About the Case

The two employees, who both held research-related positions at the University of New Hampshire (UNH), allegedly used their P-Cards to make thousands of dollars in personal purchases, including Amazon gift cards, and then falsified receipts. As reported by fosters.com, a service of seacoastonline.com:

The cards were intended for expenses incurred through research covered by federal grants.

They were required to provide receipts and written justification for their purchases.

Another UNH department reviewed and approved their transactions, seeking reimbursement from the appropriate grants.

A federal grand jury recently indicted both men on 31 counts of theft of government funds.

Read the complete article published by fosters.com. It indicates that the fraud was caught via a random audit, but the exact details are unknown.

Audit Recommendations

Do not rely solely on random transaction audits. Be strategic; see examples.

Ensure every cardholder is thoroughly audited at least once per year.

If your organization does not already have it, seriously consider an auditing solution/technology. It covers more ground than what a human can do and is less prone to errors.

For suppliers with whom your organization has an ongoing relationship, obtain reports showing what cardholders have purchased. This can help uncover falsified receipts.

If purchases from Amazon are allowed, audit a high percentage of these transactions every month (audit 100% if using technology). Better yet, switch to Amazon Business, which offers various controls.

Occasionally verify the presence/location of purchased items to ensure the goods are not somehow “missing,” especially those that might be tempting for personal use.

See also recommendations related to manager-approvers and how to help them be successful. I wish I knew what the aftermath was for the department that approved the two cardholders’ transactions! Accountability is critical.

P-Card eWorkshop for Auditors

In early May, I will be delivering a four-hour virtual training course for The Institute of Internal Auditors/American Center for Government Auditing. Targeted at auditors in the public sector, but still suitable for all sectors, the content will help auditors better understand Purchasing Cards and what should be audited. Learn more about this event...

I was planning to take a break from the fraud topic, but recent local news changed my mind. The day after I delivered a three-hour workshop on P-Card risk assessments, an article published by the Star Tribune grabbed my attention: Nonprofit CEO Bill Davis pleads guilty to fraud, theft charges. Here we go again. It drives home what I have written about before. Everyone, including executives, must be held accountable. Read what happened below. Could this occur at your organization?

The Fraud

Bill Davis was CEO of Community Action of Minneapolis (CAM), a nonprofit organization for assisting low-income people with heating/energy bills. Within a multi-year span, he spent thousands of dollars every month on the company card for personal purchases, including a new car, expensive trips, and gifts for different girlfriends.

Apparently, the Minnesota Department of Human Services (DHS) fulfilled some type of audit role. Davis was charged after the DHS discovered his organization misspent at least $800,000 between 2011 and 2013. This fact made me wonder how frequently audits occurred. Every few years?

How Could this Happen?

There appears to have been no card program policies and procedures. Davis seemingly had free reign to do whatever he wanted. It gets worse...

According to one article, Davis bullied his employees and fired them if they asked too many questions. He also had the backing of local politicians, some of whom were on the organization’s board. To top it all off, when facing increased scrutiny of his actions, he claimed unfair treatment.

Fast forward... Davis has pleaded guilty to 16 counts of fraud and theft, and prosecutors have ample evidence. Sentencing is pending.

Access the Articles

Below are links to the Star Tribune articles. I encourage you to take a look. The second one is particularly entertaining in a sad way.

See also my July 13, 2016, blog post (Who pays for payments fraud?) that offers additional insight into this fraud case.

Reminders

First the “Duh” statements:

No organization should ever hand out company credit cards without any rules or ongoing monitoring.
No position should be exempt from oversight or disciplinary action.

Is executive fraud shocking in this day and age? Unfortunately, likely not, but the details of a particular incident can still have shock value.

Addressing Executives

This is challenging, but organizations must plan for potential issues. Executives have to report to someone, likely a board. Does your organization have a mechanism by which employees can bring concerns about the C-suite directly to the board? From the start of a card program, the board needs to agree and sign off that executives will be held accountable like any other employee.

Perhaps an organization’s internal agreement that employees sign prior to obtaining a card should also include a stipulation that all cardholders will be held to the same policies and procedures, regardless of position, age, gender, ethnicity, etc. Consult with your legal department or Human Resources on this.

I am interested in what others have to say on this topic.

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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