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entitled 'FAA Purchase Cards: Weak Controls Resulted in Instances of 
Improper and Wasteful Purchases and Missing Assets' which was released 
on March 27, 2003.



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Report to the Chairman, Committee on Transportation and Infrastructure, 

House of Representatives		:



March 2003:



FAA PURCHASE CARDS:



Weak Controls Resulted in Instances of Improper and Wasteful Purchases 

and Missing Assets:



GAO-03-405:



GAO Highlights:



Highlights of GAO-03-405, a report to the Chairman, House Committee on 

Transportation and Infrastructure



Why GAO Did This Study:



In May 2002, GAO reported on breakdowns in purchasing controls at the 

Federal Aviation Administration’s (FAA) Alaskan Region that resulted in 

improper and wasteful purchases. Many of the weaknesses were associated 

with the use of government credit cards—referred to as purchase cards—

and raised concerns that similar problems might exist FAA-wide. As a 

result, GAO was asked to determine whether FAA’s purchase card controls 

reasonably ensured that purchases were proper, at a reasonable cost, 

and for valid government needs. GAO also assessed whether assets bought 

with purchase cards were being properly safeguarded and recorded. 



What GAO Found:

Weaknesses in FAA’s purchase card controls resulted in instances of 

improper, wasteful, and questionable purchases, as well as missing and 

stolen assets. These internal control weaknesses included inadequate 

segregation of duties, lax supervisory review and approval, missing 

purchase documentation, inadequate training, and insufficient program 

monitoring activities, all of which created an environment vulnerable 

to fraud, waste, and abuse.



These weaknesses contributed to the $5.4 million of improper purchases 

GAO identified. Among these were purchases that were split into two or 

more segments to circumvent single purchase limits. GAO also identified 

over $630,000 in purchases that were considered wasteful—that is, 

excessive in cost, for questionable government needs, or both—or were 

considered questionable because they were missing a receipt to show 

what was actually purchased. Some examples of these are shown in the 

table below.



[See PDF for image]



[End of table]



In addition, over half of the asset purchases—such as computers and 

other equipment—that GAO examined had not been recorded in FAA’s 

property system, increasing the risk of loss or theft. As a result, 

FAA could not locate or document the location of over a third of the 

692 items that GAO attempted to observe. These missing items totaled 

almost $300,000. In separate internal reviews, one FAA location 

identified over 800 items, totaling almost $2 million, that were lost 

or stolen in fiscal years 2001 through 2002. Given systemic weaknesses 

in FAA’s property controls, the actual amount of missing or stolen 

equipment FAA-wide could be much higher.



What GAO Recommends:



GAO is making a number of recommendations to strengthen FAA’s internal 

controls and compliance in its purchase card program, decrease wasteful 

purchases, and improve the accountability of assets in order to reduce 

vulnerability to improper and wasteful purchases. FAA emphasized its 

commitment to a sound purchase card program and highlighted a number of 

completed or ongoing actions to strengthen controls.



www.gao.gov/cgi-bin/getrpt?GAO-03-405.

To view the full report, including the scope and methodology, click on 

the link above. For more information, contact Linda Calbom at (202) 

512-9508 or calboml@gao.gov. 



[End of section]



Letter:



Results in Brief:



Background:



Scope and Methodology:



Internal Controls Were Lacking or Ineffective:



Noncompliance with Policies and Procedures Resulted in Some Improper 

Purchases:



Poor Controls Resulted in Some Wasteful and Questionable Purchases:



Poor Controls Contributed to Wasted or Missing Assets:



Conclusions:



Recommendations for Executive Action:



Agency Comments and Our Evaluation:



Appendixes:



Appendix I: Comments from the Department of Transportation:



Appendix II: Staff Acknowledgments:



Acknowledgments:



Tables:



Table 1: Transactions Not in Compliance with Purchasing Requirements:



Table 2: Transactions Identified as Wasteful or Questionable:



Table 3: Examples of Transactions Where Invoice Documentation Was 

Missing:



Abbreviations:



AMS: Acquisition Management System:



APC: Agency Program Coordinator:



DOT: Department of Transportation:



EAGLS: Electronic Account Government Ledger System:



FAA: Federal Aviation Administration:



GSA: General Services Administration:



JWOD: Javits-Wagner-O’Day:



OIG: Office of Inspector General:



OMB: Office of Management and Budget:



PDA: Personal Digital Assistants:



PPIMS: Personal Property In-use Management System:



UNICOR: Federal Prison Industries, Inc.



 :



Letter March 21, 2003:



The Honorable Don Young

Chairman 

Committee on Transportation and Infrastructure

House of Representatives:



Dear Mr. Chairman:



The use of purchase cards in the federal government has dramatically 

increased in past years as agencies have sought to eliminate the 

bureaucracy and paperwork long associated with making small purchases. 

The benefits of using purchase cards are lower costs and less red tape 

for both the government and the vendor community. However, given the 

nature, scale, and increasing use of purchase cards, it is important 

for agencies to have adequate internal controls in place to help ensure 

proper use of purchase cards and thus to protect the government from 

waste, fraud, and abuse.



In September 2001, the Department of Transportation’s (DOT) Office of 

Inspector General (OIG) issued a report on the results of its audit of 

DOT’s government purchase card program.[Footnote 1] That review 

examined 785 fiscal year 2000 purchase card and convenience check 

transactions made by 9 of DOT’s 11 operating administrations.[Footnote 

2] Based on its review of this limited sample of transactions, the OIG 

reported that purchases were reasonable, valid, and received. However, 

the OIG also noted that within the Federal Aviation Administration 

(FAA), internal controls were weak concerning verification of 

purchases, splitting purchases to avoid purchase card limits, and 

performing reviews of purchase card usage. Subsequently, we reviewed 

purchasing controls and activities--including those involving the use 

of purchase cards--within the Airway Facilities Division at FAA’s 

Alaskan Region and found similar internal control weaknesses.[Footnote 

3] These included an inadequate supervisory review and approval 

process, an inadequate segregation of duties, and a lack of oversight 

of spending that allowed improper and wasteful expenditures to occur.



Given these results, you requested that we conduct an in-depth audit of 

FAA’s purchase card and convenience check transactions for fiscal year 

2001 to determine the validity of purchase card and convenience check 

usage.[Footnote 4] Consequently, we designed our review to determine if 

FAA’s 

(1) internal controls provided reasonable assurance that improper 

purchase card and convenience check purchases would not occur or would 

be detected in the normal course of business, (2) purchase card and 

convenience check expenditures were made in accordance with established 

policies and procedures, (3) purchases were made for reasonable costs 

and valid government needs, and (4) controls over purchase card and 

convenience check asset acquisitions were adequate to properly record 

and safeguard assets.



Results in Brief:



Significant internal control weaknesses in FAA’s purchase card program 

made the agency vulnerable to and in some cases resulted in improper, 

wasteful, and questionable purchases, as well as missing assets. These 

weaknesses included inadequate segregation of duties over purchases; 

lax supervisory review and approval of purchases; lack of required 

documentation for purchases; inadequate training for cardholders, 

approving officials, and agency program coordinators; and a lack of or 

inadequate monitoring activities. For example, we found instances where 

supervisors had approved payment of transactions even though key 

documentation to support the purchases was missing. Despite prior audit 

reports dating back to 1997 communicating some of these weaknesses, we 

found the same weaknesses continued during our review, which covered 

fiscal year 2001. Because of these internal control breakdowns, FAA did 

not have reasonable assurance that improper purchases would be 

prevented or detected in the normal course of business.



The lack of adequate internal controls and monitoring of the program 

created an environment in which improper purchases--meaning those that 

violated law, regulation, or FAA policy--could be made with little risk 

of detection. Inadequate controls over expenditures, combined with the 

inherent risk of fraud and abuse associated with the purchase cards, 

resulted in improper purchases totaling $5.4 million. This included 997 

transactions totaling $5.1 million associated with purchases that had 

been split into two or more segments to avoid the cardholder’s single 

purchase limit. We also found 54 instances of unauthorized purchase 

actions, whereby someone other than the cardholder had made the 

purchase.[Footnote 5] For example, at the direction of one cardholder’s 

supervisor, other staff in the office used the cardholder’s purchase 

card number to make 21 purchases of computer and office equipment 

totaling over $149,000. Although these types of policy violations are 

subject to disciplinary action, we generally found that action had not 

been taken against the cardholders or approving officials. Failure to 

comply with applicable policies and procedures lessens FAA’s ability to 

ensure that funds are being properly obligated and spent.



The inadequacy and ineffectiveness of internal controls was also 

evident in 114 purchase transactions totaling $222,602 that we 

considered wasteful because they were excessive in cost, for 

questionable government need, or both. For example, we identified 25 

purchases for 123 personal digital assistants (PDA) that ranged in cost 

from $100 to $558 each, and accessories such as six high-cost leather 

PDA cases purchased from the Coach store totaling $717. In addition, we 

identified almost $17,000 paid to Internet service providers such as 

America Online for individual FAA employees, despite the fact that FAA 

provides Internet access for all staff. We also found 162 transactions 

totaling $407,356 that we considered questionable, such as purchases 

from BestBuy.com totaling $2,440 and Ashford.com (a jewelry Web site) 

for $78. While such merchandise could easily have been for personal use 

and not for official government use, missing documentation prevented us 

and other reviewers from determining the reasonableness and validity of 

these purchases. While the $6.1 million of improper, wasteful, and 

questionable purchase card and convenience check purchases we 

identified is relatively small compared to the over 

$150 million in total annual purchase card and convenience check 

activity, it demonstrates vulnerabilities from weak controls that could 

easily be exploited to a greater extent. In addition, because we only 

tested a small portion of the transactions we identified that appeared 

to have a higher risk of fraud, waste, or abuse, there may be other 

improper, wasteful, and questionable purchases in the remaining 

untested transactions.



Inadequate internal controls over computers and other property acquired 

with the purchase card contributed to unrecorded and missing equipment. 

Specifically, from our detailed testing of transactions, we found that 

FAA had not recorded 262 asset-related transactions totaling $4.1 

million in its property management system. In addition, during our 

unannounced physical inventory, we identified 238 items, totaling 

$287,766, that FAA could not locate. Of these, 202 items were missing, 

and FAA reported that the remaining 36 items had been transferred to 

other FAA locations or returned for repair or replacement, but could 

not provide documentation to support these claims. In addition to the 

items we found missing, we noted that at one FAA location, the property 

management division identified 405 items totaling over $900,000 that 

were lost or stolen in fiscal year 2001 and another 437 items totaling 

over $1 million that were lost or stolen in fiscal year 2002. These 

lost or stolen items were primarily identified through physical 

inventory counts performed during those years. We also noted poor 

physical controls over FAA’s computer-related assets. Given the 

systemic weaknesses we identified in FAA’s property controls, the 

actual amount of missing or stolen equipment agencywide could be much 

higher. Decentralized procedures for receiving property acquisitions, 

inadequate safeguarding of assets, and inconsistent recording of those 

assets in FAA’s property management system created an environment in 

which assets could be easily lost or stolen without detection.



Management’s commitment to addressing and correcting these problems is 

necessary to reduce FAA’s vulnerability to improper and wasteful 

expenditures and lost or stolen assets. We are making a number of 

recommendations that, if properly implemented, will improve internal 

controls over FAA’s purchase card and convenience check program to help 

ensure that improper and wasteful purchases are prevented or detected 

in the future and vulnerable assets are better accounted for and 

protected. In its comments on a draft of this report, DOT described 

several actions completed or under way to address our recommendations 

and expressed its commitment to running a sound purchase card program 

in compliance with applicable requirements.



Background:



The General Services Administration (GSA) administers the federal 

government’s credit card program. GSA contracts with commercial banks 

to issue credit cards to federal employees to make official government 

purchases. FAA’s purchase cards[Footnote 6] are issued by Bank of 

America. The FAA purchase card, unless otherwise prohibited, is 

intended to be the primary purchasing method when vendors accept 

purchase cards as payment. This payment method is intended to 

streamline procurement and payment procedures and reduce administrative 

burden by reducing the number of procurement requests, purchase orders, 

and vendor payments issued. FAA’s purchase card program also includes 

the use of convenience checks to pay vendors that do not accept credit 

cards. In fiscal year 2001, FAA made over 364,000 purchases using 

purchase cards and convenience checks totaling $151 million. This 

reflects a significant increase over the prior fiscal year, when FAA 

made a total of 271,000 purchase card and convenience check purchases 

(a 34 percent increase) totaling $126 million (a 20 percent increase).



The Department of Transportation and Related Agencies Appropriations 

Act of 1996 exempted FAA from the Federal Acquisition Regulation and 

other provisions of acquisition law, and directed the FAA Administrator 

to develop and implement FAA’s own acquisition system. The resulting 

system, called the FAA Acquisition Management System (AMS), took effect 

April 1, 1996. AMS establishes policy for all aspects of the 

acquisition life cycle. It was intended to simplify acquisition 

management into a system providing more timely and cost-effective 

acquisition of equipment and materials. Although FAA is exempted from 

certain federal acquisition requirements, many of these requirements 

have been incorporated into FAA’s policies.



