Credit cards and debit cards are extremely convenient. I rarely carry cash, or even my checkbook anymore. It is so easy to pull out one of the cards in my wallet. This is true for many of us, and has been for many years now. We’ve seen it change the way churches operate; from seeking ways to receive donations via credit cards to issuing credit cards to staff and volunteers making purchases on behalf of the church. With so many of our churches operating with part-time staff and limited availability of check signers, it is nearly impossible to operate without some other form of payment like a credit card or debit card.
Yet, there are many challenges to using credit cards and debit cards on behalf of the church and the right policies and procedures need to be in place. Credit Cards are among the top five ways individuals embezzle funds from an employer or organization. Often, the theft goes undetected for long periods of time because good controls are not in place. Other challenges arise when these cards are not handled properly. Let’s consider some of the challenges and how they can be met.
- Embezzlement: Credit Cards rank among the top five ways individuals embezzle funds. This is for any organization. CFO magazine reports corporate credit cards among the top five common fraud risks. Employees (and for some churches, volunteers) have credit cards to make purchases on behalf of the church. Yet, without proper controls in place, it is easy for one of these card holders make personal charges to the card (intentional or unintentional).
- Record-keeping: Credit card statements are not sufficient according to IRS requirements. Receipts are necessary. If the cardholder does not provide the receipt for the transaction, it really should be treated as taxable income to the individual. Without the receipt, your organization doesn’t meet the requirements for a reimbursable plan. Also, did you know, receipts must be submitted within 60 days of the transaction?
- Unapproved Expenses: Most smaller churches do not have a purchase order system in place, but they should have an approval process in place. Credit card purchases leave the church liable for expenses and could dramatically effect the budget and cash flow of the church if the cardholder decides to make a large unauthorized purchase.
- Fraudulent Charges: We all know someone who has had fraudulent charges made to their credit card. We work hard to protect our personal credit cards from being lost or stolen. We see a rise in credit card skimming. If careful attention is not given to credit card activity, it would be easy for fraudulent charges to go unnoticed on a church credit card. If you are issuing debit cards tied to your church bank account, you could find yourself in for real challenges if fraudulent activity takes place. Your account is affected the moment the fraudulent transaction takes place and it can take some time to get your funds returned.
- Whose card is it anyway? It is difficult to get corporate credit cards. Not all banks issue corporate cards and for many of our churches, we’ve moved our money out of those institutions. American Express requires a Dun & Bradstreet number. Don’t know what a Dun & Bradstreet number is? It is a business credit rating and few churches have taken the effort to get one. So if that credit card with your church’s name on it isn’t a corporate card, whose card is it? Well, it is likely that you opened a “small business credit card” (intended for small business owners) and whoever opened the account and provided personal information is the true account holder and the one liable for charges made to the card. I’ve seen this to be the former minister, a former treasurer, someone who no longer attends the church, the current pastor, etc. Any late payments or fraudulent activity places that individual at risk.
If your church is utilizing credit or debit cards for purchasing, you need to ensure you have policies and procedures in place that ensure:
- All charges are on behalf of the church.
- All charges are approved and within budget.
- receipts are turned in for every expense.
- Card activity is inspected for fraud.
- Strict limits are placed on credit cards.
- Debit cards are not provided for the general fund.
- Cards are distributed to the fewest possible people.
- The liability for card use is limited, but also belongs to the church, not individuals.
- Payment is timely.
In addition to good policies and procedures, I always recommend consideration of pre-paid debit cards to help limit liability for the church.