When it comes to company credit cards, abuses are legendary. Last year, a Georgia Tech employee was sentenced to 32 months in prison for racking up $316,000 in personal purchases -- including a WaveRunner personal watercraft, a $1,900 frozen-drink system, power tools and plenty of electronics -- between 2002 and 2007 on her employer's credit card.

Putting personal expenses on the boss's tab is pretty widespread (though not typically as egregious as to include watercraft and such). Last summer, 34 employees of the U.S. Department of Education came under investigation for $18,256 in inappropriate charges made in fiscal 2006, including payments to clothing retailers and restaurants near their homes or office. And a March 2008 study from the GAO estimated that 41% of purchase card transactions made by federal employees were improper. Most of the red flags were due to improper paperwork or lack of authorization.

What's a boss to do?
If you run a business where your employees have access to company credit or charge cards, your best defense against abuse is to clearly communicate your policy and to diligently keep track of all spending. Here are five ways to keep your employees honest. (If you're an employee, heed the "5 Rules for Using the Company Credit Card" that we spell out in a separate article.):

  1. Vow to review the bills -- and let your staff know it: Scouring receipts and comparing them with credit card bills is a drag -- not only to the person whose job it is to do it, but also on a business's bottom line. Weigh the costs of accounting labor against the price of dishonesty. If you haven't had problems in the past, then you may be able to get by with just one person signing off on expenses. However, recognize that some items may simply be overlooked.
  2. Set deadlines: Require all employees who use the company card to turn in their receipts by a specific date. Too often latecomers are given less scrutiny than those who turn in their expense reports early.
  3. Put the rules on paper: Include company guidelines in the employee handbook. And make sure the rules are detailed (e.g. meals and beverages are allowable, but alcohol is not). The Department of Education auditors noted that nearly 30 employees withdrew more than $17,000 over the limits set by the department to cover travel allowances for meals and incidentals.
  4. Give abusers a heads-up: The company credit card rules should also include what happens to abusers. Depending on the seriousness of the slipup, this can be anything from a wrist-slap to termination.
  5. Apply electronic safeguards: Many corporate cards have single-purchase limits, for example, allowing less than $1,000 in purchases made online. Cards also have filters -- merchant codes that prevent charges at certain retail establishments such as salons, drugstores, or clothing stores. When an employee tries to put a pedicure or Prozac on company plastic, the card will automatically be declined.

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Dayana Yochim has never abused anyone's credit card but her own. Though she admits to cutting in line on Office Cake Day to get a second slice of cheesecake. The Fool has a disclosure policy.