FAA also established the FAA Acquisition System Toolset that 

supplements AMS by providing additional acquisition policy and 

guidance, such as the Commercial and Simplified Purchase Method 

guidance, which provides guidance on purchase cards and convenience 

checks.[Footnote 7] Within this guidance, FAA delegates to each 

acquisition office within a region or center, or within headquarters 

the responsibility of managing its own purchase card program and 

establishing its own internal processes for issuing purchase cards and 

monitoring the program. In addition, FAA’s internal Purchase Card/Check 

User Guide assists cardholders and approving officials in carrying out 

their responsibilities.



GSA and Bank of America also provide purchase card guidance and GSA 

provides training that is available to cardholders, approving 

officials, and program coordinators. For example, GSA’s Blueprint For 

Success: Purchase Card Oversight was prepared by a working group of 

agency program coordinators (APC) and provides general program guidance 

to APCs in performing their responsibilities. Beginning in fiscal year 

2003, GSA made available to APCs a Web-based on-line training course 

covering such topics as APC responsibilities, reporting tools, and 

preventive measures to use in monitoring the purchase card program.



APCs are generally responsible for setting up and maintaining all 

accounts, developing internal program guidelines and procedures, 

ensuring that cardholders and approving officials receive proper 

training, and monitoring for fraud and misuse. Each agency must 

designate an APC to function as the agency’s primary liaison to the 

contract bank and to GSA. FAA’s operating guidance also requires the 

chief of the contracting office within each region or center and within 

headquarters to delegate a person or persons to act as the APC for that 

location. As a result, FAA has a different APC at each of its 12 major 

locations,[Footnote 8] with the headquarters APC designated agencywide 

responsibility for the program.



Cardholders are responsible for understanding and complying with 

purchasing policies and procedures, maintaining records and receipts of 

all purchases, reconciling their purchases to their monthly statements, 

and preparing and submitting required property management forms for 

assets purchased. Each cardholder’s designated approving official--

which is normally the next level supervisor--is responsible for 

reviewing the cardholder’s transactions to assure they are properly 

documented, comply with purchasing policies, and are necessary for 

accomplishing the mission of the agency. Approving officials are also 

responsible for reporting fraudulent or improper use of the card. As of 

January 2002, 8,534 out of 51,062 (17 percent) FAA employees had 

commercial purchase cards, most of which had a single purchase limit 

between $2,500 and $10,000 and a monthly purchase limit between $5,000 

and $120,000. Each convenience check issued is not to exceed $2,500.



Other key roles affecting purchases include the accounting 

certification officer (also known as the funds certification officer), 

and the property custodian. FAA’s procurement guidance specifies that, 

prior to purchase, the program office funds certification officer shall 

determine whether the expenditure is authorized by the appropriation 

and provide either a written certification that adequate funds are 

available or condition the purchase upon availability of funds. 

Property custodians are responsible for reviewing and processing source 

documents for the receipt, transfer, or disposal of accountable 

property[Footnote 9] in their assigned custodial areas, conducting 

physical inventories, and ensuring that property is adequately 

safeguarded.



In September 2001, DOT’s OIG issued a report on the results of its 

audit of DOT’s purchase card program.[Footnote 10] The OIG examined a 

total of 785 purchase card and convenience check transactions totaling 

$1.2 million made by FAA, the U.S. Coast Guard, and seven other DOT 

operating administrations. Based on this limited sample, the OIG 

reported that generally, purchases were reasonable, valid, and 

received. However, it also reported that (1) approving officials were 

not verifying that purchases were authorized, (2) cardholders were 

splitting single purchases into multiple transactions to avoid purchase 

card limits, and (3) FAA was not conducting periodic follow-up reviews 

of purchase card usage. The OIG also found instances of purchase card 

fraud and violations of DOT policies and internal control procedures. 

These results were similar to those found during the OIG’s previous 

review of DOT’s purchase card program. In November 1997, the OIG 

reported that approving officials were not performing required reviews 

of documentation, cardholders were splitting purchases, and periodic 

follow-up reviews were not being conducted.[Footnote 11] It recommended 

at that time that DOT reemphasize the requirement for approving 

officials to review supporting documentation for cardholder purchases 

and provide guidance for conducting periodic follow-up reviews. The OIG 

indicated in these reports that DOT and FAA actions taken and planned 

to address the recommendations sufficiently addressed the 

recommendations made. However, based on our findings the corrective 

actions taken were not fully effective.



In May 2002, we issued a report on the results of our review of 

purchasing controls and activities within the Airway Facilities 

Division at FAA’s Alaskan Region.[Footnote 12] This was the only unit 

in FAA to implement a pilot program, called the Corporate Maintenance 

Philosophy, from 1997 to 2001. Due to controversy surrounding this 

program, including allegations of inappropriate spending, we reviewed 

this unit’s internal controls and selected expenditures. With respect 

to its purchase card program, we found:



* inadequacies in the segregation of purchasing duties, the supervisory 

review and approval process, and the tracking of accountable property 

and award inventories;



* improper purchases, such as purchases that were split to circumvent 

purchase limits, restricted items that were purchased without required 

approvals, and items that were not bought from required vendors and 

lacked the necessary waivers to do so;



* purchases of expensive items such as flat panel computer monitors 

costing over $3,000 each and PDAs ranging from $300 to over $500 each; 

and:



* a decentralized operating environment and a lack of training that 

contributed to these weaknesses.



Our report resulted in 18 recommendations to FAA to address these 

issues. In its response to this report, FAA agreed with the 

recommendations and indicated it had initiated action to address all of 

the issues.



Scope and Methodology:



The scope of our review included FAA headquarters, FAA’s two centers, 

and eight of its nine regional offices.[Footnote 13] We conducted site 

visits to six of these locations. To obtain an understanding of FAA’s 

purchase card and convenience check policies and procedures, the 

related internal controls, and policies and controls over assets 

purchased, we:



* reviewed FAA’s AMS policy, procurement guidance, purchase card/check 

user guide, property management policies, and local operating 

procedures over the purchase card program, and:



* conducted walkthroughs and structured telephone interviews with FAA 

management and staff to identify key purchase card, convenience check, 

and accountable property policies, procedures, and initiatives.



To assess the adequacy of internal controls, we used our Standards for 

Internal Control in the Federal Government,[Footnote 14] Internal 

Control Management and Evaluation Tool,[Footnote 15] Guide for 

Evaluating and Testing Controls Over Sensitive Payments,[Footnote 16] 

and Strategies to Manage Improper Payments.[Footnote 17]



To test internal controls over transactions and determine whether 

expenditures were made in compliance with policies and procedures, were 

reasonable, and had a valid government need, we selected transactions 

using three different methods. For each method of selection, we 

provided FAA with the transactions selected and obtained and reviewed 

related supporting documentation. The three methods are as follows.



* Data mining.[Footnote 18] We performed data mining on Bank of 

America’s database of FAA’s fiscal year 2001 purchase card and 

convenience check transactions for indicators of potential 

noncompliance with established policies and procedures. Specifically, 

we looked for purchases that exceeded cardholder or convenience check 

spending limits, split purchases, cardholders with multiple purchase 

cards, former employees who had active purchase card accounts after 

their separation dates, cardholders who were payees on convenience 

checks, and cash advances. We forwarded the results of all transactions 

that met specific criteria to the cognizant APCs for their responses 

and related documentation, which we used to assess whether in fact 

these were violations of policy.



* Statistical sampling. We selected a stratified random (statistical) 

sample of 333 transactions totaling $4.2 million from the population of 

transactions paid from October 1, 2000, through September 30, 2001, to 

test specific control activities, such as segregation of duties, 

evidence of approving official review and approval, and adequacy of 

supporting documentation; whether the purchases complied with 

purchasing policies; and whether the purchases appeared reasonable and 

had a valid government need. Results from the statistical sample were 

projected to the population[Footnote 19] of FAA purchase card and 

convenience check transactions for fiscal year 2001.



* Nonstatistical sampling. We also selected transactions on a 

nonstatistical basis to allow us to identify transactions that appeared 

to have a higher risk of fraud, waste, or abuse, although the results 

cannot be projected to the overall population of purchases. To select 

these transactions, we first performed data mining on fiscal year 2001 

transactions to identify purchases from certain vendors that would more 

likely be selling unauthorized or personal use items; purchases made on 

the weekends, during holidays, or at fiscal year-end; and purchases of 

sensitive assets. This resulted in tens of thousands of transactions 

identified, from which we then selected 1,874 transactions totaling 

$7.9 million to test whether these purchases were made at excessive 

cost and/or for questionable government needs, and whether they 

complied with select purchasing policies and procedures.



To determine if controls over purchase card and convenience check 

equipment acquisitions were adequate to properly record and safeguard 

assets, we did the following.



* Reviewed policies and procedures over the management and control of 

accountable property and sensitive items.[Footnote 20]



* Tested accountable property selected in the statistical and 

nonstatistical samples to determine whether these assets had been 

entered into FAA’s property management system prior to our review.



* Selected 81 transactions for equipment purchases made by four FAA 

locations to conduct an unannounced inventory of desktop computers, 

laptops, and other sensitive items that were purchased with government 

purchase cards or convenience checks.



While we identified some improper purchases, our work was not designed 

to identify all fraudulent or otherwise improper purchases made by FAA. 

We conducted our review from January through December 2002 in 

accordance with generally accepted government auditing standards. We 

requested written comments on a draft of this report from the Secretary 

of Transportation or his designee. Written comments were received from 

the department’s Assistant Secretary for Administration and are 

reprinted in appendix I.



Internal Controls Were Lacking or Ineffective:



FAA’s internal controls did not provide reasonable assurance that 

improper purchase card and convenience check purchases would not occur 

or would be detected in the normal course of business. Internal 

controls serve as the first line of defense in safeguarding assets and 

in preventing and detecting fraud, waste, and abuse. Our Standards for 

Internal Control in the Federal Government requires that (1) key duties 

and responsibilities be divided or segregated among different people to 

reduce the risk of error or fraud, (2) transactions and other 

significant events be authorized and executed only by persons acting 

within the scope of their authority, (3) all transactions and other 

significant events be clearly documented, and the documentation be 

readily available for examination, (4) management ensure that its 

workforce has the required skills necessary to achieve organizational 

goals, and (5) internal control monitoring be performed to assess the 

quality of performance over time and ensure that audit findings are 

promptly resolved. We found that FAA lacked these key internal controls 

or had not adequately implemented them, increasing the risk that 

improper purchases could occur.



Segregation of Purchasing Duties Was Inadequate:



We identified limited segregation of duties during our detailed tests 

of transactions. From the statistical sample of 333 purchase card and 

convenience check transactions, 93 lacked evidence of adequate 

segregation of duties. Based on the results of our review of these 

transactions, we estimate that $44 million[Footnote 21] of the total 

sampled population of purchase card and convenience check transactions 

lacked adequate segregation of duties. What we found most often was 

that the cardholder requested the purchase, placed the order, and 

picked up or received the acquired goods without any other review or 

approval. Although 68 of the 93 transactions had evidence of the 

approving official’s review and approval, we determined that adequate 

segregation of duties did not exist because the cardholder had 

performed a majority of the purchasing duties with little if any 

oversight.



For example, we noted an instance where an employee at one location 

served as the funds certification officer, approving official, and 

property custodian for purchases in her area. Consequently, she 

certified that funds were available for purchases; reviewed and 

approved purchases made by cardholders under her supervision; and 

accounted for, recorded, and maintained property inventory records for 

assets purchased. We also found that 7 of FAA’s 12 APCs and 4 

alternates were also cardholders. One of these APCs also served as an 

approving official. Because APCs are responsible for monitoring 

cardholders’ and approving officials’ activities for indications of 

potential fraud, waste, and abuse, these APCs were essentially 

monitoring their own activities. In fact, the cardholder with the 

largest dollar volume of charges in FAA during fiscal year 2001, 

totaling $4 million, was an APC.



Several factors contributed to these segregation of duties weaknesses. 

From our discussions with several APCs, we noted that generally, 

segregation of duties was not an area of focus in the training for 

cardholders and approving officials. We also were told that certain 

field offices may not be able to adequately segregate purchasing duties 

because of the small number of employees located at those sites. In 

addition, we found that FAA’s operating guidance did not specify how 

purchasing duties should be separated. Although the guidance describes 

key duties and responsibilities involved in the purchasing process, it 

generally does not specify that these key duties and responsibilities 

be segregated among different people. For example, the guidance states 

that an approving official is normally the cardholder’s immediate 

supervisor. However, the guidance does not require other key roles, 

such as the funds certification officer and the property custodian, to 

be filled by someone other than the cardholder and the approving 

official. Lacking appropriate segregation, FAA cannot ensure that 

purchases are appropriate, have been duly authorized, and comply with 

purchase requirements.



Supervisory Review and Approval Process Was Inadequate:



Because the only segregation of duties required by FAA policy is 

between the purchaser and approving official for a particular 

transaction, the approving official often may be the only party aside 

from the purchaser who reviews the transaction. Consequently, the 

approving official’s review is a critical internal control for ensuring 

that purchases are appropriate and comply with FAA requirements. 

