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United States General Accounting Office: 
GAO: 

Report to the Chairman, Committee on Transportation and 
Infrastructure, House of Representatives: 

May 2002: 

FAA Alaska: 

Weak Controls Resulted in Improper and Wasteful Purchases: 

GAO-02-606: 

[End of section] 

United States General Accounting Office: 
Washington, D.C. 20548: 

May 30, 2002 

The Honorable Don Young: 
Chairman: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

Dear Mr. Chairman: 

This report responds to your request for a review of purchasing 
controls and activities within the Airway Facilities Division of the 
Federal Aviation Administration (FAA) in Alaska. This FAA unit, which 
we refer to in this report as AFA, is responsible for maintaining 
airway navigation and communication equipment, such as radar and 
communications towers, throughout the state. 

With the approval of FAA’s Airway Facilities Division headquarters 
(AFHQ), AFA implemented a pilot program in March 1997 called the 
Corporate Maintenance Philosophy (CMP). This program reduced periodic 
maintenance and certification requirements for the equipment, allowing 
AFA to do its work with fewer staff members. Under this program, AFA’s 
funds originally intended for payroll compensation and benefits were 
freed for use on capital improvements and an employee recognition 
system. The program, which was discontinued in 2001, was 
controversial, with allegations of inappropriate spending among the 
concerns raised. This report, our second to address CMP,[Footnote 1] 
deals with internal controls and expenditures at AFA both during and 
after the program. We focused our work on determining whether AFA had: 

* maintained a strong set of internal controls over purchases, 

* purchased items properly (that is, used practices that were in 
compliance with FAA purchasing policies), 

* avoided wasteful spending (that is, spending that was excessive, of 
questionable need, or of little benefit to the government), and, 

* created an operating environment that minimized susceptibility to 
poor internal controls and improper or wasteful spending. 

Results in Brief: 

AFA did not have good internal controls over purchases. Good internal 
controls include such steps as separating purchasing responsibilities 
so that no one person can manipulate the process, documenting and 
accurately recording transactions, and ensuring accountability for 
purchased items. At AFA, however, purchasing duties were not 
separated, supervisory review of purchases was inadequate or lacking, 
errors in purchasing records were widespread, and property inventories 
were incomplete. For example, the same individual was able to request, 
approve, receive, and review final records for a purchase. In 
addition, tracking of items after they were purchased was limited, 
with many assets not entered into the property management system at 
all. For example, 39 out of the 44 accountable assets we reviewed, 
such as computers and snowmobiles, should have been entered into the 
system but were not. Similarly, inventories of merchandise to be given 
to employees for awards were not adequately controlled, increasing 
their vulnerability to loss or theft. 

These control weaknesses allowed many improper purchases to occur. As 
part of our review, we selected 150 purchases made in fiscal years 
1999 through 2001 that appeared to have high potential for being 
improper or wasteful. Of this group, 118, or 79 percent, did not 
comply with one or more FAA purchasing requirements. For example, 
employees did not document how—or whether—they had ensured that the 
purchases represented the best value to the government, such as 
checking prices at other locations or showing why an expensive option 
was better than a less expensive one. One specific example was a 
purchase of two digital cameras costing about $1,620 each (including 
peripherals) and one pair of binoculars, costing $599, that were 
purchased from a small retail camera store. Although determining and 
documenting best value is one of the basic requirements of FAA’s 
acquisition policies, the purchaser did not document why the 
particular equipment purchased and the vendor selected represented 
best value. Other improper practices included splitting a purchase 
into two transactions in order to circumvent dollar limits on single 
purchases, failing to obtain required approval before purchasing 
certain items such as food and beverages, purchasing furniture and 
other items from other than required vendors, and using a certain type 
of government-issued credit card to pay for items such as travel 
expenses that should have been purchased through other means. 

We also identified purchases that appeared wasteful in that less 
expensive options were available or the government received little 
value for the money expended. For example, we identified numerous 
purchases of expensive items when less expensive alternatives were 
available, such as desktop flat panel computer monitors purchased for 
over $3,000 each when standard monitors were available for $300. Many 
of these items were purchased without regard for standardizing 
equipment or grouping purchases to achieve lower prices. This lack of 
prudence extended to larger purchases as well. For example, AFA 
purchased a $340,000 security system that did not work properly in the 
inclement weather in Alaska and was disposed of after only 2 years. 

AFA’s operating environment increased its susceptibility to problems 
with internal controls and improper or wasteful purchases. AFA 
operates in a highly decentralized environment. Its parent unit at FAA 
headquarters in Washington, D.C., provides little oversight of 
spending practices, and regional officials administering FAA’s overall 
operations in Alaska have no oversight authority over AFA’s practices. 
AFA itself is highly decentralized, with personnel in many different 
locations, and with more than half of them having agency credit cards. 
There was no evidence that within the past 2 years the vast majority 
of them had received any training on using these cards. Under CMP, 
large amounts of money were available for capital expenditures and 
employee recognition programs because AFA had authority to apply 
unused salary and benefit moneys to these other purposes. One example 
of the widespread availability of money was that in fiscal year 2000, 
AFA solicited its local offices nine times, primarily in the last 3 
months of the year, asking for additional spending priorities. 
Spending for these multiple rounds of purchases, which was from 1-year 
funds that would have expired at the end of the fiscal year, totaled 
about $4.5 million. 

Although CMP ended in 2001, AFA remains vulnerable to the kinds of 
problems we identified because the specific control weaknesses 
continue to exist. Management’s commitment to addressing and 
correcting them is necessary to reduce AFA’s vulnerability to improper 
and wasteful expenditures. We are making a number of recommendations, 
which, if properly implemented, should help AFA and FAA improve 
internal controls over expenditures and reduce vulnerability to 
improper and wasteful spending. In its comments on a draft of this 
report, the Department of Transportation (DOT) indicated that FAA is 
taking aggressive action to address all of the issues and 
recommendations identified in the report. 

Background: 

AFA maintains FAA equipment that helps guide pilots in Alaska’s 
airspace. It is part of FAA’s Alaskan Region (one of nine FAA regions 
nationwide), and it reports to AFHQ in Washington, D.C. AFA is 
composed of two system management offices (SMO),[Footnote 2] a 
resource management branch, and an operations branch. There are 
various other FAA divisions in the Alaskan Region, including the 
Logistics Division, which is responsible for acquisitions, property 
management, and procurement of real estate. The Logistics Division 
also has responsibility for administering the Alaskan Region’s 
purchase card program. 

The CMP program, implemented in March 1997 with the agreement of AFA’s 
labor union, was a 3-year pilot program that changed the periodic 
equipment maintenance and certification requirements for national 
airspace equipment. CMP had several goals, including increased 
productivity, decreased operating costs, and improvements to the 
airspace system infrastructure. To accomplish these goals, AFA-—the 
only FAA unit where CMP was implemented-—was allowed to conduct 
periodic maintenance and certification less frequently than required 
under national standards, reducing the level of staffing needed and 
related travel costs. During the period the program was in effect, the 
number of AFA employees decreased by 19 percent, but AFA’s annual 
budget authorization increased. AFA had permission from AFHQ to use 
unused personnel funds for other purposes such as capital improvements 
and an employee recognition system. 

During its 4-year existence, CMP was controversial. When the program’s 
3year pilot phase expired in fiscal year 2000, AFA management 
continued using the program without further agreement from its labor 
union. After the union filed a complaint with federal labor 
authorities, management and the union reached an agreement in early 
2001 to terminate CMP. The agreement identified certain actions to be 
taken by FAA including, that by October 1, 2001, maintenance of all 
facilities and services in Alaska would be completed in accordance 
with national standards. 

