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entitled 'VHA Purchase Cards: Internal Controls Over the Purchase Card 
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Report to the Chairman, Subcommittee on Oversight and Investigations, 
Committee on Veterans' Affairs, House of Representatives: 

June 2004: 

VHA PURCHASE CARDS: 

Internal Controls Over the Purchase Card Program Need Improvement: 

GAO-04-737: 

GAO Highlights: 

Highlights of GAO-04-737, a report to the Chairman, Subcommittee on 
Oversight and Investigations, Committee on Veterans' Affairs, House of 
Representatives. 

Why GAO Did This Study: 

The Department of Veterans Affairs Office of Inspector General (OIG) 
has identified significant vulnerabilities in Veterans Affairs’ (VA) 
use of government purchase cards. In its April 26, 2004 report, the 
OIG reported instances of fraudulent activity totaling $435,900, and 
numerous improper and questionable uses of the purchase cards totaling 
$1.1 million. Given that VHA comprised at least 90 percent of VA’s 
dollar and transaction volume for fiscal year 2002, GAO was asked to 
determine whether existing controls at VHA were designed to provide 
reasonable assurance that in the future, improper purchases would be 
prevented or detected in the normal course of business, purchase card 
and convenience check expenditures were made in compliance with 
applicable laws and regulations, and purchases were made for a 
reasonable cost and a valid government need.

What GAO Found: 

Weaknesses in the Veterans Health Administration’s (VHA) controls over 
use of purchase cards and convenience checks resulted in instances of 
improper, wasteful, and questionable purchases. These internal control 
weaknesses included inadequate segregation of duties; lack of key 
supporting documents; lack of timely recording, reconciling, and 
reviewing of transactions; and insufficient program monitoring 
activities. 

This lack of adequate internal controls resulted in numerous violations 
of applicable laws and regulations and VA/VHA purchase card policies 
that GAO identified as improper purchases. These included purchases 
intended for personal use, purchases made from an improper source, 
purchases split into two or more transactions to circumvent single 
purchase limits, noncompliance with simplified acquisition procedures, 
incorrect procurement procedures, and improper use of convenience 
checks. 

GAO’s work also identified over $300,000 in purchases that were 
considered wasteful – that is, excessive in cost or for questionable 
government need – or were considered questionable because there was 
insufficient or no documentation to determine the propriety of the 
transaction. Examples of wasteful and questionable purchases included 
two purchases for 3,348 movie gift certificates totaling over $30,000 
for employee awards that were not supported by award letters or 
justifications; a purchase for a digital camera totaling $999 when 
there were other less costly digital cameras widely available; and a 
purchase of 3 cases of beer totaling $38. Some examples of questionable 
purchases from vendors that would more likely be selling unauthorized 
or personal use items are shown in the table below.

Examples of Purchases Where No Documentation Was Provided: 

Vendor: Radio Shack; Transaction amount: $3,305;
Vendor: The Sharper Image; Transaction amount: $2,127;
Vendor: The Brass Elephant (a restaurant, fine dining); Transaction 
amount: $2,081;
Vendor: Baltimore Orioles; Transaction amount: $1,705;
Vendor: FFP Palm Computing; Transaction amount: $1,478;
Vendor: Daddy’s Junky Music; Transaction amount: $1,041;
Vendor: Eddie Bauer; Transaction amount: $900;
Vendor: Gap Kids; Transaction amount: $788;
Vendor: Hollywood Beach Country Club; Transaction amount: $500;
Vendor: Southwest Airlines; Transaction amount: $399;
Vendor: Harbor Cruises; Transaction amount: $357;
Vendor: Hecht’s; Transaction amount: $280;
Vendor: L.L. Bean; Transaction amount: $239;
Vendor: Christmas Palace; Transaction amount: $209. 

Source: GAO’s analysis of nonstatistical transactions selected for 
fiscal year 2002.

[End of table]

What GAO Recommends: 

GAO is making 36 recommendations to strengthen VA/VHA’s internal 
controls and compliance in its purchase card program. In responding to 
our draft report, VA generally agreed with our conclusions and 
expressly concurred with 32 of the 36 recommendations. For the 
remaining 4 recommendations, VA, in principle, concurred with 3 of 
these recommendations and presented reasons and/or alternative action 
steps to address the weaknesses identified in our report.

www.gao.gov/cgi-bin/getrpt?GAO-04-737.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact McCoy Williams at (202) 
512-6906 or williamsm1@gao.gov.

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

Scope and Methodology: 

Critical Internal Controls Were Ineffective: 

Noncompliance With Purchasing Requirements Resulted in Instances of 
Improper Purchases: 

Poor Controls Resulted in Some Wasteful and Questionable Purchases: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Comments from the Department of Veterans Affairs: 

GAO Comments: 

Appendix II: Staff Acknowledgments: 

Acknowledgments: 

Tables: 

Table 1: Description of Statistical Samples: 

Table 2: Summarization of VHA Timeliness Standards Exceptions: 

Table 3: Range of Days Departed Cardholder Accounts Remained Open: 

Table 4: Transactions Identified as Wasteful or Questionable: 

Table 5: Examples of Purchases Where No Documentation Was Provided: 

Figure: 

Figure 1: Time Spent on A/OPC Duties: 

Letter June 7, 2004: 

The Honorable Steve Buyer: 
Chairman: 
Subcommittee on Oversight and Investigations: 
Committee on Veterans' Affairs: 
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 administrative 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.

The Department of Veterans Affairs Office of Inspector General (OIG) 
has continued to identify significant vulnerabilities in the Veterans 
Affairs' (VA) use of government purchase cards. On April 26, 2004, the 
OIG issued a report on its evaluation of internal controls over VA's 
purchase card program.[Footnote 1] This report summarizes the results 
of 83 reports issued during the period March 1999 through September 
2003, that stem from various OIG investigations, hotline calls, and 
combined assessment program reviews performed at VA medical facilities 
and regional offices. In its 2004 report, the OIG identified internal 
control weaknesses such as inadequate segregation of duties and 
purchases that lacked supporting documentation. The OIG also reported 
instances of fraudulent activity totaling $435,900, and numerous 
improper and questionable uses of the purchase cards totaling $1.1 
million. The OIG made a number of recommendations for corrective 
action.

Given that VA is the second largest user of the governmentwide purchase 
card program with reported purchases totaling $1.5 billion for fiscal 
year 2002, and because of known program weaknesses previously reported 
by the OIG, you requested that we review the Veterans Health 
Administration's (VHA) purchase card program for fiscal year 2002, 
which comprised at least 90 percent of VA's dollar and transaction 
volume, to determine if control problems still existed.

In response to your request, we initiated a body of work designed to 
determine whether (1) existing controls at VHA were designed to provide 
reasonable assurance that improper purchases would be prevented or 
detected in the normal course of business, (2) the VA's purchase card 
and convenience check expenditures were made in compliance with 
applicable laws and regulations, and (3) purchases were made for a 
reasonable cost and a valid government need. Our review focused on the 
approximately $1.4 billion of disbursements that the VHA made during 
fiscal year 2002, the most recent fiscal year for which complete data 
were available when we began our review.

Results in Brief: 

VHA's internal controls were not designed to provide reasonable 
assurance that improper purchase card and convenience check purchases 
would not occur or would be detected in the normal course of business. 
We found that (1) VHA lacked adequate segregation of duties between 
those purchasing and receiving goods; (2) payments for purchase card 
and convenience check transactions often did not have key supporting 
documents; (3) timeliness standards for recording, reconciling, and 
reviewing transactions were not met; and (4) cardholders did not 
consistently take advantage of vendor-offered purchase discounts. 
Generally, we found that internal controls were not operating as 
intended because cardholders and approving officials were not following 
VA/VHA operating guidance governing the program, and in the case of 
documentation and vendor-offered discounts, lacked guidance. We also 
noted that monitoring activities could be strengthened, such as in 
instances where (1) accounts remained active long after the cardholder 
had left service at VA, (2) credit limits on accounts were 
significantly higher than actual usage, and (3) human capital resources 
were insufficient to enable adequate monitoring of the purchase card 
program.

This lack of adequate internal controls resulted in numerous violations 
of applicable laws and regulations and VA/VHA purchase card policies. 
We classified purchases made in violation of applicable laws and 
regulations or VA/VHA purchase card policies as improper purchases. We 
found violations of applicable laws and regulations that included 
purchases for personal use such as food or clothing, purchases that 
were split into two or more transactions to circumvent single purchase 
limits, purchases over the $2,500 micro-purchase threshold that were 
either beyond the scope of the cardholder's authority and/or lacked 
evidence of competition, and purchases made from an improper source. We 
also found violations of VA/VHA policy that included using convenience 
checks to pay for purchases even though the vendor accepted the 
government purchase card, convenience check payments that exceeded 
established limits, and purchases for which procurement procedures were 
not followed. While the total amount of improper purchases we 
identified, based on limited scale audit work, is relatively small 
compared to the more than $1.4 billion in annual purchase card and 
convenience check transactions, we believe our results demonstrate 
vulnerabilities from weak controls that may have been exploited to a 
much greater extent.

The ineffectiveness of internal controls was also evident in the number 
of transactions that we classified as (1) wasteful, that is, excessive 
in cost compared to other available alternatives or for questionable 
government need or (2) questionable because there was insufficient 
documentation to determine what was purchased. Our work identified over 
$300,000 in wasteful or questionable purchases, including two purchases 
for 3,348 movie gift certificates totaling over $30,000 for employee 
awards where award letters or justification for the awards could not be 
provided; a purchase for a digital camera totaling $999 when there were 
other less costly digital cameras widely available; and a purchase of 3 
cases of beer totaling $38, where the cardholder stated that the 
purchase was made at the request of a VA pharmacy for a patient. We 
also noted 250 questionable purchases totaling $209,496 that lacked key 
purchase documentation from vendors that would more likely be selling 
unauthorized or personal use items. Examples of these types of 
purchases included a purchase from Radio Shack totaling $3,305, a 
purchase from Gap Kids totaling $788, and a purchase from Harbor 
Cruises totaling $357. Missing documentation prevented us from 
determining the reasonableness and validity of these purchases. 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.

Without improvements in its internal controls to strengthen segregation 
of duties, documentation of purchase transactions, timely recording, 
review and reconciliation of transactions, and program monitoring, VHA 
will continue to be at risk for non-compliance with applicable laws and 
regulations and its own policies and remain vulnerable to improper, 
wasteful and questionable purchases. We make 36 recommendations in this 
report to address the internal control and compliance issues we 
identified.

In commenting on a draft of this report, VA generally agreed with our 
conclusions and expressly concurred with 32 of the 36 recommendations. 
For these recommendations, VA reported that it has actions either 
already in place or planned that meet the intent of our 
recommendations. For the remaining four recommendations, VA, in 
principle, concurred with three of these recommendations and presented 
reasons and/or alternative action steps to address the weaknesses 
identified in our report, which we believe are responsive to the intent 
of our recommendations. VA also included some technical comments that 
we have addressed in finalizing our report where appropriate.

Background: 

The General Services Administration (GSA) administers the federal 
government's contracts in support of agencies' purchase card programs. 
GSA contracts with commercial banks to issue purchase cards to federal 
employees to make official government purchases. Citibank issues 
purchase cards to VA operating administrations, including VHA. Use of 
the purchase card is intended to streamline federal agency acquisition 
processes by providing a low-cost, efficient vehicle for obtaining 
goods and services directly from vendors. VA's purchase card program, 
including VHA, also includes the use of convenience checks to pay 
vendors that do not accept purchase cards as payment.

VA is subject to the Federal Acquisition Regulation (FAR), which 
governs the acquisition of goods and services by all executive 
agencies. To implement and supplement these regulations, VA issues the 
Department of Veterans Affairs Acquisition Regulations (VAAR), which 
prescribes VA procurement policies and procedures.

To implement and supplement the VAAR, VA issues directives that set 
forth policy, and handbooks, that prescribe procedures for implementing 
the applicable policy. For the purchase card program, VA issued 
departmentwide guidance, VA Directive 4080, Government Purchase Card 
Policy, and VA Handbook 4080, Government Purchase Card Procedures, both 
dated April 4, 2003. VA has separate policies and procedures for the 
use of convenience checks related to the purchase card program: VA 
Directive 4010, Agent Cashier Policy, and VA Handbook 4010, Agent 
Cashier Procedures, both dated October 17, 1994; and VA Directive 4070, 
Cash Management, and VA Handbook 4070.2, Disbursement Mechanisms, both 
dated April 21, 1997.

VHA Directive 1730.1 Use of the Government Purchase Card in VHA, (May 
19, 2003) and VHA Handbook 1730.1, Use and Management of the Government 
Purchase Card Program (June 14, 2000) provide policies and procedures 
that VHA facilities and program offices must follow when using the 
government purchase card. VHA uses this guidance, in conjunction with 
VA's departmentwide guidance, to operate its VHA purchase card program. 
VA and VHA mandate the use of the purchase card for all micro-purchases 
- acquisitions of supplies and services generally at or below 
$2,500[Footnote 2] and provides that the purchase card must be used to 
the maximum extent practical for all purchases up to the simplified 
acquisition threshold, currently $100,000.[Footnote 3]

In fiscal year 2002, VHA used purchase cards and convenience checks to 
make 2.8 million purchases totaling $1.4 billion. During this time 
frame, about 14,000 of the approximately 188,000 VHA employees, or 7 
percent of the VHA workforce, had purchase cards or convenience check 
accounts. For the purchase cards, a majority of the cardholders had 
single purchase limits between $2,500 and $25,000. For the convenience 
checks, the single purchase limits were either set at $2,500 or 
$10,000.

