Forest Service Purchase Cards
Internal Control Weaknesses Resulted in Instances of Improper, Wasteful, and Questionable Purchases Gao ID: GAO-03-786 August 11, 2003Since 1999, GAO has designated Forest Service's financial management as a high-risk area because of internal control and accounting weaknesses that have been identified by the Inspector General and GAO. Given these known risks and the hundreds of millions of dollars in credit card purchases made by the agency each year, GAO was asked to review the Forest Service's fiscal year 2001 purchase card transactions to determine whether (1) existing internal controls were designed to provide reasonable assurance that improper purchases would be prevented or detected, (2) purchases were made in accordance with established policies and procedures, and (3) purchases were made for a reasonable cost and reflected a legitimate government need.
Internal control weaknesses in the Forest Service's purchase card program leave the agency vulnerable to, and in some cases, resulted in, improper, wasteful, and questionable purchases. These weaknesses included inadequate segregation of duties over purchases, supervisory review and approval of purchases, monitoring activities, and control over property used in Forest Service activities. For example, GAO found instances where items highly susceptible to theft, such as all terrain vehicles, digital cameras, and snowmobiles, were purchased and retained by cardholders, but no records of the items were created in Forest Service systems. These weaknesses likely contributed to approximately $2.7 million in improper, wasteful, and questionable purchases identified in our review. GAO identified purchases that totaled over $1.6 million that were improper because they violated law, regulation, or agency policy. These included purchases that had been split into two or more segments to avoid the cardholder's single purchase limit, purchases that had been paid for twice, purchases that exceeded single transaction limits, purchases for which required approvals were not obtained, purchases of unauthorized items, transactions on accounts of former employees, and instances where cardholders wrote convenience checks to themselves. GAO also found purchases totaling $212,104 that it considered wasteful because they were excessive in cost relative to available alternatives or were for a questionable government need. Further, GAO found purchases totaling $869,825 that it considered to be questionable because the Forest Service either could not provide supporting documentation for them, or supporting documentation was incomplete or incorrect and GAO was unable to determine whether the purchases were proper.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-786, Forest Service Purchase Cards: Internal Control Weaknesses Resulted in Instances of Improper, Wasteful, and Questionable Purchases
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On January 2, 2004, this document was revised to add various
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Report to Congressional Requesters:
August 2003:
Forest Service Purchase Cards:
Internal Control Weaknesses Resulted in Instances of Improper,
Wasteful, and Questionable Purchases:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-786] GAO-03-786:
GAO Highlights:
Highlights of GAO-03-786, a report to the Honorable Charles Grassley,
Chairman, Senate Committee on Finance, and the Honorable Janice
Schakowsky, House of Representatives
Why GAO Did This Study:
Since 1999, GAO has designated Forest Service‘s financial management
as a high-risk area because of internal control and accounting
weaknesses that have been identified by the Inspector General and GAO.
Given these known risks and the hundreds of millions of dollars in
credit card purchases made by the agency each year, GAO was asked to
review the Forest Service‘s fiscal year 2001 purchase card
transactions to determine whether (1) existing internal controls were
designed to provide reasonable assurance that improper purchases would
be prevented or detected, (2) purchases were made in accordance with
established policies and procedures, and (3) purchases were made for a
reasonable cost and reflected a legitimate government need.
What GAO Found:
Internal control weaknesses in the Forest Service‘s purchase card
program leave the agency vulnerable to, and in some cases, resulted
in, improper, wasteful, and questionable purchases. These weaknesses
included inadequate segregation of duties over purchases, supervisory
review and approval of purchases, monitoring activities, and control
over property used in Forest Service activities. For example, GAO
found instances where items highly susceptible to theft, such as all
terrain vehicles, digital cameras, and snowmobiles, were purchased and
retained by cardholders, but no records of the items were created in
Forest Service systems.
These weaknesses likely contributed to approximately $2.7 million in
improper, wasteful, and questionable purchases identified in our
review. GAO identified purchases that totaled over $1.6 million that
were improper because they violated law, regulation, or agency policy.
These included purchases that had been split into two or more segments
to avoid the cardholder‘s single purchase limit, purchases that had
been paid for twice, purchases that exceeded single transaction
limits, purchases for which required approvals were not obtained,
purchases of unauthorized items, transactions on accounts of former
employees, and instances where cardholders wrote convenience checks to
themselves.
GAO also found purchases totaling $212,104 that it considered wasteful
because they were excessive in cost relative to available alternatives
or were for a questionable government need. Further, GAO found
purchases totaling $869,825 that it considered to be questionable
because the Forest Service either could not provide supporting
documentation for them, or supporting documentation was incomplete or
incorrect and GAO was unable to determine whether the purchases were
proper. Some examples of these are shown in the table below.
What GAO Recommends:
GAO is making a number of recommendations to strengthen the Forest
Service‘s internal controls and compliance in its purchase card
program, decrease wasteful purchases, and improve accountability for
assets. In responding to our draft report, the Forest Service did not
specifically discuss GAO‘s recommendations, but it outlined actions
taken or planned to strengthen management of the purchase card
program. However, the actions outlined will not address many of the
weaknesses identified in the report that GAO‘s recommendations are
intended to address.
www.gao.gov/cgi-bin/getrpt?GAO-03-786. To view the full report,
including the scope and methodology, click on the link above.
For more information, contact Linda Calbom at (202) 512-9508 or
calboml@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Scope and Methodology:
Critical Internal Control Activities Were Lacking or Inadequate:
Poor Controls over Purchasing Practices Resulted in Certain Wasteful
and Questionable Transactions:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Comments from the Forest Service:
GAO Comments:
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Tables:
Table 1: Nonaccountable Items Purchased:
Table 2: Revised USDA Purchase Card Policies:
Table 3: Categories of Improper Purchases:
Table 4: Purchases Determined to Be Wasteful or Questionable:
Abbreviations:
APC: Agency Program Coordinator:
COCO: Chief of the Contracting Office:
EAGLS: Electronic Access Government Ledger System:
FAR: Federal Acquisition Regulation:
GSA: General Services Administration:
LAPC: Local Agency Program Coordinator:
MCC: Merchant Category Code:
OPPM: Office of Procurement and Property Management:
PCMS: Purchase Card Management System:
PDA: Personal Digital Assistant:
USDA: U.S. Department of Agriculture:
Letter August 11, 2003:
The Honorable Charles Grassley
Chairman
Committee on Finance
United States Senate:
The Honorable Janice Schakowsky
House of Representatives:
The use of purchase cards in the federal government has dramatically
increased in past years as agencies have sought to streamline the
administrative procedures long associated with making small purchases.
The benefits of using purchase cards can be lower costs and less
paperwork 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 their proper use and thus help protect the government from
fraud, waste, and abuse.
The Forest Service has a history of financial management problems,
including serious accounting and financial reporting weaknesses and an
organizational structure that has hampered efforts to correct these
weaknesses. The Department of Agriculture's (USDA) Office of Inspector
General (IG) and GAO have issued many reports over the last several
years on the financial challenges facing the agency and the need to
correct internal control weaknesses.[Footnote 1] In fiscal year 2002,
the Forest Service made significant progress toward achieving financial
accountability, receiving its first unqualified or "clean" audit
opinion on its financial statements. However, the Forest Service
continues to face several major challenges for which it has corrective
actions underway or planned. Since 1999, we have designated Forest
Service's financial management as a high-risk area on the basis of
serious financial and accounting weaknesses that we and the IG
have identified.[Footnote 2] In August 2001, the IG issued a
report[Footnote 3] on USDA's purchase card program that identified
several internal control weaknesses. That review examined 400 fiscal
year 1999 and 2000 purchase card and convenience check transactions
made by four of USDA's agencies, including the Forest Service. Based on
its review of this limited sample, the IG reported that purchases
generally were valid and reasonable. However the report also noted the
(1) lack of supervisory review and approval of cardholder transactions,
(2) delays by cardholders in validating purchase transactions that have
been paid, and (3) inadequate monitoring by agency management.
Given the hundreds of millions of dollars in purchase card purchases
made by the Forest Service each year, these known financial management
deficiencies raise the risk that fraudulent or improper purchases could
be made by its employees and not detected. Because of these risks, you
requested that we review the Forest Service's fiscal year 2001 purchase
card and convenience check[Footnote 4] transactions to determine their
validity.
In response to your request, we initiated a body of work designed to
determine whether (1) existing internal controls at the Forest Service
were designed to provide reasonable assurance that improper purchases
would be prevented or detected in the normal course of business, (2)
the Forest Service's fiscal year 2001 purchase card transactions were
made in accordance with established policies and procedures, and (3)
purchases were made for a reasonable cost and reflected a legitimate
government need. Our review focused on the $320 million of
disbursements that the Forest Service made for purchase card
transactions during fiscal year 2001, the most recent fiscal year for
which complete data were available when we conducted our review.
Results in Brief:
Significant internal control weaknesses in the Forest Service's
purchase card program leave the agency vulnerable to, and in some cases
resulted in, improper, wasteful, and questionable purchases, some of
which were potentially fraudulent. These weaknesses included a lack of
or inadequate segregation of duties over purchases, supervisory review
and approval of purchases, monitoring activities, and control over
property used in Forest Service activities. For example, we found
instances of unauthorized transactions by vendors and former employees
that occurred because the Forest Service did not adequately monitor
activity to ensure that disputed transactions were resolved or that
cardholders' accounts were closed upon separation. We also found
instances where items that are highly susceptible to theft, such as
digital cameras, binoculars, or camcorders, were purchased by
cardholders, but no records of the items were created in the Forest
Service property systems. In response to a prior IG audit report as
well as an outside contractor study that reported some of these
weaknesses, USDA and Forest Service management have strengthened
purchase card policies and procedures. However, these actions have not
fully addressed and corrected these weaknesses. These internal control
deficiencies, combined with the inherent risk of fraud and abuse
associated with purchase cards, created an environment in which
improper or fraudulent purchases could occur without being detected in
the normal course of business.
Internal control weaknesses likely contributed to approximately $2.7
million in improper, wasteful, and questionable purchases identified
during our review. Improper transactions were identified using
statistical and nonstatistical methods. Based on the results of our
statistical sample, we estimate that purchases totaling over $1.5
million violated Forest Service policies or regulations. These included
purchases that had been split into two or more segments to avoid the
cardholder's single transaction limit and purchases that had been paid
for twice. In addition, we identified purchases in our nonstatistical
sample totaling over $165,000 that violated law, regulation, or agency
policy. These included purchases that exceeded single transaction
limits, purchases for which required approvals were not obtained,
purchases of unauthorized items, transactions charged to accounts of
former employees, and instances where cardholders wrote convenience
checks to themselves, which violated Forest Service policy.
We also found 135 purchase transactions totaling $212,104 that we
considered wasteful because they were excessive in cost relative to
available alternatives, or they were for a questionable government
need. These included $16,250 for specialty costumes and a decorative
tent. In addition, we identified 644 transactions totaling $869,825
that we considered to be questionable because the Forest Service either
could not provide supporting documentation for them, or supporting
documentation was incomplete or incorrect and we were unable to
determine whether the purchases were proper. These included $2,929 for
an aquarium for a regional visitor information center; $2,295 for a
billiard table for a bunk house; $5,803 at Have Party Will Travel; and
$4,100 at Party Time Inc. Certain of these questionable transactions
were considered to be potentially fraudulent because they appeared to
represent unauthorized purchases for personal use or unauthorized
purchases made by persons using stolen cards or merchants using
cardholder account numbers. In addition, we identified three
potentially fraudulent transactions for one cardholder who, after an IG
investigation, pleaded guilty to making over $31,000 in fraudulent
charges over a 2-year period.
While the approximately $2.7 million of improper, wasteful, and
questionable purchase card and convenience check purchases we
identified is relatively small compared to the over $320 million in
total Forest Service purchase card and convenience check activity in
fiscal year 2001, it demonstrates vulnerabilities from weak controls
that could be exploited to a greater extent. In addition, because we
tested only a small portion of the transactions we identified that
appeared to have a higher risk of fraud, waste, or abuse, there may be
other improper, wasteful, and questionable purchases in the remaining
untested transactions.
Without significant improvements in its internal controls, the Forest
Service's ability to detect and prevent improper or fraudulent purchase
card use or to safeguard vulnerable assets will continue to be
hampered. We make recommendations in this report to address the
internal control, compliance, and property accountability issues we
identified.
In commenting on a draft of this report, the Forest Service did not
specifically address our recommendations. Rather, the response outlined
actions taken or planned since June 2001 to strengthen the overall
management of the purchase card program, which the Forest Service
described as having been taken, notwithstanding our report. We
acknowledged many of these actual and planned actions in our report.
