Purchase cards facing tougher controls

Agencies turn to technology to ferret out waste, fraud and abuse

OMB Circular A-123

Agencies are preparing for revisions to an Office of Management and Budget circular that will require them to tighten internal financial controls. The revised Circular A-123 will take effect Oct. 1, the beginning of fiscal 2006.

One area of financial management ripe for better controls is the purchase card program. Using new technologies that allow tracking of card usage and more accurate data mining, agencies are becoming better equipped to spot unusual spending patterns and identify card abuse.

Agency officials issue the cards, which look and function like credit cards. Authorized employees use them for purchases of less than $2,500 and common goods such as office supplies or building materials. Agencies handle their own purchase card programs.

The Environmental Protection Agency, for example, is using technology from MasterCard called Aristion, said the EPA's Cheryl Upton, purchase card team leader. The agency gained access to the software tool last year after recompeting its purchase card contract and awarding it to Bank One, she said.

Upton said the EPA somewhat unwittingly became a pioneer. "Little did we know at the time that nobody has used Aristion in this manner," she said. "It was originally developed in Europe as a fraud-detection tool in the banking environment. It had not been used as an internal tool."

Upton led the agency to develop processes to use the software as an internal control tool, passing their developments over to the Aristion team at MasterCard, she said.

Aristion allows EPA personnel to comb their databases and extract spending information, she said. It can find expenditures in apparent violation of normal usage rules and thus in need of further investigation.

The EPA has 2,500 people involved in its purchase card program, including 1,900 users and 600 approving officials, Upton said. Very little fraud has been detected in the past decade, she said, and people who misuse the cards do not repeat the mistake after a warning.

Upton previously worked at the Defense Department, where she reported to Col. William Kelley, program director of the Army's data-mining division in the inspector general's office. Earlier this year, Kelley reported that a project mining Army purchase card data from 2002 and 2003 found 182 cardholders who had used their cards fraudulently or whose use warranted further investigation.

Kelley's team used data-mining tools from ACL Services.

Chip Mather, senior vice president of Acquisition Solutions, said agencies should take a higher-level view of purchase card use. In industry, a certain amount of abuse of credit cards is accepted as a trade-off for the efficiency of card use. In the government, there's more of a zero-tolerance attitude, but at the same time, overworked agency officials see the $2,500 purchase limit as too little to worry about.

Those purchases add up to billions of dollars, Mather said. A strategic sourcing approach, with negotiated discounts at retailers and a focus on aggregate use rather than individual transactions, could save money for the government, he said.

A recent Harvard University study shows that the situation may be improving, however. It found that 92 percent of agency cardholders use purchase card contracts — in which agencies have negotiated details — when the purchasers are aware of them, according to Harvard University professor and Federal Computer Week columnist Steve Kelman.

MasterCard saw the government's interest heating up and repositioned the Aristion product to take advantage of it, said Eva Robinson, vice president of MasterCard's Global Public Sector Payment Solutions.

"It helped us to address a hot button with U.S. agencies," she said. "They came to rely heavily on the built-in controls in the cards. The fact that you can limit the cards helps upfront, but there is still a need to do auditing."

Counting all the money

Office of Management and Budget Circular A-123 addresses agency managers' responsibility for internal financial controls.

The circular states that reliable financial reporting means managers can be confident that:

  • All reported transactions occurred during the reporting period.
  • All assets, liabilities and transactions that should be reported are included but unauthorized transactions are not.
  • Transactions comply with applicable laws and regulations.
  • All assets have been safeguarded against fraud and abuse.

— Michael Hardy


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