Credit Card Use Policies

Overview

Many local governments allow designated staff members and officials to use credit cards for certain authorized expenses. Credit cards are most commonly used for small and incidental purchases, but they can also be used for other purchases such as travel expenses, payment of claims, or emergencies.

Many financial institutions offer a credit (or procurement) card program to local governments. This service can be bundled with the jurisdiction’s contract for other banking services, or it can be offered as a stand-alone service.

In addition, the Washington State Department of Enterprise Services maintains a purchasing agreement for Purchase Card programs which is available to any local governments that have signed a one-time contract usage agreement.

Statutory Authority

Local governments are authorized to use and contract for the issuance of credit cards for “official government purchases and acquisitions” (RCW 43.09.2855). The statute defines “credit card” as “a card or device issued under an arrangement pursuant to which the issuer gives to a card holder the privilege of obtaining credit from the issuer.”

Types of Cards

When formulating your credit card policy, it is important to understand different types of credit cards that may be available to your jurisdiction:

• Bank cards are issued by financial institutions and are accepted by a wide range of vendors for a wide variety of goods and services. Bank cards are often a Visa, Mastercard, or American Express card, issued and underwritten by the financial institution.
• Merchant cards are issued by (or on behalf of) specific vendors such as office supply stores or vehicle fuel companies and are only accepted at those vendors. Merchant cards have much more limited uses than bank cards, but if your jurisdiction has an underlying contract for a particular type of commodity, merchant cards can be a very convenient procurement tool.
• Fuel cards are a specific type of merchant card issued by petroleum companies and commonly used by local governments. The fuel card only works at one specific brand of gas station and is typically the result of a bid process. The card can be kept inside government vehicles and utilized by staff using that vehicle, or alternatively it can be maintained in a central office and signed out as needed. Fuel cards can also have other potential benefits such as tools to track fuel consumption.
• Prepaid cards are purchased for their face value (such as $25 or $50), plus a possible small fee. These cards effectively serve as cash to whoever possesses the card, but they can be used effectively and provide enhanced controls in certain circumstances. Prepaid cards are slightly different than credit cards but are typically covered by the same policy.
• Debit cards are different than credit cards. Instead of issuing credit for a purchase, a debit card typically removes money from your jurisdiction’s bank account immediately. It is our opinion that local governments in Washington are not authorized to use debit cards because the immediate withdrawal of public funds would be inconsistent with the state’s requirements for voucher review payment procedures. Having said that, some jurisdictions do use debit cards in lieu of checks for imprest/petty cash accounts. In this instance, the account being “debited” is a petty cash account established specifically for this purpose, rather than for general procurement.

These card types are not mutually exclusive – for instance, you might find that your jurisdiction needs a merchant card for certain purchases and a bank card for others. If using a bank card, keep in mind what types of cards your preferred vendors accept. For instance, Costco used to accept only American Express but then changed its policy to accept only Visa.

Key Components of a Credit Card Use Policy

The legislative body is ultimately responsible for establishing the credit card program and adequate internal controls, although oversight of the program’s daily operations and procedures is typically delegated to an administrative officer. RCW 43.09.2855 requires that the legislative body adopt a system for:

• Distribution of the credit cards;
• Authorization and control of the use of credit card funds;
• Credit limits for the cards;
• Payment of bills; and
• Any other rule necessary to implement or administer the credit card system.

For the purposes of our guidance, we have divided credit card policies into the following three major policy areas, discussed in more detail below along with key questions to consider for each one:

• Authorized expenses
• Authorized users
• Documentation, payment, and internal controls

Authorized Expenses

Your credit card policy should clearly establish what types of expenses are authorized and what expenses are prohibited. Common local government uses include:

Small and incidental purchases. The most common use of local government credit cards is for small and incidental purchases, as an alternative to petty cash funds or “open accounts” (also known as open or “blanket” purchase orders). The use of petty cash or open accounts can make it more difficult to track down the nature of an incurred expense or who incurred it – such as when petty cash was taken but not properly signed out, or when an open account was used with an unreadable signature – while using credit cards provides stronger internal controls and a clearer audit trail.

