The Good
The use of corporate credit cards have become the way of the world. They allow employees to have alternative ways of paying for work-related expenses without the hassle of an expense check or draining their own accounts. They are convenient, necessary, and provide great reward programs. What’s not to like?
The Bad
The use of corporate credit cards becomes a major issue when they begin to circumvent normal purchasing controls. The more employees using the corporate credit card, the bigger the issues. A significant amount of the organization’s resources are expended tracking down receipts/documentation from employees on a monthly basis. In most cases, many transactions are never supported. Additionally, internal controls and/or credit card policies and procedures are often insufficient or not being followed.
The Ugly
There are several downfalls to using a company credit card. Your organization needs to make it a priority to review your credit card process and/or find effective ways to enforce compliance. Your tax-exempt status is dependent upon it. The IRS requires documentation and support for all organization expenditures. Regardless of the IRS, as a member of management, you are charged implementing a sound internal control structure to ensure the safeguarding of the organization’s assets and as a board member, you have a fiduciary duty of care.
What should you do? Here is a 3-step process to combat the ugly:
- Review existing corporate credit card policies and procedures. Ensure they include best practices such as:
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- Assigning a limit to each credit card
- Are there rewards associated with card? If so, who has access and how, when, and for what purpose may they be redeemed
- Restricting cash advances
- No personal expenditures are allowed
- Credit card charges should follow your normal procurement policy, they are no different than requesting a check. If you have authorization thresholds that need approval prior to procurement, credit card transactions should follow suit
- Documentation should include, the expense account that should be charged, date, organization’s purpose, and amount. In the case of employee meals and entertainment, you should include documentation of the employees and third parties in attendance
- Discuss with your bank or credit card vendor the various types of controls that could be added to the credit cards (ie: limiting types of merchants where purchases can be made)
- Review who has a credit card and evaluate if they are necessary. Not everyone needs a credit card and not all payments need to be made on a credit card. Evaluate the historical activity of the credit card and determine the number of cards and types of purchases that are truly necessary.
- Enforce the policy. If you have habitual offenders that do not follow the proper policies and procedures, they must have consequences. Remember, use of a corporate credit card is a privilege not an entitlement. One consequence would be to simply take the card away. Another consequence is to gross up the wages of the employee for the amount of unsupported expenditures. If they are unable to support their charges as organization expenses, then they will be taxed on it as a personal expenditure.
There are certain credit cards that provide employees with a unique log-in, allowing them to upload their receipts to the website where it’s linked to each transaction. This also allows the employee to document the organization’s purpose of the expense and expense account it should be charged. Additionally, if you are having a similar issue with expense reimbursement reporting and depending on the size of your organization, there is expense reporting software which automates the process. This software provides a workflow beginning with the employee and moving through the approval process before any check is cut for reimbursement for an expense report.
Our society is becoming more and more electronic and implementation of sound internal controls are a must and enforcement of policies and procedures is paramount. Contact us if you need assistance in developing or enforcing your corporate card policies.
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