Implementation of CMP occurred soon after FAA had adopted a new 
acquisition system. The Department of Transportation and Related 
Agencies Appropriations Act of 1996 exempted FAA from other federal 
acquisition statutes and regulations, and directed the FAA 
Administrator to develop and implement FAA’s own acquisition system. 
The resulting system, called the FAA Acquisition Management System 
(AMS), took effect April 1, 1996. AMS establishes policy for all 
aspects of the acquisition life cycle. It was intended to simplify 
acquisition management into a system that provided for more timely and 
cost-effective acquisition of equipment and materials. FAA also 
established the FAA Acquisition System Toolset that supplements AMS by 
providing additional acquisition policy and guidance. In addition, FAA 
has certain agencywide and region-specific orders that establish 
additional or interpret existing policies and procedures. Although FAA 
is exempted from other federal acquisition requirements per se, it has 
the discretion to incorporate portions of acquisitions law into its 
system as it deems appropriate.[Footnote 3] 

FAA uses several methods to acquire goods and services including 
contracts, purchase orders, commercial purchase cards, and travel and 
vehicle credit cards. The FAA purchase card is a commercial credit 
card that, unless otherwise prohibited, is intended to be the primary 
purchasing method when vendors accept purchase cards for commercial 
and simplified purchases.[Footnote 4] The purchase card is intended to 
streamline procurement and payment procedures and reduce the 
administrative burden associated with traditional and emergency 
purchasing of products and services. As of February 2002, 240 out of 
437 (55 percent) of AFA employees had commercial purchase cards, most 
of which had a one-time purchase limit from $10,000 to $25,000 and a 
monthly purchase limit of $120,000. 

Objectives, Scope, and Methodology: 

Our objectives were to determine if AFA (1) maintained a strong set of 
internal controls over purchases, (2) purchased items using practices 
that were in compliance with FAA purchasing policies, (3) avoided 
spending that was excessive, of questionable need, or of little 
benefit to the government, and (4) created an operating environment 
that minimized its susceptibility to weak internal controls and 
improper or wasteful spending. 

To determine the adequacy of internal controls over purchases, we: 

* reviewed FAA and AFA financial management orders, policies, and 
records; 

* interviewed management and staff members within AFA, the Alaskan 
Region Logistics Division, and FAA headquarters; 

* performed purchase transaction walk-throughs to gain an 
understanding of the acquisition process; 

* compared procedures and controls in place against federal internal 
control standards and applicable FAA and AFA orders; and; 

* traced purchases of accountable property to the property management 
system. 

To determine if purchases were made in accordance with established 
policies and procedures and provided sufficient value to the 
government, we made a nonstatistical selection of 150 AFA purchases 
that we identified as having high potential for being improper or 
wasteful, examined each transaction for compliance with FAA 
acquisition policies, and evaluated them against other guidance for 
reasonableness. We selected these transactions from AFA’s databases of 
obligating transactions from fiscal years 1999 through 2001 that 
included obligations of all expenditures except normal payroll, 
compensation, and benefits.[Footnote 5] Our selection was made to 
focus on transactions that appeared noncompliant with purchasing 
policies, unrelated to the agency’s mission, or excessive in nature. 
Because our selection was not a statistical sample, results from 
testing cannot be generalized to the population of purchase 
transactions. 

During the course of our work, we also became aware of certain large 
transactions outside of our 150-item selection that we believed 
warranted further review. We requested and reviewed related supporting 
documentation for these expenditures and interviewed appropriate 
officials and staff members to determine the purpose, magnitude, and 
status of these expenditures. 

To determine if AFA’s operating environment minimized its 
susceptibility to problems with internal controls and improper or 
wasteful purchases, we interviewed management and staff members within 
AFA, the Alaskan Region Logistics Division, and FAA headquarters to 
(1) obtain an understanding of AFHQ’s and AFA’s organizational 
structures, (2) obtain an understanding of AFA’s budgeting process, 
and (3) obtain an understanding of the Alaskan Region’s purchase card 
program, including the process for issuing purchase cards and the 
training provided to cardholders. We also reviewed related documents 
and records to confirm our understanding. 

While we identified some improper purchases, our work was not designed 
to identify all fraudulent or otherwise improper payments made by AFA. 
We performed our work in accordance with generally accepted government 
auditing standards from June 2001 through April 2002 at FAA’s Alaskan 
Region in Anchorage, Alaska. We requested written comments on a draft 
of this report from the Secretary of Transportation or his designee. 
Written comments were received from the department’s Assistant 
Secretary for Administration and are reprinted in appendix I. 

Internal Controls Were Lacking or Ineffective: 

In the federal government, any purchasing system, including one that, 
like FAA’s, is exempted from many federal acquisition statutes and 
regulations, must still follow standards for effective internal 
control. Our Standards for Internal Control in the Federal Government 
contains the specific internal control standards to be followed. 
[Footnote 6] These standards define internal controls as the policies, 
procedures, techniques, and mechanisms that enforce management’s 
directives. They help ensure that actions are taken to address risks, 
and are an integral part of an entity’s accountability for stewardship 
of government resources. AFA’s internal controls did not meet these 
standards in a number of ways. Specifically, AFA (1) lacked adequate 
segregation of duties over purchases, (2) lacked adequate supervisory 
review and approval over purchases, (3) made numerous errors, not 
caught by supervisors, in coding its purchases, (4) did not ensure 
that purchased assets were properly entered and tracked in its 
property management system, and (5) did not ensure that award 
merchandise inventories were properly controlled. Lacking effective 
internal controls, AFA does not have reasonable assurance that 
purchases are proper or that items purchased are safeguarded against 
loss or theft. 

Segregation of Purchasing Duties Was Inadequate: 

Standards for Internal Control in the Federal Government requires that 
key duties and responsibilities be divided or segregated among 
different people in order to reduce the risk of error or fraud. This 
involves separating the responsibilities for authorizing, processing, 
recording, and reviewing transactions and for handling any related 
assets. Simply put, no one individual should control all the key 
aspects of a transaction or event. However, we found a substantial 
lack of segregation of duties at AFA. For example, during the course 
of performing purchasing system walkthroughs and interviews, we noted 
instances where purchase cardholders 

(1) requested the purchase and placed the order, (2) picked up or 
received the goods or services purchased, (3) prepared the financial 
account coding for the transaction, (4) matched the purchase invoice 
and receipt to the monthly purchase card statement, and (5) maintained 
possession of the item purchased. While we did not quantify the 
frequency of failure to segregate duties, we did note through review 
of supporting documentation for 150 purchase transactions further 
instances where duties were not segregated. This weakness increases AFA’
s vulnerability to theft or misuse since there is little oversight or 
control to ensure that purchased items or services have a legitimate 
government need and are being used for government purposes. 
While the flexibility of the purchase card program offers many 
benefits, certain risks heighten the need for effective controls in 
this area. Purchase cards allow the cardholders the flexibility and 
independence of purchasing items for legitimate mission needs at 
virtually any business and immediately having the items to satisfy the 
current needs. Since many purchases are made directly at stores or in 
the field, the cardholders often become the primary receivers of the 
goods or services purchased. Adequate controls can be designed to 
mitigate risks such as diversion for personal use, but AFA did not 
have such controls and did not effectively enforce the controls it did 
have. For example, FAA policy states that the approving official 
provides a critical checkpoint for verifying that all transactions 
made are necessary for official government purposes and are in 
accordance with the acquisition regulations. As such, the Alaskan 
Region purchase card program coordinator stated that an approving 
official cannot request that a cardholder purchase an item for the 
approving official’s use and also approve it. However, in our review 
of AFA purchase transactions, we identified five instances in which 
cardholders purchased items, such as a laptop computer, for their 
supervisors who approved the purchases on the cardholders’ monthly 
statements. 

We also identified segregation of duties problems with the design of 
certain aspects of AFA’s awards program. One aspect of the program 
allowed employees to select their awards from a wide selection of 
merchandise maintained in an employee general store.[Footnote 7] 
According to AFA officials, AFA spent $462,656 on employee general 
store expenditures from fiscal years 1997 through 2000. Control over 
this merchandise, which included such items as portable compact disc 
(CD) players, watches, and retail gift certificates, was limited to a 
few individuals and was not adequately segregated. Specifically, each 
employee general store was managed by a coordinator who was 
responsible for purchasing inventory (primarily using purchase cards), 
receiving inventory via in-store purchases or mail, safeguarding 
inventory, and coding the purchases for entry into the accounting 
system. These failures to adequately segregate key responsibilities 
increase the risk of loss due to fraud, waste, or abuse. 

