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.
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.
Does every cardholder have an appropriate-level “manager-approver” who reviews transactions at least monthly?
Are cardholders and manager-approvers required to sign an internal agreement, and complete training and/or a quiz each year?
Are executive-level cardholders held to the same standards/rules as others?
Do you have a separate, robust auditing process (e.g., auditing technology) to identify potential issues and fraud?
Does your organization enforce detailed receipt requirements? Thompson often omitted receipts or only provided vague ones.
Are tips about suspicious activity followed up on, even if they seem far fetched?
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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…