federal acquisition service u.s. general services administration eliminating fraud, waste, and abuse...

Federal Acquisition Service

U.S. General Services Administration

Eliminating Fraud, Waste, and Abuse in the GSA SmartPay® Purchase Card Program

Eliminating Fraud, Waste, and Abuse in the GSA SmartPay® Purchase Card Program

Perry HamptonJudy Brady

General Services Administration

Perry HamptonJudy Brady

General Services Administration

June 2009June 2009


Value to Customer

Learn about fraud, waste, and abuse in the purchase charge card program

Understand indicators and consequences of fraud, waste and abuse

Learn roles and responsibilities of managing the purchase charge card program

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Agenda

Purchase Charge Card Overview

Understanding Fraud, Waste, and Abuse

GAO Report on Government-wide Purchase Cards

Indicators of Fraud, Waste, and Abuse

Consequences of Card Misuse

Roles and Responsibilities

Best Practices for Managing Purchase Charge Card Program

Resources and Contacts

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Purchase Charge Card Overview

Purchase card program provides cards for official government purchases of supplies, goods, and services under the micro purchase threshold of $3,000

• Card is both a procurement and payment mechanism

• Purchase card may be used as an ordering and payment mechanism for purchases above micro-purchase threshold

• NOT a contracting mechanism

Purchase card cannot be used for:

• Long-term rental or leasing of land or buildings

• Travel or travel-related expenses

• Cash advances

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Purchase Charge Card Overview (continued)

All purchase card accounts are Centrally Billed Accounts (CBA), and the liability for transactions made by authorized cardholders is borne by the government

Use of the card by a person other than the cardholder, who does not have actual, implied, or apparent authority for such use, is not the liability of the government

If the card is used by an authorized cardholder to make an unauthorized purchase, the government is liable for payment and the agency/organization is responsible for taking appropriate action against the cardholder

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Purchase Charge Card Program Performance FY08

In FY 2008 purchase charge cards:

• Generated over $19.8 billion in spend up from $18.7 in FY 2007

• Processed 25.4 million transactions

• Utilized by 276,000 cardholders

Annual spend volume has almost doubled since FY 1998

(approximately $10 billion to $19.8 billion in FY 2008)

The government saves on processing costs and generates revenue through volume refunds:

• Productivity refunds: based on the timeliness and/or frequency of payments to the bank (faster payments = higher refunds)

• Sales refunds: based on the dollar or spend volume during a specified time period

• Corrective refunds: payments made to the agency/organization to correct improper or erroneous payments on an invoice

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Convenience Checks

Provide increased flexibility to when the purchase card is not accepted

Transactions are similar to purchase card transactions

listed as line items in the monthly statement and invoice

A/OPCs are responsible for oversight of convenience check activity and implementing internal controls

There is no authorization process for convenience checks

no automated process to pre-approve the amount of the purchase

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Understanding Purchase Card Misuse/Abuse and Fraud

The use of a purchase card for anything other than official Federal

government goods and services is considered to be misuse/abuse

of the card, and depending on the facts, may involve fraud

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Understanding Purchase Card Misuse/Abuse and Fraud

Common examples of misuse/abuse and fraud include:

• Personal use or unauthorized purchases

• Use for or by someone other than the cardholder

• Purchases from an unauthorized merchant

• Purchases which exceed the cardholder’s limit

• Purchases which are not authorized by the agency

• Purchases for which there is no funding

• Purchases for personal consumption

• Purchases which do not comply with Federal Acquisition Regulation (FAR) and/or other applicable procurement statues and regulations

• Purchases which are billed by the merchant but never received by the agency

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Government Accountability Office (GAO) Report on Government-wide Purchase Cards

In March 2008, GAO released a report that analyzed purchase card transactions government-wide.

