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Fraud, waste and abuse? Give ’em credit cards ...
Posted by: McQ on Wednesday, April 09, 2008

You know, it's not so much the credit cards, but the obvious lack of oversight that should frighten you:
Federal employees used government credit cards to pay for lingerie, gambling, iPods, Internet dating services, and a $13,000 steak-and-liquor dinner, according to a new audit from the Government Accountability Office, which found widespread abuses in a purchasing program meant to improve bureaucratic efficiency.
The total for these credit card purchases was 20 billion dollars. And here's what the GAO found [pdf]:
Internal control weaknesses in agency purchase card programs exposed the federal government to fraud, waste, abuse, and loss of assets. When testing internal controls, GAO asked agencies to provide documentation on selected transactions to prove that the purchase of goods or services had been properly authorized and that when the good or service was delivered, an individual other than the cardholder received and signed for it. Using a statistical sample of purchase card transactions from July 1, 2005, through June 30, 2006, GAO estimated that nearly 41 percent of the transactions failed to meet either of these basic internal control standards. Using a second sample of transactions over $2,500, GAO found a similar failure rate—agencies could not demonstrate that 48 percent of these large purchases met the standard of proper authorization, independent receipt and acceptance, or both.
How is that for oversight?

Some of the more egregious examples?
From October 2000 through September 2006, a cardholder at the Department of Agriculture (USDA) fraudulently paid over $642,000 to a live-in boyfriend who shared the same bank account as the cardholder.

The $642,000 was used for personal expenditures, such as gambling, car loan and mortgage payments, and other retail purchases. The activities took place over a 6-year period, but were not detected by the agency until a whistleblower reported the cardholder to the agency’s Office of Inspector General in 2006. The cardholder was sentenced to 21 months in prison and ordered to pay restitution of over $642,000.
Six freakin' years? How does one get away with that for 6 years?
A postmaster at USPS used his government purchase card to fraudulently subscribe to two Internet dating services over 15 consecutive months (April 2004 through October 2006). The monthly charges for these dating services were the only charges that appeared on the cardholder’s monthly statements during this period; yet each of these charges was authorized and paid for by USPS. The cardholder paid restitution of over $1,100 but faced no disciplinary action for this fraud.
Showed up on his statement, no one questioned it for 2 years, and when discovered, no disciplinary action. But I'm sure the USPS will tell you that they're very serious about the problem of fraud, waste and abuse.

Eh, maybe not:
USPS paid over $13,000 for 81 conference attendees to dine at an upscale steak restaurant in Orlando, Florida, in 2006. The dinner, which cost over $160 per person, included steaks, crab, appetizers, and over $3,000 in alcoholic beverages purchased over a 5-hour period.
The WaPo gives us a few more details:
Ruth's Chris Steak House in Orlando, including "over 200 appetizers and over $3,000 of alcohol, including more than 40 bottles of wine costing more than $50 each and brand-name liquor such as Courvoisier, Belvedere and Johnny Walker Gold."
The GAO defined the transaction as abusive.

The USPS? It saved money for heaven sake:
Postal Service spokesman Gerry McKiernan said the dinner was held to entertain large postal customers who were already in Florida for another conference, and actually saved money because it combined four events into one. He also defended the payments for alcohol.

"When you're having dinner with customers, it's normal to have a drink," McKiernan said.
Hey, they're entitled to spend your money in such a way.

Can't get something approved through proper channels? Heck, use the credit card and buy those Toyotas:
One USDA cardholder used year-end funds to acquire a Toyota Sienna and a Toyota Land Cruiser totaling nearly $80,000. Although the purchases were made at the request of two Foreign Agricultural Service offices, the cardholder violated agency policy by failing to acquire a GSA waiver.

The cardholder also used four convenience checks, purchasing the Toyota Sienna with one check and splitting the payment for the Land Cruiser into three separate checks because its
purchase price exceeded the convenience checks’ maximum purchase limit. Although documentation from USDA showed that the vehicles were shipped overseas to the units that requested them, we did not perform additional work to determine whether these vehicles represented a valid government need.
The "we" is the GAO. And, apparently, this method of obtaining the vehicles was perfectly fine with the USDA since it was the GAO, not the USDA which found the purchase and questioned it.

I have a corporate credit card. I've had one for years. I would never, ever even think of using it as these people have without explicit authorization from corporate. If I did, it wouldn't take 6 years, or 6 months or even 6 weeks to be called to account. I have to turn in an expense report every week which is scrutinized and, if something questionable is on there, explained by me. The price of misuse is simple - termination.