Supervisory Review and Approval Process Was Inadequate: 

Review of transactions by persons in authority is the principal means 
of assuring that transactions are valid. The supervisory review of 
purchase transactions is particularly critical for AFA because, given 
the lack of segregation of duties described above, the supervisor is 
often the only person other than the purchaser who would be in a 
position to identify an inappropriate purchase. However, we found that 
AFA’s supervisory review and approval of purchase transactions was 
inadequate. FAA policy is vague as to whether purchasers are required 
to obtain prior approval, and it does not require that prior approval 
be documented. Consequently, supervisors we interviewed varied as to 
whether they required cardholders to get prior approval for purchases. 
If prior approval was obtained, it was seldom documented. 

Without prior approval, the only supervisory review of the purchase 
transaction came when the supervisor reviewed and approved the 
cardholder’s monthly credit card statement. Although FAA policy 
requires purchasers to forward supporting documentation to the 
approving official (supervisor), it does not require that approving 
officials review such documentation. We found that supervisors were 
not consistently receiving and reviewing supporting purchase 
documentation prior to approving purchases. Instead, many supervisors 
were authorizing purchases after the purchases were made based 
primarily on a review of the credit card statement, which provided the 
vendor name, date, and the amount of the purchase but did not provide 
details on the item purchased. In addition, as described later in this 
report, FAA acquisition policies require specific documentation for 
certain types of purchases. By only reviewing the credit card 
statement, the approving supervisor often did not have access to 
sufficient detail to determine whether the purchase was necessary or 
whether it complied with agency acquisition policies. 

The lack of supervisory review is further illustrated by the number of 
purchase transactions we identified that were missing key purchase 
documentation. Despite the fact key documents, such as a credit card 
receipt, were missing, supervisors still approved these purchases. 
Although FAA policy requires documentation, such as invoices and 
receiving documents, for all purchases and requires that such records 
be maintained for 3 years after payment, AFA was unable to 
consistently provide all required supporting documentation for the 150 
purchase transactions we reviewed. Table 1 summarizes the required 
documentation AFA was unable to provide for the items we had selected. 

Table 1: Missing Documentation for 150-Item Purchase Transaction Review 

Missing documents: Telephone log or other documentation evidencing 
purchase request via telephone, e-mail, or fax; 
Number of instances[A]: 37. 

Missing documents: Purchase card receipt or invoice; 
Number of instances[A]: 19. 

Missing documents: Signed receiving document; 
Number of instances[A]: 37. 

[A] Some transactions had more than one missing document. 

Source: GAO analysis of 150-item AFA purchase transaction review. 

[End of table] 

Had supervisors been adequately reviewing these transactions, they 
would have identified the missing documents and required purchasers to 
provide such documents before approving these purchases. Without 
documented prior approval and a thorough review of all supporting 
documentation by approving officials, there is no assurance that items 
purchased have a legitimate government purpose. 

Transactions Were Not Coded Accurately: 

Office of Management and Budget (OMB) Circular A-11, Preparation and 
Submission of Budget Estimates, requires federal agencies to report 
obligations by object class, such as salaries, benefits, travel, 
supplies, services, and equipment, to indicate the nature of the 
expenditures of federal funds. Accurate object classification data are 
critical to the reliability of some information reported in the 
President’s budget and in other analyses. Although internal control 
standards require timely and accurate recording of transactions, we 
noted that 79 of the 150 purchase transactions we reviewed (53 
percent) were coded to incorrect object class codes. This was due to 
several causes. For instance, many of the incorrectly coded purchase 
transactions were coded to object class codes that were close in 
description to the correct codes. Thus, we found purchases of 
noncapitalizable computer equipment coded to an object class code for 
capitalized assets. However, other transactions were coded to object 
class codes that clearly did not reflect the items purchased. For 
example, conference room fees for a managers’ meeting at an off-site 
lodge were coded to “Maintenance and Repair of Office Furniture and 
Equipment.” AFA officials also indicated that some of the errors might 
have occurred because the financial system used to initially record 
these transactions already has a default object class code filled in, 
and although the user is required to change the default code if it 
does not pertain to the particular purchase, he or she may not always 
do so. However, they added that it is the approving official’s 
responsibility, during the supervisory review and approval of the 
purchase, to confirm that the purchase is properly coded. The fact 
that there were so many coding errors demonstrates the inadequacy of 
training, ineffectiveness of the supervisory review and approval 
process, and lack of attention to financial accountability in AFA. 

Such weaknesses make it difficult to determine the amounts spent on 
particular activities. For example, our selection of 150 purchase 
transactions contained at least 7 purchases of items for employee 
general store award merchandise, all of which were coded to the wrong 
object class code. Although officials reported that AFA spent $462,656 
on award merchandise from fiscal years 1997 through 2000, due to 
miscodings such as these it cannot ensure the accuracy of amounts 
spent on its employee awards program both for reporting purposes and 
for management decision making. 

Accountable Items Were Not Properly Tracked: 

FAA personnel in the Alaskan Region did not always follow established 
property control policies, and did not consistently identify, record, 
and track all accountable assets in FAA’s Personal Property In-use 
Management System (PPIMS). As a result, FAA cannot ensure that 
purchased assets are being properly used and accounted for, thus 
increasing the risk that purchased items may be lost or stolen without 
detection. Responsibilities for the management and custody of property 
in the Alaskan Region cross division lines. Property management, which 
includes managing and maintaining PPIMS data and ensuring that 
physical inventories are conducted, is the responsibility of the 
Logistics Division. However, property custodians, who are responsible 
for the use, accountability, and control of in-use personal property 
in their respective areas, are located throughout the FAA divisions, 
including AFA.[Footnote 8] FAA policy requires property management 
personnel to identify accountable items, complete property input 
forms, and enter adjustments to PPIMS. However, we identified a 
substantial paperwork backlog from a 2-year period, from 1997 through 
1999, when the property management staff members did not enter a 
significant number of accountable items into PPIMS. Logistics Division 
officials said this was largely due to the fact that it did not have a 
full-time PPIMS manager during this period. In addition, the PPIMS 
manager stated that because many purchases of accountable assets are 
made directly by the divisions throughout the region, property 
management does not have a means of consistently identifying all 
purchases of accountable assets that need to be entered. As a result, 
PPIMS did not contain an accurate record of all FAA accountable assets. 

FAA policy also requires the regional property manager to conduct a 
physical inventory of personal property every 3 years, and requires 
property custodians to perform inventories of their assigned property 
items when requested to do so. However, property management officials 
indicated that a physical inventory had not been conducted in at least 
5 years, and could not provide any documentation evidencing that a 
physical inventory had ever been accomplished. In June 2000, the PPIMS 
manager requested that all the property custodians in the region 
conduct inventories of their respective areas. However, at the time of 
our review, about one-third of the 37 AFA property custodians still 
had not completed their inventories. The date of completion is now 
estimated for June 30, 2002. 

With such lax controls to ensure property was timely entered into 
PPIMS and the lack of inventory procedures to identify items that had 
not been entered, FAA had no means of establishing accountability for 
and monitoring its accountable assets. As a result, we found that 39 
of the 44 accountable assets in our 150-item purchase selection had 
not been recorded in PPIMS even though some of these items had been 
purchased up to 2 years ago. These weaknesses resulted from a lack of 
training for property custodians and inadequate oversight of the 
property management program. Prior to our review, the Alaskan Region 
had not established a formal program to train property custodians. As 
a result, during discussions with property custodians, we found they 
were not always aware of their responsibilities. Furthermore, AFA did 
not have a property management focal point responsible for general 
program oversight and coordination when necessary. Consequently, the 
PPIMS manager in the Logistics Division had to coordinate individually 
with all 37 of AFA’s property custodians to request the physical 
inventory, further hindering property management oversight. 

Combined, the backlog of accountable items to be input to PPIMS, the 
lack of a full-time PPIMS manager for 2 years, the lack of compliance 
with physical inventory requirements, and the lack of training for 
property custodians reflect the low priority given to property 
management within the Alaskan Region. The lack of timely and accurate 
property information may impede program officials’ ability to properly 
manage and safeguard these assets. Until these weaknesses are 
addressed, government assets in the Alaskan Region are at increased 
risk of theft or loss. 

