GAO-02-732, Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse


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Report to Congressional Requesters:



June 2002:



Purchase Cards:



Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse:



GAO-02-732:



Contents:



Letter:



Results in Brief:



Background:



Weaknesses in Overall Control Environment for Army Purchase Card 

Program:



Critical Internal Control Activities and Techniques Not Effectively 

Implemented:



Potentially Fraudulent, Improper, and Abusive or Questionable 

Transactions:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Scope and Methodology:



Appendix II: Overview of Army Purchase Card Program:

 

Appendix III: Comments from the Department of Defense:



 Appendix IV: GAO Contacts and Staff Acknowledgements:



Tables:



Table 1: Program Coordinators’ Span of Control:



Table 2: Internal Control Activity Statistical Testing Failure Rates:



Table 3: Advance Approval Failure Rates:



Table 4: Independent Receiving Failure Rates:



Table 5: Approving Official Review Failure Rates:



Table 6: Existence of Invoice Failure Rates:



Table 7: Property Items Not Recorded in Property Books:



Table 8: Examples of Potentially Fraudulent Army Purchase Card 

Transactions:



Table 9: Examples of Purchases Intended for Personal Use:



Table 10: Examples of Abusive or Questionable Purchases:



Table 11: Major Commands and Installations Audited:



Table 12: Number and Value of Army Transactions in Fiscal Year 2001:



Figures:



Figure 1: Army Purchase Card Program Management Structure:



Figure 2: Army Purchase Card Processes:



Abbreviations:



DOD: Department of Defense:



JWOD: Javits-Wagner-O’Day Act:



Letter:



June 27, 2002:



The Honorable Charles E. Grassley

Ranking Minority Member

Committee on Finance

United States Senate:



The Honorable Stephen Horn

Chairman 

The Honorable Janice D. Schakowsky

Ranking Minority Member

Subcommittee on Government Efficiency, Financial Management

 and Intergovernmental Relations

Committee on Government Reform

House of Representatives:



The Department of Defense (DOD) is promoting departmentwide use of 

purchase cards for obtaining goods and services. It reported that for 

the year ended September 30, 2001, about 230,000 cardholders used 

purchase cards to make about 10.7 million transactions at a cost of 

over $6.1 billion. Purchase cards are to be used exclusively for 

government-related purchases. Purchase card transactions include 

acquisitions at or below the $2,500 micropurchase threshold, commercial 

training requests valued at or below $25,000, and payments on 

contracts. The use of purchase cards has dramatically increased in past 

years as agencies have sought to eliminate the lengthy process and 

paperwork long associated with making small purchases. The benefits of 

using purchase cards versus traditional contracting and payment 

processes are lower transaction processing costs and less “red tape” 

for both the government and the vendor community.



We support the use of a well-controlled purchase card program to 

streamline the government’s acquisition processes. However, it is 

important that agencies have adequate internal control in place to 

protect the government from fraud, waste, and abuse. In July 2001 and 

March 2002, we testified on significant breakdowns in internal control 

over purchase card transactions at two Navy sites in San Diego, 

California.[Footnote 1] This work identified a weak internal control 

environment; ineffective internal control; and potentially 

fraudulent,[Footnote 2] improper, and abusive purchases.



As a result of our work at the two Navy sites and continuing concern 

about fraud, waste, and abuse in DOD’s purchase card program, you 

requested that we expand our audits of purchase card controls. As the 

initial part of this requested work, this report focuses on the Army, 

which has the largest purchase card program in DOD. In fiscal year 

2001, the Army had about 109,000 cardholders, 4.4 million transactions, 

and $2.4 billion in purchases. We plan to report to you separately on 

the results of our audits of the Navy and Air Force purchase card 

programs.



The objective of our audit of the Army’s purchase card program was to 

assess the adequacy of internal control over the authorization, 

purchase, and payment of purchase card transactions during fiscal year 

2001. Specifically, we addressed whether (1) the Army’s overall control 

environment and management of the purchase card program were effective, 

(2) the Army’s key internal control activities operated effectively and 

provide reasonable assurance that purchase cards were used 

appropriately, and (3) indications existed of potentially fraudulent, 

improper, and abusive and questionable transactions. We audited the 

Army’s internal control policies, procedures, and activities at five 

major commands that account for about 66 percent of total purchases and 

62 percent of total transactions. At one installation in each of the 

commands, we tested a statistical sample of purchase card transactions 

and conducted other audit work to evaluate the design and 

implementation of key internal control procedures and activities. The 

results of our review of the transactions comprising the statistical 

samples can only be projected to the individual installation at which 

we performed the testing and cannot be used to project to the command 

level or to the Army as a whole. The cumulative results of all our work 

offer significant perspective on the adequacy of the design and 

implementation of purchase card program internal control within the 

Army.



We also looked for indications of potentially fraudulent, improper, and 

abusive or questionable purchases as part of our statistical sampling 

and through nonrepresentative selections of transactions using data 

mining of fiscal year 2001 transactions. Our data mining included 

identifying transactions with certain vendors that had a more likely 

chance of selling items that would be unauthorized or that would be 

personal items. Because of the large number of transactions that met 

these criteria, we did not look at all potential abuses of the purchase 

card. While we identified some potentially fraudulent, improper, and 

abusive or questionable purchases, our work was not designed to 

identify, and we cannot determine, the extent of potentially 

fraudulent, improper, and abusive or questionable purchases. See 

appendix I for further details on our scope and methodology.



We requested comments from the Secretary of Defense or his designee on 

a draft of this report. We received comments from the Acting Director 

of the Army Contracting Agency dated June 17, 2002, and have reprinted 

those comments in this report. We conducted our audit work from June 

2001 through April 2002 in accordance with generally accepted 

government auditing standards, and we performed our investigative work 

in accordance with standards prescribed by the President’s Council on 

Integrity and Efficiency, as adapted for GAO’s work.



Results in Brief:



The purchase card program offers significant benefits; however, a weak 

overall control environment and breakdowns in key internal control 

activities leave the Army vulnerable to potentially fraudulent, 

improper, and abusive purchases. Our work at five Army major commands 

and one installation in each of the commands showed that the Army has 

not established an effective internal control environment. As the use 

of purchase cards has greatly expanded, Army management has not 

emphasized internal control activities that can provide reasonable 

assurance that the individual transactions are for authorized purposes 

or that they adhere to legal and regulatory requirements. At the 

individual transaction level, we identified a substantial number of 

purchases for which cardholders and approving officials had not adhered 

to important internal control activities and that were not in 

accordance with valid requirements, policies, and procedures.



A major contributor to the weak overall control environment and weak 

program management is informal and incomplete operating procedures. 

While existing governmentwide, DOD-wide, and Army-wide procurement 

regulations are the foundation for the Army purchase card program, the 

Army has not issued servicewide regulations or operating procedures, 

but relies on ad hoc memorandums and other informal guidance. This 

informal guidance does not provide the purchase card program with 

consistent, comprehensive policies and procedures to guide those 

implementing the program. For example, the scope of responsibilities 

and specific duties of installation-level program coordinators, the 

primary focal points for managing the purchase card program, are not 

addressed in Army guidance. The major commands and installations we 

audited had established policies and procedures; however, these 

policies and procedures were inconsistent between commands and did not 

provide adequate guidance on key control environment issues.



Another major contributor to the weak overall control environment is 

ineffective oversight of the purchase card program. The Army purchase 

card program did not have the infrastructure--guidance and human 

capital--needed to implement the oversight activities that are 

essential for effective internal control. Army and major command 

management levels did not conduct meaningful oversight activities of 

their own and did not provide direction to installation-level program 

coordinators on needed oversight activities. At the local installation 

level, the sporadic oversight activities performed did not provide 

reasonable assurance that internal control procedures and activities 

were followed. For example, program coordinators did not routinely 

perform annual reviews of approving officials’ activities as required, 

and the reviews that were made were seldom documented. Program 

coordinators told us that they did not have sufficient human capital to 

conduct required annual reviews or to define and conduct other needed 

oversight activities. In addition, approving officials’ activities 

usually were considered “other duties as assigned” and were not the 

primary duties on which the officials were evaluated and rewarded. They 

generally said that many other duties were of a higher priority than 

monitoring purchases and reviewing monthly cardholder statements.



We identified a significant breakdown in key internal control 

activities. Control activities tested were (1) advance approval of 

purchases, (2) receiving of goods and services by someone other than 

cardholders, (3) approving officials reviewing cardholders’ monthly 

reconciled bills and supporting documentation, and (4) whether 
transaction 

files contained invoices that supported the transactions. Our 
statistical 

sample results at the five installations showed significant failure 

rates for all four tested control activities. The high failure rate--40 

to 86 percent--for approving official review is of particular concern 

because it is perhaps the most important control activity.



The weaknesses we identified in the control environment and the 

breakdown in specific internal control activities had specific 

consequences--potentially fraudulent, improper, and abusive and 

questionable transactions were not being prevented or identified 

promptly. Potentially fraudulent transactions are (1) cardholder 

purchases that are intended for personal benefit, (2) unauthorized 

transactions by vendors, or (3) other purchases using compromised 

accounts. At three of the five installations, we found that potentially 

fraudulent transactions went undetected because of breakdowns in 

internal control. For example, Eisenhower Army Medical Center, at Fort 

Gordon, Augusta, Georgia, had two fraud cases that were not identified 

by appropriate approving official review. Each case involved tens of 

thousands of dollars, with cardholders purchasing jewelry, clothing, 

and other items for their personal use. Another fraud case under 

investigation at the end of our fieldwork involved purchases of over 

$100,000 of electronic equipment, computers, and other items. The 

actions of the cardholder, approving official, and other service 

members were being investigated. In our Army-wide data mining,[Footnote 

3] potentially fraudulent transactions include the purchase of escort 

services and the use of a compromised account to purchase athletic 

shoes.



We also identified a number of improper transactions--meaning those in 

which the purchase was intended for government use but was not 

permitted by law, regulation, or DOD policy--involving clothing, food, 

or other items. For example, at the Soldier, Biological and Chemical 

Command - Natick, in Natick, Massachusetts, the purchase of L.L. Bean 

Gore-Tex parkas for 10 civilian employees at a cost of $2,400 was not 

an appropriate use of federal funds because the parkas were not treated 

solely as government property available only for official use. Other 

improper purchases included meals, fruit baskets, luggage, and 

services. We also identified as improper numerous purchases in which 

cardholders made a substantial number of purchases of similar items 

(split purchases) to circumvent the legislatively mandated 

micropurchase limit of $2,500 for a single purchase. Using contracts 

for such purchases would comply with procurement requirements and could 

result in lower prices for the purchased items.



We identified abusive and questionable transactions at each of the five 

installations we audited as well as in our Army-wide data mining. 

Abusive transactions are those that were authorized, but the items 

purchased were at an excessive cost or for a questionable government 

need, or both. Questionable transactions were those that cardholders 

purchased items for which there was not a reasonable and/or documented 

justification. Examples of abusive and/or questionable purchases 

included sunglasses, fine china, cigars, wine, and a $2,250 tree. The 

purchase card transaction files we examined generally did not include 

explanations or advance approvals that would justify these types of 

purchases and permit a determination that the purchases were not 

improper or abusive. Explanations and advance approvals for purchases 

of potentially questionable items could increase visibility and 

oversight of such purchases and reduce the potential for abusive and 

wasteful spending.



During our audit, the commands we audited began to address many of the 

deficiencies we identified and implement many of the recommendations 

applicable at their levels. In addition, DOD established a task force 

to develop recommendations to improve procedures.



This report contains recommendations to the Army to improve the overall 

control environment for the Army’s purchase card program; to strengthen 

key internal control activities; and to increase attention to 

preventing potentially fraudulent, improper, and abusive and 

questionable transactions. We also recommend that the task force assess 

the DOD-wide applicability of the recommendations addressed to the 

Army. In written comments on a draft of this report, DOD concurred with 

our recommendations and described actions completed, under way, or 

planned to implement them. Although it concurred with our 

recommendation for an Army-wide standard operating procedure directing 

the implementation of specific internal control activities, DOD took 

exception to broad application of two of the five recommended 

activities--advance approval and independent receiving. We agree that 

not all purchases require advance approval and independent receiving. 

However, we continue to believe these are important control activities 

and that the Army-wide standard operating procedure should (1) discuss 

the criteria for determining when these activities are applicable and 

(2) articulate guidelines for implementing them.



Background:



The Army’s purchase card program is part of the governmentwide 

Commercial Purchase Card Program established to simplify federal agency 

acquisition processes by providing a low-cost, efficient vehicle for 

obtaining goods and services directly from vendors. DOD has mandated 

the use of the purchase card for all purchases at or below $2,500 and 

has authorized the use of the card to pay for specified larger 

purchases. DOD has had significant growth in the program since its 

inception and estimates that in fiscal year 2001 about 95 percent of 

its transactions of $2,500 or less were made by purchase card.



The purpose of the program was to simplify the process of making small 

purchases. It accomplished this goal by allowing cardholders to make 

micropurchases of $2,500 or less--$25,000 or less for training--without 

having to execute contracts. The government purchase card can also be 

used for larger transactions, but they still require contracts. In 

these cases, the Army often refers to the card as a payment card 

because it pays for an acquisition made under a legally executed 

contract.



The Army uses a combination of governmentwide, DOD, and Army guidance 

as the policy and procedural foundation for its purchase card program. 

The Army purchase card program operates under a governmentwide General 

Services Administration purchase card contract, as do the purchase card 

programs of all federal agencies. In addition, government acquisition 

laws and regulations, such as the Federal Acquisition Regulation, 

provide overall governmentwide guidance. DOD and the Army have 

promulgated supplements to these regulations.



The Assistant Secretary of Defense for Acquisition, Technology, and 

Logistics, in cooperation with the Under Secretary of Defense 

(Comptroller), has overall responsibility for DOD’s purchase card 

program. The DOD Joint Purchase Card Program Management Office, in the 

office of the Assistant Secretary of the Army for Acquisition Logistics 

and Technology, is responsible for overseeing DOD’s program. The Army 

agency program coordinator, within the joint office, has oversight over 

the Army’s purchase card program. However, primary management 

responsibility for the purchase card program lies with the contracting 

offices in the major commands and local installations. Figure 1 depicts 

the Army purchase card program management hierarchy as it was during 

our audit work. For the major commands, the figure shows the number of 

installation program coordinators within the command. For the five 

installations we audited, the figure shows the number of approving 

officials and cardholders at each installation.



On May 1, 2002, the Army created an Office of the Deputy Assistant 

Secretary of the Army (Procurement) and the U.S. Army Contracting 

Agency. The responsibility for the Army purchase card program and the 

DOD Purchase Card Joint Program Management Office will be moved to the 

newly created office. This new Deputy Assistant Secretary’s office will 

be in a “transitional” status until October 1, 2002.



Figure 1: Army Purchase Card Program Management Structure:



[See PDF for image]



Source: GAO analysis of Army purchase card program organization.



[End of figure]



At the installation, personnel in three positions--program coordinator, 

cardholder, and approving official[Footnote 4]--are collectively 

responsible for providing reasonable assurance that purchase card 

transactions are appropriate and meet a valid government need. The 

installation program coordinator, typically a full-time position under 

the direction of the director of the contracting office, is responsible 

for the day-to-day management, administration, and oversight of the 

program. In our work, we noted that program coordinators develop local 

standard operating procedures, issue and cancel cards, train 

cardholders and approving officials, and coordinate with other Army 

units and the card-issuing bank. Cardholders--soldiers and civilian 

personnel--are to make purchases, maintain supporting documentation, 

and reconcile their monthly statements. Approving officials, who 

typically are responsible for more than one cardholder, are to review 

cardholders’ transactions and the cardholders’ reconciled statements 

and certify the official consolidated bill for payment. Approving 

officials receive an official bill that consolidates their cardholders’ 

purchases. Appendix II provides additional details on the Army purchase 

card program.



Weaknesses in Overall Control Environment for Army Purchase Card 

Program:



[See PDF for image]



[End of figure]



Weaknesses in the internal control environment for the Army purchase 

card program at the five major commands and five installations we 

audited contributed to internal control breakdowns and potentially 

fraudulent, improper, and abusive purchases. The importance of the role 

of management in establishing a positive internal control environment 

cannot be overstated. GAO’s Standards for Internal Control discusses 

management’s key role in demonstrating and maintaining an 

organization’s integrity and ethical values, especially in setting and 

maintaining the organization’s ethical tone, providing guidance for 

proper behavior, and removing temptations for unethical behavior.



Army purchase card management has not encouraged a strong internal 

control environment. It has not focused on ensuring an adequate 

environment for a greatly expanding program. Instead, Army purchase 

card management focused significant attention on maximizing the use of 

the purchase card for small purchases and on paying bills quickly to 

reduce delinquent payments, and it developed performance measures and 

goals for them. However, purchase card management has not focused equal 

attention on internal control, and it has not developed performance 

measures to assess the adequacy of internal control activities or set 

goals for them. As a result, our audit identified a weak internal 

control environment characterized by a lack of (1) adequate operating 

procedures specifying needed program management, oversight, and 

internal control activities and (2) oversight by all management levels 

over the program’s implementation at the installation level. These 

weaknesses are symptomatic of a purchase card infrastructure that is 

insufficiently robust to build and sustain a strong internal control 

environment. As discussed in the next section, strong internal control 

activities are needed to effectively manage the Army’s purchase card 

program and provide reasonable assurance that the billions of dollars 

spent under the program adhere to legal and regulatory requirements. 

Developing performance measures and setting performance goals are 

fundamental to implementing and maintaining strong internal control 

activities.



