Such is the case to consider when adopting a Local Union’s credit card policy… and those little extra perks that come along with most credit cards these days… yes, Rewards! But beware—those points/miles/etc. that initially weren’t even considered, or were just seen as an innocent little incentive at the time, have come back to haunt Locals and their officers later on. If rewards (i.e., miles, cash-back, hotel nights, catalogue prizes or gift cards) are associated with Union-sponsored credit cards or with debit cards issued on a Local’s bank account, those rewards are assets of the Local and, if used improperly or for personal use, are subject to the same laws as if one were to use the Local’s cash for personal gain.
Section 501 of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA) outlines general fiduciary responsibility for officers and employees of labor organizations. Union officials occupy positions of trust and, therefore, must ensure that the Union's funds and other assets are used solely for the benefit of the Union and its members. Unfortunately, if a Union or other organization does not have an adequate system of internal financial controls, some individuals may use, or be tempted to use, some of the organization's funds for their own purposes or become careless and mix the organization's money with their own. This is where credit card rewards can be abused... while flying under the radar of the Local’s general accounting and reporting systems.
LMRDA sets forth fairly specific guidelines for the receipt and expenditure of Union funds, including credit card expenditures, rebates and rewards. Unions are required by LMRDA and the Department of Labor (DOL) to establish adequate internal controls. However, over the last several years, it has become evident that credit card usage has often escaped attention by Local Unions, leading to increased DOL investigations and expenses to the Local, including negative publicity.
In recent investigations, we were contacted by Local Unions with accounting questions. How should we record a rebate check received from a Union credit card? Or how should we record airline miles earned on Union credit cards? This can have a snowball effect...
For instance, if a rebate check is made out jointly to a Union representative and a Local, there is a risk that the check could be used for personal use. There is also a risk that credit card rewards could be redeemed for gift cards. Some credit cards (associated with an airline) reward customers with miles—which, if not properly monitored, could be redeemed for personal use. These benefits over time can amount to thousands of dollars - (1) of which a Local would receive no benefit or use and (2) that could result in the officer receiving “indirect compensation” (which has DOL, IRS and other implications).
Bottom line? Benefits resulting from the use of Local Union credit cards (rebates and rewards received both in cash and gift cards) constitute receipts of the Local. Thus, cash and gift cards should be used “solely for the benefit of the Union and its members.” Officers receiving these rewards have a fiduciary duty to notify the Local of the receipt of these rewards and rebates and to remit them accordingly to the Union. Personal use of these rewards could result in legal and regulatory issues.
Because rewards programs are the norm rather than the exception these days, and instances such as this can often happen without anyone being the wiser… LMRDA has become as concerned with the recordkeeping and documentation of reward accumulation and usage, as it is with receipts and disbursements.
The easiest solution? Do not use (or do not enroll in) cards that have credit reward programs. However, in the interest of fiscal prudence, if an Executive Board decides that the Local really should benefit from any program that rewards the Union and its members for being a valued customer, and thus decides that the benefits exceed the cost of tracking and reporting rewards, then adequate policies and procedures are mandatory.
It is imperative that all Local Unions adopt (and have those who are issued credit cards acknowledge and sign) a credit card usage policy and standard procedures to avoid this type of problem in the future—and to alert all users of Local Union credit cards as to the monitoring requirements of rewards and usage. Additionally, as a standard of practice and procedures, the bookkeeper or person in charge of reviewing and recording credit card transactions for the Local should keep a simple spreadsheet or manual log recording rewards activity and balances monthly by card, as statements are received. These records will then be provided to the Local’s CPA at the end of the year for proper reporting and disclosure (example: on the Local’s Form LM-2).
Example of internal monthly reporting/log activity:
|Beginning of period balance (example: in "points")||X,XXX|
|Points earned|| XXX|
|Points redeemed or expired|| (XXX) (Descriptions: points redeemed & value received)|
Finally, this focus on the rewards aspect of credit card programs presents a perfect opportunity for Unions to revisit their overall policies and procedures over credit card usage and payment. The DOL suggests having a policy that addresses who can use a card and what the cards can be used for—in as much detail as possible. Your policy should be written and either added to your bylaws or formally approved at an executive board or membership meeting. A copy of the Union’s formal policy should be read and signed by those authorized to use a credit card, and the signed copy should be retained in that person’s personnel file.
The DOL suggests that your policy address key issues in as much detail as possible, including:
- Who is authorized to have and use a card?
- Does each person receive their own card or is there one master credit card with multiple users?
- What types of expenses and in what circumstances are the uses of Union cards permitted?
- What types of expenses are prohibited?
- What expenditure limit is allowed to each user and what is the process of receiving pre-authorization for amounts above his or her limit?
- Exactly what documentation is required by the user to be submitted for all charges?
LMRDA requires that organizations maintain records that provide sufficient detail to verify, explain, clarify and reconcile all charges. In order to comply, your Union must maintain, at a minimum:
- All statements and payment information for amounts paid to credit card companies.
- All original, itemized receipts for each credit card charge. (All hotel, transportation and restaurant costs must be itemized).
- Group meals must include a written explanation of the specific Union business conducted as well as the names and titles of all attendees.
For more on credit card compliance and documentation requirements as issued by the DOL’s Office of Labor-Management Standards (OLMS), click here to view or download the OLMS Compliance Tip - Union Credit Card Policy.