While we believe that these actions, if fully implemented, will help to
address the vulnerabilities that we and the IG identified, many
weaknesses still remain that continue to expose the Forest Service to
improper, wasteful, and fraudulent purchase card activity. We address
these remaining weaknesses in our recommendations.
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. The Bank of America
issues purchase cards to USDA agencies, including the Forest
Service.[Footnote 5] The purchase card, unless otherwise directed by
regulation, is intended to be the primary purchasing method for
purchases from vendors that accept purchase cards for payment. This
payment method is intended to streamline procurement and payment
procedures by reducing the number of procurement requests, purchase
orders, and vendor payments issued. USDA's purchase card program,
including the Forest Service, also includes the use of convenience
checks to pay vendors that do not accept purchase cards as payment. In
fiscal year 2001, the Forest Service used purchase cards and
convenience checks to make 1.1 million purchases totaling $320 million.
The USDA procurement process is subject to the Federal Acquisition
Regulation (FAR), the primary set of regulations governing acquisition
of supplies and services by federal executive agencies with
appropriated funds. The FAR also incorporates U. S. Department of
Treasury's Treasury Financial Manual (TFM) requirements[Footnote 6] for
the governmentwide purchase card program. To implement and supplement
these regulations, USDA issues the Agriculture Acquisition Regulations
(AGAR), which prescribe USDA procurement policies and procedures.
To implement and supplement the AGAR, the Forest Service issues
directives,[Footnote 7] which contain Forest Service procurement
policies and procedures. The Forest Service Handbook, FSH 6309.32 Part
4G13 Simplified Acquisition Procedures, provides specific guidance on
procurement for the Forest Service, including the use of the government
purchase card. The handbook contains policies and procedures that
define the responsibilities of regional and local program coordinators
for managing the purchase card program, including establishing
cardholder data in the Purchase Card Management System (PCMS) and
monitoring activities for the purchase card program.
GSA and Bank of America also provide purchase card guidance, and GSA
provides training to cardholders and program coordinators. For example,
GSA's Blueprint for Success: Purchase Card Oversight was prepared by a
working group of agency program coordinators (APC) and provides general
program guidance to APCs in performing their responsibilities.
Beginning in fiscal year 2003, GSA made available to APCs a Web-based
on-line training course covering such topics as APC responsibilities,
reporting tools, and preventive measures to use in monitoring the
purchase card program.
According to USDA policy, APCs and local area program coordinators
(LAPC) are appointed by the head of the agency contracting office. APCs
are primarily responsible for managing the purchase card program in
their agency. In addition, they establish agency-unique purchase card
policies and procedures, provide training and guidance to LAPCs, and
conduct agencywide oversight of the purchase card program. LAPCs are
responsible for the day-to-day operations of the purchase card program
within their respective location. In addition, LAPCs are responsible
for updating cardholder information in PCMS; providing training to
cardholders; and monitoring purchases and reporting fraud, waste, and
abuse in accordance with agency procedures. Currently, there are 137
Forest Service LAPCs.
In the Forest Service, cardholders are responsible for understanding
and complying with purchasing policies and procedures; maintaining
records and receipts of all purchases; validating their purchases
against PCMS online data; disputing unauthorized charges, and obtaining
all necessary prepurchase approvals for certain items, such as
information technology (IT) costing $1,000 or more and other purchases
costing $2,501 or more. For all other purchases costing $2,500 or less,
the Forest Service cardholder is not required to obtain pre-or post-
approval. During fiscal year 2001, approximately 14,000 of the
approximately 30,000 employees, or over one-third of the Forest Service
workforce, had purchase cards and most of them had a single purchase
limit ranging from $2,500 to $25,000. The single transaction limit
applies to both the purchase card and convenience checks issued to the
cardholder.
In 1995, the Forest Service's use of the purchase card was limited to
procurement personnel. However, with implementation of the President's
National Performance Review recommendations, the Forest Service reduced
its procurement staff by 27 percent by 1998. At the same time, USDA put
together a task force to look at the procurement process and make
recommendations to improve it. The task force recommended increasing
the use of purchase cards within USDA, including the Forest Service, to
streamline the procurement process. USDA rapidly expanded purchase card
use, authorizing operations personnel as well as procurement personnel
to use them.
USDA's Office of Procurement and Property Management (OPPM) and the
National Finance Center (NFC) developed PCMS in 1995 to reduce
administrative costs and to allow agencies faster procurement of goods
and services. The system allowed USDA, including the Forest Service, to
track, reconcile, and monitor purchases made using the USDA purchase
cards and convenience checks. PCMS is used by program coordinators to
establish and manage cardholder accounts and by cardholders to
reconcile and dispute their transactions from their desktop computers.
In 1998, USDA switched card issuers and issued a task order under the
GSA contract to Bank of America. The Bank of America purchase card
system, developed under the GSA contract and called the Electronic
Access Government Ledger System (EAGLS), includes various tools
available to manage purchase card transactions. EAGLS is able to
generate account activity reports, which identify trends such as
purchases from merchants that would not be expected to be traditional
suppliers or unusually high spending patterns; dispute reports, which
identify cardholders with excessive disputes that may indicate
cardholder misuse or fraudulent activity; and various other exception
reports. Bank of America recommended that USDA also use EAGLS to manage
its purchase card program. However, as PCMS was developed by USDA prior
to its changeover to Bank of America, USDA officials chose to continue
using PCMS because they believed that it offered functionality similar
to EAGLS. Bank of America processes purchase card transaction data
received from vendors using EAGLS, which records the data, then sends
it electronically to NFC. NFC uploads the data into PCMS and processes
payments.
In August 2001, the IG issued a report on its review of PCMS, which
identified several internal control weaknesses. The report noted the
(1) lack of supervisory review and approval of cardholder transactions,
(2) untimely validation of purchases against PCMS data, and (3)
inadequate monitoring by agency management. In addition, a private firm
was contracted to perform an Independent Verification and
Validation[Footnote 8] (IV&V) assessment of PCMS, an assessment which
also reported weaknesses in accounting process controls and internal
controls over purchase card transactions. Both the IG and contractor
reports noted that cardholders were authorized to buy a majority of
items they wanted at any time. The IG made several recommendations,
which included:
* instituting a requirement that supervisors periodically review and
approve their subordinates' purchase card transactions to confirm they
are appropriate, for official purposes, and validated against PCMS data
in a timely manner;
* developing and implementing appropriate internal control procedures
over the custody, control, accountability, and issuance operations for
convenience checks to ensure they are not misused; and:
* instructing USDA agencies to review their controls for ensuring they
always properly record property purchases valued at $5,000 or more
(called accountable purchases) in the Office of the Chief Financial
Officer (OCFO)/NFC Property Management Information System.
Scope and Methodology:
To obtain an understanding of the Forest Service's purchase card and
convenience check policies and procedures, and the related internal
controls, we:
* reviewed USDA and Forest Service procurement policy, USDA PCMS
guidance, Forest Service regional purchase card program policy, U.S.
Department of the Treasury purchase card program policy, and previous
GAO reports, as well as reports issued by USDA's IG and an independent
contractor; and:
* observed and documented purchase card procedures and conducted
telephone interviews with USDA and Forest Service management and staff
to identify key purchase card, convenience check, and accountable
property policies, procedures, and initiatives.
Because of known weaknesses in the design of internal controls at the
Forest Service, we did not perform detailed tests to assess the
effectiveness of these controls. However, we reviewed the internal
control findings reported by the IG and the contractor in reports
issued on the purchase card program and PCMS. In addition, we assessed
the adequacy of the internal controls as designed, using our Standards
for Internal Control in the Federal Government,[Footnote 9] Internal
Control Management and Evaluation Tool,[Footnote 10] Guide for
Evaluating and Testing Controls Over Sensitive Payments,[Footnote 11]
and Executive Guide: Strategies to Manage Improper Payments.[Footnote
12]
To determine whether the Forest Service's fiscal year 2001 purchase
card transactions were made in accordance with established policies and
procedures, were reasonable, and reflected a legitimate government
need, we selected transactions using three different methods. For each
method of selection, we provided the Forest Service with the
transactions selected and obtained and reviewed related supporting
documentation. The three methods are as follows:
* Data mining.[Footnote 13] We performed data mining on Bank of
America's database of the Forest Service's fiscal year 2001 purchase
card and convenience check transactions for indicators of potential
noncompliance with established policies and procedures. Specifically,
we looked for transactions that exceeded cardholder or convenience
check spending limits, split purchases or duplicate transactions,
cardholders with multiple cards, transactions on purchase card accounts
after the separation dates of the employees, and cardholders who wrote
convenience checks to themselves or for cash. Except for potential
split and duplicate transactions, we forwarded all selected
transactions to the Forest Service APC to request supporting
documentation from cardholders, which we used to assess whether in fact
these were violations of policy. For split and duplicate transactions,
we selected a statistical sample of transactions as discussed below.
* Statistical sampling. To test for split transactions, we first
performed data mining to identify possible split transactions from the
population of purchase card transactions paid from October 1, 2000,
through September 30, 2001. We then selected a stratified[Footnote 14]
random (statistical) sample of 213 of 1,854 potential split
transactions totaling $3.5 million. Similarly, to test for duplicate
transactions, we first performed data mining to identify possible
duplicate transactions from the population of purchase card
transactions paid from October 1, 2000, through September 30, 2001. We
then selected a stratified[Footnote 15] random (statistical) sample of
230 of the 8,659 possible duplicate transactions totaling $1.6 million.
We requested supporting documentation for these transactions from the
APC. Actual findings from both statistical samples were projected
separately to total fiscal year 2001 Forest Service purchase card and
convenience check transactions.
* Nonstatistical sampling. We selected transactions nonstatistically to
allow us to identify those that appeared to have a higher risk of
fraud, waste, or abuse, although the results cannot be projected to the
overall population of purchases. We identified merchant category codes
(MCC)[Footnote 16] or vendor names that appeared more likely to
represent unauthorized or personal use items. We chose a nonstatistical
sample of high-risk transactions from the total population of
transactions identified for each vendor or MCC selected. We then
requested supporting documentation from the APC for over 5,000
transactions totaling $8.7 million that we identified as meeting the
criteria mentioned above to test for improper purchases. In addition,
we requested the records for more than 1,000 transactions totaling over
$690,000, which were disputed by cardholders during fiscal year 2001.
We reviewed these transactions to determine whether the cardholders
properly complied with applicable purchasing policies and procedures
for disputed transactions.
To determine if controls over purchase card and convenience check
equipment acquisitions were adequate to properly record and safeguard
assets, we:
* reviewed policies and procedures over the management and control of
accountable property and sensitive items; and:
* tested accountable property selected in the nonstatistical sample
discussed above to determine whether these assets had been recorded in
the Forest Service's property management system prior to our review.
While we identified some improper purchases, our work was not designed
to identify all fraudulent or otherwise improper purchases made by the
Forest Service. We conducted our review from April 2002 through March
2003 at the Forest Service Washington Office in Rosslyn, Virginia, and
USDA headquarters in Washington, D.C., in accordance with generally
accepted government auditing standards. We requested written comments
on a draft of this report from the Chief of the Forest Service. Written
comments were received from the Chief of the Forest Service and are
reprinted in appendix I.
Critical Internal Control Activities Were Lacking or Inadequate:
The Forest Service's internal controls did not provide reasonable
assurance that improper purchase card and convenience check purchases
would not occur or would be detected in the normal course of business.
Effective internal controls are the first line of defense in
safeguarding assets and 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 stewardship of
government resources. Our Standards for Internal Control in the Federal
Government contains the specific internal control standards to be
followed. Specifically, these standards require, among other things,
that (1) key duties and responsibilities be divided or segregated among
different people to reduce the risk of error or fraud, (2) transactions
and other significant events be authorized and executed only by persons
acting within the scope of their authority, (3) internal control
monitoring be performed to assess the quality of performance over time
and ensure that audit findings are promptly resolved, and (4) physical
control must be established to secure and safeguard assets vulnerable
to risk of loss or unauthorized use.
The IG report, issued in August 2001, covered purchases made during
fiscal years 1999 and 2000. The report noted several internal control
weaknesses in USDA's purchase card program, including that of the
Forest Service. These included (1) lack of supervisory review of
purchase card transactions, (2) untimely reconciliation of purchases,
and (3) inadequate monitoring by agency management. Because the IG
report addressed significant internal control weaknesses and made
several recommendations to address them, we did not conduct detailed
tests of internal controls. However, through discussions with USDA and
Forest Service officials and our reviews of purchase card policies and
procedures, we confirmed that the Forest Service still did not have an
adequate supervisory review process or sufficient program monitoring
activities. Most importantly, we determined that the Forest Service
continued not to have adequate segregation of duties, and property
susceptible to theft or misuse was not adequately safeguarded. Our data
mining of specific purchase card and convenience check transactions
revealed numerous improper and wasteful purchases that could have been
prevented or detected if these basic internal controls were in place.