Award Merchandise Inventories Were Not Properly Controlled: 

As mentioned earlier, AFA maintained three employee general stores 
where employees who received performance awards could select from a 
wide range of merchandise. Because these items fell below the $500 
accountability threshold, they were not required to be entered and 
tracked in PPIMS. However, the merchandise included items highly 
vulnerable to misappropriation, such as store and restaurant gift 
certificates and CD players. Standards for Internal Control in the 
Federal Government requires certain controls such as periodic counts 
and comparisons to control records in order to properly safeguard and 
account for vulnerable assets, which include inventories. AFA did not 
have adequate inventory procedures to establish proper accountability 
for such items, which, according to AFA officials, totaled almost a 
half-million dollars from fiscal year 1997 through fiscal year 2000. 

Specifically, guidance for the employee general stores did not require 
conducting periodic inventory verifications or maintaining records on 
additions and issuances of merchandise. Officials told us store 
coordinators occasionally performed partial inventories for restocking 
purposes, but the resulting inventory records were not always kept. 
While store coordinators maintained some documentation, such as 
redemption logs, they were not consistently maintained and the 
coordinators could not verify the completeness of any of the 
documentation. In addition, the information compiled in the logs was 
insufficient to consistently track items from purchase to inventory to 
distribution. Therefore, the store coordinators had no records to 
determine if a particular item purchased was still in inventory. If 
the item was no longer in inventory, they had no records to determine 
if it had been issued and, if so, to whom. This lack of inventory 
controls made it difficult for AFA to determine if merchandise was 
missing and therefore made it highly susceptible to theft or other 
improper use. 

In addition, AFA did not establish appropriate controls over the 
awarding of store merchandise. One of the ways employees could select 
and receive store merchandise was through the receipt of various 
redemption cards. Program guidance extended to all AFA employees the 
authority to recognize individuals with these redemption cards without 
placing restrictions on frequency of recognition or requiring adequate 
supervisory review. Because there was little recordkeeping of who was 
awarding or receiving cards and how frequently an employee gave or 
received cards, there was little control to prevent, for example, 
collusion between two employees who might give each other multiple 
cards. Without appropriate recordkeeping, there was also no control to 
identify if several employees independently awarded one employee for 
the same act. 

Shortly after the agreement to end CMP was signed in March 2001, AFA 
shut down several elements of its awards program and returned to the 
national program. However, because AFA had purchased so much inventory 
for the program in advance, an AFA official informed us that over 
$67,580 in award inventory remains locked in cabinets and storage 
rooms. AFHQ officials stated that AFA is to gradually use the 
inventory in conjunction with the national awards program procedures. 
However, while most of the inventory will hold its value until 
disbursed, AFA estimated that $13,160 of gift certificates has already 
expired. Although attempts were made to get vendors to extend the 
expiration dates for gift certificates, many of the gift certificates 
that were granted extensions have also expired. The remaining gift 
certificates are not for vendors that AFA would use in its normal 
course of business, so use of the gift certificates for business 
purposes is not feasible. More prudent purchasing and inventory 
practices might have prevented this loss as well as the expenditure of 
tens of thousands of dollars in merchandise that may take years to 
issue. 

Noncompliance with Purchasing Requirements Resulted in Improper 
Purchases: 

The lack of good internal controls could be readily seen in the 
specific transactions we reviewed, which often were not carried out in 
accordance with the requirements of FAA’s purchasing system. Although 
FAA is exempt from certain federal acquisition statutes and 
regulations, it does have specific policies establishing purchasing 
requirements that incorporate many of the federal requirements. In our 
review of 150 purchase transactions, we found 118 of these 
transactions (79 percent) did not comply with one or more FAA 
acquisition requirements and, therefore, were considered to be 
improper purchases. More specifically, we noted (1) purchases where 
determination of “best value” for the agency had not been made or 
documented as required, (2) instances in which cardholders split a 
single purchase into two transactions to circumvent single purchase 
limits, (3) purchases of restricted items that required but did not 
have advance approval from contracting officers, (4) purchases from 
other than required vendors without the appropriate waivers, and (5) 
purchase cards used for unallowable purposes. Table 2 shows the extent 
to which the 150 transactions showed problems in each of these areas, 
as described further below. 

Table 2: Transactions Not in Compliance with Purchasing Requirements 

Purchasing requirement: Documentation of best value; 
Number of transactions applicable: 140; 
Number of transactions not in compliance: 99; 
Percentage of applicable transactions not in compliance: 71%. 

Purchasing requirement: Transaction within purchase limits without 
splitting; 
Number of transactions applicable: 150; 
Number of transactions not in compliance: 4; 
Percentage of applicable transactions not in compliance: 3%. 

Purchasing requirement: Preapproval for purchase of restricted items; 
Number of transactions applicable: 27; 
Number of transactions not in compliance: 27; 
Percentage of applicable transactions not in compliance: 100%. 

Purchasing requirement: Purchase from required vendor; 
Number of transactions applicable: 25; 
Number of transactions not in compliance: 23; 
Percentage of applicable transactions not in compliance: 92%. 

Purchasing requirement: Purchase with correct purchase card; 
Number of transactions applicable: 150; 
Number of transactions not in compliance: 5; 
Percentage of applicable transactions not in compliance: 3%. 

Source: GAO analysis of 150 purchase transactions. 

[End of table] 

Determination of Best Value Was Seldom Documented: 

The goal of FAA’s acquisition system is to obtain high-quality 
products, services, and property timely and cost effectively, at 
prices that are fair and reasonable. A major component of this goal is 
the requirement that purchasers determine and document that prices are 
fair, reasonable, and provide the best value to FAA. In reviewing the 
selected items, we accepted as determination of best value any 
indication that the purchaser considered prices from other vendors, 
service provided by the vendor, quality of product versus 
alternatives, prior experience with a vendor, or useful life of the 
product. Although AFA was able in some cases to provide documented 
evidence that the purchasers considered best value before making their 
purchases, in 99 of the 140 transactions (71 percent) to which this 
requirement applied,[Footnote 9] no such documentation was available. 
For example, we identified a purchase of two digital cameras costing 
about $1,620 each (including peripherals) and one pair of binoculars, 
costing $599, that were purchased from a small retail camera store in 
downtown Anchorage. Although an AFA official indicated a need for 
digital cameras and binoculars, there was no evidence that the 
purchaser took any of the steps outlined above before selecting the 
specific products and vendor. 

Purchases Were Split to Circumvent Purchase Limits: 

Although FAA acquisition policy specifically prohibits the splitting 
of purchases in order to circumvent the cardholder’s single purchase 
limits, we identified four transactions where the cardholders did just 
that.[Footnote 10] For example, one purchaser made a $28,375 purchase, 
which exceeded the purchaser’s $25,000 single purchase limit. Because 
the purchase was ordered by telephone, the vendor faxed to the 
purchaser two handwritten purchase card receipts, one for $25,000 and 
one for $3,375. Although the vendor had handwritten the dates on the 
two charge receipts as “9/14/00” and “9/15/00,” the fax was dated 
September 14, 2000, and both receipts referenced the same purchase 
order number. We identified another instance in which a cardholder 
with a $25,000 single purchase limit purchased three all-terrain 
vehicles with trailers and two snowmobiles totaling $31,039 from the 
same vendor. Even though the vendor billed the all-terrain vehicles on 
one invoice and the snowmobiles on another, the invoices were both 
dated on the same day. Furthermore, the invoices were each paid with 
the same purchase card, on the same date, only 2 minutes apart. The 
purpose of the single purchase limit is to require large purchases to 
be subject to additional controls to ensure they are properly reviewed 
and approved before obligating the agency’s funds. By allowing these 
limits to be circumvented, FAA has less control over the obligation 
and expenditure of its resources. 

Restricted Items Purchased without Required Preapprovals: 

FAA acquisition policy prohibits purchases of certain items such as 
food and beverages, gifts, and household appliances without advance 
approval from the contracting officer in the Logistics Division. We 
found that AFA cardholders did not always comply with this 
requirement. Specifically, none of the 27 purchases of restricted 
items in our selection had the required pre-approval. For example, we 
noted the purchase of food and beverages for managers’ meetings, a 
jade bear plaque retirement gift, and a mini-refrigerator that did not 
have the required preapprovals. By failing to obtain and document 
approval for restricted items, purchasers circumvented controls 
designed to prevent fraud, waste, and abuse. 

