The following scene could easily be converted to any public or private sector organization—including yours—unless the right controls are established. Let’s set the stage. The spotlight is on the Eagle River/Chugiak Parks and Recreation Division in Anchorage, Alaska. A recent audit of P-Card activity from January 2020 through February 2021 revealed excessive purchases of supplies and décor for events that never happened due to the pandemic. Picture more than $10,000 in Halloween decorations and multiple swim toys/games spilling out of office storage closets, and more items haphazardly stacked elsewhere. Add in the look of surprise on staff members’ faces who were unaware of the existence of such items or why such purchases occurred. Most of the questionable expenditures were made by a division manager. The audit findings note a “culture of excess,” among other issues. See five control gaps that contributed to this problem and what your organization should be doing.
What Went Wrong
P-Card controls should not only protect against fraud; they must also help prevent questionable business purchases. The Eagle River/Chugiak Parks and Recreation Division fell short in many ways, based on the related article by Anchorage Daily News.
Cardholders were allowed to review and approve their own purchases, or allow subordinates to approve.
Anyone with knowledge of P-Card best practices knows this is a big mistake. Ensure your P-Card policies and procedures clearly state that each cardholder, including executives, must have an appropriate “approver” who is at least one functional job level higher than the cardholder. See more about key control roles in a P-Card program.
Records of the transactions were incomplete or inaccurate.
Without an appropriate approver, this is not surprising. In addition to detailed supporting documentation, the transaction reconciliation process by cardholders should include entering a note about the business purpose of each purchase when not obvious.
The purchased supplies were not inventoried.
This is an issue that many organizations overlook, but it appears regularly in news stories about card fraud or misuse. One such story pertained to a school superintendent who purchased iPads that no one could locate. Your organization should have controls in place, such as documentation of where purchases are delivered or stored, and periodic audits. Do not forget purchases made by, or for, remote workers. Does your organization have an inventory of the notable work-from-home items (e.g., office chairs) that it has paid for?
Purchases were “unplanned” per the Internal Audit Department director.
This is a budgeting problem, including lack of budget oversight. Significant projects, including events like Halloween parties, should have a budget, a list of approved expenses, and up-to-date recordkeeping of related purchases.
There was not an effective monthly auditing process for transactions. The news article referenced an annual review of P-Card purchases, leading one to assume that the best practice of monthly transaction audits did not occur. See more about card program auditing.
Take a close look at your P-Card policies, procedures, and controls. Is your organization at risk for frivolous purchases? Close the control gaps that allow such activity to happen.
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About the Author
Blog post author Lynn Larson, CPCP, launched Recharged Education in 2014. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…