November 12, 2024 •HoganTaylor
Imagine one of your nonprofit’s employees makes substantial personal purchases on a credit card intended strictly for work-related expenses. At first glance, the course of action might seem obvious: terminate the employee, consider legal action, and recover the misused funds. However, in reality, addressing credit card abuse in a nonprofit setting can be complex. Achieving a criminal conviction is often challenging, and you may wish to avoid the negative publicity that comes with legal proceedings. Additionally, credit card companies rarely cover unauthorized charges unless you can prove the card was stolen, and insurance policies vary widely in coverage.
The best strategy is to prevent this situation altogether by establishing and enforcing a comprehensive, well-communicated credit card policy.
Determine Who Truly Needs a Credit Card
Your policy should start by clearly defining who is authorized to hold or use a work-issued credit card. Nonprofits typically issue cards to high-level employees, such as executive directors, program managers, and office managers. However, before issuing a card to an employee—or even temporarily allowing them access to one—carefully assess whether that individual genuinely needs it.
In most cases, employees can make purchases with personal funds and then submit reimbursement requests. Work-issued credit cards may be justified for staff who regularly travel, attend donor events, or make frequent purchases for operational needs.
Establish Clear Rules for Card Use
Clearly communicating acceptable and prohibited uses of the organization’s credit cards is essential. State explicitly in writing that cardholders cannot use the card for personal expenses. Additionally, list other prohibited uses, such as cash advances, electronic transfers, and any transactions exceeding a certain amount without prior approval.
Require that refunds for any returned goods or services be credited directly to the card account, and prohibit employees from accepting cash refunds directly. These rules can prevent misunderstandings and set firm boundaries on the card’s intended use.
Outline Supervisor and Employee Responsibilities
Engagement from managers and supervisors is key in preventing misuse. Require employees to seek pre-approval for any credit card charges, providing documentation like itemized receipts for supervisor review. Also, make it clear that any unauthorized purchases, including related fees and interest, will be the employee's responsibility.
Supervisors should review and indicate their approval by signing and dating receipts or a standardized expense form. For added oversight, ensure that your accounting department reconciles monthly credit card statements, with an executive or board member reviewing the final statements.
Communicate Consequences and Offer Support
To deter misuse, your policy should make the consequences of abuse transparent, including potential termination and criminal prosecution. All employees should be aware of the repercussions for misuse and feel encouraged to ask for help if they’re experiencing financial hardship.
Avoid Immediate Wage Deductions for Unauthorized Charges
If you discover an unauthorized charge, your first impulse may be to deduct the amount from the employee’s paycheck. However, federal and state wage laws generally prohibit such deductions. Instead, ask the employee to repay the amount directly or set up a repayment plan if needed. Be sure to consult with legal and financial advisors on these actions to stay compliant with employment laws.
The Value of Prevention
Proactively enforcing a well-defined credit card policy can significantly reduce the risk of misuse, protecting your nonprofit from financial loss and reputational damage. By clearly communicating rules and expectations, engaging supervisors in monitoring, and fostering a supportive environment, your organization can help ensure that work-issued credit cards serve their intended purpose effectively and securely.
How HoganTaylor Can Help
The HoganTaylor Nonprofit team of business advisors and CPAs is comprised of former CFOs, controllers, and industry experts with extensive experience providing the guidance organizations need to lean forward again in their leadership. If you have any questions about this content, or if you would like more information about HoganTaylor’s Nonprofit practice, please contact Jack Murray, CPA, Nonprofit Practice Lead.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
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