For many cities and towns, credit cards offer a safe and easy way for employees to pay for everyday items, such as office supplies, gas for travel and even vehicles.
But there are risks, too.
"I would love to say, 'outlaw all credit cards,'" said Toni McKinley, a certified public accountant with the Greenville firm McKinley, Cooper & Co. "But in this day and age, you can't."
For municipalities, the benefits of credit cards are the same as they are for the rest of us, said Mark Hobbs, managing shareholder and president of The Hobbs Group in Columbia. With the careful handling of receipts, credit cards can provide better recordkeeping of what was spent, when and why.
They're also cheaper and faster to process than traditional checks.
For larger purchases, such as expensive equipment, a city could pay off the charge in one month in order to avoid interest charges, said Ally Rivers, a CPA and auditor at The Hobbs Group.
But it can be a little too easy to spend money, said Rivers and Hobbs.
"It's important to monitor not only what people are spending money on, but whether they are going over the budgeted amount," Rivers said. Overspending is just one of the hazards of paying with plastic.
"Some of the worst cases of fraud that I have run across in my 37 years in the auditing business have involved the improper use of credit cards," Hobbs said.
Many times, however, the absence of a policy leads to misuse of the cards. Without written rules, employees have been found to mix personal purchases with official ones. "I've seen people fired for use of credit cards for personal purposes," McKinley said.
Employees must to be trained on the proper credit card usage, and cities can even block certain vendors, such as liquor stores or dry cleaners, to prevent the cards from being used for things that are clearly not city business, said Larry Finney, a partner with the accounting firm Greene, Finney & Horton in Greenville.
The keys to success
Cities and towns should have a written policy that clearly defines how and when credit cards may be used and, more importantly, when they cannot be used.
This policy should be consistently followed, McKinley said.
"Management can work on the policy and can submit to the council for approval, but the council should approve it formally," she said. "They have the overall financial responsibility."
"Usually when we do an audit, residents will ask us whether we are monitoring the credit card usage. They want to make sure we've done that," McKinley said. "The general public feels like that's an area where people could take advantage."
Usage tips:
- Prevent confusion. Each card should be issued with the name of the employee who will be using it. Don't provide unassigned cards that can be used by anyone.
- Limit an employee to one card.
- Reconcile statements every month to keep small purchases from going unnoticed.
- Ensure that the person reconciling the statements is not the same person in charge of using the cards or paying the bill.