I recently uncovered a super interesting article about an investigation into Pentagon employee’s spending a reported $950,000 at casinos and close to $100,000 at adult entertainment establishments. Guess where the million or so dollars went? Onto the employee’s government sponsored purchase cards. The articles states, “the Pentagon said this represented a small fraction of the total transactions on department-issued cards, coming to less than one-tenth of 1 percent of the charges.”
While Oversight’s own Spend Analysis Report for T&E backs up the finding that only a very small fraction of T&E and purchase card transactions are potentially fraudulent, the article bears a discussion, because potentially fraudulent activity, no matter how small a percentage needs investigating. Why? Even if the dollars are a small percentage, many of our clients find value in finding the specific actors that regularly operate outside of policy. According to the ACFE 75.6% of the employees committing fraud in T&E are also engaged in another form of occupational fraud.
Let’s get rid of the bad apples, because the likelihood that they’re acting poorly in just one orchard is very, very small.
When I showed the piece to the Oversight account management team they answered with a resounding, “Yes, we uncover this all the time.” “This” being adult entertainment and high-flying fun on an agency’s dime.
Clearly this is the type of issue corporations and government agencies should pay attention to – and there’s the bigger picture consideration. It’s the typical “needle in the haystack” problem. As the Department of Defense Inspector General stated, the charges are only a fraction of a percentage. While this helps folks rest easy that fraud isn’t a rampant problem, it also means a sample based audit has little hope of finding these transactions when they do occur.
Management review is often an ineffective control. In fact many companies we work with are reducing or eliminating their reliance on management review and instead using robust analysis (like Oversight Systems) to identify the untoward transactions and patterns of questionable activity. In addition to saving time compared to a sample-based audit (see this post for evidence as to how Oversight actually saves you time while increasing audit scope), you get 100% transaction review, and analysis to identify patterns over time.
I’m hesitant to say that all of the behavior in the Pentagon is “bad”, as the article also states that employees may have paid the money back, and initially put the charges on the government card to avoid spousal scrutiny. Even though this scenario isn’t ideal, and also not technically fraudulent, technology solutions with integrated case management such as ours, can also help purchase card managers track who has and hasn’t paid back a non-compliant purchase.
When you’re dealing with employee spending as large as it is in the government, can agencies really afford not to monitor all of the activity? Further more, does your agency really have $1 million in tax payer dollars to spare?