Inadequate Program Operating Procedures:



[See PDF for image]



[End of figure]



The Army operates its purchase card program without a specific 

servicewide regulation or standard operating procedures to govern 

purchase card activities throughout the agency. Instead, the Army 

relies on memorandums issued by the DOD and Army purchase card program 

offices and procedures issued by major commands and installations. Our 

assessment of the existing Army guidance is that it does not adequately 

identify and direct the implementation of needed actions and control 

activities.



The memorandums issued by the DOD and Army purchase card program 

offices do not provide the Army purchase card program with a 

comprehensive set of policies and operating procedures that identify 

the actions and control activities needed to manage the program. 

Instead, they address such topics as cash management of certified 

purchase card invoices or suggest best practices, including discussions 

of the importance of internal control activities. Also, the memorandums 

often only request that Army commanding officers implement a suggested 

action; they do not direct that specific actions be taken within 

specific time frames. Such requests might not achieve the desired 

results. For example, an August 3, 2001, Office of the Assistant 

Secretary of the Army for Acquisition Logistics and Technology 

memorandum requested Army units’ assistance and support in implementing 

the DOD program office’s earlier request to assess the adequacy of 

purchase card program human capital resources. Because they are only 

requests, they do not have to result in action. For example, in the 

example above, we found no evidence that the major commands or 

installations had made an assessment of their overall purchase card 

human capital resource needs.



Without agencywide operating procedures, the Army has relied on its 

major command and local installation program coordinators to establish 

purchase card policies and procedures to guide approving officials, 

cardholders, and others involved in the purchase card program as they 

implement the program. The standard operating procedures for the major 

commands and installations we audited varied widely, and they were not 

adequate. For example, the Army Materiel Command does not have standard 

operating procedures, but uses a Web-based tutorial that is part of 

required training to guide cardholders and approving officials. A 

training tutorial does not carry the force of a regulation or a 

standard operating procedure. Consequently, installation program 

coordinators, such as at the Soldier, Biological and Chemical Command - 

Natick, developed standard operating procedures that set program 

implementation standards and requirements at the installation.



At the installation level, the contrast between three installations 

illustrates the differences. As discussed above, the Soldier, 

Biological and Chemical Command - Natick had a detailed operating 

procedure that was revised during our work there to add further 

detailed instructions. Fort Benning, in Columbus, Georgia, did not have 

installation-level operating procedures. At Fort Hood, in Killeen, 

Texas, the installation-level procedures were supplemented with 

detailed procedures developed by the military units, for example, 

battalions and brigades, located there. Thus, the procedures at these 

three installations differed significantly and within Fort Hood 

procedures were different. Collectively, the Army policy memorandums 

and the major command and installation-level operating procedures do 

not adequately address key control environment issues. Among the more 

important issues not adequately addressed are:



* responsibilities and duties of installation-level program 

coordinators,



* controls over the issuance and assessment of ongoing need for cards,



* appropriate span of control for approving officials, and:



* appropriate cardholder spending limits.



In addition to the above control environment issues, we identified 

weaknesses in the individual control activities we tested, which we 

discuss in the next section of this report.



Responsibilities and Duties of Installation-Level Program 

Coordinators:



Army guidance has not addressed the scope of responsibilities and 

specific duties of installation-level program coordinators, although 

they are the primary focal point for managing the purchase card program 

and generally spend all their time on the purchase card program. The 

importance of these program coordinators to the purchase card program 

cannot be overstated. During our work we noted that program 

coordinators develop and enforce operating procedures, establish and 

cancel cardholder and approving official accounts, train cardholders 

and approving officials, interact with the bank, and field myriad 

questions about the program from both cardholders and approving 

officials. Yet, the Army does not have guidance on how to do these 

activities, and it does not provide program coordinators with guidance 

or assistance in developing oversight activities to monitor how well 

their programs are functioning. Program coordinators told us that they 

did not get formal training in what their duties are and how they 

should be done. They said they had to do a lot of on-the-job learning 

and they called other program coordinators for advice.



Controls over the Issuance and Assessment of Ongoing Need for Cards:



Little guidance exists to assist program coordinators and unit managers 

in selecting who should be issued a purchase card. Carefully 

controlling the issuance of cards and continually reassessing the need 

and justification for outstanding cards are important issues in 

controlling the government’s risk in the purchase card program. At the 

installations we audited, the operating procedures usually specified 

that unit managers, after deciding who should be a cardholder and who 

should be an approving official, request the installation program 

coordinator to process the appointments. Yet, we found little guidance 

at any level that provided criteria to these officials for determining 

how many cards a unit should have or who should have them. The November 

2001 operating procedure at the Soldier, Biological and Chemical 

Command - Natick requires unit directors to provide written 

justification for the selection of a cardholder or approving official. 

However, without guidance from the Army, the command did not establish 

criteria to guide the directors’ decisions. In no case did we identify 

guidance that required cardholders to have a continuing need to make 

procurements for an office or organization, and none of the guidance 

discussed the need to reassess the ongoing need for outstanding cards.



Span of Control for Approving Officials:



Standard operating procedures at the major commands and installations 

we audited do not adequately discuss the span of control that is 

appropriate for approving officials that could provide a reasonable 

assurance that they can effectively perform their responsibilities. The 

training program for Army Materiel Command and the standard procedures 

at the Soldier, Biological and Chemical Command - Natick discuss that 

an approving official should have only as many cardholders for whom he/

she can review all monthly transactions. Approving officials who have 

more cardholders than they can effectively supervise is symptomatic of 

a weak control environment. The Army did not provide criteria for 

approving officials’ span of control until July 2001,[Footnote 5] just 

prior to our testimony on the purchase card program at two Navy 

installations.[Footnote 6] The July guidance suggested a span of 

control of five to seven cardholders. However, this guidance had not 

been promulgated in major command or installation guidance as of the 

end of our fieldwork.



Cardholder Spending Limits:



Policies and procedures that addressed controlling cardholders’ 

spending limits were inadequate. Unit managers and approving officials 

coordinate with the program coordinator to set both transaction and 

monthly spending limits for cardholders. However, we found no policy 

guidance or procedures that provided criteria to guide them in making 

these decisions, except a recitation of the micropurchase spending 

limits, until an August 13, 2001, memorandum from the Director of 

Defense Procurement. This memorandum, which was in response to 

congressional hearings on our Navy testimony,[Footnote 7] noted that 

not every cardholder needs to have the maximum transaction or monthly 

limit and that reasonable limits based on what the person needs to buy 

should be set. We found that individual transaction limits were 

generally set at the micropurchase maximum of $2,500. Installations 

generally set monthly limits at a generic level, such as $10,000, 

$25,000, or $100,000, for most of their cardholders. We saw little 

evidence that limits were set based on an analysis of individual 

cardholders’ needs or past spending patterns. In some cases, we were 

told that the monthly limits were based on the anticipated peak 

spending to avoid possible limit changes. We also saw infrequently used 

cards that, nevertheless, had spending limits set at the maximum. 

Limits that are higher than justified by the cardholder’s authorized 

and expected usage unnecessarily increase the government’s exposure to 

potentially fraudulent, improper, and abusive purchases.



Army Addressing Control Issues:



As we were performing our review of the Army purchase card program and 

in response to our July testimony on Navy purchase card activities, DOD 

and Army officials have issued a number of memorandums that address 

some of the weaknesses that we have discussed. For example, a 

memorandum from the Director of Defense Procurement, issued in August 

2001,[Footnote 8] said that only those personnel with a continuing need 

to purchase goods or services as part of their jobs should be 

cardholders. In another example, DOD’s Joint Program Office, after we 

requested data on inactive cards, sent a February 2002 

memorandum[Footnote 9] to agency program coordinators asking that they 

consider canceling cards with little activity or imposing other 

controls, such as reducing the monthly limit to 1 dollar. However, at 

the locations we audited, the guidance in these and other memorandums 

had not been incorporated into operating procedures as of the end of 

our fieldwork.



DOD and Army purchase card officials told us that they recognized the 

need for the Army to issue standard operating procedures for the 

purchase card program. They said that work had been ongoing on 

developing such procedures, which could be issued in this fiscal year. 

In addition, on March 19, 2002, the Secretary of Defense directed the 

Under Secretary of Defense (Comptroller) to establish a Charge Card 

Task Force to review the operations of both purchase and travel cards 

and to develop recommendations to improve procedures.



Ineffective Program Monitoring and Oversight:



[See PDF for image]



[End of figure]



Ineffective oversight of the purchase card program also contributes to 

weaknesses in the overall control environment. In general, effective 

oversight activities would include management reviews and evaluations 

of how well the purchase card program is operating, including the 

internal control activities. We identified little monitoring or 

oversight activity directed at assessing program results, evaluating 

internal control, or identifying the extent of potentially fraudulent, 

improper, and abusive or questionable purchases. At no management 

level, Army headquarters, major command, or local installation, is the 

infrastructure provided for such activities. At the installation level, 

where the most responsibility for oversight appears to reside, guidance 

or training on what oversight activities should be undertaken does not 

exist, and the needed human capital resources to perform those 

activities are not in place.



Army-Wide and Major Command Oversight Limited:



At the Army-wide level, the purchase card agency program coordinator--

the position involving direct oversight of the Army program--does not 

conduct internal control oversight activities. The agency program 

coordinator, who is in the DOD Joint Purchase Card Program Office, has 

no human capital resources to conduct oversight activities. The 

coordinator’s activities are mainly directed at answering program 

operation questions from and transmitting reports to major command and 

installation-level program coordinators.



The major commands have direct authority over the installations that 

report to them and have responsibility for the purchase card programs 

of their installations. While the major commands that we audited had 

procedures to guide the installations’ activities, we found little 

evidence of oversight activities by the commands to monitor the 

installations’ implementation of the procedures. The major commands’ 

purchase card program office personnel do participate in contract 

management reviews conducted at their installations every 2 years. 

These reviews, which generally are completed in 1 week, are focused on 

the installation’s contracting operations and have a small purchase 

card component. The program coordinators at the major commands we 

audited confirmed that they conduct little oversight of internal 

control activities at the local installation programs.



Installation-Level Oversight Activities Inadequate:



The only significant oversight activities we identified were at the 

local installation level where the primary purchase card activities are 

taking place. However, none of the installations we audited had a 

comprehensive or effective program of oversight and monitoring. The 

oversight and monitoring activities consisted primarily of isolated 

inspections of approving official’s compliance with monthly statement 

certification requirements and monitoring resolution of disputed 

transactions.



Audits and inspections of the purchase card program by internal 

auditors can provide additional oversight of the installation level 

purchase card program. For example, at the Soldier, Biological and 

Chemical Command - Natick, where the command has recognized that the 

program coordinator did not have the infrastructure to perform 

oversight reviews, the internal auditor provided assistance. According 

to the auditor, the audits are designed to ensure continued command 

attention and to assist the program coordinator with developing 

policies, procedures, and controls. However, at the installations we 

visited, audits and inspections were generally limited in both scope 

and number. For example, at Fort Hood, the internal auditors conducted 

occasional purchase card reviews as part of the command inspection 

program. Although these inspections occasionally surfaced control 

problems, the results were not communicated to the purchase card 

program coordinator so that systemic problems could be identified and 

addressed.



The DOD Financial Management Regulation assigns installation program 

coordinators the responsibility for the implementation and execution of 

the purchase card program in accordance with established Office of the 

Secretary of Defense and applicable DOD component regulations, 

policies, and procedures. Thus, installation program coordinators, who 

act under the direction of the installation’s director of contracting, 

are the pivotal officials in managing and overseeing the purchase card 

program.



A comprehensive and robust management and oversight program could 

include a number of activities. At the installations that we audited, 

the program coordinators were devoting significant time and attention 

to some basic activities such as establishing cardholders and approving 

officials and providing required training to these individuals. In most 

cases, cardholders and billing officials were being appropriately 

established and were receiving the required initial training. However, 

we found that refresher training, required by DOD guidance for 

cardholders and approving officials every 2 years, was seldom provided 

at the five installations we audited. Program coordinators at every 

location except the Texas Army National Guard in Austin, Texas, told us 

that this training seldom, if ever, occurred because of inadequate time 

and human capital resources.



While devoting time and resources to establishing cardholders and 

approving officials, other important activities were not receiving 

attention. For example, the key oversight activity identified in Army 

regulations is an annual review of the records of approving officials. 

This key activity was not effectively carried out at any of the five 

installations. In addition, program coordinators were not monitoring 

potential abusive and questionable transactions, and taking prompt and 

appropriate action to cancel accounts for departed and unneeded 

cardholders.



Inspecting approving official activities. Army guidance, reiterated in 

an August 2001 memorandum,[Footnote 10] provides for the installation’s 

program coordinator to annually inspect the records of approving 

officials. Our work showed that none of the program coordinators at the 

five installations had a comprehensive inspection program, although 

three program coordinators had conducted some inspections. Our work 

also showed that the few that had been conducted were focused on only a 

limited number of cardholders and did not include remediation plans. 

Without inspecting cardholders’ and approving officials’ activities and 

developing remediation plans, program coordinators had no structured 

way to determine either currently or over the long run how well their 

approving officials were functioning or to follow up their inspections 

and determine whether cardholders and approving officials had improved 

their performance.



The following summarizes the ineffective and limited information on 

inspections of approving officials’ records at the audited 

installations.



* At Eisenhower Army Medical Center, the program coordinator performed 

a few targeted inspections in fiscal year 2001, rather than undertake a 

comprehensive audit of approving officials’ activities. These 

inspections covered eight approving officials and 15 cardholders.



* At Fort Benning, the program coordinator told us that records of a 

few approving officials are inspected each year but there is no 

specific timetable for the inspections and the results are not 

documented. An internal audit of the purchase card program at Fort 

Benning prepared for the commanding general in 2001 concluded that the 

program coordinator had not placed enough emphasis on oversight 

responsibilities.



* At Fort Hood, the program coordinator conducted few inspections of 

approving officials’ activities due to a heavy workload in establishing 

cardholders and approving officials and limited human capital 

resources.



* At the Soldier, Biological and Chemical Command - Natick, the program 

coordinator did not conduct inspections of approving officials’ 

activities. However, internal review performed audits focused on 

various purchase card areas to assist the program coordinator.



* An April 2001 internal review audit report of the Texas Army National 

Guard program stated that there was no evidence reviews were conducted 

to test management controls over the purchase card program. Subsequent 

to the audit report, the program coordinator and the director of 

contracting said that they had begun to occasionally conduct a small 

number of reviews.



Monitoring potentially abusive and questionable transactions. Program 

coordinators at the five installations have not routinely monitored 

potentially abusive transactions. Their activities in this area were 

generally confined to answering cardholder questions about potentially 

questionable aspects of proposed purchases and occasionally scanning 

bank data for questionable transactions. The program coordinators told 

us that the Army and major command purchase card offices do not require 

them to analyze purchase card transactions and have not provided 

guidance on data to be analyzed or on analysis techniques. Our own data 

mining efforts, including our analysis of Army-wide data, shows the 

usefulness of these techniques and their potential for identifying 

transactions that contain indicators of potentially fraudulent, 

improper, and abusive and questionable transactions, as we discuss in a 

later section of this report.



While cardholders and approving officials are the first line of defense 

in preventing purchase card abuse, program coordinator activities 

become especially critical if the approving official is not carrying 

out required duties. For example, after noting that we were requesting 

additional details on purchases from some questionable vendors, the 

Fort Benning program coordinator noticed that a cardholder had 

purchases from such vendors. Subsequent investigation of the cardholder 

revealed potentially fraudulent purchases totaling $10,748. The 

cardholder’s potentially fraudulent activities were not detected 

promptly because the approving official had not been monitoring the 

cardholder’s purchases or reviewing the monthly statement.



Program coordinators, in addition to analyzing questionable 

transactions, need to analyze other purchase card data, such as bank 

status reports on disputed transactions. The Fort Hood program 

coordinator, who was not effectively monitoring bank status reports on 

disputed transactions, did not identify that cardholder inaction beyond 

the expiration date for disputes had resulted in the loss of ability to 

recover funds on previously disputed charges. At our suggestion, the 

coordinator followed up on an unresolved expired dispute and obtained 

credit for over $1,000 in returned unordered merchandise. Such a 

recovery demonstrates that a data analysis program for installation 

program coordinators can produce savings for taxpayers.



Canceling accounts for departed cardholders. None of the program 

coordinators at the five installations had focused effective attention 

on canceling accounts of departed and unneeded cardholders prior to the 

completion of our fieldwork. Program coordinators can reduce the 

government’s exposure to fraud, waste, and abuse by monitoring 

cardholder account activity and determining whether issued cards 

continue to be required. If cards are not active and unneeded because 

of change in duties or other reassignments, timely cancellations of 

cards is an important control. At all five installations, we identified 

weaknesses in their processes for canceling accounts for inactive or 

unneeded cardholders, and each location had significant numbers of 

cards that were inactive and should have been canceled.



The most serious problem was when some accounts had not been canceled 

even though the cardholder was no longer at the installation or even 

with the Army. Each installation had a policy that the program 

coordinator be notified when an account should be canceled, but they 

were not effective. Even the existence of processes to identify when a 

cardholder’s account should be canceled were not always effective. For 

example, the Soldier, Biological and Chemical Command - Natick had 

developed a process to terminate the purchase card when the cardholder 

departed. The process involved a checkout procedure that required each 

departing cardholder to obtain a release from the program coordinator 

prior to being allowed to leave the installation. Yet, even with this 

process in place, the installation had 20 inactive cards that needed to 

be canceled. Although the checkout process had been developed, data had 

not been analyzed to evaluate if the process was effective.



