Purchase Cards
Navy Vulnerable to Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses Gao ID: GAO-03-154T October 8, 2002For a number of years, the Department of Defense (DOD) has been promoting departmentwide use of purchase cards, and their use has dramatically increased. DOD reported that in fiscal year 2001, more than 230,000 civilian and military cardholders made 10.7 million purchase card transactions valued at more than $6.1 billion. The Navy has the second largest purchase card program in DOD. As was previously reported, there were significant breakdowns in internal control at two Navy sites that left those units vulnerable to fraud, waste, and abuse. These weaknesses are representative of systematic Navy-wide purchase card control weaknesses that have left Navy vulnerable to fraudulent, wasteful, and abusive use of purchase cards. Since the original report, the Navy has been taking actions to improve the purchase card control environment and improve cardholder adherence to key purchase card control procedures. The Navy has also taken more aggressive actions to identify fraudulent, improper, and abusive or questionable purchase card acquisitions.
GAO-03-154T, Purchase Cards: Navy Vulnerable to Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses
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Before The Subcommittee On Government Efficiency, Financial Management
And Intergovernmental Relations, Committee On Government Reform, House
Of Representatives:
United States General Accounting Office:
GAO:
October 8, 2002:
Purchase Cards:
Navy Vulnerable to Fraud and Abuse but Is Taking Action to Resolve
Control Weaknesses:
Statement of Gregory D. Kutz, Director, Financial Management and
Assurance:
John J. Ryan, Assistant Director, Office of Special Investigations:
GAO-03-154T:
Mr. Chairman, Members of the Subcommittee, and Senator Grassley: Thank
you for the opportunity to discuss the internal controls over the
Navy‘s purchase card program. This Subcommittee held hearings in July
2001 and March 2002 that identified substantial internal control
weaknesses at two Navy units in San Diego, California.[Footnote 1] As a
result of those hearings and your continued concern about fraud, waste,
and abuse at the Department of Defense (DOD), this Subcommittee and
Senator Grassley requested more comprehensive audits of DOD‘s purchase
card use. In response to that requested work, this testimony and the
related report[Footnote 2] released today focus on the Navy-wide
purchase card program. Details on our objectives, scope, and
methodology are included in that report. On July 17, 2002, we
testified[Footnote 3] before this Subcommittee and issued a
report[Footnote 4] concerning purchase card control weaknesses that
left the Army vulnerable to fraud, waste, and abuse. We will report to
you separately on the results of our Air Force purchase card audit.
For a number of years, DOD has been promoting departmentwide use of
purchase cards, and their use has dramatically increased. DOD reported
that in fiscal year 2001, more than 230,000 civilian and military
cardholders made about 10.7 million purchase card transactions valued
at over $6.1 billion. The Navy has the second largest purchase card
program in DOD with about 25,000 cardholders, 2.8 million transactions,
and $1.8 billion in purchases in fiscal year 2001. Purchase card
transactions include acquisitions at or below the $2,500 micropurchase
limit as well as for payments on contracts. The benefits of using
purchase cards versus traditional contracting and payment processes are
lower transaction processing costs and less ’red tape“ for both the
government and the vendor community. We support the use of a well-
controlled purchase card program to streamline the government‘s
acquisition processes. However, it is important that agencies have
adequate internal control in place to protect the government from
fraud, waste, and abuse.
Summary:
We previously reported that significant breakdowns in internal control
at two Navy sites[Footnote 5] left those units vulnerable to fraud,
waste, and abuse. Today, I am here to report that the control
weaknesses we identified at the two Navy units in San Diego were
representative of systemic Navy-wide purchase card control weaknesses
that have left the Navy vulnerable to fraudulent, wasteful, and abusive
use of purchase cards. Our current audit work at the Atlantic Fleet,
Pacific Fleet, Naval Sea Systems Command, and the Marine Corps showed
that during fiscal year 2001, the Navy had not established an effective
internal control environment. At the individual transaction level, we
also identified a substantial number of purchases for which cardholders
and approving officials at selected units assigned to those commands
had not adhered to key internal control activities and that were not in
accordance with valid requirements, policies, and procedures. The
weaknesses we identified in the control environment and the breakdown
in specific internal control activities resulted in potentially
fraudulent, improper, and abusive transactions not being prevented or
identified promptly.
Since we first reported on the Navy‘s purchase card control weaknesses,
the Navy has been taking actions to improve the purchase card control
environment and improve cardholder adherence to key purchase card
control procedures. The Navy has also taken more aggressive actions to
identify fraudulent, improper, and abusive or questionable purchase
card acquisitions. Many of these improvements have been implemented in
the last few months and others have not yet been fully implemented.
