Lack of oversight may lead to misuse of company credit

While solutions to personal credit card woes abound in financial magazines, a subject the mainstream media rarely covers is the problem many businesses have when company-issued credit cards are misused by managers and employees. Unfortunately, many companies don’t realize there’s a problem until the damage is done.

Rationalized misuse

Company-issued credit card abuse often starts small, but the problem can mushroom if unchecked. If an employee gets away with misuse once, it may become easier to rationalize paying for a daily Starbucks stop or dinners out with corporate plastic.

The misuse or abuse of a company-issued credit card can occur among employees at any level, but certain spending habits and patterns have emerged.

Members of upper management sometimes view corporate plastic as a perk of their high-ranking positions. Few purchases may be considered off-limits by this group, because it often has access to cards with no limit on what may be purchased. Though members of this group generally don’t try to hide their charges, it’s not uncommon to find managers who charge thousands of dollars in personal or sometimes questionable items to their corporate credit cards.

The second group – employees at other levels – tends not to abuse its corporate plastic on a regular basis. For example, while using a company credit card to purchase snacks for the office, members of this group might also toss a few grocery items into the cart that are intended for personal use, or they may occasionally buy dinner for their families and document it as a business expense.

This kind of misuse can make it difficult for companies to differentiate between personal and business purchases when the monthly statement arrives. If you confront nonmanagement employees, they may claim the charges were an accident, offer to pay the company back or attempt to explain how the charge had a strictly business purpose.

It’s also not uncommon for employees to buy things with a company credit card that they want for the office but don’t really need – the latest laptop computer or extravagant decorations for the office are common examples. This is especially true if employees have reason to believe the boss rarely looks at the company’s credit card statements.

Asking for trouble

The most common factor in company-issued credit card abuse is a simple lack of oversight: Charges are not reviewed or questioned. The credit card statement becomes just another monthly bill that no one has time to look at in detail. After all, who wants to match charges on credit card statements to receipts stuffed in envelopes?

The negative effect on an organization when managers abuse company credit cards cannot be understated. The problem is not the spending itself, rather the indifference toward ethics and integrity that often creeps into the minds of otherwise honest employees. For example, accountants and bookkeepers generally know when their boss is abusing the company credit card. Though many hesitate to do anything when they see their boss charging personal items to the company credit card, they will often tell their co-workers about such misdeeds. As word spreads through the office grapevine, it affects company culture and can create an environment ripe for other types of fraud and abuse. The general attitude can quickly disintegrate into, “If the boss can do it, so can I.”

Work without credit

Many business owners think their companies need credit cards, but businesses of all sizes get along just fine without them. Many companies use a simple reimbursement system instead of credit cards. Employees turn in expense reports and receipts to request reimbursements. Employee reimbursements can be processed weekly or even with payroll, and companies can issue expense advances to employees for larger purchases or extended business trips.

The key thing to remember is that employees almost always think twice when spending their own money. When they know there’s a chance they may be turned down for reimbursement, they’re much less likely to make improper purchases.

If you decide to eliminate credit cards in your company, you might be surprised how your employees’ wasteful spending habits follow suit.

Company Plastic Guidelines

With proper handling, a company-issued credit card can be a useful tool, but business owners or managers who issue them should follow basic guidelines:

• Limit the number of cards issued. The more cards you have, the less likely you are to take time to verify purchases on your monthly statement.

• Have a written policy that clearly describes your terms for company credit card use and have employees agree to it in writing. Make sure the policy is enforced.

• Review monthly charges. This can be done either by the business owner or a trusted employee who is not afraid to question or report abusive charges.

• Require itemized receipts describing what was purchased.

• Set lower credit limits for each card.

Jeffrey R. Roberts is a senior managing consultant and member of the forensic and dispute consulting division of BKD LLP in Springfield. He may be reached at jroberts@bkd.com.