This problem of unneeded cards was especially serious at Fort Hood, 

which also had a checkout process that included the purchase card. 

Available data showed that 317--26 percent--of 1,242 current 

cardholders at Fort Hood were no longer assigned to the units that 

issued their cards. Therefore, the cards should have been terminated. 

Neither the installation nor purchase card program office had 

established processes to ensure that purchase cards of departing or 

reassigned personnel were canceled. As identified later in this report, 

failure to terminate cards of reassigned cardholders can result in 

potentially fraudulent transactions.



The problem at Fort Hood was exacerbated by the high turnover of active 

duty military personnel rotating to and from the installation--Fort 

Hood military personnel statistics show that about 1,600 soldiers 

depart the installation monthly. The personnel office managing the 

transfers of military personnel had established checklist procedures to 

cancel government travel cards held by departing employees, but did not 

have similar procedures for canceling purchase cards. They said that 

the procedure was not established because the social security numbers 

of cardholders are not provided for computerized matching to the social 

security numbers of departing soldiers. Fort Hood’s purchase card 

program office agreed to review records and cancel cards for reassigned 

personnel and to identify workaround procedures to ensure that cards of 

departed personnel were terminated. Following the completion of our 

fieldwork, Fort Hood program officials notified us in mid-May that they 

had canceled 258 cardholder accounts and were continuing to identify 

other accounts for cancelation. The command said it was also attempting 

to improve its checkout procedures.



The above conditions illustrate that the Army as a whole may also need 

to reduce its active cards. Since our testimonies and report on the 

purchase card programs at two Navy locations,[Footnote 11] there has 

been concern over whether DOD has too many purchase cards and 

cardholders. Since that time, the Navy reports that it has reduced its 

total active cards from about 58,000 to about 26,000. With the Army’s 

lack of guidance to installations on controlling the issuance of cards 

and on reassessing the need for outstanding cards, the Army should also 

have opportunities to reduce its reported 109,000 active cards. Army 

officials reported that as of April 30, 2002, they had reduced the 

number of active accounts to about 100,000 and would continue to assess 

the need for cards.



Infrastructure Is Insufficient for Effective Monitoring and Oversight:



DOD, Army, and the major commands we audited have not provided 

installation-level program coordinators the infrastructure needed for 

program monitoring and oversight. The coordinators do not have guidance 

or training on what they should be doing to monitor and oversee the 

implementation of internal control activities, and they have not been 

trained. They do not have the human capital resources to perform 

significant monitoring and oversight activities. And finally, they do 

not have grade-level positions that are commensurate with their 

responsibilities and that would provide some additional authority to 

achieve better purchase card internal control.



No program guidance or training. Although installation-level program 

coordinators are tasked with major program management responsibilities, 

applicable DOD, Army, and major command guidance does not provide a 

statement of duties, position description, or other information on the 

scope, duties, or specific responsibilities for the position. The 

guidance also does not establish program coordinators’ oversight 

responsibilities. The Army and major command guidance to installation-

level program coordinators is generally limited to a requirement that 

program coordinators review each approving officials’ records and 

activities annually. The Army and major commands also have not 

developed data analysis techniques and tools for installation-level 

program coordinators to use in analyzing bank electronic data as a part 

of their oversight activities.



Also, the Army and major commands have not developed training courses 

for program coordinators. At the five audited installations, the 

coordinators told us they had not received any specific program 

coordinator training. They said the available training was limited to 

cardholders training sessions either on-line or conducted by other 

coordinators and the General Services Administration’s annual 

governmentwide purchase card program conference. Thus, program 

coordinators essentially have had to develop program management and 

oversight activities and to decide how to conduct them.



Inadequate human capital resources. The Army has not provided 

sufficient human capital resources at the installation level to enable 

monitoring of purchases and develop a robust oversight program. The two 

key positions for monitoring purchases and overseeing the program are 

the program coordinator and the approving official.



While the program coordinator position is a specifically designated 

responsibility, we found that the coordinator has very limited 

assistance in administering, managing, and overseeing the program. At 

the five installations that we audited, the assistance available to the 

program coordinator ranged from no staff at two locations to one full-

time assistant at two locations. Considering that the coordinators are 

responsible for procurement programs involving thousands of 

transactions and millions of dollars, as shown in table 1, the 

inadequacy of human capital resources is apparent.



Table 1: Program Coordinators’ Span of Control:



Installation: Eisenhower Army Medical Center[A]; People in program 

coordinator office: 1.5; Number of approving officials: 162; Number of 

cardholder: 540; Number of fiscal year 2001 transactions: 68,805; Value 

of fiscal year 2001 transactions: $30.



Installation: Fort Benning; People in program coordinator office: 2; 

Number of approving officials: 162; Number of cardholder: 450; Number 

of fiscal year 2001 transactions: 44,421; Value of fiscal year 2001 

transactions: 19.



Installation: Fort Hood; People in program coordinator office: 2; 

Number of approving officials: 321; Number of cardholder: 1,242; Number 

of fiscal year 2001 transactions: 110,822; Value of fiscal year 2001 

transactions: 58.



Installation: Soldier, Biological and Chemical Command - Natick; People 

in program coordinator office: 1; Number of approving officials: 87; 

Number of cardholder: 208; Number of fiscal year 2001 transactions: 

16,480; Value of fiscal year 2001 transactions: 96.



Installation: Texas Army National Guard; People in program coordinator 

office: 1; Number of approving officials: 26; Number of cardholder: 

437; Number of fiscal year 2001 transactions: 20,306; Value of fiscal 

year 2001 transactions: 7.



[A] This program coordinator has responsibility for all nine Army 

medical centers in the Southeast. :



Source: GAO analysis of Army purchase card program data as of September 

30, 2001.



[End of table]



The Army does not have guidance on the appropriate human capital 

resources for the program coordinator’s office. However, the program 

coordinators told us, and our observations confirmed, that with current 

resources, time was not available to conduct systematic reviews of 

approving officials’ activities, much less undertake other management 

analyses and oversight activities. They each said that their time was 

generally consumed with administrative duties such as training new 

cardholders, issuing appointment letters, setting up accounts for new 

cardholders, monitoring delinquencies, interacting with the bank to 

resolve problems, and interacting with cardholders to answer questions 

about the purchase card program. These administrative activities are 

necessary to operate the purchase card program, but do not achieve 

routine oversight of activities.



As previously discussed, the Director, Purchase Card Joint Program 

Management Office, recognized in his July 5, 2001, memorandum, the need 

to assess the adequacy of resources and asked that the services conduct 

an assessment of the policies and guidelines that are in effect to 

assist commanders and directors in the proper allocation of resources 

to the purchase card program. He asked that the assessment be conducted 

in the coming weeks (emphasis added). However, the Army program office 

could not identify any such assessments. By the end of our fieldwork, 

the five installations and five major commands included in our work had 

not conducted any studies or assessments to address the question of 

appropriate resources.



As opposed to the specifically designated role of the program 

coordinator, approving official responsibilities generally fall into 

the category of “other duties as assigned,” without any specific time 

allocated for their performance. We found that approving officials 

generally had many other duties of a higher priority than monitoring 

purchases and reviewing their cardholders’ purchase card statements.



Also, many approving officials are responsible for a large number of 

cardholders. A large workload, especially one in an “other duties as 

assigned” category can inevitably lead to less attention than expected 

or desired. We found that a number of approving officials at the 

installations we visited had numerous cardholders reporting to them. 

For example, at Fort Hood, 29 billing officials had 10 or more 

cardholders. Two of the 29 had over 20 cardholders. At Eisenhower Army 

Medical Center, one approving official had 18 cardholders, one of whom 

was spending about $100,000 per month for surgical supplies and 

equipment. The approving official said he simply did not have time to 

review each cardholder’s monthly bills and transactions each month. At 

the Texas Army National Guard, 16 of the 26 approving officials had 10 

or more cardholders, and 8 of them had 25 or more. The number of 

cardholders that these approving officials were responsible for far 

exceeded the Army’s suggested maximum of 7 cardholders per approving 

official,[Footnote 12] as discussed earlier.



The DOD Inspector General also reported a problem with approving 

officials having too many cardholders. In a March 2002 report on the 

purchase card program,[Footnote 13] the Inspector General reported that 

1,816 approving officials, or 8.8 percent off the Army’s 20,709 

officials, were assigned more than 7 cardholders and that 21 of them 

were assigned more than 100 cardholders.



A large span of control for approving officials is not conducive to 

thorough review of each cardholder’s monthly statement. The August 3, 

2001, memorandum[Footnote 14] from the Acting Deputy Assistant 

Secretary of the Army (Procurement) to the contracting community cited 

earlier stated that “[approving] officials are the first line of 

defense against fraud, waste, and abuse, as they are required to review 

each of their cardholder statements. If they have too many cardholders 

under their purview there is no way these officials can perform the 

required reviews and attendant certifications of cardholder purchases.” 

In the February 1, 2002, memorandum[Footnote 15] cited earlier from the 

Director of the Purchase Card Joint Program Management Office to agency 

program coordinators, the director requested program coordinators’ help 

in ensuring that approving officials’ span of control is commensurate 

with their ability to adequately perform their responsibilities. The 

memorandum said that approving officials should have a reasonable span 

of control over the cardholders they supervise and approving officials 

must be given adequate time for a complete monthly review to determine 

that each charge is legal and proper. Following completion of our 

fieldwork, the installations we audited reported that they had begun to 

bring their approving officials’ span of control into line with the 

criteria.



Insufficient authority to encourage compliance. The program 

coordinators at the five installations we audited generally did not 

have the grade level or organizational authority--”clout”--to enforce 

compliance with purchase card procedures. At the five installations we 

audited, the program coordinators were part of the installation’s 

contracting operation and reported to the director of contracting, from 

whom they derived their authority. However, we believe that the program 

coordinators’ grade levels were not commensurate with their 

responsibilities or sufficient to provide the authority needed to 

enforce purchase card program rules. Only one of the five was a GS-12, 

two were GS-9s, and two were GS-7s. Program coordinators have the 

primary responsibility for purchase card program management and 

significant control over procurement activities carried out by a large 

number of individuals. For example, table 1 shows that the Fort Hood 

program coordinator has responsibility for overseeing a program of over 

110,000 purchase card transactions totaling about 

$58 million and carried out by 321 approving officials and 1,242 

cardholders.



In addition to the relatively low grades, the Army has not made the 

program coordinator position career enhancing by making it part of a 

contracting career path. At three of the five installations, program 

coordinator position descriptions were for traditional contracting 

positions, although their coordinator duties are unique. Two 

coordinators had locally developed position descriptions that included 

their coordinator responsibilities, but these descriptions still 

carried traditional contracting titles. At the Soldier, Biological and 

Chemical Command - Natick, the program coordinator’s position 

description, which was written to justify a GS-12 grade, was for a 

procurement analyst and specifically included program coordinator 

duties. However, the director of contracting said that obtaining 

approval for the position took much discussion and persuasion because 

of its uniqueness. At Fort Benning, the program coordinator’s position 

description was developed specifically for the local position.



Critical Internal Control Activities and Techniques Not Effectively 

Implemented:



[See PDF for image]



[End of figure]



Our work shows that critical internal control activities and techniques 

over the purchase card program were ineffective at the five 

installations we audited. Based on our tests of statistical samples of 

transactions, we determined that the transaction-level control 

activities and techniques we tested were not effective, rendering 

purchase card transactions at the five installations vulnerable to 

potentially fraudulent and abusive purchases and theft and misuse of 

government property.



Control activities occur at all levels and functions of an agency. They 

include a wide range of diverse activities such as approvals, 

authorizations, verifications, reconciliations, performance reviews, 

and the production of records and documentation. For the Army purchase 

card program, we opted to test those control activities that we 

considered to be key in creating a system to provide reasonable 

assurance that transactions are correct and proper throughout the 

procurement process. The key control activities and techniques we 

tested include:



* advance approval of purchases,



* independent receiving--receiving and acceptance of goods and services 

by someone other than the cardholder,



* independent review by an approving official of the cardholder’s 

monthly statements and supporting documentation, and:



* cardholders obtaining and providing invoices that support their 

purchases and provide the basis for reconciling cardholder statements.



Table 2 summarizes the results of our statistical testing. Our work 

showed internal control activity failures in both purchase and payment 

cards, although the percent of failure--the failure rate--was generally 

higher for purchase card transactions.



Table 2: Internal Control Activity Statistical Testing Failure Rates:



Installation: Eisenhower Army Medical Center; Estimated percent of 

transactions without documentation of: Advance approval: 60; Estimated 

percent of transactions without documentation of: Independent 

receiving: 71; Estimated percent of transactions without documentation 

of: Approving official review: 86; Estimated percent of transactions 

without documentation of: Supporting invoice: 26.



Installation: Fort Benning; Estimated percent of transactions without 

documentation of: Advance approval: 46; Estimated percent of 

transactions without documentation of: Independent receiving: 75; 

Estimated percent of transactions without documentation of: Approving 

official review: 73; Estimated percent of transactions without 

documentation of: Supporting invoice: 16.



Installation: Fort Hood; Estimated percent of transactions without 

documentation of: Advance approval: 36; Estimated percent of 

transactions without documentation of: Independent receiving: 65; 

Estimated percent of transactions without documentation of: Approving 

official review: 66; Estimated percent of transactions without 

documentation of: Supporting invoice: 7.



Installation: Soldier, Biological and Chemical Command - Natick; 

Estimated percent of transactions without documentation of: Advance 

approval: 25; Estimated percent of transactions without documentation 

of: Independent receiving: 55; Estimated percent of transactions 

without documentation of: Approving official review: 40; Estimated 

percent of transactions without documentation of: Supporting invoice: 

14.



Installation: Texas Army National Guard; Estimated percent of 

transactions without documentation of: Advance approval: 69; Estimated 

percent of transactions without documentation of: Independent 

receiving: 87; Estimated percent of transactions without documentation 

of: Approving official review: 41; Estimated percent of transactions 

without documentation of: Supporting invoice: 14.



Source: GAO testing and statistical analysis of Army purchase card 

transaction files.



[End of table]



In addition to the internal control activities we tested statistically, 

we noted two other internal control-related problems during our work. 

First, the purchase card exacerbates the long-standing difficulties of 

maintaining property records over accountable property. Second, 

cardholders did not always maintain purchase card transaction records 

as required by regulations.



Advance Approval of Purchases:



[See PDF for image]



[End of figure]



Without Army-wide operating procedures, requirements for advance 

approval are not consistent but do exist, to some extent, at each of 

the five audited installations. Two major commands and three 

installations specifically require advance approval. Others required 

written descriptions of purchases and appropriate coordination and 

review prior to the purchases. Advance approval requirements also 

varied within individual units at the installations and by individual 

approving officials. The requirements were generally for informal 

approval directed toward ensuring budget and funds control as well as 

establishing a valid need for a purchase so that cardholders are not 

acting totally independently.



The approvals that we saw included e-mails from a cardholder’s 

supervisor as well as a request for a purchase initiated by someone 

other than the cardholder. For example, the Soldier, Biological and 

Chemical Command - Natick used an electronic system to manage its 

purchase card activity, making it easy for Natick employees to request 

a cardholder to make a purchase and for supervisors, unit heads, 

resource managers, and logistics personnel to have knowledge of and 

approve the request with a few computer keystrokes. Approval of a 

purchase can range from a blanket approval for routine small dollar 

purchases of items such as office supplies to a one-time written 

approval for specific large dollar items. For example, at Fort Hood, 

some units have a blanket approval for routine, small dollar purchases, 

such as office supplies under $300.



For our testing of advance approval, we accepted reasonable documented 

evidence that a cardholder’s supervisor or other responsible person had 

requested and/or approved the purchase. This included a request for 

purchase from a responsible official, and it also included specific 

blanket approval for routine purchases within set dollar limits. As 

table 3 shows, we estimated that the failure rate at the five 

installations ranged from 25 percent at Soldier, Biological Chemical 

Command - Natick to 69 percent at the Texas Army National Guard.



Table 3: Advance Approval Failure Rates:



Installation: Eisenhower Army Medical Center; Estimated percent of 

transactions without advance approval: 60; 95 percent confidence 

interval: 48 to 71.



Installation: Fort Benning; Estimated percent of transactions without 

advance approval: 46; 95 percent confidence interval: 34 to 58.



Installation: Fort Hood; Estimated percent of transactions without 

advance approval: 36; 95 percent confidence interval: 23 to 51.



Installation: Soldier, Biological and Chemical Command - Natick; 

Estimated percent of transactions without advance approval: 25; 95 

percent confidence interval: 14 to 38.



Installation: Texas Army National Guard; Estimated percent of 

transactions without advance approval: 69; 95 percent confidence 

interval: 59 to 79.



Source: GAO testing and statistical analysis of Army purchase card 

transaction files.



[End of table]



Although the failure rate was unacceptably high overall, the failure 

rate was particularly high for micropurchases, even though some of 

those purchases were for computers, electronic devices, and other items 

for which advance approval would appear warranted because the 

procurement was not routine.



We believe that leaving cardholders solely responsible for a 

procurement without some type of documented approval puts the 

cardholders at risk and makes the government inappropriately 

vulnerable. A segregation of duties so that someone other than the 

cardholder is involved in the purchase improves the likelihood that 

both the cardholders and the government are protected from fraud, 

waste, and abuse. We believe that advance approval is an appropriate 

internal control activity, especially considering that many cardholders 

in our audit were administrative personnel and not supervisors or 

managers.