The VHA Chief Financial Officer (CFO) has overall responsibility for 
the implementation and oversight of the purchase card program within 
VHA. A facility director and/or regional office director at each of 
VHA's 21 Veterans Integrated Service Network (VISN)[Footnote 4] is 
responsible for implementing the purchase card program at the local 
level. These officials are also responsible for designating[Footnote 5] 
an agency or organization program coordinator (A/OPC) to oversee the 
purchase card program at each facility within the director's geographic 
area. There are approximately 162 VHA medical centers and about 148 
local A/OPCs responsible for the primary management of the purchase 
card activity at their facilities.

Generally, at each facility, personnel in three positions - A/OPC, 
cardholder, and approving official - are collectively responsible for 
providing reasonable assurance that purchase card transactions are 
appropriate and meet a valid government need. The A/OPC is responsible 
for the day-to-day management, administration, and oversight of the 
program such as ensuring appropriate training has been provided, 
setting up cardholder and approving official accounts, retrieving and 
canceling all unneeded cards, and performing reviews of purchase card 
activity to ensure compliance with applicable laws, regulations, 
policies and procedures. VHA's purchase card guidance states that the 
A/OPC cannot be a cardholder or an approving official.

The cardholders are responsible for making purchases, inputting 
purchase information in the local purchasing system, maintaining 
supporting documentation, and electronically reconciling their 
purchases by matching the payment charges from the purchase card 
program contractor to the local purchasing system. The approving 
officials, who typically are responsible for more than one cardholder, 
are charged with monitoring purchase card usage to ensure compliance 
with applicable laws and regulations and VA/VHA policies and 
procedures, are to ensure applicable documentation is maintained, and 
according to VHA guidance, certify, through an electronic signature, 
that all procurements are legal and proper and that the items have been 
received. VA's guidance also provides that in most cases, the approving 
official should not be a cardholder. However, where staffing levels 
necessitate, the approving official may be a cardholder, but cannot 
approve his or her own transactions.

VHA's purchase card program also allows the use of convenience checks 
to pay vendors that do not accept credit cards. VA's disbursement 
mechanism policy provides that convenience checks be used in lieu of 
cash but only when the government purchase card cannot be used. Agent 
cashiers are responsible for making payments to the payee upon 
receiving authorization and supporting purchase documentation from the 
office requesting payment, reconciling the check payments as they clear 
VA's purchase card account, and maintaining a copy or carbon copy of 
the check for a period of one year.

On February 12, 1999, the OIG issued a report of VA's purchase card 
program.[Footnote 6] The OIG reported that management controls were not 
effectively implemented to ensure the integrity of the purchase card 
program and that maximum benefits were not being realized. Among other 
things, the OIG found weaknesses related to account reconciliation and 
certification, documentation, split purchases, and safeguarding of 
purchase cards. The OIG made several recommendations for corrective 
action.

During the period March 1999 through September 2003, the OIG issued an 
additional 83 reports that continued to identify internal control 
weaknesses in the VA's purchase card program. A summarization of these 
results, was reported in the OIG's April 26, 2004 report on its 
evaluation of VA's purchase card program. Specifically, during this 
time frame, the OIG reported 5 fraud cases totaling $435,900. The fraud 
cases involved former and current employees and in one instance, a non-
VA employee. Items purchased included computers, televisions, stereos, 
DVD and CD players, a diamond ring, and other merchandise. The OIG 
reported that generally, cardholders were able to commit purchase card 
fraud because approving officials did not ensure that purchases were 
legal and proper and that items had been received and were for official 
government use.

In addition, the OIG reported it had identified 457 improper or 
questionable purchases totaling $1.1 million that did not comply with 
the FAR, VA policy, or were not adequately supported by documentation. 
The improper and questionable purchases included (1) procurements over 
the $2,500 micro-purchase threshold without the use of competition, (2) 
purchases split into two or more transactions to circumvent the micro-
purchase limit, (3) use of the purchase card by someone other than the 
cardholder, and (4) recurring purchases from the same vendor where the 
cardholders did not maintain vendor documentation to support the 
purchases. The OIG made two new recommendations in its 2004 report that 
(1) direct VA facility managers to conduct quarterly audits, (2) 
provide for the development and implementation of procedures and 
checklists for approving officials to use in monitoring cardholder 
activity, (3) update VA's purchase card policy to include span of 
control criteria for approving officials, and (4) expand internal audit 
procedures to include identifying questionable purchases through data 
mining. The OIG reported that the Under Secretary for Health, the Under 
Secretary for Benefits, and the Assistant Secretary for Management 
agreed with the findings and recommendations and provided acceptable 
improvement plans.

Scope and Methodology: 

To determine whether existing controls at VHA were designed to provide 
reasonable assurance that improper purchases would be prevented or 
detected in a normal course of business, we obtained an understanding 
of VA/VHA's purchase card and convenience check policies and 
procedures, and the related internal controls. We then assessed the 
adequacy of those controls using various GAO prescribed guidance and by 
performing detailed tests of transactions. Specifically, we: 

* reviewed applicable laws and regulations, VA and VHA directives and 
handbooks, and previous reports issued by VA's OIG,

* conducted walkthroughs and telephone interviews with VHA personnel to 
identify key purchase card and convenience check policies and 
procedures,

* assessed the adequacy of internal controls, using our Audit Guide: 
Auditing and Investigating the Internal Control of Government Purchase 
Card Programs,[Footnote 7] Standards for Internal Control in the 
Federal Government,[Footnote 8] Internal Control Management and 
Evaluation Tool,[Footnote 9] Guide for Evaluating and Testing Controls 
Over Sensitive Payments,[Footnote 10] and Executive Guide: Strategies 
to Manage Improper Payments,[Footnote 11] and: 

* performed tests of those control activities that we considered to be 
key in creating a system to provide reasonable assurance that 
transactions are correct and proper throughout the purchase card 
procurement process and convenience check payment process. The key 
internal control activities we tested included the following.

* Segregation of duties - (1) independent receiving and acceptance of 
goods and services by someone other than the cardholder, and (2) 
dividing key duties and responsibilities among different people to 
reduce the risk of error or fraud,

* Adequate supporting documentation - (1) cardholders and agent 
cashiers obtaining and maintaining invoices or other documentation that 
support their purchases and provide a basis for reconciling purchases, 
(2) agent cashiers obtaining written authorization to disburse funds 
for payment, and (3) agent cashiers maintaining copies of checks 
issued, and: 

* Timely recording of transactions and events - prompt recording, 
reconciliation, and review of transactions in VHA's electronic purchase 
card order system.

In addition, although not a primary focus of the internal control 
testing, we reviewed purchase card and convenience check supporting 
documentation to determine whether any vendor-offered discounts were 
taken for purchased goods. We also inquired of and reviewed VHA's 
monitoring procedures over the purchase card program to determine if 
ongoing monitoring occurred in the normal course of operations.

To determine whether purchase card and convenience check expenditures 
were made in compliance with applicable laws and regulations, we 
reviewed the Federal Acquisition Regulation, VA's acquisition 
regulation, and VA/VHA policies and procedures, and performed tests of 
federal and agency acquisition requirements related to the purchase 
card procurement process and convenience check payment process.

To perform tests of internal controls and applicable laws and 
regulations, we selected purchase card and convenience check 
transactions using two different methods. For each method of selection, 
we provided VHA with the transactions selected and obtained and 
reviewed related supporting documentation. The two methods are as 
follows.

* Data Mining.[Footnote 12] We performed data mining on VA's Financial 
Service Center (FSC)[Footnote 13] database of fiscal year 2002 purchase 
card and convenience check transactions for indicators of potential 
noncompliance with established policies and procedures. Specifically, 
we looked for purchases that were split into two or more transactions 
to circumvent single purchase limits, convenience check purchases that 
exceeded established limits, purchases made against designated blocked 
merchant category codes (MCCs),[Footnote 14] A/OPCs with card accounts, 
cardholders who were payees on convenience checks, ratio of cardholders 
assigned to approving officials, comparison of single and monthly 
credit limits to actual purchase card activity, former employees who 
had active purchase card accounts after their separation dates, and 
purchases from vendors on the Department of Health and Human Services 
Office of Inspector General (DHHS OIG) Exclusion List.[Footnote 15] We 
forwarded the results of the transactions that met the specific 
criteria to the VHA Central Office in Washington, D.C. to obtain 
responses and related documentation, which we used to assess whether in 
fact these were violations of applicable laws and regulations or 
policy.

We also asked Citibank, VHA's purchase card program contractor, to 
extract from its database of VHA cardholders, all inactive VHA purchase 
card accounts. We analyzed this data and forwarded our results to the 
VHA Central Office for further review and assessment of cardholders' 
ongoing need for the card.

* Statistical Sampling. We selected five stratified random statistical 
samples of purchase card and convenience check transactions from five 
populations of purchase card and convenience check transactions paid 
from October 1, 2001 through September 30, 2002. See table 1 below for 
a description of each sample and their related populations which were 
aggregated from a database of all purchase card and convenience check 
transactions for fiscal year 2002 to test specific control activities 
and compliance with applicable laws and regulations, and policies. We 
stratified transactions in each sample on the basis of the total dollar 
values for each population. Sample units in each sample were 
subsequently weighted in the analysis to account statistically for all 
the transactions in the population, including those that were not 
selected. Results from these statistical samples were projected to 
their respective populations of purchase card and convenience check 
transactions for fiscal year 2002.

Table 1: Description of Statistical Samples: 

Sample Description: Internal control - purchase cards; 
Sample Type: Stratified random; 
Number of Strata: 10; 
Sample Size: 283; 
Total Number of Transactions in the Population: 1,884,695; 
Total Dollar Value of Sampled Transactions: $4,766,287; 
Total Dollar Value of Transactions in the Population: $1,309,391,363.

Sample Description: Internal control - convenience checks; 
Sample Type: Stratified random; 
Number of Strata: 8; 
Sample Size: 255; 
Total Number of Transactions in the Population: 82,582; 
Total Dollar Value of Sampled Transactions: $358,917; 
Total Dollar Value of Transactions in the Population: $30,675,553.

Sample Description: Split purchases - purchase cards; 
Sample Type: Stratified random; 
Number of Strata: 9; 
Sample Size: 280; 
Total Number of Transactions in the Population: 63,502; 
Total Dollar Value of Sampled Transactions: $4,047,212; 
Total Dollar Value of Transactions in the Population: $89,365,980.

Sample Description: Exceeding limits - convenience checks; 
Sample Type: Stratified random; 
Number of Strata: 3; 
Sample Size: 105; 
Total Number of Transactions in the Population: 5,925; 
Total Dollar Value of Sampled Transactions: $403,553; 
Total Dollar Value of Transactions in the Population: $14,230,649.

Sample Description: Purchases greater than $2,500; 
Sample Type: Simple random; 
Number of Strata: Not applicable; 
Sample Size: 76; 
Total Number of Transactions in the Population: 84,375; 
Total Dollar Value of Sampled Transactions: $435,249; 
Total Dollar Value of Transactions in the Population: $546,026,889. 

Source: GAO statistically determined samples for fiscal year 2002 
testing.

[End of table]

To determine whether purchases were made for a reasonable cost and a 
valid government need, we 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 2002 
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; purchases from 
travel-related vendors; and purchases of sensitive assets. This 
resulted in tens of thousands of transactions identified, from which we 
then selected 982 transactions totaling $1.2 million to test whether 
these purchases were made at excessive cost and/or for questionable 
government need, and whether they complied with select purchasing 
regulations, policies, and procedures.

While we identified some improper purchases, our work was not designed 
to identify all fraudulent or otherwise improper purchases made by VA. 
We conducted our review from April 2003 through April 2004 in 
accordance with generally accepted government auditing standards.

Critical Internal Controls Were Ineffective: 

VHA's internal controls were not designed to provide reasonable 
assurance that improper purchase card and convenience check purchases 
would not occur or would be detected in the normal course of business. 
We found that VHA lacked adequate segregation of duties between 
purchasing and receiving goods; that purchase card and convenience 
check transactions often did not have key supporting documents; that 
timeliness standards for recording, reconciling, and reviewing 
transactions were not met; and that cardholders did not consistently 
take advantage of vendor-offered purchase discounts. Generally, we 
found that internal controls were not operating as intended because 
cardholders and approving officials were not following VA/VHA operating 
guidance governing the program, and in the case of documentation and 
vendor-offered discounts, lacked guidance. We also noted instances 
where monitoring activities could be strengthened through prescribed 
operating procedures to decrease the risk of improper purchases.

Effective internal controls are the first line of defense in 
safeguarding assets and in preventing and detecting fraud. In addition, 
they help to ensure that actions are taken to address risks, and are an 
integral part of an entity's accountability for the stewardship of 
government resources. 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) all transactions and other significant events be clearly 
documented and readily available for examination, and other significant 
events be authorized and executed only by persons acting within the 
scope of their authority, (3) transactions should be promptly recorded 
to maintain their relevance and value to management in controlling 
operations and decisions, and (4) internal control monitoring be 
performed to assess the quality of performance over time and ensure 
that audit findings are promptly resolved. Similarly, internal control 
activities help ensure that management's directives are carried out. 
The control activities should be effective and efficient in 
accomplishing the agency's control objectives. Control activities occur 
at all levels and functions of the entity. They include a wide range of 
diverse activities such as approvals, authorizations, verifications, 
reconciliations, performance reviews, and the production of records and 
documentation.