However, it is important to note that credit cards, petty cash, and open accounts are not mutually exclusive. A credit card program can be created for staff members who routinely make small and incidental purchases, while petty cash accounts can be maintained for those staff members or departments where such purchases are less common and the overhead costs of a credit card program may not make sense. In addition, open accounts are often established with vendors after a competitive procurement process, and once the bids are awarded, the goods included within the scope of the bid can potentially be purchased with a credit card.

Travel expenses. Credit cards are a common and convenient way to pay for many travel-related expenses, such as plane tickets, hotel rooms, car rentals, and conference registrations. However, using a government credit card for travel also creates potential opportunities for misuse, since it is common for traveling employees to also incur non-business expenses on their trips. (Examples include paying for a spouse to travel with the employee, incurring personal charges on the hotel bill such as movie rentals, or staying a few extra days.)

The credit card policy should reference your jurisdiction’s travel policy and clearly state that the credit card should not be used for these non-reimbursable expenses, even if the employee intends to reimburse the entity.

The use of government credit cards for business travel must comply with RCW 42.24.115, which provides requirements for fully itemized travel expense vouchers and imposes a time limit to reconcile an employee’s travel expenses on the card. In addition, it enables a “prior lien against and a right to withhold any and all funds payable or to become payable to the official.” As mentioned earlier, this does not authorize an officer or employee to intentionally incur personal expenses on the card, even if the expenses are paid back prior to the card’s statement date. However, the required audit procedure may identify expenses on the card that are not allowed by the entity’s travel policies (or law), in which case timely repayment of the disallowed amounts must be made.

Travel can also involve multiple forms of payment in addition to credit cards, making it complicated to track the various payments and reimbursements for a single business trip. In many cases, a travel pre-approval process is helpful to clarify the form of payment and/or reimbursement. For example, the City of Redmond has separate guidelines on the use of credit cards for travel purposes to help clarify these issues for employees and for audit purposes (see the examples section near the end of this page).

Payment of claims. Some local governments have found credit cards to be effective and efficient for accounts payable types of claims. There can be a few different reasons for this.

In many cases, the credit card sponsor offers a rebate of some amount based on timely payment of the credit card balance. By incurring charges on credit cards and promptly paying the card statement or invoice promptly, some governments have recovered significant amounts of money. This is especially true when the card is used to pay for invoices that have been presented to the agency for expenses already incurred and approved for payment (i.e. pre-audited), since using the card for this purpose typically results in much larger total transactions subject to the rebate.

Vendors also appreciate prompt payment, and using a credit card is often a faster, more efficient, and perhaps less costly means of payment than generating a check or electronic payment through the normal accounts payable process.

And in some vendor management or accounts payable systems, it can be difficult to “set up” a vendor so that a payment can be processed to them through the system. In those instances, credit cards can be useful for paying “one-time” vendors that you do not expect to use often enough to be worth the time required for the full setup process. However, if you use this approach you should be careful of any related obligations that otherwise could be missed. This includes auditing the invoices in a manner consistent with the rest of your payables system to ensure the bill is properly due and payable. You may also have an obligation to provide the vendor with a 1099 form depending on the size or nature of the transaction, which you should verify with the card issuer or an accounting professional.

Emergencies. Many local governments have developed plans for how to respond to an emergency situation when traditional business tools and methods may not be available. For example, some local governments require that a purchase start with a requisition to a procurement official, but an emergency situation duly declared by appropriate officials may require more immediate access to goods or services. Staff members also may find themselves in different organizational roles during an emergency. For example, when the Emergency Operations Center (EOC) is activated, administrative staff may find themselves assigned to procurement roles, and some agencies include credit cards as part of the EOC kits available to staff in these circumstances.

In these cases, staff should have detailed instructions included with the cards regarding the necessary documentation for the card’s use. In addition, emergency procurement procedures should be part of the routine training for staff likely to be assigned to these roles when the EOC is activated.

Authorized Users

When Washington local governments first started using credit cards, most opted for shared (departmental) cards because card sponsors required the Social Security numbers of all individually named users. However, most card sponsors no longer require the SSN for individual users.

The State of Washington Office of Financial Management recommends individually assigned cards, rather than shared cards, to provide better accountability and fraud protections. However, this may not be practical for every local government in every situation. Shared cards require additional controls, as described below.