Our testing of advance approval as a control activity is not advocating 

a return to the formal advance approval that DOD has de-emphasized in 

the purchase card program. A February 1997 study of the purchase card 

program identified DOD’s requirement for formal prepurchase approval 

documentation through the administrative chain of command for each 

purchase card transaction as an impediment to expanded use of the 

purchase card.[Footnote 16] The formal prepurchase documentation that 

previously existed could impede purchases and increase costs. The more 

informal practices that exist at the installations we audited eliminate 

much of the previous formal documentation, but still can serve to 

protect the cardholders and the government. For example, blanket 

approval for routine purchases within set dollar limits involves 

minimal cost, but reasonable control. For nonroutine purchases 

involving significant expenditures, advance approval, even through 

informal processes, appears to be an important control activity.



Documentation of Independent Receiving by Other Than Cardholder:



[See PDF for image]



[End of figure]



Independent receiving--receiving of goods and services by someone other 

than the cardholder--provides additional assurance that purchased items 

are not acquired for personal use and that the purchased items come 

into the possession of the government. The requirement for 

documentation of independent receiving by someone other than the 

cardholder was not generally addressed in the procedures of the 

commands and installations we audited. However, installations and units 

within the installations often required some documentation of 

independent receiving of at least some portion of their purchases. At 

Fort Benning, instructions in various units required documentation of 

independent receiving. At Fort Hood, the Department of Public Works had 

established the same type of requirement. The Fort Hood official in the 

department told us he established the requirement for independent 

receipt because, while in a prior job at another installation, he had 

observed potentially fraudulent purchases that would have been 

prevented if the independent receipt requirement had existed.



Because Army guidance does not address the issue of evidence of 

independent receiving, and the requirements varied at the five 

installations, we accepted as evidence of independent receiving for 

this test, any signature or initials of someone other than the 

cardholder on the sales invoice, packing slip, bill of lading, or other 

shipping or receiving document. Table 4 shows the results of our 

testing.



Table 4: Independent Receiving Failure Rates:



Installation: Eisenhower Army Medical Center; Estimated percent of 

transactions without independent receiving: 71; 95 percent confidence 

interval: 60 to 81.



Installation: Fort Benning; Estimated percent of transactions without 

independent receiving: 75; 95 percent confidence interval: 62 to 84.



Installation: Fort Hood; Estimated percent of transactions without 

independent receiving: 65; 95 percent confidence interval: 51 to 77.



Installation: Soldier, Biological and Chemical Command - Natick; 

Estimated percent of transactions without independent receiving: 55; 95 

percent confidence interval: 44 to 67.



Installation: Texas Army National Guard; Estimated percent of 

transactions without independent receiving: 87; 95 percent confidence 

interval: 78 to 94.



Source: GAO testing and statistical analysis of Army purchase card 

transaction files.



[End of table]



As shown above, the five installations we audited generally did not 

have independent, documented evidence that the items ordered and paid 

for with the purchase card had been received. This lack of documented, 

independent receiving extended to all types of purchases, including 

computers and other expensive or highly pilferable items. We believe 

that documented independent receiving is a basic internal control 

activity that provides additional assurance to the government that 

purchased items come into the possession of the government.



Approving Official Review:



[See PDF for image]



[End of figure]



Approving official review is a recognized control activity at all 

levels of the purchase card program. DOD’s purchase card joint program 

office, major command procedures, and the installations’ operating 

procedures recognize that the approving official review is central to 

ensuring that purchase card transactions are appropriate. Army guidance 

requires approving officials to review and certify each cardholder’s 

monthly transactions. The August 3, 2001, memorandum discussed 

earlier[Footnote 17] described the approving official review process as 

the “first line of defense” against misuse of the card.



The responsibilities of the approving official involve two overlapping 

functions:



* reviewing the cardholder’s transactions to provide reasonable 

assurance that, among other things, (1) the transactions are legal, 

proper, and correct in that appropriate procurement procedures were 

followed and (2) supporting documentation and records, including 

supporting invoices, are adequate and:



* certifying the cardholder’s transactions for payment.



An appropriate approving official review, at a minimum, would 

facilitate certification; however, certification by itself does not 

ensure that the desired review occurred. Certification is likely to 

occur even if the required reviews are not made because certification 

is necessary for payment.



Section 2784 of title 10, United States Code, requires the Secretary of 

Defense to issue regulations controlling the use of government credit 

cards within the department. The statute requires that these 

regulations be consistent with “regulations that apply government-wide 

regarding use of credit cards by government personnel for official 

purposes.”:



The regulations that apply governmentwide are in the Treasury Financial 

Manual. Section 4535 of Volume I of the manual provides that the 

cardholder and approving official[Footnote 18] will review the 

cardholder statement of account received at the end of each monthly 

billing cycle. The cardholder statement must be submitted to the 

billing office early enough to permit the billing office to process and 

pay the consolidated monthly invoice within the Prompt Payment Act 

deadline. The provision directs the billing office to pay the 

consolidated invoice on time, “even if all cardholder statements are 

not received….”:



As part of our work, we asked the DOD Under Secretary of Defense 

(Comptroller) for his views on DOD’s compliance with these statutory 

requirements. In a letter dated April 30, 2002, the Principal Deputy 

and Deputy Under Secretary of Defense for Management Reform stated that 

DOD’s Financial Management Regulation, various purchase card 

reengineering memorandums, and other pronouncements together complied 

with section 2784.



DOD’s regulations are consistent with the governmentwide regulations 

regarding the responsibilities of cardholders and approving 

officials.[Footnote 19] Therefore, if cardholders and approving 

officials are not reviewing and reconciling their statements of account 

in time for disbursing offices to process payments on time, they are 

not complying with Treasury and DOD requirements.



We noted numerous cases during our audit where the approving official 

certified the billing statement for payment but had not examined the 

transactions or the documentation supporting them to determine whether 

the transactions were correct and for a valid government purpose. In 

one case, a note on one approving official’s certified billing 

statement said that the approving official had not reviewed the 

transactions. Accordingly, certification for payment is made without 

the required reconciliation. In that instance, certification was 

clearly nothing more than a “rubber stamp.”:



Consequently, we tested for other evidence that the billing official 

had reviewed the cardholders’ transactions. Without such evidence, 

neither we, nor internal auditors, nor program coordinators who are 

required to annually review approving official’s records, can determine 

whether approving officials are complying with review requirements or 

simply certifying the statement without the required review. For this 

test, we accepted virtually any markings, notes, or dates, other than 

the certification signature, on the transactions listed on the 

cardholder’s or approving official’s bill as documentation that a 

review had occurred. In instances of appropriately documented reviews, 

we found evidence of the approving official checking off on each 

transaction in the cardholder’s statement and the supporting 

documentation for each, and signing the cardholder’s statement as 

having reviewed it. Instances in which the documentation was not 

available included missing statements, missing invoices, and statements 

without any marks by either the cardholder or the approving official to 

indicate that a reconciled statement had been prepared or submitted to 

the approving official.



Our testing revealed that documented evidence of approving officials’ 

review of cardholders’ transactions and their reconciled statements did 

not exist for most of our sample transactions. The failure rate at each 

of the five installations we audited was high, as table 5 shows. The 

high failure rate is of particular concern for this control activity 

because it is perhaps the most important to providing reasonable 

assurance that purchases are appropriate and for a legitimate 

government need.



Table 5: Approving Official Review Failure Rates:



Installation: Eisenhower Army Medical Center; Estimated percent of 

transactions without approving official review: 86; 95 percent 

confidence interval: 75 to 94.



Installation: Fort Benning; Estimated percent of transactions without 

approving official review: 73; 95 percent confidence interval: 61 to 

83.



Installation: Fort Hood; Estimated percent of transactions without 

approving official review: 66; 95 percent confidence interval: 52 to 

79.



Installation: Soldier, Biological and Chemical Command - Natick; 

Estimated percent of transactions without approving official review: 

40; 95 percent confidence interval: 28 to 52.



Installation: Texas Army National Guard; Estimated percent of 

transactions without approving official review: 41; 95 percent 

confidence interval: 30 to 52.



Source: GAO testing and statistical analysis of Army purchase card 

transaction files.



[End of table]



Although of concern, the high failure rates are not unexpected because 

major command and local standard operating procedures, while 

recognizing the importance of approving official review, do not specify 

the required extent, content, or documentation of approving officials’ 

reviews. In addition, the high failure rate may be attributable to 

approving official responsibilities falling into the category of “other 

duties as assigned” and to approving officials being responsible for a 

large number of cardholders, as previously discussed. A large workload, 

especially one in an “other duties as assigned” category, can 

inevitably lead to less attention than expected or desired.



For example, the previously mentioned cardholder at Eisenhower Medical 

Center, who was the approving official for 18 cardholders, one of whom 

spends about $100,000 monthly for surgical supplies and medical 

equipment, told us that he had not reviewed the cardholders’ records 

because he did not have time. We examined that cardholder’s records as 

part of our control activity testing and found that the records were in 

disarray. Numerous transactions did not have invoices. Other 

transactions had invoices with prices that differed from the 

cardholder’s log but were not reconciled. Subsequent to our audit, the 

program coordinator worked with the approving official’s manager to 

reduce the workload by appointing additional approving officials.



Our discussions with approving officials indicated that some reviews 

had been made, but we could not determine the frequency or extent of 

the reviews because they were not documented. Without documentation, 

the lack of a review can go unnoticed. For example, at the Texas Army 

National Guard, approving officials’ subordinates frequently performed 

cardholder statement reviews because of the large number of cardholders 

for whom each approving official was responsible. When one of these 

subordinates was absent due to an extended illness, no one performed 

reviews of the transactions, but the approving official did not notice 

because reviewers were not required to document their work. According 

to guard officials, this problem was addressed after our inquiries by 

appointing more approving officials and directing approving officials 

to personally review their cardholder transactions.



We identified numerous instances of purchases that clearly had not been 

adequately reviewed and reconciled to the statement, but the statements 

were, nonetheless, certified for payment. Such activities allow 

potentially fraudulent, improper, abusive, and questionable purchases, 

which are discussed in more detail in the following section of this 

report, to go undetected. The following are two example of such 

unauthorized charges that we identified.



* A Fort Hood cardholder purchased 15 wire storage containers in April 

2001. The vendor incorrectly included $808 of shipping and handling 

charges in the $2,748 bill. The approving official certified the 

statement for payment including the erroneous shipping and handling 

charges. Apparently, neither the cardholder nor the approving official 

reviewed the transaction in sufficient detail. After we detected the 

erroneous charges in November 2001, about 7 months after the original 

charge, a refund was obtained.



* Another approving official at Fort Hood certified for payment a $539 

charge on a May 2001 statement for a purchase from a catering company. 

After our inquiry about an invoice for the purchase, the approving 

official determined that the charge was inappropriate and a refund was 

made. Approving official review of a reconciled statement should have 

detected this inappropriate charge.



We believe that the approving official’s review of the cardholders’ 

purchases is a vital internal control activity. Without documentation 

of such review, neither we, internal auditors, nor program coordinators 

can determine the extent that the approving official is carrying out 

review responsibilities.



Obtaining and Retaining Invoices:



[See PDF for image]



[End of figure]



Essentially, the Army requires that an invoice support purchase card 

transactions. Thus, the invoice is a key document in purchase card 

internal control activities. Throughout the major commands’ and 

installations’ procedures, the need for obtaining and retaining an 

invoice is recognized. Without an invoice, independent evidence of the 

description and quantity of what was purchased and the price paid is 

not available. In addition, the invoice is the basic document that is 

required to be attached to the cardholder’s monthly statement during a 

cardholder’s reconciliation and prior to approving official review.



In testing for evidence of an invoice, we accepted either the original 

or a copy of the invoice, sales slip, or other store receipt. Table 6 

shows the results of our testing.



Table 6: Existence of Invoice Failure Rates:



Installation: Eisenhower Army Medical Center; Estimated percent of 

transactions without an invoice: 26; 95 percent confidence interval: 17 

to 38.



Installation: Fort Benning; Estimated percent of transactions without 

an invoice: 16; 95 percent confidence interval: 8 to 28.



Installation: Fort Hood; Estimated percent of transactions without an 

invoice: 7; 95 percent confidence interval: 2 to 19.



Installation: Soldier, Biological and Chemical Command - Natick; 

Estimated percent of transactions without an invoice: 14; 95 percent 

confidence interval: 6 to 25.



Installation: Texas Army National Guard; Estimated percent of 

transactions without an invoice: 14; 95 percent confidence interval: 7 

to 23.



Source: GAO testing and statistical analysis of Army purchase card 

transaction files.



[End of table]



The following missing invoice example illustrates the questions that 

can arise when an invoice is not available. As part of our Army-wide 

data mining, we identified several types of vendors that cardholders 

are generally prohibited from using. We identified four transactions 

for which the monthly billing indicated that purchases were made at a 

jewelry store--one category of prohibited vendors--in Kuwait for three 

purchases totaling $4,365 and a credit for returned merchandise of 

$1,353. Upon inquiry into this transaction, Army officials said that 

the purchase was for mattresses for a vessel prepositioned in the area. 

However, they also said that the transaction file did not contain a 

detailed invoice to allow us--or the approving official who was located 

in the United States--to confirm that mattresses were, indeed, the 

merchandise purchased, and if so, how many and at what unit price. 

Without such an invoice, a thorough investigation is needed to 

determine whether this transaction was proper, potentially fraudulent, 

improper, or abusive.



The failure rates for evidence of invoice were lower than those for the 

other internal control activities we tested. However, we believe that 

even these failure rates are unacceptable for such a key document. A 

valid invoice to show what was purchased and the price paid is a basic 

document for the transactions and a missing invoice is an indicator of 

potential fraud. Without an invoice, two key control activities--

independent receiving and approving official review--become 

ineffective. Independent receiving cannot confirm that the purchased 

items were received and the approving official cannot review a 

cardholder statement reconciled with the supporting invoice. A near 

zero failure rate is a reasonable goal considering that invoices are 

easily obtained or replaced when inadvertently lost.



Purchase Cards Complicate Property Book Management:



[See PDF for image]



[End of figure]



Consistent with GAO’s internal control standards, DOD’s Property, Plant 

and Equipment Accountability Directive and Manual, which was issued in 

draft for implementation on January 19, 2000, requires accountable 

property to be recorded in property records as it is acquired. In 

addition to high-cost property items, accountable property also 

includes easily pilferable or sensitive items, such as computers and 

related equipment, cameras, cell phones, and power tools. Recording 

these items in the property records is an important step to ensure 

accountability and financial control over these assets and, along with 

periodic inventory, to prevent theft or improper use of government 

property.



At each of the five installations we visited, we found that accountable 

items acquired by purchase cards were not recorded in property records. 

In addition, officials at four of the five installations could not 

readily locate property items. While some of the items were located 

after considerable searching, others such as computers and printers 

were not. Some or all of the items might, in fact, be at the 

installation; however, without positive assurance, there is substantial 

risk that items were converted to personal use or sold. Property items 

not recorded in the property books and not found demonstrate a weak 

control environment and problems with the property management system. 

Table 7 shows the results of our work.



Table 7: Property Items Not Recorded in Property Books:



Installation: Eisenhower Army Medical Center; Transactions with 

property items: 28; Transactions with items not on property books: 8; 

Transactions with items that command could not show were in 

government’s possession: 2.



Installation: Fort Benning; Transactions with property items: 27; 

Transactions with items not on property books: 8; Transactions with 

items that command could not show were in government’s possession: 6.



Installation: Fort Hood; Transactions with property items: 40; 

Transactions with items not on property books: 11; Transactions with 

items that command could not show were in government’s possession: 2.



Installation: Soldier, Biological and Chemical Command - Natick; 

Transactions with property items: 43; Transactions with items not on 

property books: 4; Transactions with items that command could not show 

were in government’s possession: 0.



Installation: Texas Army National Guard; Transactions with property 

items: 25; Transactions with items not on property books: 17; 

Transactions with items that command could not show were in 

government’s possession: 1.



Source: GAO nonrepresentative selection of Army purchase card 

transactions.



[End of table]



Effectively managing accountable property has long been a problem area 

and the use of the purchase card has added further difficulties. With 

over 100,000 army cardholders, the number of people buying accountable 

property has greatly expanded. Cardholders are responsible for 

reporting on the accountable property they buy so that it is recorded 

in the installation’s accountable property, but they often do not. For 

example, property book officers at Fort Hood and the Texas Army 

National Guard told us that a major problem with property bought in a 

purchase card transaction is that cardholders do not properly notify 

property book officers and/or provide documentation supporting the 

purchases. At Fort Hood, cardholders are required by the installation’s 

purchase card procedures to obtain transaction document numbers for 

purchases of equipment items prior to making the purchases, but the 

requirement is frequently ignored. Further, we noted that the 

installations we audited generally did not record items such as 

memorabilia like pictures of famous people and framed jerseys of sports 

stars. Some of these items cost hundreds of dollars and are pilferable 

and desirable items.



Because of its long-standing problems, property management has been the 

subject of internal audits at the installations we audited. At the 

Soldier, Biological and Chemical Command - Natick, as a result of an 

internal audit of property accountability, the logistics office had 

worked for over a year to improve its management of accountable 

property. We believe that the attention focused on accountable property 

management was the reason that the installation had the best result in 

our audit.



Others had not done so well in correcting their problems. A Fort 

Benning internal audit completed in April 2001 found that 84 percent of 

the accountable items purchased with a purchase card had not been 

recorded on the property book. An ongoing internal audit by the Texas 

Army National Guard was finding similar property accountability 

problems. At Eisenhower Army Medical Center, an evaluation of the 

center’s logistics operations estimated that $2 million to $5 million 

of accountable property acquired with the purchase card was not on the 

center’s property books.



