Survey Results Reveal P-Card Control Opportunities

If you assume that most organizations require cardholders and the “manager-approvers” to sign an internal agreement pertaining to their card program role and responsibilities, I have contrary news. According to a survey on internal controls conducted by AP Now at the end of 2018, only 29% of the respondents whose organizations have a card program follow the best practice of requiring both groups to sign such an agreement. These organizations represent all types and sizes, proving that best practices are accessible to everyone. Keep reading to see more about the survey results, including a surprising outcome concerning card limits and restrictions.

Internal Agreements

Most organizations only require cardholders to sign an internal agreement, but there are even some organizations that do not utilize one at all. If you do not have one, make it a priority to develop one. Further, ensure your organization is not overlooking the manager-approvers who are responsible for confirming that cardholders’ transactions comply with program policies and procedures. Requiring them sign an internal agreement helps reinforce accountability for their role.

See more about internal agreements, including sample statements to include.

Card Controls

The survey by AP Now, which pertained to all sorts of AP-related controls—not just cards, also explored card controls like spend limits. Respondents were directed to check which ones—from a list of six—they apply to all or most cards. As shown in the graph below, it is very common to utilize a monthly/cycle spend limit, but the results for the other controls are lower than what I expected. Hence, there is ample opportunity here.

Card Controls Utilized_AP Now.JPG

Approximately one-third of respondents’ organizations only apply one or two of the above card controls to all or most employees’ cards. While I always try to steer end-user organizations away from being overly restrictive (to prevent declines of legitimate transactions and encourage card usage), I do recommend taking advantage of what is available. The key is to strike the right balance, aligning card controls with program goals. At a minimum, besides utilizing a monthly/cycle spend limit, organizations should block “high risk” merchant category codes (MCCs), including automated teller machines (ATMs).

Final Thoughts

Internal agreements and card controls are basic components of a program that help deter fraud. I have to wonder if the organizations that fall a bit short in these areas made conscious decisions about them or whether they simply got overlooked. The good news is both are easy to act on and improve.

If you are concerned about potential control gaps within your program, consider attending the three-hour virtual workshop on P-Card risk assessments June 25, hosted by AP Now.

Help your card program withstand the elements that could impede its success. Strengthen the protective controls.

Help your card program withstand the elements that could impede its success. Strengthen the protective controls.



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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

A P-Card Separation of Duties Dilemma

How strong are the separation of duties within your P-Card program? An auditor who used my risk analysis template contacted me recently because one AP clerk performs accounting-related tasks that I recommend be split among two or three people. She described how this employee is responsible for: 1) downloading the file of transaction data from the card issuer, 2) making any necessary corrections to account/budget codes within the file, and 3) uploading the corrected file into their accounting/finance system. She asked me about the risks and what I would suggest they change. Certainly, this organization is not alone in having limited accounts payable resources, which makes complete separation of duties difficult to achieve. As a result, compensating controls are even more important. Keep reading to see more about the dilemma noted above and suggestions for improving the situation.

Risks

Within the text file format (.txt)—the format of the interface file downloaded from the issuer—someone can change any part of the data, not just account/budget codes. This organization confirmed to me that there is no record or report of the changes the AP clerk makes within this file. For instance, she could change a vendor name to hide where someone made a purchase.

If the AP clerk also has the ability to order/request new P-Cards, then she could order a card for herself, use it for personal purchases, and change the cardholder name of the resulting transactions in order to conceal her fraud. While this example is a bit far-fetched, it could still happen. Even though internal departments have the opportunity to review spend reports generated by the accounting system (as a compensating control), they may or may not catch something like this. On a side note, monitoring new cards issued each month is a control for catching unauthorized cards.

Suggestions

  • Make every effort to separate the duties and/or establish the appropriate oversight.

  • Avoid making any changes within the downloaded interface file. Besides the risks noted above, it is too easy to accidentally do something that shifts the data, which can cause problems when uploading to the accounting system. Make the necessary corrections after the file is uploaded.