Segregation of Purchasing Duties Was Inadequate: 

VHA lacked adequate segregation of duties regarding independent 
receiving of goods and separation of responsibilities within the 
purchasing process. Independent receiving-receiving of goods and 
services by someone other than the cardholder-provides additional 
assurance that purchased items are not acquired for personal use and 
that the purchased items come into the possession of the government. 
Such separation of responsibilities within the purchasing process 
reduces the risk of error or fraud. From our purchase card internal 
control testing, we estimate that $75 million[Footnote 16] in 
transactions did not have evidence that independent receiving of goods 
had occurred. In addition, our data mining of the purchase card and 
convenience check activity identified 15 A/OPCs who were also 
cardholders that collectively made 9,411 purchases totaling $5.5 
million during fiscal year 2002. Because A/OPCs are responsible for 
monitoring cardholders' and approving officials' activities for 
indications of fraud, waste, and abuse, these A/OPCs were essentially 
monitoring their own activities.

VA's and VHA's purchase card guidance varied regarding segregation of 
duties within the purchasing process. VHA's guidance does not require 
independent receiving by someone other than the cardholder; however, it 
does state that cardholders are responsible for ensuring that goods and 
services ordered are received. In addition, VA's current guidance, 
dated April 4, 2003, makes no mention of the receiving function 
regarding cardholder purchases. The guidance only requires a clear 
separation of duties for authorizing transactions, making purchases, 
and recording transactions.

Although there is no written agency-wide requirement for independent 
receiving, agency officials informed us that the purchase card order 
system includes an option that allows for independent receiving when a 
cardholder creates a detailed purchase card order[Footnote 17] in the 
system. Specifically, the cardholder can select an option that requires 
independent receiving of goods at the applicable VHA facility 
warehouse. Once goods are physically received and notated to that 
effect via an electronic signature in the purchase card order system, 
the cardholder can print the receiving report and maintain it in his or 
her files. Although this option is available, we found that cardholders 
did not consistently select the detailed process option when creating a 
purchase card order in the system. One of the factors contributing to 
this inconsistency is the ambiguity of the criteria that VA has 
instituted for determining when the detailed process option should be 
selected for creating a purchase card order. According to the purchase 
card order system's user guide, the cardholder should use the detailed 
process option to keep track of specific items in the inventory system. 
However, this user guide does not identify the types of procured goods 
that should be inventoried, tracked, and accounted for by this system.

To test the independent receiving function, we requested certain system 
data print screens for each transaction included in the purchase card 
internal control sample to determine whether the cardholder had created 
a detailed purchase card order that would allow for independent 
receiving. From the documentation provided, we determined that 142 of 
the 283 sample transactions were detailed purchase card orders and 
thus, had characteristics of independent receiving. Of the 142, we 
found 16 transactions totaling $70,475 where cardholders did not 
provide evidence that independent receiving had occurred. Based on the 
results of our review, we estimate that $75 million[Footnote 18] of the 
total sampled population of purchase card transactions lacked evidence 
of independent receiving. We believe documented independent receiving 
is a basic internal control activity that provides additional assurance 
to the government that purchased items come into the possession of the 
government.

Another weakness we identified regarding segregation of duties included 
A/OPCs who are also cardholders. VHA's purchase card guidance 
explicitly prohibits A/OPCs from being cardholders. When A/OPCs perform 
in this dual capacity, they are essentially monitoring their own 
activities. During our data mining of the purchase card and convenience 
check activity, we identified 15 of 180 A/OPCs who were also 
cardholders and had collectively made 9,411 purchases totaling $5.5 
million during fiscal year 2002. When we inquired about the dual 
responsibilities, we were told that certain VHA facilities cannot 
adequately segregate purchasing duties because of the small number of 
employees located at those sites and that management is aware of the 
dual responsibilities. Although this segregation of duties issue was 
prevalent during fiscal year 2002, our period of review, it has been 
largely rectified, since all but one A/OPC account had been closed as 
of the end of fieldwork. Regarding the open account, the national 
program coordinator provided us a copy of a memorandum, dated December 
1, 1997, from the Chief of Acquisition and Material Management to the 
director of that facility requesting approval to keep the A/OPC as a 
cardholder because the office has no other staff to perform these 
cardholder responsibilities. In the memorandum, the Chief also stated 
that the office has a "double check audit" in place to ensure there are 
no problems with any of the A/OPC's purchases.

Purchases Lacked Key Documentation: 

We found instances where purchase card and convenience check 
transactions lacked key supporting documentation such as internal 
written authorization for convenience check disbursements and vendor 
invoices that independently support the description and quantity of 
what was purchased and the price paid. We also found that VHA's 
purchase card guidance does not address the types of documentation that 
cardholders should maintain to support purchases made. The guidance 
only addresses documentation requirements in its audit guide, which is 
an appendix to the purchase card guidance that provides instructions to 
internal reviewers when performing their monitoring functions. 
Furthermore, we noted that VA's operating guidance for convenience 
checks has no requirement that vendor documentation be provided before 
checks are issued. The guidance only provides that sufficient 
documentation, such as a VA-created purchase order, must be evident 
before checks are issued.

The invoice is a key document in purchase card internal control 
activities. Without an invoice, independent evidence of the description 
and quantity of what was purchased and the price charged is not 
available. In addition, the invoice is the basic document that should 
be forwarded to the approving official or supervisor so that he or she 
can perform an adequate review of the cardholder's purchases.

In testing for evidence of an invoice, we accepted either a copy of the 
invoice, sales receipt, packing slip, in cases where the item 
description could be directly traced to the cardholder's detailed 
purchase card order, and the purchase card order amount agreed to the 
charged amount, or other store receipt. Of the 283 purchase card sample 
transactions, 74 transactions totaling $2.1 million lacked an invoice, 
credit card slip, or other adequate vendor documentation to support the 
purchase. Based on these results, we estimate that $312.8 
million[Footnote 19] of the fiscal year 2002 purchase card transactions 
lacked key supporting documentation. For the convenience check sample, 
we found 35 of 255 transactions totaling $43,669 lacked the same key 
documentation. Based on these results, we estimate that $3.8 
million[Footnote 20] of the fiscal year 2002 convenience check 
transactions lacked key supporting documentation.

We also noted missing documentation in the other three statistical 
samples (purchases over $2,500, purchase card split purchases, and 
convenience checks exceeding established limits) and one nonstatistical 
sample. For the three statistical samples, in instances where VHA did 
not provide documentation to us to perform our test work, we reported 
these purchases as exceptions for each attribute tested. Based on our 
audit work, we estimate that $45.9 million[Footnote 21] of the fiscal 
year 2002 purchase card and convenience check transactions had missing 
documentation. For the nonstatistical sample, we reported all 
transactions with key missing documentation as questionable 
transactions, as discussed later in this report. In some instances, 
cardholders or others told us that the invoice or other file 
documentation had been lost, sent to storage, destroyed after a year, 
or not retained when the cardholder retired or separated from VA. 
However, there were instances for which no explanation was provided as 
to why cardholders could not submit supporting documentation as of the 
end of our fieldwork. Without such documentation, we could not verify 
what was purchased, whether it was for a legitimate government purpose, 
or complied with acquisition requirements.

A valid invoice to show what was purchased and the price paid is a 
basic document for the transactions, and a missing invoice could be an 
indicator of potential fraud. Without an invoice, two key internal 
control activities-independent receiving and approving official 
review-become ineffective. Independent receiving cannot confirm that 
the purchased items were received and the approving official cannot 
review a cardholder's reconciled purchase with the supporting invoice. 
A near zero failure rate is a reasonable goal considering that invoices 
are easily obtained or replaced when inadvertently lost.

VA's operating guidance over convenience checks does not provide 
detailed procedures regarding appropriate written documentation or 
authorization that is required to be forwarded to the authorizing 
employee (agent cashier) prior to the disbursement of funds to a third 
party. VA's operating guidance only provides that the required 
documentation be the same as that for paying with cash such as a 
purchase order. The guidance makes no mention of independent vendor 
documentation and that this type of documentation be required prior to 
issuing checks to vendors. In addition, VA's guidance requires that the 
agent cashiers issuing convenience checks retain copies of issued 
convenience checks for only one year. This documentation requirement is 
inconsistent with the Federal Acquisition Regulation and VHA's Records, 
Control Schedule 10-1, dated February 14, 2002, which requires that 
such records be retained for 6 years and 3 months after final payment 
for procurements exceeding the simplified acquisition threshold and for 
3 years after final payment for procurements below the simplified 
acquisition threshold.[Footnote 22]

In testing for evidence of written authorization, we accepted either a 
copy of a purchase order, standard forms VA uses for certain types of 
expenditures such as salary and travel, or signed internal memorandums. 
Of the 255 convenience check transactions, 17 transactions totaling 
$8,890 lacked written authorization needed to issue the convenience 
check. Based on these results, we estimate that $1.7 million[Footnote 
23] of the fiscal year 2002 convenience check transactions lacked 
written authorization. In addition, we noted that 19 of the 255 
convenience check transactions lacked a copy of the check or carbon 
copy. Based on these results, we estimate that $2.3 million[Footnote 
24] of the fiscal year 2002 convenience check transactions lacked this 
supporting documentation. Although VA only requires copies of 
convenience checks to be retained for one-year, retaining the copies 
and the supporting documentation for the longer retention period 
mandated by the FAR and incorporated in VHA's Records, Control Schedule 
10-1, would facilitate subsequent internal and external reviews in 
assessing whether or not transaction activity was proper and in 
compliance with acquisition policies and procedures.

Timeliness Standards Were Not Met for Recording, Reconciling and 
Reviewing Transactions: 

As part of the purchase card process, VHA has established several 
timeliness standards that cardholders and approving officials must meet 
to ensure prompt recording, reconciliation, and review of purchases. 
Specifically, within 1 workday of making a purchase, cardholders are 
required to input or record the purchase information in VA's purchase 
card order system. Within 10 calendar days of electronically receiving 
the transaction charge information from Citibank, the cardholder must 
reconcile 75 percent of these Citibank charges to the purchase 
information in the system. Within 17 calendar days, 95 percent of the 
Citibank charges must be reconciled. As evidence of reconciliation, the 
purchase card order system assigns the date the cardholder reconciled 
the purchase in the system. For testing the timeliness of cardholder 
reconciliations, we used the 17 calendar day criteria. In addition, VHA 
requires that within 14 calendar days of electronically receiving the 
cardholder's reconciled purchases, that the approving official, through 
an electronic signature, certify in the purchase card order system that 
all procurements are legal, proper, and have been received.[Footnote 
25]

Table 2 summarizes the statistical results of VHA's timeliness 
standards that cardholders and approving officials must meet to ensure 
prompt recording, reconciliation, and review of purchases. Our work 
shows that the internal controls were not operating as intended to 
ensure prompt recording of transactions and events.

Table 2: Summarization of VHA Timeliness Standards Exceptions: 

VHA Timeliness Tests of Purchase Card Order System: Purchase card 
orders were entered within 1 day; 
Number of Sample Transactions in Error: 36; 
Estimated Total Number of Transactions in Error: 289,352; 
Confidence Interval at a 95 Percent Confidence Level: 164,100 - 
458,414; 
Estimated Dollar Value of Amount in Error: (in millions): $152.5; 
Confidence Interval at a 95 Percent Confidence Level: (in millions): 
$99.9 - $205.1.

VHA Timeliness Tests of Purchase Card Order System: Cardholder 
reconciliation within 17 days; 
Number of Sample Transactions in Error: 53; 
Estimated Total Number of Transactions in Error: 351,256; 
Confidence Interval at a 95 Percent Confidence Level: 216,683 - 
522,909; 
Estimated Dollar Value of Amount in Error: (in millions): $252.7; 
Confidence Interval at a 95 Percent Confidence Level: (in millions): 
$184.4 - $321.0.

VHA Timeliness Tests of Purchase Card Order System: Approving official 
certification within 14 days; 
Number of Sample Transactions in Error: 44; 
Estimated Total Number of Transactions in Error: 308,448; 
Confidence Interval at a 95 Percent Confidence Level: 181,930 - 
475,207; 
Estimated Dollar Value of Amount in Error: (in millions): $212.4; 
Confidence Interval at a 95 Percent Confidence Level: (in millions): 
$149.2 - $275.7. 

Source: GAO's estimate of the audit results for 283 sampled 
transactions selected to test VHA timeliness standards for fiscal year 
2002. The population total of transactions from which this stratified 
random sample was selected was 1,884,695.

[End of table]

The following examples illustrate the extent of untimely recording, 
reconciliation, and review of the purchase card transactions.

* Untimely recording. A cardholder made a purchase on July 9, 2002 for 
$994, but did not input information into the VA's purchase card order 
system until August 29, 2002 or 51 days later. According to VHA policy, 
the cardholder was required to input information about this purchase 
within one workday of making a purchase. The purpose of this timeliness 
standard is to ensure that VHA has proper control over the obligation 
and expenditure of its resources. By allowing this timeliness standard 
to be circumvented, VHA has less control over its financial resources.

* Untimely reconciliation. A cardholder made a purchase of $100 on 
August 24, 2002. Citibank electronically sent charge information to VHA 
for this purchase on October 8, 2002. According to the VHA policy, the 
cardholder should have reconciled this charge within 17 days, or by 
October 25, 2002, of receiving the Citibank charge information to meet 
the 95 percent reconciliation timeliness standard. However, the 
cardholder did not reconcile this charge until September 8, 2003, or 
335 days later after receiving the Citibank charge information. The 
purpose of cardholder reconciliation is to detect invalid transactions, 
including billing errors and unauthorized purchases. If cardholders do 
not promptly reconcile their purchase card charges, the risk increases 
that fraudulent, improper, and wasteful purchase card expenditures 
could occur and go undetected.