However, we found FAA’s supervisory review and approval process was 

inadequate for ensuring that purchases were proper. Specifically, we 

found numerous transactions that did not have evidence of supervisory 

approval, had been approved even though they were missing key 

documents, did not comply with one or more purchasing policies or 

procedures, or were wasteful purchases. We also identified duplicate 

charges that had not been promptly disputed with the bank to ensure 

that they were removed from accounts and refunded to FAA.



Review of transactions by persons in authority is the principle means 

of assuring that transactions are valid. Although FAA requires that 

approving officials review and approve cardholders’ purchases, this was 

not consistently done. For example, of the 333 purchase card and 

convenience check transactions in the statistical sample, 52 

transactions lacked evidence of approving official review. Based on the 

results of our review of these transactions, we estimate that $27 

million[Footnote 22] of the total sampled population of purchase card 

and convenience check transactions lacked evidence of approving 

official review. We also nonstatistically selected 1,874 transactions 

from fiscal year 2001 that appeared to have a higher susceptibility to 

fraud, waste, and abuse, and found that 419 of these transactions (22 

percent) also lacked evidence of supervisory review. Because the 

approving official review is the first, and sometimes only, line of 

defense for detecting improper transactions, it is critical that 

approving officials perform and document adequate, timely reviews.



The number of purchase transactions that had been approved even though 

they were missing key documents further illustrates FAA’s inadequate 

supervisory review and approval. Specifically, from our statistical and 

nonstatistical samples, we noted 155 transactions totaling $402,439 

were missing key purchase documents such as a credit card slip or 

invoice, yet approving officials still approved 66 of these 

purchases.[Footnote 23] Missing invoice documentation raises questions 

about the adequacy of the approving official’s review, since without 

such documentation, it can be difficult to determine what was purchased 

based on the cardholder’s monthly credit card statement alone. For 

example, we identified a $1,240 transaction at Sears, Roebuck and Co. 

that the cardholder claimed was used to purchase a refrigerator. 

However, the monthly billing statement only indicated where the 

purchase was made, and did not contain a description of what was 

purchased. Without a credit card receipt or invoice, we could not 

verify what was purchased or whether it was being used for government 

purposes. As noted later in this report, we also found that cardholders 

throughout the agency made numerous improper purchases (i.e., purchases 

that did not comply with one or more purchasing policies or procedures) 

and wasteful purchases (i.e., purchases that were excessive in cost or 

for questionable government needs) that nevertheless were approved.



Without documented approval and a thorough review of all supporting 

documentation by approving officials, there is no assurance that items 

purchased comply with purchasing requirements and have a legitimate 

government purpose. For example, in fiscal year 2001 a former FAA 

employee was convicted of illegally making over $58,000 in personal 

charges with his government purchase card over at least a 9-month 

period, including numerous purchases made at various auto specialty 

businesses and a custom auto body shop. We could not determine from the 

case documentation provided to us whether the cardholder’s supervisor 

approved any of these purchases. However, had the approving official 

timely and thoroughly reviewed the credit card statements and 

supporting documentation for each transaction, he could have identified 

numerous improper purchases at vendors such as Commercial Van 

Interiors, Exclusive Window Tint, The Custom Shop, and Fairway 

Chevrolet on the government purchase card. In another case, a 

cardholder made six cash advances totaling $1,800 that occurred over 

four monthly billing cycles. File documentation contained a copy of one 

of the cardholder’s bank statements from that period. Although cash 

advances are prohibited, the authorizing official approved this 

statement even though the charges on that statement included three cash 

advances. In addition, the cash advances were made at two gambling 

establishments, including one called the Normandie Club, which should 

have raised at least some suspicions on the part of the approving 

official in reviewing the cardholder’s statement.[Footnote 24] These 

violations were not identified by the approving official, but were 

identified by the accounting department. The cardholder was reprimanded 

and the account was closed. However, FAA officials informed us that 

because the cardholder repaid the cash advances, no further 

disciplinary actions were taken against the cardholder. In addition, no 

disciplinary actions were taken against the approving officials in 

either case, despite the fact that approving officials are responsible 

for reviewing all transactions against supporting documentation and 

reporting potential fraud and abuse by cardholders.



We also noted that three transactions totaling $3,712 were charged 

twice to cardholders’ accounts and had not been credited at the time of 

our review. Bank of America only allows a cardholder 60 days from the 

time a disputed transaction first appears on a cardholder’s monthly 

credit card statement to submit a written dispute form to the bank, but 

the cardholders in these three cases did not do so. In each case, the 

cardholders initiated verbal inquiries to the vendor or to Bank of 

America regarding the duplicate charges, but did not follow through 

with written dispute forms as required. In addition, approving 

officials did not perform timely follow up with the cardholders to 

ensure that the written dispute forms were submitted promptly. 

Therefore, these erroneous charges were not credited back to the 

cardholders’ accounts, and FAA was not reimbursed for the duplicate 

payments made to the bank.



One factor that might contribute to FAA’s inadequate supervisory review 

is that, in certain instances, there was a high ratio of cardholders to 

approving officials. Having a manageable number of cardholders is 

essential for approving officials to be able to conduct timely, 

thorough reviews of transactions to help facilitate detection of 

possible purchase card misuse and fraud. Although there is no 

definitive requirement, GSA’s Blueprint for Success: Purchase Card 

Oversight indicates that most approving officials are assigned from 4 

to 10 cardholders each. However, we found that 228 of FAA’s 1,741 

approving officials, or 13 percent, were assigned from 11 to 47 

cardholders each.[Footnote 25] FAA’s operating guidance does not 

address the number of cardholders that would be appropriate to enable 

approving officials to adequately perform their supervisory 

responsibilities. However, approving officials who have more 

cardholders than they can effectively supervise are less likely to 

adequately perform their responsibilities in a timely manner.



Some Purchases Lacked Key Documentation:



We found that some of FAA’s purchase card transactions lacked key 

supporting documentation. FAA’s procurement guidance requires that all 

purchase transactions made by a cardholder must be supported by a 

certification of funds availability and an invoice or credit card slip. 

Furthermore, FAA Order 1350.15B, Records Organization, Transfer, and 

Destruction Standards, requires that acquisition records for purchases 

of $25,000 or less be maintained for 3 years after final payment. 

Acquisition records for purchases exceeding $25,000 should be 

maintained for 6 years and 3 months after final receipt of goods or 

services.



Of the 333 transactions tested in the statistical sample, we found 18 

instances where FAA lacked an invoice, credit card slip, or other store 

receipt. Based on these results, we estimate that $8 million[Footnote 

26] of the total fiscal year 2001 purchase card and convenience check 

transactions lacked key supporting documentation. Similarly, our review 

of 1,874 nonstatistically selected transactions identified 131 

transactions 

(7 percent) totaling $356,487 that were missing such key purchase 

documents.[Footnote 27] In some instances, cardholders or FAA employees 

indicated that the invoice had been lost, shredded, or not retained 

when the cardholder retired or separated from FAA. However, we also 

found instances where no explanation was provided as to why cardholders 

could not submit supporting documentation as of the end of our 

fieldwork. The invoice is the basic document that cardholders are 

required to attach to their monthly statements for approving official 

review. Without such documentation, FAA does not have any independent 

evidence of the description and quantity of what was purchased and the 

price paid. Therefore, it cannot determine whether the purchase was 

appropriate.



Although the percentage of missing invoices was lower than the 

exceptions for other internal control activities we tested, we believe 

it is still unacceptable for such a key document. A valid invoice to 

show what was purchased and the price paid is a basic document for 

these transactions, and a missing invoice could be an indicator of 

potential fraud. A near zero failure rate is a reasonable goal 

considering that invoices are easily obtained or replaced when 

inadvertently lost.



We also identified 178 instances in the statistical sample where FAA 

lacked a written certification from the responsible fiscal authority 

that funds were available to make the specific purchase. Based on the 

results of our review of these transactions, we estimate that $84 

million[Footnote 28] of the total sampled population of purchase card 

and convenience check transactions lacked a written certification that 

adequate funds were available. FAA requires this documentation to help 

ensure compliance with the Anti-Deficiency Act (31 U.S.C. 1341) and 

other fiscal laws that require that specific expenditures be authorized 

under the particular appropriation to be charged, and that funds are 

available in the appropriation for the expenditure.



Training Was Inadequate to Perform Key Functions:



With the many purchase requirements that cardholders, approving 

officials, and APCs must follow, adequate training is essential for 

them to perform their duties effectively. However, we found that FAA 

had not provided adequate training for these key purchase card program 

participants. Our Standards for Internal Control in the Federal 

Government states that training should be aimed at developing and 

retaining employee skill levels to meet changing organizational needs. 

FAA’s purchase card procurement guidance requires APCs to ensure that 

both cardholders and approving officials receive proper training on the 

policies and procedures for use of the card. However, it does not 

specify how frequently such training must be provided. Although APCs 

are required to provide initial training to cardholders and approving 

officials, they are not required to provide any refresher training on 

an ongoing basis.



The lack of refresher training may have contributed to the numerous 

policy violations we identified during our detailed testing (as 

discussed later in this report), such as purchases that exceeded 

various purchasing limits, purchases that were not made from required 

vendors, and purchases of accountable property that were not recorded 

in the property management system. Cardholder responses to our 

questions on these control areas also indicated that they were not 

aware of key requirements. For example, during our transaction testing, 

one cardholder said that certification of funds availability--which FAA 

policy clearly states must be performed for all transactions prior to 

purchase--was not required at the time of purchase. Another cardholder 

said it was not required because the particular transaction was under 

$2,500, while a third cardholder noted that the manager’s signature on 

the credit card statement constituted certification of funds.



FAA recently began implementing steps to ensure that existing 

cardholders and approving officials obtain refresher training on the 

purchase card program. For example, an FAA memorandum from the 

Assistant Administrator for Regional and Center Operations, dated April 

25, 2002, emphasized that all cardholders and approving officials under 

her line of reporting would be required to obtain refresher training, 

although no final date for completion of training was given. Another 

FAA memorandum, dated April 30, 2002, from the Assistant Administrator 

for Financial Services and Chief Financial Officer also recommended, 

but did not require, that all parties involved in the purchase card 

program take periodic refresher training.



Since then, some APCs have taken actions to implement the applicable 

requirements/recommendations at their locations. For example, at one 

FAA location the APC began requiring all cardholders and approving 

officials to complete purchase card retraining, including reading FAA’s 

internal purchase card operating procedures and certifying completion, 

reading GSA’s Blueprint for Success: Purchase Card Oversight, 

completing GSA’s on-line quiz, and submitting the certificate of 

completion to the APC. We were informed that the APC closed 40 

cardholders’ accounts for failure to comply with the retraining 

requirement. This APC also held six “special emphasis” training 

sessions for all cardholders and approving officials, which emphasized 

areas of weakness that we had identified during our site visit. Another 

APC developed a database for her location to track the dates that 

cardholders and approving officials completed the initial and updated 

training.



While FAA has begun to address the lack of refresher training for its 

cardholders and approving officials, the agency still has no specific 

training requirement or courses for its APCs. Adequate training for 

APCs is critical because they are responsible for overseeing the entire 

purchase card program. While FAA’s procurement guidance requires APCs 

to ensure that cardholders and approving officials receive proper 

training, the guidance is silent on ensuring the same for APCs. 

Consequently, the training available to APCs during fiscal year 2001 

was limited to training offered by GSA and Bank of America; however, 

these sources were not fully utilized. For example, GSA conducts an 

annual governmentwide conference to train APCs on account 

administration, program management, reporting tools available for 

monitoring the program, and the banks’ various electronic access 

systems. However, we noted that only 6 of FAA’s 12 APCs attended GSA’s 

August 2002 training conference, and only 1 of the APCs attended any 

bank-sponsored training during fiscal years 2001 and 2002 for the 

purchase card program.



As FAA makes changes to strengthen controls over the purchase card 

program, APCs require detailed guidance and training for carrying out 

some of these initiatives. However, they have not always received this. 

For example, an April 30, 2002, FAA memorandum, required each region 

and center, and the headquarters office to begin conducting annual 

reviews of purchase card and convenience check transactions effective 

fiscal year 2002. Although the memorandum provided information 

regarding the type of sampling methodology to use, what to review, and 

the criteria to be used when conducting the annual review, there was no 

discussion regarding the population to be used in selecting the sample 

or specific data analysis techniques to be performed to identify 

potentially fraudulent, improper, or questionable transactions. In 

addition, the annual review only focused on reviewing the cardholder’s 

records for compliance with limited policies and procedures, and did 

not include an assessment of key control activities such as assessing 

the ongoing need for cards, appropriate segregation of duties, and 

record retention.



Without detailed guidance and commensurate training, locations may not 

conduct adequate annual reviews. In addition, inconsistent 

methodologies used to perform reviews may not provide meaningful 

results for determining how the overall program is functioning. As 

noted later in this report, we identified instances where APCs were 

unaware of the monitoring tools available to them or were untrained in 

how to use them. Without proper training, APCs are limited in how 

effectively they can manage their programs, which in turn limits their 

ability to prevent and detect fraud, waste, and abuse.