Without effective internal controls, the Forest Service does not have
reasonable assurance that purchases are proper or that items purchased
are safeguarded against loss or theft.
The Forest Service Did Not Adequately Segregate Purchasing Duties:
Our Standards for Internal Control in the Federal Government requires
that key duties and responsibilities, including authorizing,
processing, recording, and reviewing transactions and handling related
assets, be divided or segregated among different people in order to
reduce the risk of error or fraud. Simply put, no one individual should
control all the key aspects of a transaction or event. The processing
and recording duties for purchase card and convenience check
transactions were automated and not performed by the cardholder.
However, under Forest Service regulations, the majority of purchase
card transactions do not require a segregation of duties. Cardholders
are allowed to perform the key duties of authorizing purchases,
receiving related assets, and validating the purchases subsequent to
payment.
Although Forest Service guidance required that a requisition be
prepared for all procurements as a method to determine that the
requestor had the authority for the purchase, a procurement request was
not required for acquisitions below $2,500 when using a purchase card
or convenience check. In fiscal year 2001, 96 percent of purchase card
transactions were for amounts less than $2,500. Further, as purchase
card purchases usually involved face-to-face transactions between the
cardholder and the vendor, the cardholder received the assets.
Lastly, Forest Service guidance required that cardholders reconcile
their transactions in PCMS at least once a month using the
documentation retained from each transaction. After reconciling a
transaction, cardholders validate the transaction by marking an
"approved" cell in PCMS. Therefore, for the majority of Forest Service
purchase card transactions made by individual cardholders, there is no
separate authorization of the purchases, possession of the items, or
independent validation of the transactions.
In discussions with USDA OPPM management and our review of purchase
card policies and procedures, we noted that generally, segregation of
duties was not adequately considered in the implementation of the
purchase card program. When USDA, including the Forest Service, adopted
PCMS, the revised procurement process allowed a much larger population
of Forest Service employees to authorize purchasing decisions to buy
goods and services as well as the responsibility for validating these
purchases, up to their single transaction limit. This new process did
away with the need for procurement requests and approving officials for
the majority of purchase transactions below $2,500 initiated by Forest
Service employees.
As noted above, Forest Service purchase card program policies and
procedures were written to support the increased authority given
cardholders in purchase decisions. The lack of proper segregation of
duties increased the Forest Service's vulnerability to theft or misuse
since there was limited oversight or control to ensure that purchased
items or services were for a legitimate government need and were being
used for those purposes.
Supervisory Review and Approval Process Was Inadequate:
Supervisory approval of transactions is a principal means of assuring
that only valid transactions are initiated or entered into by persons
acting within the scope of their authority. A supervisory review of
purchase transactions is particularly important where there is a lack
of segregation of duties, because a supervisor or approving
official[Footnote 17] may be the only person other than the purchaser
who would be in a position to identify an inappropriate purchase.
Therefore, the supervisor or approving official's review is a critical
internal control for ensuring that purchases are appropriate and comply
with agency regulations.
The August 2001 IG report recommended that USDA institute a requirement
that supervisors periodically review and approve their subordinates'
purchase card transactions to confirm they are appropriate and revise
departmental regulations and purchase card program instructions
accordingly. USDA did not concur with this recommendation because the
IG audit did not find any material problems with the purchase card
transactions that they tested. Further, in commenting on the report,
USDA management stated that they believe the existing management
structure is effective in ensuring that purchase card transactions are
appropriate.
During our review of the Forest Service purchase card program for
fiscal year 2001, we also noted that supervisory review and approval of
purchase card transactions was inadequate. The Forest Service did not
require approval of purchase transactions under $2,500, except for
certain IT items such as computer hardware, software, and cellular
phones. The Forest Service trusts cardholders to make appropriate
purchasing decisions for transactions under this amount. During fiscal
year 2001, purchases less than $2,500 totaled $226 million and
accounted for 96 percent of all purchase card transactions in the
Forest Service.
While Forest Service guidance requires prior approval for all purchase
transactions exceeding $2,500 and for specific IT items, we noted that
this requirement was not consistently followed. We identified 11
transactions totaling $25,452 that required prior approval, but were
initiated and completed by cardholders without obtaining such approval.
For example, we identified a $1,260 purchase for a printer from
ComputerLand Center. Prior approval for the purchase was not obtained
as required by Forest Service policy. The cardholder stated that she
did not obtain the proper approval because she was unaware of the
requirement.
USDA issued its revised procurement regulation, Use of the Purchase
Card and Convenience Check (DR-5013-6), in February 2003. The revised
regulation added the cardholder supervisor to the list of responsible
persons in the purchase card program. Supervisors are described as the
first line of control over the purchasing activity of cardholders in
their units. In addition, it states that supervisors will require
cardholders to generate periodic reports of purchase card and
convenience check transactions, and that supervisors review these
reports at least quarterly, or more often if agency procedures require.
However, OPPM officials told us that this new regulation does not
require supervisors to review each and every transaction nor does it
require them to review supporting documentation.[Footnote 18] Rather,
these reviews are completed using data that has been entered into PCMS
and do not require the cardholders to submit the original documentation
for their purchases. Both USDA and Forest Service officials told us
that supervisory review of all transactions is not practical because of
the Forest Service's decentralized organization. However, this very
decentralization makes it even more imperative that a supervisor or
other approving official validate purchases.
Without an independent validation of transactions via supervisory
review of supporting documentation, the Forest Service is at
significant risk of misappropriation of funds due to fraudulent or
improper charges. For example, as mentioned earlier, cardholders are
required to "reconcile" or validate their transactions at least once a
month. During this process the cardholders view each individual
transaction for their account in PCMS and agree the vendor name, the
date of the transaction, and the amount of the transaction to the
original documentation maintained by the cardholder. In addition, the
cardholders enter the description of the items purchased because this
information is not initially included in PCMS. While following up on
questionable purchases that we identified, our investigators learned
that three of these purchases, for $1,031 in jewelry and china from
Meier & Frank, had been made by a Forest Service employee who had been
under investigation by the IG since January 2002. In reviewing the IG
Report on Investigation we noted that the cardholder, when reconciling
her purchases, had entered fictitious items into the item description
field in PCMS. For example, the purchases from Meier & Frank were
described as nonmonetary awards and length-of-service awards. In
addition, purchases of CD players, computers, computer games, and other
miscellaneous items at one vendor were entered into the PCMS
description field as cartridges, chair mats, folders, binders, paper,
pencils, and other supplies. A comparison of the receipt to information
in the PCMS database would have detected these purchases as potentially
fraudulent.
Program Monitoring Was Inadequate:
The Forest Service did not adequately monitor its purchase card program
during fiscal year 2001 to ensure that Forest Service employees were
following established policies and procedures. Program oversight
through monitoring activities is important even when strong preventive
controls are in place, and is especially critical in the Forest Service
case where there is a lack of supervisory review and segregation of
duties. USDA regulations[Footnote 19] in place during fiscal year 2001
required that APCs and LAPCs monitor purchase card transactions through
PCMS's alert subsystem,[Footnote 20] statistical sampling, and query
tool software. In August 2001, the IG reported deficiencies in USDA's
(including Forest Service) use of oversight tools for monitoring
purchase card usage during fiscal years 1999 and 2000. Specifically,
the IG reported that the department had not effectively implemented the
alert subsystem of PCMS or implemented reviews of statistically sampled
transactions, as required by USDA regulations. During our review of the
Forest Service program for fiscal year 2001, we noted that it was still
not using these tools for monitoring transactions for compliance with
program requirements or for improper purchases.
In our discussions with OPPM officials in May 2002, they stated that
they were not using the alert subsystem because it was generating too
many alerts that did not represent true errors or abuse. They expect to
correct the alert process by June 30, 2003, 6 months ahead of the
original implementation date included in their corrective action plan
to address the IG's findings. In addition, they informed us that they
had not begun performing reviews of statistically selected samples
during fiscal year 2001 but that they had begun performing these
reviews during fiscal year 2002, distributing the results to the
specific agencies, including the Forest Service, for follow-up on the
identified transactions. The Forest Service APC confirmed that she
received the transactions from OPPM and had distributed them to the
specific field offices for investigation.
Lack of timely and consistent monitoring activities increases the risk
that inappropriate purchase card transactions and improper cardholder
activities will go undetected. In addition, without adequate monitoring
activities, systematic problems will not be identified and addressed.
In our review of support for transactions identified using data mining
techniques, we found that local coordinators were not always (1)
canceling accounts of permanent and temporary employees when they left
the Forest Service, (2) informed by cardholders that cards had been
lost or stolen, or (3) monitoring disputed transactions to ensure they
were completely resolved and to identify unauthorized activity.
Canceling purchase card accounts. Purchase card accounts were not
consistently being canceled when cards were reported as lost or stolen,
or when a cardholder left the Forest Service. Forest Service guidance
requires, in the case of a lost or stolen card, that the cardholder
contact Bank of America to have a block placed on the account and a new
card issued. The guidance also requires that cardholders, prior to
leaving the Forest Service, surrender their cards and, if issued,
unused convenience checks, to the LAPC who will destroy them and close
the account.
We reviewed employee separation procedures at 16 Forest Service
regional and field offices and noted that the written procedures at 3
offices did not include steps to physically collect the purchase card
from the employee. Further, Forest Service program officials told us
that the personnel forms used in this process are out of date at one
office, they differ from region to region, and are inconsistently
filled out.
In addition, we noted that purchase cards were issued to temporary
employees hired during fire season when there is an increased need for
manpower. According to the Forest Service APC, these cards are
collected when the temporary employees leave the Forest Service.
However, one of the officials we spoke with stated that the cards are
not always retrieved. Instead the purchase limits are reduced to $1 at
that time. Our internal control standards require that an agency must
establish physical control to secure and safeguard assets that might be
vulnerable to risk of loss or unauthorized use. Failure to collect
purchase cards due to outdated and inconsistently applied policies and
procedures creates a significant risk of unauthorized use of purchase
cards.
USDA purchase card policy states that cardholders are required to
inform their LAPC immediately of lost or stolen purchase cards or
convenience checks and contact the card issuer in order to have the
accounts blocked. However, we found instances where LAPCs had not been
notified that cards had been lost by cardholders or stolen and the
cards had not been canceled. For example, we identified three instances
where cardholders lost their cards but did not inform their LAPCs.
Instead, in each case, the cardholder canceled the lost card and
ordered a new card through Bank of America without the LAPC's
knowledge.
Monitoring disputed transactions. We found that cardholders were not
always disputing transactions within 60 days of the transaction dates
as required by Forest Service policy and the GSA contract, and disputes
were not being monitored to ensure they were completely investigated
and resolved. Forest Service policy requires that cardholders reconcile
their purchase card transactions in PCMS every 30 days to ensure the
recorded charges are appropriate and correct, and that they
dispute[Footnote 21] any charges identified as inappropriate or
erroneous. GSA's Blueprint for Success: Purchase Card Oversight, states
that agency officials should consistently monitor disputes filed by
cardholders and watch for unusual trends, such as a high number of
disputes for specific merchants. In addition, the GSA master contract
with card issuers of government purchase cards states that charges
disputed within 60 days of the transaction date will be investigated:
by the card issuer and appropriate credits issued. After 60
days[Footnote 22] the cardholder is responsible for investigating the
disputed charge. In fiscal year 2001, Forest Service cardholders
disputed over 1,000 transactions totaling $690,157. Of these, we noted
62 transactions totaling over $51,000 that had not been disputed by
cardholders within 60 days of the transaction date.
Forest Service regulations do not require that cardholders inform their
LAPC of transactions to be disputed before they are submitted to Bank
of America. As a result, LAPCs and other management officials may be
unaware of disputed transactions that may indicate potentially
fraudulent or improper purchase card use, and therefore are not
ensuring that unauthorized activity is identified, compromised accounts
are canceled, and appropriate credits are issued. We noted that 76
transactions had been identified by 51 cardholders as potentially
fraudulent, but the transactions still had not been resolved (i.e.,
credits issued) and the accounts were still open as of the end of our
fieldwork. For example, a cardholder disputed a $600 charge at Dillards
department store stating that this was one of several charges against
his account for this vendor and that none of the charges were
legitimate. In addition, cardholders disputed a total of 22 charges
totaling $2,791 for a vendor named Productivity Plus. In all but 2 of
these 22 transactions the cardholders state that they had attempted to
reach the vendor but were unable to. However, there was no explanation
given as to why the cardholder accounts had not been closed.
The Forest Service issued revised policies and procedures for
monitoring purchase card usage in June 2001. The revised guidance
required that for each Forest Service region, field office, and the
Washington office, the Chief of Contracting Office (COCO) and LAPC
perform monthly, quarterly, and annual reviews of cardholder purchases.