Also, during our review of cardholder reconciliations, we found 17 
instances of cardholders who had electronically notated that the 
reconciliation had been completed, but the invoice amount and the 
charged amount did not agree and there was no documentation to explain 
the difference. VHA's purchase card guidance requires that cardholders 
match Citibank payment charges to VA's purchase card order system 
within VHA's prescribed tolerance level, currently $100 or 10 percent, 
whichever is less.[Footnote 26] However, VHA's guidance only requires 
that cardholders provide a written explanation when differences, at the 
prescribed tolerance level, occur between the vendor invoice amount and 
Citibank payment charged amount. Cardholders are not required to 
document any differences below the prescribed tolerance level. We 
believe cardholder reconciliation is a key control activity for 
detecting invalid transactions, including billings and unauthorized 
purchases. Documenting any difference between the invoice amount and 
payment charged amount provides additional assurances that transactions 
are properly reconciled and charged amounts are correct. We brought 
this issue to the attention of several VHA officials. VHA officials 
agreed that cardholders should explain any difference in the purchase 
card order system and said they would proceed to have VHA's purchase 
card guidance revised to clarify this cardholder responsibility.

* Approving Official Review. A cardholder reconciled his purchase card 
transaction totaling $3,149 on December 21, 2002. According to the VHA 
policy, the approving official should review the reconciled purchase 
and certify within 14 calendar days that the purchase was legal, 
proper, and has been received. We noted that for this transaction, 
there was no evidence that the approving official reviewed this 
cardholder's reconciliation until August 6, 2003 or 227 days later from 
the receipt of cardholder reconciliation. The purpose of an independent 
approving official review of reconciled cardholder purchase card 
transactions is to ensure that key responsibilities in the purchase 
card program are segregated and that no one individual has control over 
all aspects of a purchase card transaction. If approving officials do 
not promptly review cardholder purchase card transactions, VHA has no 
assurance that purchase card activity did not involve fraudulent, 
improper, or wasteful transactions.

It is critical that cardholders and approving officials promptly 
record, reconcile, and review purchase card transactions so that 
erroneous charges can be quickly disputed with the vendor and any 
fraudulent, improper, or wasteful purchases can be quickly detected and 
acted upon.

Vendor Discounts Not Consistently Taken: 

From our detailed tests of transactions, we found instances where 
cardholders did not consistently take advantage of vendor-offered 
purchase discounts. Specifically, we identified 69 invoices containing 
vendor-offered discounts totaling $15,785 that were available to the 
cardholder, but not taken at the time of purchase or subsequently 
credited for the discount amount, as evident by the amount charged to 
the cardholders' account. When purchases are made, vendors may offer 
purchase discounts if buyers make early payments of their invoices. 
Typically, the vendor specifies a period of time during which the 
discount is offered, but expects the full invoice amount for payments 
made after that period. When cardholders use the purchase card, payment 
to vendors, via Citibank, generally occurs at the time of purchase. In 
turn, Citibank bills VA for the purchases through a daily electronic 
file. VA makes daily payments to Citibank to pay charges made from the 
previous day. Therefore, it is critical that cardholders inquire of any 
vendor-offered discounts at the time of purchase and make efforts to 
obtain a credit upon receipt and review of the invoice. Our detailed 
testing indicated that VHA did not always take advantage of vendor-
offered discounts and that VHA lacked purchase card guidance to ensure 
cardholders inquired of or reviewed vendor payment terms to determine 
whether discounts were being offered for the applicable goods and 
services rendered.

For example, one vendor offered VHA a discount of 2.9 percent, or $896, 
for an invoice amount of $30,888, if paid within 15 days. Citibank, on 
behalf of VA, made payment to the vendor within the 15-day timeframe, 
yet the vendor charged the cardholder's account for the full invoice 
amount. We found no evidence that the cardholder attempted to obtain a 
credit for the available discount offered. In another example, we found 
that a cardholder had taken advantage of the vendor-offered discount. 
The vendor offered VHA a discount of 3 percent, or $180, for an invoice 
amount of $6,000, if paid within 30 days. We noted that the vendor 
charged the cardholder's account for the discount amount of $5,820.

A factor that may contribute to cardholder inconsistencies for taking 
advantage of vendor discounts is the lack of established policies and 
procedures that address this issue. Specifically, we found that VHA's 
purchase card guidance did not include established procedures to ensure 
cardholders take advantage of available vendor discounts prior to 
making payments, or require that approving officials identify instances 
when cardholders did not take advantage of vendor discounts in order to 
determine the frequency of these occurrences. Without such guidance, 
VHA will not be able to determine the extent of this type of occurrence 
and actual dollars lost to the government.

Program Monitoring Improvements Could Be Made: 

Our review found that VHA's monitoring requirements lacked procedures 
to ensure that cardholder accounts were cancelled promptly when an 
employee left service and that cardholder credit limits were based on 
actual spending patterns. In addition, we found that VHA management has 
not provided sufficient human capital resources at the A/OPC level, to 
enable adequate monitoring of the purchase card program. Our Standards 
of Internal Control state that internal control monitoring assess the 
quality of performance over time and that ongoing monitoring should 
occur in the course of normal operations. It includes regular 
management and supervisory activities, comparisons, reconciliations, 
and other actions people take in performing their duties.

VHA's purchase card guidance includes prescribed monitoring procedures 
over its purchase card program to help ensure purchases are legal and 
proper. For example, the purchase card guidance requires that on a 
monthly basis, the Head of the Contracting Activity office at each VHA 
facility, the A/OPC and billing officer, perform joint reviews to 
include various aspects of the purchase process, such as proper 
accounting of purchases; proper oversight to ensure purchases were for 
a legitimate government need; and timely recording, reconciliation, and 
review of purchases. Although VHA's guidance requires these reviews, we 
found no monitoring procedures to identify active accounts of 
cardholders who had separated from VA nor provisions for ongoing 
assessment of cardholders' credit limits. We also noted insufficient 
human capital resources at the A/OPC level, for executing the 
prescribed monitoring activities over its purchase card program.

* Prompt cancellation of departing cardholder accounts. We identified 
18 instances of purchase card accounts that remained active after the 
cardholder separated from VA and all related outstanding purchase 
orders had been reconciled. Specifically, we found that the 
cancellation of these accounts varied from the date that the last 
purchase had been reconciled, ranging from 1 day to 339 days. Of the 18 
purchase card accounts that remained active after the cardholder had 
left VA, we determined that 14 accounts remained active 6 or more days 
after the cardholders' outstanding purchase orders had been reconciled, 
which we deemed too long.[Footnote 27] For example, one cardholder 
separated from VA on April 3, 2002 with 5 outstanding purchase card 
orders that were made against the cardholder's account prior to 
separation. The last purchase transaction was reconciled on May 21, 
2002, but the account was not canceled until April 25, 2003, or 339 
days after reconciliation.

According to VHA's purchase card guidance, departed cardholders are 
responsible for turning in their purchase card to the A/OPC in 
accordance with facility procedures, and providing the approving 
official with records of outstanding orders and unreconciled charges 
prior to leaving service. The approving official is responsible for 
ensuring a designated alternate approving official takes appropriate 
action necessary to complete the pending orders of departed cardholders 
and notifies the A/OPC when the last purchase has been reconciled so 
that the card account will be canceled promptly. However, VHA has no 
specific procedures for determining the time period for prompt 
cancellation of card accounts once all outstanding orders have been 
reconciled. As a result, for analysis purposes, we determined that 
untimely cancellation of cardholder accounts occurred when accounts 
were not canceled within 5 days of the reconciliation date for the last 
purchase charged against that account, as shown in table 3 below.

Table 3: Range of Days Departed Cardholder Accounts Remained Open: 

Range of Days Accounts Remained Open: 6-50 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 5.

Range of Days Accounts Remained Open: 51-100 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 4.

Range of Days Accounts Remained Open: 101-150 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 2.

Range of Days Accounts Remained Open: 151-200 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 0.

Range of Days Accounts Remained Open: 201-250 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 1.

Range of Days Accounts Remained Open: 251-300 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 1.

Range of Days Accounts Remained Open: 301-339 days; 
Number of Departed Cardholders' Accounts That Were Untimely Cancelled 
Within the Range of Days: 1. 

Source: GAO's analysis of VHA departed cardholder accounts that were 
untimely cancelled in fiscal year 2002.

[End of table]

In addition to the above analysis, we also identified 3 card accounts 
from two VHA facilities where the applicable A/OPC did not provide us 
the necessary documentation as of the end of our audit fieldwork to 
determine the time period when the departed cardholders' accounts had 
been canceled once the transactions against their accounts had been 
reconciled. Therefore, we were unable to determine if these departed 
cardholder accounts had been promptly canceled once all outstanding 
purchase orders had been reconciled. Requiring monitoring procedures to 
identify active accounts of departed cardholders and ensure prompt 
closure once outstanding purchase orders have been reconciled would 
assist in reducing the risk of fraud, waste, and abuse that could occur 
when accounts remain open beyond the necessary time frame.

* Reasonableness of cardholder credit limits. Our analysis of purchases 
VHA cardholders made in fiscal year 2002 showed that, on average per 
month, cardholders cumulatively purchased $112 million of goods and 
services, but they had credit limits of $1.2 billion or 11 times their 
actual spending. The difference between the cumulative credit limits of 
$1.2 billion and actual spending of $112 million per month on average 
represents a monthly financial exposure of $1.1 billion to VHA. For 
example, we identified 5 cardholders with monthly credit limits of 
about $10 million each, yet each cardholder's average purchases for one 
month only totaled $111,310.

According to VHA's purchase card guidance, the approving official, in 
conjunction with the A/OPC, billing officer, and head of contracting 
activity, recommends cardholder single purchase and monthly credit 
limits. However, we found no guidance on what factors to consider when 
recommending the dollar amounts to be assigned to each cardholder, such 
as existing and continuing needs of program operations and cardholders. 
Further, we found no monitoring procedures that require the A/OPC or 
approving official to determine, on an ongoing basis, whether or not 
cardholder limits should be changed based on existing and expected 
future use. Although 29 of the 111 A/OPCs who responded to a GAO data 
collection instrument question regarding monitoring cardholder's 
single and monthly credit limits, reported that such monitoring occurs 
and that cardholders' limits were increased or decreased to reflect 
actual spending patterns, we found no consistent application VHA-wide.

A determination of cardholders' spending limits requires an objective 
effort by operational supervisors and management, with assistance from 
purchase card program management, to evaluate the existing and 
continuing needs of operations and cardholders. Periodic monitoring and 
analysis of cardholders' actual monthly and average charges, in 
conjunction with existing credit limits would aid VHA management in 
making reasonable determinations of cardholder spending limits. Without 
adequate monitoring, the financial exposure in VHA's purchase card 
program can become excessive when its management does not exercise 
judgment in determining single purchase and monthly credit limits. 
Limiting credit available to cardholders is a key factor in managing 
the VHA purchase card program, minimizing the government's financial 
exposure, and enhancing operational efficiency.

* Inadequate human capital resources. VHA has not provided sufficient 
human capital resources to enable monitoring of the purchase card 
program. One key position for monitoring purchases and overseeing the 
program is the A/OPC. While the A/OPC position is a specifically 
designated responsibility, we found in many instances that the A/OPC 
also functioned in another capacity and/or performed other assigned 
duties such as a systems analyst, budget analyst, and contract 
specialist. Of the 90 A/OPCs that responded to a GAO data collection 
instrument question regarding other duties assigned, including a 
percentage breakdown of time spent on the various duties,[Footnote 
28]55 A/OPCs, or 61 percent, reported that they spend 50 percent or 
less of their time performing A/OPC duties. The bar graph below 
provides further information on the allocation of resources directed at 
monitoring the VHA purchase card programs at the local level.

Figure 1: Time Spent on A/OPC Duties: 

[See PDF for image]

[End of figure]

The bar graph above depicts the percentage of time that A/OPCs reported 
they spend to carry out their duties related to the purchase card 
program. Of the 90 A/OPCs who provided a percentage breakdown of 
performing their assigned duties, we found that 31 A/OPCs spend up to 
25 percent of their time performing A/OPC assigned tasks, 24 A/OPCs 
spend between 26 and 50 percent, 11 A/OPCs spend between 51 and 75 
percent, and the remaining 24 A/OPCs spend between 76 and 100 percent. 
For example, at the extreme low end of the scale, one A/OPC responded 
that he was also the budget analyst and that he spends 100 percent of 
his time on budget analyst duties, leaving no time for A/OPC duties on 
an ongoing basis. In another example, an A/OPC responded that she was 
also the director of the finance center and that she spends 99.5 
percent of her time on these director duties, leaving less than 15 
minutes per 40-hour week for A/OPC duties on an ongoing basis. Given 
that VHA makes millions of purchase card and convenience check 
transactions annually, which in fiscal year 2002, exceeded $1.4 
billion, it is essential that VHA management devote adequate attention 
to monitoring its purchase card program to ensure that it is properly 
managed to reduce the risk of fraud, waste, and abuse.

Although VHA has prescribed some monitoring procedures to ensure 
purchases are made in compliance with laws, regulations, policies, and 
procedures, these procedures do not adequately address other aspects of 
the program as described previously, that, if not frequently monitored, 
could increase the program's risk of fraud, waste, and abuse. In 
addition, these types of monitoring activities become more critical 
when existing internal controls are not operating as intended and 
result in improper, wasteful, and questionable purchases as we identify 
in the remainder of this report.