Program Monitoring Was Inadequate:



FAA did not adequately monitor and evaluate the effectiveness of 

controls over its purchase card program to ensure that findings of 

audits were promptly resolved. The OIG reported deficiencies in DOT’s 

departmentwide purchase card program, which included FAA, as far back 

as 1997, yet FAA did not take sufficient action to address these 

weaknesses. For example, in the 1997 review[Footnote 29] the OIG 

reported that cardholders purchased restricted and prohibited items and 

made split purchases to circumvent cardholders’ single purchase limits; 

approving officials did not adequately perform required supervisory 

reviews, such as reviewing the documentation to support cardholder 

purchases; and operating administrations did not statistically sample 

purchase card transactions for potentially improper purchases in part 

because they lacked adequate guidelines or procedures to do so.



DOT’s primary response was to issue memorandums reiterating purchasing 

requirements, and issue guidance for conducting statistical reviews. 

However, it did not follow up to determine whether those actions were 

sufficient to resolve the cited weaknesses. Consequently, the OIG 

reported similar audit results in 2001,[Footnote 30] finding that 

cardholders continued to make split purchases, primarily at FAA; 

approving officials were not verifying that purchases were authorized; 

FAA was not sampling purchase card transactions to determine if 

purchases were authorized and complied with purchasing requirements; 

and disciplinary actions were inconsistent when cardholders or 

approving officials violated policies. As in 1997, DOT and FAA 

responded primarily by issuing memorandums and guidance. Although FAA 

management stated that the headquarters APC would begin performing 

internal audits of the purchase card program, the headquarters APC 

informed us that these internal reviews would be limited to 

headquarters’ purchase card activity and would not cover the controls 

or transactions at FAA’s 11 regions and centers.



Without adequate monitoring to determine whether policies are being 

properly implemented, the issuance of new policies and guidance was 

generally ineffective. Our May 2002 report on FAA’s Alaskan Region 

purchases[Footnote 31] and this report identified many of the same 

weaknesses reported by the OIG as well as other findings. While the 

work performed by the OIG and us differed as to the specific scope and 

periods covered, the nature and scope of weaknesses identified were 

indicative of insufficient attention by management to establish and 

maintain sound internal controls over its purchase card program. 

Despite these repeated warnings, FAA management has not ensured that 

its efforts to address audit findings have actually corrected the 

problems.



In April 2002, the Office of Management and Budget (OMB) directed all 

federal agencies to prepare a remedial action plan for their purchase 

card programs about the adequacy of internal control systems that 

monitor the use of purchase cards. DOT’s plan, which was approved by 

OMB on 

August 8, 2002, set forth several actions it planned to complete by 

November 30, 2002, such as reviewing cardholder spending limits to 

ensure that limits match cardholders’ needs, and reviewing, adjusting, 

and restricting certain merchant category codes to lessen the risk of 

fraud or misuse. We noted that FAA was still in the process of 

implementing these actions at the end of our fieldwork.



The inadequate follow-up on prior audit findings may be due in part to 

the lack of centralized oversight of FAA’s purchase card program. 

During our entrance conference with FAA officials, they admitted that 

no oversight or monitoring was performed at the FAA-wide level due to 

FAA’s decentralized operations and reporting structure. Consequently, 

they were unable to provide us even basic information about their 

overall purchase card program, such as the total number of cardholders 

and approving officials, or the volume of purchase card activity. FAA 

officials stated that the headquarters APC was FAA’s designated 

national representative, which the APC acknowledged. However, we found 

no monitoring activities directed at assessing overall program results, 

evaluating internal control and compliance with purchasing procedures, 

or ensuring that local purchase card policies and procedures were 

consistent with FAA acquisition policy.



With the lack of centralized oversight of the purchase card program, 

FAA has had to rely upon the 12 individual APCs (1 at each location) to 

manage activities within their jurisdictions. However, we found that 

APCs’ primary attention appeared to focus on basic program activities 

such as opening and closing cardholder accounts and providing training 

for new cardholders and approving officials, with little if any 

attention paid to monitoring for compliance with program requirements 

or for improper purchases. Consequently, we found that APCs generally 

were not 

(1) consistently utilizing Bank of America’s Electronic Account 

Government Ledger System (EAGLS)[Footnote 32] reporting functions to 

detect potential misuse and/or fraud within their programs, (2) 

canceling accounts of departed employees in a timely manner, and (3) 

monitoring for increased risk of improper purchases due to cardholders 

with multiple accounts, as further discussed below. Given that FAA 

makes thousands of purchase card transactions annually, which, in 

fiscal year 2001, exceeded $150 million, it is essential that FAA 

management devote adequate attention to monitoring its purchase card 

program to ensure that it is properly managed and to reduce the risk of 

fraud, waste, or abuse.



* EAGLS reports. EAGLS can generate account activity reports, which 

identify trends such as purchases from merchants that would not be 

expected to be traditional suppliers or unusually high spending 

patterns; dispute reports, which identify cardholders with excessive 

disputes that may indicate cardholder misuse or fraudulent activity; 

and various other exception reports that can track information such as 

unallowable automated teller machine transactions or cash withdrawals 

or charges at specific merchant category codes for businesses unrelated 

to FAA’s mission. Several APCs told us that they did not know that some 

of these essential reports existed or were not sure how to access the 

data to print these reports from EAGLS. As a result, they were not 

using them to systematically monitor cardholder activity for potential 

fraud or abuse.



* Separated employees. We also found that accounts of cardholders who 

resign, retire, or otherwise leave FAA employment were not promptly 

closed upon their departure. Although FAA’s procedures require that the 

APC be notified via an employee clearance form when cardholders leave 

the agency, some APCs acknowledged that they did not always receive the 

forms or receive them timely. However, at the time of our review, only 

1 of the 11 APCs[Footnote 33] actively reviewed cardholder names 

against monthly personnel reports to ensure that departed employees’ 

accounts were canceled soon after their departure. Consequently, our 

data mining identified five cardholders from three FAA locations whose 

accounts remained open a month or more after their fiscal year 2001 

separation dates. Although we did not identify any associated 

fraudulent activity, charges continued to be made to four of the five 

accounts from automatic monthly billings, such as Internet service 

fees, or when other employees incurred charges at vendors that had the 

departed cardholders’ account numbers on file. FAA identified and 

closed three of the open accounts but was unaware of and did not close 

the remaining two accounts until we brought them to its attention, 

including one that was closed 6 months after the cardholder left the 

agency.



* Multiple accounts. We also found that APCs were not monitoring for 

increased risk of improper purchases by cardholders with multiple 

purchase cards. During our data mining, we identified 176 cardholders 

who were issued from two to eight purchase cards each. According to 

FAA, multiple cards were issued so that the originating office could 

separately track expenditures against different funding allocations. 

However, because every transaction requires an accounting 

classification code to indicate the appropriation and fund that the 

purchase is to be charged against, there is no need for separate 

purchase cards to do this. In addition, the issuance of multiple cards 

to the same cardholder places an additional administrative burden on 

APCs, cardholders, and approving officials in carrying out their 

respective responsibilities, and increases FAA’s risk of improper 

purchases. As a result of our audit, APCs have begun to review and 

cancel the excess purchase cards issued to these cardholders and have 

stopped issuing multiple cards to individual cardholders.



FAA officials informed us that a national purchase card program 

coordinator and a national organization reporting coordinator were 

appointed to oversee the program beginning January 6, 2003. Proper 

oversight at this level will be critical for ensuring that identified 

program weaknesses are addressed nationally and program improvements 

are implemented consistently.



Noncompliance with Policies and Procedures Resulted in Some Improper 

Purchases:



The lack of adequate internal controls was evident in identified 

violations of FAA acquisition requirements that we classified as 

improper purchases. These included (1) purchases that were split into 

two or more transactions to circumvent single purchase limits, (2) 

purchases that exceeded other limits established by FAA, (3) purchases 

from other than required vendors without the appropriate waivers, (4) 

unauthorized purchase actions whereby someone other than the cardholder 

made the purchase, and 

(5) withdrawals or payments to cardholders through cash advances or 

convenience checks. Table 1 shows the number of exceptions we 

identified for each category, as described further below.



Table 1: Transactions Not in Compliance with Purchasing Requirements:



Policy violation of purchasing requirement: Transactions associated 

with purchases that were split into two or more segments to avoid 

established single purchase limits; Number of transactions not

in compliance: 997; Dollar amount of transactions not in compliance: 

$5,111,147.



Policy violation of purchasing requirement: Purchases that exceeded 

limits established by FAA; Number of transactions not

in compliance: 30; Dollar amount of transactions not in compliance: 

214,666.



Policy violation of purchasing requirement: Purchases that were not 

made from required vendors; Number of transactions not

in compliance: 20; Dollar amount of transactions not in compliance: 

35,903.



Policy violation of purchasing requirement: Unauthorized purchase 

actions, that is, purchases by someone other than the cardholder; 

Number of transactions not

in compliance: 12; Dollar amount of transactions not in compliance: 

75,646.



Policy violation of purchasing requirement: Withdrawals or payments 

through cash advances or convenience checks; Number of transactions not

in compliance: 4; Dollar amount of transactions not in compliance: 

2,462.



Policy violation of purchasing requirement: Total; Number of 

transactions not

in compliance: 1,063; Dollar amount of transactions not in compliance: 

$5,439,824.



Source: GAO.



Note: GAO’s analysis of FAA purchase card transactions and related 

documentation.



[End of table]



While the total amount of improper purchases we identified is 

relatively small compared to the over $150 million in annual purchase 

card and convenience check transactions, it demonstrates 

vulnerabilities from weak controls that could easily be exploited to a 

greater extent.



The above policy violations are discussed in more detail below.



* Split purchases. During our data mining and detailed tests of 

transactions, we found 997 split purchase transactions[Footnote 34]--

purchases that had been split into more than one transaction to stay 

within established single purchase limit--totaling $5.1 million. For 

example, a cardholder with a single purchase limit of $5,000 purchased 

a printer and accessories totaling $8,391. The cardholder had the 

vendor make three separate charges to the purchase card, on the same 

day, to avoid exceeding the single purchase limit. Another cardholder 

informed us that she was directed by her supervisor to issue multiple 

convenience checks to pay a vendor in order to work around the $2,500 

convenience check limit, despite the fact the cardholder advised her 

supervisor that this was contrary to procurement policy. After the 

split purchases were discovered, the cardholder stated that the 

incident was investigated, she was counseled, and her account was 

subsequently closed in January 2002. However, no disciplinary action 

was taken against the supervisor. We noted that cardholders and 

approving officials generally were not disciplined when these types of 

policy violations occurred. 



We identified another 201 transactions totaling over $543,000 that we 

considered potential split purchase transactions, but could not confirm 

this because cardholders did not provide adequate documentation to 

enable us to fully assess the transactions. The purpose of the single 

purchase limit is to require that purchases above established limits be 

subject to additional controls to ensure that they are properly 

reviewed and approved before the agency obligates funds. By allowing 

these limits to be circumvented, FAA has less control over the 

obligation and expenditure of its resources.



* Purchases that exceeded limits established by FAA policy. We found 

that several purchases exceeded FAA’s established purchase card 

thresholds for the procurement of services and the dollar limit for 

purchases made with convenience checks. When cardholders circumvent 

these management controls, FAA has no assurance that purchases comply 

with certain labor laws[Footnote 35] and that cardholders are making 

contractual commitments on behalf of FAA within the limits of their 

delegated purchasing authority. FAA’s operating procedures prohibit the 

use of the purchase card and convenience checks when procuring certain 

nonconstruction services of $2,500 or more, such as janitorial, 

grounds, and guard services,[Footnote 36] or when procuring certain 

services, such as temporary help and consulting services, regardless of 

the amount.[Footnote 37] During our detailed tests of transactions, we 

identified four transactions totaling $16,460 for nonconstruction 

services costing $2,500 or more. We also identified seven transactions 

totaling $111,648 for consulting services even though FAA prohibits 

using the purchase card for these types of purchases. For example, a 

cardholder procured consulting services for engineering, technical 

analysis, and program management support activities from the same 

vendor over a 3-month period totaling $67,000 because management had 

directed that these services continue while a new contract was awarded.



FAA’s operating procedures also prohibit the use of the purchase card 

or convenience check when procuring construction services valued at 

$2,000 or more. FAA defines these services as the construction, 

alteration, or repair of buildings, structures, or other real 

property.[Footnote 38] During our detailed tests of transactions, we 

identified eight transactions totaling $35,735 that exceeded the $2,000 

limit for purchasing construction services with the purchase card. 

These included a $5,224 purchase for the repair of wiring and 

replacement of lighting at an FAA cafeteria and two purchases totaling 

$12,684 from the same vendor on two different occasions for electrical 

work at an FAA facility. 



