Government Purchase Card Fraud: Related Vendors, Markups and Goods That Never Arrived

Government purchase card vendor fraud routes taxpayer money to vendors through inflated prices or charges for goods that never arrive. At Hanford, the Justice Department alleged that purchasing employees steered orders to businesses owned with their spouses, sometimes through an intermediary. One arrangement allegedly inflated the price. The other allegedly supplied no goods at all. If you know who requested the supplies, who sold them or what reached the worksite, you may know the part of the transaction the card statement leaves out.

The connection to government contractor cost mischarging is the expense passed to the government. In the Hanford purchase-card cases, the alleged purchases traveled through a contractor’s buying operation and reached the Department of Energy’s bill. The vendor relationship and the delivery record explain what taxpayers actually bought.

What a Purchase Card Charge Shows

The request, approval and receiving records explain what a purchase-card payment record alone does not: the business behind the charge. That division matters because the person requesting supplies, the person using the card and the person receiving the goods can each know something different about the purchase.

The Office of Personnel Management inspector general’s February 2024 audit describes how the payment moves: the issuing bank pays the vendor, and the government reimburses the bank later. A purchase card can make a small purchase, place an order or pay a contractor that accepts the card. It serves both as a buying tool and as a payment tool.

At the Office of Personnel Management, the cardholder keeps reconciliation records and resolves billing problems, while an approving official verifies and approves the transactions. The agency requires purchase requests, itemized receipts and approvals, with reasons recorded when independent receipt and acceptance cannot be performed as required.

Related Vendors and Repeated Charges

When a government purchase card buys goods from an employee’s spouse’s company, the relationship belongs beside the employee’s purchasing authority, the vendor’s price and the goods delivered. At Hanford, the government’s allegations connected those points: purchasing employees, businesses owned with their spouses, costs charged to Energy, and either inflated prices or nonexistent goods.

An intermediary adds another relationship to examine. The business appearing as the seller can stand between the employee’s business and the government contractor. The useful comparison follows who supplied the goods, who set each price and who arranged the sale. Someone in vendor sales may understand an agreement that the contractor’s receiving staff never saw.

Repeated transactions also make purchasing limits relevant. The Office of Personnel Management audit describes a report that groups transactions with the same merchant to identify possible split purchases. Splitting means deliberately dividing one purchase to avoid a purchase limit or competition. The underlying request and order history explain whether several charges came from one buying decision.

For a purchasing insider, the pattern can be a recurring supplier, the same requester and the same unexplained gap in the supporting file. The Hanford cases show why the relationship across purchases deserves attention alongside the amount of any single charge.

The Hanford Purchase Card Settlements

CH2M Hill Hanford Group, Kennewick Industrial and Electric Supply, and Fluor Hanford reached separate civil settlements over related alleged purchase-card schemes. The allegations put inflated supplies and nonexistent supplies inside the same purchasing system.

CH2M Hill and the Warnings Before the Purchases

CH2M Hill Hanford Group agreed to pay $1.5 million to resolve False Claims Act and Anti-Kickback Act allegations. The government alleged that two employees responsible for purchasing supplies made more than 200 improper purchases from companies owned and run by their spouses between 2003 and 2005, charging the costs to Energy.

The company managed mixed radioactive waste at the Department of Energy’s Hanford site in Washington, including management, maintenance and cleanup of the Tank Farms. The purchasing authority sat inside the prime contractor. The financial interest sat inside the supplier.

The alleged schemes differed. One employee routed purchases through Kennewick Industrial and Electric Supply under an arrangement with one of its salesmen. The other used AMG Marketing, a business owned by that employee and his wife. The government alleged that AMG Marketing charged Energy for purchases while providing no goods for those transactions.

The Justice Department said CH2M’s internal audits identified purchase-card control weaknesses as early as 2002 and again in the following years. The government alleged that CH2M failed to address the weaknesses, allowing the schemes to continue undetected. We expect more from an audit than a recurring description of the same hole in the controls.

Kennewick Industrial and the Price Added Along the Way

Kennewick Industrial agreed to pay $515,000 in July 2011 to resolve allegations over the purchase-card arrangements. The government alleged that both the employee’s business and the intermediary substantially marked up the goods, causing the government to pay more than twice what they were worth.