The purpose of the report was to:

• determine if internal control weaknesses existed in the government purchase card program

• identify examples of fraudulent, improper, and abusive activity

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GAO Report Recommendations (continued)

GSA and Dept of Treasury work with Agencies/Organizations to:

• Improve internal control over the government purchase card program

• Strengthen monitoring and oversight of purchase cards

• Provide guidance on how cardholders can document independent receipts and acceptance of items obtained with a purchase card

• Provide agencies/organizations guidance regarding what should be considered sensitive and pilferable property (e.g. computers, palm pilots, digital cameras, fax machines, can be easily converted to personal use)

• Remind travelers who receive government-paid-for-meals at conferences or other events, they must reduce the per diem claimed on their travel vouchers by the specific amount that GSA allocates for the provided meal

• Remind cardholders to obtain prior approval or subsequent review of purchase activity for purchase transactions that are under the micro purchase threshold

• Cancel convenience check privileges of cardholders who improperly use these checks

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Possible Indicators of Misuse/Abuse or Fraud

Merchant Category Code (MCC) appears to be outside the cardholder’s general area of responsibility

Account has been closed due to fraud and a new card has been reissued

Cardholder frequently disputes transactions

Cardholder has had multiple authorizations declined

Cardholder makes transactions on non-work days

Cardholder consistently hits his/her monthly limit

Merchant address appears to be a home address

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Possible Indicators of Misuse/Abuse or Fraud (continued)

Cardholder has several transactions with the same merchant within a short period of time (e.g., 48 hours), and the transactions total more than $3,000 (micro purchase threshold)

Cardholder is unable to provide proof of purchases such as receipts

Cardholder has multiple transactions of even dollar limits (e.g., $20, $100)

Cardholder repeatedly does business with the same merchants (minimal rotation of sources)

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Non-Cardholder Fraud

Non-cardholder fraud involves use of the card or cardholder data by an unauthorized person

High-risk situations for non-cardholder fraud include:

• Card was never received

• Card was lost

• Card was stolen

• Altered or counterfeit cards

• Account takeover

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Consequences of Misuse/Abuse and Fraud Employing agency of a cardholder employee who misuses the card or who

participates in fraud may cancel the purchase card and take disciplinary action against the employee, as appropriate

In case of card misuse, employee will be held personally liable to the government for the amount of any unauthorized (non-government transaction)

Additional consequences include:

• Reprimand

• Counseling

• Cancellation of card

• Notation in employee performance evaluation

• Suspension or termination of employment

• Criminal prosecution

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Addressing Misuse/Abuse and Fraud

A/OPCs are responsible for reporting any suspected or actual fraud to the appropriate authorities within the Government

If fraud is suspected of a cardholder, merchant, or other third party, A/OPCs may file a complaint with the agency’s Inspector General

Many agencies/organizations provide a fraud hotline number for reporting misuse/abuse and fraud

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Responsibilities of the Agency/Organization Program Coordinators (A/OPC)

A/OPCs are primarily responsible for overseeing the agency’s/organization’s purchase charge card program in support of its mission and operations

A/OPCs work with the Office of Charge Card Management (OCCM), GSA SmartPay® banks, cardholders, and agency/organization management

A/OPC responsibilities are outlined in the GSA SmartPay® Master Contract and will vary among agencies/organizations

“Level 1” A/OPCs are the highest ranking A/OPC within the agency/organization and the primary agency/organization point of contact with OCCM

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Responsibilities of the A/OPC (continued)

A/OPC responsibilities may include tasks such as:

• Promoting appropriate use of purchase charge card by cardholders

• Ensuring cardholders receive appropriate training

• Monitoring account activity and managing delinquencies

• Taking appropriate action regarding charge card fraud, misuse or abuse

• Working with the bank to ensure agency and cardholder needs are met

• Resolving any technical and operational problems between the bank and the cardholder as necessary

• Managing agency/organization post-transition challenges or issues with the new GSA SmartPay® 2

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Responsibilities of Cardholders

