Business credit cards are becoming common practice in today’s business world. From travel expenses to the purchase of supplies, credit cards handle all sorts of transactions that help your business properly function. But, with the use of business credit cards comes the possibility of fraud and abuse by employees and executives. Often the cause of these issues is deficient internal controls and lax supervision.
One way to combat the issue is the use of their personal credit cards and requiring them to adequately substantiate the expenditure to the company that would, in turn, reimburse the employee. This requires physical receipts and prevents the employee from practicing poor documentation. A credit card statement alone will not pass adequate documentation requirements for the IRS, and possibly your state as well (i.e., Use Tax) and this would motivate employees to subject themselves to proper documentation.
Also, start with a written credit card policy to serve as the foundation of a good credit (or debit) card expense control system. Establish guidelines and rules for what constitutes as an allowable charge and how to document the charge. Cardholders should read, review, agree and sign off on the policy before they start paying for expenses.
This guideline should:
- Identify who qualifies and has the need for a business credit card
- Set limits (monthly and overall) on the credit card
- Performs credit checks on all who are to be issued a credit card
- Require receipt substation and business purposes to be documented
- A supervisor, a trusted employee, or external auditor should review receipts and business purposes. No employee should be allowed to sign off on their own transactions.
- For those employees who habitually fail to provide adequate substantiation, their credit card should be taken away and they should be required to manually submit expense reports with the required documentation
Don’t let your business fall into a bad pattern of simply paying employee’s credit card bill each time it comes due without revision. Have questions about business credit card fraud detection in Springfield Missouri? Have the need for forensic accounting in Springfield Missouri? Shultz, Wood & Rapp can help.