Cardholders have little incentive to undertake the required 

coordination and reporting on property items because of the additional 

work involved. Our work showed that items received centrally by 

logistics officials are more likely to be recorded on the property 

books. Thus, central receiving appears to help mitigate against 

cardholders not assuring accountable property is recorded and may be 

worth pursuing across the board or for certain asset types. In 

addition, we believe that robust monitoring and oversight activities of 

the purchase card program that include examining how well cardholders 

are fulfilling their property management responsibilities could help 

improve property management related to the purchase card program.



Retaining Purchase Card Records:



[See PDF for image]



[End of figure]



During our work we noted several instances in which cardholders and 

approving officials had not maintained purchase card transaction files 

for 3 years as required by the Federal Acquisition Regulation, Part 4, 

Section 4.805. In our testing, the records most often missing were the 

ones for cardholders who had left the installation. Either the 

cardholders destroyed the records prior to leaving or the replacement 

cardholder destroyed them because they were not the new cardholder’s 

records. At Eisenhower Army Medical Center, a replacement cardholder 

destroyed the departed cardholder’s files because the office had little 

room to store old files and the new cardholders did not see the need to 

store someone else’s files. In some cases, we were told that the 

departed cardholders took the records with them to their new 

installations. In other cases, the records were lost when units were 

deployed. Regardless of the causes, the records were not available for 

our inspection and records retention requirements were not complied 

with. In those instances, we could not document that internal control 

activities had been carried out.



Although we found no concrete indications of fraud in these situations, 

the lack of records raises concerns about whether the files were 

destroyed so that potentially fraudulent, improper, or abusive 

transactions were not documented. For example, in one case in which the 

cardholder had left the Army, we found charges during the last month of 

the cardholder’s military service from the installation’s liquor store 

and vendors such as Wal-Mart stores that sell a multitude of 

potentially personal items. The replacement cardholder told us that the 

purchases were probably for a unit party, but the timing of the 

purchases along with missing documentation does not allow ruling out 

the possibility that items may have been bought for personal use. 

However, the unit’s purchase card records for this period were in 

disarray and invoices and other documentation that could verify items 

purchased or aid further assessments of the propriety of the purchases 

were not available.



Potentially Fraudulent, Improper, and Abusive or Questionable 

Transactions:



Buying items with purchase cards without the requisite control 

environment creates unnecessary risk of excess outlays, which can range 

from outright fraudulent purchases to ones that were of questionable 

need for the unit’s mission or were unnecessarily expensive. We 

identified purchases at the installations we audited that were 

potentially fraudulent, improper, and abusive or questionable, which 

can result from a weak control environment and weak internal control 

activities. As discussed in appendix I, our work was not designed to 

identify, and we cannot determine, the extent of potentially 

fraudulent, improper, and abusive or otherwise questionable 

transactions. However, considering the control weaknesses identified at 

each installation, such transactions are likely occurring and have not 

been detected. In addition to the purchases identified at the audited 

installations, our Army-wide data mining of selected transactions 

identified additional cases of potentially fraudulent, improper, and 

abusive or questionable transactions.



Potentially Fraudulent Purchases:



The Army has no information as to the extent of potentially fraudulent 

purchases that have been identified or are being investigated within 

the purchase card program. We identified instances of potentially 

fraudulent transactions at three of the five installations we audited 

and in our Army-wide data mining, as table 8 shows. Some of the 

potentially fraudulent transactions were identified in response to our 

inquiries. Others were identified or being investigated independent of 

our audit.



Table 8: Examples of Potentially Fraudulent Army Purchase Card 

Transactions:



Type of items purchased: Various items for personal use, such as 

computer game station, computer, digital camera, and surround sound 

system; Where or how identified: Eisenhower Army Medical Center; Total 

amount: $100,000; (estimated); [Empty]; Individuals involved: 

Cardholder,; approving official, and others.



Type of items purchased: Computer, rings, purses, and clothing from 

such vendors as Victoria’s Secret, Calvin Klein, and others; Where or 

how identified: Eisenhower Army Medical Center; Total amount: 30,000; 

(estimated); [Empty]; Individuals involved: Cardholder.



Type of items purchased: Various items for personal use and cash 

advances; Where or how identified: Fort Benning; Total amount: 30,000; 

[Empty]; Individuals involved: Cardholder.



Type of items purchased: Rental cars, cruises, cell phones, hotels, 

Payless Car Rental, Extended Stay America, and other vendors; Where or 

how identified: Fort Benning; Total amount: 20,751; [Empty]; 

Individuals involved: User of alleged stolen card.



Type of items purchased: Car repairs, groceries, clothing, and other 

personal items; Where or how identified: Eisenhower Army Medical 

Center; Total amount: 12,832; [Empty]; Individuals involved: Cardholder 

and vendor.



Type of items purchased: Personal clothing, trip to Las Vegas, payments 

of personal bills; Where or how identified: Fort Benning; Total amount: 

10,748; [Empty]; Individuals involved: Cardholder.



Type of items purchased: Sunglasses and other items for personal use 

from Sunglass Hut, Discovery Channel store, and others; Where or how 

identified: Fort Hood; Total amount: 1,452; [Empty]; Individuals 

involved: Separated cardholder, user of alleged compromised account.



Type of items purchased: Various personal use items such as food and 

gas for personal vehicles at Shell and other vendors; Where or how 

identified: Fort Benning; Total amount: 1,170; [Empty]; Individuals 

involved: User of alleged stolen card.



Type of items purchased: Digital camera from Office Max and other 

personal items from Circuit City and various other vendors; Where or 

how identified: Fort Hood; Total amount: 786; [Empty]; Individuals 

involved: Unknown.



Type of items purchased: Escort services; Where or how identified: 

Army-wide data mining; Total amount: 630; [Empty]; Individuals 

involved: Cardholder.



Type of items purchased: Prepaid phone cards from MCI, Sprint, and 

Ameritech, and pizza from Larry’s Pizza and Po Boys; Where or how 

identified: Fort Hood; Total amount: 524; [Empty]; Individuals 

involved: Under investigation.



Type of items purchased: Athletic shoes; Where or how identified: Army-

wide data mining; Total amount: 458; [Empty]; Individuals involved: 

User of alleged compromised account.



Type of items purchased: Internet site subscriptions; Where or how 

identified: Fort Hood; Total amount: 210; [Empty]; Individuals 

involved: Under investigation.



Source: GAO analysis of Army purchase card transactions and related 

documentation.



[End of table]



We considered potentially fraudulent purchases to include those made by 

cardholders that were unauthorized and intended for personal use. 

Potentially fraudulent purchases can also result from compromised 

accounts in which a purchase card or account number is stolen and used 

by someone other than the cardholder to make a potentially fraudulent 

purchase. Potentially fraudulent transactions can also involve vendors 

charging purchase cards for items that cardholders did not buy. The 

installations we audited had policies and procedures that were designed 

to prevent and/or detect potentially fraudulent purchases, such as the 

requirement that approving officials review the supporting 

documentation for each transaction for legality and proper government 

use of funds. However, as discussed earlier, our testing showed that 

these control activities had not been implemented as intended.



Although collusion can circumvent what otherwise might be effective 

internal control activities, a robust system of guidance, internal 

control activities, and oversight can create a control environment that 

provides reasonable assurance of preventing or quickly detecting fraud, 

including collusion. However, in auditing the Army’s internal control 

at five installations during fiscal year 2001, we did not find the 

processes and activities that provide such assurance.



The following examples of fraud illustrate the cases in table 8.



* At Eisenhower Army Medical Center, an Army investigation initiated 

near the end of our work has revealed an estimated $100,000 of 

potentially fraudulent purchases. The investigation began when an 

alternate cardholder received an electronic game station that had been 

ordered by another cardholder who was away on temporary duty. The 

alternate cardholder, noting that the purchase did not appear to be for 

government use, notified the program coordinator who notified the local 

Army criminal investigations division. The ensuing investigation 

revealed that the military cardholder, approving official, and several 

other soldiers and civilians colluded to purchase numerous items 

including computers, digital cameras, an audio surround system, a 32-

inch television, a stereo system, and other items for personal use.



* A Fort Benning military cardholder charged $30,000 for personal goods 

and cash advances before and after retirement. Because these 178 

transactions went undetected, it appears that the approving official’s 

certification was only a “rubber stamp” and was not based on a review 

of the cardholder’s bill, reconciliations, and supporting 

documentation. The approving official not only failed to detect these 

potentially fraudulent transactions while the cardholder was on active 

military duty, but also failed to notice that charges were continuing 

to be made after the cardholder retired.



* At Eisenhower Army Medical Center, a military cardholder defrauded 

the government of $30,000 from April 25 to June 20, 2001. The 

cardholder took advantage of a situation when the cardholder’s 

approving official was on temporary duty for several months. The 

cardholder believed that the alternate approving official would certify 

the statement for payment without reviewing the transactions or their 

documentation. With this belief, the cardholder purchased a computer, 

purses, rings, and clothing. These fraudulent transactions were not 

discovered until the resource manager who monitored the unit’s budget 

noticed a large increase in spending by the cardholder. The cardholder 

had destroyed all documentation for the 3-month period during which 

these transactions took place. However, investigators found merchandise 

and invoices that showed the cardholder had used the government credit 

card. The cardholder was court-marshaled in April 2002 and sentenced to 

18 months incarceration. These fraudulent transactions might not have 

occurred if the cardholder had known that the approving official would 

review the transactions. At a minimum, prompt approving official review 

would have detected the fraudulent transactions.



* Over a 6-month period in 2001, a civilian cardholder made 62 

unauthorized transactions totaling $12,832 to pay for repairs to a car 

and buy groceries, clothing, and various other items for personal use. 

We were told that the cardholder colluded with the gas station vendor 

who inflated the prices paid for items and received a kickback. The 

approving official identified this case by reviewing the cardholder’s 

August 2001 transactions. The fraud went undetected for several months 

because the approving official had not reviewed the cardholder’s bills 

and supporting documentation for over 5 months. The approving official 

has been relieved of approving official duties and reprimanded. The 

investigation into the fraud was ongoing at the end of our fieldwork.



* In our Army-wide data mining, we identified a cardholder transaction 

for $630 on June 15, 2001, that was coded as being an escort service. 

In response to our inquiry on this transaction, we were informed that 

no authorization existed for the transaction and that it was with an 

escort service in New Jersey. In discussions with provost marshal 

officials, we were informed that the cardholder had been investigated 

in February 2002 because of money missing from chapel funds. The 

provost marshal’s office, after our March 2002 inquiry about the $630 

transaction, investigated it and other suspicious charges by the 

cardholder. The investigators could not get an invoice from the vendor. 

Their investigations revealed no other fraudulent, improper, or abusive 

and questionable transactions. They determined that for a short period, 

the cardholder was also serving as the billing official and that it was 

during this period that the fraudulent transaction with the escort 

service occurred. Disciplinary actions included removing the soldier 

from cardholder duties, reducing his rank, taking one-half month’s pay 

for 2 months, requiring 45 days extra duty, and ordering repayment of 

the funds.



* During June 2001 at Fort Hood, several purchases of prepaid telephone 

cards and pizza totaling $524 were made and certified for payment by a 

new approving official who did not realize that the cardholder had 

separated from the Army in early 2001. In attempting to respond to our 

request for supporting information for one of the transactions, the 

approving official recognized that the charges were potentially 

fraudulent. In the subsequent investigation, an investigator found that 

the purchase card account was still active in December 2001. This case 

remained under investigation as of January 2002.



In addition to the potentially fraudulent cases identified by our work, 

we attempted to obtain other examples of potentially fraudulent 

activity in the Army purchase card program from the Army’ Criminal 

Investigation Command in Washington, D.C. However, data on the 

command’s investigations were not available. Further, while Army 

investigators acknowledge that they have investigated a number of fraud 

cases, their database on investigations does not allow retrieval of 

data on investigations involving potentially fraudulent use of purchase 

cards. Purchase card program officials and Army investigation command 

officials said that they had no information on the total number of 

fraud investigation cases throughout the Army that had been completed 

or were ongoing. Based on our identification of a number of potentially 

fraudulent cases at the installations that we audited, we believe that 

the number of cases involving potentially fraudulent transactions could 

be significant. Without such data, the Army does not know the 

significance of fraud cases that have been or are being investigated 

and cannot take corrective actions, to the extent possible, to prevent 

similar potentially fraudulent cases in the future.



Improper Purchases and Transactions:



Our work identified transactions that were improper, including split 

purchases and purchases from nonmandatory sources. Improper 

transactions are those purchases that, although approved by Army 

personnel and intended for government use, are not permitted by law, 

regulation, or DOD policy. We identified three types of improper 

purchases. One type was purchases that did not serve a legitimate 

government purpose. Another type was split purchases in which the 

cardholder circumvents cardholder single purchase limits. The Federal 

Acquisition Regulation guidelines prohibit splitting purchase 

requirements into more than one transaction to avoid the need to obtain 

competitive bids on purchases over the $2,500 micropurchase threshold 

or to circumvent higher single transaction limits for payments on 

deliverables under requirements contracts. The third type was purchases 

from an improper source. Various federal laws and regulations require 

procurement officials to acquire certain products from designated 

sources such as the Javits-Wagner-O’Day Act (JWOD) vendors. The program 

created by this act is a mandatory source of supply for all federal 

entities. It generates jobs and training for Americans who are blind or 

have other severe disabilities by requiring federal agencies to 

purchase supplies and services from nonprofit agencies, such as the 

National Industries for the Blind and the National Institute for the 

Severely Handicapped.



Personal Use:



We found several instances of purchases, such as clothing, in which 

cardholders purchased goods that were not authorized by law or 

regulations. The Federal Acquisition Regulation provides that the 

governmentwide commercial purchase card may be used only for purchases 

that are otherwise authorized by law or regulations. Therefore, a 

procurement using the purchase card is lawful only if it would be 

lawful using conventional procurement methods. Under 31 U.S.C. 1301(a), 

“[a]ppropriations shall only be applied to the objects for which the 

appropriations were made….” In the absence of specific statutory 

authority, appropriated funds may only be used to purchase items for 

official purposes, and may not be used to acquire items for the 

personal benefit. The improper transactions, as shown in table 9, were 

identified as part of our review of fiscal year 2001 transactions and 

related activity. We identified most of them as part of our Army-wide 

data mining of transactions with questionable vendors although several 

were identified as part of our work at the five audited installations.



Table 9: Examples of Purchases Intended for Personal Use:



Items: Clothing; Gore-Tex parkas; Rain coats; Civilian clothes for 

military staff; Clothing and meeting facilities after golf; tournament; 

Bomber jackets; Vendor: ; L.L. Bean; Cabellas; Macy’s and Hecht’s; 

Heraldic United Waddinxveen and; Heidelberg Golf Course; SkyMall.



Items: Meals/food; Elegant fruit baskets; Teacher appreciation dinners; 

Meals for training event; Meals for firemen; Personal meals; Vendor: ; 

Resort; Catering services; Catering services; Catering services; Local 

restaurants.



Items: Other; Cell phone time charges; Sales taxes; Radio for personal 

use; Personal luggage; Portable office carriers; Hotel facilities and 

services; Vendor: ; AT&T Wireless; Various; Bose; Luggage On-Line; 

International Luggage Center; Opryland Hotel.



Source: GAO analysis of Army purchase card transactions and related 

documentation.



[End of table]



The following examples of the improper transactions illustrate of the 

type of cases included in table 9.



* We identified purchases of clothing by Soldier, Biological and 

Chemical Command - Natick that should not have been purchased with 

appropriated funds. According to 5 U.S.C. 7903, agencies are authorized 

to purchase protective clothing for employee use if the agency can show 

that (1) the item is special and not part of the ordinary furnishings 

that an employee is expected to supply, (2) the item is essential for 

the safe and successful accomplishment of the agency’s mission, not 

solely for the employee’s protection, and (3) the employee is engaged 

in hazardous duty. Further, according to a Comptroller General decision 

dated March 6, 1984,[Footnote 20] clothing purchased pursuant to this 

statute is property of the U.S. government and may only be used for 

official government business. Thus, clothing purchases, except for rare 

circumstances in which the purchase meets stringent requirements, is 

usually considered a personal item for which appropriated funds should 

not be used. In one transaction, a cardholder had purchased 10 L.L. 

Bean Gore-Tex parkas at a total cost of about $2,400 for employees who 

worked outside in cold weather. These parkas were not specialty items, 

and they were not used solely for official use. The employees were 

allowed to take the parkas home and wear them in off-duty hours.



* In another example of clothing for personal use from our Army-wide 

data mining, several charges for amounts from $330 to $770 were 

identified at Macy’s and Hecht’s. We were informed that these were for 

purchases of civilian clothes for enlisted personnel who are serving as 

assistants to general officers. We were informed by the Director, 

Purchase Card Unit, Defense Contracting Command Washington, that this 

appears to be a fairly widespread practice and that the practice is 

clearly improper and is believed to violate fiscal law.



* As part of our data mining of Army-wide purchase card transactions, 

we identified a questionable transaction, which a subsequent 

investigation determined that a cardholder purchased a Bose radio for 

$523 to use in his office. The radio was clearly for his personal use 

in his office; therefore, it should not have been purchased with the 

Army purchase card. The employee was required to reimburse the U.S. 

Treasury for the cost of the radio. A broader review of the purchases 

made by this cardholder’s unit revealed other problems similar to those 

we identified in our work such as property accountability, not 

purchasing from mandatory sources, purchases at excessive costs, and 

missing records. As with our other work, these problems indicate that 

approving officials were not adequately reviewing cardholder 

transactions.