Thus, while we have not assessed the impact of the Navy actions, the
Navy actions demonstrate that it is acting to improve the purchase card
program. However, to fully achieve the benefits of the purchase card
program, the Navy will need to make a sustained effort that focuses on
cultural change, and provide the infrastructure necessary to build a
purchase card program with a robust set of internal controls. Navy
major command and unit management must also actively promote the
importance of a strong system of accountability that is necessary to
provide reasonable assurance that the program is operating as intended.
As discussed in the report released today, DOD generally concurred with
our recommendations to improve the control environment; to strengthen
key internal control activities; and to increase attention to
preventing potentially fraudulent, improper, and abusive or
questionable transactions.
Weak Purchase Card Control Environment Contributed to Ineffective
Controls, but Management Has Taken Positive Steps:
We found that the Navy and Marine Corps units we audited had not
established an effective internal control environment in fiscal year
2001, and although significant improvements have been made, further
action in several areas is necessary. Specifically, we found that in
fiscal year 2001, these locations did not effectively (1) evaluate
whether approving officials had responsibility for a reasonable number
of cardholders, (2) limit purchase card credit limits to historical
procurement needs, (3) ensure that cardholders and approving officials
were properly trained, (4) utilize the results of purchase card program
monitoring efforts, and (5) establish an infrastructure necessary to
effectively monitor and oversee the purchase card program. As a result
of our July 30, 2001, testimony, the Navy and DOD have taken
significant actions to improve purchase card controls, including
reducing the number of Navy cardholders by over 50 percent and
establishing a DOD Charge Card Task Force to further improve the
purchase card processes and controls.
Improvement Initiatives Signal Proactive ’Tone at the Top“:
Since the July 30, 2001, congressional hearing, the DOD Comptroller,
the DOD Purchase Card Program Office, and Naval Supply Systems Command
(NAVSUP) have issued a number of directives and policy changes citing
previous audit findings and the need to improve both the purchase card
control environment and adherence to control techniques. Specifically,
in response to our November 2001 report, the Navy has taken action or
said it plans to implement all 29 of our recommendations to improve
controls over the purchase card program. While we believe that some of
the Navy‘s actions to implement our recommendations are not sufficient
to achieve the necessary changes, its planned and implemented actions
to date are a significant step forward.
In addition, the DOD Comptroller appointed a Charge Card Task Force,
which issued its final report on June 27, 2002. The report identified
many of the control weaknesses we identified in this and previous
reports and testimonies. In the report, the DOD Comptroller stated that
this ’—is an excellent first step in an on-going process to continually
seek ways to improve charge card programs. We must continue to identify
new ways of reducing the government‘s cost of doing business while at
the same time ensuring that we operate in a manner that preserves the
public‘s trust in our ability to provide proper stewardship of public
funds.“ The Task Force report included a number of recommendations,
including establishing a purchase card concept of operations;
accelerating the electronic certification and bill paying process;
improving training materials; identifying best practices in areas such
as span of control and purchase card management skill sets; and
establishing more effective means of disciplining those who abuse
purchase cards. These recommendations address many of the concerns that
we previously identified and provide management at the Pacific Fleet,
Atlantic Fleet, Naval Sea Systems Command (NAVSEA), and the Marine
Corps the opportunity to take a proactive role in correcting control
weaknesses and ensuring that the purchase card remains a valuable tool.
Number of Cardholders Significantly Reduced but Approving Official Span
of Control Remains an Issue:
Although the Navy significantly reduced the number of purchase cards
since our July 30, 2001, testimony, it continued to have approving
officials who were responsible for reviewing more cardholder statements
than allowed by either DOD or Navy guidance, the later of which limits
the number of cardholders that an approving official should review to
seven. The convenience of the purchase card must be balanced against
the time and cost involved in the training, monitoring, and oversight
of cardholders. It must also be balanced against the exposure of the
Navy to the legally binding obligations incurred by those cardholders.
The proliferation of purchase cards and high cardholder to approving
official ratios increase the risks associated with the purchase card
program. In response to the July 2001 hearing, DOD‘s Director of
Procurement instructed the directors of defense agency procurement and
contracting departments on August 13, 2001, to limit purchase cards to
only those personnel who need to purchase goods and services as part of
their jobs. As a result of this heightened concern, the Navy reduced
the number of cardholders by more than half from about 59,000 in June
2001 to about 28,000 by September 2001. In October 2001, the Navy
followed up the initial reduction in cardholders with an interim change
to the NAVSUP existing purchase card instructions that established
minimum criteria for prospective purchase card holders. As shown in
figure 1, the Navy continued to reduce the number of cardholders and
was down to about 25,000 as of March 2002. Agency Page 5 GAO-03-154T
program coordinators[Footnote 6] at the commands we audited told us
that the reduction was a result of (1) employee attrition and (2)
cancellation of cards of individuals who no longer needed them.
Figure 1: Change in Number of Navy-wide Cardholders, October 2000 to
March 2002:
This figure is a line chart showing change in number of Navy-wide
cardholders, October 2000 to March 2002. The X axis represents the
month and year, while the Y axis represents the number of Navy-wide
cardholders.