Noncompliance With Purchasing Requirements Resulted in Instances of 
Improper Purchases: 

The lack of adequate internal controls resulted in numerous purchases 
made in violation of either applicable laws and regulations or VA/VHA 
purchase card policies that we classified as improper purchases. 
Improper purchases we found due to violations of applicable laws and 
regulations included (1) purchases of items for personal use, such as 
food for internal meetings and clothing, (2) purchases made from an 
improper source, (3) purchases split into two or more transactions to 
circumvent single purchase limits, (4) purchases, over the $2,500 
micro-purchase threshold that exceeded the cardholders' delegated 
purchasing authority, and (5) no evidence of competition for purchases 
exceeding the $2,500 micro-purchase threshold. Improper purchases we 
found due to violations of VA/VHA policy included (1) obtaining 
conference rooms and other items without following applicable 
procurement procedures, (2) convenience check payments that exceeded 
established limits, and (3) using convenience checks to pay purchases 
even though the vendor accepted the government purchase card.

While the total amount of improper purchases we identified is 
relatively small compared to the over $1.4 billion in annual purchase 
card and convenience check transactions, it demonstrates 
vulnerabilities from weak controls that could easily be exploited to a 
greater extent.

The just-cited violations are discussed in more detail here.

* Purchases of items for personal use. From the nonstatistical sample, 
we identified 17 purchases totaling $14,054 for clothing, food, and 
other items in which cardholders purchased goods that were for personal 
use. Items that are classified as personal expenses may not be 
purchased with appropriated funds without specific statutory authority. 
The Federal Acquisition Regulation emphasizes that the governmentwide 
commercial purchase card may be used only for purchases that are 
otherwise authorized by law or regulation.[Footnote 29] We identified 6 
purchases of clothing totaling $2,377 that were for personal use and 
not authorized by law. One transaction was a purchase of 4 winter 
jackets totaling $286 for warehouse employees exposed to inclement 
weather. Absent specific statutory authority, cold weather clothing is 
an employee's personal responsibility for which appropriated funds are 
not available.[Footnote 30] In another example, we found a purchase of 
18 pairs of Wrangler and Levi's jeans totaling $405 that VHA indicated 
were to be used as "employee uniforms" for the engineering office. 
Under 5 U.S.C. § 5901, appropriated funds are available to furnish 
employees with either uniforms or a uniform allowance. Because the 
statute does not define "uniform," the Comptroller General has relied 
on the common meaning of the term "uniform" in determining what wearing 
apparel may be purchased with appropriated funds.[Footnote 31] Merriam-
Webster's Tenth Collegiate Dictionary (2001) defines a "uniform" as 
"dress of a distinctive design or fashion worn by members of a 
particular group and serving as a means of identification" and broadly 
regarded as "distinctive or characteristic clothing." Jeans would not 
qualify as a uniform under that definition as jeans are common everyday 
attire and would not distinguish or set a group apart.

We also found 11 transactions that included purchases of food totaling 
$11,677 that were for personal use and not authorized by law. We 
identified 5 transactions that included the purchase of food for 
government meetings totaling $3,142 and 6 transactions where a 
significant portion of the purchases were for food related to 
refreshments or meals for training sessions or conferences in the 
medical center's immediate geographic area totaling $11,309. For 
example, one transaction totaling $575 included lunch and beverages 
purchased from the Pacific Athletic Club in the amount of $277 in 
addition to a room rental fee. According to documentation provided, 
this purchase was for seven VA employees to discuss the Compensated 
Work Therapy program. In another example, breakfast and lunch meals 
totaling $2,430 were purchased during a weeklong training conference 
for new supervisors at a local inn. All attendees were on staff at the 
nearby medical facility and the documentation provided indicates that 
networking was scheduled to take place during breakfast and lunch. This 
and other purchases of refreshments identified during our testing were 
improper to the extent that employees were not in a travel status or 
the agency did not justify providing meals to employees.[Footnote 32]

* Improper Source. We identified 8 purchases totaling $7,510 in the 
non-statistical sample that were subject to procurement from a 
mandatory source of supply but were obtained from other sources. 
Various federal laws and regulations such as the Javits-Wagner-O'Day 
Act (JWOD) require government cardholders to acquire certain products 
from designated sources. The JWOD program is a mandatory source of 
supply for all federal entities. It generates job and training for 
Americans who are blind or have severe disabilities by requiring that 
federal agencies purchase supplies and services furnished by nonprofit 
agencies, such as the National Industries for the Blind and the 
National Institute for the Severely Handicapped. Most JWOD program 
supplies are small value items such as office supplies, cleaning 
products, or medical/surgical supplies that nearly always fall into the 
micro-purchase category.

Based on our nonstatistical testing, we noted that cardholders did not 
consistently purchase items from JWOD when they should have. For 
example, a cardholder purchased planner starter kits and refills for 
employees totaling $1,591 from Franklin Covey, a high-end office supply 
store. These items provide essentially the same features as the JWOD 
items, and would have cost $1,126, or $465 less, if they had been 
procured through JWOD or a JWOD supplier. During our data mining, we 
noted that VHA made 652 purchases totaling $76,350 from Franklin Covey 
during 2002. While we did not review all of these individual purchases, 
based on our detailed testing of similar transactions, it is likely 
that many of them should have been procured from a mandatory source at 
a much lower cost.

* Split purchases. Using data mining techniques, we identified card 
purchases that appeared to have been split into two or more 
transactions by cardholders to circumvent their single purchase 
limit.[Footnote 33] We requested documentation for a statistically 
determined sample of 280 potential split transactions totaling $4 
million. Of these 280 transactions, we determined that 49 transactions 
were actual splits. Based on these results, we estimate that $17.1 
million[Footnote 34] of the total fiscal year 2002 purchase card 
transactions were split transactions. For example, a cardholder with a 
single purchase limit of $2,500 purchased accommodations at 110 hotel 
rooms totaling $4,950. When performing follow-up, the cardholder stated 
that VA provides lodging accommodations for veterans receiving medical 
services such as radiation therapy, chemotherapy, and day surgery who 
live at least 150 miles from the medical facility. The cardholder 
created two separate purchase orders and had the vendor create two 
separate charges, one for $2,500 and the other for $2,450, so that the 
purchase could be made. On the documentation provided, the cardholder 
stated the "purchase was split per the direction of the previous 
purchase card program administrator." The cardholder also stated that 
currently, her purchase card at that facility is no longer used to pay 
hotel lodging for veterans. Hotel payments are now disbursed 
electronically via VA's Financial Service Center. 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, VA had less control over the 
obligation and expenditure of its resources.

* Noncompliance with simplified acquisition procedures. The Federal 
Acquisition Regulation provides that the purchase card may be used by 
contracting officers or individuals who have been delegated micro-
purchase authority in accordance with agency procedures.[Footnote 35] 
Purchases above the micro-purchase threshold using the purchase card 
are permissible only by warranted contracting officers who must promote 
competition to the maximum extent practicable when making such 
purchases.[Footnote 36] Contracting officers must consider 
solicitation of quotations from at least three sources,[Footnote 37] 
and they must minimally document the use of competition or provide a 
written justification for the use of other than competitive 
procedures.[Footnote 38] When cardholders circumvent these laws and 
regulations, VHA has no assurance that purchases comply with certain 
simplified acquisition procedures and that cardholders are making 
contractual commitments on behalf of VHA within the limits of their 
delegated purchasing authority.

From the statistical sample of purchases over $2,500, we found that for 
19 of the 76 transactions, cardholders lacked warrant authority needed 
to make these types of purchases. Based on these results, we estimate 
that cardholders with only micro-purchase authority, made $111.9 
million[Footnote 39] of the total fiscal year 2002 purchases that 
exceeded $2,500. In addition, we found that 12 of the 76 transactions 
lacked evidence of competition. Based on these results, we estimate 
that $60 million[Footnote 40] of the total fiscal year 2002 purchases 
totaling more than $2,500 lacked evidence of competition.

For example, one cardholder made a purchase of 2,000 washcloths 
totaling $3,100, but could provide no evidence that competition was 
used. According to the cardholder, at the time of purchase, he was 
under the impression that VA had a contract with the vendor to procure 
the goods and therefore, did not seek competition. We also found one 
cardholder who purchased flu vaccine syringes for a VA pharmacy 
totaling $19,943, but was not a warranted contracting officer. In 
addition, we found instances where cardholders were warranted 
contracting officers, but not at the time of purchase for specific 
transactions we selected. Specifically, we found seven cardholders who 
made purchases over the micro-purchase threshold, with a combined total 
of $27,473, where the warrants provided were dated after the purchase 
of goods. These cardholders could not provide documentation to show 
that they were warranted contracting officers at the time these 
purchases were made.

* Incorrect procurement procedures used to obtain conference room 
rentals and other items. We identified 23 purchase card transactions 
totaling $112,924 in the nonstatistical sample related to the rental of 
conference room facilities used for internal VA meetings, conferences, 
and training. For these purchases, the cardholders could not provide 
documentation to show that efforts had been made to secure free 
conference space. VA's acquisition regulations state that rental 
conference space will be obtained (paid for) only in the event that 
free space is not available and that complete documentation of efforts 
to secure free conference space will be maintained in the purchase 
order file.[Footnote 41] For one purchase, VHA paid $31,610 for 
conference room facilities and related services for 3 days at the 
Flamingo Hilton Hotel in Las Vegas. The cardholder provided no evidence 
that attempts to secure free facilities had been made. In addition, of 
the 23 purchase card transactions cited, 12 purchases totaling $103,662 
occurred at one VHA facility. This included one transaction totaling 
$12,000 for a 3-day Training Course on Prevention and Management of 
Disruptive Behavior at the MGM Grand Hotel in Las Vegas. Again, we were 
not provided evidence that efforts had been made to secure free 
conference space.

Two additional transactions totaling $755 were for different types of 
purchases where VA's acquisition regulation was not followed. One 
purchase was a recruitment advertisement totaling $690. VA requires 
that approval be obtained prior to making this type of purchase and 
that evidence of this approval be maintained in the file. We found no 
evidence that approval had been obtained prior to making the purchase. 
For the second transaction, the cardholder paid annual membership dues 
associated with an international honor society of nursing in an 
employee's name totaling $65. VA used its general post funds to pay 
this charge despite the fact that VA policy prohibits the use of 
general post funds for membership fees. Additionally, as appropriated 
funds are not available to pay employees' membership fees in societies 
or associations,[Footnote 42] VA policy requires that membership in 
organizations be in the agency's name, not the employee's name.

* Improper use of the convenience checks. We identified improper use of 
convenience checks related to purchases that exceeded VA's established 
limits of $2,500 and $10,000 and payments to vendors who accept the 
purchase card payments. VA's convenience check guidance requires that a 
single draft transaction be limited to $2,500 or in some cases $10,000 
unless a waiver has been obtained from Department of the Treasury, and 
restricts convenience check use to instances where vendors do not 
accept purchase cards. From our statistical testing of convenience 
check limits, we found that 91 of 105 convenience check purchases were 
paid using multiple checks because the total purchase amount exceeded 
the established convenience check limit. Based on these results, we 
estimate that $13.8 million[Footnote 43] of the total fiscal year 2002 
convenience check transactions were improperly used to pay purchases 
exceeding the established limits.

For example, we found 29 different purchases for metered postage from 
the United States Postal Service (USPS) where the purchase amount 
exceeded the convenience check limit. One purchase for postage totaled 
$50,000, but the single transaction limit on convenience checks for 
that facility is $2,500. In order to make payment, the agent cashier 
issued 20 different checks at $2,500 each. Regarding an explanation of 
the purchase, the agent cashier stated that separate checks were 
written because the convenience checks cannot be written over $2,500. 
The agent cashier also stated that since this purchase, the VHA 
facility has implemented new procedures that allow for electronic funds 
transfers (EFT) to USPS. During our review, we also found another VHA 
facility that is currently using EFTs as an alternate payment mechanism 
to USPS. Based on the explanations obtained for the various improper 
check purchases we identified, it appears to be routine practice for 
agent cashiers to issue numerous checks when the purchase amount 
exceeds the established check limit of $2,500 or $10,000. For example, 
at one VHA facility, the agent cashier provided a written explanation 
that it is their policy to issue numerous checks instead of increasing 
the check limit.

We also found instances where convenience checks were used to pay 
vendors who accept the purchase card as payments. VA's disbursement 
mechanism guidance provides that third party drafts (convenience 
checks) should be used in lieu of cash but only when the government 
purchase card cannot be used. From a statistical sample of 255 
convenience checks transactions, we found 23 instances where vendors 
accepted the purchase card as payment, yet convenience checks were 
issued instead to make payments. In these instances, we were provided 
no documentation as to why the convenience check was used in lieu of 
the purchase card. Based on these results, we estimate that $2.6 
million[Footnote 44] of the total fiscal year 2002 convenience check 
payments made to vendors in lieu of the purchase card lacked this type 
of documentation. For example, an agent cashier made a convenience 
check payment of $8,327.32 to a party rental vendor for the purchase of 
various stage equipment, chairs and tents used for an outside cemetery 
dedication. We contacted the vendor and found that it accepts credit 
cards as a form of payment. The agent cashier provided no documentation 
showing why the convenience check was used in lieu of the purchase 
card.