* In our Army-wide data mining we identified charges by two cardholders 

under one approving official of about $7,600 at the Opryland Hotel in 

Nashville, Tennessee, in November 2000. In response to our inquiry, we 

were told that these charges were unexpected and resulted from the 

Chief Information Officer’s Management Conference at the hotel in 

August 2000. The charges were unexpected because registration fees were 

to cover all charges. After a large bill of over $20,000 was eventually 

reduced to about $7,600, the supervisor instructed the cardholders to 

pay the additional charges with their purchase cards. However, to pay 

the $7,600 in charges of less than $2,500 and avoid obvious split 

purchases, the bill was split into segments and divided between two 

cardholders. The amounts paid were $2,500 for long-distance phone 

calls, $934 for phone line hookup, $2,500 for meeting room rental, and 

$1,715 for audio visual services. However, because separate invoices 

for the charges do not exist, the officials can neither support the 

correct amount of any charges nor support that the charges are for 

purposes permitted by law, regulation, or policy.



* Fort Hood paid improper and excessive cell phone charges because no 

one was monitoring them. The information management division’s 

approving official certified the installation’s consolidated monthly 

charges for payment for over 1,100 cell phones and over $50,000 monthly 

time charges without reviewing the usage. While local procedures 

require the units using the cell phones to verify their own monthly 

usage, the procedures do not address how and when this is to be done. 

We found that some units had not routinely verified the charges. 

Others, who said they usually did verify their charges, could not for 

the period November 2001 through March 2002 because a change in the 

phone company’s billing processes did not allow the units to have 

access to their monthly charges. Without reviewing the charges, the 

Army has no assurance that charges are proper and not excessive. We 

reviewed current usage and identified excessive monthly time charges 

and charges for phones that had no monthly usage. For example, one cell 

phone user, who had a $79.95 per month plan that allowed 650 minutes of 

airtime, used 3,400, 2,696, and 1,915 minutes during a 3-month period 

and incurred time charges of $1,040, $795, and $523. Fort Hood 

officials told us that improper and excessive charges occur because 

units do not have the appropriate monthly plan. In the above example, 

the unit could have reduced its costs to $550, $374, and $200--a 52 

percent savings--with an appropriate plan. Fort Hood officials also 

told us that excessive costs occur because of personal use. They said 

that when they identified charges for unauthorized personal use, they 

require employees to reimburse the government for these improper 

charges. However, without monitoring, use of uneconomical plans and 

unauthorized personal use would not be identified.



Split Purchases:



Another category of improper transaction is a split purchase, which 

occurs when a cardholder splits a transaction into more than one 

segment to avoid the requirement to obtain competitive bids for 

purchases over the $2,500 micropurchase threshold or to avoid other 

established credit limits. The Federal Acquisition Regulation prohibits 

splitting a purchase into more than one transaction to avoid the 

requirement to obtain competitive bids for purchases over the $2,500 

micropurchase threshold or to avoid other established credit limits. 

Once items exceed the $2,500 threshold, they are to be purchased 

through a contract in accordance with simplified acquisition 

procedures, which are more stringent than those for micropurchases.



Our analysis of data on purchases at the five installations we audited 

and our data mining efforts identified numerous occurrences of 

potential split purchases. In addition, internal auditors at four of 

the installations identified split purchases as a continuing problem. 

In some of these instances, the cardholder’s purchases exceeded the 

$2,500 limit, and the cardholder “split” the purchase into two or more 

transactions of $2,500 or less. For example, in our Army-wide data 

mining, we identified a series of split purchases at Fort Stewart, 

Georgia. An approving official had two cardholders spend $16,000 over a 

series of days to buy numerous pieces of executive office furniture for 

the official’s office that was located on the mezzanine of a warehouse. 

These purchases included elegant desks, chairs, and a conference table.



We also identified numerous cases where the Army is making repetitive 

micropurchases to meet requirements that in total greatly exceed the 

micropurchase limit. While some repetitive purchases might not clearly 

be split purchases, the Army is not taking advantage of a mechanism 

designed to foster lower prices for repetitive acquisitions of similar 

items over an extended period. Section 13.303-1 of the Federal 

Acquisition Regulation provides for blanket purchase agreements as a 

“simplified method of filling anticipated repetitive needs for supplies 

or services.” Use of a blanket purchase agreement, rather than 

repetitive, individual micropurchases, could lower per unit prices for 

the goods or services acquired. Below we discuss four situations in 

which blanket purchase orders should have been used.



* At the Soldier, Biological and Chemical Command - Natick, the public 

works department routinely used the same vendors 35 times to provide 

and install carpeting, 25 times to provide heating and air conditioning 

services, and 39 times to provide graphic display services. Although 

each of the transactions for these vendors was under the micropurchase 

limit, the total purchases for fiscal year 2001 were about $38,000, 

$44,000, $77,000, respectively. However, the installation did not have 

a blanket purchase agreement with the vendors. In these instances the 

public works department officials had not recognized they needed such a 

contract, and they agreed to pursue one. We noted that the installation 

had blanket purchase agreements for other similar circumstances that 

the internal auditor identified.



* At the Texas Army National Guard, the Occupational Health Office used 

purchase cards to pay for routine medical examinations and to buy 

ergonomic chairs and safety glasses for employees. While the individual 

cost for purchases were much less than the micropurchase limit, the 

total annual cost significantly exceeds the limit. For instance, the 

office paid over $80,000 for about 705 examinations at a dozen clinics 

and hospitals throughout the state in the first 10 months of fiscal 

year 2001. The guard also used purchase cards to pay for meals provided 

troops while they attended mandatory weekend drills or training. While 

the individual cost for any single guard unit’s training meal would 

rarely exceed the single-purchase $2,500 limit, the total recurring 

cost of the meals is one of the guard’s largest annual expenses--over 

$500,000 in the first 10 months of fiscal year 2001.



* At Fort Benning, the Dismounted Battlespace Battle Lab, a combat 

training unit, routinely purchased doors that were destroyed during 

training exercises to instruct troops how to enter a building that may 

contain an enemy. The battle lab spent $111,721 in 84 transactions with 

one vendor to buy doors during a 10-month period in fiscal year 2001, 

but the unit did not have a blanket purchase agreement. In this case, 

battle lab officials had refused attempts by the Fort Benning 

contracting division and purchase card program coordinator to execute 

an agreement. We found that the battle lab also needed a contract for 

the numerous computer modems it purchased. Further, in these purchases, 

the battle lab cardholder’s purchasing pattern was to split purchases 

to avoid the micropurchase limit of $2,500. We saw numerous instances 

in which the cardholder made more than one purchase near the limit for 

the same item over a short period.



* In a data-mining example, the Army Personnel Command made repetitive 

buys of interment flag cases from the same vendor. Data show that three 

purchases, two for $2,250 and one for $1,800, were made on the same day 

and that in total the command purchased 438 cases for $65,700 in 

calendar year 2001. The command has agreed that purchases in the future 

will be on a yearly basis in a competitive contract.



Improper Source:



Another type of improper purchase occurs when cardholders do not buy 

from a mandatory procurement source. Various federal laws and 

regulations require government cardholders to acquire certain products 

from designated sources. For example, the program created by JWOD 

generates jobs and training for Americans who are blind or have other 

severe disabilities by requiring federal agencies to purchase supplies 

and services furnished by nonprofit agencies, such as the National 

Industries for the Blind and the National Institute for the Severely 

Handicapped. Under the Federal Acquisition Regulation, Part 8.7, JWOD 

is a mandatory source of supply for all entities of the government. 

Unlike the “Buy American” Act and other rules that have been waived by 

recent procurement reform measures, JWOD’s mandatory status remains in 

effect for all purchases, including those under the micropurchase 

threshold. Most JWOD items are of small value such as office supplies, 

cleaning products, or medical/surgical supplies that nearly always fall 

into the micropurchase category.



While procurement source was not the primary focus of our work, we 

noted that cardholders frequently did not purchase from required 

sources when they should have. For example, we noted numerous purchases 

of office supplies or other JWOD-supplied products from local vendors 

when these or substantially similar products were available from the 

General Services Administration or one of its contractors’ catalogs or 

Web sites. We also noted that some cardholders did not know their 

responsibilities or the requirements, despite the fact that these 

requirements are a primary emphasis during cardholder training 

programs. For example, some said that they had not heard of JWOD or 

either of the institutes that cardholders should use. As further 

evidence of cardholders’ noncompliance with this mandatory source 

requirement, the Director of Sales for the National Industries for the 

Blind told us about large decreases in sales of JWOD products at Fort 

Hood and other Army installations over the past 2 years because 

cardholders were purchasing from commercial firms rather than buying 

the mandatory products.



The following two examples involving Franklin Covey illustrate the 

situations we found.



* In our data mining work, we identified a cardholder at Tooele Army 

Depot who made 10 purchases for a total of about $11,900 from Franklin 

Covey, with most of the purchases in August 2001. These purchases were 

primarily for inserts to day planners, an item that is available from 

the JWOD catalog. In response to our questions as to why the mandatory 

source was not used, we were advised that (1) in the past JWOD planners 

were not used by the self-service store’s customers because they did 

not include pages with dates for each day and

(2) under an interpretation that is now recognized to be in error, the 

purchases were made from another source under the premise that planners 

from JWOD did not meet customer needs. We were informed that future 

purchases of planners would be in one purchase through JWOD.



* In another case, a unit spent $3,100 over an 18-month period to 

purchase day planners from Franklin Covey. One item cost $199 and 

another $250. In contrast, cardholders can buy JWOD day planners for 

about $40.



In fiscal year 2001, the Army made more than 4,700 purchases costing 

about $792,000 dollars from Franklin Covey. A review of individual 

purchases, which we did not make, would be required to determine which 

purchases were for items that should have been from a mandatory source. 

However, we believe it is likely that many of these purchases could 

have been for JWOD products.



Abusive or Questionable Purchases:



We identified numerous examples of abusive or questionable transactions 

at each of the five installations we audited. We defined abusive 

transactions as those that were authorized, but the items purchased 

were at an excessive cost (e.g., “gold plated”) or for a questionable 

government need, or both. When abuse occurs, no law or regulation is 

violated. Rather, abuse occurs when the conduct of a government 

organization, program, activity, or function falls short of societal 

expectations of prudent behavior. Often, improper purchases such as 

those discussed in the previous section are also abusive. Transactions 

that are both improper and abusive were discussed previously. For 

example, the executive furniture purchased at Fort Stewart discussed 

earlier as improper split purchases were also abusive purchases. We 

believe that this type furniture was not in keeping with the office 

environment and not justified by the official’s position or grade 

level. Another example is the excessive cell phone charges at Fort 

Hood.



Questionable transactions are those that appear to be improper or 

abusive but for which there is insufficient documentation to conclude 

either. For questionable items, we concluded that cardholders purchased 

items for which there was not a reasonable and/or documented 

justification.



Questionable purchases often do not easily fit within generic 

governmentwide guidelines on purchases that are acceptable for the 

purchase card program. They tend to raise questions about their 

reasonableness. Many, such as gym quality exercise equipment, are 

common Army--and DOD--purchases because the Army must provide more than 

merely a work environment for its soldiers. However, others, like the 

fine china purchased for the culinary arts team competition discussed 

below, clearly raise questions about whether they are appropriate 

purchases. Precisely because these types of purchases tend to raise 

questions and subject the Army to criticism, they require a higher 

level of prepurchase review and documentation than other purchases. 

These types of purchases raise questions that go beyond the confines of 

the purchase card program.



When we examined purchases that raised these types of questions, we 

usually did not find evidence of prepurchase justification. In 

attempting to justify whether purchases were acceptable, improper, or 

abusive, program coordinators, approving officials, and cardholders 

often provided an after-the-fact rationale for the purchases. We 

believe that these types of questionable purchases require scrutiny 

before the purchase, not after. Table 10 identifies examples of these 

types of purchases.



Table 10: Examples of Abusive or Questionable Purchases:



Description of purchase: Palm Pilots for Pentagon officials; Where or 

how identified: Army-wide data mining; Total amount: $30,000.



Description of purchase: Palm VI personal digital assistants; Where or 

how identified: Texas Army National Guard; Total amount: 13,400.



Description of purchase: Crystal, china, and accessories for culinary 

arts; Where or how identified: Fort Hood and Army-wide data mining; 

Total amount: Over 3,800.



Description of purchase: Sunglasses for Golden Knights parachute team; 

Where or how identified: Army-wide data mining; Total amount: 2,450.



Description of purchase: Tree for Earth Day; Where or how identified: 

Soldier, Biological and Chemical Command - Natick; Total amount: 2,250.



Description of purchase: Meals for battle labs without sufficient 

documentation to determine if improper; Where or how identified: Fort 

Benning; Total amount: 1,700.



Description of purchase: Two unframed Elvis Presley pictures from 

Graceland; Where or how identified: Fort Hood; Total amount: 550.



Description of purchase: John Elway jersey - framed; Where or how 

identified: Soldier, Biological and Chemical Command - Natick; Total 

amount: 450.



Description of purchase: Cigars; Where or how identified: Army-wide 

data mining; Total amount: 300.



Description of purchase: Wine; Where or how identified: Army-wide data 

mining; Total amount: 150.



Source: GAO analysis of Army purchase card transactions and related 

documentation.



[End of table]



To understand more fully the nature of potentially questionable 

purchases, we selected six of the examples above to explain in more 

detail below.



* Palm Pilots for Pentagon officials. In February 2001, two purchases 

for a total of 80 Palm Pilots at a total cost of $30,000 were made for 

the Office of the Under Secretary of Defense for Acquisition, 

Technology, and Logistics. Two questions about this purchase are 

whether a valid need had been identified for the purchase and whether 

the urgency of the purchase justified the purchase from a vendor that 

could deliver immediately but was charging $1,540 more than the lowest 

competitor. No documentation was available to show how the office had 

determined that 80 Palm Pilots were a valid government requirement. An 

e-mail related to the purchase suggested that there was a need “to get 

enough goodies for everyone.” The documentation also suggested that the 

items were being ordered for inventory and would be issued to personnel 

when requested. This does not indicate a predetermined requirement and 

does not appear to support that the requirement was urgent, as the 

office determined. Based on the determination of urgency, the price 

paid was $1,540 more than the lowest competitor’s price so that 

delivery could be immediate.



* Culinary arts. At Fort Hood and during our Army-wide data mining 

effort, we noted several purchases for various culinary arts events. 

Among the purchases were fine china and crystal from Royal Doulton and 

Lenox. Other purchases were for accessories such as a rotating lighted 

ice-carving pedestal. Although participation in culinary arts team 

events is an approved Army activity, the transactions we examined and 

inquired about did not have a documentation of the need for the 

specific items purchased. Although the transactions we examined totaled 

about $3,800, we believe that the total cost of such purchases Army-

wide is far more. We were told that purchases of culinary arts 

accessories are common throughout the Army. One reason, we were told, 

is because most installations have culinary arts teams that attend 

competitions involving the use of expensive accessories and fine 

crystal and china.



* Sunglasses for the Golden Nights parachute team. In February 2001, a 

cardholder purchased 30 pair of sunglasses from Sunglass Hut at about 

$100 each for a net cost of $2,450--some glasses were returned for 

credit from a prior purchase--for the Golden Knights. In response to 

our inquiry about this purchase, we were told that it was not 

preapproved and that sunglasses were authorized in the common table of 

allowances when they are needed for training. However, because goggles 

are worn during parachute jumps, not sunglasses, we believe these 

purchases were personal use items and thus of questionable government 

need. The approving official for the transaction believed that the 

purchase was appropriate. According to the official, the parachute team 

has 85 members and the purchase was for new members.



* Tree for Earth Day. The Environmental, Safety and Health Office at 

the Soldier, Biological and Chemical Command - Natick bought a $2,250 

tree to plant in celebration of Earth Day. Although this transaction 

did not have documented approval prior to purchase or a documented 

justification for its need, we were told that the tree was purchased 

for the commanding general to plant among a grove of other trees 

between two installation buildings during an Earth Day celebration. 

While planting a tree for Earth Day may be an acceptable expenditure of 

government funds, we believe the expenditure of over $2,200 for a tree 

is an excessive cost.



* Cigars. In April 2001 a cardholder at Schofield Barracks in Hawaii 

purchased three boxes of Hula Girl Cigars for $300. According to 

information provided in response to our inquiry about the purchase, the 

cardholder bought the cigars for gifts to VIPs to be presented by the 

Commanding General, 25th Infantry Division, Schofield Barracks, during 

deployment on an exercise in Thailand. The purchaser was an acting 

protocol officer during a changeover in officers and did not have an 

approving official reviewing the purchases. No documentation was 

available from the Army to demonstrate that this purchase was a valid 

government need. The current Chief of Protocol said that no other 

cigars had been purchased.



* Wine. A cardholder purchased two cases of wine on September 20, 2001, 

from the Naked Mountain Vineyard. After we questioned this purchase, 

the Army concluded that the cardholder had used the wrong card to 

purchase the wine, but it had corrected the error to put the purchase 

in the correct accounting classification. An Army official assured us 

that the purchase was appropriately authorized by “competent authority 

in the course of execution of a highly classified, compartmented 

program.” We were provided no evidence that this purchase was a valid 

government need.



Conclusions:



We support the use of a well-controlled purchase card program. It is a 

valuable tool for streamlining the government’s acquisition processes. 