[See PDF for image]
Source: General Services Administration NAVSUP‘s interim change
limiting purchase cards also established a maximum ratio of seven
cardholders to each approving official,[Footnote 7] and required that
Navy and Marine Corps units establish local policies and procedures for
approving purchase cards and for issuing them to activity personnel.
The Navy‘s requirement of a maximum seven to one ratio of cardholders
to an approving official is consistent with guidance issued by the
Department of Defense Purchase Card Joint Program Management Office on
July 5, 2001, shortly before the congressional hearing last summer.
At the four locations we audited, the average ratio of cardholders to
approving officials was in line with the DOD and Navy limit of seven
cardholders per approving official. This average, however, masks the
wide range of ratios across units, including those that far exceeded
the DOD and Navy prescribed ratio of cardholders to approving
officials. The problem with a high cardholder to approving official
ratio remains especially acute at NAVSEA, which at some locations used
one approving official to certify a single payment for all the unit‘s
cardholders. This resulted in a number of approving officials
certifying monthly bills for more than 100 cardholders that contained
thousands of transactions and regularly exceeded $1 million a month.
Cardholder Credit Limits Exceed Procurement Needs:
While total financial exposure as measured in terms of purchase card
credit limits has decreased in the units we audited, it continues to
substantially exceed historical purchase card procurement needs.
Limiting credit available to cardholders is a key factor in managing
the purchase card program and in minimizing the government‘s financial
exposure. Therefore, to determine the maximum credit available, we
analyzed the credit limits available to both cardholders and approving
officials.[Footnote 8]
None of the units we visited tied either the cardholder‘s or the
approving official‘s credit limit to the unit‘s historical spending.
Rather, they often established arbitrary credit limits of $10,000 to
$25,000. In some instances, we found cardholders and approving
officials who had credit limits that far exceeded historical spending
needs. For example, as of September 2001, we identified over 60
cardholders with $9.9 million9 credit limits, and more than 2,300
approving officials with $9.9 million[Footnote 9] credit limits at the
four commands we audited. As shown in table 1, the four commands that
we audited had credit limits that clearly exceeded historical needs.
Table 1: Historical Purchases vs. Credit Limits for Selected Navy
Commands and Marine Corps:
Command: Credit limits as of March 2002;
Atlantic Fleet: $128 million;
Pacific Fleet: $159 million;
NAVSEA: $199 million;
Marine Corps: $454 million.
Command: Fiscal year 2001 average monthly purchase activity;
Atlantic Fleet: $14 million;
Pacific Fleet: $11 million;
NAVSEA: $22 million;
Marine Corps: $19 million.
Command: Ration of credit limit[A] to average fiscal year 2001 monthly
expenditures;
Atlantic Fleet: $9 to 1;
Pacific Fleet: $14 to 1;
NAVSEA: 9 to 1;
Marine Corps: $24 to 1.
[A] Credit limit is as of March 2002 to reflect the reduction in credit
limits made by the commands.
Source: GAO analysis of Citibank data provided by Navy.
[End of table]
Navy Units Lacked Documented Evidence of Training:
Most of the units we audited did not have documented evidence that
their purchase card holders had received the initial or supplemental
training required by the Navy purchase card program guidance. Training
is key to ensuring that the workforce has the skills necessary to
achieve organizational goals. In accordance with NAVSUP Instruction
4200.94, all cardholders and approving officials must receive purchase
card training. The instruction also requires all cardholders and
approving officials to receive refresher training every 2 years. While
acknowledging this need, the Navy does not have a database that would
enable agency program coordinators to monitor training for cardholders
and approving officials. Therefore, the Navy does not have a systematic
means to determine whether NAVSUP Instruction 4200.94 or its directives
are being carried out.
We found that from about 56 percent[Footnote 10] of the fiscal year
2001 transactions at the Marine Corps to about 87 percent10 of the
transactions at the Atlantic Fleet were made by cardholders or approved
for payment by approving officials for whom there was no documented
evidence of either initial training or refresher training at the time
the transaction was made. Management at all four locations told us that
they require all cardholders to receive training prior to receiving
their purchase cards. Not all managers were as confident that
cardholders and approving officials received followup training. Without
a centralized training database, it would be extremely difficult to
track when each cardholder needed the required 2-year refresher
training.
Further, for training to be effective, it should be tailored to provide
the knowledge needed for the different tasks in purchase card
management. However, we found that, even though the functions performed
by the agency program coordinators, approving officials, and
cardholders are substantially different, the training course curriculum
for the three positions was identical. The NAVSUP and major commands
did not have specific guidance or training concerning the role and
responsibilities of agency program coordinators or approving officials.
