Auditing a Purchasing Card Program – Why It Matters & How to Do it Right

Many government agencies use purchasing card programs for their employees now.
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Audits of purchasing card programs are conducted to determine the following 3 things:

1. Whether purchases made via purchasing cards comply with City policies and procedures;
2. Whether effective internal controls exist to prevent and detect inappropriate transactions;
3. In order to make recommendations for improvement in controls, procedures and efficiency, as appropriate.

​The Government Finance Officers Association adopted a best practice recommending that governments that have a purchasing card program perform periodic audits of card activity and of retention of related sales receipts and purchases documentation.

Most governments verify that purchasing card transactions are approved and have receipts before paying. However, this review does not constitute an “audit” because it does not:

• Determine whether policies and procedures are being consistently applied throughout the various departments
• Review the conclusions of the cardholder and supervisor related to the need for supplies and services purchased, business purpose of the purchase, splitting of invoices, appropriate account coding, etc.
• Provide training and feedback to staff on compliance and best practices
• Assure that goods purchased were actually received
• Dissuade those who may be inclined to purchase for personal use or not follow City policies

Internal audits of purchasing card transactions can be performed by City staff trained to perform such audits, or can be outsourced.

Following is a Sample Audit Plan that your agency can follow and adopt as a best practice for auditing your purchasing card program.

Purchasing Card Program – Sample Audit Plan

– Download this Sample Audit Plan as a PDF here –

Following are sample steps of procedures commonly performed during an audit of the purchasing card program:

Step 1:
Meet with management to understand concerns and historical problems, and to identify interviewees.

Step 2:
Obtain and read relevant documents, including:                                           

• Credit card statements                        
• Relevant policies and procedures of the local government, including purchasing card policy, procurement policy, employee expense reimbursement policy, travel policy
• Cal-Card Program Requirements (including merchant codes restrictions, transaction dollar limits, late penalties)                                    
• Cal-Card Cardholder Guide
• Cal-Card Program Summary Rebate Report  

Step 3:
Develop interview questions and schedule interviews.
Interviewees typically are:

1. Accounting and purchasing employees involved in administering the program, reviewing cardholder compliance, reviewing cardholder reconciliations, and posting transactions to the general ledger; and
   
2. Cardholders and supervisors in the operating department(s) being audited.  

Step 4:
Interview employees in order to understand:                                                  

• Job responsibilities and procurement needs                                                  
• Procurement and purchasing card practices and procedures, including ordering, receiving, authorizations and approvals                                    
  
• Purchasing card reconciliation and approval procedures                                          
• Perceived strengths and weaknesses in current processes

Step 5:
Review several recent months of purchasing card statements for selected cardholders. Look for transactions that may not comply with policy.
Types of items to focus on are purchase of services, electronics, software, Amazon, high-dollar amounts.

Step 6:
Select several transactions for each cardholder and obtain all supporting documentation including statements, reconciliations, receipts, supervisor approval, posting to general ledger, certification of receipt of credit card.
Test whether purchases were made in compliance with policy including business purpose, timeliness, approvals, coding.

Step 7:
Analyze work low, approvals/authorizations, written procedures and record keeping. 

​Step 8:
Perform additional document reviews and follow-up inquiries to corroborate information obtained in interviews, document reviews and transaction test       

Step 9:
Determine findings and develop recommendations for improvement.

Step 10:
Draft reports showing procedures performed, findings, and recommendations for improvement. 

​Step 11:
Meet with management to present findings and discuss implementation of recommendations.

Findings

Following are some of the common findings that may result from audits of purchasing card programs:  

1. Cardholder allows an unauthorized person to use purchasing card.
2. No escalating discipline of cardholder when there is recurring non-compliance with procedures.
3. Inadequate written internal procedures, which should cover items, such as:

• Purchases of services
• Account coding
• Returns and credits
• Packing slips
• Blanket purchase orders
• Approver review tasks
• Purchase splitting
• Disciplinary process
• Internet purchases
• Unauthorized transactions
• Requests for increased limits

Here are 9 tips to help create better future audit results:

1. Incorporate efficient use of technology, such as importing bank statements, account coding, posting to general ledger.
2. Perform periodic audits of purchasing card transactions.
3. Require proof of receipt of goods and materials at local government site.
4. Don’t use purchasing card for purchase of services as it makes preparation of Form 1099 difficult.
5. Understand when to use a purchasing card program vs. blanket purchase orders.
6. Pay monthly balances off immediately to maximize amounts of rebates.
7. Establish a segregation of duties, such as ordering, receiving and approving payment.
8. Set in place clear guidelines of how employees can easily and safely report suspicion of fraud or abuse.
9. Provide periodic training to cardholders and supervisors.

– Download this Sample Audit Plan as a PDF here –

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For more information on better audits for your purchasing card program, please reach to our team, or to Kevin directly at no cost:

Kevin Harper, CPA
kharper@kevinharpercpa.com 
(510) 593-503

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