Credit Cards. To Be or Not to Be?

Are you concerned about putting credit cards into the hands of employees?

We often hear questions from our clients such as…

“Is it okay to make credit cards available to employees for purchasing needs?”
“Can some employees carry credit cards all the time?”
“How would you recommend we monitor credit cards?”
“Do we have to use credit cards at all?”

I often respond by saying…

Handing over a credit card is like tossing your keys to a teenage driver. There’s a lot of trust involved… and there can be that uneasy feeling deep down inside.

You are taking a leap of faith that the receiver of this vehicle of freedom is going to act responsibly. Everything does turn out fine most of the time, but occasionally there is that moving violation that could get everyone in trouble.

So what’s the solution?

You may have heard the phrase …

“Trust, but Verify”

Ronald Reagan made the phrase, “Trust, but Verify”, famous when he was making deals with the Soviets. Much to the chagrin of Mikhail Gorbachev, our President used this phrase at more than one nuclear treaty meeting. That’s because so much is said with these three words!

This describes the approach you must take with credit cards. You should trust that the user of the credit card will only make allowable and planned purchases on the card, but you must then verify that this is what has occurred.

Credit cards are naturally risky, and therefore they must be monitored closely.

Properly supervised, credit cards can add a great deal of convenience for certain types of purchases. But here is what we recommend you do to verify that they are being used appropriately:

  • Review all credit card statements monthly to check for the allowability of each charge.
  • Require that a receipt be turned in by the user for every charge made. These receipts should have brief notations as to the business purpose of the charge, especially for meals or general merchandise. The receipts should be attached to and filed with the statement each month.
  • Place low credit limits on the cards. The credit card limit only needs to be high enough to cover one month’s estimated activity.Keep most credit cards in the business office and require that they be checked out when needed. Probably only the top dog should be packing all the time.
  • Make purchasing on credit cards the exception rather than the rule. With proper planning, most expenditures can be paid through the regular bill paying process.
  • If your organization has a policy requiring purchase orders, ensure that this policy is still followed even when a credit card is used.

In God we trust, all others we audit.

Sometimes Finance Directors or Business Managers are shy about questioning the credit card charges or asking for receipts from the Superintendent or City Manager (aka “the Boss”). If you are in the position to have to do this, just break the ice by using another commonly known phrase, “In God we Trust, all Others we Audit”. Although some bosses think they are God, most will understand you are just doing your job. And monitoring the boss is very important, because this is where many of the moving violations will occur, whether intentional or not.

Credit Cards. To Be or Not To Be?

With proper monitoring we say go ahead and opt with To Be.

Of course, the highest internal control over credit cards is to not use them. This is one way to guarantee that you will never have to explain an inappropriate charge to an auditor. However, we believe credit cards are worth having as a purchasing option if the risks associated with them are appropriately managed.

If you use credit cards in your organization, we recommend applying the monitoring discussed above. If you do so, the credit card users will observe the formality with which the cards are managed, and act with care. Without the proper monitoring though, things can quickly run amok, and get you in trouble.

How well are you monitoring your organization’s credit cards?