Like many government organizations, your employees probably use credit cards (sometimes called purchase cards or p-cards) to purchase materials and supplies or to pay expenses when travelling. Certainly, credit cards offer convenience, productivity and efficiency in these situations. However, this ease of use also creates some risk.
If you provide credit cards to employees, it’s critical that you put appropriate policies and controls in place. Over the past few years, with the increased popularity in credit cards, credit card misuse has been on the rise. In most of these occurrences, the organizations involved lacked sufficient internal accounting controls.
As you review your accounting practices, here are three things you’ll want to be sure to do to lower the risk of credit cards being misused:
- Create a credit card policy that sets forth the dos and don’ts of credit card usage. Proper internal accounting controls with credit cards begin when you issue the card to an employee. All employees with authorization to use a card should be required to sign a written policy when they receive the card. The policy should include the following critical items:
- Require employees to provide original receipts for all purchases to the department head or employee reviewing monthly credit cards
- List the types of purchases that are allowed to be charged to the credit card
- Describe the penalties or sanctions if an employee misuses their credit card
- Implement a review process. A careful review process is key to monitoring credit card use. There should be one employee dedicated to administering the credit card process. This employee should be in charge of setting up new cardholders, establishing limits, and comparing monthly statements to receipts provided by cardholders. Ideally, the person administering the credit card process would not have access to a government-issued credit card themselves. You might also consider having department heads review monthly credit card transactions of cardholders in their department to ensure purchases were allowable and necessary, approve the statement, and then forward the credit card statement and receipts to the employee assigned to administer the credit card process.
Most credit card companies now issue points for purchases made on the credit card that can be used to purchase items or receive cash back. These rewards can be lucrative for governments who use them, but again, your government should monitor the process. Have someone other than the credit card administrator monitor the points. Your policy should clearly state who can redeem points, who monitors the points, and what the points can be redeemed for.
- Limit the amount and types of purchases. These limits should include monthly, daily, and one-time purchase restrictions. Some cardholders may use their credit card more frequently than others, so you’ll need to monitor restrictions regularly and adjust accordingly. Your credit card company can set up each cardholder with a different limit depending on usage and need.
Additionally, the administrator should contact the credit card company and set up restrictions on the type of purchases. Credit card companies can restrict the card from being used at certain locations, along with prohibiting purchases for food, alcohol and other items. All cardholders should be forbidden from receiving cash advances at ATMs.
With the proper controls in place, credit cards can be a great asset to your government. Contact any member of our Government team at 800-676-0829 to learn more.
Scott Sternhagen, CPA, is a manager on Schenck’s Government team. Scott performs audits of Wisconsin municipalities and school districts. He also has experience preparing Public Service Commission Reports, State Financial Report Forms, and the Schedule of Federal and State Awards for municipalities and school districts.
Mike Konecny, CPA, is the managing shareholder for services provided to Schenck’s government and not-for-profit clients. With over 30 years of experience, he has managed auditing and consulting engagements on numerous government clients, including county, city, village, school districts, and special districts.