Monday, August 20, 2018

How To Improve Internal Controls over Credit Card Usage

Many companies struggle with balancing the benefits of issuing charge cards (i.e. credit cards or p-cards) to employees with the risks that those cards will be used to make purchases for goods and services that contractors disapprove of. There have been many noteworthy embezzlement schemes over the years (see "Embezzlement Through Corporate Credit Card Purchases", for one example. The Government certainly has the same concerns. The Government employs rigorous oversight to a degree that most companies cannot afford. The Government has no profit motive so there's that. And the Government has a ton of oversight. For example, the Government Accountability Office (GAO) frequently reviews Agency's charge card practices. But a major concern not really faced by contractors is that nefarious purchases by Government employees using Government charge cards tend to become public, creating quite an embarrassment.

 The Department of Defense's instructions pertaining to charge cards runs 160 pages (see Department of Defense Government Charge Card Guidebook for Establishing and Managing Purchase, Travel, and Fuel Card Programs). We wouldn't recommend that companies (contractors) emulate something that big - no one would bother reading it anyway. But such a document is useful as a guide to what's important as far as internal controls and oversight. In fact, companies should be guided by the five components of effective internal controls - environment, risk assessment, control activities, information and communication, and monitoring - when devising a credit card program.

One of the key components of effective controls over credit card usage is to put some limits on how much can be charged (dollars per month and single purchase limits). Another key component would be to clearly define what are proper charges. Often this is expressed in the way of prohibited uses of credit cards. DoD has such a list which is probably not a bad list to emulate, if you're thinking of drafting credit card policies. Some of these makes us wonder why anyone would think such a charge would be ever be appropriate (dating services). Here is DoD's list from the January 2018 guide.

  • Appliances acquired for personal use in a work environment
  • Bail and bond payments
  • Betting, casino gaming chips and off-track betting
  • Cash advances
  • Construction services over $2,000
  • Contractor purchases
  • Court costs, alimony, and child support
  • Dating and escort services
  • Equal Employment Opportunity (EEO) settlements
  • Fines
  • Food and meals
  • Foreign currency
  • Gift certificates and gift cards
  • Long-term lease of land and buildings
  • Salaries and wages
  • Savings bonds
  • Service acquisitions greater than $2,500
  • Split purchases
  • Telecommunication systems
  • Travel advances, claims, or expenses
  • Vehicle-related expenses
  • Weapons, ammunition, and explosives
  • Wire transfers

Recently, two more prohibitions were added:

  • Video surveillance cameras
  • Commercial unmanned aerial systems
Contractors that do not have strong internal controls over employee credit card usage are at risk for unauthorized and inappropriate purchases. There is a good chance that such purchases will not be reimbursed by the Government.

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