Monitoring and Oversight Need Improvement:
We found evidence that the four units we audited conducted reviews of
the fiscal year 2001 purchase card program. However, we did not find
that they used the results of those reviews to resolve identified
internal control weaknesses. Further, an August 2001 NAVSUP-mandated
review of 12 months of purchase card transactions did not identify the
extent of potentially fraudulent, improper, and abusive or questionable
transactions identified in either Naval Audit Service or GAO audits.
Specifically, based on the results of the reviews conducted by the
units we audited, we question the design and performance of the review.
Its results do not indicate a thorough and critical analysis of the
nature and magnitude of the control weaknesses and of the extent to
which fraudulent, improper, and abusive or questionable transactions
were occurring during the period reviewed. The four major commands that
we audited represented that they reviewed about 1,225,000 transactions
but reported that they found only 1,355 purchases”about 0.1 percent of
the transactions reviewed”that were for personal use, or for prohibited
items, or were not a bona fide mission requirement. In our statistical
sample of 624 fiscal year 2001 transactions we found 102 potentially
fraudulent, improper, and abusive or questionable transactions”about 15
percent of the transactions audited. Furthermore, we found numerous
examples of abusive and improper transactions (discussed in more detail
in the following section of this testimony) as part of our data mining.
In response to this issue, command level agency program coordinators
told us that they did not have sufficient time to perform their
transaction reviews.
Human Capital Resources Are Insufficient for Effective Monitoring and
Oversight:
The Navy has not provided sufficient human capital resources to enable
effective monitoring of purchases and to develop a robust oversight
program. The three key positions for overseeing the program and
monitoring purchases are the command-level agency program coordinator,
the unit-level agency program coordinator, and the approving official.
During the period of our review, none of the major command agency
program coordinators we audited worked full time in that position. This
is despite the fact that they were responsible for managing procurement
programs that incurred between 227,000 and 380,000 transactions
totaling from about $137 million to about $268 million annually.
Further, these agency program coordinators were responsible for
managing the procurement activities of cardholders who were located not
only on the East and West Coasts of the United States but in some
instances on other continents. In addition, these part-time major
command coordinators generally had one or two staff in their immediate
office”who were also assigned other responsibilities”that helped
monitor the program. Considering that the major command agency program
coordinators are responsible for procurement programs involving
hundreds of thousands of transactions and hundreds of millions of
dollars, the human capital resources at the major command level are
inadequate.
We also found that the major commands we audited did not provide the
subordinate level agency program coordinators and approving officials
with the time, training, tools, or incentives”also human capital
resources”needed to perform their monitoring responsibilities necessary
for the operational success of the program. Rather, the
responsibilities of approving officials and many subordinate level
agency program coordinators fell into the category of ’other duties as
assigned.“
Further, we found that approving officials and most agency program
coordinators generally had other duties of higher priority than
monitoring purchases and reviewing cardholders‘ statements. This was
especially true for approving officials, some of whom were engineers
and computer technicians, whose annual ratings generally did not cover
their approving official duties. One subordinate level agency program
coordinator told us that she knew that some approving officials did not
review the cardholder statements because (1) some cardholders make
thousands of purchases in a month, and (2) the approving officials have
other responsibilities. Another agency program coordinator told us that
some agency program coordinators and approving officials fear that
questioning certain purchases could be career-limiting decisions.
Further, neither the Navy nor the major commands have established a
position description, or an adequate statement of duties or other
information on the scope, duties, or specific responsibilities for
subordinate level agency program coordinators and approving officials.
Critical Internal Controls Were Ineffective:
Basic internal controls over the purchase card program were ineffective
at the units in the major commands we audited during fiscal year 2001
primarily because they were not effectively implemented. Based on our
tests of statistical samples of purchase card transactions, we
determined that key transaction-level controls were ineffective,
rendering the purchase card transactions at the units we audited
vulnerable to fraudulent and abusive purchases and to the theft and
misuse of government property. The problems we found primarily resulted
from inadequate guidance and a lack of adherence to valid policies and
procedures. The specific controls that we tested were (1) screening for
required vendors, (2) documenting independent receipt and acceptance of
goods and services, (3) documenting cardholder reconciliation and
approving official review prior to certifying the monthly purchase card
statement for payment, and (4) recording pilferable property in
accountable records. As shown in table 2, the failure rates for the
first three attributes that we tested ranged from 58 percent to 98
percent respectively for the Atlantic Fleet units in Norfolk for
documenting independent receipt and acceptance obtained with a purchase
card, and reconciling and reviewing cardholder statements prior to
certifying them for payment. Most transactions in our statistical
sample did not contain pilferable property. Thus, we are not projecting
the results of that test to the population of transactions that we
tested at those units.
Table 2: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests:
Atlantic Fleet Units in the Norfolk, VA area;
Percent breakdown in key purchase card controls [A]: Screening for
required vendors: 88;
Percent breakdown in key purchase card controls [A]: Independence,
documented receipt of items purchased: 58;
Percent breakdown in key purchase card controls [A]: Proper
reconciliation and certification of purchase card statements for
payment: 98.