In April 2003, VA issued new purchase card guidance that attempted to 
clarify the use of convenience checks. Specifically, this guidance 
provides that for micro-purchases, convenience checks may be used in 
lieu of the purchase card only when it is advantageous to the 
government and it has been documented as the most cost-effective and 
practical procurement and disbursement method. However, we found no 
established criteria for determining the "most cost-effective and 
practical procurement and disbursement method.": 

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, excessive in cost compared to other available 
alternatives or for questionable government need. We also identified 
other transactions that we classified as questionable because there was 
insufficient or no documentation to determine what was purchased. 
Specifically, of the 982 nonstatistical sample transactions we 
reviewed, 250 transactions totaling $209,496 lacked key purchase 
documentation. As a result, we could not determine what was actually 
purchased, how many items were purchased, the cost of each of the items 
purchased, and, whether there was a legitimate government need for such 
items.

Table 4 summarizes the number of transactions and dollar amounts that 
we determined to be wasteful or questionable. 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 4: Transactions Identified as Wasteful or Questionable: 

Transaction category: Wasteful transactions; 
Number of transactions: 20; 
Dollar amount of transactions: $56,655.

Transaction category: Questionable transactions: Missing invoice[A]; 
Number of transactions: 250; 
Dollar amount of transactions: $209,496.

Transaction category: Questionable transactions: Inadequate/incomplete 
documentation; 
Number of transactions: 65; 
Dollar amount of transactions: $37,100.

Total Questionable Transactions; 
Number of transactions: 315; 
Dollar amount of transactions: $246,596.

Total Wasteful and Questionable Transactions; 
Number of transactions: 335; 
Dollar amount of transactions: $303,251. 

Source: GAO's analysis of nonstatistical transactions selected for 
fiscal year 2002.

[A] The missing invoice category includes (1) 184 transactions totaling 
$155,429 where VHA provided internal documentation, but no independent 
vendor documentation to support the purchase, and (2) 66 transactions 
totaling $54,068 where VHA provided no documentation at all regarding 
the purchases.

[End of table]

Wasteful Purchases: 

We identified 20 purchases totaling $56,655 that we determined to be 
wasteful because they were excessive in cost relative to available 
alternatives or were of questionable government need. The limited 
number of wasteful purchases found in the nonstatistical sample 
demonstrates that cardholders are generally prudent in determining that 
prices of goods and services are reasonable prior to making credit card 
purchases. For items labeled as wasteful, 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 
convenience, were not reasonably required as part of the usual and 
necessary equipment for the work the employees were engaged in, or did 
not appear to be for the principal benefit of the government. 
Specifically, we identified 18 purchases totaling $55,156 for which we 
questioned the government need and 2 purchases totaling $1,499 that we 
considered excessive in cost. A majority of the purchases were related 
to office-wide and organizational awards.

We noted several purchases for items to be presented as awards. Many of 
these types of purchases were for gift certificate and gift card 
awards. Although VA policy gives managers great latitude in determining 
the nature and extent of awards, we identified 10 purchases totaling 
$51,117 for award gifts for which VHA was unable to provide information 
on the recipients of the award or the purposes for which the recipients 
were being recognized. Therefore, we categorized these purchases as 
questionable government need. For example, we identified two 
transactions for 3,348 movie gift certificates totaling over $30,000. 
For these purchases, the cardholders and A/OPCs could not provide the 
award letters or justification for the awards. Consequently, it could 
provide no evidence that these purchases were truly used for awards. We 
also identified one purchase for an award event totaling $2,500 for 
which the cardholder was unable to provide a justification for the 
ceremony or detail what awards were presented. Also, based on VHA 
purchase order documentation provided, we noted one additional purchase 
of items to be used as awards totaling $250 for which no vendor 
documentation was provided to support the purchase. Therefore, we 
classified and reported this transaction under our missing invoice 
category.

We also identified two purchases that we considered wasteful because of 
excessive cost. We identified a cardholder who purchased a $999 digital 
camera when there were other less costly digital cameras widely 
available. For example, during the same six-month period from February 
2002 through July 2002, two other cardholders purchased digital cameras 
for $526 and $550. No documentation was available to show why that 
particular model camera was necessary. In the second example, we 
identified a purchase for a 20-minute magic show totaling $500 that was 
performed during a VA volunteer luncheon. Although VA policies allow 
for funds for volunteer events, this expenditure as roughly $25 per 
minute, seemed excessive.

Questionable Purchases: 

As discussed earlier in this report, we identified numerous 
transactions from the statistical samples that were missing adequate 
supporting documentation to identify what was actually purchased, how 
many items were purchased, and the cost of the items purchased. In 
these instances, we reported those sample transactions as exceptions 
for each attribute we tested. In addition, we requested supporting 
documentation for a nonstatistical sample of 982 transactions totaling 
$1.2 million. Of these, we identified 315 transactions totaling 
$246,596 that appeared to be improper or wasteful, but for which VHA 
either provided insufficient or no documentation to support the 
propriety of the transactions.

We classified 250 of these 315 transactions, totaling $209,496, as 
missing invoices because the cardholders provided either VHA internal 
documentation, but no vendor documentation to support the purchase, or 
provided no documentation at all to support the purchase. VHA internal 
documentation includes purchase orders, reconciliation documents, and 
receiving reports. Vendor documentation includes invoices, sales 
receipts, and packing slips. Specifically, internal documentation was 
available for 184 of these transactions totaling $155,429 but no vendor 
documentation was available. No documentation was available at all for 
the remaining 66 transactions totaling $54,068.

An example of a transaction with internal documentation, but no vendor 
documentation included a purchase from Circuit City where the 
cardholder stated that the purchase was for three $650 television sets 
and three $100 television stands, totaling $2,300 (including $50 
shipping), that were needed to replace the existing ones in the VA 
facility's waiting area. In another transaction, no vendor 
documentation was available for a transaction from Black & Gold Beer 
where the cardholder stated that the purchase of beer was for a 
patient. The purchase order shows that three cases were purchased at 
$12.50 each, totaling $38. The cardholder stated that the purchase was 
at the request of the pharmacy for a specific patient; however, no 
documentation was provided to support this claim. Table 5 illustrates 
some transactions in the nonstatistical sample for which cardholders 
provided no documentation to support what was purchased.

Table 5: Examples of Purchases Where No Documentation Was Provided: 

Vendor Name: Radio Shack; 
Transaction Amount: $3,305.

Vendor Name: Wyndham Hotels Resort; 
Transaction Amount: $2,953.

Vendor Name: The Sharper Image; 
Transaction Amount: $2,127.

Vendor Name: The Brass Elephant; 
(a restaurant, fine dining); 

Transaction Amount: $2,081.

Vendor Name: Gibby's Steak and Seafood; 
Transaction Amount: $1,758.

Vendor Name: Baltimore Orioles; 
Transaction Amount: $1,705.

Vendor Name: FFP Palm Computing; 
Transaction Amount: $1,478.

Vendor Name: Daddy's Junky Music; 
Transaction Amount: $1,041.

Vendor Name: Eddie Bauer; 
Transaction Amount: $900.

Vendor Name: Gap Kids; 
Transaction Amount: $788.

Vendor Name: Hollywood Beach Country Club; 
Transaction Amount: $500.

Vendor Name: Southwest Airlines; 
Transaction Amount: $399.

Vendor Name: Harbor Cruises; 
Transaction Amount: $357.

Vendor Name: Hecht's; 
Transaction Amount: $280.

Vendor Name: L.L. Bean; 
Transaction Amount: $239.

Vendor Name: Christmas Palace; 
Transaction Amount: $209.

Vendor Name: Macys.com; 
Transaction Amount: $163.

Source: GAO's analysis of nonstatistical transactions selected for 
fiscal year 2002.

[End of table]

Based on these examples and other transactions identified in the 
nonstatistical sample, we believe that at least some of these items may 
have been determined to be potentially fraudulent, improper, or 
wasteful had the documentation been provided or available. In addition, 
we noted that of the 66 transactions where VHA cardholders provided no 
documentation to support the purchase, 32 transactions (48 percent) 
represented 2 or more transactions to the same cardholder. For example, 
one cardholder did not provide documentation for 5 transactions 
totaling $5,799 from various types of merchants, including two 
restaurants, a movie theater, a country club, and an airport café.

For 65 transactions totaling $37,100 that appeared to be either 
improper or wasteful, the documentation we received was not the correct 
supporting documentation or was inadequate, and we were unable to 
determine the propriety of the transactions. For example, one 
transaction was for $1,350 to Hollywood Entertainment; however, the 
purchase order and invoice listed Hear, Inc. as the vendor for closed 
captioning services. The cardholder stated that she believed Hollywood 
Entertainment is an associate company name for Hear, Inc.; however, 
they could not provide any documentation to support this statement. 
Additionally, from our Internet searches of both Hollywood 
Entertainment and Hear, Inc. we found no information to indicate that 
these two companies were associated in any way.

In another example, the transaction was for $1,400 to Fabulous 
Pewterware, a company that sells handcrafted items made of pewter; 
however, the purchase order and invoice listed Ball Med & Associates 
Inc., a company that provides medical services, as the vendor and 
described the purchase as repairs. The A/OPC stated that Fabulous 
Pewterware is synonymous with Ball Med & Associates Inc.; however, he 
could not provide documentation supporting this claim. From our 
Internet search of Fabulous Pewterware, we found no information to 
indicate that these two companies were one and the same.

We also identified 68 transactions totaling $31,772 involving the 
purchase of tickets for sporting events, plays, movies, amusement/theme 
parks, and other recreation activities for veterans and VA volunteers. 
The documentation provided for these transactions was inadequate or 
missing a vendor invoice; therefore, we could not determine whether 
these tickets were used in support of the volunteers or 
veterans.[Footnote 45] As a result, these purchases were also 
categorized as questionable. Various programs under VHA, such as 
Recreation Therapy, Voluntary Services, and Blind Rehabilitation 
Service, sponsor assorted activities for the benefit of veterans and 
for VA volunteers. From our review of these types of purchases, we 
found that VHA does not have procedures in place to ensure that the 
purchased items were used by the intended recipients and are properly 
accounted for. In most cases, there was inadequate or no documentation 
to account for how the tickets were distributed and who participated in 
the events.

For example, we found one purchase of 62 theme park tickets to Six 
Flags totaling $997 for veterans. Upon request, we received a list of 
veterans to whom tickets were distributed and we noted that the list 
only accounted for 28 tickets. When we contacted the cardholder to 
obtain clarification for the discrepancy, we were told that the 
difference was due to veterans receiving additional tickets for their 
family members; however, there was no evidence to support this claim. 
As a result, we were unable to determine whether the remaining 34 
tickets were provided to veterans for the intended purpose. In another 
example, we found a purchase of 46 tickets totaling $812 for veterans 
to attend a Pittsburgh Pirates baseball game. However, we were provided 
no documentation that identified who received the tickets or who 
attended the baseball game. Proper accountability over the distribution 
and receipt of tickets for such events is needed to help ensure that 
tickets are not improperly used for personal use.

Conclusions: 

Overall, VHA's internal controls were not designed to ensure improper 
purchases would be detected or prevented in the normal course of 
business. While VHA has some internal controls, they are often not 
operating as intended because cardholders and approving officials are 
not adhering to internal control requirements guidance, resulting in 
violations of federal acquisition regulations as well as VA/VHA's own 
policies. In other instances, internal controls are lacking, as in the 
case of documentation requirements, in which there is not adequate 
guidance. The lack of compliance with established internal control 
requirements coupled with a lack of internal control guidance in some 
areas such as documentation, resulted in improper, wasteful, and 
questionable purchases. Although the total amount of these purchases is 
small in comparison with the size of the purchase card and convenience 
check program, it reveals a vulnerability from weak controls that could 
be exploited. Until controls are strengthened and guidance is expanded 
and clarified, VHA will continue to be at risk of improper payments 
through purchase card and convenience check transactions.

Recommendations for Executive Action: 

We are making the following 36 recommendations to the Acting Under 
Secretary for Health and, in some instances, the Secretary of Veterans 
Affairs to strengthen internal controls and compliance in its purchase 
card program in order to reduce VHA's vulnerability to improper, 
wasteful, and questionable purchases.

Internal Controls: 

With regard to improving internal controls over purchasing, we 
recommend that the Acting Under Secretary for Health do the following.

Segregation of duties: 

* Establish appropriate criteria, including types of items and dollar 
thresholds for requiring and documenting independent receiving and 
acceptance of items obtained with a purchase card.

* Establish specific procedures for documenting independent receiving, 
such as requiring the cardholder to maintain a signed copy of the 
receiving report showing the purchase was received in the warehouse, or 
requiring the approving official or supervisor to sign and date the 
vendor invoice, packing slip, sales or credit card receipt to verify 
that the items purchased were actually received.

* Require that VHA senior management at the VA headquarters in 
Washington, D.C. document its approval that the one VHA Agency/
Organization Program Coordinator (A/OPC) can continue to function as a 
cardholder since this is inconsistent with VA/VHA policy.

* Establish procedures that require an independent person to 
periodically review this A/OPCs' purchasing activities.

Documentation: 

* Establish guidance dictating vendor documentation needed to support 
the purchase transactions (in description, quantity, and price) that 
provides the basis for reconciling electronically received charges from 
Citibank.

* Require cardholders to maintain documentation of timely and 
independent receiving and acceptance of items obtained with a purchase 
card.

* Incorporate into VHA's existing purchase card guidance, file 
retention requirements as mandated by FAR Subpart 4.805 Storage, 
Handling, and Disposal of Contract Files.

* Identify cardholders who repeatedly fall outside the required 
timeframes for recording purchase card order information into the VA's 
purchase card order system and for performing reconciliations of 
purchases.