Purchases Not Made from Required Vendors: 

FAA policy requires that purchasers acquire certain products and 
services from designated mandatory sources, including Javits-Wagner-
O’Day Act (JWOD)[Footnote 11] suppliers and the Federal Prison 
Industries, Inc. (UNICOR).[Footnote 12] FAA purchasers are permitted 
to purchase from other sources only after the mandatory source 
provides a waiver indicating that it cannot provide the requested 
items. However, 23 of the 25 transactions in our selection that were 
required to be purchased from specific vendors were not purchased from 
the mandatory vendors and did not have the required waivers. For 
example, an AFA purchaser obtained 35 conference room chairs costing 
$11,400 from a local vendor without obtaining a waiver indicating that 
UNICOR could not meet the purchase request. Moreover, numerous 
transactions from our selection indicated that AFA purchasers often 
purchased items available from JWOD suppliers from commercial vendors. 
AFA could not provide waivers for any of these purchases of non-JWOD 
items. 

Purchase Card Used for Unallowable Purposes: 

FAA acquisition policy specifically prohibits the use of the purchase 
card for travel-related expenses and for vehicle repairs, which should 
be procured using the individualized travel card or the vehicle-
specific credit card, respectively. In 5 purchases from our 150-item 
selection, cardholders used the purchase card for these purposes. For 
example, a cardholder used the purchase card to charge $8,500 for food 
and lodging for 16 managers attending an off-site management meeting. 
Although all staff members apparently checked in under their own 
credit cards, all of the charges were transferred to one staff member’
s purchase card at checkout. AFA officials indicated this was done to 
save money and avoid daily per diem[Footnote 13] costs; however, by 
doing so they circumvented controls in which staff members outside AFA 
review all travel expenses against established travel requirements 
before approval or payment. Similarly, using the purchase card for 
vehicle-related expenses bypasses the fleet manager’s review process 
in the Logistics Division and does not allow for reliable tracking of 
the aggregate costs of operating individual vehicles. 

Poor Purchasing Practices Resulted in Wasteful Spending: 

Our review of the 150 items, together with reviews of several other 
acquisitions that came to our attention, identified a number of 
transactions that we classified as wasteful—that is, while not in 
violation of specific policies or regulations, were excessive or for 
questionable needs. Specifically, AFA purchased expensive items when 
significantly less expensive alternatives were available, often did 
not give consideration to economies of scale and standardization in 
making purchases, and purchased certain large items that provided 
little value to the agency. 

Expensive Items Purchased When Less Costly Alternatives Were Available: 

We identified a number of potentially wasteful transactions. While 
these items may have been used for government business, less costly 
alternatives that would meet the same basic needs were available. Many 
of these were items of new technology when acquired, and were 
purchased in multiple lots of one or two. Purchases we identified that 
fell into this category include the following: 

* Flat panel computer display monitors. Our selection of 150 
transactions contained two purchases for two 18-inch desktop flat 
panel monitors, at a cost of over $3,000 per monitor. According to AFA 
officials, a total of 18 of these monitors were purchased for a total 
cost of $44,965, or an average price of about $2,500 per monitor. In 
contrast, the current General Services Administration schedule cost of 
a standard 17-inch computer monitor is about $300. Because these types 
of monitors were relatively new on the market at the time these 
purchases were made, they were costly compared to other alternatives 
that would have met the same basic need. The primary advantages of a 
flat panel monitor are that it saves desk space and has better display 
quality. However, at locations in AFA headquarters where 10 of the 
monitors were found, we observed that all 10 had a large amount of 
vacant desktop space behind them that would have easily accommodated a 
much less expensive monitor. AFA management indicated these monitors 
were needed because employees use their computers so much, and flat 
panel monitors are easier on users’ eyes and reduce occurrences of 
headaches. However, we did not observe any greater use of computers in 
AFA than would occur in other government offices nor the use of any 
graphics or specialty software that would require higher resolution or 
display quality. 

* Plasma displays for conference rooms. According to AFA management, 
three wall-mounted plasma displays were purchased for a total cost of 
$34,587, or an average cost of about $11,500 each. AFA officials 
indicated that the plasma displays were for videoconferences, slide 
displays, and other presentations. A projector capable of similar 
functions as the plasma display costs about $4,500. Two such 
projectors were in our selection of purchase transactions. AFA 
officials indicated the lower-cost projectors would be used for 
presentations while traveling, while the higher-cost plasma displays 
would be permanently attached to the walls in AFA conference rooms. 
They indicated that since the plasma display is anchored to the wall 
there is less chance for damage than if a projector was used. However, 
we question whether this rationale warrants the additional cost of 
$7,000 per unit. 

* Personal digital assistants. Another example of purchasing expensive 
items instead of less costly alternatives was AFA’s liberal policy of 
purchasing personal digital assistants (PDA), which are handheld 
electronic devices that function as calendars, address books, and 
other job aids. We noted several purchases of PDAs in our selection of 
transactions that, with peripherals, ranged in price from $300 to over 
$500. By comparison, alternatives such as a calendar or a daily 
planner cost about $15 and $50, respectively. Refills for the daily 
planner cost about $20. AFA had an informal policy that anyone who 
wanted a PDA instead of a calendar or daily planner could have one. 
AFA management indicated that in the long run it was cheaper to buy 
PDAs than refills for daily planners. However, we question that 
statement, given that it would take about 15 years of purchasing daily 
planner refills to total $300, and we saw purchases of other 
peripherals such as digital camera attachments for the PDAs, which 
would likely continue as technology improves. 

Part of the reason these types of purchases were so expensive was 
because AFA did not always make a concerted effort to centralize 
purchases of items such as computer equipment in order to take 
advantage of quantity discounts. For example, AFA cardholders were not 
required to coordinate computer and other automated data processing 
equipment purchases through the information technology group, which is 
responsible for computer purchasing and technical support. 
Consequently, in our 150-item selection we noted numerous purchases of 
varying brands of automated data processing equipment in small 
quantities at various times with no documented coordination with the 
information technology group. Specifically, we noted six purchases of 
individual computers from three different manufacturers, all occurring 
on different dates from April 1999 through August 2001. Such haphazard 
purchasing practices prevent AFA from taking advantage of quantity 
discounts, and hinder the information technology group’s ability to 
build, support, and maintain a standardized computer network. 

Certain Large Expenditures Yielded Little Value: 

AFA made several high-dollar, fixed-asset purchases that were short-
lived or underutilized. While there may have been legitimate reasons 
initially for engaging in these purchases, adequate controls were not 
in place to ensure that the projects were properly implemented or to 
periodically assess their viability. As a result, millions of dollars 
were wasted. These purchases included the following: 

* Housing project. AFA constructed 30 residential housing units in 
King Salmon, Alaska, at a total cost of about $12.9 million.[Footnote 
14] Initial surveying and utilities work on the housing project began 
in October 1995, and major construction began in May 1996. Prior to 
the start of construction, two events occurred that reduced AFA’s need 
for residential housing in King Salmon. In 1993, FAA’s flight service 
station was closed due to reduced U.S. Air Force traffic, and in 
September 1995, operation of the air traffic control tower in King 
Salmon was contracted out so that FAA personnel were no longer needed 
to staff the tower. However, although its housing needs were reduced, 
AFA continued with its plan to build all 30 units in King Salmon. As 
of January 2002: 

- 8 of the units had been vacant since completion of construction in 
February 1997, 

- 11 were being leased out to other agencies in order to keep the 
units occupied—-leases on these units were entered into shortly after 
completion of construction, 

- 7 were being occupied by full-time AFA employees who reside in King 
Salmon, and, 

- 4 were being used as transient quarters by AFA employees. 

Although there might have been a legitimate need for a housing project 
this size when plans were first being discussed, AFA should have 
reassessed its needs, particularly with the staff reductions that 
occurred as a result of the flight service station and air traffic 
control changes. 

Based on executed leases and AFA’s records, it does not appear that 
rental revenues received from the units are adequate to cover AFA’s 
monthly operating costs. Given that eight (27 percent) of the units 
have never been used, ongoing needs assessments might have saved the 
government millions of dollars spent building and maintaining these 
units. 

