Lawrence Berkeley National Laboratory:

Further Improvements Needed to Strengthen Controls Over the Purchase Card Program

GAO-04-987R: Published: Aug 5, 2004. Publicly Released: Sep 7, 2004.

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The Lawrence Berkeley National Laboratory (Lawrence Berkeley) located in Berkeley, California, is a government-owned, contractor-operated Department of Energy (DOE) national laboratory. The University of California manages the lab under a cost-reimbursable contract with DOE. The university is paid a management fee to operate the lab and is reimbursed for all allowable costs charged to the contract. During the fall of 2002, the Federal Bureau of Investigation began investigating two Los Alamos National Laboratory employees for alleged misuse of lab credit cards. Other allegations of theft and misuse of government funds at Los Alamos soon followed. In light of the problems identified at Los Alamos, Congress asked us to review selected procurement and property management practices at two NNSA and two DOE contractor labs, including Lawrence Berkeley. This report summarizes the information provided during our June 14, 2004 briefing to GAO's staff on these issues as they relate to Lawrence Berkeley. Specifically, we reviewed Lawrence Berkeley's purchase card program and property management practices to determine whether (1) internal controls over the lab's purchase card (Pcard) program provided reasonable assurance that improper purchases would not occur or would be detected in the normal course of business, (2) purchase card expenditures made under the contract properly complied with lab policies and other applicable requirements and were reasonable in nature and amount and thus were allowable costs payable to the contractor under the contract, and (3) property controls over selected asset acquisitions provided reasonable assurance that accountable assets would be properly recorded and tracked. Our review covered selected transactions that occurred during fiscal year 2002 and the first half of fiscal year 2003 (October 1, 2001, through March 31, 2003), which were the most current data available when we requested the data for our review.

Internal control weaknesses in Lawrence Berkeley's Pcard program increased the lab's risk of improper purchases. These included weaknesses in supervisory review and approval of transactions, documentation, and segregation of duties. Specifically, of the nonstatistical selection of 144 transactions obtained through data mining5 for fiscal years 2002 and the first half of fiscal year 2003, we found that cardholder monthly statements for 35 (24 percent) were not signed by approving officials in a timely manner or were not signed at all. We also found that 31 (22 percent) of the 144 nonstatistically selected transactions we reviewed, totaling $38,680, lacked sufficient documentation such as an invoice, credit card receipt, or other sales documentation necessary to validate the dollar amount, quantity, and nature of the items purchased. This was due in part to the fact that monthly approvers were not required to verify purchases listed in the cardholder statement against supporting documents. This weakness in the review and approval function combined with the insufficient documentation of transactions created an environment where improper Pcard purchases could occur with little risk of detection. Further, two key personnel responsible for overseeing the lab's Pcard program were also cardholders, creating a lack of independence between their cardholder role and their Pcard administration role. These control weaknesses likely contributed to the approximately $326,396 in improper, wasteful, and questionable purchases we identified during our review. While relatively small compared to the approximately $24 million in purchase card activity that occurred during the review period, it demonstrates vulnerabilities from weak controls that could be exploited to a greater extent. We also considered 23 transactions totaling $10,911 as wasteful because they were excessive in cost when compared to other alternatives and/or were of questionable need, such as $985 for three Bose noise-canceling headsets and $403 for an air purifier from The Sharper Image. We considered 51 transactions totaling $116,894 as questionable because they had insufficient documentation that would enable us or the lab to determine what was purchased and whether the purchases were proper and reasonable. Because we only tested a small portion of the transactions we identified that appeared to have a higher risk of fraud, waste, or abuse, there may be other improper, wasteful, and questionable purchases in the remaining untested transactions. Lawrence Berkeley did not ensure assets were accounted for and tracked properly and in a timely manner. All of the 100 assets selected for physical observation were either found or the lab provided documentation that the asset had been transferred or retired. However, we found several inaccuracies between the physical assets and the information recorded in the property database, including inaccurate serial numbers, incorrect property custodians, and inaccurate location information. These types of inaccuracies make the assets more susceptible to undetected loss or theft. Subsequent to our review period, the lab made a number of policy and procedural changes that, if properly implemented, should help improve internal controls over its Pcard program and accountability for property. This included the implementation of a new Pcard program that significantly changed the lab's Pcard process. However, additional improvements are needed to further reduce the risk of improper and wasteful purchases.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The lab revised its property manual on September 1, 2004 that now states as a required action: "At the completion of the inventory and retirement of unaccounted-for property items, Property Management submits a report of inventory results to DOE, Laboratory Senior Management, and Lab Security."