Pacific Fleet units in the San Diego, CA area;
Percent breakdown in key purchase card controls [A]: Screening for
required vendors: 70;
Percent breakdown in key purchase card controls [A]: Independence,
documented receipt of items purchased: 59;
Percent breakdown in key purchase card controls [A]: Proper
reconciliation and certification of purchase card statements for
payment: 80.
NAVEA units in the Norfolk, VA area;
Percent breakdown in key purchase card controls [A]: Screening for
required vendors: 90;
Percent breakdown in key purchase card controls [A]: Independence,
documented receipt of items purchased: 67;
Percent breakdown in key purchase card controls [A]: Proper
reconciliation and certification of purchase card statements for
payment: 86.
Marine Corps Base at Camp Lejeune, NC;
Percent breakdown in key purchase card controls [A]: Screening for
required vendors: 89;
Percent breakdown in key purchase card controls [A]: Independence,
documented receipt of items purchased: 59;
Percent breakdown in key purchase card controls [A]: Proper
reconciliation and certification of purchase card statements for
payment: 94.
Source: GAO testing and statistical analysis of Navy purchase card
transaction files.
[A] The numbers represent point estimates for the population based on
our sampling tests. The estimated percentages have 95 percent
confidence intervals of plus or minus 13 percentage points or less.
[End of table]
Little Evidence Cardholders Screen for Required Vendors:
Despite DOD and Navy requirements to give priority to certain required
vendors, we found that the failure rate to document the necessary
screening of purchases ranged from about 70 percent at the Pacific
Fleet to about 90 percent at NAVSEA. Because of the units‘ failure to
document screening for statutory vendors, the Navy and Marine Corps do
not know the extent to which cardholders failed to acquire items from
these required vendors. The Navy‘s purchase card instructions require
that prior to using the purchase card, cardholders must document that
they have screened all their intended purchase card acquisitions for
availability from statutory sources of supply. These sources of supply
include vendors qualifying under the Javits-Wagner-O‘Day Act (JWOD),
Federal Prison Industries, and DOD‘s Document Automation and Production
Service (DAPS). JWOD vendors are nonprofit agencies that employ people
who are blind or have other severe disabilities. JWOD vendors primarily
sell office supplies and calendars, which often cost less than items
sold by commercial vendors.
Little Evidence of Independent Receipt and Acceptance of Items
Purchased:
The units we audited generally did not have evidence documenting that
someone independent of the cardholder received and accepted items
ordered and paid for with a purchase card, as required by NAVSUP
Instruction 4200.94. That is, the units generally did not have a
receipt, invoice, or packing slip for the acquired goods and services
that was signed and dated by someone other than the cardholder. As a
result, there is no documented evidence that the government received
the items purchased or that those items were not lost, stolen, or
misused. Some units have developed a system using ink stamps that need
to be completed to document receipt and acceptance; however, these
systems have not been implemented effectively. While some of the items
for which these units did not have independent documented receipts were
consumable office supplies, other items that failed this key internal
control test included laptop computers, digital cameras, and personal
digital assistants, which could be subject to theft or misuse.
Little Evidence That Monthly Purchase Card Bills Were Reconciled and
Reviewed Prior to Certification and Payment:
We found little evidence of cardholder reconciliation or approving
official reviews to confirm that cardholders had reconciled the monthly
purchase card transactions back to the supporting documents throughout
fiscal year 2001. Because certification is necessary for payment, it is
likely to occur whether or not cardholders and approving officials have
performed required reconciliations and reviews. Thus, when we tested
whether the cardholder reconciled the monthly statement and whether the
approving official reviewed the monthly statement, we did not simply
look for a physical or electronic signature on a form. Rather, for this
test we considered that proper reconciliation and review occurred if:
* the cardholder signed and dated the monthly bill[Footnote 11] before
it was paid, and the monthly bill contained any markings or notes
indicating the amounts billed had been compared to a credit card
receipt, invoice, packing slip, or a purchase log, and:
* the approving official‘s review of the cardholder‘s monthly statement
was signed and dated prior to certification for payment, and there were
virtually any markings or notes on the monthly statements evidencing
that review.
Our testing revealed that documented evidence of adequate cardholder
reconciliation or approving official review of cardholder transactions
did not exist for most of our sample transactions. Examples of
inadequate documentation included missing statements, invoices,
signatures, and dates, or a lack of evidence of cardholder
reconciliation or approving official review. Without such evidence,
we”and the program coordinators, who are required to semiannually
review approving official records” cannot determine whether officials
are complying with review requirements. We found numerous instances of
purchases that had not been adequately reviewed and reconciled to the
monthly statements, but in which the statements were, nonetheless,
certified for payment. For example, at Camp Lejeune, we found 29
transactions totaling over $50,000 for which the Marine Corps was
unable to provide any supporting documentation concerning what was
purchased or whether the items purchased had a legitimate government
use.
