Employees at Canada's tax agency have been using government credit cards to buy retirement gifts, flowers, greeting cards — even to make charitable donations.

And some of the abuses are so serious that the agency launched several investigations into potential frauds.

A litany of problems is cited in a June 2008 audit of the 1,704 MasterCards issued to workers at the Canada Revenue Agency. The cards were used to buy more than $55 million of goods and services in the year ended March 31.

"Key controls tested at the time of the review were not functioning properly to ensure compliance," the auditors warned.

The report is the latest in a series of federal probes since the mid-1990s that have found rule-breaking and abuse of credit cards in various departments.

Such cards were first approved in 1991 for use by all federal departments, and have proliferated from the first 2,000 issued across government in 1992. MasterCard is one of several authorized card suppliers.

By 2005, there were 35,600 such cards, used to purchase more than $600 million annually in goods and services. A few cards have high credit limits, up to $1.5 million in some cases.

At the Canada Revenue Agency, auditors examined a sample of 115 active credit cards — and found 12 of them were held by people who no longer worked for the agency. At least three of these rogue cards had been used to buy goods and services together worth $576.50.

The number of cards held by ex-employees — about 10 per cent in the sample — suggests there were about 170 rogue cards at the time of the audit.

Another sampling of 128 credit-card purchases found "critical" problems with more than a quarter of them, including missing invoices and lack of approvals.

The auditors also found a series of specifically prohibited purchases, including flower deliveries, greeting cards and retirement gifts.

There were also prohibited credit card-based donations to charities — just as the agency is clamping down on the charities sector for potential abuses of the rules.

"A few transactions presented a high risk of fraud and were reported to management for appropriate action," the report added.

"The Internal Affairs and Fraud Prevention Division … have initiated investigations."

No mention of charges

A spokeswoman for the agency said the auditors turned over three files to the fraud squad, although in two cases investigations had already been launched and were concluded. The third file is still under investigation.

But Beatrice Fenelon declined to provide further details, including whether charges were laid.

"The Privacy Act prohibits the Canada Revenue Agency from disclosing personal information about its employees," Fenelon said in an e-mail.

She also said the transactions where MasterCards were used after an employee left the agency were fully authorized, as the order was placed shortly before the employee's departure, and the goods were for government business.

Fenelon added that an online registration system was created in July 2007 to guard against fraud and abuse, and that no cards are now held by non-employees.

In 2007-2008, the agency used MasterCards for almost 190,000 transactions — and received rebates worth $490,800 through bulk-buy deals with suppliers, one of the key advantages to using so-called acquisition cards. The cards also cut down on paperwork.

Auditor general found 'lapses' in control of card transactions

The audit's troubling findings follow on the heels of Auditor General Sheila Fraser's report to Parliament in May 2007 that cited "lapses in the control and review of [credit-card] transactions."

Fraser warned, for example, that departments were failing to cancel the cards of employees who left government — the very problem uncovered at Canada Revenue Agency more than a year later.

Investigations at other departments have found similar problems.

A 2004 audit at Fisheries and Oceans found that cards were "being used as personal credit cards by a significant number of employees."

Almost half the transactions in a cross-country sample at DFO had nothing to do with government business, the auditors found.

Another audit at Environment Canada the same year also found employees using their cards for personal purchases.