* Identify approving officials who continually fail to meet the 
required timeframes for reviewing and certifying that cardholder 
purchases are legal and proper.

* Provide adequate retraining for these cardholders and approving 
officials and consider whether to suspend their responsibilities if the 
established timeframes continue not to be met.

Vendor Discounts: 

* Establish procedures that require cardholders, at the time of 
purchase, to determine whether vendors offer purchase discounts when 
early payments are made for goods and services rendered.

* Establish procedures requiring internal management review auditors 
to: 

* identify loss of vendor-offered discounts,

* determine frequency of occurrences and actual dollars lost to the 
government, and: 

* periodically report to VHA management for consolidation and further 
review so that appropriate actions can be taken.

Program Monitoring: 

* Establish timeframes for the prompt cancellation of purchase card 
accounts when the cardholder has left the agency and all outstanding 
purchase orders have been reconciled.

* Establish procedures to ensure prompt cancellation of purchase cards 
when cardholders leave VA, are reassigned, or no longer have valid 
needs for the cards.

* Establish procedures to periodically assess whether each cardholder 
continues to have a valid need for a purchase card.

* Review existing credit limits and monthly spending and develop 
policies and strategies on credit limits provided to cardholders with a 
focus on minimizing specific cardholder spending authority and 
minimizing the federal government's financial exposure.

* Assess the adequacy of human capital resources devoted to the 
purchase card program, especially for oversight activities, at the A/
OPC level, and provide needed resources.

Compliance with Purchasing Requirements: 

With regard to improving and enforcing compliance with purchasing 
requirements, we recommend that VHA develop written detailed procedures 
and guidelines to aid cardholders in complying with the Federal 
Acquisition Regulation, Veterans Affairs Acquisition Regulations and 
other internal policies and procedures when using the purchase cards 
and convenience checks as procurement and payment mechanisms for goods 
and services rendered. Such procedures could be either incorporated in 
VHA's existing guidance over the purchase card program or presented 
separately. Specifically, we recommend that the Acting Under Secretary 
for Health do the following.

* Establish steps to be followed when circumstances permit the purchase 
of generally prohibited items such as clothing, food, and gifts.

* Establish steps to be followed when the purchase amount will exceed 
the $2,500 micro-purchase limit or the cardholders' single purchase 
limit to prevent splitting the purchase.

* Establish steps to be followed if the cardholders, with only micro-
purchase authority, need to make a purchase over the $2,500 micro-
purchase threshold.

* Establish steps to be followed when cardholders request to make 
purchases of office supplies and other goods from other than a 
mandatory source supplier for items that are "essentially the same.": 

* Establish steps on how to document the use of competition and 
circumstances under which it can be justified not to use competitive 
procedures.

* Establish steps on how to document efforts to secure free conference 
space before purchasing rental of conference room facilities.

* Reiterate in VHA's refresher training to cardholders and approving 
officials areas discussed in this report, such as segregation of 
duties, documentation requirements and retention of supporting 
documentation, taking advantage of available vendor-offered discounts, 
canceling of departed cardholders' accounts, applicable laws and 
regulations, and agency policies and procedures.

* Provide refresher training to agent cashiers on the areas discussed 
in this report, such as purchases that exceeded established check 
limits and payments to vendors who accept the purchase card as a form 
of payment.

* Consider whether to 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, procuring goods and services beyond their purchasing 
authority, or making purchases exceeding established dollar thresholds.

Wasteful and Questionable Purchases: 

With regard to purchases that may be at an excessive cost or for 
questionable government need, we recommend that the Acting Under 
Secretary for Health do the following.

* Require that cardholders or others track and document award purchases 
to the end user, including who received the award and the purposes for 
which the recipient is being recognized. Copies should also be 
maintained in the purchase card order file.

* Require that cardholders or others track and document ticket 
purchases for recreational activities to the end user, including who 
received the ticket, date received, and signature by the recipient as 
evidence of receipt. Copies should also be maintained in the purchase 
card order file.

* Follow up on transactions we identified for which no supporting 
documentation was provided to determine whether the items purchased 
were for a legitimate government need.

* Take appropriate disciplinary or corrective action for purchases 
determined to be not for a legitimate government need.

Convenience Checks: 

Policies and procedures over convenience checks are established at the 
department level only. Therefore, we are making four recommendations to 
the Secretary of Veterans Affairs to strengthen and improve controls 
over convenience check usage in its purchase card program. 
Specifically, to improve internal controls over convenience check 
purchasing, we recommend that the Secretary of the Veterans Affairs, in 
conjunction with the Acting Under Secretary for Health, do the 
following.

* Require agent cashiers to maintain written documentation that 
authorizes the disbursement of funds to third parties.

* Establish detailed procedures that specify the types of documentation 
that agent cashiers must obtain from the requesting office that support 
the disbursement of funds to third parties via convenience checks.

* Establish detailed criteria in VA's purchase card guidance for 
determining under what situations convenience checks provide the "most 
cost-effective and practical procurement and disbursement method" when 
using in lieu of the purchase card. Incorporate this criteria in VA's 
convenience check guidance as well.

* Incorporate into VA's existing convenience check guidance, file 
retention requirements as mandated by FAR Subpart 4.805 Storage, 
Handling, and Disposal of Contract Files.

Agency Comments and Our Evaluation: 

The Department of Veterans Affairs (VA) provided written comments on a 
draft of this report. In its response, VA generally agreed with our 
conclusions and expressly concurred with 32 of the 36 recommendations. 
For these recommendations, VA reported that it has actions either 
already in place or planned that meet the intent of the 
recommendations. For the remaining four recommendations, VA, in 
principle, concurred with three of these recommendations and presented 
reasons and/or alternative action steps to address the weaknesses 
identified in our report.

Regarding these four recommendations, two recommendations addressed 
segregation of duties weaknesses related to an A/OPC that also 
functioned as a cardholder. We recommended that VHA senior management 
in Washington, D.C. approve this dual responsibility since this is 
inconsistent with VA/VHA policy and that procedures be established to 
require an independent person to periodically review this A/OPC's 
purchasing activities. In essence, VA agreed that the dual 
responsibility of the A/OPC constituted a violation of department 
policy and stated that VHA headquarters never granted approval for the 
A/OPC to function in this dual capacity and would not do so. VA also 
reported that it has instructed the director of the facility in 
question that the dual responsibilities of the A/OPC is a violation of 
department policy and may not continue. We believe that VA's planned 
action is an acceptable approach to solving the problem we identified, 
and if implemented will address the intent of our recommendations and 
resolve this segregation of duties issue and policy violation.

We also recommended that VHA establish steps to be followed if 
cardholders, with only micro-purchase authority, need to make a 
purchase over the $2,500 micro-purchase threshold. VA responded that 
purchases greater than $2,500 should require a warrant and that any 
exception could complicate and thereby weaken existing policy. We agree 
that cardholders must have the applicable purchasing authority to make 
purchases over the $2,500 micro-purchase threshold and did not intend 
for VHA to establish procedures that were contrary to this FAR 
purchasing requirement. We believe VA has misinterpreted the intent of 
our recommendation. Our intent was to address the need for additional 
written purchase card guidance for cardholders who need to procure 
specific goods and services, yet the purchase amount exceeds their 
micro-purchase threshold. Such guidance could include instructing 
cardholders to contact their local procurement office so that a 
contracting officer can make the purchase instead. We believe 
additional written guidance to cardholders is needed as evidenced by 
our findings and similar findings reported by the OIG as far back as 
1999.

Lastly, we recommended that VHA require cardholders or others to track 
and document ticket purchases for recreational activities to the end 
user. VA reported that the burden of having each patient sign for each 
ticket would be onerous. As an alternative, VA stated that the 
cardholder should ensure that an accurate patient count is kept on file 
in the purchase card order file. We believe this proposed alternative 
method does not sufficiently address the accountability issue over 
these types of purchases. By only maintaining an accurate patient 
count, internal and external reviewers still will not have enough 
information available to determine who received the ticket or attended 
the event. A "patient count" provides only limited assurances over the 
accountability of tickets. Independent evidence from the recipient is 
needed to support that he/she received or attended such events and 
would increase the accountability over these types of purchases to help 
ensure that tickets are not improperly used for personal use. In a few 
instances, we found that VHA local offices had implemented, at varying 
degrees, tracking procedures of ticket purchases similar to those 
envisioned by our recommendation. For example, one field office, 
maintained an attendance sheet that identified the recreational 
activity, date and time of the activity, the particpants' names and 
check marks as to whether or not participants attended the event. At 
another field office, we were provided a similar attendance sheet, 
including each recipient's signature and last four digits of his/her 
social security number. Employing these types or similar procedures 
agencywide appears reasonable since some of the VHA field offices 
already have existing procedures in place.

Also, in its response letter, VA included some technical comments that 
we have addressed in finalizing our report where appropriate. VA's 
written comments and our evaluation of certain comments not addressed 
above are presented in appendix I.

As arranged with your offices, unless you announce the contents of this 
report earlier, we will not distribute it until 2 days from its 
issuance date. We will then send copies of this report to the Secretary 
of the Department of Veterans Affairs, the Acting Under Secretary for 
Health, appropriate congressional committees, and other interested 
parties. We will also make copies available to others upon request. In 
addition, this report will be available at no charge on GAO's Web site 
at [Hyperlink, http://www.gao.gov].

Should you or your staff have any questions on matters discussed in 
this report, please contact me at (202) 512-6906 or [Hyperlink, 
williamsm1@gao.gov]; or Alana Stanfield, Assistant Director, at (202) 
512-3197 or [Hyperlink, stanfielda@gao.gov]. Major contributors to 
this report are acknowledged in appendix II.

Sincerely yours,

Signed by: 

McCoy Williams: 
Director, Financial Management and Assurance: 

[End of section]

Appendixes: 

Appendix I: Comments from the Department of Veterans Affairs: 

THE SECRETARY OF VETERANS AFFAIRS 
WASHINGTON:

May 24, 2004:

Mr. McCoy Williams: 
Director:
Financial Management and Assurance Issues: 
U. S. General Accounting Office:
441 G Street, NW: 
Washington, DC 20548:

Dear Mr. Williams:

The Department of Veterans Affairs (VA) has reviewed your draft report, 
VHA PURCHASE CARDS: Internal Controls Over the Purchase Card Program 
Need Improvement (GAO-04-737) and generally agrees with your 
conclusions and concurs with 32 of its 36 recommendations. VA has 
actions either already in place or planned that meet the intent of the 
recommendations. However, VA does not concur with four of the 
recommendations. The enclosure cites the specific recommendations with 
which the Department disagrees and presents the reasons for not 
concurring with them.

The relative scarcity of improper purchases or inadequate guidance 
regarding internal controls cited in your report indicates (despite the 
number of recommendations) that the program is effective overall-your 
stated conclusion at the exit conference on April 26, 2004. Indeed, the 
reported $435,900 identified in fraudulent activity for the period of 
the review represents less than 1/100TH of one percent of Veterans 
Health Administration (VHA) purchase card activity. VA agrees with you 
that its purchase card program is effectively managed, and that the 
actions the Department is taking will further strengthen internal 
controls over VA's purchase card program.

The report's "Results in Brief' section states, "VHA lacked adequate 
segregation of duties between those purchasing goods and receiving 
goods." VA believes that one of the express purposes of the program is 
to minimize administrative costs for low dollar purchases by 
encouraging the end user to make purchases and receive the goods to 
reduce overhead for warehousing, etc. as described in current VHA 
policy. VA considers the certification of the order by the approving 
official, who is required to have knowledge of the control point funds, 
to be sufficient independent certification of receipt for most micro-
purchases, and requests that this be noted in the report.

Finally, the report states that VHA should follow up on transactions 
GAO identified to determine whether the items purchased were for a 
legitimate government need. However, the report provides no supporting 
documentation to:

identify the cardholders and purchases in question. When GAO provides 
VA with this information, VHA will assess the purchases to determine 
their legitimacy.

VA appreciates the opportunity to comment on your draft report.

Sincerely yours,

Signed by: 

Anthony J. Principi:

Enclosure:

Enclosure:

DEPARTMENT OF VETERANS AFFAIRS:

COMMENTS ON GAO DRAFT REPORT VHA PURCHASE CARDS: Internal Controls Over 
the Purchase Card Program Need Improvement (GAO-04-737):

The following are those recommendations with which VA disagrees.

Require that VHA senior management at the VA headquarters in 
Washington, DC document its approval that the one VHA Agency/
Organization Program Coordinator (A/OPC) can continue to function as a 
cardholder since this is inconsistent with VA/VHA policy. (page 57):

Do not concur - VHA Headquarters never granted approval will not do so. 
VHA has instructed the director of the facility in question that this 
is a violation of Department policy and may not continue.

Establish procedures that require an independent person to periodically 
review this A/OPCs' purchasing activities. (page 57):

Do not concur - As stated above, VHA policy does not allow an A/OPC to 
be a cardholder; therefore, there is no need for such procedures.

Establish steps to be followed if cardholders, with only micro-purchase 
authority, need to make a purchase over the $2,500 micro-purchase 
threshold. (page 60):

Do not concur - VA believes that purchases greater than $2500 should 
require a warrant. Any exception could complicate and thereby weaken 
existing policy.

Require that cardholders or others track and document ticket purchases 
to the end user, including who received the ticket, date received, and 
signature by the recipient as evidence of receipt. Copies should also 
be maintained in the purchase card order file. (page 62):

Do not concur - Tickets are generally for patient events. The burden of 
having each patient sign for each ticket would be onerous. As an 
alternative the cardholder should ensure that an accurate patient count 
is kept on file in the purchase card order file.

