After years of rumors, here-say, and unwritten code that outlawed the use of credit cards by Israeli nonprofit organizations, the newest version of the Nihul Takin [Certificate of Proper Management] from Israel’s Rasham Ha’amutot [Registrar of Charities] clearly permits the use of credit cards by Israeli charities…kind of.
Unfortunately, vague unwritten guidelines have now been replaced by confusing and unrealistic written rules. Progress?
So should your amutah [Israeli Charity] use a credit card? As no two charities are the same, that answer is best left to your organization’s board, accountant, and/or lawyer.
What I can do, however, is share the research I have done and practices I have witnessed from countless nonprofits, which will hopefully save your organization precious time.
WHAT’S THE PROBLEM WITH CREDIT CARDS?
Israel’s Registrar of Charities takes issue with credit cards, as written in the Nihul Takin:
“Use of credit cards by an amutah [Israeli Charity] constitutes a problem because it does not enable the signature of two authorized signatories as is required, and it therefore adversely affects control over the way in which the amutah’s funds are handled.” – Nihul Takin (See below for links to the full text.)
(In short, proper financial oversight is practiced when transaction are signed by at least two signatures, but a credit card transaction can be executed by just one person.)
HOW SHOULD MY AMUTAH USE ITS CREDIT CARD?
The Registrar acquiesced in its newest version of the Nihul Takin (the third and final draft was released in June of 2010) to the use of credit cards by Israeli charities. Israel’s Registrar of Charities lists two options whose lack-of-clarity and wordiness, unfortunately, require me to translate its instructions and has led various experts unsure as to what to recommend:
“A credit card that is limited to the amount permitted for use as petty cash, and uses it solely for permitted petty cash expenditure…which contains a restriction on the amount of a one-time item of expenditure (such as charged card) or a monthly limit of expenditure (such as a card with a credit facility limit of a small amount).” - Nihul Takin
Translation: A credit card can replace petty-cash, used for similar purposes.
Pro: Some consider this option to be the simplest and most straight forward because it allows for a credit in the organization’s existing bank account.
Con: Regulations (specifically those issued by the Income Tax Authority) do not specify the proper types of petty cash expenditures nor the monthly limit for petty-cash, the optimal credit limit for this kind of card is hard to know.
Con: If the Registrar is still, indeed, worried about the possibility of executing transactions by a lone signatory, this solution doesn’t address this dilemma.
“A credit card, as to which the payment thereof is subject to the existence of a monetary balance in a designated account opened for the purpose of use of such a card. The use of a card of this type will be subject to transfer of funds to the designated account following a signed instruction by two authorized signatories of the amutah, for the purpose of a particular item of expenditure, noting the purpose of the transfer…for example in order to make payments that can only be made through the internet, payment of a fee to the Registrar, expenses incurred during travel abroad etc.” – Nihul Takin
Translation: Open a separate account that is designated strictly for credit card. The card’s limit will be backed by cash that will be transferred from the organization’s main account. The instruction to transfer the money that will serve as the card’s collateral will be signed by at least two people.
Pro: Even though the card is used by a single individual, the usage is pre-approved and the transfer of the collateral is authorized by the magic number of two. Those in favor of this option feel that with two signatures approving the transfer, the amutah is better protected should its governance and financial practices be audited in the future.
Con: There is an additional headache and possible additional fees (depends on your bank) for opening/managing an additional account.
Con: The Registrar actually envisions a flexible card limit that will change according to the needs and approval of the organization. Very few cards will actually allow this and the charity might find itself in the defensive position vis-a-vis the Registrar despite having the magic “two.”
Not only are some experts unsure as to which option is the best to recommend, other professionals actually advise not use a credit card at all. As one lawyer put it, “This language is purposely confusing, telling me without a doubt that the Registrar really doesn’t want charities to use credit cards.”
And this lawyer is probably right.
Conversations I have had with lawyers and accountants hint that the Registrar of Charities only approved the use of credit cards by Israeli charities due to public pressure and that (not-so) deep down, it hasn’t changed its belief that a credit card is dangerous.
BUT THE SECTOR NEEDS MORE
This last suggestion, while not one of the options suggested by the Registrar, does play it safe. The logic of that last lawyer is pretty sound, that is, except for one thing: today’s businesses NEED a credit card. Internet purchases, certain standing orders, and corporate accounts — just to name a few — won’t accept another type of payment.
But maybe more importantly, by opting out of using a credit card, a charity is allowing the Registrar to dictate unfair and unrealistic business conditions that can cost the nonprofit valuable money and time.
(For example, take one client that is forced to shop at the local mini-mart because he can’t open a corporate account at a neighborhood supermarket since his lawyer recommended against using a credit card.)
Furthermore, if a credit card isn’t allowed for the organization then often employees or board members are forced to use their own personal cards. Not only can this be an incredible burden on the individual that needs to be reimbursed (especially with bigger expenditures like airline tickets), but this method actually exhibits less control, transparency, and fiduciary responsibility than a credit card owned and managed by the charity. (And I say this last point even knowing that the Registrar has accepted reimbursements as a valid payment method for years.)
Instead of being intimidated by the Registrar’s awkward wording, I would like to see charities push back, using the cards in a responsible and financially-smart manner — and defending this usage should ever and whenever it be called into question. Only by showing the Registrar the impractical nature of the current guidelines can Israel’s nonprofit sector garner enough public support to force the Registrar of Charities to rewrite these inadequate “suggestions.”
Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex and ever-changing, please refer all questions to qualified and licensed professionals. Read the full disclaimer.
The Nihul Takin: For a link to an English version of the Nihul Takin can be found on the Registrar’s website here or can be directly downloaded from my site here (the relevant paragraphs about a credit card are on page 34). The Hebrew version is also available from my site here (with the relevant paragraphs on the bottom of page 25). To learn more about the document and why it is a must-read for anyone thinking of joining the board of an Israeli charity, please read my previous post, “Israel’s Nihul Takin Manual Now Available in English!.” Links to the Nihul Takin are in that post, as well.
Life Before the Update: If you’re wondering what Israel’s Registrar of Charities’ response used to be, you can read one of my earliest posts from July 2009, “Can My Israeli Nonprofit Have a Credit Card?”
Photo Credit: “Credit Card Debt” by DebtCovered