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The Green Sheet Online Edition

August 24, 2009 • Issue 09:08:02

A smarter way for the government to pay?

Waste, fraud and abuse of taxpayer money by the federal government does not foster trust in government programs. A July 2008 report by the Congressional Research Service to the U.S. Congress highlighted systemic problems with SmartPay, the government's charge card program administered by the General Services Administration.

The GSA runs three charge card programs, utilizing purchase, travel and fleet cards. According to the CRS report entitled Misuse of Government Purchase Cards, transaction volume using SmartPay cards has grown from $527 million in 1993 to $18.7 billion in 2007. In the same timeframe, the number of cardholders has tripled to 300,000 and the number of purchase card transactions went from 1.5 million to almost 24.7 million.

Do the math

The CRS said the amount of abuse of those cards has grown as well. The report detailed instances of card misuse, such as a U.S. Department of Agriculture employee using her purchase card to funnel $642,000 to her boyfriend over a six-year period, or a Forest Service worker charging $31,342 for personal items such as video game systems, cameras and jewelry.

The CRS report did not indicate how much money the abuse of purchase cards was costing the government annually, but it reported on approximate levels of abuse. An audit of the U.S. Department of Education estimated that 37 percent of purchases on cardholders' statements were not approved. An audit of the U.S. Department of Housing and Urban Development deemed 47 percent of transactions questionable.

Citing a Government Accountability Office report, the CRS noted that almost one of every six purchase card transactions governmentwide had not been approved. The main cause of card abuse is lack of oversight, the CRS said. And when cardholders recognize that supervision is lacking, abuse is more likely to take place, the report concluded.

The alternative

"I think, generally, if you have a credit card in your hand with a $1,000 limit, you're going to go spend it," said Jonathan Bennett, Head of Corporate for Europe and North America at prepaid travel card specialist Travelex Currency Services Inc.

In contrast to credit cards are prepaid cards; since they are loaded with fixed dollar amounts, expenses can be more easily managed on the front-end, Bennett said. "You therefore can control how much that person is spending," he added.

Travelex operates in 24 countries and works with corporations around the world on travel card programs. With its Cash Passport service, Travelex provides airlines like British Airways PLC and Virgin Atlantic Airways Ltd. with a cost-effective alternative to the airlines' paper voucher systems, which reimbursed customers for flight delays and other problems.

Travelex also works with the British government on travel card programs, Bennett said. He sees no difference between a travel card designed for corporate environments and one for government agencies.

"Because we program manage when we run that program, we can shape that program very well for the government entity," he said. "We can control ATM charging. We can control the foreign exchange margins when [employees] go abroad."

While Travelex manages the programs, the entities have control over how, when and to whom funds are dispersed, with "multiple hierarchies" within agencies approving and loading funds, he said. Additionally, to prevent cardholders from purchasing unapproved goods and services, Travelex can restrict where cards can be used, he added. "We can challenge the process they have [used]," he said. "There are alternatives."

P-card hard to dislodge

In response to the CRS report, Sen. Charles E. Grassley, R-Iowa, introduced legislation designed to require federal agencies to establish safeguards and internal controls on government charge cards. But switching to prepaid cards is not part of Grassley's plan.

One reason may be because of entrenched ways of doing business. For example, in the corporate world credit card providers are the established forces behind purchase card programs, said Tim Sloane, Director of the Debit and Prepaid Service at Boston-based Mercator Advisory Group. "There is little incentive for a credit card company to displace credit cards with prepaid," he said. "In fact, these companies are more inclined to offer special credit card solutions than to add a new product line to the mix."

Another factor is that card providers can make more money on credit card transactions than on lower margin generating prepaid cards. "As a result existing corporate card companies are not rushing prepaid solutions to market," Sloane said.

Back-end integration is also a sticking point, Sloane noted. Since it is time consuming and expensive to implement, "a new prepaid solution that requires additional integration is a hard sell," he said.

But according to Bennett, the potential for prepaid card solutions in the corporate and government sectors is huge. "You wouldn't believe how much cash is being distributed around the world, having travelers checks distributed," he said. "The opportunity is massive in Australia, the U.K., Asia."

For more stories from SellingPrepaid E-Magazine, as well as breaking news and forums devoted to the prepaid sphere, please visit greensheet.com. end of article

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