We have written frequently about credit card abuse. When it happens in the Government, it is often widely publicized, perhaps with the hope that publication will act as a deterrent to others who might be inclined to abuse the system. But credit card abuse is not just a Government problem. It happens with all too much frequency in private industry as well. Industry just doesn't have a Department of Justice to publicize the discoveries and resolutions. And just so everyone understands, the cost of credit card abuse - improper purchases - is not an allowable cost on Government contracts. The Government is not going to fund those losses.
The Government Accountability Office (GAO) has a program for reviewing credit card practices at various agencies. GAO focuses on the internal controls that have been established to ensure the proper use of Government issued credit cards, notably (i) clear instructions, (ii) training, and (iii) monitoring. Companies (including Government contractors) would do well to ensure that similar internal controls are in place and operating effectively in their own organizations.
Clear instructions. This would be the policy and procedure manual (or desk procedure) that assigns responsibilities and contains instructions and limitations on the use of the company credit card. The GAO's primary focus in this area is the documentation and approval process. Purchases need to be justified, the justification must be in writing and the justification must be approved by a supervisor or manager. In a recent audit of Government agencies, the GAO found that 22 percent of all purchases were not adequately documented. That failure, according to GAO increases the risk that fraud, charge card misuse and other abusive activity could occur without detection.
Training. Increased training seems to be a recommendation any time something goes wrong. We don't want to understate the importance of training but when it comes to credit card abuse, no amount of training is going to stop an employee inclined to do bad things. In fact, it might help them figure out the weaknesses in the internal control systems so that they can reduce the likelihood of being caught.
Monitoring. This, in our opinion, is the most important aspect of an effective internal control system. If there were no highway patrol officers, if the chance of getting stopped for speeding were zero, would anyone obey traffic laws? Many would not. The same goes for purchasing departments and employees entrusted with the company credit card. There must be some oversight on the use of those cards. Internal audits of credit card issuance and use should be regularly scheduled events. Someone needs to be asking the questions about whether the the right number of cards have been issued, whether the limitations are appropriate, whether documentation is adequate, and the requisite approvals are obtained.
A lot of companies have little, if any, controls over the use of company issued credit cards. Smaller companies in particular, operate on a degree of trust. But, as we have repeated many times, "trust" is not an internal control.