Cities should review the statement to ensure their use of gift cards is consistent with OSA guidance.
The Minnesota Office of the State Auditor (OSA) recently released a statement of position on the use of gift cards by local government entities. Cities should review the OSA statement to ensure their use of gift cards is consistent with the OSA’s guidance.
Three categories of consideration for city use of gift cards
The OSA statement of position focuses on three general categories of considerations regarding local government use of gift cards:
Using gift cards to disburse or expend public funds
The OSA indicated that cities are limited to specific methods for disbursing public funds, including:
- Negotiable instruments including checks, warrants, and orders.
- Imprest funds.
- Electronic or wire funds transfers.
The OSA is unaware of any statutory authority for cities to disburse public funds using gift cards. Therefore, if a city is using gift cards, it should clarify under what authority it is doing so.
The OSA statement of position reminds us that any disbursement of public funds, including by gift card, must have a public purpose and be authorized by state law. The OSA cautions against the use of gift cards as a “thank you” or as compensation to board members, as such expenditures may not meet the definition of a public purpose or may fail to meet proper payroll requirements.
The OSA does note, however, that there may be certain limited circumstances where the use of gift cards may be authorized, such as when authorized by federal or state grant programs.
Receiving donated gift cards
Because the OSA statement of position questions a city’s authority to use gift cards to disburse public funds, the statement questions the ability of cities to receive a gift card donation if it does not have clear authority under Minnesota law to use it.
Internal controls for handling gift cards
If there is a situation in which a city receives gift cards, the OSA recommends:
- The city establish a gift card policy, which should provide that gift cards should be kept in a secure location and be in the custody of the city treasurer.
- The city should track the disbursement of gift cards, and such tracking should be done by two individuals.