Our data mining also identified 11 transactions totaling $50,823 where 

cardholders exceeded the $2,500 convenience check limit.[Footnote 39] 

The most serious violation was the use of a convenience check to pay 

for equipment modifications totaling $18,690. FAA indicated it had 

previously identified this purchase as a violation of policy, notified 

the cardholder’s approving official, and taken steps to ensure the 

cardholder was reminded of convenience check policies and procedures. 

However, we noted that no disciplinary action was taken against the 

approving official who was responsible for ensuring that the purchase 

was made in accordance with policies and procedures.



* Purchases were not made from required vendors. Cardholders made 

numerous purchases from other than required vendors without obtaining 

appropriate waivers to indicate that they were authorized to buy 

elsewhere.[Footnote 40] During our testing of the 333 transactions in 

the statistical sample, we identified 36 purchases that were required 

to be purchased from a mandatory source. Of the 36, 20 transactions 

were not purchased from the mandatory vendors and did not have the 

required waiver from Federal Prison Industries, Inc. (UNICOR) or any 

documentation that would support that a Javits-Wagner-O’Day (JWOD) Act 

supplier did not offer the items or that the items were currently 

unavailable. Based on the results of our review of these transactions, 

we estimate that $9 million[Footnote 41] of the related sample 

population of purchase card and convenience check transactions lacked 

the required waivers or other supporting documentation. For example, a 

cardholder purchased 24 office chairs totaling $15,246 from a 

commercial vendor without obtaining a waiver indicating that UNICOR 

could not meet the purchase request. In another example, a cardholder 

purchased a leather binder, refills, and other accessories totaling 

$196 from Franklin Covey, a high-end office supply store, instead of 

purchasing similar products from a JWOD supplier. The cardholder 

provided an explanation that the purchase was for business use, but 

provided no documentation why similar products were not procured from a 

JWOD supplier. During our data mining, we noted that FAA made 2,903 

purchases totaling $492,643 from Franklin Covey in fiscal year 2001. 

While we did not review all of these individual purchases, based on our 

detailed testing of similar transactions, it is likely many of them 

should have been procured from a mandatory source, if at all. In 

response to our questions about such purchases, FAA’s Director of 

Acquisitions responded to us in a November 21, 2002, memorandum that 

FAA is reviewing the need to establish guidelines on what can be 

purchased from this vendor.



* Unauthorized purchase actions made with the purchase card. During our 

detailed tests of transactions, we found several unauthorized 

transactions where noncardholders made purchases using cardholders’ 

accounts, increasing the risk that the card may be used to make 

improper purchases. FAA’s operating guidance requires that the named 

cardholder on the purchase card be the only one to use the card to make 

purchases. Allowing someone other than the cardholder to use the card 

is considered an unauthorized purchase action that is subject to 

disciplinary action. However, we found that FAA did not always comply 

with this requirement. 



Specifically, we identified 12 unauthorized purchases totaling $75,646 

where someone other than the cardholder made the purchase. Seven of 

these unauthorized purchases, totaling $70,000, related to one 

cardholder’s account. According to the cardholder, her supervisor had 

requested her purchase card account number so that others in the office 

could make purchases, which included various computer and office 

equipment, including 20 PDAs. Because the total order exceeded the 

cardholder’s single purchase limit, the vendor split the order into 

seven different purchase transactions, which is also a violation of 

policy. When her monthly billing statement came, the cardholder stated 

that she was unable to account for some of the transactions because the 

purchasers did not provide her with all of the related receipts for the 

items purchased. Furthermore, the cardholder informed us that an 

additional 14 transactions totaling $79,445 that were not in the sample 

but were listed on her monthly billing statement were also unauthorized 

purchase actions made by others in her office. Because of these 

unauthorized uses and the related frustrations associated with 

attempting to reconcile her monthly billing statements, the cardholder 

informed us that per her request, the APC closed her account on October 

27, 2002. 



We identified another unauthorized transaction when a cardholder was 

unable to provide any supporting documentation for the item in the 

sample, stating she had not made the purchase. The cardholder stated 

that she transferred from the unit that issued her the card in July 

1999, but was asked to leave the active credit card with the assistant 

manager so that the office could continue to use it to make purchases. 

Because the cardholder left the issuing unit in July 1999, all 

purchases made to her account during fiscal year 2001, our period of 

review, were unauthorized purchase actions. As a result, we identified 

an additional 28 unauthorized purchase transactions totaling $3,595 

that were charged to the cardholder’s account from October 2000 through 

January 2001. The APC eventually closed the cardholder’s account on 

January 28, 2002, approximately 2 ½ years after the cardholder had 

left.



* Cash advances and cash payments made to cardholders. FAA’s operating 

guidance prohibits the use of the purchase card for cash advances and 

prohibits cardholders from issuing convenience checks payable to 

themselves. However, during our data mining we identified three cash 

advance transactions and one transaction where the cardholder wrote a 

convenience check payable to herself. For example, one cardholder used 

the government purchase card to obtain a $100 cash advance to pay a 

vendor for lawn services rendered at an FAA facility. The approval form 

for this transaction showed that the key authorizers and reviewers of 

this transaction--including the funds certification officer and the 

approving official--had approved the cash advance even though it was a 

violation of policy. In another example, a cardholder wrote a 

convenience check payable to herself totaling $214, in violation of 

policy. She purchased an item at a warehouse club that did not accept 

the brand of the government purchase card. Because the cardholder did 

not have authorization to use a convenience check at the time of 

purchase, she made the purchase with her personal credit card and 

subsequently requested and received authorization from her supervisor 

to be reimbursed by writing a convenience check payable to herself, 

even though this was a violation of policy.



As described above, our review of FAA’s purchase card activities 

identified numerous policy violations that resulted in improper 

purchases. However, we generally found that disciplinary action was not 

taken against the cardholders or approving officials when these policy 

violations occurred. Enforcement of disciplinary action procedures 

helps prevent or deter future policy violations from occurring and 

assists in holding cardholders and approving officials accountable for 

carrying out their responsibilities when using, reviewing, and 

approving purchase card transactions.



Poor Controls Resulted in Some Wasteful and Questionable Purchases:



The inadequacies and ineffectiveness of internal controls were also 

evident in the number of transactions identified that we classified as 

wasteful--that is, were excessive in cost compared to other available 

alternatives and/or were for questionable government needs. Our reviews 

of transactions in both the statistical and nonstatistical samples 

identified transactions that we considered wasteful. In addition, FAA 

cardholders frequently did not document their determination that the 

purchase represented the “best value” to the government, which FAA 

purchasing policy defines as the solution that is most advantageous to 

FAA based on an evaluation of price and other factors. We also 

identified other transactions that we classified as questionable 

because there was insufficient documentation to determine what was 

purchased or because the charges were made to a third party billing 

company that did not identify the actual vendor. Lacking this 

documentation or identity, neither we nor other reviewers of the 

transactions could verify the reasonableness and appropriateness of the 

purchases.



Table 2 indicates the number of transactions and dollar amounts in both 

the statistical and nonstatistical samples that we determined to be 

excessive in cost relative to similar products on the market, for 

questionable government needs, or for which we were unable to determine 

the reasonableness of the item due to missing invoices or because the 

charges were paid to third party on-line billing services. While not 

significant to the overall purchase card program, these transactions 

are indicative of what can occur when the use of the cards is not 

properly controlled. Because we tested only a small portion of the 

transactions that appeared to have a higher risk of fraud, waste, or 

abuse, there may be other improper, wasteful, and questionable 

purchases in the remaining untested transactions.



Table 2: Transactions Identified as Wasteful or Questionable:



Transaction category: Wasteful transactions; Number of 

transactions[A]: [Empty]; Dollar amount of transactions: [Empty].



Transaction category: Excessive cost; Number of transactions[A]: 46; 

Dollar amount of transactions: $140,131.



Transaction category: Questionable government need; Number of 

transactions[A]: 10; Dollar amount of transactions: 3,312.



Transaction category: Both excessive cost and; questionable government 

need; Number of transactions[A]: 58; Dollar amount of transactions: 

79,159.



Transaction category: Total; Number of transactions[A]: 114; Dollar 

amount of transactions: $222,602.



Transaction category: Questionable transactions; Number of 

transactions[A]: [Empty]; Dollar amount of transactions: [Empty].



Transaction category: Missing invoice; Number of transactions[A]: 149; 

Dollar amount of transactions: 401,347.



Transaction category: Third party on-line billing; Number of 

transactions[A]: 13; Dollar amount of transactions: 6,009.



Transaction category: Total; Number of transactions[A]: 162; Dollar 

amount of transactions: $407,356.



Source: GAO.



Note: GAO’s analysis of statistical and nonstatistical transactions 

selected for fiscal year 2001.



[A] Of the 114 transactions identified as wasteful, 9 came from the 

statistical sample and 105 came from the nonstatistical sample results. 

Of the 162 transactions identified as questionable, 18 came from the 

statistical sample and 144 came from the nonstatistical sample.



[End of table]



Wasteful Purchases:



We identified 114 purchases totaling $222,602 that we determined to be 

wasteful because they were excessive in cost relative to available 

alternatives, were of questionable government need, or both. We 

considered them excessive in cost when compared to available 

alternatives that would meet the same basic needs or questionable as 

government expenditures because they appeared to be items that were a 

matter of personal preference or personal convenience, were not 

reasonably required as part of the usual and necessary equipment for 

the work the employees were engaged in, and/or did not appear to be for 

the principal benefit of the government. Specifically, we identified 46 

purchases totaling $140,131 that we considered excessive in cost, 10 

purchases totaling $3,312 for which we questioned the government need, 

and an additional 58 purchases totaling $79,159 that we considered both 

excessive in cost and for questionable government need. Such purchases 

included purchases of store gift cards for later use; hotel and resort 

charges, including room rentals and food costs for internal management 

meetings; award, retirement, and farewell gifts; Internet services for 

individual FAA employees; and purchases of PDAs and accessories. These 

examples are described below.



* Store gift cards. We noted several purchases of store gift cards for 

which we question the government need. Purchases of gift cards are 

particularly risky because they are the equivalent of cash. Unlike 

purchases made with a purchase card, which appear on a monthly billing 

statement to be approved by an approving official and supported by 

receipts, purchases made with a gift card have no such subsequent audit 

trail. Consequently, if the gift cards are lost, stolen, or misused, 

there is no means for determining how they were spent. In addition, 

gift cards used after the end of the fiscal year in which they are 

purchased violate the “bona fide” needs rule under 31 U.S.C. 1502(a) 

(2000).[Footnote 42] For example, one cardholder purchased 10 $100 Home 

Depot store gift cards, totaling $1,000, that the cardholder stated 

were to be used to purchase tile and mini blinds for installation in 

the day care facility after the close of the fiscal year. However, the 

cardholder was only able to provide one receipt dated 3 months after 

the close of the fiscal year, which showed that 3 of the gift cards 

were used to purchase items totaling $203.49. In addition to violating 

the bona fide needs rule, we identified several problems with this 

purchase. One, the $96.51 balance due from that purchase--government 

funds--was refunded in cash to the person using the gift cards, which 

we confirmed with the vendor. However, because the purchase was made 

with gift cards, which do not identify the purchaser, we could not 

determine who received the cash back nor what happened to it. Two, 

among the items purchased were two pairs of cowhide gloves, which were 

not part of the intended purpose the cardholder stated.[Footnote 43] 

Three, because the purchase was made with gift cards rather than the 

government purchase card, the state sales tax was charged and paid even 

though the federal government was exempt from state sales tax. In 

addition to these problems, the cardholder could not show how the 

remaining 7 gift cards were used, whether they were spent for 

government purposes, when they were used, or even who used them. 

Another cardholder spent $775 on Wal-Mart gift cards, but similarly was 

unable to provide any documentation on how the cards were ultimately 

spent. 

In another example, one cardholder told us she was given verbal 

approval to spend a certain amount on an awards ceremony. When the 

award ceremony expenses totaled less than the allocated amount, the 

cardholder purchased a grocery store gift card for the remaining $179, 

which was later used to buy postage stamps for Christmas cards to send 

to other FAA facilities, and food and utensils for a Christmas luncheon 

and a retirement gathering, all of which are unallowable government 

expenditures. When we asked FAA for its policy on the purchase of gift 

cards, the Director of Acquisitions responded to us in a November 21, 

2002, memorandum that FAA’s present policy is that gift cards will not 

be purchased for later use because such purchases are a violation of 

the fiscal law statute regarding bona fide need. However, unless 

cardholders and approving officials are aware of this policy and 

management adequately monitors compliance, such expenditures are likely 

to continue.



* Conference room rentals and related food charges.[Footnote 44] We 

identified several purchases for the rental of hotel and resort 

facilities used for internal FAA meetings, conferences, and training. 

