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Government workers sometimes abuse credit cards

Without proper oversight, employees use cards for personal expenses

By LaRita Heet

A slew of recent scandals over credit card abuse by local government officials across the country shows the need for stringent controls over purchasing cards, or "p-cards," say experts.

The release of the Government Accountability Office's March 2008 study created increased scrutiny for federal employees -- and for good reason. After examining purchase card transactions made in the year ending June 30, 2006, GAO investigators found an estimated 41 percent of the charges were improper in some fashion -- mostly because paperwork was not filled out right, or authorization was not granted, but there were also a few cases of headline-generating, spectacular abuse.

What the GAO didn't examine were the equally unsettling, improper government p-card transactions occurring at state and local levels. Thanks in no small part to anonymous tipsters and internal audit investigations, these cases are slowly being uncovered.

Some of the recent cases of government employee p-card abuses of taxpayers' money include:

  • A Gary, Ind., school superintendent, who spent $15,814 improperly. As a result, the school board ordered the entire administration of Gary Community School Corp. to hand in their collective corporate cards.
  • The Mandeville, La., mayor and other city officials, who have been accused of ringing up several thousand dollars' worth of purchases on their city credit cards. The finance director alone is alleged to have spent almost $13,000 on his city-issued card within a five-year period. 
  • A Tarpon Springs, Fla., city employee who was arrested and charged for using her city employee credit card for personal purchases, and the nearby Safety Harbor's longtime finance director, who is under investigation for similar allegations.

Do these and numerous other cases of government employee credit card fraud spell the end of the p-card program? Tina M. Borger, CPPO, director of research and technical resources for the National Institute of Governmental Purchasing Inc., doesn't believe so. (See 5 ways small business owners can prevent employee credit card abuse )

"According to the 2007 Benchmark survey results, 70 percent of NIGP agency members have p-card programs. We have not resurveyed our members since the GAO study was released, but it is unlikely that public agencies discontinued these successful programs on the basis of the GAO study or problems within other programs," says Borger, who has more than 30 years experience in public procurement, and calls herself a "strong believer in the value of p-card programs when properly implemented."

Instead, says Borger, "The more likely result of such reports is a review of the controls in place to prevent or identify similar problems. Of those responding, 80 percent of the programs are administered by procurement or by procurement and accounting. While it is nearly impossible to stop a person determined to violate laws and policies for personal gain, a good oversight program should identify problems on an ongoing basis so that immediate and appropriate action may be taken."

State college employee charges nearly 4,000 high-ticket items worth more than $316,000 on her employer-issued purchase card

In one of the more spectacular cases of purchase-card abuse, Georgia Tech employee Donna Renee Gamble went swipe-happy with her state-issued p-card -- to the tune of $316,000 in personal purchases. From 2002 to 2007, Gamble purchased nearly 4,000 high-ticket items, including a big screen TV, a Yamaha Waverunner III personal watercraft, computers, a $1,900 frozen drink system, a treadmill, musical instruments, top-of-the-line digital cameras, iPods, bikes, power tools and yard machines, jewelry and season tickets to Auburn University football games. In August 2008, she was sentenced to 32 months in prison.

The benefits and drawbacks of p-card programs
Government employee p-cards allow employees to make small purchases in an efficient manner. Research has proven the old purchase order form of supply replenishment is slow, inefficient, and just plain outdated, while p-cards give employees and managers the freedom to buy office and other supplies as needed. P-cards are as easy to use as credit cards: just a quick swipe and there's no down-time waiting for supplies to arrive, no purchase orders to reconcile and no more waiting for UPS or Fed-Ex to deliver those supplies.

Unfortunately, government employee purchasing cards are a little too easy to use -- and too tempting for some employees to resist. State and local government employees have squandered taxpayers' money on everything from cruises and lingerie to cars and major appliances. These employees, driven by greed or perceived need, hail from universities and school districts, city councils and other state or city government organizations.

Put controls to work, in writing
In a surprising number of government p-card misuses, the accused employee claimed not to know he or she was violating any policies. Even more shocking is the fact that many of the defrauded organizations did not have any p-card policy to address proper spending regulations.

Basic common sense should dictate that Broadway show tickets, cruises, $8,000 TVs and casino trips fall directly under the umbrella of improper government credit card usage, but policies and follow-through are the only way to ensure that everyone knows and follows the rules, says Robert Hammer, president and CEO of R.K. Hammer Investment Bankers in Thousand Oaks, Calif. His advice to both government agencies and private companies is simple: Leave nothing to chance or misinterpretation. "Have a proactive, very smart policy that is well defined and well known for every employee," says Hammer.

Though every organization that provides purchasing cards -- or other types of credit cards -- to its employees should have a written policy about the use of such cards, instruction or policy alone is not enough to deter fraudulent practices, as evidenced by many such cases. Nor is it enough for an organization to talk the talk about reviewing p-card transactions if such reconciliation is nothing more than a cursory glance and signature.

Despite the fact that some people find loopholes in the policies, p-card programs actually offer more built-in controls than the small purchase and payment methods they replaced -- petty cash and direct payments, says Borger. "Controls can be placed at many points, including single purchase limits, monthly limits, and by merchant code. For example, for a small purchase p-card program, merchants selling alcoholic beverages could be blocked from usage. However, if the p-cards were used for travel as well as small purchases, this control would prevent usage of the card at most restaurants."

