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Credit Card Fraud – An Easy Way to Steal Organization Funds

Over $50,000 gone was the latest estimate.

Sadly this is a true story. The administrative assistant, a trusted employee, had been using her organization credit card to pay for personal expenses. She carried out the fraud over about a year, though no one will probably ever know exactly when the thefts started or exactly how much she stole.

Credit cards are a wonderfully convenient and efficient way to do business. And, unfortunately, they are also a convenient and efficient way to steal organization funds.

Just How Easy Is It?

How did she get away with it? The director asked her each month if there were any card charges to review. Usually she said no, and that was that.

Sometimes she provided a credit card statement for the director to review, but often she claimed there were not any charges. Those were the months she used the card for personal purposes. And, since she was a trusted employee, if she said there were no charges, the director believed her.

We will also never know what motivated the administrative assistant to both steal and to lie about it. Somehow she was justifying her behavior. Sometimes the stories behind such embezzlements are truly heartbreaking – for example, a family emergency where an employee plans to “borrow” the funds. Of course the money to repay what was borrowed never materializes. Other employees may simply be disgruntled and believe they deserve the extra compensation.

How to Protect Your Organization

Whatever the motivation, your goal is to make sure organization credit cards are only used for appropriate, authorized purchases. Those of us in the nonprofit world tend to be good hearted and trusting, sometimes more than we should be. While we don’t recommend becoming jaded and distrustful, we can suggest a few steps, called internal controls, to protect your organization. As a bonus, these steps can also facilitate good accounting for credit card purchases (another perennial issue).

  1. Have the card statement mailed to the director, or have the director login directly to the bank to download the monthly card statement. That way the director will be sure to see an original statement with all charges for the period.
  2. Use a business credit card that provides a unique card for each employee. That way you can easily scan transactions on the card statement by employee. Just letting employees know that charges by employee will be reviewed monthly is a powerful deterrent to misuse.
  3. Set up clear policies and procedures for credit cards including what can and cannot be purchased, also per purchase and monthly purchase limits.
  4. Require an accounting each and every month of card charges. Every purchase should be clear as to the purpose and coded by the staff person as to account, functional area and restricted grant, if applicable.

After you have reviewed the appropriateness of all charges for the month, the statements with coding provided by each cardholder can be used by finance staff to ensure proper coding of the transactions into the books of the organization.

Some card issuers allow you to block purchases from certain categories of vendors, such as travel, entertainment or liquor stores. This feature, if available, helps to reduce potential problems or fraudulent use of the credit card, even if it’s stolen.

Credit cards can be a great tool for cutting down on accounting work and empowering staff. Just be sure you put internal controls in place such as the ones we recommend above. Internal controls over credit cards can prevent abuse, catch inadvertent personal use and help to prevent or catch fraud that may be perpetrated by people outside of your organization.

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