For example, FAA paid $2,660 for a conference room and audiovisual 

rentals at the Tropicana Resort and Casino in Las Vegas, with no 

explanation as to the reason why this location was chosen to hold an 

internal FAA management meeting. After we reported similar findings in 

our report on FAA’s Alaskan Region, the Chief Financial Officer issued 

a June 4, 2002, memorandum that established new spending restrictions, 

one of which now requires that internal FAA conferences and off-site 

meetings be held in federal facilities. However, this memorandum was 

issued after the period of our review. We also identified transactions 

for conference room rentals that included significant food and beverage 

costs, which we considered excessive and for which we questioned the 

government need. For example, in one case FAA spent $12,866 for food at 

a Hyatt Hotel for a conference, and $18,050 for food at another 

conference. We also noted a wasteful purchase representing a 

cancellation fee charge totaling $5,398 that resulted because the 

cardholder did not cancel FAA’s reservation for a conference room 

rental in time to avoid the fee.



* Award, retirement, and farewell gifts. We noted several purchases for 

award, retirement, and farewell gifts. Although FAA policy gives 

managers a wide berth in determining the nature and extent of awards, 

we identified six purchases for award gifts for which they were unable 

to provide the purposes for which the recipients were being recognized. 

For example, we identified three purchases of Waterford crystal costing 

from $110 to $220 each. For these purchases, FAA could not provide the 

award letters or justification for the awards. Consequently, it could 

provide no evidence that these purchases were truly awards. We also 

identified two purchases for award events for which FAA was unable to 

provide the basis for the awards. These included a purchase of $225 for 

the rental of bowling lanes and shoes for 27 employees with no 

justification as to why the individuals were receiving the award, and 

$459 for 100 movie passes for “employee appreciation day” with no list 

of awardees or basis for the award.



We also identified eleven purchases that FAA cardholders characterized 

as either retirement gifts or farewell gifts. However, they were unable 

to demonstrate that the gifts were authorized under applicable agency 

authority. The retirement gifts included two Waterford crystal gifts, a 

glass clock, and an inscribed globe, which ranged in cost from $101 to 

$209 each. The farewell gifts included a $329 engraved desk statue for 

a manager transferring to another unit within FAA.



* Internet services. During our data mining, we identified 472 

purchases totaling $16,894 for individual subscriptions to various 

Internet service providers, such as America Online, CompuServe, and 

EarthLink.[Footnote 45] We inquired with FAA regarding these types of 

purchases. In his 

November 21, 2002, response to us, the Director of Acquisitions 

indicated that these were unnecessary, stating that FAA provides 

Internet access for employees through eight authorized Internet access 

points and that employees should obtain the necessary services from one 

of these access points. The Director stated that FAA would work with 

the cardholders and FAA’s information resource management contact 

points and staff offices to ensure that employees do not 

inappropriately obtain individual subscriptions to Internet service 

providers.



* PDAs and accessories. During our detailed testing, we identified 25 

purchase transactions for 123 PDAs and/or PDA accessories totaling 

$66,684. For example, one of these transactions included a purchase of 

30 PDAs and accessories totaling $13,189. However, no documentation was 

available to show how the office determined that these 30 PDAs were 

necessary to fulfill a valid government need, rather than for the 

personal preference of employees. We also noted a wide range in cost 

for the PDAs purchased. Specifically, the statistical and 

nonstatistical samples contained transactions for PDAs that ranged in 

cost from $100 to $558. Cardholders did not provide justification as to 

why the more expensive PDAs were needed, nor why there was a valid 

government need for these items. In addition, FAA incurred other costs 

to support the PDAs, such as those for PDA keyboards, carrying cases, 

and PDA Internet services. For example, in one instance we identified a 

purchase of six leather PDA accessories from the Coach store totaling 

$717. In addition to being excessive in cost, we question whether such 

items are necessary government expenses.



In a June 4, 2002, memorandum prepared in response to our report on 

FAA’s Alaskan Region, FAA established new spending restrictions that 

included prohibiting the use of federal funds to purchase PDAs except 

where the affected associate or assistant administrator personally 

decides that it is vital to a person or organization successfully 

achieving their mission in an effective and efficient manner.



We also identified numerous other individual purchases that we 

considered wasteful or, in some cases, abusive. Such purchases included 

a $299 Bose headset, which the cardholder indicated was used by her 

director and other senior managers during long flights; $206 for key 

chains and crystal hearts for training participants; and a $65 picture 

frame for a cardholder’s use in her office. In another example, a 

cardholder purchased a $3,707 Sony Vaio laptop computer because an 

assistant division manager saw it while on travel and asked the 

cardholder to buy it for him, despite the fact that other, less costly 

laptop computers were widely available. For example, during the same 

month another cardholder in the same region purchased 22 lower-end Sony 

Vaios for $1,330 each; a midrange Sony Vaio in the sample cost $1,700. 

According to the first cardholder, the model the assistant division 

manager wanted was new on the market and thus was only available 

directly from the manufacturer at that time.



Part of the problem with these purchases is that cardholders often did 

not document their determination that the specific purchase represented 

the best value to the government. FAA policy requires purchasers to 

determine that prices are fair, reasonable, and provide the best 

value[Footnote 46] to FAA. Its policy states that the determination 

that price is fair and reasonable should be documented and the extent 

of the documentation depends on the complexity and dollar value of the 

procurement action.



We examined transactions in the statistical sample to determine whether 

there was any evidence that cardholders considered best value in making 

their purchase decisions, such as any evidence that at the time of 

purchase the cardholder considered prices from other vendors, services 

provided by the vendor, quality of product versus alternatives, prior 

experience with a vendor, or useful life of a product. We identified 

213 purchases to which the determination of best value 

applied.[Footnote 47] Of these, 152 purchases did not have any 

documentation demonstrating that cardholders considered best value 

before making their purchases. Based on the results of our review of 

transactions, we estimate that $74 million[Footnote 48] of the sampled 

population of purchase card and convenience check transactions lacked 

documentation of the best value determination.



While FAA has issued some new policies to prohibit or better control 

certain types of expenditures, the types of wasteful purchases we 

identified can only be prevented through proper employee training, 

adequate segregation of duties, and thorough management review and 

enforcement. Until FAA provides adequate management oversight of its 

purchase card program, including more thorough, systematic monitoring 

of expenditures with appropriate disciplinary action when warranted, 

the types of wasteful and abusive purchases we identified, as well as 

those that may not have appeared in the sample, are likely to continue.



Questionable Purchases:



As discussed earlier in this report, we identified numerous 

transactions that were missing adequate supporting documentation to 

identify what was purchased and the amount. Specifically, 18 of the 333 

transactions in the statistical sample[Footnote 49] and 131 of the 

1,874 transactions in the nonstatistical sample lacked an invoice, 

credit card slip, or other sales documentation. Lacking key purchase 

documentation, neither approving officials nor we could determine or 

support what was actually purchased, how many items were purchased, the 

cost of the items purchased, and whether there was a legitimate 

government need for such items. However, based on the vendor names and 

explanations provided by the cardholders, we believe at least some of 

these items may have been determined to be improper or wasteful had the 

documentation been provided or available. For example, in one 

transaction that was missing an invoice, the cardholder stated that the 

purchase was for a $499 Bose Wave radio/CD player that was needed to 

monitor the news and weather. Table 3 illustrates some of the other 

transactions in the sample for which cardholders were unable to provide 

an invoice or other documentation to support what was purchased.



Table 3: Examples of Transactions Where Invoice Documentation Was 

Missing:



Vendor: Ashford.com (a jewelry Web site); Transaction amount: $78.



Vendor: Bed, Bath, and Beyond; Transaction amount: 63.



Vendor: BestBuy.com; Transaction amount: 2,440.



Vendor: BJ’s Wholesale Club; Transaction amount: 251.



Vendor: Home Depot; Transaction amount: 1,042.



Vendor: Harbourtowne Resort; Transaction amount: 5,100.



Vendor: L.L. Bean Mail Order; Transaction amount: 90.



Vendor: Service Merchandise; Transaction amount: 216.



Vendor: Treasure Isle Food; Transaction amount: 1,755.



Vendor: Wal-Mart; Transaction amount: 332.



Source: GAO.



Note: GAO’s analysis of nonstatistical transactions selected for fiscal 

year 2001.



[End of table]



In addition, during our data mining, we identified 50 transactions 

totaling $13,450 that involved the use of third party on-line payment 

services to pay for cardholder purchases. We selected 30 of these 

transactions totaling $7,802 for further review. When using these types 

of services, the cardholder charges the amount of the transaction to 

the third party payment company. The payment company then forwards the 

funds to the vendor, generally because the vendor does not accept 

credit cards for payment. There is no additional expense to the 

government for using these third party payment companies. However, 

because the name of the third party payment company appears on the 

cardholder’s billing statement and not the name of the actual vendor 

that provided the goods or services purchased, there is no certainty 

that the purchase was for a bona fide government need and use. For 

example, one of the purchases included a transaction totaling $470 that 

the cardholder stated was for payment of software design services. 

Although the cardholder provided an invoice for the amount, there is no 

way to verify that the invoice belonged to the actual transaction 

because the merchant name on the cardholder’s billing statement was the 

name of the third party payment company, not the name of the vendor 

that purportedly supplied the software design services. In addition, 

the invoice date and the transaction date on the cardholder’s monthly 

billing statement did not match. As a result, we could not verify that 

the invoice supported the transaction.



Furthermore, of the 30 transactions reviewed, 17 transactions involving 

four different third party payment companies were for purchases the 

cardholders claimed they did not make.[Footnote 50] Except for 2 

transactions totaling $180, we noted that Bank of America subsequently 

credited the cardholders’ accounts because it determined that the 

charges were fraudulent in nature. This type of fraudulent activity 

demonstrates the risk that purchases made using third party payment 

companies may not be for valid government needs.



We asked FAA for its policy on using third party payment companies. In 

its November 21, 2002, response to us, FAA indicated that it plans to 

issue guidance in the near future to emphasize that when the cardholder 

knows a purchase will be processed by a third party payment company, 

the cardholder must immediately make the approving official aware of 

the transaction and provide supporting documentation once the purchase 

is received. However, this does not resolve the difficulty of ensuring 

that the supporting documentation is in fact associated with the 

transaction, given that the merchant name on the invoice and the name 

on the billing statement will not match.



Poor Controls Contributed to Wasted or Missing Assets:



In reviewing purchases of computers and other portable assets bought 

with purchase cards, we found that FAA lacked adequate controls over 

such purchases to ensure that they were properly recorded and accounted 

for. Assets bought with purchase cards were not required to go through 

a central receiving point to help ensure that items were recorded in 

FAA’s property system before they were distributed to users. As a 

result, we identified 262 asset-related transactions totaling $4.1 

million that contained one or more property items that had not been 

recorded in FAA’s property management system. In testing a selection of 

unrecorded items, we identified 238 items totaling $287,766 for which 

FAA could not account. Of these, 202 items were missing; FAA reported 

that the other 36 items had been transferred to other FAA locations or 

had been returned for repair and replacement, although FAA could not 

provide any documentation to support these claims. In addition to the 

items we found missing, the property management division at one FAA 

location identified during its physical inventory counts over 800 items 

totaling almost $2 million that were lost or stolen in fiscal years 

2001 and 2002. Given the systemic weaknesses we identified in FAA’s 

property controls, the actual amount of missing or stolen equipment 

agencywide could be much higher.



FAA’s cardholders buy a significant amount of computers and computer-

related equipment with purchase cards. For example, in fiscal year 2001 

FAA purchased at least $26.4 million in computers and computer-related 

equipment at vendors that primarily sell such items, such as Dell, 

Micron, and Gateway.[Footnote 51] Our Standards for Internal Control in 

the Federal Government requires agencies to establish physical control 

to secure and safeguard vulnerable assets. FAA policy requires that 

accountable property, items that meet specific FAA criteria and dollar 

thresholds, be recorded in FAA’s Personal Property In-use Management 

System (PPIMS) to establish accountability for these items. However, 

FAA did not require purchases of such property to go through a central 

receiving point where they could be adequately safeguarded until they 

were bar coded and recorded in PPIMS. Instead, purchase cardholders who 

bought sensitive items such as computers often took physical delivery 

of these items at the time of purchase or had them delivered directly 

to them. Consequently, FAA generally relied on the cardholders to 

determine whether assets met the requirements for tracking in PPIMS and 

to forward the appropriate information to property custodians for 

input. However, during our transaction review, we noted that 

cardholders did not appear to be knowledgeable of the different asset 

classifications that required input into PPIMS. For example, in 

selecting the statistical and nonstatistical sample transactions, we 

asked cardholders to provide documentation showing the item had been 

entered into PPIMS for all purchases of accountable property. Several 

cardholders responded “not applicable” to this request, even though the 

items they purchased met FAA’s criteria for tracking in PPIMS.



Consequently, we identified 262 asset-related transactions totaling 

$4.1 million where one or more property items had not been recorded in 

FAA’s property management system. Specifically, from the statistical 

sample,39 asset-related transactions totaling $737,951 had not been 

recorded in PPIMS even though the property items had been purchased at 

least 1 year earlier.[Footnote 52] Based on the sample results, we 

estimated that 

$17 million[Footnote 53] of the sampled population were unrecorded in 

PPIMS. From the nonstatistical sample, 223 asset-related transactions 

totaling $3.4 million had one or more items that had not been entered 

into PPIMS.[Footnote 54] When an asset is not recorded in the property 

management system, there is no systematic means of identifying where it 

is located or when it is moved, transferred, or disposed of and no 

record of its existence when physical inventories are performed. Thus, 

unrecorded assets can be easily lost or stolen without detection.



