Purchase Order fraud – easier than with purchasing cards

There’s been a lot of negative publicity around Purchasing Cards in the public sector particularly recently.  I must say, I’m amazed that Visa, MasterCard or the big banks who dominate that public sector market (Barclays and RBS in particular) haven’t tried to defend themselves.  We’ve provided a bit of that defence, as we believe that, used properly, they provide at least as strong a defence against fraud or inappropriate spend as most other P2P processes. That’s true whether we are talking public or private sector.

And just as an example of that.. here’s an article from the Beloit Daily News in Wisconsin, which describes what appears to be a fraud executed by an employee.

“ After revelations a city employee may have fraudulently used more than $30,000 in taxpayer funds, Beloit City Manager Larry Arft has ordered a review of purchasing policies. Arft said the suspect was able to make the fraudulent purchases because his division head was not reviewing and signing off on them as he should have. The Beloit Daily News is not disclosing the name of the suspect because he has not yet been arrested or charged”.

In many organisations, it’s far easier, we would suggest to commit a PO fraud than a Card fraud – the Card statement does provide a pretty clear audit trail, and a “dodgy” company (for example, one set up by an employee purely to receive fraudulent payments) would not be able to accept card payments.  And the lack of scrutiny in many organisations means many individuals are able to raise POs AND personally authorise payments.

“That’s how he was able to game the system,” Arft said. “Once he figured out the purchase orders weren’t being looked at and accepted at face value, he pretty much knew he had an open door there and obviously took advantage of it.”

So while cards give the Mail and the Telegraph a nice headline to beat up public servants, they may well be reducing the incidence of fraud, as well as saving transactional costs. But that’s not a good story, is it?

Voices (6)

  1. PlanBee:

    Ben

    As a taxpayer I am delighted that you have saved the Government millions in transaction costs.

    Just exactly how did these savings materialise. Were sveral hundred AP clerks made redundant, or several accounting systems closed down.

    Thought not

  2. Dan:

    It doesn’t really matter whether you use a P card or a purchase order – if someone is determined enough to commit fraud, they’ll find a way.

  3. Phoenix:

    At a local authority, we used to joke that with all the PO pads (yes, pads!) left lying around in unattended offices, by the time we’d be discovered we’d be miles away in the new Jag we’d bought. But then the biggest type of fraud wasn’t card misuse or PO fraud, it was managers awarding business to their brother-in-law’s consultancy firm. Some claimed they weren’t aware that what they were doing was wrong.

  4. Chris Luke:

    Yes, on the one hand, it is surprising that the banks are not much more active in defending Purchase Cards; on the other hand, banks have a credibility problem, so would anyone believe they are not just trying to increase their profitability? Best if Purchase Cards are left to the professionals to manage as an important route to market for low risk, low value purchases and defend their use appropriately.

  5. flog:

    Going back a few years (the last century in fact) from personal experience from when in a ‘real job’ and using both purchase orders and p cards. In the years in which we had p cards in place, I was involved in investigating several alledged (i’d left the sector before any final decisions/actions were made) frauds and in each case the ‘route’ was the purchase order i.e. all signed off properly. The alledged errant party being the instigator of the requirement, but not one of those with signing authority at requisition or po level. The products were routine and the amounts small enough to be ‘below the radar’ in terms of critical assessment of the need etc. In each case, the organisation picked up the loss – had the transactions (there were well within the P card thresholds) been made via our p card – the bank would have refunded the organisation and then dealt with the errrant party – another benefit of the cards.

  6. Ben McKee:

    Couldn’t agree more. As a GPC provider American Express is proud to be associated with the GPC programme. What’s also not mentioned in these articles is the vast majority of the spend that goes through the GPC programme (circa £1bn p.a.) saves many millions of £s in processing and transaction costs and also attracts a financial rebate.

    Additionally this is something that has been used by private sector organisations for many years, in many different countries – they wouldn’t do it if it didn’t generate cost savings overall.

    So when you tot up the pluses, they far outweigh the (perceived) minuses as trumpeted by the trigger happy media. As a committed GPC provider American Express will be publishing a supplement in Civil Service World to try and balance the debate. We feel this is a programme worth defending.

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