Major Commands Failed to Maintain Accountability for Pilferable Items:
We found accountable items acquired with purchase cards were often not
recorded in property records of the units we audited. In addition,
officials at three of the four major commands could not locate some of
the property items included in our statistical samples. While some or
all of the items might, in fact, be at the installations we audited,
officials could not provide conclusive evidence that they were in the
possession of the government. Unrecorded property and items that cannot
be located indicate a weak control environment and problems in the
property management system. Consistent with GAO‘s internal control
standards, DOD‘s Property, Plant and Equipment Accountability Directive
and Manual, which was issued in draft for implementation on January 19,
2000, requires accountable property to be recorded in property records
as it is acquired. Accountable property includes items that can be
easily pilfered, such as computers and related equipment, and cameras.
Entering such items in the property records is an important step to
help assure accountability and financial control over these assets and,
along with periodic inventory, to deter theft or improper use of
government property. Table 3 contains the results of our review of
property management records and inspection of accountable property.
Table 3: Accountable Property Items Not Recorded in Property Books:
Command/Base: Atlantic Fleet units in Norfolk, VA;
Transactions with property items: 35;
Transactions with items not in property book: 15;
Transactions with items the command could not locate: 12.
Command/Base: Pacific Fleet units in San Diego, CA;
Transactions with property items: 42;
Transactions with items not in property book: 23;
Transactions with items the command could not locate: 15.
Command/Base: NAVEA units in Norfolk, VA;
Transactions with property items: 21;
Transactions with items not in property book: 14;
Transactions with items the command could not locate: 8.
Command/Base: Marine Corps Base at Camp Lejeune, NC;
Transactions with property items: 16;
Transactions with items not in property book: 8;
Transactions with items the command could not locate: 0.
Source: GAO analysis of stratified random samples from Navy and Marine
Corps purchase card transaction files.
[End of table]
Potentially Fraudulent, Improper, and Abusive or Questionable
Transactions:
We identified numerous purchases at the installations we audited and
through our Navy-wide data mining that were potentially fraudulent,
improper, and abusive or questionable. However, our work was not
designed to identify, and we cannot determine, the extent of
potentially fraudulent, improper, and abusive or otherwise questionable
transactions. Considering the control weaknesses identified at each
unit audited, it is not surprising that these transactions were not
detected or prevented. In addition, the existence of similar improper,
abusive, and questionable transactions in our Navy-wide data mining of
selected transactions provides additional indications that a weak
control environment and ineffective specific controls exist throughout
the Navy.
Potentially Fraudulent Purchases:
We considered potentially fraudulent purchases to include those made by
cardholders that were unauthorized and intended for personal use.
Potentially fraudulent purchases can also result from compromised
accounts in which a purchase card or account number is stolen and used
to make a potentially fraudulent purchase. Potentially fraudulent
transactions can also involve vendors charging purchase cards for items
that cardholders did not buy. The Navy and the major commands we
audited had policies and procedures that were designed to prevent and
detect potentially fraudulent purchases. For example, as discussed
previously, approving officials are required to review the supporting
documentation for each transaction for legality and proper government
use of funds. However, our testing showed that these control activities
had not been implemented as intended.
Although collusion can circumvent what otherwise might be effective
internal control activities, a robust system of guidance, internal
control activities, and oversight can create a control environment that
provides reasonable assurance of preventing or quickly detecting fraud,
including collusion. However, in auditing the Navy‘s internal control
at units assigned to four major commands during fiscal year 2001, we
did not find the processes and activities were operating in a manner
that provided such assurance. The following examples illustrate the
cases we described in the report that we released today.
* An approving official‘s failure to review a cardholder‘s statement on
a timely basis contributed to an Atlantic Fleet cardholder making over
$250,000 in unauthorized purchases between September 2000 and July
2001. In July 2001, when a command supply official began reviewing the
cardholder‘s monthly statements, he noticed that over $80,000 of those
charges were unsupported. Included in those unsupported charges were
numerous transactions with suspicious vendors. After command supply
officials asked the cardholder about the unsupported purchases, the
cardholder admitted to making thousands of dollars of illegal Internet
purchases and illegally purchasing EZ Pass prepaid toll tags, expensive
remote control helicopters, and a dog. The Navy decided to prosecute
the cardholder, and a court martial is pending.
* An approving official‘s failure to review a cardholder‘s statements
and the cardholder‘s failure to keep evidence of what was purchased
contributed to an Atlantic Fleet cardholder fraudulently using his
purchase card from January 2000 through October 2000 to purchase an
estimated $150,000 in automobile, building, and home improvement
supplies. The cardholder sold some of the items to generate cash.
