CASE 2: CREDIT/DEBIT CARD USED FOR PERSONAL CHARGES
Not the most exciting choice for fraud, but very effective! In this case, the organization’s ED was charging her personal expenses on the company credit card. Not to draw too much suspicion, the individual charges weren’t large and were at stores where business purchases were already being made. $30 dollars here, $40 dollars there; over time, the money added up. Since no one was checking, she got bolder until finally a charge at a department store for over $300 was discovered during an annual audit we were performing. Personal charges ended up totaling over $25,000 during a 3-year period.
Preventive Internal Controls:
1) Reimbursement for Expenses in lieu of company credit/debit cards: Require staff to use a personal card for business charges and then be reimbursed after presentation of an expense report with attached receipts. The expense report and receipts should be reviewed and signed off on by the ED for a staff member request, and a board member for an ED’s request, before a check is created. Finally, all checks written to the ED and other staff should be copied and sent to a board member with a copy of the expense report and receipts attached.
2) Detailed board member review of credit/debit card charges: Sometimes, operations require the use of a credit/debit card often – and it may not be feasible for an employee to qualify for a card with the needed credit limit. Furthermore, some boards may not like the idea of forcing staff to incur a personal liability for business expenses and wait for reimbursement before paying their bill. However the reward points that many cards carry may offset any ill will this may cause. Nevertheless, some organizations may prefer to issue credit/debit cards to employees. Just make sure at least two board members get a copy of the credit card statement (or bank statement in the case of debit cards) for review each month. I know of one organization that even includes the credit card statement as part of the board’s financial packet each month. Even though not everyone looks through every charge, just the knowledge that this is happening is enough to scare would-be perpetrators from trying anything.
3) Use P-Cards (Purchasing Cards): Used by many larger entities, these cards function like credit cards, but also come with the ability to limit total charges per month per card holder. In addition, they provide more detailed reports on charges that can be sent directly to those reviewing charges. Nonprofits can make use of the P-Card to control amounts charged and thereby discourage personal use. Just as with regular credit/debit cards, board members should be given a report to review charges.
by Gregg Bossen, CPA