Governmentwide Purchase Cards:

Actions Needed to Strengthen Internal Controls to Reduce Fraudulent, Improper, and Abusive Purchases

GAO-08-333: Published: Mar 14, 2008. Publicly Released: Apr 9, 2008.

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Over the past several years, GAO has issued numerous reports and testimonies on internal control breakdowns in certain individual agencies' purchase card programs. In light of these findings, GAO was asked to analyze purchase card transactions governmentwide to (1) determine whether internal control weaknesses existed in the government purchase card program and (2) if so, identify examples of fraudulent, improper, and abusive activity. GAO used statistical sampling to systematically test internal controls and data mining procedures to identify fraudulent, improper, and abusive activity. GAO's work was not designed to determine the overall extent of fraudulent, improper, or abusive transactions.

Internal control weaknesses in agency purchase card programs exposed the federal government to fraud, waste, abuse, and loss of assets. When testing internal controls, GAO asked agencies to provide documentation on selected transactions to prove that the purchase of goods or services had been properly authorized and that when the good or service was delivered, an individual other than the cardholder received and signed for it. Using a statistical sample of purchase card transactions from July 1, 2005, through June 30, 2006, GAO estimated that nearly 41 percent of the transactions failed to meet either of these basic internal control standards. Using a second sample of transactions over $2,500, GAO found a similar failure rate--agencies could not demonstrate that 48 percent of these large purchases met the standard of proper authorization, independent receipt and acceptance, or both. Breakdowns in internal controls, including authorization and independent receipt and acceptance, resulted in numerous examples of fraudulent, improper, and abusive purchase card use. These examples included instances where cardholders used purchase cards to subscribe to Internet dating services, buy video iPods for personal use, and pay for lavish dinners that included top-shelf liquor. GAO identified some of the case studies, including one case where a cardholder used the purchase card program to embezzle over $642,000 over a period of 6 years from the Department of Agriculture's Forest Service firefighting fund. This cardholder was sentenced to 21 months in prison and ordered to pay full restitution. In addition, agencies were unable to locate 458 items of 1,058 total accountable and pilferable items totaling over $2.7 million that GAO selected for testing. These missing items, which GAO considered to be lost or stolen, totaled over $1.8 million and included computer servers, laptop computers, iPods, and digital cameras. For example, the Department of the Army could not adequately account for 256 items making up 16 server configurations, each of which cost nearly $100,000.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On January 15, 2009, OMB issued guidance to executive agencies informing them of internal controls over purchase card activities, as detailed in Appendix B of OMB Circular No. A-123, and extended the applicability of these controls to the use of convenience checks. Specifically, OMB included a chapter in the 2009 guidance on the proper and improper use of convenience checks.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, the Director of Office of Management and Budget (OMB) should issue a memorandum reminding agencies that internal controls over purchase card activities, as detailed in Appendix B of OMB Circular No. A-123, extend to the use of convenience checks.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: In January 15, 2009, OMB took action to address our recommendation by issuing guidance to executive agency heads instructing both cardholders and approving officials to reimburse the government for any unauthorized or erroneous purchases card transactions that were not disputed.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, the Director of OMB should issue a memorandum to agency heads requesting the cardholders, approving officials, or both reimburse the government for any unauthorized or erroneous purchase card transactions that were not disputed.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: On January 15, 2009, OMB issued guidance to executive agency heads expanding descriptions for erroneous and improper purchases, such as those for personal items, and the circumstances for which cardholders and/or officials must reimburse the government for the cost of the item if it is deemed improper. The guidance also included a description of best practices to be considered by agency officials for mitigating risks of purchase card misuse and for initiating administrative or disciplinary actions when such misuse occurs.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, the Director of OMB should issue a memorandum to agency heads requesting when an official directs a cardholder to purchase a personal item for that official, and management later determines that the purchase was improper, the official who requested the item should reimburse the government for the cost of the improper item.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  4. Status: Closed - Implemented

    Comments: In August 2009, GSA issued guidance that identified the de minimis amount for cardholders' purchases that do not require documenting independent receipt and acceptance, as $75. Any purchase(s) that exceed the $75 amount must be received and accepted by someone other than the cardholder, and this independent receipt and acceptance of goods and services must be properly documented.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of General Services Administration (GSA), should, in consultation with the Department of the Treasury's Financial Management Service, provide agencies guidance on how cardholders can document independent receipt and acceptance of items obtained with a purchase card. The guidelines should encourage agencies to identify a de minimis amount, types of purchases that do not require documenting independent receipt and acceptance, or both.

    Agency Affected: General Services Administration

  5. Status: Closed - Implemented

    Comments: In January 2009, OMB provided executive agencies with overall guidance, in Appendix B of OMB Circular No. A-123, to improve purchase card management. This guidance requires agencies to (1) provide and document independent receipt and acceptance to ensure that items procured via purchase cards are actually received and (2) include in their policies and procedures, a process to notify agency property managers of property receipt and to record items in property tracking and financial systems. GSA also issued guidance in 2009 for purchase cardholders to document the receipt and acceptance of goods/services and to follow necessary property accountability controls and policies.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide agencies guidance on how cardholders can document independent receipt and acceptance of items obtained with a purchase card. The guidelines should encourage agencies to indicate that the approving official or supervisor took the necessary steps to ensure that items purchased were actually received.

