Using Credit Cards at HUD – It's Like Free Money

By on April 15, 2003 in Current Events with 0 Comments

Earlier this week, FedSmith ran a story about a Federal employee from the Department of Interior that spent approximately $60,000 on an aquarium and related items. Not wanting to use his own credit card (or not having a sufficiently large line of credit), he used his US Government credit card. He wound up with a jail sentence (house arrest only) and a hefty fine.

But it isn’t just the Department of Interior with a problem. The GAO has just released a report that shows the Department of Housing and Urban Development (HUD) has its own problems with government credit cards. Despite the understated wording of the GAO report, it creates the impression of an agency run like the Keystone Cops.

GAO says that HUD does not have a system of internal controls that enables investigators to determine how much of a problem exists. But the auditors did find plenty of smoking guns to enable them to conclude that the lack of controls “created an environment in which improper purchases could be made with little risk of detection and likely contributed to the $2.3 million in improper, potentially improper, and questionable purchases GAO identified.”

In other words, the auditors are quite certain there is a problem but there isn’t enough oversight to allow the problems and miscreants to be identified.

Some of the purchases put on to government cards were made on weekends from computer and specialty stores (Sharper Image and Ritz Camera) and music stores (Guitar Source, J&Rs Music Store). Products were also purchased from stores such as Macy’s and Lord and Taylor. Purchases like this, dryly note the investigators, are “from vendors not expected to engage in commerce with HUD.”

Other problems included $25,400 of “no show” hotel charges for HUD employees who didn’t attend scheduled training and $21,400 of purchases from vendors who went out of business prior to the employee having purchased the product.

Finally, the GAO put the problem into perspective by noting that “Of the total $1.8 million purchase card transactions selected in the statistical sample, $1.4 million lacked adequate supporting documentation….” GAO estimates that $4.8 million in purchases sampled out of a total of $10.6 million lacked adequate documentation.

Or, stated in more direct terms, 45% of the transactions sampled did not have supporting documentation and there appears to be plenty of evidence that employees were making purchases having nothing to do with their employment.

But as bad as this sounds, it actually gets worse. When the GAO asked the agency for a list of people with authority to approve purchases, it found that no one knew who had the authority. The agency did provide a partial list and, when it contacted a sample of these people, they disagreed that they had the authority to approve purchases.

While it sounds like a comical system, it obviously involves a lot of money. Employees can purchase what they want with little or no accounting. There is a system requiring pre-approval of purchases but no one knows who has the authority and, for those that do apparently have such authority, many didn’t know that they had that responsibility or at least denied having it. In short, no one appears to be in charge of the program at the level where it is implemented.

So, summarized the GAO, the HUD system allows “vulnerability to wasteful, fraudulent, or otherwise improper purchases by employees using government purchase cards.”

We can’t help but feel sorry for the scientist at the Department of the Interior that bought the aquarium and got a jail sentence and a fine. If he worked at HUD, apparently no one would have known and he would have still been working for the agency.

On a more positive note, HUD officials say they are taking some actions to correct the problem. Among other things, the agency has canceled some cards and lowered the spending limits on other cards. They are also monitoring more purchases and held a “Charge Card Awareness Day” last month.

GAO says the HUD plan to correct the problem is inadequate and is going to make additional recommendations.

You can read the entire GAO report for yourself.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.