Over the past 15 years, more and more businesses, organizations, and universities have implemented procurement card programs. Procurement card spending is expected to grow by more than 11 percent through the next decade. With increased program adoption, comes the potential for fraud, misuse, and abuse. Although fraudulent transactions only account for a low percentage of procurement card transactions, recent media attention has highlighted some of these abuses, including the lack of detection by one university of personal purchases totaling $40,000 that included $18,000 in gift cards and $4,000 in laptops and digital cameras. Another institution had over $80,000 in fraudulent transactions occur over a 3 year period. Both cases resulted in:
- Criminal charges
- Financial losses
- Negative publicity
- Loss of key personnel in integral positions
- Months of internal investigation and litigation procedures
- Stringent federal audits with increased scrutiny
How could these transactions have occurred without being detected by the schools’ internal controls? How can institutions update their pro-active audit and monitoring to prevent or detect such behaviors? An institution has to go beyond the traditional means of monitoring its procurement card program to protect itself against fraud, misuse, and abuse.
Institutions should re-examine their existing procedures to ensure that they are robust enough to mitigate risks associated with the current rise in procurement card fraud.
The checklist below details some methods for your institution to consider in protecting its procurement card program. For instance, institutions could perform a review of their reviewer “span of control. That is, how many procurement cardholders report to one reviewer? Studies suggest that a supervisor can not be as effective in his/her review process when exceeding five direct report reviews. Further, there are preventive actions an institution can employ, such as employee pre-screening, similar to commercial credit card agencies, to identify poorer credit risks. These individuals could continue to use other internal purchasing mechanisms.
All of these activities require a commitment from the institutions’ senior management, central purchasing functions, decentralized department managers and audit activities to work in concert with one another. While a seemingly formidable task, there are simple effective steps your institution can take to achieve this goal.