Northampton County’s Human Resources Department spent $3,950 on gift cards for county employees in late 2016 without prior approval. It is unable to explain how many of them were actually used by employees. That’s the major finding in an audit of the county’s credit cards, called P-cards. The audit, performed by Controller Steve Barron and Lead Auditor Frank Kedl, was presented to County Council and Executive John Brown on Sept. 29. The audit finds P-Card abuse and misuse and is recommending that the county overhaul its staff training and travel policies.

A hint of this negative audit first came in April, when Northampton County Controller Steve Barron recommended that Northampton County administrators needed to impose tighter controls on runaway spending for travel and training. He called attention to trips to New Orleans and Las Vegas by Human Resources staffers. He was also bothered by a staggering jump in training expenses for Human Resources (HR). That increased from $5,749.35 in 2015 to $56,758.15 in 2016. He suggested a training travel limit of 100 miles, beyond which council authorization would be needed.

Barron warned at that time that his office had also just begun its periodic audit of the county’s credit cards, called P-cards.

At that time, council member Mat Benol dismissed Barron’s report as “one of those knee-jerk things that our controller has done to try to make the executive look bad. I’m just getting tired of it.” Benol went on to call Barron “a corrupt officer,” and suggested his that the controller’s salary be defunded. He called Barron’s report “false news.”

The formal audit of P-cards, however, tells a much different story. In her response, County Administrator Cathy Allen concedes that policy changes must be made.

According to the audit, Human Resources spent $3,950 at the end of 2016, without approval, to buy $10 and $15 gift cards to hand out to employees who attended FMLA training or meetings for the new Employee Assistance Program (EAP). Others were given for blood drive donors and pilates class participants.

According to a spreadsheet, Human Resources Director Amy Trapp took 183 of these cards. Deputy Director Courtney Kendzejeski received 50 of these cards for Gracedale workers. Another Deputy Director, Mike Twining, signed for 36. Human Resources has no documentation at all for 75 of these cards. Except for a few instances, the spreadsheet fails to identify the employee who actually received the cards.

According to the audit, “a major concern with gift cards is that they are liquid assets like cash, and adequate controls are necessary over their custody and distribution.” Those controls are nonexistent here. Nothing would prevent dishonest Human Resources staffers from simply converting most of these gift cards to their own use.

In addition to the potential for theft, the audit raises a concern that distribution of these gift cards to county employees might be a taxable benefit to them. Even small gift cards are considered taxable income by the IRS if they can be used to buy items of general merchandise. This happens to be the opinion of the Society for Human Resource management (SHRM), where several HR staffers are members.

While it is unlikely that the IRS would pursue an employee over a small gift card, it might consider prosecuting an employer who pays this benefit to employees without withholding taxes. Northampton County is a public employer whose own income depends on taxes. Ironically, a local government is handing out cash equivalents to employees that it istelf is failing to report as income.

The audit recommends that the county discontinue the use of gift cards on a large scale. “If the administration wants to allow the use of gift cards, policies and procedures should be developed and distributed to maintain proper controls over them.”

Other findings

P-Cards are being used to purchase food at the workplace. - Northampton County has very strict rules about paying for an employee’s meals. The rule for most hourly employees is that you have to be 50 miles away from your work station, after which you are authorized $7 for breakfast, $9 for lunch and $20 for dinner. Or you can spend $36 in one meal. For managers, it’s actually slightly less.

This prohibition is being ignored. Several departments have purchased lunches for staff at taxpayer expense when training is planned. Human Resources, for example, spent $966.71 in 2016 to purchase food from Panera and Wegman’s for consumption at the workplace. A Right-to-Know independently obtained reveals that another $80 in county money was spent by HR Director Amy Trapp last year for 10 lunches at the courthouse.

The audit recommends a policy review to determine if refreshments may be purchased for training sessions. It also recommends increasing the daily meal allotment from $36 to $59, which is what is permitted by the General Services Administration.

P-Card use is up. - Spending had dropped for three years in a row. But in 2016, it exploded from $797,560 to $1,096.030. Most of this spending increase was at the jail, Maintenance and Gracedale. The number of P-Cards issued went up as well, from 108 in 2015 to 123 last year.

P-Cards better than petty cash, but still subject to abuse. - Overall, the audit states that the P-Card “provides an efficient and cost effective method to pay for goods a training and/or services program and reduces the use of petty cash and low dollar purchase orders.” But the audit flagged a number of improper purchases that still receive supervisory approval. “It is either a lack of knowledge of county policies, or supervisors not adequately performing their duties,” the audit notes.

Fiscal Limits on Purchases should be relaxed. - The audit recommends that the number of quotes to be obtained in advance of purchases be relaxed. Currently, a purchase between $6,000 and $10,000 requires three letter quotes. County Administrator Cathy Allen has agreed to change this policy to require one quote for purchases up to $5,000, and three written quotes for purchases between $5,000 and $24,999.