Why you need a written employee reimbursement policy or accountable plan
Hey, I’m Michael Eckstein 👋, and this is ‘Ordinary & Necessary’, a weekly newsletter about the boring business topics that don’t get enough traction on the web, but will help you manage and grow your business. You signed up on my website. If you’d like to unsubscribe, just click the link at the bottom of this email. No harm, no foul, I’d love to have you back sometime.
Nothing makes me physically cringe more than seeing authorized-user credit cards listed on a client’s monthly statement. I’ve seen $300,000+ tax bills, client bank accounts get seized, exhaustive multi-year audits, and a few Dr. Pipple Popper videos (don’t look it up if you’re squeamish). But, nothing compares to authorized-user credit cards because they are the perfect set-up for employee fraud. You’re giving your employee a credit card with a high spending limit, little-to-no oversight, and realistically no repercussions. Your employee could potentially steal thousands before you realize. On top of that, you probably personally guaranteed that card and, if anything goes wrong, are personally responsible for paying the bill.
And, let’s be completely honest about employee fraud. Once the money is gone, it’s gone. Small amounts aren’t worth going to your insurance or suing over because your premiums will go up and the legal bills will outweigh your losses. Large amounts will take forever to recoup. Insurance and court proceedings are incredibly slow processes. And, even if you win, you lose because you spent thousands and still need to collect.
Avoid authorized-user credit cards by:
Buying it yourself: I know, you have authorized cards because you don’t want to buy it yourself. But, realistically, just buying it yourself and keeping the money flow close to you is the easiest way to keep your funds secure. And, I’ve never heard a good reason for a dedicated authorized credit card (other than for designated high-level managers).
Reevaluating purchasing procedures: If situations where you’re not available and something needs to be purchased are so frequent that you think an authorized card is necessary, you need to reevaluate your purchasing, inventory, and restocking procedures. Sporadic expenses where an employee needs to quickly buy something are fine. But, they shouldn’t be happening so frequently that you want to give them a company card.
Reimbursing employees: Sporadic expenses happen. For those situations, you should have an expense report and reimbursement policy. If an employee has to buy something while you’re unavailable, they need to bring you a receipt and a completed expense report then you will reimburse them. (Here are a few expense report templates.)
Setting limits on your cards: If you must use authorized cards, set limits on them with your credit card company and set them low. Not all companies will let you set limits, so you’ll need to call them and ask. Alternatively, there are a few new software companies that let you set-up limited authorized cards. (Extend comes to mind but I’ve never used them.)
THIS WEEK’S ACTION ITEM: Reign in your authorized cards. If you’re seriously concerned an employee might spend money on it before returning it, freeze your account.
Have a great Fourth of July weekend and stay safe! 🇺🇸 🦅