Use of the charge card appropriately, in accordance with agency/organization policy, laws, and governmental regulations

Keep up to date with required training, including refresher training

Look out for communications from A/OPCs and take appropriate action

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Responsibilities of Approving Officials (AO)

Approving Officials are responsible for:

• Ensuring that all purchases made by the cardholder are appropriate and charges are accurate

• Resolve all questionable purchases with the cardholder

• Certifying the monthly invoice resulting from the purchases of the cardholders within his/her account structure

• Verifying receipt of the purchase

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Best Practices for Preventing Misuse/Abuse and Fraud

Set reasonable spend limits• Monthly credit limits should correspond to historical spend

patterns and job requirements• Limits may be raised to accommodate special circumstances• Higher credit limits increase risk of fraud and misuse/abuse

Restrict use through Merchant Category Codes (MCC) Blocks• Block certain MCCs to prevent unauthorized use• Remember: MCC blocks are NOT foolproof! Work with

merchants/contractors to correct inaccurate MCCs Deactivate cards as appropriate Review cardholder activity through reports generated from bank

Electronic Access Systems

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General Charge Card Program Management Best Practices

Engage management at the highest levels

Train A/OPCs and cardholders

Monitor cardholder activity and payment history and issue or deactivate cards as appropriate

Review credit limits and lower as appropriate

Use the bank’s Electronic Access System (EAS), data mining tools, and/or agency/organization technology to run reports for reviewing questionable transactions and monitor charge card spending

Provide the GSA SmartPay® card-sized booklet, “Helpful Hints for Purchase Card Use”, with each cardholder application

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General Charge Card Program Management Best Practices (continued)

Publish frequently asked questions (FAQs) related to the purchase card on your agency’s/organization’s website

Create a monthly newsletter to reinforce agency/organization charge card policies and procedures

Eliminate manually performing data analysis by developing ad hoc reports that can be generated as needed

Perform an annual review of all issued cards to determine if each cardholder meets the criteria for continued participation in the Federal Government Purchase Charge Card Program

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Best Practices for Convenience Checks

Convenience check accounts and checks on hand should be limited to reduce risk

Checks should be secured at all times

Before a check is issued, every reasonable effort should be made to use the purchase card

Cardholders should record the date, check number, payee and amount of each check in their files

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Deactivation

A/OPCs may quickly deactivate/reactivate cards electronically or through the bank’s customer service

Deactivate purchase charge cards infrequently use by cardholders

If a card is deactivated, authorizations will be declined at the point of sale

• Notify cardholder of deactivation, and communicate procedures to re-activate (e.g., who to call, when to call)

• Be wary of automatic billing (e.g. magazine subscriptions) and forced transactions (e.g. vendor manually charges card)

Close purchase charge card accounts for employees/cardholders who leave the agency

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Training Best Practices

Provide a comprehensive face-to-face cardholder training for new cardholders

Address standards of conduct/ethics and clearly state consequences for misuse

Discuss agency/organization policy

Ensure cardholders and A/OPCs fulfill the required refresher training requirements

at a minimum every three years or more frequently as per agency/organization policy

Ensure that training is easily accessible

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Training Resources

Purchase-specific GSA SmartPay® online training:

Cardholders: Charting the Course (http://www.gsa.gov/sppurchasetraining)

A/OPCs: (http://www.gsa.gov/aopcpurchasetraining)

Agency/organization-provided training

Bank-provided training

GSA SmartPay® Annual Training Conference

Materials -- available online and hard copies may be ordered by visiting

http://apps.fss.gsa.gov/cmls

– Blueprint for Success: A Guide for Purchase Card Oversight

– Mini card-sized brochure – “Helpful Hints for Purchase Card Use”

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Questions?

You will find a wealth of contract and program information, training, publications, the GSA SmartPay® 2 Master Contract, and points of contact at our website:

www.gsa.gov/gsasmartpay

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