Documentation, Payment, and Internal Controls

To safeguard public funds, your credit card policy should describe the auditing and reconciliation process, along with what documentation is required (and when) to support the purchases. Your jurisdiction’s auditing officer is responsible for reviewing credit card documentation under RCW 42.24.080.

Most credit card programs provide monthly statements itemizing all purchases made with government credit cards. While many local governments pay from the statements, careful attention should be given to reconciling the detailed account activity to the statement amounts. Often there will be differences that need to be identified and documented (such as the timing of credits for returns). Your jurisdiction should not pay the credit cards directly from the statement without having a sound reconciliation process and supporting documentation for the card activity.

Each cardholder should directly review the purchases made using their card and reconcile the charges; this responsibility should not be delegated to others. Original documentation should be provided by vendors for each purchase. For travel-related purchases, documentation must be provided upon billing or no later than 30 days of the billing date (RCW 42.24.115), but timely documentation is a good idea for all credit card purchases. Disorganized or lost documentation is a common problem.

The appropriate type of documentation may depend on the exact nature of the purchase, but the documentation should be clear “on its face” (that is, without any further explanation) as to the appropriate use of the card. The typical “credit card receipt” generated by a credit card terminal is not sufficient documentation to confirm an authorized expenditure. A traditional receipt itemizing the goods or services purchased is necessary for audit purposes.

As with other payments, it is important to code the credit card activity to the correct account. To avoid the potential for “mis-coding” transactions, modern day credit card systems permit integration to your general ledger by allowing the agency to “map” (or emulate) the card account coding to the agency’s general ledger codes. Creating a base code for each cardholder will ensure that the card’s activity is captured within the right organizational element of the agency’s general ledger and to the most likely actual account (object code) to be charged for the expense. The cardholder can then review the transactions online and adjust the account to be charged if it is different than the base account.

Your jurisdiction should avoid late fees or penalties by paying the amounts due, once reconciled. Keep track of the differences in amounts not paid, such as disputed charges, and work with the vendor to avoid incurring late fees for the disputed amounts. It is best to resolve such differences in a timely manner, as too many outstanding items which are overdue for too long can complicate a correct reconciliation, lead to problems with documentation or potential penalties and late fees from the credit card vendor, and increase the credit balances on your statements which can further complicate reconciliation.

Examples of Credit Card Use Policies

Below are selected examples of credit card use policies adopted by local governments in Washington.

Cities

• Edgewood Credit Card Use Policy (2018)
• Ferndale Credit Card Use Policy (2019)
• Forks Credit Card Use Policy (2014)
• Oak Harbor Procurement Card Procedures (2013)
• Poulsbo Credit Card Use Procedures and Processes (2011)
• Redmond:
  • Procurement Card (ProCard) Program (2017)
  • Guidelines for Using the ProCard for Travel (2019) – Lists documentation required for travel-related expenses
• Spokane Purchasing Cards Policy and Procedure (2016)
• Sultan:
  • Credit Card Use and Procurement Card Policies (2020)
  • Fuel Card Use Policy (2012)
• Tukwila Procurement Card Policy (2010) – Extensive and very detailed policy and procedures, including online transaction management and reconciliation process

Counties

• Ferry County Credit Card Use Policy (2011)
• King County Purchasing Card Policy (2016)

Special Purpose Districts

• Chelan County Fire District No. 1 Credit Card Use Policy (2016)
• C-TRAN Purchasing Card Policy (2021)
• Port of Port Angeles Charge Card Policy (2013)
• Port of Walla Walla Credit Card Use Policy (2016)

Recommended Resources

Below are some useful resources from the State Auditor’s Office (SAO), Government Finance Officers’ Association (GFOA), and other organizations to help your entity develop and update its credit card policy.

• State Auditor's Office:
  • Best Practices for Credit Card Programs
  • Cash Basis BARS Manual, 3.8.4 Purchase Cards
  • GAAP BARS Manual, 3.8.4 Purchase Cards
• GFOA Best Practice: Using Purchasings to Streamline the Purchasing Process – Overview of potential benefits and disadvantages of purchasing cards, how to select vendors, and appropriate internal controls