  • Inquire about the ability of the accounting system to produce an audit trail—a record or report—of changes made. If one is available, a supervisor should review it.

  • Compare reports from the card issuer’s system to reports from the accounting/finance system to ensure accuracy. At least do some spot checking concerning vendor and/or cardholder totals. For example, if a report from the card issuer shows John Smith spent $3,100 for the cycle, verify against the accounting system. This type of activity should be completed by someone who is not involved with the three steps noted above in the post introduction.

  • Finally, contact cardholders and their manager-approvers about any coding errors, so they can learn from the mistakes.

Risk Analysis Event and Template

In June, I will be delivering a three-hour virtual workshop on P-Card risk assessments, hosted by AP Now. One of the planned topics is potential risks related to accounting processes. For details and registration, please visit AP Now. As a bonus, attendees will receive a copy of the risk analysis template by Recharged Education, which normally sells for $89.99. It includes more than 100 questions to help you do a robust evaluation of P-Card controls.

Do you have a gap in your P-Card controls? Evaluate the risk and the potential solutions.

Do you have a gap in your P-Card controls? Evaluate the risk and the potential solutions.



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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

Stop Blaming P-Cards

When internal card fraud arises, an unfortunate, but common, response is to blame the product itself and take cards away from employees or severely restrict card usage. However, the problem is not Purchasing Cards; rather, it is end-user organizations that lack effective controls. This point is clearly demonstrated in the fraud case that rocked a public school district in my home state of Minnesota. I first wrote about it in July of 2017, but it made the news again last week because the party in question—former school superintendent Rod Thompson—pleaded guilty to 19 felonies. The 16-month FBI investigation that started with a look into his P-Card usage led to the discovery of other crimes and policy infractions he had committed. See more below, as well as key questions every Commercial Card program manager should answer.  

The Fraud Case

Thompson’s felonies include theft by swindle, embezzling public funds, and possessing stolen property. He admitted to using his P-Card for numerous personal purchases totaling tens of thousands of dollars. I laughed out loud when his attorney said Thompson was remorseful for his actions. Was he sorry after he bought the flat-screen TV for his home? How about after he purchased an Xbox gaming system? Did he ever turn himself in because he was sorry? Was he sorry enough to stop committing internal fraud? No. He was only sorry after getting caught.

A group of taxpayers can be credited for cracking the case. In response to a district announcement about a substantial budget problem, they requested, received, and dug into spend reports, even though some people basically called them paranoid. This tells me the district was simply sitting on the valuable information. Either no one internally ever reviewed Thompson’s spend activity or they chose to ignore it. I’m not sure which is worse.

The eventual FBI investigation also revealed Thompson used his position to gain personal benefits from a construction company. They paid for tickets to various events (e.g., Minnesota Vikings games) and did work on Thompson’s home. In turn, he awarded them lucrative school contracts. The lesson here is, if you find an employee guilty of one thing, there is a good chance they are guilty of more.

Thompson will receive some prison time, as well as pay approximately $75,000 in restitution.

Eliminating Commercial Cards is the wrong way to respond to internal card fraud. Rather, conduct a thorough program risk analysis and close the control gaps that make fraud easy to commit.

Eliminating Commercial Cards is the wrong way to respond to internal card fraud. Rather, conduct a thorough program risk analysis and close the control gaps that make fraud easy to commit.

Six Questions

If you can answer “yes” to the following questions, your organization is in good shape for preventing and detecting internal card fraud. Nevertheless, a full risk analysis will provide a more complete picture.

  1. Does every cardholder have an appropriate-level “manager-approver” who reviews transactions at least monthly?

  2. Are cardholders and manager-approvers required to sign an internal agreement, and complete training and/or a quiz each year?

  3. Are executive-level cardholders held to the same standards/rules as others?

  4. Do you have a separate, robust auditing process (e.g., auditing technology) to identify potential issues and fraud?

  5. Does your organization enforce detailed receipt requirements? Thompson often omitted receipts or only provided vague ones.

  6. Are tips about suspicious activity followed up on, even if they seem far fetched?

Related Resources



Subscribe to the Blog

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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