The Party’s Over for Two Cardholders Taken into Custody

Two cardholders from a university are facing federal charges in conjunction with internal card fraud, but, as always, I keep thinking about the reviewers/approvers in this case. They are supposed to be the first line of defense against cardholder fraud and misuse, but we all know that managers’ vigilance can be hit or miss. This reality means the auditing process better be sound to catch anything missed at the cardholder and manager levels. Keep reading to see more about the fraud case, obtain six audit recommendations, and learn about a May virtual workshop for auditors.

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.

Since managers’ vigilance (in overseeing cardholders’ activity) can be hit or miss, the auditing process better be sound...

Audit Recommendations

  1. Do not rely solely on random transaction audits. Be strategic; see examples.
  2. Ensure every cardholder is thoroughly audited at least once per year.
  3. 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.
  4. For suppliers with whom your organization has an ongoing relationship, obtain reports showing what cardholders have purchased. This can help uncover falsified receipts.
  5. 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. 
  6. 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

Purchasing Card Audits—Best Strategies for Internal Audit

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...  


About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

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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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Procurement fraud and card misuse reenter the news.

Two different situations, but both yielded negative press. The following stories once again highlight control gaps that allowed fraud and misuse to occur. While we cannot control the media, we can learn from the mistakes of others. To keep your organization out of the “bad news” arena, take necessary actions now to improve internal controls. 

If your card program (or your client's card program) has been the subject of a good media report, I encourage you to share it within the comments section below. 

Avoid being the topic of bad news by utilizing effective internal controls.

Avoid being the topic of bad news by utilizing effective internal controls.

1. Procurement Fraud 

The Financial Industry Regulatory Authority (FINRA) permanently barred a former Charles Schwab financial representative after he purchased and resold approximately $1 million of office equipment.

FINRA records note that, between February and August 2014, the rep used the firm’s corporate procurement system to purchase office equipment for his branch office in Florida, which he later sold to various people to obtain cash for himself. Multiple organizations reported this story last November, including ThinkAdvisor.

Control Gaps

I doubt that it was typical for a rep with his size of office to spend nearly $1M on office equipment in less than a year using corporate funds. Such activity could not even be explained away as a new rep establishing an office (it would be quite an office!), as he was a 15-year veteran. I assume that the control gaps included:

  • Overly trusting management who did not consider or believe that a veteran employee would commit fraud 
  • No budget for the rep to adhere to 
  • No purchase limit/threshold preventing the rep from spending above “X” amount via the procurement system each month 
  • No one monitored his purchases or visited the branch office for purchase follow up 
  • Lack of fixed assets tracking 
  • No one reviewed spend reports to compare the rep’s monthly spend total to previous year(s) or to other similar sized reps in an effort to identify out-of-norm spending activity

2. Card Misuse/Abuse

Right in my own backyard, the local newspaper, Star Tribune, reported last month on card misuse and abuse within the Minneapolis Public Schools (MPS). The issues included inappropriate purchases, lack of receipts (even though receipts are required) and out-of-policy purchases; for example, using the card at local restaurants when the policy only allowed meal purchases while on business travel. Top executives have been part of the problem. 

Fixing What is Broken

After reading the initial article on January 11, I contacted the author to offer my insight on the district's woes. A follow up article published by the Star Tribune on January 12 included some of my comments. (I garnered a modest 80 words.) My recommendations included the standard control best practices:

  • Assigning and enforcing accountability for the oversight role to ensure policies are followed by everyone, including executives 
  • Clear P-Card policies and procedures (P&P) 
  • Mandated training prior to card issuance and annually to stress key P&P, such as what is and is not allowed 
  • No tolerance for policy violations, including missing receipts 
  • More strategic MCC blocks; for the district, this could mean blocking restaurants and similar unless the cardholder will be traveling 
  • Obtaining reports from key suppliers that show off-contract purchases; for example, with the office suppliers vendor, are cardholders purchasing higher quality goods than what are allowed? 
  • Effective auditing on an ongoing basis to catch and remedy issues if/when they emerge


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

Subscribe to the Blog