In that alleged arrangement, the price increased at more than one business before reaching the government. That makes the intermediary’s dealings with the employee’s business as important as the final invoice. For someone who knows the supplies, the comparison starts with the actual goods, their supplier and the prices charged along the route.

The CH2M resolution also addressed alleged kickbacks connected to the purchases. The card and receipt trail shows what the government bought. The benefit behind the purchasing decision explains why a particular vendor got the business.

Fluor Hanford and the Same Vendors

Fluor Hanford, another Energy contractor at the site, agreed to pay $4 million in June 2011. The Justice Department described that settlement as resolving allegations over the Kennewick Industrial and AMG Marketing schemes along with two additional alleged schemes. The allegations therefore reached another contractor buying through the same named vendors.

That connection gives a vendor employee a different view from a cardholder working for one contractor. The sales side may see the customer relationships across accounts. The contractor sees the charges submitted through its own operation. Comparing those perspectives can explain how a supplier fits into more than one purchasing arrangement.

The Justice Department’s Civil Division, the U.S. Attorney’s Office for the Eastern District of Washington and the Department of Energy Office of Inspector General conducted the government’s investigation. The separate settlements show the reach of the related cases. The transactions show how the alleged schemes worked.

The Receiving Record Behind the Invoice

A receiving record missing for repeated government purchase card invoices leaves a concrete question for the people who handled the goods: what arrived, where did it go and who accepted it? Purchase requests, supplier invoices, shipping documents and receiving records let an insider connect a billed item to an actual delivery.

For equipment, the trail can continue into the property system. In its 2006 review of Homeland Security purchase cards, the Government Accountability Office recommended independent receipt and acceptance records and tracking of easily stolen assets. It specified the asset’s location, responsible individual, manufacturer’s serial number and agency identification code. Those details connect a purchase to an identifiable object and the person responsible for it.

The distinction matters in the Hanford allegations. For the Kennewick Industrial arrangement, the question was the price charged through the participating businesses. For the AMG Marketing transactions, the government alleged that no goods were supplied.

The billing evidence becomes useful when these documents refer to the same purchase. A receiving employee can explain the item. A buyer can explain the request and supplier. An accountant can explain the invoice and payment. Together, those accounts can expose the gap between what the business billed and what it supplied.

Purchase Card Audits That Leave Gaps

The Office of Personnel Management inspector general identified purchase-card transactions totaling $599,962 that were missing one or more required supporting documents. The missing material included receipts, price-reasonableness reviews, transaction logs and prior approvals. That was a finding about the support for purchases at the agency.

The audit also examined the review process itself. Reviewers checked that price reasonableness had been considered while leaving the method blank. They identified missing documents in the files examined, but the inspector general found no documentation showing follow-up with the cardholders about the gaps.

Checked. Still unexplained.

That is why an audit warning belongs in the transaction history. The important sequence includes what the reviewer questioned, who received the finding and what happened afterward. Hanford’s alleged failure to correct known weaknesses and OPM’s undocumented follow-up show different ways a review can leave the underlying purchasing question open.

What Data Screening Adds to the Vendor Trail

Data screening can help investigators decide which companies to examine. Public Procurement Fraud Detection and Artificial Intelligence Techniques: A Literature Review, published in CEUR Workshop Proceedings in 2022, describes network analysis used to set those priorities. The review also identifies a practical limit: detection methods need reliable historical data that may not be available.

For a purchase-card concern, the request, price history and receiving record explain the transactions a screen flags. The person who knows why the supplier was chosen can add something a transaction table never recorded.

How Do You Report Government Contract Fraud?

Bring the purchase-card arrangement to our whistleblower experts so we can assess the transactions, the people making the decisions and the connection to government payment with you. A knowingly false vendor charge can reach the government through a prime contractor’s bill.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know the Purchase Behind the Charge

If you recognize a supplier relationship, an inflated invoice or goods that never reached the job, speak to one of our Whistleblower Experts about the vendor behind the charge. We build your strongest case around your knowledge and bring in government procurement whistleblower lawyers who understand vendor arrangements and contract billing. We stay with you through the decisions ahead, with the purchasing facts at the center of the case.