Two different situations, but both yielded negative press. The following stories once again highlight control gaps that allowed fraud and misuse to occur. While we cannot control the media, we can learn from the mistakes of others. To keep your organization out of the “bad news” arena, take necessary actions now to improve internal controls. 

If your card program (or your client's card program) has been the subject of a good media report, I encourage you to share it within the comments section below. 

1. Procurement Fraud 

The Financial Industry Regulatory Authority (FINRA) permanently barred a former Charles Schwab financial representative after he purchased and resold approximately $1 million of office equipment.

FINRA records note that, between February and August 2014, the rep used the firm’s corporate procurement system to purchase office equipment for his branch office in Florida, which he later sold to various people to obtain cash for himself. Multiple organizations reported this story last November, including ThinkAdvisor.

Control Gaps

I doubt that it was typical for a rep with his size of office to spend nearly $1M on office equipment in less than a year using corporate funds. Such activity could not even be explained away as a new rep establishing an office (it would be quite an office!), as he was a 15-year veteran. I assume that the control gaps included:

• Overly trusting management who did not consider or believe that a veteran employee would commit fraud 
• No budget for the rep to adhere to 
• No purchase limit/threshold preventing the rep from spending above “X” amount via the procurement system each month 
• No one monitored his purchases or visited the branch office for purchase follow up 
• Lack of fixed assets tracking 
• No one reviewed spend reports to compare the rep’s monthly spend total to previous year(s) or to other similar sized reps in an effort to identify out-of-norm spending activity

2. Card Misuse/Abuse

Right in my own backyard, the local newspaper, Star Tribune, reported last month on card misuse and abuse within the Minneapolis Public Schools (MPS). The issues included inappropriate purchases, lack of receipts (even though receipts are required) and out-of-policy purchases; for example, using the card at local restaurants when the policy only allowed meal purchases while on business travel. Top executives have been part of the problem. 

Fixing What is Broken

After reading the initial article on January 11, I contacted the author to offer my insight on the district's woes. A follow up article published by the Star Tribune on January 12 included some of my comments. (I garnered a modest 80 words.) My recommendations included the standard control best practices:

• Assigning and enforcing accountability for the oversight role to ensure policies are followed by everyone, including executives 
• Clear P-Card policies and procedures (P&P) 
• Mandated training prior to card issuance and annually to stress key P&P, such as what is and is not allowed 
• No tolerance for policy violations, including missing receipts 
• More strategic MCC blocks; for the district, this could mean blocking restaurants and similar unless the cardholder will be traveling 
• Obtaining reports from key suppliers that show off-contract purchases; for example, with the office suppliers vendor, are cardholders purchasing higher quality goods than what are allowed? 
• Effective auditing on an ongoing basis to catch and remedy issues if/when they emerge

Related Blog Posts

• Another case of internal card fraud and the controls that could have helped
• Three organization characteristics that contribute to a weak control environment

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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