* Security system. In response to an aging lock system with 
compromised security in the field, AFA purchased a security locking 
system for $340,000 in September 1998. Before purchasing the system, 
AFA tested it noting system deficiencies including brittle key buttons 
that occasionally broke and locks that did not open in extremely cold 
conditions. An AFA official indicated one example in which a 
technician had to use bolt cutters to remove a frozen lock. Despite 
knowledge of these system deficiencies, AFA proceeded to invest 
$340,000 in the security system and another $30,000 to install the 
system at various facilities, where staff again reported similar 
problems. With the end of CMP, a team of AFA labor and management 
personnel[Footnote 15] recommended cancellation of the new security 
lock system and a return to the previous system. The new system was 
subsequently dismantled and is currently in storage as excess 
equipment. Although AFA plans to use three computers from the system, 
the majority of the $370,000 spent represents a complete loss. 

* Thirty-foot powerboat. In September 1997, AFA awarded a $122,809 
contract for the construction of a 30-foot powerboat intended to ferry 
maintenance technicians and equipment approximately 10 miles from 
Sitka to Biorka Island where a variety of airspace system equipment 
was located. AFA management indicated that travel costs to maintain 
equipment on Biorka Island had been averaging about $65,000 to $75,000 
a year to charter a helicopter and that safety of its employees was 
the primary concern. AFA took delivery of the boat in February 1998. 
The technicians who were sent to maintain and repair the airspace 
equipment were required to operate the boat themselves and, according 
to management, were provided with training on boating safety and 
navigation. During the 3 years the boat was in operation, two 
incidents occurred that seriously damaged the boat. The first incident 
required part of the propulsion system to be replaced. AFA was unable 
to provide supporting documentation for the repair costs associated 
with replacing the propulsion system. The second occurred when the 
boat broke loose from its mooring and crashed on the rocks, damaging 
14 feet of hull. Repair costs for the second incident were about 
$42,000. Based on the CMP labor management team’s recommendation, the 
boat was removed from service in June 2001 and later excessed to the 
U.S. Forest Service in October 2001. 

Operating Environment Contributed to Improper and Wasteful Purchases: 

At AFA, several factors in the operating environment increased the 
susceptibility to the kinds of problems we identified with internal 
controls and individual transactions. First, there was little outside 
oversight of AFA’s financial activities due in part to FAA’s 
decentralized organizational structure. Although AFA was in the 
Alaskan Region, local regional management had no authority over it. 
Instead, AFA reported directly to AFHQ management in Washington, D.C., 
thousands of miles away, but AFHQ management supplied little in the 
way of oversight. This decentralization was further extended through AFA
’s practice of allowing its units a high degree of spending autonomy. 
Second, under CMP, AFA had substantial amounts of money to spend. AFA 
was allowed to use millions of dollars originally authorized for 
personnel costs for other discretionary spending and was exempted from 
certain spending restrictions that were imposed on other FAA regions. 
Third, AFA did not provide adequate training to its many staff members 
who had purchase cards or to the supervisors who approved purchases. 
Although the termination of CMP may have removed some availability of 
funds, all these other factors—-as well as the control weaknesses 
discussed earlier—-still remain. 

Decentralized Organizational Structure Resulted in Little Oversight of 
Spending: 

AFA operates with considerable autonomy in regard to planning, 
directing, and controlling operations. It reports directly to AFHQ in 
Washington, D.C., thousands of miles away. Although AFA submits 
periodic budget to actual status reports to AFHQ, the reports are at a 
summary level and do not provide sufficient detail to facilitate 
oversight of spending activities. Although external reviews are done 
to review AFA’s maintenance activities, there are no outside reviews 
of its financial activities. In addition, the FAA Alaskan Region’s 
Regional Administration Office, which has certain operational 
responsibilities for the Alaskan Region, has no authority over AFA. 
Consequently, it cannot require or enforce any actions on the part of 
AFA. The decentralized operating environment leaves AFHQ without 
critical information about AFA’s programs and funding. 

For example, during our review an AFHQ official indicated to us that a 
component of AFA’s awards program, the Instant Gratification Bags, had 
been discontinued. This component of the program allowed a supervisor 
to provide a staff member with an on-the-spot award that the staff 
member could select from the supervisor’s Instant Gratification Bag. 
Although the headquarters official said the program was discontinued 
in February 2000, we noted that the program was still operational in 
late 2001. 

This decentralized organizational structure is further demonstrated by 
AFA’s management philosophy, which provides its units with a high 
degree of purchasing autonomy. SMOs and branches are required to 
submit to AFA division management a budget request by object class. 
The budget allotments the SMOs and branches ultimately receive are 
lump-sum amounts, and they have the autonomy to allocate their lump-
sum budget allotments as they deem necessary. SMOs and branches are 
also free to reallocate budget amounts between object classes without 
tracking their original budget allotment allocations. Although AFA 
division management reviews the SMOs’ and branches’ budget submissions 
against the prior year’s actual expenditures, there is little 
challenging of funding needs. An AFA management official indicated 
that SMOs and branches almost always get the amounts they request. 

AFA Had Substantial Funds Available with Few Restrictions: 

AFA had substantial funds available with few restrictions, which made 
it more susceptible to improper and wasteful purchases. FAA 
headquarters allotted funds to AFA based in part on its authorized 
full-time employees, but due to CMP, AFA’s authorized number of full-
time employees was significantly higher than the actual number 
employed (see table 3). From fiscal year-end 1997 to fiscal year-end 
2000, AFA’s actual number of employees fell 19 percent from 483 to 
391. However, during the same period AFA’s budget allotment increased. 
AFA was free to use the unexpended personnel funds for other 
purposes.[Footnote 16] 

Table 3: AFA Employee and Budget Information, Fiscal Years 1997 
through 2002: 

Authorized number of employees: 
1997: 519; 
1998: 514; 
1999: 505; 
2000: 488; 
2001: 461; 
2002[A]: 461; 

Actual number of employees: 
1997: 483; 
1998: 442; 
1999: 420; 
2000: 391; 
2001: 430[B]; 
2002[A]: 433. 

Final budget authorization: 
1997: $56.9 million;
1998: $63.4 million;
1999: $61.9 million;
2000: $63.8 million;
2001: $65.6 million;
2002[A]: $69.3 million. 

[A] The actual number of employees and final budget authorization are 
as of March 31, 2002. 

[B] At the end of CMP, due to specific staffing actions identified in 
the management/union agreement, personnel levels began to rise in 
fiscal year 2001. 

Source: FAA’s Financial Management Division and AFA’s Annual Budgetary 
Authorization sheets. 

[End of table] 

The ready availability of money was all the more pervasive because AFA 
was not operating under spending restrictions placed on the rest of 
the agency. Because of budget constraints, the FAA Administrator 
issued agencywide spending restrictions in February 1999. In response, 
AFHQ issued more specific spending restrictions on all other Airway 
Facilities regions to reduce or eliminate all costs not directly 
related to the operation and maintenance of the national airspace 
system. However, while CMP was in effect, AFA was exempt from these 
spending restrictions, although the restrictions stated that AFA was 
still expected to be prudent and adhere to the spending guidelines to 
the extent possible. Although these restrictions remained in effect 
for almost 2 years through December 2000, the ready availability of 
funds allowed AFA to spend more freely. For example, during this 
period AFHQ restricted other Airway Facilities regions from spending 
on nonessential travel related to conferences, meetings, workshops, 
and site visits. However, AFA officials took at least three 1-week 
trips during this period for management meetings at premier resorts in 
Alaska costing from $6,000 to $8,800 each. 

This substantial availability of funds at AFA is further demonstrated 
by its year-end spending practices. To manage its annual budget, AFA’s 
resource management branch, which is responsible for managing AFA’s 
budget, maintains a reserve account consisting of the difference 
between the budget allotment received from FAA headquarters and the 
amounts subsequently allotted to the SMOs and branches. This allows 
the resource management branch to shift funds between SMOs and 
branches as needs change and unexpected emergencies arise. However, 
because AFA had substantial funds available due to reductions in 
personnel, travel, and other costs resulting from CMP, the balance in 
the reserve account was significant. Since the funds in the reserve 
account were 1-year funds and expired at the end of each fiscal year, 
the resource management branch sometimes had to solicit multiple 
spending requests from the SMOs and branches in order to use up the 
money in the reserve account. For example, in fiscal year 2000, AFA 
solicited the SMOs and branches nine times for additional spending 
requests, primarily in the last 3 months of the year, spending a total 
of about $4.5 million. Included in such purchases were items such as 
health club equipment, plasma displays, PDAs, and snowmobiles. 

