Optimizing P-Card use with internal audit

Utilizing purchasing cards (P-Cards) at your institution can come with a host of benefits. For example, P-Card use can help reduce the time and effort required to complete purchasing transactions from request to payment allowing your procurement function to focus on larger or more complex assignments. Many P-Card providers also offer rebates that further incentivize card use for your institution.

P-Card risks

Despite efficiencies and financial incentives, the unauthorized use and misuse of P-Cards is one of the most common ways in which fraud can be committed both in higher education and across other industries. Key fraud and other risks to be mindful of include:

Fraud risks

Conflicts of interest, including those between the requester, cardholder, approver and receiver of a purchase
Splitting transactions (i.e., charging a purchase in two or more parts to avoid single transaction limits, approval requirements and/or receipt thresholds to disguise fraudulent transactions)
Duplicating transactions or purchasing more than needed with the intent to steal/resell the duplicate or excess goods delivered
Submitting P-Card purchases for personal reimbursement (i.e., double dipping)
Purchasing goods or services for personal use

Other risks to consider

Inability to enforce the P-Card program and consequences for policy violations
Ineffective cardholder training that leads to the purchase of goods or services not permitted by the institution’s policy governing the use of P-Cards
Ineffective and/or inefficient transaction review procedures to detect when misuse has occurred
Using the P-Card or splitting transactions to bypass required approvals in effort to expedite the procurement process

Preventing and monitoring for fraud and P-Card misuse

Most P-Card programs are developed with both preventive and detective controls in mind. For example, spending limits and restrictions to purchase from vendors with specific merchant category codes (MCCs) are common protective controls. While preventative measures are helpful at thwarting fraud or misuse, they are not perfect.

It is critical to employ detective measures such as detailed transaction reviews and analytic procedures that can capture trends and spend patterns or identify potential issues within a larger population (e.g., all transactions, those of a particular unit and/or specific cardholder).

Baker Tilly can help

Baker Tilly can help evaluate the current state of your institution’s P-Card program, policies and related internal controls to determine whether effective preventative and detective measures are in place and operating as intended. We can also provide insight into how your P-Card program can leverage industry leading practices that support and balance internal control and process efficiencies.

Baker Tilly P-card risk advisory

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Case study: P-Card assessment in action

Client need

Management for a private research institution requested that Baker Tilly perform an assessment of their P-Card program, which saw an annual spending of almost $11 million.

Baker Tilly solution

The Baker Tilly team met with key personnel (e.g., P-Card administrator, active cardholder and approving officials) and reviewed documentation to gain an understanding of the institution’s P-Card program and their challenges with administering an efficient and effective program. Our team also performed analytic procedures and detailed testing of transactions to assess program compliance and identify risk areas that may require additional preventive or detective internal controls on an ongoing basis.

Results achieved

During our assessment, we identified various key challenges, including the absence of authority for the P-Card administrator to effectively enforce the P-Card program, many active P-Cards with little to no activity and the failure of key controls intended to prevent and detect instances of P-Card fraud and misuse on an individual transaction level. We provided management with actionable recommendations to address the challenges identified and monitor future activity that could be indicative of questionable or unallowable transactions.

For more information on this topic, or to learn more about how Baker Tilly’s higher education internal audit specialists can help your institution, contact our team.

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