P-cards are a cost-effective and streamlined method for making payments. But if you don’t set adequate rules for procurement staffers, they open the door to misuse, waste and fraud.
IRS learned that the hard way.
Back in 2013, a Treasury Inspector General for Tax Administration (TIGTA) audit revealed IRS cards were being used to purchase items like wine, pornography, expensive meals, and unnecessary decorative and giveaway items. To make it worse, these obviously out-of-bounds expenditures were ultimately on the taxpayers’ dime.
TIGTA determined that IRS lacked policies that addressed:
- canceling p-cards in a timely manner for employees that were fired or quit
- what qualifies as an out-of-policy split purchase that breaks apart a high-dollar purchase to stay within the single purchase limit
- regular reviews for detecting personal use and inappropriate use of p-cards
- tracking the number of p-card account closures due to a lost, stolen or compromised card (a potential red flag for internal fraud)
- tracking whether cardholders reported lost, stolen or compromised cards to the credit card company, and
- a disciplinary action plan for confirmed card abuse.
Flash forward to 2022 and the Service has considerably cleaned up its act.
The most recent TIGTA “Review of the Internal Revenue Service’s Purchase Card Violations Report” states that IRS “is largely effective at preventing employees from abusing government purchase cards (p-cards), with only six confirmed reportable violations from October 2021 through March 2022.”
There were two instances of a cardholder exceeding the single transaction purchase limit, two split purchases and two purchases where the cardholder didn’t have the authority to purchase the item, TIGTA said.
And for the most part, there were consequences. According to the report, one employee was reprimanded, four employees received written counseling and one received no disciplinary action.
Besides implementing your own version of the p-card guidelines that TIGTA recommended to IRS, some other policy revisions to consider include:
- Assigning cards to individuals, rather than a department, to ensure better accountability and fraud protection
- Updating spending limits, purchase authorization policy and card security procedures
- Conducting employee training on company p-card use (including documentation requirements) before the card is issued, and
- Updating your confirmation procedures for receipt of goods or services prior to payment of the p-card bill.
It may also be time to review your firm’s:
- oversight roles and responsibilities, and separation of duties related to p-cards
- transaction documentation validation process, and
- payment and reconciliation schedules.