Launched in 1989 as part of the Federal government's purchasing reform measures, use of purchasing cards for small (less than $25,000) buys has grown rapidly in the last five years along with problems of fraud and abuse.

Stung by Congressional criticism of credit card misuse by employees and contractors, some agencies have begun putting into place tighter controls that critics say should have been there from the beginning.

No one has an overall figure on government credit card fraud, but from reports of agencies themselves and Congress's watchdog, the General Accounting Office, it appears widespread. Dollarwise, $12.2 billion worth of goods were bought with plastic in the latest fiscal year for which data is available (year ending Sept. 30, 2000). Current estimates say the p-card spending figure is now over $13 billion, and agencies are just beginning to tell Congress about incidences of fraud that their Inspector General (IG) Offices have been able to catch and prosecute.

Speaking of the fraud problem, House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) says that, "because of the poor internal controls in place at Federal agencies, we have no idea how big the problem actually may be." Even if the fraud rate is 1%, it would amount to over $130 million annually, he adds.

In testimony before one of Tauzin's subcommittees, the Department of Energy's (DOE) IG told of ten investigations being accepted for criminal prosecution; seven criminal convictions; nine disciplinary actions; and over $325,000 in recovered property, fines, and restitution.

At the Department of Commerce, the IG prosecuted a contract specialist in the Office of the Secretary who used her government purchase card to buy approximately $50,000 worth of clothing, jewelry, electronic equipment, furniture, airline tickets, sporting event tickets, concert tickets, household supplies, and hotel accommodations. During the investigation, the employee resigned and was subsequently convicted of government property theft and sentenced to six months in prison, followed by two months of home detention and three years probation, as well as ordered to make full restitution.

The real story, however, is not that some of the approximately 670,000 persons issued purchasing cards use them to rip the government off, but that agencies have dragged their feet in revoking cards or have failed even to review transactions until they felt heat from Congress.

Tauzin says the reports on purchasing card transactions coming to Congress "raise serious questions about how they are managed." For example, a GAO audit report on a Navy unit in San Diego says that nearly a year after it reported two cases of fraud the Navy had failed to cancel the purchase card of an employee who bought clearly identifiable consumer goods including a stove, gift certificates, groceries, and clothing. (The Navy cancelled only 681 of 2,600 compromised accounts.)

Aside from personal use, government cardholders have used their plastic to buy high-priced items available at lower cost (for example, $250 day planner holders compared to $40 planners from low-cost certified suppliers) and splitting purchases to stay under the $25,000 maximum or lower single transaction limits.

GAO investigators also found that the Navy did not know whether some 600 reported purchases of hazardous materials were monitored to assure they were handled safely.

Some control measures that GAO and IG offices are recommending for use of purchase cards are:

• Limiting the number of cards issued,
• Informing and training employees on the rules for use (for example, not lending the cards to others),
• Spelling out allowable items that can be bought by contractors,
• Requiring independent verification of purchasing receipts against card statements, and
• Periodic audits.

What's disturbing from the reports of lax or nonexistent controls is that a procurement tool designed to save the government money on PO writing for smaller buys may be costing the taxpayer more instead. That's giving reform and sensible tools like p-cards a bad name. Agency heads aren't exactly making big prosecution warnings. Nor are they instituting simple controls to prevent fraud. They should not wait until Congress pushes them.