Protecting your Business from Credit Card Abuse

This article was printed in the Sunday, February 16, 2014 edition of the Knoxville News Sentinel.

An employee has a company-issued credit card. It’s a plus, a perk, a privilege. However, as the saying goes, as with a sword, a company-issued credit card has two edges – and one can inflict deep wounds on the user.

One edge is that it can be a helpful tool for a business person, easing travel and transactions. It’s also a sign of trust. The other edge can cut a person off from honor, respect – even their job. The three great incentives to misuse are rationalization, uncertainty (which can lead to rationalization) and dishonesty.

  • Rationalization is when employees inherently know it’s probably not right, but justifies it because they’re like the little engine that could: they think they can.
  • Uncertainty:  the employee wonders if it’s a proper expense: so the purchase is made, proper or not. Do it once – and not be called on it – and it’s likely to happen again.
  • Dishonesty: this needs no explanation.

Government or private sector, each has potential for abuse. Large entities may be more susceptible because employees and managers may expect that their activities won’t be noticed because of the sheer size of the organization.

From the Associated Press, June 25, 2013:

“Poor oversight by the Internal Revenue Service allowed workers to use agency credit cards to buy wine for an expensive luncheon, dorky swag for managers’ meetings and, for one employee, romance novels and diet pills, an agency watchdog said Tuesday. “Two IRS credit cards were used to buy online pornography, though the employees said the cards were stolen. One of the workers reported five agency credit cards lost or stolen.”

A story from 2010 on Wilmington, N.C.’s WWAY-TV’s website detailed a typical example of credit card misuse. It said the head of a non-profit organization, which received thousands of dollars from local government, had used his organization’s credit card

“to buy groceries at Wal-Mart, then cigars from a tobacco shop, plus more charges. 2 months later he reimbursed the non-profit.”

We’ve identified the problem. Here are several suggested solutions.

  1. Eliminate rationalization and uncertainty: issue strict company guidelines as to what are, and what are not, permissible expenses. If there’s any doubt in the employee’s mind, he or she should use their personal card, save the receipt, and ask for clarification when turning in the expense report.
  2. The business owner, or senior managers, should personally review credit card bills (though a businesses’ size may make this impractical).
  3. You might only issue credit cards when they’re needed, and only for a specific purpose.
  4. Each card issued to an employee should have a different account number; to the extent possible the company card should not look like the employee’s personal credit card so as to avoid “confusion.”
  5. Pre-approve purchases over a certain dollar amount.
  6. Original receipts, not copies, must be provided or there’s no reimbursement; it’s a way to safeguard against personal charges being added to the company bill.
  7. Always – always – treat all employees to whom you issue a credit card equally regardless of if you like one employee more than another.

This is, of course, not an exhaustive list. Talk to your accountants or attorneys about the controls you need to control your corporate credit cards. It’ll help you avoid rationalization, uncertainty and dishonesty.

Tagged Accounting, Credit Cards, Fraud, #JimmyTalk, Prevention