Danger signs of card misuse.

Another case of Commercial Card misuse has made its way into the news. Once again, the culprit is a person who held a high-ranking position, which created a tricky situation for staff. Keep reading to learn what happened and the unique action that exposed the problem. As for your organization, what mechanisms are in place to protect against abuse by executives? Do you discuss the potential warning signs of card misuse or fraud? See examples below of what your organization should pay attention to.

Card Misuse Case

The situation occurred within a Minneapolis suburb—at the Shakopee Public Schools—but it could happen anywhere. If folks in the public sector are taking chances even with taxpayers’ eyes on them, imagine what could be happening at private organizations.

The following content is based on reporting by Shakopee Valley News.

Rod Thompson, the former superintendent (he recently resigned), began making personal purchases on his P-Card soon after he was hired in 2011, but it was not discovered until this year. In all, he made more than 100 such purchases—many were shipped directly to his home—totaling approximately $15,000. There could be more, as the investigation is still ongoing. Missing or partial receipts, as well as a lack of cooperation by the district, have made the investigative process more difficult.

Thompson reimbursed the district for some personal purchases, claiming he made them accidentally. Based on articles I’ve read, it seems he did not initiate reimbursement unless someone questioned him.

“Dr. Thompson realized the P-card (credit card) had been used as a default card when he made purchases through Amazon and PayPal,” district spokeswoman Ashley McCray said earlier this year.

Gee, how convenient. He never noticed that his personal card was not charged or his P-Card was used. All the more reason for organizations to adopt Amazon Business if Amazon purchases are allowed.

Things began to unravel in March when Thompson announced a $4.5M shortfall within the district due to “human errors made through a series of inaccurate budgeting assumptions, omissions and errors.” In addition, the school district’s cash reserves have been in a downward spiral since 2012. Further, when Thompson left his previous position with a different school district, there was a $700,000 accounting error. Hmmm…

Ultimately, it was a group of concerned Shakopee citizens, not the school board, that began digging into records, which revealed Thompson’s card use and led to police involvement. As a side note, the district is currently revising its P-Card policies and procedures.

More Information 

Shakopee Valley News offers more information on this story.

2018 update: See a follow-up blog post from Recharged Education about the outcome of this internal fraud case.

Credit cards are not dangerous; rather, inaction in response to questionable activity and/or a lack of controls are dangerous.

Credit cards are not dangerous; rather, inaction in response to questionable activity and/or a lack of controls are dangerous.

Possible Warning Signs

Some of the below are demonstrated in the Shakopee story, but I am adding others to round out the list. However, please keep in mind that the presence of a sign does not solidify misuse or fraud. It may simply highlight the need for further review.

  • Cardholder has self-reported (and paid back) more than one or two instances of accidental P-Card use for personal purchases

  • Any “accidental” use that is found by someone other than the cardholder

  • Cardholder fails to provide, or is late in providing, receipts for P-Card purchases; Thompson was guilty of this, even though his executive assistant said she tried repeatedly to get him to turn in late receipts

  • Receipts/supporting documentation do not clearly reflect what was purchased

  • Purported business purchases cannot be located

  • Budget issues within a department

  • A cardholder’s spend is higher than historical averages and/or that of other cardholders with a similar job position

  • Cardholder has personal financial struggles and/or obviously lives beyond their means

Final Thoughts

If an executive has a sense of entitlement, he or she can wreak havoc on an organization by pulling rank on anyone who questions a purchase. While some type of board must provide oversight, they cannot scrutinize everything, as nothing would get done. At some level, a board needs to trust executives. There is a fine line, but controls must prevail. See a related blog post Executive card fraud beyond beliefincluding some tips.

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

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