The guidance also gave the COCOs the authority to revoke cardholder
purchase card and convenience check privileges for inappropriate use.
However, the revised regulations do not address the need for monitoring
disputed transactions to help ensure that the purchase cards that have
been lost, stolen, or otherwise compromised are canceled and that
disputed transactions are resolved. Inadequate monitoring is yet
another gap in internal controls that leaves the Forest Service
purchase card program open to waste, fraud, and abuse.
Property Was Not Properly Tracked:
Since 1999, we have designated financial management at the Forest
Service as high risk on the basis of serious financial and accounting
weaknesses. An area of particular concern has been the Forest Service's
internal controls related to property. Internal controls are essential
to safeguarding assets vulnerable to risk of loss or unauthorized use.
However, we found that the Forest Service did not adequately track
property bought with purchase cards.
Forest Service policy requires that property costing more than $5,000
be entered into its personal property management system. Such property
is also referred to as accountable property. USDA's property management
regulations state that all accountable property acquired by purchase,
transfer, construction, manufacture, or donation will be recorded in
the property records at the time it is accepted by the receiving
agency. We reviewed supporting documentation for 108 accountable
property items purchased in 64 separate transactions during fiscal year
2001, selected on a nonstatistical basis.
In our review, we noted that 54 of these transactions were entered in
the property system more than 60 days after the purchase transaction or
not at all. Specifically, 34 of these items, totaling $266,074, or
approximately 31 percent, had been recorded in the USDA property system
more than 60 days after the purchase transaction. In many of those
cases, it was several months before the property was recorded. For
example, 8 of the items were not entered into the system for more than
a year. In addition, we noted 20 property items, totaling $166,803,
which the Forest Service could not determine had ever been entered into
the property system. These items included 10 all-terrain vehicles, 3
copiers, 2 projectors, 2 generators, and 3 plasma monitors. This lack
of accountability makes these assets particularly susceptible to loss
or theft without detection.
The Forest Service does not require that property costing under $5,000
be tracked unless the items are designated as "sensitive."[Footnote 23]
Each USDA agency defines its own list of sensitive property and is
responsible for providing this list to the cardholders. The Forest
Service designates all firearms, frequency modulated land-mobile
radios, precise positioning service Global Positioning Satellite (GPS)
receivers, IT equipment, and radiological equipment having a
radioactive source as sensitive property, agencywide. Further, Forest
Service guidance allows each of its regions and field offices to
designate other items as sensitive. While the Forest Service allows
field offices to categorize items under $5,000 as sensitive and thereby
track them in inventory, there is no consistent definition of sensitive
property across regions. For example, one Forest Service region
considers VCRs, TVs, and CD players costing more than $500 to be
sensitive property. Another regional office designates video and audio
equipment costing more than $100 as sensitive. That particular region
also considers survival equipment and clothing sensitive while other
regions do not.
USDA regulations state that agencies shall be responsible for
maintaining reasonable controls over their nonaccountable property to
safeguard it against improper use, theft, and undue deterioration. In
our review, we identified transactions totaling $439,789 for purchases
of items that were not recorded in the Forest Service's inventory that,
while not specifically designated as sensitive, appear to meet both
USDA and Forest Service's overall definition of sensitive property. The
cost of many of these items fell just under the $5,000 accountable
property threshold. As shown in table 1, these items included all-
terrain vehicles, cameras, GPS units, snowmobiles, and night-vision
goggles.
Table 1: Nonaccountable Items Purchased:
Item type: All-terrain vehicles; Number purchased: 17; Dollar amount:
$74,648.
Item type: LCD projectors; Number purchased: 25; Dollar amount:
130,057.
Item type: Cameras (digital and standard); Number purchased: 120;
Dollar amount: 129,073.
Item type: Snowmobiles; Number purchased: 9; Dollar amount: 38,787.
Item type: Global Positioning Satellite Units (GPS); Number purchased:
52; Dollar amount: 14,200.
Item type: Camcorders; Number purchased: 7; Dollar amount: 14,098.
Item type: Binoculars; Number purchased: 9; Dollar amount: 11,624.
Item type: Motorcycles; Number purchased: 2; Dollar amount: 9,689.
Item type: Personal digital assistants; Number purchased: 14; Dollar
amount: 8,394.
Item type: Night-vision goggles; Number purchased: 4; Dollar amount:
9,219.
Item type: Total; Number purchased: 259; Dollar amount: $439,789.
Source: GAO analysis of Forest Service purchase card and convenience
check transactions selected for fiscal year 2001.
[End of table]
Without proper recording and accounting for these vulnerable assets,
there is an increased risk of misappropriation of these items. For
example, without tracking of these items a supervisor may be unaware
that a cardholder leaving the Forest Service purchased one of these
items, and therefore could not ensure that the item remained in the
possession of the Forest Service. In some Forest Service regions,
employee checkout procedures attempt to mitigate this by requiring that
an official certify that the employee has accounted for all property.
An inventory listing of these items would enable the supervisor to
ensure that all vulnerable assets are properly accounted for when
employees leave.
USDA's revised regulations, issued in June 2001, prohibit the purchase
of accountable and sensitive property except by warranted
cardholders.[Footnote 24] However, the revised regulations did not
mitigate the issues we identified regarding proper accounting for
vulnerable assets. Therefore, these items continue to be at an
increased risk of misappropriation.
Table 2 summarizes the actions USDA and the Forest Service have taken
to address many of the internal control weaknesses identified by the IG
and/or us. We did not test the effectiveness of these actions because
they were implemented subsequent to our review time frame. On reviewing
the proposed actions, however, we found that in certain cases, even if
properly implemented, they will still not fully remedy known
vulnerabilities in internal controls. These cases are noted in the
table.
Table 2: Revised USDA Purchase Card Policies:
Policies in place during fiscal year 2001: Cardholder's authorize
purchases, receive related assets, and validate the purchases
subsequent to payment for purchases under $2,500; Audit findings for
fiscal year 2001: Forest Service regulations do not support a
segregation of duties in purchase card transactions under $2,500;
USDA/Forest Service actions to strengthen control: None; Continued
vulnerabilities: No requirement of independent review by the LAPC or
supervisor to validate transactions or independent verification of
receipt of goods or service leaves the Forest Service purchase card
program vulnerable to fraud, waste, and abuse.
Policies in place during fiscal year 2001: Transactions under $2,500 do
not require preapproval unless they are for specific IT items; Audit
findings for fiscal year 2001: No requirement of independent review by
LAPC or supervisor to validate transactions, or independent
verification of receipt of goods or service; USDA/Forest Service
actions to strengthen control: LAPCs and COCOs are required to audit a
percentage of transactions on a monthly, quarterly, and annual basis to
ensure micro-purchase rules have been followed using PCMS screens and
reporting, including review of description fields completed by
cardholders. Also, LAPCs are to audit 3 percent of transactions
annually, by reviewing all supporting documentation for the
transactions; (FS 6309.32 revised 6/01); Supervisors were added to
list of responsible parties for monitoring USDA's regulation on
purchase card usage. In addition, supervisors will require cardholders
to generate periodic reports of purchase card and convenience check
transactions. Supervisors shall review cardholder transaction reports
at least quarterly, or more often if agency procedures require;
(USDA 5013-6 issued 2/03); Continued vulnerabilities: These limited
post-reviews are not sufficient oversight given the decentralization of
the organization and the lack of segregation of duties. As supervisors
would be expected to be more knowledgeable of a cardholder's daily
activities and responsibilities, the review of actual documentation
should also be at the supervisor level. Cardholders are able to enter
fictitious descriptions of item or service purchased in PCMS.
Therefore, without a review of original supporting documentation at all
levels the Forest Service cannot ensure that the purchase was
appropriate and reflected a valid government need.
Policies in place during fiscal year 2001: USDA-OPPM and Forest Service
APCs and LAPCs are required to monitor purchase card transactions using
the PCMS alert subsystem, statistical sampling, and query tool; Audit
findings for fiscal year 2001: Alert subsystem not being used due to
problems; Statistical sampling not being performed during
2001; USDA/Forest Service actions to strengthen control: Alert
subsystem expected to be running by June 30, 2003. New system will also
include some data on disputed transactions for review by LAPCs; OPPM
has begun producing random queries of PCMS data to identify
transactions having a higher than normal potential for abuse and
sending them to the respective agencies for investigation.
Policies in place during fiscal year 2001: Cardholders are to validate
their transactions periodically and to dispute any erroneous or
unauthorized transactions within 60 days of the transaction date;
Audit findings for fiscal year 2001: Disputed transactions are not
always submitted within 60 days of transaction date; Cardholders are
not required to communicate disputed items to supervisors and
supervisors are not required to monitor disputed transactions;
Potentially fraudulent transactions were still unresolved as of the end
of our fieldwork; USDA/Forest Service actions to strengthen control:
Forest Service began deactivating purchase card accounts for which
transactions were unreconciled more than 30 days after transaction
date; The agency expects to have the Alert subsystem running by June
30, 2003. New system will also include some data on disputed
transactions for review by LAPCs; Continued vulnerabilities:
Cardholders will still be able to use convenience checks to make
purchases; It is not known whether the data provided will ensure
that purchases that may be improper or potentially fraudulent are
brought to management's attention for investigation and resolution.
Policies in place during fiscal year 2001: Accountable and sensitive
property is to be recorded immediately after purchase; Audit findings
for fiscal year 2001: Accountable property is not entered in the
property system. Certain vulnerable items are not considered sensitive
and included in property system; USDA/Forest Service actions to
strengthen control: Only warranted cardholders may purchase accountable
or sensitive property; (FS 6309.32 revised 6/01); Continued
vulnerabilities: Property items that appear to meet the overall USDA
and Forest Service definition of sensitive are still not included in
the agency-level list of items to be entered into the property system.
Source: GAO analysis of Forest Service documentation.
[End of table]
Noncompliance with Purchasing Requirements Resulted in Instances of
Improper Purchases:
The lack of adequate internal controls resulted in violations of
numerous federal acquisition requirements and USDA/Forest Service
purchase card policies that we classified as improper purchases. These
included (1) purchases that were split into two or more transactions to
circumvent single transaction limits, (2) purchase transactions that
were paid for twice, (3) purchases of unauthorized items, (4) purchases
that exceeded single purchase limits, (5) unapproved information
technology (IT) purchases, (6) transactions charged to purchase card
accounts of former employees, and (7) convenience checks written by
cardholders to reimburse themselves. Table 3 shows the total dollar
amounts for exceptions we identified for each category.
Table 3: Categories of Improper Purchases:
Policy violation: Split purchases; Dollar amount of transactions:
$1,285,252[A].
Policy violation: Duplicate transactions; Dollar amount of
transactions: 177,187[B].
Policy violation: Purchases of unauthorized items; Dollar amount of
transactions: 53,324.
Policy violation: Purchases that exceeded single transaction limit;
Dollar amount of transactions: 41,445.
Policy violation: Information technology purchases that were not
approved; Dollar amount of transactions: 25,452.
Policy violation: Transactions on accounts of former employees; Dollar
amount of transactions: 43,625.
Policy violation: Convenience checks written for cash reimbursement;
Dollar amount of transactions: 2,014.
Policy violation: Total; Dollar amount of transactions: $1,628,299.
Source: GAO analysis of Forest Service purchase card and convenience
check transactions selected for fiscal year 2001.
[A] This amount includes split transactions for which we selected a
statistical sample of 213 transactions. Based on the results of our
review we estimate that almost $1.3 million of the total fiscal year
2001 purchase card transactions identified as potential splits were
actual split transactions. We are 95 percent confident that the total
dollar value for actual split transactions was between $.9 million and
$1.6 million.
[B] This amount includes duplicate transactions for which we selected a
statistical sample of 230 transactions. Based on the results of our
review we estimate that almost $177,187 of the total fiscal year 2001
purchase card transactions identified as potential duplicates were
actual duplicate transactions. We are 95 percent confident that the
total dollar value for actual duplicate transactions was between
$43,458 and $310,916.
[End of table]
While the total amount of improper purchases we identified is
relatively small compared to the more than $320 million in annual
purchase card and convenience check transactions, it demonstrates
vulnerabilities from weak controls that could easily be exploited to a
greater extent. The above policy violations are discussed in more
detail below.
