Federal Acquisition Service U.S. General Services Administration Eliminating Fraud, Waste, and Abuse in the GSA SmartPay® Purchase Card Program Perry Hampton Judy Brady General Services Administration Perry Hampton Judy Brady General Services Administration June 2009

Federal Acquisition Service 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 2

Federal Acquisition Service 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 3

Federal Acquisition Service 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 4

Federal Acquisition Service 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 5

Federal Acquisition Service 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 6

Federal Acquisition Service 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 7

Federal Acquisition Service 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 8

Federal Acquisition Service 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 9

Federal Acquisition Service 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 10

Federal Acquisition Service 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 11

Federal Acquisition Service 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 12

Federal Acquisition Service 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) 13

Federal Acquisition Service 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 14

Federal Acquisition Service 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 15

Federal Acquisition Service 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 16

Federal Acquisition Service 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 17

Federal Acquisition Service 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 18

Federal Acquisition Service 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 19

Federal Acquisition Service 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 20

Federal Acquisition Service 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 21

Federal Acquisition Service 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 22

Federal Acquisition Service 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 23

Federal Acquisition Service 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 24

Federal Acquisition Service 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 25

Federal Acquisition Service 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 26

Federal Acquisition Service Training Resources  Purchase-specific GSA SmartPay® online training:  Cardholders: Charting the Course (  A/OPCs: (  Agency/organization-provided training  Bank-provided training  GSA SmartPay® Annual Training Conference  Materials -- available online and hard copies may be ordered by visiting –Blueprint for Success: A Guide for Purchase Card Oversight –Mini card-sized brochure – “Helpful Hints for Purchase Card Use” 27

Federal Acquisition Service 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: Perry Hampton (703) Judy Brady (213)