Implementing a Policy for Using Credit Cards

Providing employees with credit cards may seem convenient. However, sharp criticism will likely follow if the cards are misused or simply appear to have been misused. And while large nonprofits typically have strong internal controls that minimize the risks, smaller organizations may need to take steps to protect themselves from credit card abuse. This begins with establishing a formal credit card policy.

Why You Need Rules

A formal credit card policy is particularly critical for social service organizations which frequently incur charges similar to those an individual would make for his or her own
purposes – such as food, clothing or household goods. Credit card misuse could jeopardize any organization’s tax-exempt status, and having a policy with rules and requirements in place will make it easier to discern between appropriate and inappropriate charges.

How to Draft Guidelines

While each organization’s policy will vary according to its circumstances and priorities, most credit card policies should address the following issues:

Eligibility. It’s a good idea to set restrictions on which employees can use credit cards. You might, for example, limit cards to full-time employees who travel regularly for business purposes, purchase large volumes of goods and services for the organization’s use, or otherwise incur regular business expenses of a kind appropriately paid by credit card. You should also require written approval from a supervisor prior to obtaining a credit card.

Prohibited uses. Clearly identify prohibited uses for the cards, such as cash advances, bank checks, traveler’s checks and ATM withdrawals. Explicitly state that the credit cards may not be used for personal expenses. You might also prohibit use of the card for purchases of alcohol or other items inconsistent with your organization’s mission and values. Additionally, you may want to prohibit any capital purchases, which may require a more significant approval process.

Your policy should also specify that reimbursement for returns of goods or services must be credited directly to the credit card account. The employee should receive no cash or refunds directly.

Spending limits. In addition to restricting the types of purchases, your policy should set a spending limit. Or, the issuer can set a specific limit for each card depending on the user’s needs.

Unauthorized charges. Many nonprofits require all employees to seek explicit preapproval prior to incurring any credit card charge in order to comply with federal guidelines. Set limits for all card users on what can be charged without preapproval. Clearly state that unauthorized credit card purchases and charges without appropriate documentation are the responsibility of employees, including any related late fees or interest.

Documentation. Employees must provide documentation – usually the original itemized
receipt – to support all charges. For meal purchases, require employees to provide the names of everyone in attendance, along with a description of the business purpose of the meal to comply with IRS regulations.

Statement reconciliation. Require card users to reconcile their charges to the monthly credit card statement within 15 days of the statement date. Request all original receipts to be submitted to the accounting department in an organized manner, and provide users with a standardized format to expedite processing by requiring department coding and descriptions of each charge. Supervisors should indicate their review and approval of the charges by a signature and date on the receipt, or on the required form.

Enforcement. A policy without enforcement is simply a piece of paper. Your policy should state that any violations will result in disciplinary action, up to and including termination of employment, and, where appropriate, criminal prosecution.

Once you establish your credit card policy, require each employee to sign an acknowledgment stating that he or she has read and understands the policy, and the procedures governing credit card use.

Beyond the Policy

Establishing and enforcing a formal policy is only the first step your not-for-profit should take to reduce the risks associated with employee credit card use. Additional controls include having the monthly credit card statements reconciled in the accounting department and reviewed by an executive, other officer, or board member.

Sidebar: Employee Reimbursements and Accountable Plans

If your organization decides against having credit cards altogether, there will be situations where employees will need to be reimbursed for expenses they have incurred personally. Take care to ensure your arrangement qualifies as an “accountable plan” under IRS criteria, so that reimbursements paid are not considered pay to the employee. An accountable plan requires that employees:

  • Have paid or incurred expenses for a deductible business purpose,
  • Adequately account for these expenses within a reasonable time period (within 60 days after they were paid or incurred) by providing a statement of expense, an account book, or a similar record in which they entered each expense at or near the time incurred, along with evidence such as receipts of travel, mileage and other business expenses, and
  • Return any excess reimbursement or allowance within a reasonable time period (within 120 days after the expense was paid or incurred).

If the plan doesn’t satisfy all three requirements, reimbursements must then be reported as wages to the employee.

 

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