Play Your PCards Right: Internal Controls Over Purchasing Cards

PCards are a popular purchasing tool for organizations large and small. Unless you establish tight controls over their use, however, they can lead to a big financial mess.

A PCard (short for purchasing card or procurement card) is a credit card given to an employee so he or she can easily and quickly make purchases for the employer. The card is owned by the employer and is not tied to the employee’s credit.

The benefit is easy to see; employees can make purchases as needed instead of waiting for purchase orders to be processed and approved. PCards are especially helpful for employees who frequently travel or need to make time-sensitive purchases. They also allow for vendors to be paid immediately, which helps limit the number of vendor invoices that are processed through the accounts payable system.

However, multiple credit cards being used by various employees without appropriate oversight can open the door to unnecessary purchases that are not in an organization’s best interest—or even worse, result in outright fraudulent transactions.

Fortunately, the risks that come with PCards can be mitigated with appropriate controls. This allows your organization to enjoy their convenience without having to worry as much about potential abuse.

Here are some controls that you can implement over PCards to ensure they are being used effectively and appropriately.

Restrict Personnel Use

You should require background checks for personnel who will be using PCards. If you conduct such checks for certain positions before or upon hiring, you can limit card use to those positions.

You can also restrict use to employees with positions that absolutely require it—for example, administrative personnel who coordinate events and might need to make last-minute purchases. Finally, establish procedures that require the completion and approval of an application for all employees who will be using PCards.

Educate and Document

Establish a policy that clearly communicates PCard requirements and procedures. Not only should the policy cover PCard usage, it should also include procedures for oversight, approval and reconciliation of transactions. This manual should also detail potential disciplinary actions for inappropriate card use and include a signature page for the employee to acknowledge that he or she has read and understood its contents. (Better yet, have the employee sign a separate cardholder agreement.)

Once this manual is established, have a formal training session on PCard use. Hold this training annually to educate new team members and communicate any changes in policy. Also keep this information readily available for employees to access and consider developing an FAQ document for your team to reference.

Limit Spending

It’s important to establish transaction limits for individual purchases, as well as total purchases for the month, and tailor these limits based on employee position if necessary. You should also restrict the type and source of potential purchases to expenses appropriate for your organization. For example, office supply stores would be an obvious choice for an accepted vendor, while a movie theater would likely be unapproved.

Perform Timely and Thorough Reconciliations of PCard Transactions

When it comes to purchases, accountability is key. And nothing keeps your organization more accountable for its purchases than solid documentation.

Ensure transactions are supported by receipts that clearly show the transaction’s purpose, and require that these receipts be submitted to a transaction reviewer within a week of the purchase.

You should also perform reconciliations on a regular basis; at least once a month is ideal. And consider implementing a second review to ensure accountability and accuracy.

Establish Consequences for Misuse

As we mentioned earlier, your PCard policy should include consequences if an employee misuses his or her card or is otherwise disciplined. A disgruntled employee can easily abuse a card as a way to retaliate if he or she feels that a consequence is not deserved. Because such abuse (and the dollar amounts charged) can escalate quickly, these procedures should be firmly in place.

• Suspend card rights if the employee doesn’t submit proper documentation when required.
• Suspend card rights if an employee is the subject of disciplinary action, even if it’s not connected to card use.
• Specify in your PCard policy that repeated infractions to the policy will result in cancellation of the card.
• Cancel an employee’s PCard immediately if he or she is terminated from the organization. If the employee separation is voluntary and amicable, cancel the card once he or she will no longer use it or on the employee’s last day (whichever comes first).

By taking steps like these, your organization or business will go a long way toward ensuring proper and efficient PCard use. You can also seek help from James Moore’s assurance services CPAs to help hammer out the best internal controls for your PCard policy.

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