The following are those recommendations with which VA concurs with 
comments (pages 58 and 59):

Establish procedures requiring approving officials to identify loss of 
vendor-offered discounts, determine frequency of occurrences and actual 
dollars lost to the government, and, periodically report to VHA 
management for consolidation and further review so that appropriate 
actions can be taken.

Concur with comment - The responsibility for ensuring discounts are 
taken when they are available rests with the cardholder. Approving 
officials cannot be expected to review each purchase to the extent of 
documenting that all possibilities for discounts were explored. VA 
concurs that periodic internal reviews would be beneficial, and 
recommends re-wording of the recommendation to make cardholders and 
periodic internal management review auditors responsible, rather than 
the approving officials.

Require agent cashiers to maintain written documentation that 
authorizes the disbursement of funds to third parties.

Concur with comment - VA's current policy, as stated in VA Handbook 
4010, section G, paragraph 6.b. requires that the first copy of the 
draft be forwarded daily, with the supporting documentation, to the 
accounting activity. VA's Office of Financial Policy will work in 
conjunction with VHA's Finance Office to draft a revision to VA 
Handbook 4010, which will require that the agent cashier maintain 
documentation that points to written documentation authorizing the 
disbursement of funds to third parties when such documentation is 
forwarded to the accounting office.

Establish detailed procedures that specify the type of documentation 
that agent cashiers must obtain from the requesting office that support 
the disbursement of funds to third parties via convenience checks.

Concur with comment - VA Handbook 4010 will be revised to include 
detailed procedures that address this recommendation.

Establish detailed criteria in VA's purchase card guidance for 
determining under what situations convenience checks provide the "most 
cost-effective and practical procurement and disbursement method" when 
using in lieu of the purchase card. Incorporate this criteria in VA's 
convenience check guidance as well.

Concur with comment - VA is following the current Treasury guidance:

(1 TFM 4515) applicable to use of government purchase cards and other 
small purchase methods. All agencies are following the same consistent 
guidance. As needed, VA will ensure that the language in 1 TFM 4515 is 
referenced in Departmental guidance. However, VA recommends that 
Treasury establish government-wide criteria for determining cost-
effectiveness to ensure all agencies follow the same consistent 
guidance.

VA will also continue to follow guidance in the Debt Collection 
Improvement Act that (1) requires maximum usage of electronic payments, 
(2) requires that disbursement methods, such as convenience checks and 
Treasury checks that are non-electronic funds transfers, be used for 
micro-purchases if the payee does not accept the government purchase 
card and (3) provides for the use of third party drafts when `payments 
are made in emergencies, or in mission-critical circumstances, that are 
of such an unusual and compelling urgency that the Government would 
otherwise be seriously injured, unless payment is made by cash'.

Incorporate into VA's existing convenience check guidance, file 
retention requirements as mandated by FAR Subpart 5.805 Storage, 
Handling, and Disposal of Contract Files.

Concur with comment - VA Handbook 4010, section G, paragraph 6.b. 
already states that the first copy of the third party draft 
(convenience check) must be forwarded daily, with the supporting 
documentation, to the accounting activity. Paragraph 6.c. states that 
the second copy of the draft must be retained for a period of 1 year by 
the authorized employee issuing the draft. The copy retained by the 
accounting activity falls under the retention requirements in MP-4, 
part X, Controller Records Control Schedule, items 5-1 a & 5-1c. that 
require a retention of 6 years and 3 months, which is the same as the 
retention requirements in FAR subpart 5.805. The VA Office of Finance 
will work with the VHA Finance Office to ensure the existing retention 
requirements are referenced as a reminder in convenience check 
guidance. 

The following are GAO's comments on VA's letter dated May 24, 2004.

GAO Comments: 

1. We did not indicate that the VHA purchase card program operations 
were effective overall. During the exit conference meeting on April 26, 
2004, we communicated that the weaknesses identified at VHA were 
similar to the internal control weaknesses we reported at other federal 
agencies, although the extent of fraud, waste, and abuse that we 
identified at some of those agencies were not as prevalent at VHA. We 
also communicated that our findings stemmed from weak internal controls 
over the purchase card program and that strengthening controls would 
reduce the program's vulnerability to improper, wasteful, and 
questionable purchases. We further stated that we would be making a 
number of recommendations for each of the identified areas that were 
discussed at the meeting.

Regarding the $435,900 cited as fraudulent activity, we reported that 
this amount was identified from the OIG's work and not GAO's work. 
However, VA should not be deriving unjustified levels of assurances 
that its program is "effectively managed" based on the OIG's findings 
and our findings identified in this report from data mining and 
nonstatistical testing of transactions. As we indicated in our report, 
while the total amount of improper purchases we identified, based on 
limited scale audit work, is relatively small compared to the more than 
$1.4 billion in annual purchase card and convenience check 
transactions, we believe our results demonstrate vulnerabilities from 
weak controls that may have been exploited to a much greater extent. In 
addition, our internal control findings and noncompliance with federal 
and agency purchasing requirements identified from the statistical 
testing further illustrate that controls were ineffective and improved 
management is needed over program operations.

2. In our opinion, the approving official's certification of the 
purchase card order for most micro-purchases does not provide 
sufficient assurance that purchased items are not acquired for personal 
use and that they come into the possession of the government. Various 
types of sensitive items such as personal digital assistants, cell 
phones, digital cameras, laptops, and computers can be purchased below 
the $2,500 micro-purchase threshold. These and other items that can be 
easily pilfered should go through a central receiving point to reduce 
the risk of error or fraud.

3. We recently provided VHA a schedule of purchase card transactions in 
which no documentation was provided during our fieldwork to support the 
purchases selected for review.

[End of section]

Appendix II: Staff Acknowledgments: 

Acknowledgments: 

Staff members who made key contributions to this report include: 

Sharon Byrd, Polly Cheung, Lisa Crye, Danielle Free, Carla Lewis, Julia 
Matta, Gloria Medina, Tarunkant Mithani, Donell Ries, and Stacey Smith.

(195011): 

FOOTNOTES

[1] Department of Veterans Affairs Office of Inspector General: 
Evaluation of the Department of Veterans Affairs Government Purchase 
Card Program, Report Number 02-01481-135 (Washington, D.C.: April 26, 
2004). 

[2] This requirement is more stringent than the FAR, which only 
provides that the purchase card shall be the preferred method to 
purchase and pay for micro-purchases, 48 C.F.R. § 13.201(b).

[3] 48 C.F.R. § 2.101.

[4] A VISN represents integrated networks of health care facilities 
that provides coordinated services to veterans to facilitate continuity 
through all phases of health care. 

[5] The VISN director is also responsible for designating a billing 
officer and dispute officer whose roles affect the purchase card 
process.

[6] Department of Veterans Affairs Office of Inspector General: Audit 
of the Department of Veterans Affairs Purchase Card Program, Report 
Number 9R3-E99-037 (Washington, D.C.: February 12, 1999). 

[7] U.S. General Accounting Office, Audit Guide: Auditing and 
Investigating the Internal Control of Government Purchase Card 
Programs, GAO-04-87G (Washington, D.C.: November 2003).

[8] U.S. General Accounting Office, Standards for Internal Control in 
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 
2000).

[9] U.S. General Accounting Office, Internal Control Management and 
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).

[10] U.S. General Accounting Office, Guide for Evaluating and Testing 
Controls Over Sensitive Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May 
1993).

[11] 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).

[12] 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.

[13] The FSC is the designated payment office responsible for making 
payments to the purchase card program contractor, Citibank, for all VA 
purchase card accounts. FSC makes daily electronic payments to Citibank 
for purchase card and convenience check purchases.

[14] MCCs are standard codes that the credit card industry maintains to 
categorize merchants.

[15] Section 4331(c) of the Balanced Budget Act of 1997, Public Law 
105-33, 111 Stat. 251, 396, amended sections 1128 (a) and (b) of the 
Social Security Act 42 U.S.C. § 1320a-7, to significantly expand the 
authority of the DHHS OIG to exclude certain individuals and entities 
from all federal health care programs. Accordingly, these programs are 
now required to ensure that no excluded individual or entity is 
receiving payments from any federal health care program for items or 
services furnished on or after the effective date of the OIG exclusion.

[16] We are 95 percent confident that the total dollar value of 
purchase card transactions that lacked independent receiving was 
between $37.4 million and $112.6 million. 

[17] VA uses the term "detailed purchase card order" to identify orders 
where cardholders need to track items for inventory purposes and/or 
enter additional information about specific items on the order. 

[18] See footnote 16. 

[19] We are 95 percent confident that the total dollar value of 
purchase card transactions that lacked key supporting documentation was 
between $243.2 million and $382.4 million. 

[20] We are 95 percent confident that the total dollar value of 
convenience check transactions that lacked key supporting documentation 
was between $2.4 million and $5.3 million. 

[21] We are 95 percent confident that the total dollar value of 
purchase card and convenience check transactions that had missing 
documentation was between $30.8 million and $61 million. 

[22] 48 C.F.R. § 4.805. See also General Records Schedule 3, 
Transmittal No. 8 (Dec. 1998).

[23] We are 95 percent confident that the total dollar value of 
convenience check transactions that lacked key supporting documentation 
was between $.8 million and $2.7 million. 

[24] We are 95 percent confident that the total dollar value of 
convenience check transactions that lacked a copy of the check or 
carbon copy was between $1.2 million and $3.4 million.

[25] VA revised its timeliness standards in the agency-wide government 
purchase card procedures issued April 4, 2003. Specifically, 
cardholders are now required to reconcile all of their purchases within 
5 working days instead of 10 calendar days. VA has removed the 
incremental reconciliation goals of 75 percent of the purchases within 
10 calendar days and 95 percent within 17 calendar days. Also, VA 
converted the 14 calendar days formerly allotted to approving officials 
for review and certification to 10 working days.

[26] VHA's operating guidance incorrectly reports the tolerance level 
at $100 or 100 percent, whichever is less. When we inquired about the 
tolerance criteria, VHA officials stated that the tolerance level 
included in the operating guidance was incorrect and that the correct 
tolerance level for matching transactions is $100 or 10 percent. VHA 
officials stated that they would revise the guidance to correct this 
error.

[27] For the remaining four purchase card accounts, we determined that 
these had been promptly canceled after all outstanding purchase orders 
were reconciled. Specifically, two accounts were canceled within 1 day, 
one account within 2 days, and the remaining account within 4 days of 
reconciliation.

[28] We actually received 111 responses to this question, and found 
that 97, or 87 percent of the A/OPCs, function in another capacity and/
or perform other assigned duties. However, 21 of these responses did 
not include a breakout of the percentage of time spent on each 
responsibility and therefore, were excluded from this analysis for 
comparative purposes. 

[29] 48 C.F.R. § 13.301 (a).

[30] B-289683, Purchase of Cold Weather Clothing, Rock Island District, 
U.S. Army, Oct. 7, 2002; B-288828, Purchase of Insulated Coveralls, 
Vicksburg, Mississippi, Oct. 3, 2002.

[31] B-251189, Agency for International Development - Purchase of 
Business Suits for Agency Chauffeurs, Apr. 8, 1993.

[32] We recognize that VA may have been relying in part on a provision 
of the Federal Travel Regulation in effect at the time of VA's 
purchases that allowed for the purchase of light refreshments at 
conferences where more than 50 percent of attendees were in travel 
status. However, as discussed in B-288266, this provision was not 
authorized. Matter of: Use of Appropriated Funds to Purchase Light 
Refreshments at Conferences, B-288266 (Jan. 27, 2003).

[33] 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 A/OPCs and cardholders and, based on the 
documentation and responses provided, determined whether split 
purchases had been made.

[34] We are 95 percent confident that the total dollar value for actual 
split purchase card transactions was between $12.4 million and $21.9 
million. 

[35] 48 C.F.R. § 13.301 (a).

[36] The FAR uses the term "contracting officer" to mean a person with 
the authority to enter into, administer, and/or terminate contracts and 
make related determinations and findings, 48 C.F.R. § 2.101. The term 
"warrant" is commonly used to refer to the SF 1402, Certificate of 
Appointment, which is the written document appointing an individual to 
be a contracting officer and stating any limitations on the scope of 
authority to be exercised, other than limitations already contained in 
applicable laws or regulations, 48 C.F.R. § 1.603-3(a). 

[37] 48 C.F.R. § 13.104 

[38] 48 C.F.R. § 13.106-3(b).

[39] We are 95 percent confident that the total dollar value for 
purchases over $2,500 made by a non-warranted cardholder was between 
$52.8 million and $170.9 million. 

[40] We are 95 percent confident that the total dollar value for 
purchases over $2,500 that lacked evidence of competition was between 
$26.3 million and $93.7 million. 

[41] The Department of Veterans Affairs Acquisition Regulation, Part 
870, subpart 113 (VAAR 870.113).

[42] 5 U.S.C. § 5946.

[43] We are 95 percent confident that the total dollar value for actual 
split convenience check transactions was between $13.6 million and 
$14.0 million.

[44] We are 95 percent confident that the total dollar value for 
convenience check transactions that were incorrectly used was between 
$1.4 million and $3.7 million. 

[45] Of the 68 transactions, 52, totaling $24,442, did not have 
adequate documentation and therefore, are included in the inadequate/
incomplete documentation category. The remaining 16 transactions, 
totaling $6,600 were missing vendor documentation and therefore, are 
included in the missing invoice category. 

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