INTERNAL OPERATIONS COMMITTEE
Meeting Date: JULY 28, 2025
Subject: GIFT CARDS AS PROGRAM INCENTIVES
Submitted For: MONICA NINO
Department: COUNTY ADMINISTRATOR
Referral No: IOC 25/9
Referral Name: GIFT CARDS AS PROGRAM INCENTIVES
Presenter: JULIE ENEA
Contact: Julie.Enea@cao.cccounty.us
Referral History:
At the March 2025 IOC meeting, Vice Chair Burgis inquired about contractors issuing gift cards under County-funded contracts after the Auditor-Controller's annual internal audit plan presentation. On May 13, 2025, the Board of Supervisors (BOS) tasked the IOC with reviewing the County's policy and procedures for purchasing and distributing gift cards as program incentives, especially by community-based organizations contracted by the County.
There is a risk of fraud, waste, and abuse when converting grant or contract funds into gift cards because of the difficulty in tracking and monitoring their use. Without strong oversight, these costs may be questioned during audits. In 2009, the County Administrator established a policy (Administrative Bulletin 615, attached) for purchasing and distributing gift cards as incentives for County programs, as authorized by the BOS.
This report outlines the County's policy on using incentives like gift cards and vouchers across departments and special districts, provides examples from major departments, and presents findings. Unless otherwise noted, the data was compiled from information extracted from past BOS agendas.
Findings
From July 2009 through June 2025, there were 142 BOS actions relating to gift card programs administered by County departments, either directly or through a contractor, totaling about $3.5M or, on average, about $220,000 annually. Most of the incentives authorized by the Board of Supervisors since FY 2009/10 were related to programs administered by the Health Services Department, as shown in the following table.
The next table summarizes the most common uses of gift card incentives administered by County departments.
The Internal Audit Division of the Auditor-Controller’s office regularly conducts audits of gift cards managed by County departments. The 25 most recent findings are categorized as follows. These findings apply to most of the departments listed in the previous table.
Some County departments have allocated funds for gift card incentives through contractors without Board of Supervisors' approval, as required. These allocations were often included in a Service Plan or sometimes not specified in the contract, contradicting County policy. Therefore, contractors managing gift card programs must comply with County policy.
A survey of key County departments about their use of gift cards as incentives in contracted programs identified 38 current or recent contracts involving gift card distribution by agencies contracted with Health Services, Probation, Employment and Human Services, and Conservation and Development (see attached survey summary). Department fiscal divisions generally oversee these transactions, requiring receipts, logs with card details, and sometimes beneficiary confirmations. We could determine only that Employment and Human Services used contract language to address gift cards with contractors.
Recommendation(s)/Next Step(s):
1. Clarify that the County's policy on incentives for County programs and services applies to certain programs and services, whether provided by County departments or their contractors.
2. A set of Special Conditions* should be incorporated with all future County service contracts under which County funding will be used to purchase and distribute gift cards or other monetary program incentives, substantially in the following form and as approved by County Counsel:
“Gift Cards. Contractor shall comply with the following with respect to gift cards, gift certificates and any and all similar incentives of redeemable cash value (hereinafter “Gift Cards”) purchased under this Contract:
A. Alignment with Programmatic Goals. Contractor shall only issue Gift Cards to recipients (hereinafter “Client(s)”) to advance the programmatic goal(s) set forth in the Service Plan. In furtherance of these goals, Contractor shall do the following prior to issuing a Gift Card to a Client:
i. Communicate one or more tasks for Client to attain within a specified timeframe;
ii. Verify and document that Client has made a good faith effort to complete the task or tasks; and
iii. Ensure the Gift Card value does not exceed the expected value of the Client’s task(s) to advancement of the programmatic goal(s) set forth in the Service Plan.
B. Gift Card Log. Contractor shall keep a log of Gift Cards distributed to Clients in order of identification number (usually 16 digits) that contains the following information:
i. Purchase date
ii. Company name
iii. Gift Card identification number (e.g. 5001-000-000-0001)
iv. Issue date
v. Client name/ID
vi. Reason for issuance/program goal
vii. Description of client activity to advance program goal
viii. Gift Card amount
The Gift Card log is subject to audit by the County. Contractor should also conduct its own quarterly internal audit to compare its Gift Card inventory with log entries to account for all purchased gift cards. Contractor shall promptly report any irregularities to the County.
C. Reimbursement. Gift Cards are not eligible for County reimbursement if Contractor fails to do the following:
i. Satisfactorily log distribution of the Gift Card, as determined by the County;
ii. Timely submit the gift card receipt to the County and otherwise comply with the Payment Provisions, and;
iii. Distribute the Gift Card within the time frame set forth in the Service Plan or, if the Service Plan is silent on this point, before the end of the Contract term.
D. Acceptable Gift Cards. Generally acceptable Gift Cards include those that may be used to purchase goods such as merchandise and groceries, and local transportation services.
i. Gift Cards shall not be redeemable for alcohol, tobacco, controlled substances, or services, including, but not limited to, movies, mini-golf, or concerts.
ii. The purchase of a Visa, MasterCard, or American Express Gift Card is prohibited.
E. Limitations on Distribution. Contractor shall not distribute Gift Cards:
i. To individuals or corporations with whom Contractor, its employees, agents or subcontractors have any financial, familial or personal relationship;
ii. In exchange for participation in services for which Contractor or County may be reimbursed by a funding source other than the funding source used to purchase the Gift Cards. Contractor shall also not seek more than one reimbursement for a single Gift Card, or;
iii. Through a subcontractor.
F. Gift Card Policy. Contractor shall incorporate these special conditions into a written Gift Card Policy and distribute to its employees responsible for handling Gift Cards.
*Other Special Conditions might also be required by the funding source, e.g., a State or Federal granting agency.”
3. DIRECT the County Administrator to update the administrative policy on incentives for County programs and services to be consistent with Recommendations 1 and 2 and to promulgate the revised policy to all County departments.
Fiscal Impact (if any):
Implementing the recommendations is expected to incur little to no cost. Department heads will ensure their staff follow County policy and procedures. The County Administrator’s Office, with help from the Auditor’s Internal Audit Division and the Purchasing Agent, will address noncompliance issues arising from lack of awareness or lack of training.