Paul L. Caron
Dean




Wednesday, October 12, 2011

TIGTA: IRS Does Not Adequately Monitor Employee Use of Credit Cards

TIGTA The Treasury Inspector General for Tax Administration yesterday released Controls Over the Purchase Card Program Were Not Effective in Ensuring Appropriate Use (2011-10-075):

From September 1, 2007, through March 31, 2009, the IRS made more than 174,000 purchases totaling more than $80 million using purchase cards. However, the IRS does not have the necessary controls in place to ensure that improper and abusive purchases do not occur, any such transactions are promptly detected, and appropriate corrective action is taken.

While some controls were working as intended, overall management controls were not effective to ensure the appropriate use of IRS purchase cards. TIGTA found violations of applicable laws and regulations that included purchases made without necessary approvals and verification of funding, purchases that were potentially split into two or more transactions to circumvent micro-purchase limits, and purchases made from improper sources. In addition, the IRS did not have a policy to provide guidance for establishing an appropriate span of control over the number of purchase cardholders assigned to approving officials. Until management controls are effectively strengthened, implemented, and enforced, the IRS will continue to be at risk for noncompliance with applicable laws and regulations, and the IRS cannot ensure that improper and abusive purchases do not occur. In addition, if such purchases do occur, the IRS cannot ensure the transactions are promptly detected and that appropriate corrective action is taken.

https://taxprof.typepad.com/taxprof_blog/2011/10/tigta-irs.html

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Comments

To follow up on the post by Mr. Stoup, purchase card procurements can be in the thousands of dollars. People have different dollar amounts they can put on a single purchase, The lowest level is $3000. So if an office needs a computer, printer & phone for a new employee that equipment will often be paid for with the credit card by a purchasing agent. The invoice goes directly to the accounts payable and the agent is responsible for putting the correct accounting code into the procurement data base.

Some agents have warrants to put much more than $3000 on the card for a single purchase: a new set of office furniture or a new car for the fleet might be bought this way. The dollar amounts are far too much to expect an individual to pay him or herself, thus the entire process is different from normal business travel cards, as Mr. Stoup pointed out. It is against policy to break a purchase up into smaller sums to avoid the limit on the card. If you want something that costs $4000 and you have a $3K limit, some folks have been known to finesse the procurement to avoid having to go though the more complex acquisition process used for major purchase. The article is talking about lack of controls to prevent those sort of things.

Even if the government needs the product, and it would be fine to get it through the paper process, it is a violation of the rules to misuse the card just to save time. I have no idea how bad the situation is at IRS, but where I work, the auditors are all over this stuff all the time.

Posted by: Vance | Oct 13, 2011 2:30:23 PM

I'm a revenue agent with a Citibank credit card which I must use when traveling on official business. The credit card account is in my name. I have primary responsibility to pay for charges. Thus I have great incentive to submit the required travel report to receive reimbursement. The reimbursements for air fares and hotel charges go directly to Citibank, not to me, to ensure the vendors actually get paid.

Thus, as Vance and others have indicated, I doubt whether problems with purchase cards have anything to do with business travel cards.

Posted by: Elmer Stoup | Oct 13, 2011 12:39:21 PM

This article is not about using credit cards as normal consumers do, but in a procurement program inside the government that was put in place during the Clinton administration to streamline things. Remember Reinventing Government?

The purchase card is a different card than a credit card. It is used by someone who has been trained in its use and is accountable, in principle, for using it according to the regulation. The credit card I use for travel expenses stays at home unless I am on official travel. In the office, if I need supplies or a reference book, one of the people in the group who has a purchase card gets what I need.

The article about the IRS is saying that the controls to manage the purchase card program are not adequate. This is not surprising since IRS has 130,000 people and some thousands of those use a purchase card. It would have been a more revealing story if it had shown, or estimated, how much of the $80 million was outside the bounds of the rules. Otherwise, this is a story that implies something bad has happened, but doesn't give us details so we can understand the depth of the problem.

Posted by: Vance | Oct 13, 2011 3:48:36 AM

If I use my own credit card I get points (e.g. frequent flier miles, etc.) I'm sure the government gets some goodies when I buy using the card they give me. So I have to use it when I'm traveling for the government or something like that. Otherwise that card remains hidden in a drawer in my house.

Posted by: guiowen | Oct 12, 2011 5:07:01 PM

I used to have a local government credit card. The reason to have one is that government procurements are time consuming, expensive, and can take weeks. On average I saved about 15% over what government contract purchased would cost. I could also get it today if needed. Before having the credit card I waited as long as 8 weeks for $160 part.

I was also audited for every transaction by 3 different groups every year. Most of the things they thought were problems were not, so I am not sure about problems found in the audit mentioned above. Auditors have a vested interest in finding problems. If they don't find problems then their job isn't needed.

Posted by: Ron W | Oct 12, 2011 3:11:57 PM

RonF, Federal gov cards are like this too. The one I had before I retired from the Air Force was anyway. As far as I know, no one gets to charge anything to a government card and have the government automatically pay for it.

Posted by: ken in sc | Oct 12, 2011 2:52:42 PM

Maybe the 19,000 new IRS agents can audit the credit card purchases. And leave us alone.

Posted by: J Peter | Oct 12, 2011 2:43:31 PM

I've seen stories like this come out recently here in Chicago where various State, County and local officials have abused credit cards that were issued on the credit of the government body.

Here's what I don't understand. Why do they have these credit cards? I have a credit card with my company's name on it, but it's also got my name on it. The bill goes to me, not my company, and I have to pay the bill and then file for reimbursement - which will get bounced if I am trying to violate company policy. So, how about if we just have all government agencies stop giving their employees credit cards? Let their employees have to spend cards that they cover the bills on and then file for reimbursement. Just like the people who pay their salaries have to do.

Posted by: RonF | Oct 12, 2011 2:38:35 PM