Internal fraud case serves up a reminder for all.

February 5, 2018 Lynn Larson

My local news dished up another case of internal fraud that every organization should take seriously to avoid making the same mistake. A former Allina Health vice president is facing multiple felony-level embezzlement charges stemming from false expense reports and unauthorized charges on his company card. It’s possible the crime started more than 10 years ago. How could this be? What did the company do wrong? Could your organization be at risk? Keep reading to see what the county attorney revealed, as reported by the Pioneer Press.

Lesson to Learn

The case is evolving, so many details are still unknown at this point. However, unauthorized charges include season tickets to local professional sports teams. Allina placed the executive on leave when he could not justify his expenses. February 14 is the related court date. This will be an interesting case to watch. For more information, access the Pioneer Press article.

Hennepin County Attorney Mike Freeman observed that the case follows a familiar pattern, explaining, “The employee is highly trusted and, over time, the good financial safeguards stop being applied to that employee.” Sadly, this is all too true. Every internal fraud story that I’ve read indicates some degree of an organization not monitoring an employee’s activity.

It is human nature to be swayed by looks, personality, accomplishments, job position, tenure, etc., even though none of these things indicate the likelihood that someone will or will not commit a crime.

I also think about the “ideal” cardholder—someone who is always on time and accurate with reconciling transactions, and organized with their supporting documentation. When a cardholder has a proven track record, I can see how it would be easy for a manager to skip their review duties and, chances are, the cardholder is trustworthy. Nevertheless, assumptions and intuition should not replace the execution of control procedures.

Can you pick which employee is most likely to commit fraud at your organization? You might be looking at the wrong bunch.

Action Items

Evaluate how well your organization applies measures to detect card misuse and inappropriate expense reimbursement requests.

Are managers doing their jobs? Help them be successful; see a related blog post for tips.
Do you have an effective auditing protocol? Making use of technology typically yields better results than relying on manual auditing. It might be time to rethink your P-Card auditing approach.

Consider sharing news articles about internal card fraud with your management to illustrate what can happen.

If your organization already does a good job with holding employees accountable for their roles, you can use these types of articles to highlight the strength of your program.
Conversely, if you lack confidence in your organization’s controls, such articles can help support your quest for improvement.

Access more content on P-Card controls and additional blog posts on fraud incidents.

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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Use P-Card metrics to keep a program on target.

January 10, 2018 Lynn Larson

Do you ever wonder how other P-Card professionals utilize metrics? What do they track and why? I recently had the opportunity to dig into this topic with industry veteran, Karla DeSimone. With nearly 20 years of program management experience, she has successfully used metrics to drive growth, while also juggling 10 different P-Card programs under the umbrella of the parent company. Keep reading to learn how she met the related challenges through a combination of metrics and communication, and subsequently achieved a $140M card program.

Managing Multiple Programs

Q: Did the parent company require its affiliates to use P-Cards?

A: No. As the parent company acquired additional companies, they allowed these “affiliates” to conduct business as usual—however they saw fit. P-Card usage was encouraged, but was not mandatory.

Q: Many P-Card professionals struggle with the politics of managing disparate programs. What was your communication strategy?

A: My goal was to get them to trust me. I was always in touch and very accessible to them. I provided advice about how they could grow their P-Card programs, including sharing examples and the estimated benefits. I also encouraged the different affiliates to talk with, and learn from, each other.

Program Goals

Q: How did you drive program growth?

A: Each year, I asked the affiliates about their P-Card goals, quantifying them in terms of spend and transaction volume. We then provided quarterly metrics that compared quarter over quarter and year over year, so they knew exactly how they were tracking. Also, the parent company returned 100% of any earned rebate back to the affiliates quarterly.

Q: How did their goals impact the overall program?

A: Based on the collective goals of the affiliates, I made projections five years out and purposely pursued an aggressive contract with the card issuer. When our program was growing significantly, there were times I would use these projections to initiate a new contract before the expiration of the current one, ensuring I was returning the best rates to our affiliates.

Q: What happened if an affiliate did not meet its goals?

A: Because P-Card usage was not mandatory, there were no consequences if an affiliate did not meet its goals. However, there were monetary consequences if the company overall did not meet the contract terms with the issuer, but, fortunately, this never happened. Metrics provided a road map to me and I closely monitored each affiliate’s program. If one was tracking down, I knew I had to recoup that volume elsewhere. Often times that meant revisiting an affiliate that had not yet joined the program or determining how I could get an existing affiliate to utilize the program more.

Q: How did you approach an affiliate that was falling short of goals?

A: In addition to the robust quarterly metrics we provided, mid-year I would make suggestions on how they could get back on track. For example, I might suggest the issuer perform a “vendor match” to see who accepts cards. This allowed us to get a feel for the affiliate’s potential versus their actual card usage. At times this caught the attention of upper management, depending on the potential. Then, at year-end, I would highlight opportunities they could capitalize on in the new year.

Metrics Tracked

Q: Which metrics did you track and how often?

A: On a monthly basis, we tracked:

Transaction counts and spend for the month plus annualized
Average monthly spend
Estimated earned rebate
Large ticket (for which the rebate was lower)
Non-qualifying/non-rebate spend (e.g., rush cards, fraud, etc.)

We also tracked fraud:

Monthly fraud by affiliate and who had the most fraud exposure
Annual fraud percentage by affiliate and for the whole program overall
Outcomes; for example, if all the money was not returned, we called the bank at 90 days to ensure credits were applied, balancing to zero

Q: Were process costs evaluated as well?

A: No, it was not possible for us to evaluate process costs due to the size of our organization and eclectic nature of our company. We did not follow any one process, nor use any one ERP system across all our affiliates. As we bought companies, we allowed them to remain independent and then manage/incorporate their business into our operational management.

Q: What would you report to management?

A: We used a dashboard style (single page) on a monthly basis, which included the following by affiliate and aggregate.

Monthly metrics: Spend, transactions, card count, estimated rebate, and a fraud summary
Card administration: Cards issued, cards canceled, credit limit changes, MCC changes, misc. changes (address, default accounting, name changes), cards reported lost/stolen
Concur administration: Employees added/deleted, policy/rule set changes, approver changes, accounting changes, etc.

Related Resources

Access the metrics section of the website to learn more, including tips for refining or building a metrics plan, how to present numbers/statistics with flair to your management, and more.

More About Karla

Karla DeSimone has been a Commercial Card professional for nearly 20 years. Most recently a privately held publishing company, headquartered in NYC, recruited Karla to implement and manage the operations for their Commercial Card program. Prior to that, she managed a large program for a pharmaceutical company in California. Karla has been selected to speak at many card-related conferences over the years and has been recognized by the industry for her outstanding program management. She is currently seeking new employment opportunities in the card arena. Feel free to contact her at kdvntravels@gmail.com.

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