Limited to a max of $1,000 per single transaction on their school district procurement cards, some enterprising Houston ISD employees have gotten around that by breaking up their purchases into smaller parts, an internal audit has revealed.
Apparently taking a page from the HISD Construction and Facilities Services Departments book on how to avoid spending limits on construction by dividing contracts into itty bitty pieces, this action went undetected by the district's procurement office for quite a while. The audit covers more than $12 million in purchases made from January to May in 2015.
In one case, a charge of more than $4,000 was split into separate bills to stay under the limit. “The fund reviewer also prepared faked invoices to match the $1,000 charges,” according to the audit report.
A source familiar with the situation told us that the money went for an end-of-year appreciation dinner for Sharpstown High staff and was held at La Griglia in River Oaks. Ouch, considering that Sharpstown, like a lot of other HISD schools, could probably have used the money for something else – like, say, maybe the kids? This case and another, totaling about $552 by another cardholder, have been referred to the Office of Internal Audit's Fraud Investigation unit.
The audit, which was completed in June of this year, came to renewed attention during a discussion at this past Monday's HISD audit committee meeting when just-returned-to-his-job Chief Auditor Richard Patton was asked by the three-member committee for an update on ongoing matters.
Among other discoveries: “Cardholders made 541 purchases totaling $181,885 (1.5 percent of total PROCARD purchases) from prohibited or restricted vendors.” Asked about this, HISD press secretary Jason Spencer explained that sometimes HISD employees do need to make purchases from such vendors but that they are only supposed to do so with approval from the Procurement Office.
Alas, and incredibly, it seems the Procurement Office didn't keep any records of when it approved one of these waivered purchases. So the district right now has no way of knowing which transactions were okayed and which ones were just end-runs around the system.
And then there's the “51 purchases totaling $11,770,” charged under the Title I federal aid program that were not allowable under that program, namely food, entertainment and gifts.
Spencer explained the methodology followed by in-house auditors who started by looking at all 54,336 transactions made during this period:
“They set the program to identify all the instances when an employee used their PROCARD with the same vendor repeatedly within a few days. That got them down to 12,244 split transactions,” Spencer said. “Then the audit staff went through those and looked for the ones they thought were the most likely to be incorrectly done. And they found 110 that they thought were most likely to be violations.
“They pulled receipts, they pulled everything and determined that 68 percent of that 110, which is 76, they believe were intentionally split to circumvent the $1,000 maximum rule.”
Spencer said he doesn't think the audit supported its statement that cardholders consistently circumvented the $1,000 single-purchase limit. Although any incidences of such action aren't desirable, he argued that the fact that only 76 charges were identified out of more than 54,000 purchases – which he computes to be 0.14 percent of all transactions – shows that by far, most all of the district's employees are obeying the rules.
The district has a tiered system of discipline to deal with those it deems have misused their cards. First-time offenders will receive “written admonishments.” Second time means the cardholder will lose access to the card, “as will all cardholders in the department or on campus for 30 days.” Talk about peer pressure. A third offense loses card access for everyone in the department or campus for six months to a year. Retraining, of course, would be mandatory. A fourth offense – we're really getting serious now – “could lead to suspension of all cards permanently.”
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Spencer countered a media report saying the district ended the year with a big fat $584,000 bill, saying that wasn't true. “We pay that credit card every month in full. All the internal paperwork might not have been completed by the end of the year, but there wasn't a big bill sitting there at the end of the year.”
The audit report did note that since many purchases were not reviewed within the required ten-day period, there was no way of knowing whether they included “prohibited and fraudulent purchases.”
Spencer did say the audit produced several good recommendations that the district is adopting. The Procurement Department will create a tracking log to make note of purchases it has approved from restricted vendors.
And it will now have access to the same ACL software system that the Office of Internal Affairs used to uncover the problem. So maybe in the future it won't have to wait so long to figure out that something is amiss.