In addition to AFA’s reserve account, the individual SMOs and branches 
each maintained their own reserve accounts as well. Except in one 
year, fiscal year 2000, AFA division management did not require the 
SMOs and branches to specifically identify the purchases made from 
their individual reserve accounts. In that year, we noted that the 
SMOs and branches spent an additional $611,000 from their reserve 
accounts on purchases that included laptop computers, PDAs, digital 
cameras, snowmobiles, and all-terrain vehicles. 

With the end of CMP in 2001, the level of funding available to AFA for 
purchasing is likely to be reduced. Funds available for purchases 
during CMP because positions were unfilled are now being applied once 
again to compensation and benefits for the additional staff members 
needed under the management/union agreement. However, the other 
factors discussed here remain, as do the control weaknesses previously 
identified. 

Cardholders and Supervisors Lacked Acquisitions Training: 

A lack of acquisition training also contributed to a weak operating 
environment at AFA. FAA procurement guidance requires that all 
prospective cardholders and approving supervisors receive training in 
the proper use, financial control, and property management 
restrictions of a purchase card prior to being granted delegation of 
purchase authority or approving authority. This is especially 
important with respect to purchase card purchases because purchasing 
authority was widely dispersed among the staff, with 55 percent of 
employees having purchase cards, most with authorized limits of up to 
$120,000 per month. The large number of cardholders and transactions 
makes it difficult to monitor individual purchases for propriety and 
compliance with the various acquisition policies. However, based on 
Alaskan Region training records, we found no evidence that 38 percent 
of current cardholders and 67 percent of approving supervisors at AFA 
had received purchase card training since AMS was implemented in April 
1996. Furthermore, as table 4 indicates, most cardholders and 
approving supervisors had not received any purchase card training in 
the last 2 years. 

Table 4: Training of Purchase Cardholders and Approving Supervisors 
Since AMS: 

Trained within the last 2 years[A]: 
Purchase cardholders: 
Actual: 34; 
Percentage of total: 14%; 
Approving supervisors: 
Actual: 1;
Percentage of total: 4%. 

Trained over 2 years ago[B]: 
Purchase cardholders: 
Actual: 115; 
Percentage of total: 48%; 
Approving supervisors: 
Actual: 7; 
Percentage of total: 29%. 

No evidence of training post-AMS: 
Purchase cardholders: 
Actual: 91; 
Percentage of total: 38%; 
Approving supervisors: 
Actual: 16; 
Percentage of total: 67%. 

Totals: 
Purchase cardholders: 
Actual: 240; 
Percentage of total: 100%; 
Approving supervisors: 
Actual: 24; 
Percentage of total: 100%. 

[A] Calculated based on our review of Alaskan Region training records 
as of the date the work was performed, that is from February 13, 2002, 
back 2 years to February 14, 2000. 

[B] Calculated based on our review of Alaskan Region training records 
as of February 13, 2000, back to the implementation of AMS on April 1, 
1996. 

Source: GAO analysis of AFA training records from April 1, 1996, to 
February 13, 2002. 

[End of table] 

AFA has no system to monitor whether and when its cardholders and 
approving officials have had acquisition training. In addition, 
cardholders and approving supervisors are not required to receive 
periodic refresher training to inform them of new purchasing 
requirements and other updates to the program. This lack of timely, 
sufficient training of purchase cardholders and approving supervisors 
increases the risk that improper or wasteful purchases will be made 
and go undetected. 

Conclusions: 

The problems we found in AFA’s purchasing system were widespread. They 
leave the organization vulnerable to improper purchases, wasteful 
spending, and loss or theft of assets. Although the substantial 
availability of funds under CMP may have exacerbated these weaknesses, 
we saw no evidence that the end of CMP substantially changed their 
underlying causes. Fixing these problems requires top-to-bottom 
strengthening of AFA’s procedures—a strengthening that would be 
enhanced through management attention at the Department of 
Transportation and FAA headquarters levels. Until positive action is 
taken to remedy this situation, improper and wasteful spending 
practices such as those we identified are likely to continue. 

Recommendations for Executive Action: 

We recommend that the Administrator of FAA ensure that the following 
actions are taken to address internal control weaknesses, noncompliance 
with purchasing requirements, and operating environment issues 
identified in our report in order to reduce AFA’s vulnerability to 
improper and wasteful purchases. 

Internal controls: 

With regard to improving AFA’s internal controls over purchasing, we 
recommend the Alaskan Region Logistics Division Manager and the AFA 
Division Manager do the following. 

* Establish and implement policies and procedures to effectively 
implement the segregation of duties principle. No individual should be 
able to take all the steps needed to make and pay for a purchase. 

* Require approving supervisors to review supporting documentation 
including applicable waivers, proper object class code, and any 
applicable PPIMS input forms for purchase card procurement 
transactions prior to approving the credit card statements. In 
addition, supervisors should also review for potential split purchases. 

* Require purchase card system users to input an object class code for 
each transaction and eliminate the default object class code feature 
in the system. 

* Establish a focal point in AFA to assist property management in 
ensuring that property custodians are informed of their 
responsibilities and timely comply with policies and procedures such 
as periodic inventory requirements. 

We further recommend that the Alaskan Region Logistics Division 
Manager or designee do the following. 

* Provide the property manager or designee read-only access to 
obligating systems to review for potential accountable assets that can 
then be compared against PPIMS input forms to verify that accountable 
assets have been identified and input forms received. 

* Conduct a complete regionwide inventory (floor to book and book to 
floor) of all accountable assets. 

* Complete the input of existing backlogged PPIMS input forms by 
fiscal year-end 2002. 

* Establish a policy requiring PPIMS input forms to be completed and 
entered within 10 business days after the items have been placed into 
service. 

Purchasing Requirements: 

With regard to identifying noncompliance with and enforcing purchasing 
requirements at AFA, we recommend that the Alaskan Region Logistics 
Division Manager and AFA Division Manager do the following. 

* Establish policies covering the allowability, justifications, and 
approvals required for purchasing specific high cost or sensitive 
items such as plasma displays, flat panel monitors, PDAs, and digital 
cameras. 

* Require purchases of certain assets such as computer equipment, 
handheld radios, and snowmobiles to be coordinated centrally to take 
advantage of economies of scale and to standardize types of equipment 
purchased. 

* Require annual reassessments of construction projects lasting over 1 
year, from the time of initial bid to time of completion, as to the 
continued viability, need, and size of the projects. 

We further recommend that the Alaskan Region Logistics Division 
Manager do the following. 

* Perform periodic independent reviews of AFA purchase transactions, 
including the supervisory approval function, and test for compliance 
with specific purchasing requirements. 

* Revoke or suspend purchasing authority of cardholders found to be 
repeatedly noncompliant with policies. 

Operating Environment: 

In order to provide a positive and supportive attitude toward internal 
control at AFA, we recommend that the Director of Airway Facilities or 
designee perform periodic site visits to Alaska to review AFA’s 
financial operations and activities, including management’s decision-
making process behind the procurement of large purchases. 

We also recommend that the Director of Airway Facilities and the AFA 
Division Manager assess the number of individuals at AFA who need 
purchase cards and whether current purchasing limits are appropriate. 

We further recommend that the Alaskan Region Logistics Division 
Manager do the following. 

* Require existing and new purchase cardholders and approving 
officials to sign that they have read, understood, and agreed to 
follow all local and national acquisition policies. 

* Require all existing purchase cardholders and approving officials to 
attend periodic refresher training covering key purchasing 
requirements such as documentation requirements, segregation of duty 
requirements, proper object class coding, as well as any recent policy 
changes. 

* Establish a system to track and monitor training for purchase 
cardholders and approving officials to help ensure they receive 
training before being granted purchase cards or approval authority and 
receive timely refresher training. 