According to Navy investigators, the cardholder destroyed many of the
requisitions, receipts, and purchase logs for the stolen items in an
attempt to cover up his actions. In addition, according to Navy
criminal investigators, if the monthly purchase card billing statements
had been properly reviewed, the cardholder‘s fraudulent activities
would have been exposed. In exchange for pleading guilty to multiple
counts of larceny and other criminal violations, the cardholder‘s jail
time was reduced to 24 months.
* An approving official‘s failure to adequately review a cardholder‘s
statement contributed to two Atlantic Fleet cardholders conspiring with
at least seven vendors to submit about $89,000 in fictitious and
inflated invoices. The cardholders had the vendors ship supply items to
an Atlantic Fleet warehouse, and the personal items directly to their
residences. The cardholders also had vendors inflate the price and or
quantity of items purchased. According to Naval Criminal Investigative
Service (NCIS) investigators, the cardholders would sell, use, and
barter the illegally obtained items, while the vendor sales
representatives received inflated sales commissions and an estimated
$3,000 to $5,000 in Navy property that was given to them as bribes. One
vendor sales representative who admitted to conspiring to supply false
invoices said that he could not get sufficient business until he
altered the invoices like the other vendors. According to the caller
who informed the NCIS of the illegal activity, it was common knowledge
that the cardholders were getting kickbacks because of their positions
as Navy buyers. Based on the results of the NCIS investigations, one of
the cardholders received 24 months confinement and a bad conduct
discharge while the other received a 60-day restriction and reduction
in rank.
* We also found that in March 1999 the Navy inappropriately issued five
government purchase cards to individuals who did not work for the
government. These individuals worked for a consulting company that
occasionally provided services to the Navy. NAVSUP Instruction 4200.94
limits the Navy purchase card to authorized government personnel in
support of official government purchases. Between March 1999 and
November 2001 these individuals used the Navy purchase cards to make
purchases totaling about $230,000 with vendors including airlines,
hotels, rental car companies, gas stations, restaurants, a florist, and
golf courses. We discovered these charges in November 2001 as part of
our data mining for suspicious transactions at the Pacific Fleet.
Within a week of our inquiries to the Pacific Fleet concerning the
charges on these accounts, the Pacific Fleet agency program coordinator
instructed Citibank to (1) immediately deactivate the accounts and (2)
close the accounts once the balances were paid.
While the consulting company ultimately paid Citibank for all charges
made with those cards, the consulting company was 30 days past due on
the account 28 times during the 38 months that the accounts were open.
Further, the Navy was contractually liable for all purchases made with
the cards and would have been responsible for payment if the consulting
company had failed to pay. The risk to the Navy was real because, when
the Navy had Citibank deactivate the accounts in November, the company,
which still owed $8,600, threatened to withhold payment unless the Navy
reopened the accounts. In addition, the consulting company contacted
Citibank directly and tried to assume control of the accounts by
claiming the company had ’spun off from the Navy.“ While the consulting
company did eventually pay Citibank, it was not until March 2002”4
months after the accounts were deactivated.
Our Office of Special Investigations researched some of the charges and
found that, by using a Navy purchase card, the consulting company
avoided paying state sales taxes and obtained discounts at airlines and
hotels that are typically offered only to the federal government. The
airline discounts are particularly advantageous because airlines offer
the federal government significantly discounted tickets that are not
encumbered with the penalties and limitations that are imposed upon
private sector companies and the general public. Finally, Citibank does
not bill the Navy interest on past due accounts. Thus, by using the
Navy purchase card, the company avoided paying interest on these
accounts that were regularly past due. Based on the results of our
work, we referred this case to DOD for further investigation.
Navy‘s Fraud Database Does Not Include Key Data:
We attempted to obtain examples of other potentially fraudulent
activity in the Navy purchase card program from NCIS in Washington,
D.C. NCIS investigators acknowledged that they have investigated a
number of purchase card fraud cases; however, their investigation
database does not permit a breakdown of fraud cases by type, such as
purchase cards. Purchase card program officials and NCIS officials said
that they had no information on the total number of purchase card fraud
investigation cases throughout the Navy that had been completed or were
ongoing. Based on our identification of a number of fraudulent and
potentially fraudulent cases at the installations that we audited, we
believe that the number of cases involving fraudulent and potentially
fraudulent transactions could be significant. Without such data, the
Navy does not know the significance, in numbers or dollar amounts, of
fraud cases that have been or are being investigated and is hampered in
taking corrective actions to prevent such cases in the future.
Improper Purchases and Transactions:
Our audit work at the four commands and our Navy-wide data mining
identified numerous examples of improper transactions. Improper
transactions are those purchases that, although approved by Navy
officials and intended for government use, are not permitted by law,
regulation, or DOD policy. We identified three types of improper
purchases:
* Purchases that do not serve an authorized government purpose.