However, the Army program is not well controlled. The Army’s weak 

control environment was the root cause of the problems we saw with 

purchase card transactions, including the potentially fraudulent, 

improper, and abusive or questionable purchases. The Army has not 

provided the aggressive leadership needed to build and maintain an 

internal control infrastructure that encourages a strong control 

environment that provides accountability. Such an environment is an 

important counterbalance to the increased risk of potentially 

fraudulent and wasteful spending that results from the rapidly 

expanding use of the purchase card. The Army now spends billions of 

dollars through a purchase card program for which internal control is 

not adequate and for which appropriate management oversight does not 

exist. The Army needs to ensure that installation-level program 

coordinators, the primary program management officials, have the tools 

to develop local control systems and oversight activities. 

Strengthening the control environment will require a renewed focus on, 

and commitment to, building a robust purchase card infrastructure. The 

installations and major commands we audited have been responsive to our 

findings, and they have begun to make changes at their levels. However, 

the major changes to the Army purchase card program infrastructure that 

are essential to encouraging and enabling improvements in the overall 

control environment await action at the Army and DOD management levels.



Recommendations for Executive Action:



To strengthen the overall control environment and improve internal 

control for the Army’s purchase card program, we recommend that the 

Secretary of the Army direct the Deputy Assistant Secretary of the Army 

(Procurement) and other Army officials as appropriate to improve the 

overall Army purchase card infrastructure by taking the following 

actions.



Overall Program Management and Environment:



* Address key control environment issues in Army-wide standard 

operating procedures. At a minimum, the following key issues should be 

included in the procedure:



* controls over the issuance and assessment of ongoing need for cards;



* cancellation of cards when a cardholder leaves the Army, is 

reassigned, or no longer has a valid need for the card;



* span of control of the approving official; and:



* appropriate cardholder spending limits.



* Help ensure that program coordinators and approving officials have 

the needed authority, including grade level, to serve as the first line 

of defense against purchase card fraud, waste, and abuse by issuing a 

policy directive that specifically addresses their positions, roles, 

and job descriptions. Policies should also be established that hold 

these officials accountable for their purchase card program duties 

through performance expectations and evaluations.



* Assess the adequacy of human capital resources devoted to the 

purchase card program, especially for oversight activities, at each 

management level, and provide needed resources.



* Develop and implement a program oversight system for program 

coordinators that includes standard activities and analytical tools to 

be used in evaluating program results.



* Develop performance measures and goals to assess the adequacy of 

internal control activities and the oversight program.



* Require reviews of existing cardholders and their monthly spending 

limits to help ensure that only those individuals with valid continuing 

purchasing requirements possess cards and that the monthly spending 

limits are appropriate for the expected purchasing activity. These 

reviews should result in canceling unneeded cards Army-wide and 

especially at Fort Hood where we found a significant problem.



Specific Internal Control Activities:



* Direct the implementation of specific internal control activities for 

the purchase card program in an Army-wide standard operating procedure. 

While a wide range of diverse activities can contribute to a system 

that provides reasonable assurances that purchases are correct and 

proper, at a minimum, the following activities should be included in 

the promulgated procedure:



* advance approval of purchases, including blanket approval for 

routine, low dollar purchases;



* independent receiving and acceptance of goods and services;



* independent review by an approving official of the cardholder’s 

monthly statements and supporting documentation;



* approving official reconciling the charges on the monthly statement 

with invoices and other supporting documentation and forwarding the 

reconciled statement to the designated disbursing office for payment as 

required by governmentwide and DOD regulations; and:



* cardholders obtaining and retaining invoices that support their 

purchases and provide the basis for reconciling cardholder statements.



* Develop and implement procedures and checklists for approving 

officials to use in the monthly review of cardholders’ transactions. 

These procedures and checklists should specify the type and extent of 

review that is expected and the required review documentation.



* Reiterate records retention policy for purchase card transaction 

files and require that compliance with record retention policy be 

assessed during the program coordinator’s annual review of each 

approving official.



* Require the development and implementation of coordination and 

reporting procedures to help ensure that accountable property bought 

with the purchase card is brought under appropriate control.



Potentially Fraudulent, Improper, and Abusive and Questionable 

Purchases:



* Require additional prior documented justification and approval of 

those planned purchases that are “questionable”--that fall outside the 

normal procurements of the cardholder in terms of either dollar amount 

or type of purchase.



* Analyze the procurements of continuing requirements through 

micropurchases and require the use of appropriate contracting processes 

to help ensure that such purchases are acquired at best prices.



* Develop an Army-wide database on known fraud cases that can be used 

to identify potential deficiencies in existing internal control and to 

develop and implement additional control activities, if warranted or 

justified.



* Develop and implement an Army-wide data mining, analysis, and 

investigation function to supplement other oversight activities. This 

function should include providing oversight results and alerts to major 

command and installations when warranted.



We also recommend that the Under Secretary of Defense (Comptroller) 

direct the Charge Card Task Force to assess the above recommendations, 

and to the extent applicable, incorporate them into its recommendations 

to improve purchase card policies and procedures throughout DOD.



Agency Comments and Our Evaluation:



In written comments on a draft of this report, which are reprinted in 

appendix III, DOD concurred with our recommendations. Although 

concurring with our recommendation for an Army-wide standard operating 

procedure directing the implementation of specific internal control 

activities, DOD took exception to broad application of advance approval 

of purchases and independent receiving and acceptance of goods and 

services in an Army-wide standard operating procedure. DOD said that 

broad application of those activities would add costs to the process 

without a comparable reduction in risk. However, DOD recognized the 

applicability of these activities in some circumstances and commented 

that the Army standard operating procedure will (1) include a list of 

items requiring advance approval and (2) require advance approval for a 

category of items that fall outside the “common sense” rule.



We continue to believe that both advance approval and independent 

receiving are important internal control activities and have 

applicability to the Army purchase card program, including many 

micropurchases. We recognize that not all purchases require specific 

advance approval and some small dollar and other purchases may not lend 

themselves to documented independent receiving. Therefore, the Army-

wide standard operating procedure should (1) discuss the criteria for 

determining when these control activities are applicable and (2) 

articulate guidelines for implementing them.



As agreed with your offices, unless you announce its contents earlier, 

we will not distribute this report until 30 days from its date. At that 

time, we will send copies to interested congressional committees; the 

Secretary of Defense; the Under Secretary of Defense for Acquisition, 

Technology, and Logistics; the Under Secretary of Defense 

(Comptroller); the Secretary of the Army; the Assistant Secretary of 

the Army for Acquisition Logistics and Technology; the Deputy Assistant 

Secretary of the Army (Policy and Procurement); the Director of the 

Army Contracting Agency; the Director of the Defense Finance and 

Accounting Service; and the Director of the Office of Management and 

Budget. We will make copies available to others upon request.



Please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov,

Ronald D. Malfi at (202) 512-7420 or malfir@gao.gov, or David Childress 

at childressj@gao.gov if you or your staffs have any questions 

concerning this report. Major contributors to this report are 

acknowledged in appendix IV.



Gregory D. Kutz

Director

Financial Management and Assurance:



Signed by Gregory D. Kutz:



Ronald D. Malfi 

Acting Managing Director 

Office of Special Investigations:



Signed by Ronald D. Malfi:



[End of section]



Appendix I: Scope and Methodology:



We audited the adequacy of the Army’s internal control over 

authorization, purchasing, and payment of fiscal year 2001 purchase 

card transactions. The Army’s purchase card program is the largest of 

the services, with the most cardholders, transactions, and dollars 

spent. We are also performing audits of the other services and will 

report the results of those audits separately. For the Army, we 

performed work in the major commands that have the largest purchase 

card programs, accounting in fiscal year 2001 for about 66 percent of 

total Army purchases and about 62 percent of total Army transactions. 

We conducted detailed work at the following major commands and 

installations.



Table 11: Major Commands and Installations Audited:



Major command: Forces Command; Installation and location: Fort Hood; 

Killeen, Texas.



Major command: Material Command; Installation and location: Soldier, 

Biological Chemical Command - Natick; Natick, Massachusetts.



Major command: Training and Doctrine Command; Installation and 

location: Fort Benning; Columbus, Georgia.



Major command: Army National Guard; Installation and location: Texas 

Army National Guard; Austin, Texas.



Major command: Medical Command; Installation and location: Eisenhower 

Army Medical Center; Ft. Gordon, Augusta, Georgia.



Source: U.S. Army organizational tables. :



[End of table]



At the Army and major command levels we evaluated the policies and 

procedures used to guide the purchase card program, and we evaluated 

the activities they engage in to oversee the program. At the 

installation level, we used a case study approach to evaluate the local 

purchase card program, and our work there consisted of three major 

segments. We evaluated the overall control environment, including the 

adequacy of the Army’s policies and procedures. We evaluated the 

implementation of key internal control activities at the installations. 

Finally, we identified evidence of potentially fraudulent, improper, or 

abusive or questionable transactions at each audited installation and 

conducted limited follow-up.



To assess the control environment, we examined the installations’ 

policies and procedures and oversight activities. To assess their 

adequacy, we used as our primary criteria applicable laws and 

regulations; our Standards for Internal Control in the Federal 

Government (GAO/AIMD-00-21.3.1, November 1999); and our Internal 

Control Standards: Internal Control Management and Evaluation Tool 

(GAO-01-1008G, August 2001). To assess the management control 

environment, we applied the fundamental concepts and standards in our 

internal control standards to the practices followed by management.



To test the implementation of specific control activities at the five 

installations we audited, we selected a stratified random sample 

probability of 150 purchase card transactions from the population of 

transactions paid from October 1, 2000, through July 31, 2001, for each 

of the installations. With these statistically valid probability 

samples, each transaction in the five installations’ populations had a 

nonzero probability of being included, and that probability could be 

computed for any transaction. Within each installation we stratified 

the population of transactions by the dollar value of the transaction 

and by whether the transaction was likely to be for a purchase of 

computer-related equipment. Each sample transaction in an installation 

was subsequently weighted in the analysis to account statistically for 

all the transactions in the population of that installation, including 

those that were not selected.



For each transaction sampled, we tested whether key internal control 

activities had been performed. For each control activity tested, we 

projected an estimate of the percent of transactions for which the 

control activity was not performed, for each installation. Because we 

followed a probability procedure based on random selections of 

transactions, our sample for each installation is only one of a large 

number of samples that we might have drawn. Since each sample could 

have produced different estimates, we express our confidence in the 

precision of our particular samples’ results (that is, the sampling 

error) as 95 percent confidence intervals. These are intervals that 

would contain the actual population value for 95 percent of the samples 

we could have drawn. As a result, we are 95 percent confident that each 

of the confidence intervals in this report will include the true 

(unknown) values in the study populations.



Although we projected the results of our samples to the populations of 

transactions at the respective installations, the results cannot be 

projected to the population of Army transactions or installations.



For the sampled transactions that were for accountable items, we tested 

whether they had been recorded in the installation’s property book 

records and whether the installation could demonstrate the item’s 

existence. We did not project the results of this test because some 

transactions contained so many accountable items--as many as 500--that 

we elected to perform a nonstatistical analysis of the degree to which 

these items were recorded in property books.



In addition to our review of a statistical sample of transactions at 

the five audited installations, we also identified other selected 

transactions at the five locations and throughout the Army’s fiscal 

year 2001 purchase card transactions to determine if indications exist 

of potentially fraudulent, improper, and abusive or questionable 

transactions. Our data mining included identifying transactions with 

certain vendors that had a more likely chance of selling items that 

would be unauthorized or that would be personal items. For a small 

number of these transactions at each of the five installations and from 

the Army-wide database, we requested limited documentation, usually the 

supporting invoice, that could provide additional indications as to 

whether the transactions were potentially fraudulent, improper, and 

abusive or questionable. If the additional documentation indicated that 

the transactions were proper and valid, we did not further pursue 

documentation on those transactions. If the additional documentation 

was not provided or if it indicated further issues related to the 

transactions, we obtained and reviewed additional documentation or 

information about these transactions. While we identified some 

potentially fraudulent, improper, and abusive or questionable 

transactions, our work was not designed to identify, and we cannot 

determine, the extent of potentially fraudulent, improper, or abusive 

transactions. Because of the large number of transactions that met 

these criteria, we did not look at all potential abuses of the purchase 

card.



For those potentially fraudulent transactions that had been or were 

being investigated at the five audited installations, we discussed the 

cases with the investigators and/or obtained records and reports on the 

investigations. We also interviewed purchase card officials and Army 

criminal investigators to identify other Army purchase card fraud cases 

that had been or were being investigated.



We did not audit the Defense Finance and Accounting Service’s purchase 

card payment process. We also did not audit electronic data processing 

controls used in processing purchase card transactions. The 

installations received paper monthly bills containing the charges for 

their purchases and used manual processes for much of the period we 

audited, which reduced the importance of electronic data processing 

controls.



We briefed DOD managers, including officials in DOD’s Purchase Card 

Joint Program Management Office, major command purchase card program 

coordinators, and purchase card program officials at the installations 

we audited on the details of our review, including our objectives, 

scope, and methodology and our findings. Written comments on a draft of 

this report were received from the Acting Director of the Army 

Contracting Agency and have been reprinted in appendix III. We 

conducted our audit work from June 2001 through April 2002 in 

accordance with generally accepted government auditing standards, and 

we performed our investigative work in accordance with standards 

prescribed by the President’s Council on Integrity and Efficiency, as 

adapted for GAO’s work.



[End of section]



Appendix II: Overview of Army Purchase Card Program:



The Army’s purchase card program is part of the Governmentwide 

Commercial Purchase Card Program, which was established to streamline 

federal agency acquisition processes by providing a low-cost, efficient 

vehicle for obtaining goods and services directly from vendors. It was 

intended to shorten the time between need and acquisition while 

providing management with monthly reports and a thorough audit trail of 

all purchases. Under a General Services Administration blanket 

contract, the Army has contracted with U.S. Bank for its purchase card 

services. DOD reported that it used purchase cards for about 10.7 

million transactions, at a cost of over $6.1 billion, during fiscal 

year 2001. The Army’s reported purchase card activity totaled about 4.4 

million transactions, valued at 

$2.4 billion, during fiscal year 2001. This represented about 40 

percent of DOD’s activity for fiscal year 2001. The Army’s purchase 

card transactions were made with Visa cards issued to over 109,000 

civilian and military personnel.



Table 12: Number and Value of Army Transactions in Fiscal Year 2001:



Major command and location: Forces Command; Number of transactions: 

852,863; Cost of transactions: $438; Percent of total Army cost: 18.



Major command and location: Fort Hood; Number of transactions: 110,822; 

Cost of transactions: 58; Percent of total Army cost: [Empty].



Major command and location: Training and Doctrine Command; Number of 

transactions: 537,718; Cost of transactions: 267; Percent of total Army 

cost: 11.



Major command and location: Fort Benning; Number of transactions: 

44,421; Cost of transactions: 19; Percent of total Army cost: [Empty].



Major command and location: National Guard Bureau-Army; Number of 

transactions: 498,924; Cost of transactions: 180; Percent of total Army 

cost: 8.



Major command and location: Texas Army National Guard; Number of 

transactions: 20,306; Cost of transactions: 7; Percent of total Army 

cost: [Empty].



Major command and location: Medical Command; Number of transactions: 

443,134; Cost of transactions: 233; Percent of total Army cost: 10.



Major command and location: Eisenhower Medical Center, Fort Gordon; 

Number of transactions: 19,258; Cost of transactions: 9; Percent of 

total Army cost: [Empty].



Major command and location: Materiel Command; Number of transactions: 

408,217; Cost of transactions: 460; Percent of total Army cost: 19.



Major command and location: Soldier, Biological and Chemical Command; - 

Natick; Number of transactions: 16,480; Cost of transactions: 96; 

Percent of total Army cost: [Empty].



Major command and location: Other major commands; Number of 

transactions: 1,650,000; Cost of transactions: 822; Percent of total 

Army cost: 34.



Source: GAO analysis of Army purchase card program data.



[End of table]



DOD has mandated the use of the purchase card for all purchases at or 

below $2,500, and it has authorized the use of the card to pay for 

larger purchases. DOD has experienced significant growth in the program 

since its inception and now estimates that approximately 95 percent of 

its micropurchase transactions in fiscal year 2001 were made by 

purchase card.



Governmentwide Purchase Card Program Guidelines:



The purchase card can be used for both micropurchases and payment of 

other purchases. Although most cardholders have limits of $2,500, some 

have limits of $25,000 or higher. The Federal Acquisition Regulation, 

Part 13, “Simplified Acquisition Procedures,” establishes criteria for 

using purchase cards to place orders and make payments. DOD and the 

Army have supplements to this regulation that contain sections on 

simplified acquisition procedures. U.S. Treasury regulations govern 

purchase card payment certification, processing, and disbursement. 

DOD’s Purchase Card Joint Program Management Office, which is in the 

Office of the Assistant Secretary of the Army for Acquisition Logistics 

and Technology, has issued departmentwide guidance related to the use 

of purchase cards. However, each service has its own policies and 

procedures governing the purchase card program.



Army Purchase Card Acquisition and Payment Processes:



Within the Army, the overall management responsibility for the purchase 

card program is under the cognizance of the agency program coordinator 

within the Purchase Card Joint Program Management Office. However, the 

function of this agency program coordinator and the office is limited 

and most of the major management responsibility lies with the 

contracting offices in the major commands and contracting offices at 

the installations. At the installation, the program coordinator is 

responsible for administering and overseeing the purchase card program 

within his or her designated span of control and serving as the 

communication link between the Army unit and the purchase card-issuing 

bank. The other key personnel in the purchase card program are the 

approving officials and the cardholders. They are responsible for 

implementing internal controls to ensure that transactions are 

appropriate.



Purchase Card Process:



Figure 2 illustrates the general design of the purchase card processes 

for the Army. The overall process begins with the cardholder ordering 

or purchasing a good or service. It ends with payment of the bill by 

the Defense Finance and Accounting System.



