Even as the IRS announces it plans to issue guidance on the use of smartcards with qualified transportation fringe benefits, public comments on such guidance include allegations of impropriety from one vendor.
The IRS asked for input on whether it should issue such guidelines (see related story) last May. Thompson Information Services requested copies of all comments filed in response to the request and received 14, one of which pointed out “the depth and breadth of fraud and abuse within government agencies of card products.”
Specifically, TranBen, a firm that administers transit benefits for private and public-sector customers, said in its comments:
One need only scratch the surface of publicly available research material to understand the depth and breadth of fraud and abuse within government agencies of card products intended for limited-purpose use, but capable of much broader use. … It is apparent that where specific-use debit/credit card programs are implemented, abuses occur because of the very nature of MCC limitations. This makes it impossible to internally control such usage, fraud and abuse.
In an interview with Thompson, TranBen Director of Operations Tim Swafford was more direct: “A few administrators in [the U.S. Department of Transportation’s transit benefit administration program] have been working under the radar” with a large U.S. bank “to implement debit cards to distribute commuter benefit payments — way ahead of the IRS changing its rulings that disallow debit cards.”
Thompson will be following this issue. In the interim, following are some excerpts on other, less controversial comments about the IRS proposal:
Aon Hewitt — Existing Controls Sufficient
Aon Hewitt is an employee benefits plan administrator and consultant. Aon Hewitt said:
Health FSA debit cards can be used at drug stores, grocery stores, big box retailers and other department stores that sell numerous items that do not qualify as medical expenses. As a result, there is a need to specifically limit the debit cards accordingly. Conversely, transit authorities/vendors rarely sell anything other than fare media, so the same protections are not needed with transit plans; thus eliminating the need for further substantiation.
APTA — MCC-limited Cards Not Sufficient
The American Public Transportation Association is a trade association that represents public and private entities, including public transit systems, private-sector design, construction and finance firms, government departments of transportation and others. APTA s said:
There are debit cards in use in transit benefit programs that rely on Merchant Category Code limitations on the front end to determine whether the point of sale for that merchant falls within an appropriate transit or transportation classification. Because the MCC restriction does not limit the purchase at that POS to transit fare media, further substantiation requirements are necessary to ensure that the benefit is being used properly. In other words, MCC limited debit cards are basically cash reimbursement mechanisms that require a bona fide reimbursement arrangement.