Agency Comments and Our Evaluation: 

DOT agreed with our findings and recommendations and indicated that 
FAA has taken or plans to take a number of actions to ensure that the 
issues identified in our report are effectively addressed and 
appropriately enforced. For example, the Director of Airway Facilities 
issued a memorandum on April 30, 2002, to reemphasize purchase card 
requirements. The Director also has plans to partner with other FAA 
offices to conduct a comprehensive review of the adequacy of internal 
controls related to FAA purchase cards and other acquisition 
requirements, and plans to review the appropriateness of all purchase 
cards issued and the cardholders’ purchase limits. Implementation of 
these and the other recommendations in our report should greatly 
reduce AFA’s vulnerability to improper purchases, wasteful spending, 
and loss or theft of assets. 

We are sending copies of this letter to the Ranking Minority Member, 
House Committee on Transportation and Infrastructure; Senator Ted 
Stevens; Senator Frank H. Murkowski; the Secretary of Transportation; 
and the FAA Administrator. Copies will also be made available to 
others upon request. In addition, the report will be available at no 
charge on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you have any questions about this report, please contact me at 
(202) 5129508 or Doreen Eng, Assistant Director, at (206) 287-4858. 
Key contributors to this report were Richard Kusman, Justin Flaa, 
Aaron Holling, and Stan Stenersen. 

Signed by: 

Linda M. Calbom: 
Director, Financial Management and Assurance: 

[End of section] 

Appendix I: Comments from the Department of Transportation: 

U.S. Department of Transportation: 
Assistant Secretary for Administration: 
400 Seventh St. SW: 
Washington, DC 20590: 

May 14, 2002: 

Ms. Linda Calbom: 
Director, Financial Management and Assurance: 
U.S. General Accounting Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Ms. Calbom: 

We appreciate the work GAO has done that identified a number of 
problems with acquisitions and the use of purchase cards within the 
Airways Facilities (AF) regional office in Alaska. FAA's top 
management team is taking swift action to ensure that the issues 
identified in the GAO draft report are quickly and effectively 
addressed with the appropriate mix of policy reinforcement, new or 
intensified oversight, and other corrective actions. FAA has already 
initiated action to strengthen internal controls, reemphasize purchase 
card requirements, and change the operating environment to provide 
local oversight to better ensure all acquisitions are appropriate. It 
is the FAA's intent and determination to ensure that purchases made on 
behalf of the agency are appropriate, prudent, and made in full 
compliance with all applicable requirements. 

FAA has already initiated action to implement each of the draft 
report's recommendations. For example, on April 30, the Director of 
Airway Facilities issued a memorandum to the entire AF regional and 
headquarters management team that reiterated the need to assure best 
value when using the purchase card. It also noted restricted purchase 
items, indicated required vendors, delineated requirements for object 
class coding, tracking accountable property, providing property 
custodian training, and reemphasizing how large value purchases were 
to be treated. Similar and parallel actions are underway in FAA 
offices responsible for acquisition, budget, and operation of FAA's 
regional centers. Action is being taken to ensure purchase cardholders 
are fully and appropriately trained and that their knowledge is kept 
up-to-date. The agency is also reevaluating its policies on revocation 
and suspension of purchase card authority to assure that it deals 
effectively with noncompliance. 

To assure these requirements are fully and appropriately enforced, AF 
and key offices involved with acquisition and financial management 
policy are taking a number of steps. Within AF, a new performance 
standard for administering internal controls will be instituted in 
managers' performance standards. In addition, AF in partnership with 
other FAA offices will conduct a comprehensive review of the adequacy 
of internal controls surrounding the FAA purchase card and other 
acquisition requirements. AF will also review all cardholders to 
ensure that each one is necessary and that the applicable purchase 
limit is appropriate. Further, new oversight authorities are being 
considered for local management officials to help ensure compliance 
with purchase requirements. Finally, FAA is also working to ensure 
that once purchased, assets are appropriately inventoried and tracked. 

FAA is also clearing up the backlog in its property management system 
transactions in Alaska, and expects to be fully up-to-date by the end 
of June. Subsequently, a full personal property inventory will be 
conducted in Alaska to ensure appropriate accounting for all items. 
Finally, FAA is in the process of implementing an automated inventory 
tracking tool that will electronically input information from bar 
codes upon receipt, and maintain and reconcile the data electronically 
to keep the system up to date and error free. 

In summary, FAA is taking aggressive action to address all the issues 
identified in the GAO draft report and its recommendations. FAA is 
taking extensive action, well beyond the examples cited above, in 
order to ensure that all acquisitions and use of the purchase card are 
appropriate and fully comply with applicable requirements. 

We appreciate the opportunity to comment on this draft report. A full 
update on the status of FAA's actions will be provided in the 
Department's response to the GAO final report. If you have any 
questions, please contact Martin Gertel of my staff on (202) 366-5145. 

Sincerely, 

Signed by: 

Melissa J. Allen: 

[End of section] 

Footnotes: 

1. Our earlier report examined the transition from CMP to national 
maintenance and certification standards. See U.S. General Accounting 
Office, National Airspace System: Incomplete Transition Back to 
National Maintenance and Certification Standards in the Federal 
Aviation Administration’s Alaskan Region, [hyperlink, 
http://www.gao.gov/products/GAO-02-127R] (Washington, D.C.: November 
30, 2001). 

2. The two SMOs are the North Alaska SMO located in Fairbanks, Alaska, 
and the South Alaska SMO located in Anchorage, Alaska. Each SMO is 
responsible for managing a number of field sites in its respective 
jurisdiction. Together, the SMOs and their field sites are responsible 
for all of the equipment maintenance activities throughout Alaska. 

3. References to FAA policies in this report refer to policies 
established in AMS, the acquisition system toolset, or other FAA 
orders. 

4. A commercial item or service, other than real property, is an item 
or service customarily used by the general public or by 
nongovernmental entities for purposes other than governmental purposes 
and that has been sold, leased, or licensed to the general public. 
Simplified purchases are purchases of products or services of any 
nature that are small in dollar value, less complex, short term, 
routine, or commercially available and generally purchased on a fixed 
price basis. 

5. The databases did include nonroutine compensation items such as 
signing bonuses for certain new hires. 

6. See U.S. General Accounting Office, Standards for Internal Control 
in the Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 2000), which contains the internal control standards to be 
followed by executive agencies in establishing and maintaining systems 
of internal controls as required by 31 U.S.C. Section 3512(b), (c), 
commonly called the Federal Managers’ Financial Integrity Act of 1982. 

7. AFA maintained three employee general stores: one at the regional 
office and one each at the North and South SMOs. 

8. AFA officials stated that supervisors are typically assigned as the 
property custodians for their assigned custodial areas or cost centers. 

9. Not all purchase transactions in our 150-item selection were 
subject to the requirement to document determination of best value. 
For example, purchases from required vendors, travel card purchases, 
and payroll compensation related items were not subject to 
determination of best value. 

10. Two of these transactions related to both parts of one split 
purchase. 

11. JWOD governs products and services offered for sale by workshops 
of the blind or other severely handicapped persons. The Committee for 
Purchase from People Who are Blind or Severely Disabled is an 
independent government activity and is responsible for determining 
products and services to be purchased from the central nonprofit 
agencies, that is, the National Industries for the Severely 
Handicapped and the National Industries for the Blind. They carry a 
wide range of office products and household supplies. 

12. UNICOR is a self-supporting, government-owned corporation that 
provides training and employment for prisoners confined in federal 
penal and correctional institutions through the sale of its products 
and services to government agencies. It carries a wide range of office 
furniture products. 

13. Daily per diem costs as used here refer to the subsistence 
reimbursement provided to federal employees for meals and incidentals 
while on official travel duty. 

14. Although we did not evaluate the costs incurred to build these 
units, we did note that it is generally more expensive to construct 
housing units in Alaska, especially in remote areas, due to 
transportation of materials and equipment and travel and accommodation 
costs for construction personnel. 

15. The labor management team was established to make recommendations 
on the transition of AFA from CMP back to national maintenance 
standards. 

16. According to AFHQ officials, other Airway Facilities regions were 
allowed to shift funds budgeted for personnel costs to other purposes 
only during the end of the fiscal year. However, AFA was allowed to 
shift funds all year. 

[End of section] 

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