Figure 2: Army Purchase Card Processes:



[See PDF for image]



Source: GAO analysis of Army purchase card program data.



[End of figure]



A purchase cardholder is the Army military service member or civilian 

employee who has been issued a purchase card that bears the 

cardholder’s name and the assigned account number. Before the card is 

issued, the cardholder is to receive training on purchase card policies 

and activities. Each cardholder has an established daily and monthly 

credit limit and is designated to make purchases at selected types of 

vendors. The cardholder is expected to safeguard the purchase card as 

if it were cash.



Purchase cardholders are delegated limited contracting officer-

ordering responsibilities, but they do not negotiate or manage 

contracts. Cardholders use purchase cards to order goods and services 

for their units as well as their customers. Cardholders may pick up 

items ordered directly from the vendor or request that items be shipped 

directly to receiving locations or end users.



The approving official is responsible for providing reasonable 

assurance that all purchases made by the cardholders within his or her 

cognizance were appropriate and that the charges are accurate. The 

approving official is supposed to resolve all questionable purchases 

with the cardholder before certifying the bill for payment. In the 

event an unauthorized purchase is detected, the approving official is 

supposed to notify the program coordinator and other appropriate 

personnel within the command in accordance with the command procedures. 

After reviewing the monthly statement, the approving official is to 

certify the monthly invoice and send it to the Defense Finance and 

Accounting Service for payment.



The purchase card payment process begins with receipt of the monthly 

purchase card billing statements from the bank. Section 933 of the 

National Defense Authorization Act for Fiscal Year 2000, Public Law 

106-65, requires DOD to issue regulations that ensure that purchase 

cardholders and each official with authority to authorize expenditures 

charged to the purchase card reconcile charges with receipts and other 

supporting documentation. Army memos and regulations provide that upon 

receipt of the individual cardholder statement, the cardholder is to 

reconcile the transactions appearing on the statement by verifying 

their accuracy to the transactions appearing on the statement and 

notify the approving official in writing of any discrepancies in the 

statement.



Before the credit card bill is paid the approving official is 

responsible for (1) providing reasonable assurance that all purchases 

made by the cardholders within his or her cognizance are appropriate 

and that the charges are accurate and (2) the timely certification of 

the monthly billing statement for payment by the Defense Finance and 

Accounting Service. The approving official must review and certify for 

payment the monthly billing statement, which is a summary invoice of 

all transactions of the cardholders under the approving official’s 

purview.



Upon receipt of the certified monthly purchase card summary statement, 

a Defense Finance and Accounting Service vendor payment clerk is to

(1) review the statement and supporting documents to confirm that the 

prompt-payment certification form has been properly completed and 

(2) subject it to automated and manual validations. The Defense Finance 

and Accounting Service effectively serves as a payment processing 

service and relies on the approving official certification of the 

monthly payment as support to make the payment. The Defense Finance and 

Accounting Service vendor payment system then batches all of the 

certified purchase card payments for that day and generates a tape for 

a single payment to U.S. Bank by electronic funds transfer.



[End of section]



Appendix III: Comments from the Department of Defense:



REPLY TO ATTENTION OF:



DEPARTMENT OF THE ARMY:



OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY ACQUISITION LOGISTICS AND 

TECHNOLOGY 103 ARMY PENTAGON WASHINGTON DC 20310-0103:



17 JUN 2002:



Mr. Gregory D. Kutz Director:



Financial Management and Assurance United States General Accounting 

Office Washington, D.C. 20548:



Dear Mr. Kutz:



As the Executive Agent for the Department of Defense Purchase Card 

Program, this is the Department’s response to the General Accounting 

Office (GAO) draft report “Purchase Cards Controls Weaknesses Leave 

Army Vulnerable to Fraud, Waste and Abuse” dated June 3, 2002 (GAO Code 

192024).



The Army concurs in each of the recommendations cited in the draft 

report with the exception of the recommendation that calls for the 

inclusion of pre-purchase approvals and independent receiving and 

acceptance of goods and services in an Army-wide purchase card standard 

operating procedure. Broad application of advance approval of micro 

purchases and independent receiving and acceptance will add costs to 

the process without a comparable reduction in risk.



The point of contact for this is Mr. Bruce E. Sullivan, Director, 

Purchase Card Joint Program Management Office, 703-681-7564, DSN 761-

681-7564, or e-mail:



Bruce. SuIlivan@saalt.army.mil.



Enclosed is a listing of your recommendations and the Army response.



Sincerely,



Mark J. Lumer:



Acting Director of the Army Contracting Agency:



Signed by Mark J. Lumer:



Enclosure:



GAO CODE 192024/ DRAFT GAO-02-732 PURCHASE CARDS CONTROLS WEAKNESSES 

LEAVE ARMY VULNERABLE FOR FRAUD, WASTE, AND ABUSE:



DEPARTMENT OF THE ARMY COMMENTS TO THE RECOMMENDATIONS:



Overall Program Management and Environment:



RECOMMENDATION: Address key control environment issues in Army-wide 

standard operating procedures. At a minimum, the following key issues 

should be included in the procedure:



-Controls over the issuance and assessment of ongoing need for cards,



-Cancellation of cards when a cardholder leaves the Army, is 

reassigned, or no longer has a valid need for the card,



-Span of control of the approving official, and - Appropriate 

cardholder spending limits.



ARMY Response: Concur; the Army’s Standard Operating Procedure is 

almost complete. The procedures include policy coverage on the above 

four issues. The Standard Operating Procedures will be published no 

later than 30 June 2002.



RECOMMENDATION: Help ensure that program coordinators and approving 

officials have the needed authority, including grade level, to serve as 

the first line of defense against purchase card fraud, waste, and abuse 

by issuing a policy directive that specifically addresses their 

positions, roles, and job descriptions. Policies should also be 

established that hold these officials accountable for their purchase 

card program duties through performance expectations and evaluations.



ARMY Response: Concur; the Army will issue policy directing Army 

Activities to ensure adequate resources (numbers and grade) are 

committed to the program, positions are adequately described, and that 

program official performance evaluations accurately portray adherence 

to program requirements. Guidance will be transmitted no later than 30 

June 2002.



RECOMMENDATION: Assess the adequacy of human capital resources devoted 

to the purchase card program, especially for oversight activities, at 

each management level, and provide needed resources.



ARMY Response: Concur; the Army will issue policy directing Army 

Activities to ensure adequate resources (numbers and grade) are 

committed to the program, positions are adequately described, and that 

program official performance evaluations accurately portray adherence 

to program requirements. Guidance will be transmitted no later than 30 

June 2002.



RECOMMENDATION: Develop and implement a program oversight system for 

program coordinators that includes standard activities and analytical 

tools to be used in evaluating program results.



ARMY Response: Concur; The Army’s Standard Operating Procedure will 

include checklists for program coordinators to use in performance of 

program reviews. In addition, the bank will be requested to develop 

C.A.R.E. queries that the program coordinators can use in evaluating 

program performance.



RECOMMENDATION: Develop performance measures and goals to assess the 

adequacy of internal control activities and the oversight program.



ARMY Response: Concur; In addition to performing quarterly span of 

control reviews and purges of inactive cards, the Army will analyze 

Army results of the DOD Data Mining effort to measure “health” of the 

program and to identify trends.



RECOMMENDATION: Require reviews of existing cardholders and their 

monthly spending limits to help ensure that only those individuals with 

valid continuing purchasing requirements possess cards and that the 

monthly spending limits are appropriate for the expected purchasing 

activity. These reviews should result in canceling unneeded cards Army-

wide and especially at Fort Hood where we found a significant problem.



ARMY Response: Concur; The Army issued a memorandum on May 22, 2002, 

which requested Heads of Contracting Activities to ensure cards are 

issued only to individuals with bonafide needs and that limits 

(cardholder or approving official) reflect actual needs and available 

funding. The Army will request the Army Audit Agency to verify that 

these actions have been accomplished.



Specific Internal Control Activities:



RECOMMENDATION: Direct the implementation of specific internal control 

activities for the purchase card program in an Army-wide standard 

operating procedure. While a wide range of diverse activities can 

contribute to a system that provides reasonable assurances that 

purchases are correct and proper, at a minimum the following activities 

should be included in the promulgated procedure:



-Advance approval of purchases, including blanket approval for routine, 

low dollar purchases,



-Independent receiving and acceptance of goods and services,



-Independent review by an approving official of the cardholder’s 

monthly statements and supporting documentation,



-Approving official reconciling the charges on the monthly statement 

with invoices and other supporting documentation and forwarding the 

reconciled statement to the designated disbursing office for payment as 

required by government-wide and DOD regulations, and:



-Cardholders obtain and retain invoices that support their purchases 

and provide the basis for reconciling cardholder statements.



ARMY Response: Concur; the development of the Army Standard Operating 

Procedure is almost complete. The procedures include policy coverage on 

the above five issues with the exception of independent receipt and 

acceptance. Broad application of advance approval of micro purchases 

and independent receiving and acceptance will add costs to the process 

without a comparable reduction in risk. The standard operating 

procedures will include the listing of prohibitive and advance approval 

items developed by the DOD Task Force Concept of Operations Subgroup.



RECOMMENDATION: Develop and implement procedures and checklists for 

approving officials to use in the monthly review of cardholders’ 

transactions. These procedures and checklists should specify the type 

and extent of review that is expected and the required review 

documentation.



ARMY Response: Concur; the Standard Operating Procedure will include 

procedures and checklists for approving officials to use in the monthly 

review of cardholders’ transactions.



RECOMMENDATION: Reiterate records retention policy for purchase card 

transaction files and require that compliance with record retention 

policy be assessed during the program coordinator’s annual review of 

each approving official.



ARMY Response: Concur; the Standard Operating Procedure will identify 

the retention policy and will also the include procedures and 

checklists for program coordinator’s annual review of each approving 

official.



RECOMMENDATION: Require the development and implementation of 

coordination and reporting procedures to help ensure that accountable 

property bought with the purchase card is brought under appropriate 

control.



ARMY Response: Concur; the checklists developed for approving official 

review of cardholders will include proper reporting of accountable 

property. Cardholders will be required to present hand receipts for 

items selected by the approving official for review that fall within 

the Department of the Army and Local Command accountable property 

definition.



Potentially Fraudulent. Improper. and Abusive and Questionable 

Purchases:



RECOMMENDATION: Require additional prior documented justification and 

approval of those planned purchases that are “questionable”-that fall 

outside the normal procurements of the cardholder in term of either 

dollar amount or type of purchase.



ARMY Response: Concur; The Army’s standard operating procedure will 

include the listing of advance approval items developed by the DOD Task 

Force Concept of Operations Subgroup. Additionally, a category of items 

falling outside the “common sense” rule will be developed which will 

require advance approval. The purchase of any item that would cause one 

to question the appropriate expenditure of taxpayers’ money will 

require advance approval.



RECOMMENDATION: Analyze the procurements of continuing requirements 

through micro purchases and require the use of appropriate contracting 

processes to help ensure that such purchases are acquired at best 

prices.



ARMY Response: Concur; The Army has historically stressed the 

importance of cardholders buying items that offer the best value and to 

take advantage of existing contract pricing such as offered in GSA 

Advantage! Contracting offices will be required to review installation 

purchases to determine if opportunities exist to establish 

requirements-type contracts.



RECOMMENDATION: Develop an Army-wide database on known fraud cases that 

can be used to identify potential deficiencies in existing internal 

control and to develop and implement additional control activities, if 

warranted or justified.



ARMY Response: Concur, in part; The DODIG has been directed to develop 

a centralized purchase card database on known fraud cases and audit 

results that can be used to identify potential deficiencies in existing 

internal controls. The Army will evaluate the Army cases and audits to 

determine the effectiveness of existing controls and make changes if 

additional internal controls are warranted.



RECOMMENDATION: Develop and implement an Army-wide data mining, 

analysis, and investigation function to supplement other oversight 

activities. This function should include providing oversight results 

and alerts to major command and installations when warranted.



ARMY Response: Concur, in part; The DOD has initiated a DOD data-mining 

program that will evaluate Army and other defense component card 

transactions. Development of an Army database will only duplicate those 

efforts. The Army will work closely with the DOD Data mining group to 

ensure Army activities are quickly alerted to identify transactions and 

effective actions are taken.



RECOMMENDATION: We also recommend that the Under Secretary of Defense

(Comptroller) direct the Charge Card Task Force to assess the above 

recommendations, and to the extent applicable, incorporate them into 

its recommendations to improve purchase card policies and procedures 

throughout DOD.



ARMY Response: The DOD Task Force has assessed the Army GAO findings to 

ensure the weaknesses uncovered were addressed in their evaluation and 

recommendations. Several of the Task Force recommendations were 

generated from information provided by the GAO during their audit of 

the Army’s program.





[End of section]



Appendix IV: GAO Contacts and Staff Acknowledgments:



GAO Contacts:



David Childress, (202) 512-4639

Ray B. Bush, (404) 679-1915

David Shoemaker, (404) 679-1867:



Acknowledgments:



Staff making key contributions to this report were Wendy Ahmed, 

William B. Bates, Bertram J. Berlin, James D. Berry, Jr., Johnny R. 

Bowen, Francine M. DelVecchio, Ronald M. Haun, James P. Haynes, 

Kenneth M. Hill, Fred Jimenez, Mitchell B. Karpman, Richard A. Larsen, 

Christie M. Mackie, Judy K. Pagano, John J. Ryan, and Sidney H. 

Schwartz.



FOOTNOTES:



[1] U.S. General Accounting Office, Purchase Cards: Control Weaknesses 

Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-01-995T 

(Washington, D.C.: July 30, 2001) and Purchase Cards: Continued Control 

Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-

506T (Washington, D.C.: Mar. 13, 2002).



[2] For this report, we limit the use of the term “fraudulent” to 

describe those instances in which someone has been convicted, or 

punished under the Uniform Code of Military Justice, of fraudulent 

activity. In all other circumstances we use the phrase “potentially 

fraudulent.”



[3] In our work, data mining involved the manual or electronic sorting 

of purchase card data to identify and select for further follow-up and 

analysis transactions with unusual or questionable characteristics.



[4] Approving officials are also referred to as either billing 

officials or certifying officials. These three terms are often used 

interchangeably.



[5] Memorandum from Director, Purchase Card Joint Program Management 

Office, to assistant secretaries of defense agencies. Subject: Internal 

and Management Controls - DOD Purchase Card Program (July 5, 2001).



[6] GAO-01-995T.



[7] GAO-01-995T.



[8] Memorandum from Director, Defense Procurement, Office of the Under 

Secretary of Defense, to directors of defense agencies. Subject: 

Government Purchase Card - Internal Controls (Aug. 13, 2001).



[9] Memorandum from Director, Purchase Card Joint Program Management 

Office, to agency program coordinators. Subject: Internal Controls 

(Feb. 1, 2002).



[10] Memorandum from Acting Deputy Assistant Secretary of the Army 

(Procurement), Office of the Assistant Secretary of the Army for 

Acquisition, Logistics and Technology, to the heads of defense 

contracting agencies. Subject: Management Controls - Army Purchase Card 

Program (Aug. 3, 2001).



[11] GAO-01-995T; U.S. General Accounting Office, Purchase Cards: 

Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse, 

GAO-02-32 (Washington, D.C.: 

Nov. 30, 2001); and GAO-02-506T.



[12] Memorandum from the Department of the Army, Office of the 

Assistant Secretary of the Army, Acquisition Logistics and Technology, 

Director, Purchase Card Joint Program Management Office. Subject: 

Internal and Management Controls - DOD Purchase Card Program (July. 5, 

2001).



[13] Department of Defense, Office of the Inspector General, Controls 

Over the DOD Purchase Card Program, D-2002-075 (Washington, D.C.: Mar. 

29, 2002).



[14] Memorandum from Acting Deputy Assistant Secretary of the Army 

(Procurement), Office of the Assistant Secretary of the Army for 

Acquisition, Logistics and Technology, to the heads of defense 

contracting agencies. Subject: Management Controls - Army Purchase Card 

Program (Aug. 3, 2001).



[15] Memorandum from Director, Purchase Card Joint Program Management 

Office, to agency program coordinators. Subject: Internal Controls 

(Feb. 1, 2001).



[16] Joint Report of the Purchase Card Financial Management Team and 

the Purchase Card Integrated Product Team to the Under Secretary of 

Defense (Acquisition and Technology) and the Under Secretary of Defense 

(Comptroller) (Washington, D.C.: Feb. 26, 1997).



[17] Memorandum from the Acting Deputy Assistant Secretary of the Army 

(Procurement), Office of the Assistant Secretary of the Army, 

Acquisition Logistics and Technology, to the heads of Army contracting 

offices. Subject: Management Controls - Army Purchase Card Program 

(Aug. 3, 2001).



[18] Section 4520 defines the approving official as an individual who 

(1) reviews cardholder statement(s), (2) is responsible for authorizing 

cardholder purchases, and (3) ensures that the statement is reconciled 

and submitted to the designated billing office on time.



[19] For example, the April 30 letter cites the Financial Management 

Regulation, volume 10, chapter 10, section 1203, which says that (1) 

cardholders are to reconcile each statement against supporting 

documentation and sign the statement and (2) approving officials are to 

reconcile the cardholders’ statement and sign the consolidated monthly 

bill.



[20] 63 Comptroller General Decisions 245, 247 (1984). In requesting 

the Comptroller General’s approval of the purchases, the agency 

represented that “the parkas would be labeled as [agency] property, 

centrally controlled, and issued and reissued to employees only for job 

requirements.”



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