Cut out the cards, or at least minimize the risk.
One of the financial management seminars I conduct for property managers is called “How to improve your client relationships and minimize financial liability, one balance sheet at a time.” At a recent seminar, there were a lot of questions raised about the use of credit and debit cards by board members. Do accountability and fiduciary issues outweigh the flexibility and convenience? Should property managers discourage use of these cards? If so, how?
Do leave home without it…
Use of credit/debit cards can create a system where there is little or no accounting control. Without proper checks and balances, board members may actually be in breach of their fiduciary duty to the community. In addition to financial accountability concerns, this also opens up some potential liability issues. Do the board members really want to put their D&O coverage at risk? Insurance companies have a lot of lawyers who would drool over an opportunity to reduce or decline coverage in a lawsuit. Maybe it’s better for board members to just wait a week or two for the normal expense reporting/reimbursement process.
I’ve also been hearing about more occurrences of boards maintaining separate bank accounts not controlled by their property management companies. This creates two problems. The first is the same fiduciary breach mentioned above. The second concerns the property manager, especially if that person (or company) can’t provide a full accounting of all items going through that account. If you’re a property manager, check your professional standards for terms like “inaccurate reporting” and “conflict of interest.” Don’t put your credentials at risk.
What’s in your policy?
Sometimes, you simply may not have a choice. Your community or board wants the perceived control or flexibility of having access to its own money. Here are some ways to improve financial controls and limit your risk:
- Develop clear controls. Have a documented policy, signed by anyone with card or account access, that outlines all rules, responsibilities, and reporting requirements. All expenses must be pre-approved, receipts turned in within 7 days, etc.
- Single card, separate account. It is much easier to keep track of one card and one statement. Link that card to an account with limited funds, similar to a petty cash account. Then, you only have to reconcile a limited balance of $500 or $1,000. This also limits temptation.
- Require receipts. A credit card bill isn’t enough. You need the actual receipts for purchases, and mileage (along with business purpose) for fuel. Consider using a retail card (like Home Depot) to better control spending.
- Forget about points or cash back. This should be a business account, not a personal account. Any card benefits go to the association, and no individual should be liable. This also allows the board to maintain the same card/account as members change over time.
- Review each month. Ask questions, address potential issues, and provide proactive feedback to keep this process under control.
Doing what’s best for the business
There is also a solid business advantage to using the traditional expense/reimbursement process. Where credit cards are often linked to quick impulse purchase, cutting up the cards will promote the responsible and rational business decisions that board members are expected to make. Maintaining a full paper trail through a well-documented expense reimbursement policy will ensure that there is no hint of impropriety. Board members and property managers fulfill their fiduciary responsibilities, and everyone is happy… until some pipe bursts.
Neal Bach, CPA