Given the high risk of theft or loss, we conducted an unannounced 

inventory to test FAA’s ability to account for its assets. We selected 

81 purchases of assets totaling over $1.3 million made during fiscal 

year 2001 by four FAA locations. The 81 transactions were for the 

purchase of 692 items consisting primarily of computer-related 

equipment, such as personal computers, laptops, and printers, as well 

as certain sensitive items, such as PDAs, that are easily pilfered. All 

of the transactions selected contained 1 or more items that had not 

been recorded in PPIMS. Of the 692 items we attempted to observe, we 

found that FAA could not locate 238 items (34 percent) totaling 

$287,766 at the time of our observation. Although FAA reported that 36 

of these missing items had been transferred to other FAA locations or 

had been returned for repair and replacement, contrary to policy FAA 

could not provide any documentation to support these claims.



In addition to the items we found missing, we noted that at one FAA 

location the property management division identified 405 items totaling 

over $900,000 that were lost or stolen in fiscal year 2001 and another 

437 items totaling over $1 million that were lost or stolen in fiscal 

year 2002. These lost or stolen items were primarily identified through 

physical inventory counts performed during those years. During our 

follow-up with that location’s property management division, we noted 

that employees and FAA units responsible for safeguarding the assets 

were not held accountable when items were identified as lost or stolen. 

This lack of disciplinary action when items were lost or stolen, 

combined with poor recordkeeping within those FAA units, created an 

environment where there was little accountability for government 

assets. Because lost or stolen items that were not recorded in PPIMS 

might never be identified as missing, the actual number of missing or 

stolen items at this and other FAA locations may be much higher.



During our site visits and unannounced physical inventories, we also 

observed instances where computers were not stored in a separate and 

secured storage room, and as a result, employees had unlimited access 

to these assets. For example, during an unannounced physical inventory 

at one location, we observed that an unsecured common office area was 

being used to store computer equipment. Without enhanced physical 

security, FAA will continue to be at risk for further computer 

equipment losses.



We also noted instances in which cardholders purchased varying brands 

of computer equipment in small quantities from different vendors at 

various times of the year with no documented coordination with FAA’s 

information technology or acquisitions unit. For example, the 

statistical and nonstatistical samples contained 47 transactions for 

108 computers or laptops totaling over $400,000 where cardholders 

purchased fewer than 5 computers or laptops in a single transaction. By 

not coordinating such purchases, FAA could not take advantage of 

quantity discounts that it might have otherwise received had it 

combined, negotiated, and purchased similar items in large quantity 

with a single vendor. In addition, the wide variety of equipment 

purchased makes it more difficult for the information technology unit 

to provide user and network support and equipment maintenance.



In an official response to us on November 21, 2002, FAA stated that it 

is developing standard policy guidance that will require equipment 

items over $500 to be centrally purchased to take advantage of 

economies of scale and to facilitate equipment standardization. 

However, it also needs to ensure that the purchases are needed to avoid 

wasted purchases. For example, one cardholder purchased 30 personal 

computers costing over $36,000 in November 2000. Although this 

particular transaction had been coordinated through the information 

technology unit prior to purchase, we physically observed that as of 

July 2002 all but 1 of these computers were still unused, sitting in 

their unopened boxes in a warehouse. Given how quickly computer 

technology advances, those computers will likely never be used by the 

agency. Had there been adequate central oversight, FAA could have 

prevented this purchase or directed the items to a unit that needed 

them. We noted 10 subsequent transactions for the purchase of a total 

of 134 personal computers made by cardholders in the same center as the 

cardholder that purchased the 29 unused computers.



Conclusions:



Although weaknesses with FAA’s purchase card program were reported as 

far back as 1997, FAA has not corrected the identified problems. 

Consequently, improper and questionable purchases continued to occur, 

and numerous items purchased were lost or stolen because appropriate 

accountability had not been established. FAA has taken the first step 

towards addressing some of these issues by establishing new positions 

and responsibilities for overseeing its purchase card program at the 

national level, and issuing new policies to address some of the 

weaknesses identified. However, correcting the problems we identified 

will require a thorough evaluation and strengthening of current 

policies and procedures, a strong commitment at all levels of the 

agency to carrying them out, and appropriate oversight to continually 

assess the effectiveness of its controls. Until this occurs, FAA will 

continue to be exposed to fraud, waste, abuse, and lost assets in 

connection with its purchase card program.



Recommendations for Executive Action:



We recommend that the Administrator of FAA take the following actions 

to strengthen internal controls and compliance in its purchase card 

program, decrease wasteful purchases, and improve the accountability of 

assets in order to reduce FAA’s vulnerability to improper and wasteful 

purchases.



Internal Controls:



With regard to improving FAA’s internal controls over purchasing, we 

recommend that FAA do the following.



* Establish policies and procedures that segregate duties for all 

phases of the purchasing process when using the purchase card. No 

individual should be able to take all the steps needed to request, 

purchase, pick up, and receive goods and services purchased. Such 

policies should also require that responsibilities of the cardholders, 

approving officials, funds certification officers, property 

custodians, and APCs be performed by different people to ensure that 

management controls are not circumvented.



* Develop detailed procedures that specify the type and extent of 

approving official review that is expected. Such procedures might 

include a checklist for approving officials to use in their monthly 

reviews of cardholders’ transactions. At a minimum, these procedures 

should describe the types of supporting documentation that the 

approving official should ensure that the cardholder has provided, such 

as the invoice and/or credit card receipt, certification of funds 

availability, documentation of best value, applicable waivers, PPIMS 

input forms, and written dispute forms for any disputed charges; the 

purchasing requirements that the approving official should review for 

compliance with policies and procedures, such as reviewing for split 

purchases, cash advances, and compliance with purchase card and 

convenience check spending limits and limits for construction and 

nonconstruction services; and a requirement that as evidence of review, 

the approving official sign the cardholder’s monthly billing statement.



* Establish policies and procedures to limit the number of cardholders 

assigned to any one approving official consistent with GSA guidelines.



* Follow up on transactions we identified that were missing invoice 

documentation to determine what was purchased and whether the items 

were for legitimate government needs, and take appropriate disciplinary 

actions as warranted.



* Reiterate records retention policy for purchase card transaction 

files.



* Establish procedures to be performed by the approving official or 

issuing office when a cardholder leaves that office to ensure that his 

or her purchase files are retained in accordance with policy.



* Require refresher training for all cardholders and approving 

officials. Such training should cover the areas discussed in this 

report, such as proper segregation of duties, purchasing policies and 

procedures, approving official responsibilities for reviewing and 

approving individual purchases, and reporting potential purchase card 

fraud and abuse.



* Establish a systematic process that each APC can use to track and 

monitor training for cardholders and approving officials to help ensure 

that they receive (1) training before being granted purchase cards or 

approval authority and (2) timely, periodic refresher training.



* Require initial and periodic refresher training for APCs, the 

national purchase card coordinator, and the national organization 

reporting coordinator that will assist them in carrying out their 

purchase card program management and oversight responsibilities. This 

should include developing a training curriculum specific to FAA 

purchase card policies and procedures.



* Develop a national purchase card program monitoring and oversight 

system that includes assigning specific responsibility for following up 

on the effectiveness of actions to address prior audit or management 

review findings, overseeing local APC activities to ensure that local 

policies and procedures are adequate and consistent FAA-wide, and 

developing and using analytical tools to evaluate overall program 

results.



* Develop operating guidance to assist APCs in performing their 

monitoring responsibilities. At a minimum, the guidance should:



* provide detailed procedures for conducting annual reviews of 

cardholder and approving official activities, including the population 

to use when selecting the sample, the internal controls that should be 

assessed to ensure that they are operating as intended, and data 

analysis techniques and tools to use in analyzing bank electronic data, 

and:



* specify the monthly EAGLS and other reports that should be monitored 

for potential fraud, waste, and abuse.



* Establish procedures to monitor and ensure purchase cards are 

canceled when cardholders leave FAA, are reassigned, or no longer have 

valid needs for the cards.



* Identify cardholders with multiple purchase cards and cancel 

additional cards.



* Establish policies and procedures that prohibit the future issuance 

of multiple cards to cardholders.



* Establish procedures to periodically assess whether each cardholder 

continues to have a valid need for a purchase card and the 

appropriateness of the individual’s spending limits. This should 

include verifying that current APCs and their alternates are not 

purchase cardholders.



Compliance with Purchasing Requirements:



With regard to improving and enforcing compliance with purchasing 

requirements at FAA, we recommend the following.



* Revoke or suspend purchasing authority of cardholders who are found 

to be frequently or flagrantly noncompliant with policies and 

procedures, such as cardholders making split purchases, cash advances, 

or purchases exceeding established dollar thresholds.



* Exercise appropriate disciplinary action against supervisors or 

approving officials who direct or approve purchase transactions that 

are noncompliant with policies and procedures.



* Clarify FAA policy regarding the type of documentation required of 

cardholders, in lieu of a waiver, when not using a JWOD supplier, since 

JWOD suppliers do not issue standard waivers.



Wasteful and Questionable Purchases:



With regard to purchases that may be at an excessive cost or for 

questionable government need, we recommend that FAA do the following.



* Establish agency policies covering the allowability, justifications, 

and approvals required for purchasing items that should be controlled 

or restricted such as store gift cards and food.



* Clarify AMS policy and operating guidance regarding documentation 

requirements for the best value determination, including types of 

acceptable documentation.



* Establish policies and procedures to better limit and control the use 

of third party on-line payment companies as a payment mechanism. This 

might include requiring documented advance approval from the approving 

official to help ensure that the item is needed and that the on-line 

payment company is the only viable method of payment, as well as a 

subsequent verification to help ensure that the item or service 

purportedly purchased was in fact received.



Recording and Safeguarding of Assets:



With regard to improving FAA’s controls over the purchasing, recording, 

and safeguarding of assets, we recommend the following.



* Require centralized receiving and acceptance of accountable assets 

and sensitive property items purchased.



* Establish required time frames for completing and submitting property 

input forms, and for recording accountable assets in the property 

management system.



* Follow up on property items that FAA officials were unable to locate 

at the time of our unannounced inventory to determine whether the items 

were subsequently located and entered into FAA’s property management 

system or whether the items were in fact lost or stolen, and take 

appropriate disciplinary actions as warranted.



* Establish procedures to ensure that appropriate disciplinary action 

is taken against cardholders, approving officials, and/or property 

custodians as applicable who are unable to account for purchased assets 

under their responsibility in order to improve accountability for these 

assets.



* Improve physical security over the storage of computer-related 

equipment, such as placing these items in locked storage until they can 

be entered into the property management system and assigned to users.



* Require purchases of certain assets, such as computer equipment, to 

be coordinated centrally to take advantage of economies of scale, 

standardize types of equipment purchased, and to better ensure bona 

fide government need for each purchase.



Agency Comments and Our Evaluation:



We received written comments from DOT on a draft of this report, which 

are reprinted in appendix I. DOT expressed its commitment to the 

principles of the program and said that FAA has taken or plans to take 

a number of actions to ensure that the issues identified in our report 

are effectively addressed and appropriately enforced. For example, FAA 

established a (1) National Purchase Card Coordinator position to 

provide centralized program monitoring and (2) National Organization 

Reporting Coordinator position to enhance operating guidance and assist 

agency program coordinators in improving guidance for monitoring the 

purchase card program. In addition, FAA has revised its operating 

guidance to assist in strengthening controls over the purchase card 

program. Examples include clarifying segregation of duties 

requirements, specifying the type and extent of the approving official 

review, and developing standard policy guidance requiring that high 

cost or high quantity items be centrally purchased to take advantage of 

economies of scale. Implementation of these and other recommendations 

in our report should greatly reduce FAA’s vulnerability to improper, 

wasteful, and questionable purchases and missing assets.



:



As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 10 days 

after its date. At that time, we will send copies of this report to the 

Ranking Democratic Member, House Committee on Transportation and 

Infrastructure; the Secretary of Transportation; and the FAA 

Administrator. Copies will also be made available to others upon 

request. In addition, the report will be available at no charge on the 

GAO Web site at http://www.gao.gov.



If you have any questions about this report, please contact me at (202) 

512-9508 or calboml@gao.gov; Doreen Eng, Assistant Director, at 

(206) 287-4858 or engd@gao.gov; or Steven Haughton, Assistant Director, 

at (202) 512-5999 or haughtons@gao.gov. Major contributors to this 

report are acknowledged in appendix II.



