Basic Business Credit Card Internal Controls
By Gary Lasker
It is a common practice for business organizations to issue credit cards to employees in order to facilitate the purchase of goods and to document travel and entertainment expenses. Along with all other business transactions, there should be a thorough accounting and proper tracking of all credit card reimbursements and payments. This requires an adequate internal control system to facilitate payments that are properly authorized, valid, and for appropriate business expenses.
There are certain basic controls a company can implement that facilitate a better accounting of employee credit card expenses. A written credit card policy serves as the foundation of a good credit (or debit) card expense control system. This policy document should establish guidelines regarding the reimbursement of expenses for auto and air travel, hotel, meal, entertainment, and the procurement of goods. All cardholders should review these policies, sign off on them, and agree to abide by its rules.
Most credit card abuse results from charging personal items to the business. There are some primary internal controls that will help ensure that credit card payments and reimbursements are made for legitimate business purposes. The following list of controls, in addition to a written policy, will help reduce the probability of fraud in this area.
– Determine the criteria for who is eligible and needs a corporate credit card.
– Set monthly and overall credit limits for all employees who are issued credit cards.
– Control the issuance and revocation of the cards.
– Perform initial and annual credit checks on all employees who are issued a credit card.
– All purchases should be individually itemized and substantiated. Therefore, require that only original receipts can be submitted for each item listed for reimbursement.
– The business purpose of each purchase should be described.
– A supervisor or an employee with first-hand knowledge of the various undertakings of the organization should review all credit card statements and the supporting receipts to determine if the expense is bona fide and related to the organization’s business. No employee should be able to approve his or her own purchases.
– Prohibit the obtainment of cash advances from the use of these cards.
– Expense reports and credit card receipts should be submitted for processing on a timely basis to allow for proper review and reconciliation of expense items.
– Limit the number of credit card users in order to keep usage to a minimum.
– Prohibit the personal use of business issued credit cards.
– Compare expense amounts to prior periods and to budgeted amounts.
These types of expenses are now being put under a magnifying glass especially in the government sector. The sheer number of procurement card transactions makes it an area conducive to fraud. Additional oversight and controls in this area will result in a better accounting of these expenses.