Company-Issued Credit Cards Present Conundrum

Banks long ago learned to target entrepreneurs and small business owners with business-specific credit card offers.

Generally, banks will offer premium rewards and incentives (in the form of points, cash back, attractive interest rates, extra-high limits) to earn a business owner’s account.

Several area CPAs said credit cards are a great tool for their clients as a way to build business credit, track purchasing and sometimes save money by earning travel miles. But credit cards are also the most common conduit to fraud and petty employee theft, they warned.

One CPA, who requested anonymity, said he reviewed an account that had a $600 meal charged to it – the employee apparently charged the feast as a parting shot.

Keith Ekenseair, CPA and Northwest Arkansas manager of Moore Stephens Frost, said his firm generally sees credit card abuse on alcoholic drinks while employees are “entertaining.”

What productive credit card usage boils down to, the CPAs said, is control and monitoring of employee spending.

Many small businesses owners allow certain employees to make purchases and oftentimes they simply issue those employees company cards.

In recent years, this practice has streamlined the purchase order process and allowed businesses to react quicker to their day-to-day needs, said Drew Speed, partner and director of accounting and auditing with BKD LLP of Little Rock.

“Back in the old days you’d have this cumbersome, time-consuming process,” he said. “The important thing is, you’ve got to design controls … if you have the proper controls put in on the back end, it can be an efficient way to do business.”

Speed said clearly established rules about limits and what are appropriate purchases are the most effective controls, along with follow up.

“At the end of the day, you’ve still got to sort through the charges – you’ve got to analyze and control the purchases,” he said.

Ekenseair echoed that sentiment and noted that smaller companies frequently are at a greater risk than larger ones because fewer controls are in place.

CPAs said a great way for business owners to earn more miles or perks from the credit issuer is to pay all their bills with the card, but they stressed how important it is to pay the balance each month.

“If you don’t pay it off every month then you are basically financing it, just as you would through the bank,” Speed said, and probably at a higher rate.

Identifying Theft

An article by Steven Warren and Jeffrey Roberts, partners with BKD, identified two groups who cause most of the credit card theft: upper management and employees who sneak in small charges occasionally.

Warren and Roberts warn that what may start small often mushrooms into a big problem. 

“If an employee gets away with misuse once, it may become easier to rationalize using corporate plastic to pay for a daily Starbucks stop or dinners out,” the article reads. “Maybe that thin piece of plastic has the power to distance people from what they are actually doing:  stealing from the company that signs their paychecks.”

The duo recommends several controls for business owners:

• Limit the number of cards you issue. 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 before they receive a card. Make sure you enforce the policy.
• Review charges each month. This is a task for the business owner, or it can be delegated to 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.

Ekenseair said if fraud is suspected, the IRS requires supporting documents – which includes the original credit card slip and not just the statement – to be retained for seven years.

Many firms, including Moore Stephens Frost, have moved away from company-issued credit cards, Ekenseair said, preferring to reimburse employees for purchases made.