More on Setting Up Internal Controls Over Company-Issued Purchase Cards

Internal controls over company-issued purchase cards should be of paramount concern to Government contractors. Regular readers of this blog will recall several reports where the cost of improper purchases using company-issued purchase cards were passed along to the Government and fraud charges resulted. Its serious enough when employees defraud their employer but when those charges pass through to a Government contract, things get much more serious. A contractor cannot just let those involved slip quietly off into the night. There will be consequences for both the individual(s) and the contractor.

But purchase card fraud is not just a contractor problem. It affects the Government as well. In fact, GSA's (General Services Administration) Office of Inspector General recently (OIG) published an audit that found GSA's purchase card program is vulnerable to illegal, improper, and erroneous purchases.

The OIG reported three deficiencies, each serious enough in its own right but when viewed in their totality, leaves the Government (and taxpayers) highly vulnerable to improper, if not fraudulent, purchase card charges. These deficiencies include:

• GSA does not have assurance that purchase cards are used exclusively for approved, business-related goods and services because controls to support and review transaction documentation are not performed consistently
• GSA may not identify illegal, improper, or erroneous purchases because controls over the resolution of questionable purchase card transactions are not operating effectively
• GSA lacks controls for identifying split purchase card transactions, making GSA vulnerable to cardholders violating federal procurement regulations.

Contractors might want to assess their own purchase card policies and procedures against these reported (and common) deficiencies. Here's a few ideas you can use to enhance your own internal controls.

1. Create a formal purchase card policy. Who is authorized to have a card?. What type of purchases are allowable? 
2. Require substantiation. Require original receipts. Document business purpose to ensure purchase has a legitimate business purpose. Require formal approvals.
3. Periodic internal reviews. Require independent (skeptical) internal review to periodically review purchase card statements and supporting documentation for propriety.

Remember, "trust" is not an internal control.