It's not difficult, but it seems to be absolutely foreign to those who run government agencies. Time to figuratively see some heads roll. The postmaster who used the card for a dating service should be gone - and so should the person charged with oversight. Same for the Toyota buyer and his or her boss. Etc., etc., etc.
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Previous Comments to this Post 

Time to figuratively see some heads roll.
Therein lies the rub Bruce - does anyone get terminated from Federal (or state, or local) jobs? People seems to latch on to those jobs, work forever, and retire with a benefit package better than anyone in the private sector is getting. And I don’t want to hear about ’public servants’... if these people were ’servants’, they would all be fired.
Written By: meagain
URL: http://
I, too, have a corporate credit card. I can use it for personal reasons but I could never submit those charges for reimbursement. It simply wouldn’t pass immediate inspection. Unfortunately it looks like the GAO is incapable of providing basic scrutiny of government finances. And it doesn’t say a lot for government employees who are willing to defraud taxpayers simply because they can.
Written By: the wolf
URL: http://
I too have a corporate card. It cannot be used for personal expenses, period. I am responsible to pay it off in full, monthly and am personally responsible for any late fees. There’s a motivator for prompt submission of expense reports.

It seems there is no need to raise taxes. There is plenty of waste and fraud to cut first.
Written By: MarkD
URL: http://
A good friend of mine was a Civil Servant serving with the Army National Guard HQ in Arlington VA. Her office was the management office for the Credit Card Program. her office was also was responsible for investigating alleged credit card fraud. The protocols she had to go through for each situation was abominable. If the person being investigated was an Officer, she had to appoint an investigating officer of equal or greater rank and then that person had to do a formal investigation and file a formal report on the results. Her office then, but only with concurrence from General Counsel, made a recommendation to a standing board convened for the purpose of credit card anomalies. The recommendations of her office could not include criminal liability. The convening board had to make that determination. In some cases it took years for a single case to clear.

Why all of the hassle - ask General Counsel. These procedures were put in place by legal requirements handed down from the National Guar Bureau General Counsel.
Written By: SShiell
URL: http://
I get to say "I told you so" on this one (along with a lot of others). This was s stupid idea even for Al Gore. There was a reason all those accounting and bureaucratic procedures like purchase orders and petty cash and imprest funds were invented. There is also a reason phrases like "An ounce of prevention is worth a pound of cure" are familiar cliches.
Written By: timactual
URL: http://
My company fires you for any expenditure on your credit card that is not directly related to work.
I do mean any .. as in .. just one.

One woman charged her groceries on her card and paid it back, but was fired just the same.
Written By: Neo
URL: http://
Bring on the government managed health care system!
Written By: Grimshaw
URL: http://
You haven’t got a corporate credit card, you’ve got a corporate con job. If you go off on a business trip using that card, and the company goes bankrupt before you get your reimbursment, guess who’s on the hook for the charges?

I once worked at a company that wanted to give me a "corporate" card with the same payment format. I refused and simply kept using my own card - that way *I* got the airline miles, rebates and reward points, instead of the company.

If they wanted those goodies, they could make the reservations,instead of me, and front the money, instead of me.

But as to the major point - it has little to do with "credit cards" per se, but rather basic accounting controls, or lack thereof. My present employer uses cards, but there’s no way that anyone could get away with that sort of nonsense. The accounting department would have caught it within a month.
Written By: bud
URL: http://
I actually have a government card. We’re under strict orders not to use it for anything other than authorized travel and travel-related expenses. So my airline tickets, hotel room, and related taxes go on there. That’s it. We must pay it off in full at the end of each month. Anything we don’t pay off or can’t pay of is our problem, not the Governments.

Why are people getting away with it? Because they’re conning their respective agencies into paying off these bills. At which point the agencies and those holding their purse strings should be held accountable and fired. Except they aren’t because their agencies are too lenient.

But the problem isn’t the cards. The problem is that the government isn’t enforcing spending policy properly.
Written By: Jeff the Baptist
Seems to me it was just a few days back I was reading an interview with Senator Obama about his, er, master-plan for controlling government spending: which comprised, if memory serves, cutting defense (A LOT - Surprise!), and (drum roll), giving government employees CREDIT CARDS for their government spending! Yay! PROBLEM SOLVED! O,yes, I think he also wanted to have some sort of organized government travel service, too. For teh discounts.
Written By: Megaera
URL: http://
The issuance of credit cards is an abandonment of managerial responsibility and authority and accounting controls. It is much easier and more effective to require preauthorization for expenditures e.g. (purchase orders, airline vouchers, etc,), which must be approved and signed off on by management before the money is spent, than to try to recover the money or enforce disciplinary action after the money is spent. In the first case management has a personal interest in avoiding misappropriation since they may also suffer the consequences. In the second case, why should the manager care, since the matter is now out of his hands and in the hands of some other bureaucrat(s) who probably doesn’t care and must abide by numerous regulations before anything can be done? That is assuming the manager is actually still in the loop. If I am personally accountable for a petty cash fund and someone presents me with a receipt for a $75 business lunch at Hooters, I am not likely to reimburse it. If I am that persons superior and I actually have to go through and approve month old (or more)credit card statements from numerous employees, it is much less likely that abuses will even be noticed, much less corrected or punished. As I mentioned before, ’An ounce of prevention is worth a pound of cure’.
Written By: timactual
URL: http://
Tim I think your points are good, BUT...there is the issue of effectiveness versus cost...the idea behind the government credit card was, in part, to speed government activity up. If I have to get pre-authorization, then things go very slowly. The credit card allows for a more effective government. I need to get to LA, I COULD fill out ninety-two forms and wait for someone to "OK" it, or I can use the card.

