Audit details over $40,000 in fraud

A diamond ring, laptop computers and thousands of dollars in gift cards are among the $40,000 in personal purchases a Tech employee was able to make unnoticed on a procurement card (P-card) intended for approved departmental purchases only, according to a report released this month by the Georgia Department of Audits and Accounts (DAA).

The DAA identified the fraudulent spending in April as part of a statewide audit of P-card practices, and the employee was fired in May. The employee was an administrative assistant in the College of Management and her supervisor has since resigned. The purpose of the audit was not to catch individual P-card abusers, but in reviewing card records auditors uncovered instances of fraudulent spending at Tech and other state agencies that had been ongoing for months.

"The audit did show some control weaknesses that need to be fixed, and the president has already taken action to completely close the gap on those weaknesses," said Phillip Hurd, interim director of internal auditing.

While names and identifying details of the employees were eliminated from the report, it did list some examples of the purchases they made on the P-cards. Those that the Tech employee was able to make are startling: among them, $13,000 in American Express gift cards and Visa debit cards purchased from UPS and CVS stores; $5,700 in Wal-Mart gift cards; a $1,300 diamond band; $4,000 in laptop computers and digital cameras purchased from Amazon.com; $270 for a repair for the cardholder's sister's car; $900 in payments to debt collection agencies; $3,300 towards her son's car insurance; and $3,350 to Cingular for her and her son's accounts. This was by far the most extensive abuse of the system contained in the report, which characterized the behavior as "a specific situation in which an individual, with criminal intent, had devised methods to take advantage of a human element in the control structure."

Specifically, the employee did not submit receipts or monthly credit card statements for a year and a half, and when the DAA requested those documents she gave them to who she thought was the designated approving official in the department, who signed statements implying the purchases were reviewed. However, her designated approving official had actually changed during the summer of 2006 as a result of a modification of department policy.

"It was not apparent that the cardholder, the cardholder's supervisor, or the previous approving official was aware of this policy change. This total disregard for approval responsibilities led to long-term and extensive card misuse," the report states.

The report included several criticisms of Tech's implementation of the P-card system. It singled out the Chemistry and ECE departments where 57% and 33% of procurement cards, respectively, are held by professors, provosts and school chairs, but the designated approving officials are administrative personnel.

"Approving officials within these departments are typically not of sufficient rank to question such cardholders' purchases," the report states.

It also showed that 120 currently open P-cards at Tech were inactive and 149 were used three or fewer times over the past year. The report recommends that agencies follow the example of Moultrie Technical College, which "routinely reviews P-card usage to identify cards with minimal activity that should be cancelled."

"Purchasing industry best practices specify that agencies should be selective in issuing cards. A proliferation of cardholders increases agencies' financial exposure and makes it difficult for them to maintain effective internal controls," the report states.

Among the other criticisms was that Tech was among three agencies where "it was evident that persons other than the designated cardholder had access to and were using purchasing cards." Also, there were situations where an excessive number of P-cards were under a single approving official.

"Not only is it unlikely that one person could conduct a meaningful review of purchases made by so many people, it is also unlikely that the approver could have an intimate enough knowledge of these cardholder's jobs to understand what purchases are appropriate and needed," the report states.

In one such instance, one person was responsible for reviewing and approving the purchases made on 116 P-cards. In that department, five of the 18 files reviewed were missing receipts. Overall, 16 of the 81 reviewed monthly P-card packets from OIT, Housing and the Chemistry and ECE departments were missing receipts.

The report also showed that a Tech policy prohibiting P-card purchases over $3,000 was violated, showing purchases of a $4,500 industrial vacuum and two $3,260 laptop computers. This can contribute to fraud because P-card purchases are not automatically entered into the inventory kept by the Capital Asset Accounting Department, according to the report.

However, the Institute is at odds with some aspects of the audit report and the picture it paints of Tech's P-card system.

"It is a mischaracterization to take what the auditor found and apply it to Tech as a whole. [The audit found] one person out of quite literally thousands that did something wrong, which is certainly problematic and we're going to work to take care of that," Hurd said.

"Auditors looked at two months, out of what are years of transactions, for four of 122 units. That is a microscopic sample size to look at to make a determination of the entire control structure," Hurd said.

But Hurd acknowledged that the audit made some good recommendations.

"The first thing we're going to do is require an electronic confirmation of timely reconciliation, which is one of the issues that the state auditor brought up. We will require P-card coordinators to verify through our PeopleSoft system that they have accountable documentation as well as reconciled statements for each purchasing cardholder for each month. If they don't have that, the cards for those users will be cut off. There's a 45-day window for them to get that reconciliation, which we believe is an adequate time to get that reconciliation even with the vastly diverse community that we have," Hurd said.

He also said that P-card policy will be amended so that the approving official must be someone with firsthand knowledge of how the money should be spent, but also totally removed from operational oversight of the cardholder, so that a professor could not use his administrative assistant to oversee his or her P-card purchases.

There will also be an increased emphasis on educating program participants about policy and responsibilities, and administrators are continuing to look into improving the P-card system.

"The president has directed me to create an aggressive audit approach to purchasing card and funding use at the institute. We are already beginning to see additional misuse that we need to look at. The expectation is that there certainly won't be many, but there will be some more issues that arise with this that we will handle in a similar matter," Hurd said.

Hurd said that Tech should be able to recover a vast majority, if not all, of the amount of money lost to the fraud.

The state Attorney General is currently looking into prosecuting the employee, which could result in a restitution payment, and Bank of America has a fraud protection policy from which Tech has already collected money. Tech can also regain some of the money through an insurance policy it has through the Department of Administrative Services.