Split purchases. Using data mining techniques, we identified purchases
that appeared to have been split into two or more transactions by
cardholders to circumvent their single transaction limit. We requested
supporting documentation for a statistically determined sample of 213
out of 1,854 potentially split purchases we identified. Of these 213,
we identified 29 actual split purchases for which we received and
examined documentation that confirmed that the purchases were split
into two or more transactions. Based on these results, we estimate that
almost
$1.3 million[Footnote 25] of the total fiscal year 2001 purchase card
transactions were split transactions. For example, a cardholder with a
single purchase limit of $2,500 purchased 13 toner cartridges totaling
$3,918. The cardholder had the vendor split the purchase between two
invoices to avoid exceeding her single purchase limit. In another
example, the cardholder purchased $36,984 of safety equipment for
rescue workers. The cardholder had the vendor separate the total charge
into three charges to circumvent her single transaction limit of
$25,000. The projected amount of split transactions may have been
higher had we received all documentation requested. However, for 59 of
the 213 sampled transactions, we could not determine whether they were
split transactions because cardholders did not provide documentation
through the APC to enable us to assess them. 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 failing to
monitor transactions, these limits may be circumvented and the Forest
Service will have less control over the expenditure of its resources.
Duplicate transactions. Using data mining techniques, we identified
individual purchases that appeared to have been charged twice to
cardholder's accounts. We requested supporting documentation for a
statistically determined sample of 230 of the 8,659 potentially
duplicate transactions we identified. Of these 230, we identified 6
actual duplicate transactions. Based on these results, we estimate that
$177,187[Footnote 26] of the total fiscal year 2001 purchase card
transactions were duplicate transactions. The projected amount of
duplicate transactions may have been higher had we received all
documentation requested. However, for 30 of the 230 sampled
transactions, we could not determine whether they were duplicate
transactions because cardholders did not provide documentation through
the APC to enable us to assess them. Supervisory review of the
documentation supporting the cardholder's transactions reduces the risk
that duplicate charges would go undetected and result in financial
losses to the government. In addition, an effective monitoring program
at the APC/LAPC level would help flag these types of improper
transactions.
Purchases of unauthorized items. USDA purchase card policy states that
the purchase card and convenience checks will not be used for the
purchase of hazardous items such as firearms, ammunition, explosives,
or hazardous biological and radioactive substances. However, we
identified 10 transactions totaling $53,324 for the purchase of
ammunition, rifles, and explosives. For example, we identified two
transactions for the purchase of rifles, which are used for animal
control and other Forest Service activities. When we informed the
cardholders that these transactions were improper, one cardholder
stated that he was unaware that purchase card policy prohibited this
purchase. The other cardholder stated that as a warranted cardholder,
she was allowed to purchase the rifle. This is not the case under
Forest Service policy, and when we brought this to the attention of the
Forest Service APC, she contacted the employee to inform her that the
purchase was improper. Further, we identified a $500 purchase of
ammunition, which was given to the local sheriff's department under a
cooperative agreement. Under the agreement, the sheriff's department
would patrol campgrounds because of manpower shortages within the
Forest Service. The cardholder told our investigator that it is a
common occurrence in his region to have cooperative agreements with
local law enforcement agencies. When we discussed this transaction with
the Forest Service APC she expressed some concern as to whether the
intent of the cooperative agreement program was being properly
administered in the cardholder's region.
Purchases that exceeded single transaction limits established by USDA
policy. Through our data mining efforts, we identified 12 purchases
totaling $41,445 that exceeded the cardholder's single transaction
limit by 10 percent or more. Of the purchases we identified, we noted
that none of them were made using the purchase card; instead they were
made using convenience checks that had been issued to the cardholder.
According to the Forest Service APC, when an individual cardholder uses
a purchase card and the amount of the purchase is in excess of the
limit, electronic controls established by Bank of America deny the
transaction and it cannot be completed. However, these controls do not
exist for convenience checks. The cardholder's single transaction limit
is printed on the face of his/her convenience checks. Yet when a
cardholder writes a check in excess of their transaction limit, only
scrutiny by the vendor would identify this. According to the Forest
Service APC, the Bank of America honors all convenience checks.
Therefore, when vendors submit checks written for amounts in excess of
the cardholder's limit to Bank of America, the checks are accepted and
processed for payment. This lack of control allows a cardholder to
circumvent the single transaction limit, even in the case where the
Forest Service has reduced a cardholder's single transaction limit to
$0 or $1 for abusing the purchase card program or due to separation
from the agency, increasing the risk of unauthorized or improper
purchases by cardholders.
No preapproval of IT purchases. While the Forest Service generally does
not require preapproval of purchases under $2,500, there are some
specific categories of items for which prior independent approval must
be obtained. According to Forest Service policy, cell phones, fax
machines, scanners, and other IT equipment are not to be purchased
without first obtaining approval from the appropriate IT personnel.
However, we found 11 transactions totaling $25,452 for equipment,
including cell phones, scanners, printers, and fax machines, that did
not have this required preapproval.
Transactions by cardholders separated from the Forest Service. Using
data mining techniques, we identified purchase card accounts that had
transactions totaling approximately $43,625 charged to them with
transaction dates that appeared to be after the cardholders left the
Forest Service.[Footnote 27] In discussions with the Forest Service
APC, she agreed that, based on the available data, $4,385 of these
transactions could be confirmed to be improper, having been made after
the employees had left the Forest Service. For example, one former
employee left the Forest Service on November 4, 2000, but PCMS records
indicated that six purchases, totaling $1,632, were charged to the
employee's purchase card account over the next 2 months at Ames and
Kmart department stores. The Forest Service was unable to provide
documentation to support the appropriateness of the remaining
transactions totaling $39,240.
Cardholders wrote convenience checks to themselves. We found 26
instances, totaling $2,014 where cardholders wrote checks to
themselves, contrary to Forest Service policies that prohibit this
practice. Writing checks for cash is also an unauthorized transaction,
according to USDA's micropurchase guide. In addition, the guide states
that cardholders may issue checks to reimburse other employees for
local travel expenses, such as mileage, parking, and taxis, authorized
by their agency while on official business, or miscellaneous
expenditures (e.g., supplies, services, registration fees, and
telephone use for official business) that were cleared with the
cardholder before the purchase was made. However, the proper
documentation must be completed and the expenditures must be approved
by an authorized official other than the cardholder. In most of the
cases we identified, the cardholders stated that they were unaware of
the prohibition against writing checks to themselves for cash. The
remaining cardholders stated that they were aware of the restriction,
but did it anyway to expedite their reimbursement as no other
cardholders with checks were available at the time, or in one case, the
employee who reimbursed himself was the only one with checks at that
location.
The above examples not only illustrate a lack of adequate oversight,
but also the need for better training. According to USDA and Forest
Service regulations, each cardholder is required to obtain some type of
training before being issued a card. Each agency within USDA is
responsible for training participants in accordance with USDA or
agency-specific regulations and is allowed to determine the method of
certification.
Poor Controls over Purchasing Practices Resulted in Certain Wasteful
and Questionable Transactions:
The inadequacies and ineffectiveness of internal controls were also
evident in the 779 wasteful and questionable transactions we identified
that totaled over $1 million. Transactions we classified as wasteful
were for items or services that were (1) excessive in cost compared to
other available alternatives, (2) for a questionable government need,
or both. We also identified other transactions that we classified as
questionable because there was insufficient documentation to determine
what was purchased. Lacking key purchase documentation, 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 indicates the number of transactions and dollar amounts that we
determined to be wasteful or questionable. These transactions are
indicative of what can occur when purchase card use is not properly
controlled. We tested only a portion[Footnote 28] of the transactions
that we identified that appeared to have a higher risk of fraud, waste,
or abuse; there may be other improper, wasteful, and questionable
purchases in the remaining untested transactions.
Table 4: Purchases Determined to Be Wasteful or Questionable:
Transaction category: Wasteful transactions:
Transaction category: Excessive cost; Number of transactions: 93;
Dollar amount of transactions: $127,319.
Transaction category: Questionable government need; Number of
transactions: 42; Dollar amount of transactions: 84,785.
Transaction category: Total wasteful purchases; Number of transactions:
135; Dollar amount of transactions: $212,104.
Transaction category: Questionable transactions:
Transaction category: Inadequate/incomplete documentation; Number of
transactions: 317; Dollar amount of transactions: 253,388.
Transaction category: No documentation; Number of transactions: 327;
Dollar amount of transactions: 616,437.
Transaction category: Total questionable purchases; Number of
transactions: 644; Dollar amount of transactions: $869,825.
Transaction category: Grand total; Number of transactions: 779; Dollar
amount of transactions: $1,081,929.
Source: GAO.
[End of table]
Wasteful Purchases:
We identified 135 purchases totaling $212,104 that we determined to be
wasteful because they were excessive in cost relative to available
alternatives, of questionable government need, or both. We considered
items to be excessive in cost when less expensive alternatives would
meet the same basic needs. We defined items as being of questionable
government need when they appeared to be a matter of personal
preference or personal convenience, were not reasonably required as
part of the usual and necessary equipment for the work the employees
were engaged in, or did not appear to be for the principal benefit of
the government. Specifically, we identified 93 purchases totaling
$127,319 that we considered excessive in cost, including purchases for
digital cameras, premium satellite and cable TV packages, awards and
gifts, and cancellation fees. In addition, we identified 42 purchases
totaling $84,785 for which we questioned the government need. Such
purchases included specialty costumes, PDAs, and PDA accessories.
Forest Service policy requires that purchasers buy equipment, supplies,
or materials that economically meet the needs of the government, avoid
deluxe items when the requirements are satisfactorily met by less
costly standard articles, and take into account the perspective of the
user of the product. When we reviewed the supporting documentation for
many of the purchases we identified, we noted that the cardholders
frequently did not document their determination that the item purchased
economically met the needs of the government based on an evaluation of
price and other factors, thus avoiding deluxe items as required by
Forest Service purchasing policy. When we requested additional
information from cardholders, they either did not provide the requested
information or the documentation provided was inadequate to support
that the specific purchase was in compliance with this policy.
Items purchased at a price higher than that of available alternatives
that would have met the same basic needs included:
* Digital cameras. During our detailed testing, we identified 66
digital cameras and accessories purchased in 37 separate transactions
totaling $61,243 that appeared to have been purchased based on the
personal preference of the cardholder, not on the minimum
specifications to support the anticipated use. Digital cameras are
available at many price levels, with the price usually reflecting the
technical specifications of the cameras and the options included. The
Forest Service uses digital cameras for various purposes in its
operations, such as taking digital images of nursery and reforestation
activities throughout the nation. These images are used for
publications, presentations, workshops, and placed on the RNGR web site
as part of the technology transfer and technical assistance missions of
certain teams. Depending on the intended use of the images, cameras
must have certain capabilities of which the users should be
knowledgeable or at a minimum have readily available guidance on. This
helps to ensure that cameras purchased meet and not exceed the needs of
the user. In our review of the supporting documentation and cardholder
statements we noted that some of the cardholders knew how the cameras
were going to be used. However, they did not know what minimum
technical capabilities the cameras had to have. Cardholders purchased
cameras ranging from 1 megapixel to 4 megapixels of data resolution,
ranging in price from around $350 to over $1,900, that appeared to be
based on personal preference, not Forest Service need. Forest Service
policy states that the requirements of an item must be taken into
account in its purchase to ensure that it economically meets the needs
of the government and to prevent the purchase of deluxe items when the
requirements are satisfactorily met by less costly standard articles.
However, the Forest Service had not developed guidelines on the
purchase of high-tech items such as digital cameras. In addition, the
individual transactions by cardholders at various vendors involved the
purchase of usually only one or two cameras at a time. This does not
allow the Forest Service to achieve possible economies of scale by
purchasing them from a single vendor at a discount.
* Premium satellite and cable TV packages. We identified 21
transactions totaling $4,843 for monthly satellite television
programming. The Forest Service is authorized to provide minimum
recreation facilities and opportunities for its employees consistent
with the degree of isolation and permanence of the individual work
centers. However, in each television entertainment purchase we
identified, the cardholder had not contracted for the basic service
offered by the vendor but instead for a premium package, such as HBO,
Cinemax, NFL or NBA games, or for pay-per-view movies. In one instance
the invoice included charges for pornographic movies. In addition, we
noted one $833 transaction for Direct TV service that the cardholder
stated was needed in order to allow the office to track weather
conditions in that part of the country. We questioned the need for this
capability given that detailed weather tracking is accessible on the
Internet, which, according to a Forest Service telecommunications
manager, is available in all offices. In addition, we reviewed the
invoice supporting this transaction noting that the cardholder had also
subscribed to 2001 NFL Sunday Ticket ($199), a subscription to view NFL
games on Sunday during the NFL season, through the vendor.
* Awards and gifts. We noted several purchases for awards and
retirement and farewell gifts for which adequate supporting
documentation was not provided or the award items purchased were not in
compliance with USDA policy. USDA policy provides for a number of
performance award categories and criteria for each, and requires that
the purpose and type of award given should be documented. Nonmonetary
awards, according to USDA policy, are time off awards,
keepsakes,[Footnote 29] letters of appreciation, and honorary awards.
