How well does your organization comply with U.S. regulatory requirements like 1099 reporting, sales and use tax, and OFAC? It is safe to say that few people would declare regulation as the favorite part of their job, but non-compliance can mean fines, penalties, and/or increased scrutiny from regulators. As the lead researcher for AP Now’s 2017 survey on regulatory compliance issues, I saw firsthand that there is room for improvement. As a payment professional, you can help your organization step up its efforts. Following are tidbits from AP Now’s survey results, including where Commercial Cards fit into the regulatory picture.

1099 Reporting

Commercial Cards are a win here. To reduce the burden of federal 1099 reporting for domestic payments, expand the usage of Commercial Cards—regular cards and/or electronic payables (e.g., Virtual Cards). As a reminder, the regulatory responsibility shifted several years ago, adding to the benefits of card usage. As stated within www.irs.gov, “Under section 6050W of the Internal Revenue Code, payment settlement entities (merchant acquiring entities and third party settlement organizations) must report payment card and third party network transactions. This reporting requirement began in early 2012 for payment card and third party network transactions that occurred in 2011.”

For your reportable non-card payments, do what you can to minimize the pain. Per the AP Now survey results:

Among organizations that do TIN matching, 81% receive fewer than 10 B-Notices annually.
While about half of respondents’ organizations use the IRS TIN matching system at some point, only 14% follow the best practice of doing so throughout the year when new vendors are added and in conjunction with annual reporting.

Sales and Use Tax

Some survey respondents volunteered that their biggest problem related to tax compliance is card payments. One person commented that, with P-Cards, it is difficult to determine what is being purchased and where it will be used. Further, survey results indicate that about one-fifth of organizations generally disregard or exclude card payments from their use tax accrual process.

Lack of an effective accrual process puts your organization at risk of a use tax assessment that could reach or exceed $1M; see the related blog post by Recharged Education, including tips for improving your approach. Begin by confirming who is responsible for tax compliance for your card program. Do not assume that the tax group is handling it.

OFAC

The Office of Foreign Assets Control (OFAC) maintains the Specially Designated Nationals and Blocked Persons list (“SDN list”), which people also refer to generically as the OFAC list. It reflects individuals, companies, groups, etc. for which assets are blocked, and U.S. persons and companies are generally prohibited from dealing with them. For OFAC resources, visit the website at: https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx.

Per the survey results, 40% of organizations check the list, which is promising. Awareness appears to be growing. The best practice is to check the list for each new vendor, regardless of payment method, and keep related records of your efforts. Has your organization assigned this responsibility to a specific department?

Final Thoughts

As recommended in the AP Now report of survey results, combatting the challenges begins with actively pursuing channels to better understand the regulatory requirements and determining where your organization falls short. From there, incorporating knowledge of the requirements into best practices is the right path. This includes:

Assigning related responsibilities
Providing training
Updating policies and procedures as needed
Exploring technology options when warranted

Survey Results

To purchase the complete survey results, visit the AP Now website: http://www.ap-now.com/products/item100.cfm.

About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…

Subscribe to the Blog

Receive notice of new blog posts.

Commercial Card/P-Card controls are expanding. They are no longer limited to preventing and detecting card fraud. Transaction audits and process audits are not enough. We are also responsible for protecting against crimes like money laundering. This applies to everyone, including end-user organizations and providers.

Cardholders’ Personal Information

At least one large card issuer has already redefined the Commercial Card application process by requiring personal information on all cardholders, such as an employee’s home address, date of birth and country of nationality. Corporate liability does not matter. Issuers need to know who the cardholders are, regardless of whether end-user organizations perform credit checks and background checks on their employees. After all, if a Commercial Card is used to facilitate money laundering or support terrorist activity, a spotlight will be on the issuer and litigation is sure to follow.

Why all the fuss now? The Bank Secrecy Act (BSA)—sometimes referred to as the Anti-Money Laundering Law (AML)—is nothing new. However, subsequent laws, such as those stemming from the Patriot Act, have added to the provisions. Banks (issuers) might just be behind the times in enacting a process for Commercial Card programs.

Action Items for Your Organization

As an end-user organization, what can you do? Employees may resist against providing personal information on a Commercial Card application, but, as individuals, our information is already “out there”—with our medical providers, insurance agents, accountants, banks, etc. Ensure card applicants understand the rationale and regulations behind the requirements. Such information serves a clear purpose. Can your organization do more to know who its employees are? Increasingly, end-users are doing “OFAC checks” on their suppliers, utilizing the Specially Designated Nationals List (SDN). Are you taking similar measures for employees? Protect your organization by making the move to redefine your internal controls—for Commercial Cards and more.