    Agency Affected: General Services Administration

  6. Status: Closed - Implemented

    Comments: In May 2009, GSA issued its purchase card training manual which stressed that sensitive and pilferable property - defined as MP3 players, digital cameras, fax machines, PDAs, navigation/GPS units, copiers and printers - obtained with purchase cards can be easily converted to personal use. The manual advises that an accurate property tracking system should be in place for sensitive and pilferable property and that a chain of custody tracking system is strongly recommended.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide agencies guidance regarding what should be considered sensitive and pilferable property. Because purchase cards are frequently used to obtain sensitive and pilferable property, remind agencies that computers, palm pilots, digital cameras, fax machines, printers and copiers, iPods, and so forth are sensitive and pilferable property that can easily be converted to personal use.

    Agency Affected: General Services Administration

  7. Status: Closed - Implemented

    Comments: In April 2009, GSA amended the Federal Travel Regulation, by notice in the Federal Register, to clarify that government travelers must reduce the appropriate amounts from their meals and incidental expense allowances on their travel vouchers when meals are a part of a registration fee or paid for by the government in conjunction with attendance at conferences or other events while on official travel.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, instruct agencies to remind government travelers that when they receive government-paid-for meals at conferences or other events, they must reduce the per diem claimed on their travel vouchers by the specified amount that GSA allocates for the provided meal.

    Agency Affected: General Services Administration

  8. Status: Closed - Implemented

    Comments: GSA issued a directive in August 2009 stating that the micropurchase threshold was $3,000 with certain exceptions. For purchases under the micropurchase threshold, the directive requires cardholders to obtain prior approval for each purchase, and to have written authorization documenting that goods and/or services are required for business purposes and have been approved for purchase by an authorized official. Documentation must be in the form of e-mails, memoranda, or other authorized forms, and contain the requesting individual's name, contact information, item description/quantity, and estimated cost.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide written guidance or reminders to agencies that cardholders need to obtain prior approval or subsequent review of purchase activity for purchase transactions that are under the micropurchase threshold.

    Agency Affected: General Services Administration

  9. Status: Closed - Implemented

    Comments: In August 2009, GSA issued guidance reminding agencies that property accountability controls are necessary, including those items obtained with a purchase card, and that all cardholders must adhere to property accountability policies to include security, inventory management, and recording in the appropriate property management system.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide written guidance or reminders to agencies that property accountability controls need to be maintained for pilferable property, including those items obtained with a purchase card.

    Agency Affected: General Services Administration

  10. Status: Closed - Implemented

    Comments: GSA issued its purchase card training manual in May 2009 reminding agencies that cardholders must coordinate with their respective property officers and appropriate custodians to ensure that all accountable property, including sensitive and pilferable property, is recorded in the applicable property tracking system, consistent with their agency's policies and procedures. The training manual also advised cardholders to familiarize themselves with agency policies for reporting property they acquired with a purchase card that may become missing, stolen or damaged after property receipt.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide written guidance or reminders to agencies that property accountability officers need to promptly record, in agency property systems, sensitive and pilferable property that is obtained with a purchase card.

    Agency Affected: General Services Administration

  11. Status: Closed - Implemented

    Comments: GSA issued guidance on the use of convenience checks to limit their use to situations when vendors do not accept purchase cards and when no reasonable alternative merchant is available to accept a purchase card. The 2009 guidance further indicated that all of the procurement regulations, rules and policies governing purchase card use also apply to the use of convenience checks, that the same dollar limits apply when using convenience checks, and that all prohibitions on the use of purchase cards also apply to convenience checks.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide written guidance or reminders to agencies that, consistent with the guidance on third-party drafts in the Department of the Treasury's Treasury Financial Manual, volume 5, chapter 4-3000, convenience checks issued on the purchase card accounts should be minimized, and that convenience checks are only to be used when (1) a vendor does not accept the purchase cards, (2) no other vendor that can provide the goods or services can reasonably be located, and (3) it is not practical to pay for the item using the traditional procurement method.

    Agency Affected: General Services Administration

  12. Status: Closed - Implemented

    Comments: GSA issued guidance in its 2009 purchase card training manual stating that specialized training on convenience checks is required prior to cardholders being authorized to write convenience checks. The training document emphasized that convenience checks should be used as a payment method of last resort and only used when no reasonable alternative merchant is available who accepts the charge card and that, if misuse or abuse is discovered, the cardholder will lose his or her convenience check and purchase card privileges and be referred for disciplinary action.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide written guidance or reminders to agencies that convenience check privileges of cardholders who improperly use convenience checks be canceled.

    Agency Affected: General Services Administration

  13. Status: Closed - Implemented

    Comments: In its 2009 purchase card training manual, GSA reminded agencies that cardholders must provide information to agency property officers and/or property tracking systems on all items purchased with a government issued purchase card, except for consumables. Additional GSA guidance stressed that, since many accountable property purchases are made "over the counter" or directly from a vendor with the purchase card, there is an increased risk that such pilferable property may not be reported to property managers for inclusion in property tracking systems. Therefore, the GSA guidance emphasized that purchase cardholders must adhere to all property accountability policies and procedures.

    Recommendation: To improve internal control over the government purchase card program and to strengthen monitoring and oversight of purchase cards as part of an overall effort to reduce instances of fraudulent, improper, and abusive purchase card activity, consistent with the goals of the purchase card program, to streamline the acquisition process, the Administrator of GSA, should, in consultation with the Department of the Treasury's Financial Management Service, provide written guidance or reminders to agencies that cardholders need to timely notify the property accountability officer of pilferable property obtained with the purchase card.

    Agency Affected: General Services Administration

 

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