The problem is corporate culture and lax accounting and review. People need to understand that the card is a trust and that our usage will be monitored and violations will be punished, severely. Really, the IG and the budget officer of any department needs to randomly review a statistically significant portions of all cards. Once folks begin to realize that someone WILL notice what you use it for, people will be more cautious.

When management is going to Ruth’s Chris I guess the rank n’ file figure what the HEY!
Written By: Joe
URL: http://
Joe, yes the problem is cultural, but the cultural problem is that in the REAL, that is, corporate, world an employee can be — and from time to time is — fired for screwing around with company credit cards. Government employment is, by contrast, not employment so much as sinecure, and termination from a government job at any level requires a depth of depravity so profound as to beggar description. If you have absolutely no fear of losing your job, whatever your performance, why not play beggar-my-neighbor with your government-issued credit card, especially if the chance of your actually being detected depends on another government employee, or a string of them on up the line? And yes, I’m aware that there are scads of decent, hard-working, honest gummint workers (oxymoron?) that I’m casually indicting wholesale, but you know what? Tough. I saw a number of co-workers terminated for expense issues, one or two at the officer level; in government, the only thing I ever saw was a slap on the wrist. If that. Hey, it’s the taxpayers’ money, right? So, we’re back to the first post above — which isn’t mine, BTW, just similar name; if you have no reason to fear for your job you are truly dangerous. And we have whole governments full of these, each with a credit card. And if any of them don’t have one, Obama wants to see they get one. Wheeee.
Written By: Megaera
URL: http://
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Written By: 7
"the idea behind the government credit card was, in part, to speed government activity up"

I know, but the last thing we need is to speed up government spending. Most, if not all, of the activity does not require immediate spending. Going to LA, for instance, very seldom requires so much speed that a form cannot be filled out.

" People need to understand that the card is a trust and that our usage will be monitored and violations will be punished, severely. "

Of course they do. But they won’t. That is why accounting controls were invented in the first place. It is more efficient and cheaper to have a system that anticipates and seeks to prevent violations than a system which relies on after-the-fact monitoring and prosecution. I know it is a pain in the whatsis to get a purchase order or travel voucher, but the credit card system only transfers the pain (and probably increases total cost) to someone else.
Written By: timactual
URL: http://
the idea behind the government credit card was, in part, to speed government activity up
Yes and no.

25 years ago, the travel and voucher system was extremely simple. You were going on travel to a specific location. That location was graded and had an established perdiem rate for lodging and meals. You were given that amount of money and essentially told "YOYO - you’re on your own." You filled out a very simple voucher - I went to X, for Y number of days, and travelled there via Z. You noted if there there were any expenses different from those basic numbers. For example if you needed a rental car, or the travel was longer or shorter than the orders allowed for, etc.

The government, for whatever reason, decided this allowed for too little management of travel system and too much opportunity for fraud. So they instituted a system where everything had to be justified - with receipts, except for the basic meal rates. So vouchers were required for everything.

Now the problem came with the processing those vouchers. DOD, for example, had already been scaling back on their local installation Finance offices because the normal pay function had been almost entirely taken over at central accounting locations. As a result, there was not enough personnel to process the influx of all these vouchers. They ended up having to contract this function. By the year 1995, the cost of processing the travel vouchers for the Air Force District of Washington was approaching $100 million a year. Note: I said Air Force District of Washington. That does not include Army, Navy and Marine Corps. Further, the projection through the out years (2010 and beyond) showed the potential of the cost of processing these vouchers would exceed the cost of the travel! The credit cards were an attempt to save time, yes. But it was also an attempt to reign in the cost of the voucher audit system.

A simpler plan would have been to return it to the old system - but that makes way too much sense.
Written By: SShiell
URL: http://
I’m sorry Timactual, but you obviously don’t know how these cards work.

Most government cards do not involve the government picking up the whole tab after the fact. I go on travel, sometimes on very short notice so that getting prior approval is effectively impossible. My hotel, air fare, rental car, etc. go on my travel card. I submit a reimbursement request when I get home with the relevant receipts and documentation. The government reimburses me. Anything they don’t reimburse, I have to pay when I get the bill at the end of the month. There is a simple and easy mechanism for the "government to get it’s money back", they simply refuse to reimburse in the first place. Because the government hasn’t actually spent anything until I fill out my voucher and I’m stuck with the bill.

All the cards do is shift and streamline the system. Instead of frontloading everything which is horribly inefficient, I get blanket permissions up front and detailed reimbursements at the back. Which works pretty well.

Why are these problems occurring? Because people’s leadership is in on the graft or spineless. That’s it. The abusers know they’ll get away with it upfront, because they’d get stuck with the bill at the back if they have foreknowledge. Crack down and the problem will evaporate just as it did years ago in the corporate world.
Written By: Jeff the Baptist

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