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Nonprofits Beware: Employee Credit Card Abuse

02/26/2020 Stephanie Allgeyer

Stop employee credit card abuse before it starts

Employee use of organization credit cards for personal expenses is a very real scenario that many organizations encounter.  Here, VonLehman’s Colleen Swanson explains how management can prevent these charges, whether they are accidental or intentional. Say an employee charges legitimate travel-related expenses to their employer’s credit card. They may or may not have intended to file an expense report but their employer never asked for it — nor did the employer question her when it received the card statement. The employee had recently fallen under unusual financial pressure, so when she was unable to pay for a personal purchase she reached for her work credit card. This trend continued until personal charges added up to several thousand dollars — at which time the nonprofit finally noticed the illicit charges.

There’s no reason your organization should experience this kind of credit card misuse or fraud. In fact, protecting it is as easy as writing and monitoring a credit card use policy.

Choose cardholders carefully

Nonprofits commonly issue cards to their executive directors, program directors and office managers. Before issuing a card to employees, consider whether their role warrants the regular use of a card.  Most employees can pay out of pocket and submit reimbursement requests or they can make a request for the organization to order an approved item. However, if employees regularly travel or entertain donors on your organization’s behalf, it may make sense to issue organizational credit cards.

Ensure that cardholders understand the rules set forth in the policy and require them to read and sign the policy upon issuance of a card. The policy should explicitly state that the card is not to be used for personal expenses. List prohibited uses such as cash advances and electronic cash transfers, as well as charges over a specified amount. State that reimbursement for returns of goods or services must be credited directly to the card account. Employees should never accept cash or refunds directly.

Managers are essential to the process

Manager involvement is essential to preventing credit card abuse. Require employees to seek preapproval on credit card purchases over a set limit and stress that unauthorized purchases (and related late fees and interest) will become the employee’s personal responsibility. All employees should be required to provide supporting documents for all purchases (such as itemized receipts) to their authorizing supervisor for review within a set period of time. This applies to all upper management including the executive director whose expense report should be reviewed and approved by a member of the board.

Managers should review all reporting employee expense reports and card usage on a monthly basis and indicate their approval of the charges by a signature and date on the receipts or on a standardized expense form. Your accounting department should reconcile monthly credit card statements, and the full statements and support should be reviewed by an executive or board member.

Hold employees accountable

Finally, be sure your credit card policy is adhered to and that you are holding everyone accountable when the policy is broken. Make it clear that violations will result in disciplinary action, including the possibility of employment termination and criminal prosecution. And if an employee violates your policy, be sure to direct them to the specific violation within the policy.

For guidance on building a comprehensive policy, or for any other nonprofit accounting and advisory services, please contact our Nonprofit Group Shareholder, Stephanie Allgeyer, at sallgeyer@vlcpa.com or 800.887.0437.

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