Company credit cards come with convenience, risk

The audit said that some spending limits on the city’s 450 issued cards were inappropriate, and that some spending lacked adequate documentation.

Although the city audit didn’t suggest any illegal activity on the part of city employees, local accounting experts agree that when employees use company credit cards, adequate oversight is a must.

Convenience

The most common use of company cards is travel expenses, including hotel rooms, airfare, meals and gasoline purchases, according to Greg Kollmeyer, a certified public accountant and certified fraud examiner with Elliott Robinson & Co. LLP.

“I think (purchasing cards) can be very helpful when you have key employees that need access, to take people to lunch or buy supplies, without having to go through a reimbursement system,” Kollmeyer said.

Jeff Hunter, president of The Payroll Co., said that in addition to travel expenses, some of his salespeople also use credit cards to make marketing-related purchases. However, in those cases, employees are required to get company approval before making purchases worth more than $50.

W. David Myers, partner at Whitlock, Selim & Keehn LLP, said small businesses also can benefit from using credit cards as opposed to the traditional purchase order system.

“Most small businesses don’t make the same kind of purchases over and over where a purchase order system would be put in place,” Myers said.

Myers added that larger companies, especially manufacturers, are more likely to use purchase orders because of the large quantities of materials needed, the fairly predictable nature of large purchases and the purchase order’s ability to help track inventory.

The Payroll Co.’s Hunter said that his system is much easier than the traditional method of reimbursing employees after the fact.

“You don’t have to worry about writing multiple checks for reimbursement – you just write one check to the credit card each month,” he said, adding that the card also allows him to download the month’s charges directly into his company’s accounting software, which sorts each charge into its proper category and saves valuable administrative time.

Who gets a card?

The key to successful company credit card usage is proper control and monitoring.

Andy Marmouget, partner with Davis, Lynn & Moots PC, suggests that small businesses might be better off keeping company cards in a central location and having employee sign them in and out as needed – provided that the process doesn’t hurt efficiency.

“If purchases are infrequent, the employee should go to whoever is in charge of those cards and check out a card to use,” Marmouget said. “It should be noted who signed out the card, what time, and when it was checked back in. That way, if an improper purchase was made, it’s known who had the card.”

Frequent card users can get cards in their own names, but Myers said it’s important to keep track of how much each person spends on business purchases and set their card limits accordingly.

“The person who purchases your computers may need a $10,000 limit, but the person who just travels on business periodically may only need a $1,000 limit,” Myers said. “When I’m advising a client, I’m not as concerned with there being too many cards out there as I am with the limits being appropriate for the person.”

Kollmeyer also recommended setting a purchase limit above which employees have to get prior approval from their superiors.

Springfield officials, in a formal response to the audit, noted that the city’s purchasing cards are specifically designed for purchases under $5,000, and 80 percent of purchases fall into that category.

“All purchasing cardholders are required to attend training before their card is issued. Supervisors review transactions weekly,” the city said.

Mary Mannix Decker, the city’s finance director, said the city is considering adjusting the credit limits of individual cardholders.

“We will be going back and putting something in place to look at that perhaps annually,” she said. “Otherwise, we feel it’s a very efficient program and a good way to facilitate payments for the city’s bills.”

Tracking the spending

Regardless of who has a card and whether they keep it all the time, companies need to closely monitor card usage.

That begins, Kollmeyer said, with documentation.

“Keep receipts for everything you bought – don’t just rely on the credit card statements,” he said. “We recommend companies write down on every receipt the purpose of the purchase. If the employee doesn’t have a receipt, deduct (the purchase) from their paycheck – give them incentive to keep that documentation.”

Marmouget said someone on staff should be in charge of reconciling those receipts with the credit card statements to make sure the numbers match.

Kollmeyer also recommends prohibiting cash advances and said that someone within the company should download updated lists of purchases, a feature available with most cards.

The chief financial officer, Myers said, also should be aware of what each employee would typically spend on business purchases, in order to be on the lookout for unusual expenses.

And what should companies do if an employee is found to be abusing their card privileges? Kollmeyer offers a simple solution.

“If someone continually doesn’t follow the rules, you cut them off and they have to come to the boss for everything,” he said. “I know it would be a deterrent for me.”