We identified purchases for which the Forest Service was unable to
identify the purpose of the award or provide supporting documentation.
For example, we identified eight transactions, totaling $13,694 in
award purchases, which included hats, mugs, backpacks, and blankets
purchased from vendors such as Warner Bros., Eddie Bauer, and Mori
Luggage and Gifts, in which the cardholder either gave no or inadequate
justification for the purchase of these items. In addition, USDA's
regulation on career service recognition states that awards are
intended to recognize employees for their special efforts, and motivate
others who witness the presentation. According to the regulation,
employees should not be recognized monetarily when they leave USDA
either through retirement or separation. However, USDA agencies may
consider providing some form of honorary or nonmonetary recognition of
an employee's efforts in support of USDA's mission. Items such as
plaques or pins are considered appropriate and may be presented.
However, we identified one transaction for the purchase of a golf bag
as a farewell gift and another for the purchase of a rifle as a
retirement gift for an employee.
* Cancellation fees. We found two transactions totaling $34,950 for
cancellation fees for rooms not used by Forest Service employees for a
conference and housing for a seasonal work crew. Specifically, the
Forest Service paid a $30,000 cancelation fee to Doubletree Hotel in
Denver, Colo.. The Contracting Officer did not recall the specific
facts related to this transaction except that the program office
rescheduled this conference several times with the hotel and then
finally canceled, but not in time to avoid the fee. The Forest Service
also paid a $4,950 cancellation fee to the Rain Country Bed and
Breakfast for late cancellation of its reservation to house seasonal
workers.
We also found government expenditures that appeared to be for 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, which included the following.
* Specialty costumes and decorative tent. Forest Service policy
provides for purchases to promote programs related to Smokey the Bear
and Woodsy the Owl. We noted three transactions totaling $8,750 for
costumes not related to these two programs. For example, the Forest
Service purchased two fish costumes, Frank and Franny Fish, from the
Carol Flemming Costume Design Studio at $2,500 each, used for aquatic
education in the Pacific forest regions. The cardholder explained that
these personalities are to the fisheries program what Smokey Bear is to
the fire program. We also identified a transaction totaling $3,750 for
39 "web of life" costumes, including animals and nature themes, to be
used in education programs. However, Forest Service policy does not
support the purchase of these costumes and the cardholder's statement
does not establish sufficient government need for the costumes to
support regional programs. In addition, we identified a $7,500 purchase
of a hand-stitched "salmon tent" from Evelyn Roth Festival Arts. The
supporting documentation did not provide a purpose for the purchase of
the tent, only a note that the Forest Service has purchased several of
these tents over the last 5 years or so.
* Personal Digital Assistants (PDA). During our review, we identified
11 transactions for the purchase of 14 PDAs and accessories totaling
$8,768 from vendors such as Palm Computing, Casio, Amazon.com, and Best
Buy. The Forest Service does not have a policy on the purchase of PDAs,
handheld electronic devices that function as calendars, address books,
and other personal administrative aids. Calendars and daily planners
cost from $6 to $56 with refills for the daily planner costing about
$20. We noted that some cardholders had purchased high-end items such
as the Palm VTM and Palm M505TM with costs ranging from $350 to $450.
By comparison, alternatives such as Palm's M105TM model retailed for
approximately $200 at the time of these transactions. In our review of
the supporting documentation for these purchases, we found nothing to
show how the cardholders determined that the PDAs were necessary to
fulfill a valid government need, rather than the personal preference of
the cardholders. For example, one cardholder purchased a single IBM
workpad with hotsync cradle for $829 to use as a calendar, address
book, and to check e-mail messages. Another cardholder purchased six
new PDAs from Casio Electronics by trading in six Forest Service PDAs
plus $199 each. When asked to explain the need for the newer PDAs, his
response was that the newer ones were faster and had more memory to
support e-mail. Lastly, the Forest Service incurred other expenses for
items to support the PDAs, such as keyboards and carrying cases. In one
instance we identified a purchase of PDA keyboards, totaling $374,
which, according to the cardholder, would be used for taking notes in
meetings.
* Cordless phones and headsets. We noted several purchases of cordless
phones or headsets for Forest Service employees where cardholders were
unable to provide documentation supporting the necessity for the item
in performing their duties. Instead, the purchases have the appearance
of having been made for personal convenience. For example, a Forest
Service cardholder purchased cordless phones and handsets totaling
$2,242. When we asked why the phones were needed, the cardholder
responded that they were purchased for the ease of use and to enhance
the workplace for certain employees.
We also identified numerous other individual purchases that we
considered to be wasteful due to excessive cost or questionable
government need. Such purchases included $9,219 for six pairs of night
vision goggles ($1,536 average), that we found available at prices
ranging from $379 to $1,949; $2,701 for sound masking equipment, which
the cardholder stated was needed to reduce the level of noise coming
from the cubicles in the regional office where she worked; $2,929 paid
to Hair of the Dog for an aquarium in an Alaska regional visitor
information center; $2,295 paid to Quality Billiards for a billiard
table for a Forest Service bunk house; $2,204 paid to Best Buy for TV/
VCR combinations and their installation into Forest Service vehicles;
$589 paid to Ultimate Electronics for a DVD player to be used by
employees to watch exercise videos in the fitness room; and $200 for a
leather briefcase.
Until the Forest Service provides adequate management oversight of its
purchase card program, including a more thorough, systematic review and
monitoring of expenditures with appropriate disciplinary action when
warranted, the types of wasteful and abusive purchases we identified
are likely to continue.
Questionable Purchases:
Forest Service policy requires that cardholders maintain adequate
documentation of all purchase card and convenience check transactions.
As discussed earlier in this report, we requested supporting
documentation for a nonstatistical sample of over 5,000 transactions.
Of these, we identified 644 transactions totaling over $869,825 that
appeared to be improper, wasteful, or potentially fraudulent, but for
which the Forest Service either provided insufficient or no
documentation to determine the propriety of the transactions.
For 104 transactions, totaling $184,682, that appeared to be either
improper or wasteful, the documentation we received was inadequate or
was not the correct supporting documentation, and we were unable to
make a determination of the propriety of the transactions. For example,
we requested supporting documentation for a $2,315 transaction charged
by Unisys Corporation. Supporting documentation was not provided to us.
The Forest Service explained that the employee knowledgeable about this
charge had left the Forest Service and the documentation related to the
purchase could not be located. The remaining transactions represented
purchases made at various vendors such as $5,803 at Have Party Will
Travel; $4,940 at Spencer's TV & Appliance; $2,400 at Grand Home
Furnishings; $2,828 at Lowder's Home Entertainment; $1,729 at Mick's
Scuba Inc.; and $3,430 at Samson Tours.
We also identified 213 transactions totaling over $68,706, which
appeared to be either unauthorized and for personal use, made using
compromised accounts or unauthorized transactions by merchants, but
adequate documentation was unavailable to allow us to determine the
propriety of the purchases. We were subsequently able to determine that
several of the transactions were in fact fraudulent. These fraudulent
and potentially fraudulent transactions included the following.
* Transactions made by cardholders that appeared to be unauthorized and
intended for personal use. For example, we identified three
transactions totaling $1,031 in jewelry and china for one cardholder
that appeared to be unauthorized or for personal use. In the course of
our follow-up inquiries, we found that the cardholder had been under
investigation by the IG since January 2002 when an employee at a local
vendor expressed concerns to a Forest Service employee about some
purchases by another Forest Service employee. In our review of the USDA
IG Report of Investigation on this cardholder, we noted that the
fraudulent activity identified by the IG spanned from May 1999 through
January 2002. During this period the cardholder purchased five digital
cameras totaling $2,960, six computers totaling $6,019, three palm
pilots totaling $736, jewelry totaling $1,967 and various other items
including cordless telephones, figurines, and Sony Playstations
totaling $6,101. On December 2, 2002, the employee pleaded guilty to
one felony count of theft of government money and property in the
amount of $31,342. In addition, we identified one transaction totaling
$511, at a Tribal Bingo Casino, for another cardholder who, according
to the IG, is also currently under investigation.
* Transactions made using compromised accounts in which a purchase card
or account number was stolen and used to make unauthorized purchases.
For example, we identified unauthorized transactions for $692 at Kmart,
Circuit City, and other vendors by a person other than the cardholder
using the cardholder's account number. The cardholder contacted one of
the merchants about the charges and was told that the merchant's
security personnel requested personal identification from the
individual after the purchase, but the individual left the store and
did not return. The cardholder's account was canceled. In addition, we
identified a transaction that had been disputed by a cardholder and
upon investigation the cardholder determined that the charge was
incurred by an employee of a local vendor for calls made to a phone-sex
line.
* Unauthorized transactions charged by merchants to cardholder
accounts. For example, we identified 20 disputed transactions, totaling
over $2,700, for one merchant, Productivity Plus. On the basis of
cardholder explanations we reviewed in PCMS's dispute screen, it
appeared that the merchant had obtained several cardholder account
numbers and charged amounts to them without the authorization of the
cardholders.
For the remaining 327 transactions,[Footnote 30] totaling $616,437, the
cardholders provided no documentation to the APC. Lacking key purchase
documentation, we could not determine what was actually purchased, how
many items were purchased, the cost of individual items purchased, and
whether there was a legitimate government need for the items. Based on
the vendor names and MCCs which identified the types of products or
services sold by these vendors, we believe at least some of these items
may have been determined to be improper or wasteful had the
documentation been provided or available. These transactions included
$2,178 in purchases from Best Buy, $2,500 from BUY.COM, $6,840 at
HPSHOPPING.com, $4,100 from Party Time Inc. and $3,185 from USA Tours.
The majority of these transactions represent single transactions for
individual cardholders. However, we noted that there were several
cardholders with multiple transactions who did not provide us with
supporting documentation for their purchases. For example, one
cardholder in the pacific southwest region did not provide
documentation for five transactions of electronic purchases totaling
$3,349 that appeared to be either improper or wasteful. Another
cardholder in the pacific southwest region did not provide
documentation for six transactions, totaling $11,267, for on-line
services, electronics, and one payment by convenience check.
Conclusions:
The Forest Service lacks certain basic internal controls over its
purchase card program, and thus is susceptible to waste, fraud, and
abuse. The IG in its August 2001 report also identified many of the
same control weaknesses that we did. The Forest Service took several
steps to address these problems when it issued revised purchase card
regulations in June 2001, December 2002, and most recently, in
conjunction with USDA, in February 2003. However, the revised
regulations did not fully address the critical issues reported by the
IG and confirmed by us as continuing weaknesses during our audit, such
as supervisory review, effective monitoring of purchase card
transactions, and property accountability. Until these weaknesses in
fundamental internal controls are addressed, the types of improper,
wasteful, and potentially fraudulent purchases we identified are likely
to continue and certain assets will remain vulnerable to theft. The
Forest Service will have to thoroughly reassess and strengthen its
current policies and procedures to address the weaknesses identified,
develop a strong commitment at all levels of the agency to carryout
these policies and procedures, and implement appropriate oversight to
continually assess their effectiveness.
Recommendations for Executive Action:
We recommend that the Chief of the Forest Service take the following
actions to strengthen internal controls and compliance in its purchase
card program, decrease improper and wasteful purchases, and improve the
accountability over assets.
Internal Controls:
With regard to improving the Forest Service's internal controls over
purchasing, we recommend that the Chief of the Forest Service do the
following.
Segregation of Duties:
* Establish policies and procedures that segregate duties for at least
some phases of the purchasing process when using the purchase card. The
Forest Service program should ensure that no one individual is able to
take all the steps needed to request, purchase, receive, maintain, and
validate goods and services.
Supervisory Review:
* Establish policies and procedures requiring that supervisors review
and validate all of their subordinates' purchase card transactions,
including review of original supporting documentation to confirm they
are appropriate, for official purposes, and reconciled in a timely
manner.
Monitoring:
* Strengthen policies and procedures to ensure that the appropriate
LAPC is notified and the LAPC cancels cardholder accounts immediately
when a purchase card is lost or stolen or a cardholder leaves Forest
Service employment.
* Establish a systematic process that the APC can use to track and
monitor training for cardholders and program coordinators to help
ensure that they receive (1) training before being granted purchase
cards or approval authority and (2) timely, periodic refresher training
in areas such as proper segregation of duties, purchasing policies and
procedures, supervisor and program coordinator responsibilities for
reviewing and approving individual purchases, and reporting potential
purchase card fraud and abuse.
* Revise and strengthen policies and procedures for cardholders who
have had their purchase card use suspended or limited to ensure that
similar action is taken on the use of convenience checks.
* Revise and strengthen policies and procedures over disputed
transactions to ensure that all disputed transactions are identified in
a timely manner and completely resolved.
