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Banking Viewpoints

When dollars go digital, don’t forget due diligence

Peter Kennedy

Peter Kennedy
Guest Columnist

Who carries cash anymore? A Bankrate.com survey from several years ago found that 78 percent of Americans carry less than $50 cash, with 10 percent carrying no cash at all. According to survey results posted on Creditcards.com in 2014, 78 percent of Americans made their purchases primarily with either credit or debit cards, and only 9 percent used cash primarily.

Entities of all sizes are turning to credit cards as the primary payment method. Yes, bill-paying has come a long way in the past 20 years. Some of us still remember the phrase “PRESS HARD, YOU ARE MAKING 5 COPIES” when the invoice, purchase order and receiving document had to be matched to generate a payment. Obviously, there was room for efficiency in that process. Replacing paper checks with plastic for bill-paying can be a time-saver if the controls around the payment process don’t go the way of the goldenrod copy.

Remember when constructing (or revisiting) controls around a credit card or online payment program, that it is replacing a process with controls developed over many years of experience.

So what are the essentials? A written cardholder agreement outlining controls and expectations would be a good idea. It should state that: being a cardholder is a privilege; that the card is for official use only; that the card should only be used for approved business expenses; that charges must be substantiated through documentation (invoices and receipts) on a timely basis; that unsubstantiated charges must be immediately reimbursed; and that infractions to the agreement could be grounds for discipline, from revocation of cardholder privileges up to and including dismissal for deliberate misuse or fraud.

Every organization needs a “hammer” – someone who will fearlessly enforce the credit card policy’s terms for employees/cardholders high and low. Without an extensively communicated and ruthlessly enforced process for all employees, any efficiencies gained will be squandered as the accounting department chases down the receipt-challenged problem “children.” High-ranking employees must set the standard with this process. Those in the upper ranks disregarding even minor controls such as these can have a corrosive effect on the control environment throughout an organization.

Be aware of weak points in the process. Generally, people in the business office can be counted on to follow controls with requisite diligence. But the further removed from the business office, the greater the chance that the controls considered so vital to maintaining accountability and preventing fraud will be blown off. Particularly with credit cards, once word of the failure of controls spreads, the organization is wide open for fraud.

Can a credit card system be a primary method for paying bills? Yes, but be attuned to the risks. Basic controls must be established and they must be consistently and diligently enforced or trouble may ensue.

Peter Kennedy is a director at Cover & Rossiter and the head of the Audit practice. Cover & Rossiter, founded in 1939, is one of the first and most respected CPA firms headquartered in New Castle County.

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