchases, or allows people outside the company to make purchases with the card.

Fuel theft: This definition entails users filling up “bladder tanks” that are hidden inside of vehicles. These purchases generally are made to fill the tanks stored in pick up trucks or vans that are capable of storing significant amounts of fuel. Typically, the tanks are attached to regular gas tanks and filled during several visits to multiple gas stations, according to an analysis by WEX.

Those making the illegal purchase would use either their own company-issued cards or counterfeited cards to pay for the stolen gas, which they later resell for profit. And this could also be classified as external fraud, through a practice called skimming, if applicable.

Other internal fraud examples include misuse of company benefits, which, for example, may entail drivers using merchant loyalty programs for personal benefit, according to an analysis from WEX.

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Related: Higher Prices Reinvigorate U.S. Fleet Cost Containment Initiatives

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External Fraud

Lost/stolen “swipe and go” credit cards: Most fleet cards require a user to input a unique PIN and/or driver ID to authorize each purchase, so fleets with fuel cards may not necessarily have to worry about this issue. Many consumer credit cards are still “swipe and go,” which allows anyone to use them. And it is noteworthy to mention that in 2013, the payment card industry estimated fuel-related fraud had cost the industry $500 million, according to the most recent study available from the Wall Street Journal.

“Phishing” scams: Online fraudsters trick fleet card holders via email or text into revealing their card credentials by posing as a trusted source, such as a vendor partner or company executive, WEX said in a study.” This is also known as “business email compromise,” or BEC.

Skimming: Credit card skimming/cloning is an increasingly common form of fraud. “Skimmers,” as they are described, are electronic devices that fraudsters attach to credit card point-of-sale readers. Easily disguised and difficult to detect, skimmers scan the magnetic stripe to gain access to the cardholders credentials. Information is stored and used to create fake “cloned” card accounts.

Data breaches: This occurs when hackers break into private databases that contain confidential cardholder information and create fraudulent credit card accounts, or sell the information to other criminals. Some fleets have observed that fuel card database breaches may be the cause for their issues, rather than suspected skimming

Ways to Prevent Fuel Fraud

There are a number of simple steps that both fleet managers and their drivers can enact to reduce fuel fraud, including establishing best practices to implement into the fleet operations.

If a fuel card system has been established, the fleet manager and his or her drivers should establish safe PINs and keep the information secure. This entails having PINs assigned to individual drivers which are not allowed to be shared, LeasePlan said in an analysis of fuel fraud. The company also stated that drivers should sign a non-PIN sharing agreement, and choose numbers that cannot be easily guessed.

Indeed, having a secure fleet fuel card system across the company’s fleet can help curb any of the aforementioned concerns that managers may be having with their drivers, which includes setting charging limits as mentioned earlier.

“We do several things. First, we set up limits on our fuel purchases, on both quantity of fill ups per day and on volume/sales amounts,” said the anonymous fleet manager. “This helps limit our exposure somewhat. We have our drivers memorize their fuel PINs, not giving them out to anyone else, and keep the cards in locked vehicles.”

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Related: Top 10 Strategies to Reduce Fuel Spend

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A part of this is setting up an alert system, via the fuel card, which alerts fleets if there is improper fuel spend among their drivers. Whether that means fueling in unknown locations or too much fuel being charged for one user, and is a great way to curb concerns related to fuel fraud.

McCauley of Service Experts Heating & Air Conditioning utilizes WEX fuel cards for his fleet, which assigns a card to a vehicle and drivers have their own PIN.

“That allows you see which unit was filled up and the driver that filled it up. And they have to have both of them to do the fuel transaction,” he said. The driver’s PIN can be utilized across the company’s fleet of fuel cards.

McCauley said that his fleet has to make fueling restrictions in an effort to eliminate fueling concerns.

“It used to be that we had maximum transactions of four transactions in a day in a maximum amount of $250 a day. We’ve now lowered that to a maximum of two transactions in a day and a maximum of $125,” said McCauley. “That way the transaction gets declined at the pump once the driver hits $125.”

His fleet also implemented a maximum of $75 per transaction.