The importance of oversight
P-card spending policies are not the be-all, end-all answer to improper government credit card spending, however. Some cardholders ignore the policy, while others can and do get by with misspending by obeying the letter, rather than the spirit, of the law.

Employees with access to government credit cards should understand that the unauthorized use of public funds can lead to a felony conviction and prison.

-- Attorney David E. Nahmias    
    

Take the case of Marsha Ollison, a former employee of the Dallas Independent School District, who was convicted by a federal jury of theft from an organization receiving federal funds, after she purchased $56,000 worth of personal goods with her p-card. Despite receiving an instruction manual that dictated school district p-cards were for official use only -- and despite signing a Procurement Cardholder Agreement Form that stated, "I understand that under no circumstances will I use the procurement card to make personal purchases, either for others, or myself," Ollison made the fraudulent purchases during 2004 through 2006. In September 2007, Ollison was sentenced to 18 months in prison and ordered to pay $64,000 in restitution to the district.

In another situation, a Missouri state audit of the city of Springfield uncovered excessive Visa charges by several city employees, including those of city help desk coordinator, Pam Cummings, who managed to run up $397,412 in charges -- and still not "technically" violate the city's p-card policy, according to the audit. Cummings, whose job included purchasing computers and related equipment for the city, evaded detection -- and skirted the spirit of the p-card policy -- by keeping every charge under the $5,000 single-purchase limit set forth in the policy.

The Springfield audit also showed that 450 city employees held city p-cards, and that during the year ending June 30, 2007, p-card purchases totaled approximately $6.6 million. Though most of the employees had used their cards appropriately -- and only when necessary -- the audit concluded that "excessive spending limits has exposed the city to unnecessary liability. The city needs to implement better controls over purchasing card expenditures. We identified excessive spending limits, unnecessary purchases, split purchases to circumvent transaction limits, and inadequate supporting documentation."

Springfield's audit shows the general p-card trend among government organizations: the program itself is worthwhile, but as with any program that involves a multitude of people and their backgrounds and intentions and ethics, controls and oversight are needed to ensure that everyone makes the right choice.

Many fraudulent p-card practices can and obviously do escape notice -- often for months and years -- due to a "breakdown in the oversight," says John Jahera, Colonial Bank Professor at the department of finance of Auburn University in Alabama.

We identified excessive spending limits, unnecessary purchases, split purchases to circumvent transaction limits, and inadequate supporting documentation.

-- City of Sprinfield, Mo.
auditor's report

Jahera, who is in charge of signing off on purchases made by his department, understands the work and time involved in such oversight. "Every month, we have to reconcile the statements. I would assume that any organization that has sound accounting controls would have a monthly reconciliation. For those situations where there's been significant abuse, obviously someone is starting the process, but it sounds like there could be a lack of oversight as the payment process works its way up the channels. Because it is easy to use -- a staff member has a purchasing card to go buy a small amount of office supplies, or whatever it is that you need, and we've seen some extreme cases on the news," he says.

Wayne Harris, 60, executive director of the Crestview, Florida, Chamber of Commerce, and a retired first sergeant in the Air Force, has held both government and corporate credit cards throughout his military and civilian careers. Harris, whose Air Force credit card was "very closely monitored," says that thorough scrutiny and regular reconciliation of government employee credit card purchases is crucial. "These are tax dollars, and that should be strictly accounted for. Every credit card charge should be strictly accounted for," he says.

Regular submission of detailed receipts by the cardholder should be a "basic requirement for p-card use," says Borger. "Failure to submit timely receipts can be cause for disciplinary action ranging from temporary or permanent loss of card use, deduction of un-documented charges from pay, and suspension or termination of employment. While many organizations are concerned with the 'risk' of loss associated with the number of p-cards issued. This concern should be weighed against the risk of one often-used solution -- issuing fewer cards but allowing shared use of the same cards by multiple individuals. With a one-card/one-user program, the cardholder is held accountable for all charges on the card, while with a shared card, everyone can deny making the charge and an illegible signature can be impossible to identify."

The final reconciliation
In spite of occasional improper spending problems within some governmental organizations, government employee p-card programs are here to stay, says Borger.

"According to the NIGP 2007 Benchmark Survey, the mean average number of annual transactions per agency was 26,807, used primarily for travel and small purchases using the most efficient and effective method possible. On average, in one year, the average agency avoided the time and expense of issuing over 26,000 purchase orders and cut 12 rather than thousands of checks," Borger says. "Regardless of how a purchase or a payment is made, a public agency must ensure compliance with laws and policies. Checks and balances must be in place. Documentation must be required and reviewed. Noncompliance must be identified and addressed."

The bottom line?

"P-card programs, when properly implemented and operated, are extremely efficient and effective," says Borger. "There have been many instances where an individual has embezzled large sums of money by manipulating accounting systems, but no one suggests no longer using automated accounting systems in favor of returning to manual checks. Why should we discontinue using p-cards because of a relatively few number of similar abuses?"

See related: 5 ways small business owners can prevent credit card abuse  

Published: October 10, 2008


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