We have come a long way since the first plastic credit card was issued by American Express back in 1958. Today there are more than 640 million of them in circulation in the United States with a total credit card debt approaching $1 trillion. Many churches have succumbed to the appeal of credit cards. Whether your church has one, or is considering getting one, here are ten things for you to consider.
Last month's Church Treasurer Alert contained the first article in series addressing church credit cards. The following issues were covered:
1. Does our church need a credit card?
2. What is the difference between a credit card and a debit card?
3. What happens if our card is stolen?
4. Selecting a credit card
5. What is credit card "blocking"?
6. Avoiding credit card fraud
In this edition of Church Treasurer Alert the following additional topics will be addressed:
7. Disputes on how much you owe
8. Disputes over the quality of purchased goods
9. Unauthorized charges
10. Criminal liability
7. Disputes on how much you owe
A dispute may arise over how much you owe regarding a credit card charge. For example, a store may have overcharged you on the card, charged you for products or work you did not receive, or may process a transaction in error. The law provides a basis to dispute these incorrect bills. Information about how to raise a dispute should appear on the back of each monthly statement you receive from your credit card company. In summary, if you think your bill is wrong, or if you need more information about a transaction on your bill, contact your credit card provider (the address is on your monthly statements) as soon as possible. You may use, but are not required to use, the "notification of disputed item" form provided on the back of your monthly statements.
You must raise a dispute in writing within 60 days of the first bill with the improper charge. You must include the following information:
- Your name and account number
- The dollar amount you dispute and information as to when it was charged and the name of the merchant.
- A statement of the reason for your dispute.
Some examples of reasons for dispute are:
- I did not authorize this charge
- I did not receive the goods I ordered.
- I returned the goods I ordered because they were defective, but did not get a credit.
- The merchant sent me the wrong goods.
- The merchant did not complete the services I contracted for or performed them incompletely.
- The merchant billed me for $100 when I agreed to pay $10.
- The merchant double billed me.
- I cancelled the contract with the merchant or contractor before the work was performed.
You can contact your credit card company by telephone, but doing so will not preserve your rights.
You are not required to pay an amount in question while the credit card company is investigating your complaint, but you are still obligated to pay the charges on your bill that are not in question. The credit card company cannot report you as delinquent on the disputed item or take any action to collect the amount in question.
8. Disputes over the qualify of purchased goods
If you have problems with the quality of the goods or services you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may not have to pay the remaining amount due on the goods or services. You have this protection only when the purchase price is more than $50 and the purchase is made in your home state or within 100 miles of your mailing address. If your credit card company owns or operates the merchant, or mailed you an advertisement for the property or services, then all purchases are covered regardless of the amount or location of the purchase.
In order to dispute a charge for goods or services based on quality, you must have first made a good faith effort to resolve the issue with the merchant directly. Written evidence of your good faith effort is helpful in this circumstance. For example, enclose a letter which you wrote directly to the merchant to outline your problem with the quality of the goods.
Key point. Once you have raised a dispute, the credit card company is required to investigate and report back to you in writing. In many cases, the charge will be canceled. Often a merchant whose billing is challenged will back off rather than risk losing the privilege of accepting business by credit card. Interest associated with a successfully disputed debt must also be cancelled. Until the dispute is resolved, you need not pay the disputed portion of your bill. However, you must make a payment to cover any undisputed amount. Of course, the credit card issuer cannot report you as delinquent with respect to the disputed amount, but may do so if part of your debt is undisputed and you do not make the necessary payments.
9. Unauthorized charges by employees
Sometimes, a church employee will make unauthorized charges to a church credit card. This may occur for several reasons. The employee may not understand the difference between authorized and unauthorized charges, or may intentionally make an unauthorized charge, with or without an intent to reimburse the church.
This problem is not limited to church employees. Any employer that provides credit cards to employees faces the threat of unauthorized charges. To illustrate, a prominent federal agency conducted an audit of employee use of agency-provided credit cards. The results were astounding:
- 75 percent of the credit card charges, representing 54 percent of the dollars reviewed, were not incurred while on official business
- 7 percent of the transactions were incurred while on official travel but were not official travel expenses (i.e., were not claimed as reimbursable expenses)
- 44 percent of airline ticket purchases were not associated with official travel
- 79 percent of restaurant transactions were not associated with agency business
- a majority of inappropriate charges were made by a limited number of employees
What steps can churches take to reduce the risk of unauthorized credit card charges by church employees? Consider the following:
- Issue a credit card to an employee only if a legitimate and definable justification exists for the employee to have a card.
- Use a low authorized limit on available credit.
- Consider running a credit check on employees who will be issued a credit card.
- Adopt a credit card policy that (1) strictly forbids personal charges; (2) defines authorized charges; (3) explains the consequences of unauthorized charges (e.g., reprimands, loss of credit card privileges, dismissal); (4) includes an accountable reimbursement policy requiring the careful examination of monthly credit card statements; payment of individual charges by the church only upon adequate substantiation by the employee of the amount, date, and business purpose; and, a prompt reimbursement of the church for all unauthorized charges made by the employee; (5) warns employees that unauthorized use of a church credit card may result in criminal liability (see below); (6) promptly revokes credit card privileges for former employees; (7) prohibits employees from allowing other persons to use their card.
- Each employee who is issued a church credit card should sign a statement agreeing to be bound by the church's credit card policy.
- Employees who are issued a credit card should be informed that unauthorized charges are never excused by an intent to reimburse the church at a later time.
Tip. See chapter 7 in Richard Hammar's 2008 Church & Clergy Tax Guide for a description of legitimate business expenses that can be reimbursed using church credit cards. You can order the 2008 edition by calling 1-800-222-1840.
Churches that issue credit cards to employees, and pay the monthly credit card statements without requiring an adequate accounting, may be exposing the employees to substantial penalties called intermediate sanctions. If the employee is an officer or director, or a relative of such a person, the IRS can assess excise taxes of up to 225 percent times the amount of an "excess benefit," which includes any nonaccountable expense reimbursement.
Example. A church issues its senior pastor a credit card. Each month the church treasurer pays the credit card statement without requiring any substantiation by the pastor, since she assumes that all of the charges are business-related. This is a nonaccountable expense reimbursement arrangement. The full amount of the reimbursed charges during the course of the year constitute an excess benefit that exposes the pastor to intermediate sanctions in the form of an excise tax of up to 225 percent of the amount of the excess. If the total credit card charges for the year amount to $10,000, the penalty (which is assessed against the pastor, not the church) can be as much as $22,500! Church board members who authorized this arrangement are collectively responsible for an additional penalty of 20 percent of the amount of the excess benefit (up to a maximum of $20,000).
10. Criminal liability
Making unauthorized charges to an employer's credit card may result in criminal liability in some jurisdictions.
Example. The former mayor of a major American city was indicted for personal use of a city-provided credit card. The former mayor billed $58,000 to the credit card over a five-year span for a variety of personal items including hotel rooms, meals, airfare, car rentals, and sporting event tickets.
Example. A former employee of a federal agency pled guilty to defrauding the agency by using an agency credit card to make unauthorized, personal purchases amounting to $5,000. The employee was sentenced to five years probation, and was ordered to fully reimburse the agency for all unauthorized charges.
Next month's Church Treasurer Alert will address several tax issues associated with the use of church credit cards.
This article first appeared in Church Treasurer Alert, October 2007.