Having fleet managers conduct inventory checks on fuel cards and the establishment of a card log system will help fleets monitor the cards and reduce the likelihood of fraud, and having drivers keep a close eye on the physical location of their fuel cards, and closely monitoring transactions that have taken place to spot discrepancies will help.

Paul Bunn, Treasurer and Chief Accounting Officer for Covenant Transportation Group, Inc., observed that his fleet performs this practice as a way to reduce fuel costs.

“We’ve got a feed that gives us in-tank inventory every 15 minutes, and reports back,” said Bunn. “So if you know what’s in tank, you have a beginning and an ending, and you know what the drivers are putting in, because you’re getting the transactions from off the card, and you know how many miles they are traveling. From the GPS, you can use a simple math equation to determine miles per gallon.”

Bunn added that additional fleet solutions, such as telematics, can further help eliminate many issues related to fuel fraud.

“It’s a combination of the data from the cards, telematics readings that are sent back to the company, a math equation, and that data being reported and acted upon that effectively acts as an alert to show anything out of the ordinary,” said Bunn.

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Related: How Telematics Impacts Fleet Fuel Management

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Another anonymous fleet manager mentioned that his fleet also has an alert system setup that notifies him if there is unusual activity.

“I also set up alerts to spot unusual activity, and I review these reports daily,” he said. “The reports look at three things: Mismatches of fuel purchased versus vehicle fuel type, declines, purchases over $70, and two or more purchases in the same day. Most of the purchases are legitimate, so this is where a person needs to review them and investigate anything that looks suspicious.”

He said his fleet fuel card is also able to spot suspicious purchases and can shut down cards immediately if it notices something wrong.

Fleet managers should take special care to monitor the fuel cards, and check if they need replacement due to wear and tear, or, worse, if they have gone missing, LeasePlan also noted in its fuel fraud analysis.

For drivers, if for some reason they believe their PIN information has been compromised, or if a fuel card has been lost or stolen, the driver should report this to an appropriate party immediately.

“There was a real height in fuel fraud back in 2008 to 2010 when fuel prices were higher, so we know that it’s happening and that its going on,” said Jeremy Frederick, director of driver services for Covenant Transport Services. “But we’ve got tools in place, and controls, where this is not a major issue for us.”

Another anonymous fleet manager is currently in the processes of overhauling his fleet operations, and establishing a secure fuel program is high on his company’s priority list.

With the overhaul, the anonymous manager mentioned the significance of establishing a more thorough in-house fuel monitoring program.

“As we clean up our portfolio of fleet management resources, we’re going to bring some of this in-house,” he said. “I think a fuel management program is definitely something that needs to be managed by the parent company, it’s not something that we want to outsource, other than the fuel cards. But the fraud, the tracking of cards, the turning off and on of cards, it’s got to be pretty synchronized with our HR team, and our hiring, and severance turnover.”

The fleet manager said he is aware that fuel fraud is an issue, but it cannot be fully addressed before the finalization of the program.

“We have uncontrolled cards, significant spend over what multiple fill-ups in the same day, just where maybe cards are lost or stolen or filling-up multiple trucks with the same card,” he said. “It may not be fraud; but it’s just not good discipline.”

He said creating a fuel management program would lead to better monitoring of fuel cards and payment with the creation of the fleet management team and the establishment of tools.

Pros and Cons of a Fuel Card

One anonymous fleet manager pointed some pros and cons that can occur in a fleet fuel card system:

Pros:

• Widely accepted.
• Purchases can be limited to just gas and car washes.
• Fuel purchases are summarized with plenty of data for analysis, 
• like fuel amount, type, gas station location, time of purchase, driver name, etc.
• Rebate program (we get back a small percentage of the money we spent back).
• Allegedly secure data.

Cons:

• The loss must be more than $150 before they’ll consider covering the loss.
• Slow processing. It takes up to four months to resolve fraud activity.
• Poor investigations. They aren’t doing enough to work with the gas stations where this is occurring, and claim that the thieves set up and leave too fast for them to investigate.

Mike Antich contributed to this report.

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Related: How Fleets Reduce Fuel Spend