Audit finds $385,000 in questionable spending on Kansas City employee purchasing cards
Kansas City employees made hundreds of questionable purchases on city-issued cards, according to an audit released Thursday by City Auditor Doug Jones.
The review found employees may have violated ethics policies by using their cards to make city purchases from relatives. It also uncovered numerous cases of missing receipts, lack of supervisor approval and instances of employees breaking up purchases to avoid reaching the city’s $5,000 transaction limit.
The audit also uncovered a situation that “could indicate possible illegal acts.” That was reported to city management for further investigation, Jones wrote, but he did not elaborate to preserve the integrity of the investigation.
In one case reviewed, a city official directed cardholders and a vendor to split a large invoice into multiple smaller invoices and make payments on multiple cards. That cost the city $3,000 in credit card fees.
“These fees would not be owed had the department made the payment in accordance with city policies,” the audit states.
The audit also found instances of employees using their purchase cards for ineligible items like computer hardware and software and food and entertainment. And some were used to buy office supplies, which are supposed to be purchased through a separate city contract.
Employee purchase cards were issued to cover smaller, repetitive purchases needed for city business. Kansas City has had the cards since 2001 and currently contracts with Bank of America to administer the cards, which are accepted by any vendor that takes credit cards.
As of February 2021, the city had 213 active cards. Water, fire and aviation departments had the most cards, made the most purchases and spent the most on those cards, the audit found.
The audit examined a sample of 583 transactions between December 28, 2019, and January 27, 2021. It found 216 card transactions that resulted in 256 violations of purchasing card rules or city procurement policy. Collectively, those transactions were valued at about $385,000.
“It’s stealing,” said Councilwoman Heather Hall. “That’s what it is.”
Hall said council members don’t have use of purchasing cards since a former council person was accused of misusing a card years ago.
“They took it away from all of us. So we don’t have them,” she said. “I think it’s silly for a lot of people to be rambling around with credit cards on taxpayer dollars.”
While the city auditor made nine recommendations for improving accountability and rules around purchasing cards, Hall pushed for some discipline of city staffers who were found to have made questionable purchases.
“Take away the cards of everybody who’s made those mistakes,” she said. “They don’t get them anymore.”
City Manager Brian Platt said the city is looking at centralizing all its procurement efforts, rather than allowing purchases to be managed department by department. He also wants to significantly reduce the number of purchasing cards in circulation, which should improve oversight, he said.
“There obviously are just way too many out there,” he said.
Platt was the business manager at Jersey City, New Jersey, before coming to Kansas City last year. He said Jersey City had only one purchasing card in use and it was reserved for emergency purchases.
In his presentation, Jones recommended more training and oversight for card users.
The audit found 18 violations in which employees used their cards to make purchases from relatives, a troublesome finding because city employees are not supposed to use their positions to financially benefit family members.
The audit found that two card approvers, who are supposed to review and sign off on purchase card transactions, did not know that buying products from family members was a potential ethics violation.
Jones recommended more regular reviews of spending and requiring receipts documenting purchases. Over the audit period, only one-third of card transactions had supporting documentation.
He also recommended resuming a previous city practice of suspending cards when users do not complete the requisite approval procedure. During the 13-month audit period, more than 600 payments were made without completing the three-level approval process in city policy.
Tammy Queen, Kansas City’s finance director, said the roughly $3 million that employees spend annually on purchase cards is a small fraction — 0.18% — of the city’s overall budget.
“It’s really a relatively small program for a government our size,” she said. “...but it’s still an important place where we need to make sure we have the most controls in place.”
Queen said the city agreed with all the audit’s recommendations.
Officials will start requiring that employees upload receipts when making purchases, she said. Officials will also look for unnecessary or underutilized cards that can be closed. The city will also conduct an annual review of cards and annual training for all users.
Similarly, the city will develop a new policy regarding e-commerce sites like Amazon and payment platforms like Paypal and Square. Jones said those can be susceptible to fraud because purchases can obscure identification of the vendor or product purchased.
For example, the audit found that one employee used a purchase card to make a payment on Square to a family member.
Overall, about 20% of purchase card transactions were made on third-party platforms and e-commerce platforms, the audit found. Amazon was the top vendor identified during the audit period.
Queen and the city manager said the city would begin making changes in the coming weeks to the purchasing card program.
“We always appreciate the ability to make changes and improve our program,” Queen said.
This story was originally published January 6, 2022 at 5:53 PM.