* Establish policies and procedures to ensure that original
documentation is maintained in central locations, such as regional
offices, so that it is readily available for periodic monitoring
reviews by supervisors, LAPCs, and COCOs.
Property:
* Revise and strengthen policies and procedures for designating
property costing under $5,000 as "sensitive" to include all equipment
susceptible to theft. Also, ensure that the revised policies and
procedures are applied consistently across all Forest Service regions.
* Establish policies and procedures to ensure that all sensitive and
accountable personal property used in Forest Service operations is
promptly entered into the PROP system or other comparable system and
that a periodic inventory of the items is taken.
Compliance with Purchasing Requirements:
With regard to improving and enforcing compliance with purchasing
requirements at the Forest Service, we recommend that the Chief of the
Forest Service do the following.
* Implement monitoring techniques to identify improper transactions
such as cardholders making split purchases, cardholders writing checks
payable to themselves, purchases exceeding established dollar
thresholds, or purchasing unauthorized items.
* Revoke or suspend purchasing authority of cardholders who are found
to be frequently or flagrantly noncompliant with policies and
procedures.
Wasteful and Questionable Purchases:
With regard to purchases that may be at an excessive cost or for
questionable government need, we recommend that the Chief of the Forest
Service do the following.
* Require purchases of certain assets, such as computer equipment,
PDAs, and other electronics to be coordinated centrally to take
advantage of economies of scale, standardize types of equipment
purchased, and better ensure bona fide government need for each
purchase.
* Develop and implement purchasing guidelines, based on specific Forest
Service uses, for equipment such as digital cameras and projectors.
* Require that cardholders document their determination that purchased
items economically met the needs of the government based on an
evaluation of price, consideration of the item's expected use, and
other factors.
* Follow up on transactions we identified for which no supporting
documentation was provided to determine that the items purchased were
for a legitimate government need, and take appropriate disciplinary or
corrective action as warranted.
Agency Comments and Our Evaluation:
The Forest Service provided written comments on a draft of this report.
In its response, the Forest Service did not specifically comment on our
recommendations. However, the response acknowledged that some of the
internal control weaknesses identified in our report existed both prior
to and during our review. The response further outlined actions taken
or planned since June 2001 to strengthen the overall management of the
purchase card program, which the Forest Service described as having
been taken, not withstanding our report. We acknowledged many of these
actual and planned actions in our report and believe that these
actions, if fully implemented, will help to address some of the
vulnerabilities that the IG and we identified. However, as shown in
Table 2 on page 30 of our report, many weaknesses will still remain
that continue to expose the Forest Service to improper, wasteful, and
fraudulent purchase card activity. Our 15 recommendations address
remaining weaknesses identified in the table and elsewhere in our
report.
Specific actions taken as outlined in the Forest Service's response
included, among other things, requiring definitive levels of auditing
of purchase card transactions, performing data mining queries of
transaction data to identify potential questionable purchases, and
conducting training for regional and local agency program coordinators.
In its response, the Forest Service also stated that in fiscal year
2003 USDA issued an Internal Control Blue Print to decrease risks and
improve internal controls over the purchase card program. In response,
the Forest Service developed a Plan for Improving Internal Controls
(Plan) that included improvements such as significantly decreasing the
use of convenience checks beginning in fiscal year 2003 with the goal
of totally eliminating them in the future, reducing the number of
cardholders by 10 percent, developing additional data mining queries
including PCMS alerts and statistical sampling, ensuring that the ratio
of LAPCs to cardholders is appropriate, and requiring supervisors to
review cardholder purchases including backup documentation.
If fully institutionalized and enforced, the actions included in the
Forest Service's Plan, along with those actions previously taken, will
go a long way in identifying improper purchases. However, it will be
important that these actions be carried out in a systematic manner.
Further, even if these actions are implemented systematically, they
still fall short in mitigating certain internal control weaknesses that
are addressed by the 15 recommendations in our report.
Specifically, the Forest Service letter outlined actions to strengthen
monitoring such as the monthly, quarterly, and annual transaction
reviews by LAPCs and COCOs, data mining queries developed and furnished
to coordinators, and reviews by regional offices of audits performed by
local offices. While these revised policies will provide much needed
oversight at a macro level, these actions do not specifically address
our recommendations regarding controls over cancellation of stolen
cards, disputed transactions, training, and the maintenance of
documentation in a central location.
The Forest Service letter stated that its Plan requires supervisors to
review cardholder purchases, including backup documentation. Upon
review of the Forest Service's Plan, we noted that it does not require
supervisors to review backup documentation, as stated in the response
letter. The Plan only states that the Forest Service will communicate,
by July 15, 2003, the requirement for cardholder's supervisors to
review transactions quarterly in accordance with DR 5013-6, which also
does not require that supervisors review backup documentation. We
confirmed our understanding of this in discussions with USDA OPPM
officials. We continue to believe that limited post-reviews are not
sufficient, given the lack of segregation of duties, the
decentralization of the organization, and the ratio of cardholders to
LAPCs in the organization to detect or prevent inappropriate
transactions. As recommended in our report, we believe that the Forest
Service should establish policies and procedures requiring a front-line
review by supervisors to validate all of their subordinates' purchase
card transactions, including review of original supporting
documentation to confirm that they are appropriate, for official
purposes, and reconciled in a timely manner.
The Forest Service response also did not discuss any actions taken to
reduce purchases that are of excessive cost or for questionable
government need. In our report, we recommended that the Forest Service
purchase certain assets centrally, develop purchasing guidelines, and
require that cardholders document that items meet the needs of the
government. We believe that our recommendations, if implemented, will
assist in reducing waste in the purchase card program.
In the area of property accountability, the Forest Service responded
that unwarranted cardholders are no longer permitted to acquire
accountable property with purchase cards. Further, the letter stated
that the Forest Service plans to issue guidance requiring that all
property be labeled as Forest Service property and prohibiting regions
from individually determining what property is considered sensitive.
However, these new policies will not require the tracking of items
costing under $5,000, such as PDAs, cameras, ATVs, and snowmobiles that
we consider to be at high risk for theft or misuse. USDA has determined
that the $5,000 accountability threshold is the level of acceptable
risk for tracking property in the property system. USDA has further
determined that items such as PDAs and digital cameras rapidly lose
their value and usefulness and therefore, the cost of tracking and
maintaining property records for these types of items exceeds their
value. We disagree with this position. None of the documentation we
have reviewed or individuals we have spoken to indicated that uses for
which these items were purchased will change dramatically or cease
altogether in the near term, thus these items will continue to be
useful for some time to come. We are not suggesting that items costing
less than $5,000 be capitalized for financial reporting purposes,
however, we continue to believe that the Forest Service should track
these items to help ensure accountability over them to mitigate the
risk of misappropriation.
The Forest Service response also characterized the $2.7 million of
alleged improper, wasteful, and questionable purchases that we
identified as relatively small compared to the $320 million in
purchases during fiscal year 2001. While we acknowledge this in the
report, we also note that these improper transactions demonstrate
vulnerabilities from weak controls that could be exploited to a greater
extent. Further, in performing our review, we identified approximately
68,000 transactions that appeared to be at a higher risk of being
improper or wasteful. However, we selected only 5,000 of these
transactions for detailed review, therefore the actual amount of
improper payments at the Forest Service is likely higher that what we
identified.
The Forest Service response further stated that it appears that "GAO's
goal is a risk free micro-purchase program that would include approval
and/or review of each and every micro-purchase transaction." While no
purchase card program can be risk free, the goal of our recommendations
is to reduce the level of risk in the Forest Service program to an
acceptable level. Currently, we believe that the risk of waste, fraud,
and abuse in the program is unacceptably high. A micro-purchase program
should and can be designed with certain basic internal controls that
need not be costly or onerous to implement to help ensure that improper
transactions are detected or prevented in the normal course of business
and therefore that taxpayer funds are effectively used toward the
achievement of agency goals and objectives.
The Forest Service's written comments and our evaluation of certain of
those 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 30 days from its date.
Then we will send copies of this report to the Ranking Minority Member
of the Senate Committee on Finance, congressional committees with
jurisdiction over the Forest Service and its activities, the Secretary
of Agriculture, the Chief of the Forest Service, and the Director of
the Office of Management and Budget. 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] http://
www.gao.gov.
Should you or your staff have any questions on matters discussed in
this report, please contact me at (202) 512-8341 or [Hyperlink,
calboml@gao.gov] calboml@gao.gov or Alana Stanfield, Assistant
Director, at (202) 512-3197 or [Hyperlink, stanfielda@gao.gov]
stanfielda@gao.gov. Major contributors to this report are acknowledged
in appendix II.
Linda Calbom
Director, Financial Management and Assurance:
Signed by Linda Calbom:
[End of section]
Appendixes:
Appendix I: Comments from the Forest Service:
United States Department of Agriculture
Forest Service
Washington Office
14TH & Independence SW P.O. Box 96090 Washington, DC 20090-6090:
Linda Calbom:
Director, Financial Management and Assurance General Accounting Office:
441 G Street, NW Washington, DC 20548:
File Code: 1420:
Date: JUL 07 2003:
Dear Ms. Calbom:
The Forest Service respectfully provides the following in response to
GAO Audit 03-786, "Forest Service Purchase Cards: Internal Control
Weaknesses Resulted in Instances of Improper, Wasteful, and
Questionable Purchases.":
In the mid to late 1990's USDA implemented a new purchase card program
as a result of a business process case. We placed the purchase cards in
the hands of the end users under the guiding principles of FAR 1.603-3
which states, "Agency heads are encouraged to delegate micro-purchase
authority to individuals ... who will be using the supplies or services
being purchased." In the case of the Forest Service, this resulted in
about 24 percent of our permanent and temporary employees. (Our records
indicate we had approximately 11,000 cardholders in FY 2001, rather
than the 14,000 GAO reported.) The pattern of purchase card
distribution is generally consistent with our decentralized
organizational structure - there are more cards at field locations
where the majority of Forest Service program work is accomplished.
Departmental and Agency regulations were promulgated to control use of
the purchase card.
We acknowledge that our purchase card program had some elements of
internal control weaknesses as identified in the GAO report prior to
and during the period of the GAO audit. However, with the issuance of
the Forest Service purchase card program policy in June of 2001, the
Agency began a series of steps designed to strengthen the overall
management of the program, thereby improving oversight and reducing
vulnerability. These actions and policies have occurred without regard
to the GAO audit findings since the audit was for transactions
occurring two years ago. These improvements demonstrate our commitment
in continuing to improve management of the purchase card program,
notwithstanding GAO's audit that began more than a year ago.
Specific actions to strengthen the program include:
1. Forest Service policy (FSH 6309.32, Part 4G13) requires definitive
levels of auditing of purchase card transactions that include reviewing
the physical documentation for the purchases (approvals, receipts,
invoices, etc.):
2. Internal Process Plans at the Washington and Regional levels
explicitly require review of local audits of purchase card
transactions.
3. Beginning with FY 02, Regions were required to certify to the
Director of Acquisition Management that audits had been performed in
accordance with the Forest Service policy.
4. A workshop that focused on management and oversight was provided to
Regional Coordinators in May of 2002. In turn, Regions have provided
in-kind training for Local Coordinators.
5. Specific data mining queries were developed and furnished to
Regional and Local Coordinators during FY 02. These queries provide a
means to search for potential questionable purchases.
6. Effective January of 2002, cardholders are no longer permitted to
acquire accountable property with purchase cards.
In Fiscal Year (FY) 03, USDA issued the Internal Control Blue Print
covering the USDA Purchase Card Program. The purpose of the Blue Print
was to "increase effectiveness of purchase card program participants in
adhering to policies and oversight, and decrease risks and improve
internal controls." The Forest Service's plan in response to the
Blueprint includes:
1. Significantly decreasing the use of convenience checks and those
authorized to write them. The Forest Service plans to reduce
convenience check use by over 40 percent in FY 03 and reduce the number
of check writers by two-thirds. Further reductions are planned for FY
04 and beyond with the goal of eventual total elimination. It should be
noted that this action is being taken mainly to improve compliance with
the Debt Collection Improvement Act and IRS income reporting, not
because of actual or potential improper transactions.
2. Reducing the number of cardholders by at least 10 percent.
3. Developing additional data mining queries for further oversight in
the areas of:
* Purchase card limits - comparing limits to expenditures to be able to
make adjustments to single and monthly limits:
* Purchases with no descriptions - a report showing transactions in PCMS
that have no descriptions:
* Utilizing PCMS Alerts and Statistical samples - a report that displays
all alerts and statistical samples that have not been acted on within
15 days:
* Dormant and low usage cards - a report displaying accounts that have
no or low usage to be considered for cancellation:
4. Taking steps to assure that the ratio of cardholders to LAPCs is
appropriate to enable full oversight and monitoring of cardholders.