    Recommendation: In order to address the issues identified in our review, the Secretary of Energy should direct the Director of the Lawrence Berkeley National Laboratory, to help improve Lawrence Berkeley's controls over the purchasing, recording, and safeguarding of assets, establish a policy requiring property management to provide a report of all missing assets detected during physical inventories to Lawrence Berkeley Security.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: Lab officials stated that subsequent to our review, they began using Microsoft Access as a data mining tool to systematically monitor for split purchases, unusual vendors, and other potentially improper or wasteful purchases. For example, the purchase card administrator runs a monthly report that identifies potential split orders, and daily transaction reports are reviewed for sales tax, unusual vendors, and potential split purchases. They provided us a sample data mining report showing these types of transactions highlighted. These actions appear responsive to the recommendation.

    Recommendation: In order to address the issues identified in our review, the Secretary of Energy should direct the Director of the Lawrence Berkeley National Laboratory to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to implement tools, such as data mining, for the Pcard program or other review staff to use in reviewing cardholder purchases for improper purchases. These tools should be used to systematically monitor for split purchases, unusual vendors, and other potentially improper or wasteful purchases, and to monitor timeliness of reconciliations and supervisory approvals.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: In response to our recommendation, the lab assessed and evaluated its purchase card program in conjunction with an evaluation and assessment of its procurement department organizational structure and practices. As a result of these reviews, it established several new procedures which strengthened controls. For example, it now requires all Pcard purchases to be pre-approved; once approved, the request goes to a buyer in the procurement department to be ordered; only procurement department buyers are purchase cardholders; the buyers maintain the records of requisition orders and vendor receipt confirmations; Pcard items purchased must be delivered to central receiving, and receiving creates a documented receipt of the goods. These added controls significantly strengthen the segregation of duties by requiring all Pcard purchases to be made by the Procurement Department. In addition, Procurement Department buyers are more familiar with the rules on what items are restricted or unallowable. Therefore, we believe these added controls address the weakness we originally identified.

    Recommendation: In order to address the issues identified in our review, the Secretary of Energy should direct the Director of the Lawrence Berkeley National Laboratory to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to require approving officials to review (1) sales receipts, invoices, or other independent support showing the description, quantity, and price of individual items purchased and (2) restricted items approvals before approving purchases to ensure such items were obtained and documented where applicable.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: In response to our recommendation, the lab assessed and evaluated its purchase card program in conjunction with an evaluation and assessment of its procurement department organizational structure and practices. As a result of these reviews, it established several new procedures which strengthened controls. For example, it now requires all Pcard purchases to be pre-approved; once approved, the request goes to a buyer in the procurement department to be ordered; only procurement department buyers are purchase cardholders; the buyers maintain the records of requisition orders and vendor receipt confirmations; Pcard items purchased must be delivered to central receiving, and receiving creates a documented receipt of the goods. Therefore, we believe these added controls address the weakness we originally identified.

    Recommendation: In order to address the issues identified in our review, the Secretary of Energy should direct the Director of the Lawrence Berkeley National Laboratory to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to establish policies and procedures requiring that purchasers maintain a copy of the detailed sales receipt, invoice, or other independent support showing the description, quantity, and price of individual items purchased.

    Agency Affected: Department of Energy

  5. Status: Closed - Implemented

    Comments: In response to our recommendation, the lab cancelled the purchase card accounts in 2005. We confirmed with their issuing bank in April 2006 that the two staff with current oversight responsibility for the Pcard program were not cardholders.

    Recommendation: In order to address the issues identified in our review, the Secretary of Energy should direct the Director of the Lawrence Berkeley National Laboratory, to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to cancel purchase card accounts for cardholders who also perform oversight functions over the purchase card program to help ensure appropriate independence and separation of duties between these functions.

    Agency Affected: Department of Energy

  6. Status: Closed - Implemented

    Comments: The contracting officer reviewed the improper, wasteful, and questionable items we identified and issued the lab a Notice of Intent to Disallow Costs for $30,920.13 on April 18, 2005. The lab subsequently repaid DOE for this amount on May 10, 2005.

    Recommendation: The Secretary of Energy should direct the DOE contracting officer for the lab to review the improper, wasteful, and questionable items we identified to determine whether any of these purchases should be repaid to DOE.

    Agency Affected: Department of Energy

  7. Status: Closed - Implemented

    Comments: The lab revised its property manual on September 1, 2004 in response to our recommendation. The property manual now states "VI. Property Review - ...The purpose of the review is to monitor the accuracy of property custodian assignment, the property number, the serial number, and location and to verify that property assets identified with a barcode number are entered into the property database." We also obtained documentation showing that these items were tested during their fiscal year 2005 property review.

    Recommendation: In order to address the issues identified in our review, the Secretary of Energy should direct the Director of the Lawrence Berkeley National Laboratory, to help improve Lawrence Berkeley's controls over the purchasing, recording, and safeguarding of assets, establish a process to test the accuracy of key information recorded in the property management system, including the serial number, assigned custodian, location, and bar-code number.

    Agency Affected: Department of Energy

 

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