Sincerely yours,



Linda M. Calbom

Director, Financial Management and Assurance:



Signed by Linda M. Calbom:



[End of section]



Appendixes:



Appendix I: Comments from the Department of Transportation:



U.S. Department of Transportation

Assistant Secretary for Administration

400 Seventh St., S.W.

Washington, D.C. 20590:



MAR 11 2003:



Ms. Linda Calbom:



Director, Financial Management and Assurance, U.S. General Accounting 

Office:



441 G Street, N.W. Washington, D.C. 20548:



Dear Ms. Calbom:



Thank you for the opportunity to comment on the General Accounting 

Office (GAO) draft report about the Federal Aviation Administration’s 

(FAA) purchase card program. Based on input from internal reviews, and 

previous work by the Office of Inspector General (OIG) and GAO, FAA is 

tightening up program controls and improving program operation. Our 

objective is to ensure that all use of the purchase card is 

appropriate, comports with the purchase card program requirements, and 

fulfills the purchase card program objective of improved economy.



To fully appreciate the complexity of the FAA purchase card program, it 

is important to keep an overall perspective of its scope and extent in 

mind. FAA has more than 50,000 employees spread over the 50 United 

States and abroad, in headquarters, 9 regions and 2 centers. Individual 

offices range in size from thousands in headquarters to some as small 

as two to three people. Cumulatively, during FY-2001, the year examined 

in the GAO draft report, FAA made over 364,000 purchase card related 

transactions valued at $151 million.



Extensive Action Taken and Underway To Ensure Effective Controls over 

the Purchase Card Program:



We cannot overemphasize FAA’s commitment to running a sound purchase 

card program in compliance with all applicable requirements. FAA has 

numerous actions completed or underway intended to ensure the program 

functions effectively and within the parameters established by law and 

regulation. In fact, FAA has already completed or taken action on 

recommendations from previous OIG reports, GAO’s recent report on one 

of FAA’s regional operations, and the recommendations included in this 

draft. For example:



* FAA established a National purchase card coordinator position to 

provide National program monitoring and oversight. In addition, a 

National Organization Reporting Coordinator has been established to 

enhance operating guidance and assist agency program coordinators in 

improving guidance for monitoring the purchase card program.



* FAA issued guidance on June 4, 2002, restricting the use of Federal 

funds for purchasing or renting flat panel computer display monitors, 

plasma displays, or personal digital assistants.



* FAA revised its Federal Aviation Administration Acquisition System 

Toolset (FAST) to strengthen controls over the FAA purchase card 

program. These actions included:



* clarifying segregation of duty requirements for the purchasing 
process 

to better ensure objective oversight of purchases; 



* providing detailed procedures specifying the type and extent of 

approving official review that is expected for the purchase card; 



* clarifying requirements and procedures for purchase card record 

retention;



* defining refresher training requirements for both cardholders and 

approving officials;



* developing standard policy guidance requiring that any high-cost, 

high-quantity items such as computer equipment and handheld radios, be 

centrally purchased within a line-of-business, center, or

headquarters to take advantage of economies of scale; and 



* establishing procedures to periodically assess whether each 

cardholder continues to have a valid need for a purchase card.



Overall, we appreciate GAO’s efforts to help us ensure that the FAA’s 

purchase card program functions appropriately and effectively. We 

maintain that the vast preponderance of the 364,000 annual transactions 

are appropriate, and conducted by conscientious individuals, working 

within the program’s guidelines, to fulfill its intent of increasing 

efficiency and reducing costs for the taxpayer. At the same time, we 

recognize the potential for further improvement, and are working hard 

to ensure that all transactions fulfill every program requirement.



If you have any questions, please contact Martin Gertel of my staff on 

(202) 366-5145.



Sincerely,



Signed for Vincent T. Taylor



[End of section]



Appendix II: Staff Acknowledgments:



Acknowledgments:



Staff members who made key contributions to this report include Brooks 

Bare, Beverly Burke, Sharon Byrd, Anh Dang, Christine Fant, Angela 

Fernandez, Richard Kusman, Carla Lewis, and Russell Rowe.



(190043):



:



FOOTNOTES



[1] U.S. Department of Transportation Office of Inspector General, 

Department of Transportation Use of Government Credit Cards, FI-2001-

095 (Washington, D.C.: Sept. 24, 2001).



[2] Operating administrations are the agencies within DOT such as the 

U.S. Coast Guard, the Federal Aviation Administration, and the Federal 

Highway Administration.



[3] U.S. General Accounting Office, FAA Alaska: Weak Controls Resulted 

in Improper and Wasteful Purchases, GAO-02-606 (Washington, D.C.: May 

30, 2002).



[4] Convenience checks issued are charged against the cardholder’s 

purchase card account and are used when the merchant does not accept 

credit cards.



[5] Of these transactions, 12 were identified during our detailed 

sampling, and 42 additional transactions were identified by two of the 

cardholders who had unauthorized purchases in our detailed sample.



[6] The government also uses commercial credit cards for government-

related travel expenditures (travel cards) and for expenditures related 

to the maintenance and operation of government-owned vehicles (fleet 

cards). Travel and fleet cards are not covered within the scope of this 

report.



[7] References to FAA policies in this report refer to policies 

established in AMS, the Toolset, or other FAA orders.



[8] FAA’s organization consists of nine geographical regions, two major 

centers, and its headquarters office.



[9] FAA Order 4650.21C, Management and Control of In-Use Personal 

Property, defines accountable property as a term used to identify 

government property that is required to be recorded in a formal 

personal property accounting system and controlled by an identification 

system and supporting records from acquisition through disposal. The 

type of asset and its cost determine whether it is considered 

accountable property. For example, mandatory sensitive items, such as 

photographic and automated data processing equipment costing $500 and 

above, and all items $2,500 and above are required to be recorded in 

FAA’s property management system.



[10] FI-2001-095.



[11] U.S. Department of Transportation Office of Inspector General, 

Government Credit Card Program Departmentwide, MA-1998-004 

(Washington, D.C.: Nov. 4, 1997).



[12] GAO-02-606.



[13] We excluded FAA’s Alaskan Region from the scope of our review due 

to our ongoing work at that region that included a review of purchase 

card controls and selected purchase card transactions (GAO-02-606). 

FAA’s other regions are the Central, Eastern, Great Lakes, New England, 

Northwest Mountain, Southern, Southwest, and Western Pacific regions. 

The two centers are the Michael Monroney Aeronautical Center and the 

William J. Hughes Technical Center. FAA headquarters consists of the 

Washington, D.C., metropolitan area.



[14] U.S. General Accounting Office, Standards for Internal Control in 

the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 

2000).



[15] U.S. General Accounting Office, Internal Control Management and 

Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).



[16] U.S. General Accounting Office, Guide for Evaluating and Testing 

Controls Over Sensitive Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May 

1993).



[17] U.S. General Accounting Office, Strategies to Manage Improper 

Payments: Learning From Public and Private Sector Organizations, GAO-

02-69G (Washington, D.C.: October 2001).



[18] Data mining applies a search process to a data set, analyzing for 

trends, relationships, and interesting associations. For instance, it 

can be used to efficiently query transaction data for characteristics 

that may indicate potentially improper activity.



[19] The sample population consisted of purchase card charges totaling 

$148.3 million. This excludes adjustments for returned items and 

reversals of disputed charges, as well as Alaskan Region transactions 

since this region was not included in the scope of our audit.



[20] Sensitive property items are especially susceptible to theft, 

loss, or conversion to personal use.



[21] We are 95 percent confident that the total dollar value of 

transactions that lacked adequate segregation of duties was between $36 

million and $52 million.



[22] We are 95 percent confident that the total dollar value of 

transactions that lacked evidence of approving official review was 

between $20 million and $34 million.



[23] The remaining 89 transactions provided no evidence of supervisory 

review.



[24] The name of the second establishment was abbreviated on the bank 

statement, making it less obvious where the charges were made.



[25] The remaining 1,513 approving officials were responsible for 10 or 

fewer cardholders.



[26] We are 95 percent confident that the total dollar value of 

transactions that lacked key supporting documentation was between $3 

million and $13 million.



[27] This category also included several transactions in which FAA 

provided purchase documentation, but the purchase amount on the 

vendor’s invoice, credit card slip, or other store receipt did not 

agree to the amount included on the cardholder’s monthly statement and 

the cardholder was unable to reconcile these two amounts.



[28] We are 95 percent confident that the total dollar value of 

transactions that lacked a written certification that adequate funds 

were available was between $75 million and $93 million.



[29] MA-1998-004.



[30] FI-2001-095.



[31] GAO-02-606.



[32] EAGLS is a Web-based system designed to help APCs perform 

administrative and accounting tasks and analyze program activities on-

line.



[33] Our finding only relates to 11 of 12 APCs because the scope of our 

review excluded the Alaskan Region.



[34] Using data mining, we identified instances where one cardholder 

made multiple purchases from the same vendor on the same day that, in 

total, exceeded the cardholder’s established single purchase limit. We 

then followed up with the APCs and cardholders and, based on the 

documentation and responses provided, determined whether split 

purchases had been made.



[35] FAA must comply with the Service Contract Act of 1965, as amended; 

the applicable provisions of the Fair Labor Standards Act of 1938, as 

amended; and related Secretary of Labor regulations and instructions. 

These laws and regulations govern various labor standards for 

construction and nonconstruction services.



[36] FAA exempts the following types of services from this requirement: 

maintenance, calibration, or repair of automated data processing 

equipment, scientific equipment and medical apparatus, and office or 

business machines.



[37] FAA prohibits the use of the purchase card or convenience checks 

for certain types of services, including advisory and assistance 

services. It defines advisory and assistance services as “those 

services that are provided by nongovernmental sources that support or 

improve agency policy development, decision-making, management, and 

administration, or support or improve the operation of management 

systems. Advisory and assistance services provide outside points of 

view from individuals with special skills or knowledge from industry, 

universities or research foundations. Examples include studies, 

analyses, and evaluations, management and professional support 

including consultants, experts and advisors.”



[38] FAA specifies that this definition includes but is not limited to 

improvements of all types, such as painting, fencing, and carpet 

installation at air traffic control facilities, communication towers, 

radar facilities, and office facilities.



[39] Unlike purchase card transactions, there is no authorization 

process at the point of sale for convenience checks. However, agencies 

may elect to have a dollar limit imprinted on the check, as FAA has 

done.



[40] FAA policy requires that purchasers acquire certain products and 

services from designated mandatory sources, including JWOD Act 

suppliers and UNICOR. FAA purchasers are permitted to purchase from 

other sources only after a mandatory source provides a waiver 

indicating that it cannot provide the requested items. Although FAA’s 

procurement guidance requires that waivers be obtained from both JWOD 

and UNICOR, we found that JWOD suppliers generally do not issue 

waivers. According to the Director of Customer Service for the JWOD 

program, it is not normal practice to issue a waiver for items that are 

not currently available or items that it does not stock. Waivers are 

rarely issued, and if a waiver were granted to an agency, it would most 

likely be in the form of an E-mail. As a result, we accepted any 

documentation that would support that a JWOD supplier did not offer the 

items or that the items were currently unavailable.



[41] We are 95 percent confident that the total dollar value of 

transactions that lacked the required waivers or other supporting 

documentation was between $8 million and 

$10 million.



[42] Simply stated, the bona fide needs rule stands for the proposition 

that a fixed period appropriation may not be used to purchase a future-

year need after the expiration of the appropriation’s period of 

availability for incurring obligations.



[43] The bulk of the purchase was for a line item on the receipt that 

only showed a customer agreement number. We attempted to verify what 

was purchased with the vendor, but due to the age of the receipt, we 

were unable to obtain the detailed information by the time of our 

report.



[44] Due to a lack of documentation and explanation for these 

transactions, we were unable to determine whether any of these charges 

were also improper purchases.



[45] Only 7 of these transactions were selected in the nonstatistical 

or statistical samples and were thus included in the totals shown in 

table 2. The remainder was identified by conducting a query on the 

database for Internet service providers such as those listed.



[46] FAA policy defines best value as a term used during the 

procurement source selection to describe the solution that is most 

advantageous to FAA, based on the evaluation of price and other factors 

specified by FAA.



[47] Not all purchases in our 333-item selection were subject to the 

determination of best value. For example, purchases from required 

sources and purchases made through a single source selection process 

are not subject to the determination of best value requirement. 



[48] We are 95 percent confident that the total dollar value of 

transactions that lacked documentation of the best value determination 

was between $65 million and $84 million.



[49] We estimate that $8 million of the total fiscal year 2001 purchase 

card and convenience check transactions lacked key supporting 

documentation. We are 95 percent confident that the total dollar value 

of transactions that lacked key supporting documentation was between $3 

million and $13 million.



[50] For the remaining 13 transactions, we were unable to determine 

whether the purchase was for a bona fide government need or use. 

Therefore, we included these transactions in table 2 of this report. 



[51] Because FAA also purchased computers and related equipment from 

vendors that sold computers and noncomputer-related items, we could not 

determine the total amount of such equipment FAA purchased.



[52] We identified 92 asset-related transactions in the statistical 

sample. Of the 92, 39 had not been recorded in PPIMS. 



[53] We are 95 percent confident that the total dollar value of 

transactions that were unrecorded in PPIMS was between $14 million and 

$19 million. 



[54] We identified 355 asset-related transactions in the nonstatistical 

sample. Of the 355, 223 (63 percent) had not been recorded in PPIMS.



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