5. Issuing direction that requires supervisors to review cardholder
purchases including backup documentation.
Several specific areas of GAO's report are worth commenting on to put
them into context of the overall program:
The Forest Service will take action on the legitimate instances of card
abuse, but as the GAO acknowledges, the $2.7 million in alleged
improper, wasteful, and questionable purchases is relatively small
compared to the over $320 million in purchases. In fact, this
represents less than 1 percent of the total FY 2001 transactions. In
addition, nearly half of the $2.7 million is based on a statistical
sample as opposed to actual cases.
Some of the so-called "split purchases" were in fact purchases made by
warranted contracting officers acting within the limits of their
warrant. At the time of the audit, Departmental regulation allowed a
single purchase limit of $2 million or the cardholder's warrant level,
whichever was less. In our opinion the fact that several Forest Service
warranted cardholders single purchase limits were not at their warrant
levels are merely technicalities and not split purchases. Other
purchases were made from GSA Advantage, which the Forest Service
considers requisitions and therefore no micro-purchasing authority is
required. We do not consider any of these to be "split purchases" to
avoid authority limits.
A portion of the transactions charged to accounts of former employees
were in fact purchases made when the cardholder was still employed but
not billed by the vendor until after the employee left the agency.
The majority of instances where cardholders wrote checks to themselves
were based on legitimate expenses incurred by the cardholder and
approved by management. At the time the cardholder was the only local
employee with check writing capabilities. Although the problem has been
corrected, these transactions were conducted with appropriate controls
in place.
As stated in a footnote on page 26 of the draft report, the Forest
Service received documentation for 200 of the 327 transactions GAO
considers questionable. These were furnished to USDA's Office of
Procurement and Policy Management after GAO declined to accept them.
In the area of property accountability, we offer the following
comments:
1. Since January of 2002, Forest Service cardholders are no longer
permitted to acquire accountable property with purchase cards.
2. Based on the most recent financial audit, we will soon issue policy
that prohibits Regions from determining what property is considered to
be sensitive property. That determination and policy will be made at
the national level and will apply nationwide.
3. We will issue direction that reemphasizes the requirement to label
all property as belonging to the Forest Service.
4. Through a combination of resources including property management
officers, line officers, and first line supervisors, additional
property controls are in place such as hand receipting of property by
the end user. Direction will be issued to reinforce that policy.
5. Because approximately 20 percent of our assets account for 80
percent of the total value of those assets, USDA has determined that
the $5,000 accountability threshold is the level of acceptable risk in
tracking property in the property system. These low dollar items
include technology-driven items such as PDAs, and digital cameras -
items that rapidly loose their value and therefore their usefulness.
Hence it continues to be our detennination that the cost of tracking
and maintaining property records for these types of items exceeds the
value of the items themselves.
We acknowledge GAO's position regarding segregation of duties and
supervisory review. In
that regard and as stated in the GAO report, USDA recently issued
revised purchase card regulation requiring review of cardholder
transactions by supervisors. It appears to us however, that GAO's goal
is a risk free micro-purchase program that would include approval and/
or review of each and every micro-purchase transaction - roughly
800,000 transactions in a given fiscal year in the Forest Service. We
believe this level of risk avoidance is antithetical to a purchase card
program intended to support end °users.
Thank you for the opportunity to provide comments.
Sincerely,
DALE N. BOSWORTH
Chief:
Signed by DALE N. BOSWORTH:
The following are GAO's comments on the Forest Service's letter dated
July 7, 2003.
GAO Comments:
1. We received summary documentation for the number of cardholders from
USDA's Office of Procurement and Property Management and the Forest
Service that supported approximately 14,000 and 11,000 cardholders
respectively. Since USDA's Office of Procurement and Property
Management is responsible for the oversight of the purchase card
program for all of USDA's agencies, we used the number of cardholders
that they provided for fiscal year 2001 in our report.
2. Discussed in the "Agency Comments and Our Evaluation" section of the
report.
3. Of the 29 split purchases identified in the draft report provided to
Forest Service for comment, 4 were made by cardholders who were also
warranted employees, employees who can enter into, administer, or
terminate contracts to the extent of the authority delegated to them.
The contracting authority limit for a warranted Forest Service employee
is separate and distinct from the single transaction limit for purchase
card transactions. The Forest Service response stated that USDA
regulations allowed a single purchase limit of $2 million or the
cardholder's warrant level. According to USDA purchase card
regulations, warranted cardholders may conduct transactions up to the
lesser of their purchase card single transaction limit or warrant
authority. For all 4 purchases mentioned above, the total invoice
amounts exceeded the single transaction limits of the cardholders.
Therefore, the cardholders violated USDA regulations by splitting the
invoice amount into separate purchase card transactions to circumvent
their single transaction limits. Further, the Forest Service requires
that cardholders submit requisition forms for all purchases exceeding
$2,500, to ensure that they are properly reviewed and approved.
However, requisition forms were not submitted by the cardholders for
these 4 purchases, violating policies and procedures. In addition, none
of the 29 split purchases identified in our report reflected
transactions with GSA Advantage.
4. As stated in our report, the Forest Service was unable to provide us
with documentation to support the appropriateness of $39,240 of the
$43,625 in transactions that appeared to have occurred after the
cardholders left the Forest Service. The Forest Service confirmed the
remaining $4,385 as having been charged after the cardholder left the
agency.
5. As part of our review, we tested compliance with existing Forest
Service policies and procedures that were meant to prevent or detect
improper payments, including the policy that cardholders are prohibited
from writing checks to themselves. We identified 23 transactions that
were in clear violation of this policy, indicating that this control
was not functioning effectively. Although the purchases related to
these particular transactions were not determined to be improper, this
control weakness leaves the Forest Service vulnerable to improper
purchases. The Forest Service's internal control plan supports
eliminating the use of convenience checks for non-emergency purchases,
as well as other measures that should reduce the risk of improper use
of convenience checks. However, as these steps have not yet been fully
implemented, we are unable to assess their effectiveness.
6. The original requests for supporting documentation were made between
June 20 and July 26, 2002. We asked the Forest Service to provide
documentation on the last request by August 16, 2002. Subsequently, we
extended the deadline until November 30, 2002, more than four months
after our last request for information. In a status meeting held
December 4, 2002, we informed OPPM and Forest Service officials that we
had not received any supporting documentation for 327 transactions
included in our requests and that these transactions would be
categorized as questionable transactions in our report. We explained
that continuing to accept this documentation would require us to
significantly delay issuance of our report due to the time required to
adequately review and assess any new documentation. OPPM and Forest
Service officials both concurred with our position. Subsequently, the
Forest Service offered to provide us with supporting documentation for
200 of the 327 transactions and we declined per the agreement reached
during the December meeting.
[End of section]
Appendix II: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Linda Calbom, (202) 512-8341 Alana Stanfield, (202) 512-3197:
Acknowledgments:
In addition to those named above, the following individuals made
important contributions to this report: William Brown, Sharon Byrd,
Cary Chappell, Lisa Crye, Francis Dymond, Jeffrey Jacobson, Jason
Strange, and Ed Tanaka.
(190053):
FOOTNOTES
[1] U.S. General Accounting Office, Financial Management: Forest
Service's Efforts to Achieve Financial Accountability, GAO/AIMD-99-68R
(Washington, D.C.: Feb. 8, 1999), Forest Service: A Framework for
Improving Accountability, GAO/RCED/AIMD-00-2 (Washington, D.C.: Oct.
13, 1999), and Financial Management: USDA Continues to Face Major
Financial Management Challenges, GAO/T-AIMD-00-334 (Washington, D.C.:
Sept. 27, 2000).
[2] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Agriculture, GAO-03-96 (Washington, D.C.:
Jan. 1, 2003).
[3] U.S. Department of Agriculture Office of Inspector General
Financial and IT Operations Audit Report, Some Changes Would Further
Enhance Purchase Card Management System Internal Controls, 50099-26-FM
(Washington, D.C.: August 2001).
[4] Convenience checks are issued to authorized cardholders. Agency
management determines to whom checks are issued. The checks are similar
in appearance to personal checks and are written against the
cardholder's purchase card account. The total amount that may be
written cannot exceed the cardholder's single transaction limit.
Convenience checks are used when a merchant does not accept purchase
cards.
[5] The government also uses commercial purchase cards for government-
related travel expenditures (travel cards) and for expenditures related
to the maintenance and operation of government-owned vehicles (fleet
cards).
[6] Agencies using the governmentwide commercial purchase card must
establish procedures for use and control of the card that comply with
TFM Chapter 4-4500 and that are consistent with the terms and
conditions of the GSA Federal Supply Service Contract Guide for
Governmentwide Commercial Purchase Card Service. 48 C.F.R. Sec. 13.301
(2002).
[7] Forest Service Manuals (FSM) contain legal authorities, objectives,
policies, responsibilities, instructions, and guidance needed on a
continuing basis by Forest Service line officers and primary staff.
Forest Service Handbooks (FSH) are the principal source of specialized
guidance and instruction for carrying out the direction issued in the
FSMs.
[8] Independent Verification and Validation (IV&V) of the Purchase
Card Management System (PCMS), Assessment Final Report: "Future
Directions for PCMS," October 2001.
[9] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November
2000).
[10] U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
[11] U.S. General Accounting Office, Guide for Evaluating and Testing
Controls Over Sensitive Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May
1993).
[12] U.S. General Accounting Office, Executive Guide: Strategies to
Manage Improper Payments, GAO-02-69G (Washington, D.C.: October 2001).
[13] Data mining applies a search process to a data set, analyzing for
trends, relationships, and unusual associations. For instance, it can
be used to efficiently query transaction data for characteristics that
may indicate potentially improper activity.
[14] We stratified each population into seven groups on the basis of
the dollar value for each transaction. Each sample element was
subsequently weighted in the analysis to account statistically for all
the members of the population, including those that were not selected.
[15] See footnote 14.
[16] Merchant Category Codes are four digit numbers associated with
every transaction that identify the general category of products sold
by a vendor (e.g., 5941 - Sporting Goods, 5944 - Watch, Clock, and
Jewelry Stores).
[17] The U.S. Department of the Treasury's Treasury Financial Manual
defines an approving official as an individual who reviews cardholder
statement(s), is responsible for authorizing cardholder purchases (for
official use only), and ensures that the statement is reconciled and
submitted to the designated billing office.
[18] Section 4500 of the U.S. Department of the Treasury's Treasury
Financial Manual (TFM) also requires monthly review of transactions
prior to submission for payment.
[19] USDA regulation 5013-6, Use of the Purchase Card and Convenience
Check.
[20] The alert system is a subsystem of PCMS that was designed to
reduce fraud, waste, and abuse by providing user messages to local
coordinators regarding questionable transactions.
[21] In order to dispute an unauthorized or erroneous transaction, data
are entered into the PCMS disputes screen by the cardholder and sent to
NFC. NFC prints the screen and faxes it to Bank of America to be
investigated and appropriate credit given. No supervisory review or
approval is needed for a dispute to be processed.
[22] Per the GSA master contract for the government purchase card
program.
[23] USDA defines sensitive property as any item of accountable
property valued at less than $5,000 which is highly susceptible to loss
or theft as defined by the Agency Property Management Officer. The
Forest Service defines sensitive property as nonconsumable equipment
having an original acquisition cost from $500 to $4,999 that, due to
its personal desirability or other considerations, warrants a higher
level of monitoring and control.
[24] A warranted cardholder is an employee who has contracting
authority delegated to him or her by a duly authorized appointing
official in accordance with federal and USDA regulations. The warrant,
SF-1402, states the level of contracting authority delegated to an
individual, including any limitations on that authority. Above the
micropurchase threshold, only warranted individuals may bind USDA
contractually.
[25] We are 95 percent confident that the total dollar value of actual
split transactions was between $.9 million and $1.6 million.
[26] We are 95 percent confident that the total dollar value of actual
duplicate transactions was between $43,458 and $310,916.
[27] We compared cardholder names from Bank of America data to the
Forest Service list of employees who had left the Forest Service during
fiscal year 2001, including their dates of separation. However, in some
cases we found that the full name of the employee who left the Forest
Service was the same as the cardholder, but was actually a different
person. Therefore, it was necessary for us to obtain verification from
the Forest Service before concluding on these transactions.
[28] Out of a total population of over 800,000 transactions, we
identified approximately 68,000 transactions that appeared at higher
risk of being inappropriate, of which we selected about 5,000 for our
review.
[29] Keepsakes are defined as medals, certificates, plaques, citations,
badges, pen-and-pencil sets, pins, and coffee cups as long as the item
displays the department's name and is suitable for display.
[30] Subsequent to the end of our fieldwork, the Forest Service had
obtained documentation for approximately 200 of these transactions.
However, due to the lateness of the documentation, we were unable to
review them.
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