Danger signs of card misuse.

July 26, 2017 Lynn Larson

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.

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 belief, including 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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Who audits the program manager?

July 10, 2017 Lynn Larson

In the life of a Commercial Card program, cardholders are routinely under a microscope. Yet, an auditor’s radar may fail to pick up the program manager or administrator (PM/PA). Even if the PM/PA is a rock star within the organization, no one should be exempt from an audit process. Following are six PM/PA aspects for your internal audit team to review.

PM/PA Aspects to Audit

1. Separate from the policies and procedures (P&P) cardholders must follow, are there current, documented procedures for tasks executed by the PM/PA? Examples include steps the PM/PA follows to establish a new card account, monthly reporting and analysis performed by the PM/PA, and how to resolve card usage issues like declined transactions.

2. Perhaps most important, does the PM/PA consistently follow documented procedures? For example:

If the PM/PA must ensure a card applicant completes training prior to receiving a card, the auditor should review the timing of the training versus the timing of card issuance/activation.
If the PM/PA must notify a cardholder’s manager upon instigating a temporary limit increase, is there documentation (e.g., an email to the manager) to support this?

3. What type of system access does the PM/PA have? Is there adequate separation of duties? For example, the same person should not be able to:

download transaction interface files from the issuer and upload into the finance system
upload transaction interface files into the finance system and make coding changes/other corrections to the uploaded information

If a lack of resources makes separation of duties impossible for certain activities, then, at a minimum, there should be sufficient means to monitor the PM/PA’s activity, such as an electronic audit trail and/or management oversight.

4. Are there effective controls to ensure the PM/PA does not obtain unauthorized cards? In my role as a PM, an auditor asked what prevented me from getting and using a card without anyone knowing. I had to admit that it would be easy for me to obtain a card for myself, but I explained the detective controls that would catch this.

5. Is the PA/PM allowed adequate time to spend on card program management? If they are pulled in too many directions, it increases the risk to the organization and the program will likely flounder. An auditor can help shed light on this problem.

6. Is there sufficient backup for when the PM/PA is out of the office or otherwise unavailable? Select an appropriate employee—someone with the right skills—for this role. Also, if someone is trained as a backup, but does not routinely execute back-up duties, then he or she might get rusty.

Final Thoughts

The PM/PA is critical to long-term card program success. An organization should design the role thoughtfully, hire wisely, and audit regularly (e.g., annually).

Related Resources

If your organization would like assistance with developing the PM/PA role and/or audit process for the P-Card program, contact Recharged Education.

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Interview questions for a Commercial Card role.

June 22, 2017 Lynn Larson

Is the right person managing your card program? If not, the problem could be tied to the hiring or selection process your organization used. The next time a Commercial Card program manager or administrator (PM/PA) is needed, ensure your organization is thoroughly prepared. Following are 15 sample interview questions plus an often-overlooked piece of the process.

Interview Questions

Besides standard questions pertaining to a candidate’s professional successes and mistakes (card-related or not), an organization should dive into their opinions/knowledge. In addition to learning about the candidates, you could pick up information and ideas to help your program.

Sample questions:

What is the biggest mistake an organization can make with respect to a card program?
What do you think is the most effective approach for training cardholders and why?
How would you help cardholders’ managers be successful at their reviewer/approver role?
How would you maximize the process savings possible from P-Card usage?
What are some key metrics for evaluating the health/status of a P-Card program?
What is your philosophy regarding card limits (spend and velocity) and MCC restrictions?
How important is Level III transaction data?
What do you think is the best approach for auditing transactions?
What are the benefits of card acceptance for suppliers? Can you share a time when you had to convince a supplier to accept card payments?
Do you have experience using cards in response to a disaster or emergency?
What are your views of a One Card strategy versus two separate programs—P-Cards and Corporate Travel Cards?
Where do you see electronic accounts payable (EAP) solutions fitting into a payment strategy?
Do you have a preference between Virtual Cards (pull payments) and buyer-initiated payments (push payments)?
What roles should procurement and accounts payable fill in relation to a card program?
When should an organization use non-card options—checks, ACH, and wires?

The interview questions your organization chooses to use will likely depend on the status of your card program, as well as your organization’s payment-related interests, priorities, and challenges.

What to Not Overlook

At some point, the hiring process should also test a candidate’s skills that are relevant to the job. For example:

To assess their training style, ask the candidate in advance to prepare a 10-minute PowerPoint presentation to deliver during the interview.
To confirm their writing abilities, request an on-the-spot writing sample.

For either endeavor, one possible topic is P-Card benefits. Further, to evaluate their analysis skills, provide card program data or a report and ask the candidate for their opinions/interpretation. Taking the time to conduct tests like these will improve your organization’s chances of hiring the best possible candidate.

Resources

See additional hiring tips and access related resources.
Contact Recharged Education if your organization would like help with developing a PM/PA job description or formulating interview questions specific to your needs.

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