* Split purchases, in which the cardholder circumvents cardholder
singlepurchase limits. The Federal Acquisition Regulation guidelines
prohibit splitting purchase requirements into more than one transaction
to avoid the need to obtain competition on purchases over the $2,500
micropurchase threshold. Cardholders also split purchases to circumvent
higher single-transaction limits for payments on contracts exceeding
the micropurchase threshold.
* Purchases from improper sources as previously discussed. Various
federal laws and regulations require procurement officials to acquire
certain products from designated sources such as JWOD vendors. The JWOD
program is a mandatory source of supply for all federal entities. The
improper transactions that resulted from purchasing items from
nonstatutory sources were previously discussed in the section on
adherence with control procedures.
We believe that if the Navy better monitored the vendors with which its
cardholders conducted business, the Navy could minimize its number of
improper purchases. Such monitoring could also provide the Navy the
opportunity to leverage its purchase volume and negotiate discounts
with frequently used vendors.
Purchases That Do Not Serve an Authorized Government Purpose:
We found several instances in which cardholders purchased goods, such
as clothing, that were not authorized by law or regulation. The Federal
Acquisition Regulation, 48 C.F.R. 13.301(a), provides that the
governmentwide commercial purchase card may be used only for purchases
that are otherwise authorized by law or regulations. Therefore, a
procurement using the purchase card is lawful only if it would be
lawful using conventional procurement methods. Under 31 U.S.C. 1301(a),
’[a]ppropriations shall be applied only to the objects for which the
appropriations were made—“ In the absence of specific statutory
authority, appropriated funds may only be used to purchase items for
official purposes, and may not be used to acquire items for the
personal benefit of a government employee. The following are improper
transactions we identified as part of our review of fiscal year 2001
transactions and related activity at the four commands and as part of
our Navy-wide data mining of transactions with questionable vendors.
* We identified a Pacific Fleet cardholder who used the purchase card
in January 2001 to buy a $199 leather flight jacket as a personal gift
for an official visitor. SECNAV Instruction 7042.7J specifically
identifies flight jackets as a prohibited personal gift to a visitor.
In November 2001, when we questioned the Deputy Commander concerning
the flight jacket, he told us that the purpose of the gift was to
recognize the individual‘s contributions to the Navy‘s San Diego
installations. The Deputy Commander subsequently told us that the
personnel involved with the gift were counseled, and that he, the
Deputy Commander, had reimbursed the Navy for the jacket in January
2002.
* We identified purchases of clothing by NAVSEA that should not have
been made with appropriated funds. Generally, agencies may not use
appropriated funds to purchase clothing for civilian employees. One
exception is 5 U.S.C. 7903, which authorizes agencies to purchase
protective clothing for employee use if the agency can show that (1)
the item is special and not part of the ordinary furnishings that an
employee is expected to supply, (2) the item is essential for the safe
and successful accomplishment of the agency‘s mission, not solely for
the employee‘s protection, and (3) the employee is engaged in hazardous
duty. Further, according to a Comptroller General decision dated March
6, 1984,[Footnote 12] clothing purchased pursuant to this statute is
property of the U.S. government and must only be used for official
government business. Thus, clothing purchases, except for rare
circumstances in which the purchase meets stringent requirements, are
usually considered personal items for which appropriated funds should
not be used. In one transaction, a NAVSEA cardholder purchased polo
shirts and other gifts for a ’Bring-Your-Child-to-Work Day“ at a total
cost of about $1,600.
* As part of our data mining of Navy-wide purchase card transactions,
we identified two purchases in which cardholders purchased Bose
headsets at $300 each. The headsets were for personal use”listening to
music” while taking commercial airline flights and, therefore, should
not have been purchased with the Navy purchase card.
* At NAVSEA, we identified charges to hotels in Newport News and
Portsmouth, Virginia, totaling about $8,000 for locally based NAVSEA
employees to attend meetings at which they were inappropriately
provided meals and refreshments at the government‘s expense. The
cardholders told us that they authorized the hotels to bill for
audiovisual equipment and conference room rental. The cardholders said
the hotel was not authorized to bill for food. However, despite the
cardholders‘ assertions, the detailed bills showed that the hotels
charged NAVSEA about $7,000 for meals including breakfasts, lunches,
and snacks. Pursuant to 31 U.S.C. 1301(a), "[a]ppropriations shall be
applied only to the objects for which the appropriations were made...."
In the absence of specific statutory authority, appropriated funds may
only be used to purchase items for official purposes, and may not be
used to acquire items for the personal benefit of a government
employee. For example, without statutory authority, appropriated funds
may not be used to furnish meals or refreshments to employees within
their normal duty stations.[Footnote 13] Free food and other
refreshments normally cannot be justified as a necessary expense of an
agency‘s appropriation because these items are considered personal
expenses that federal employees should pay for from their own
salaries.[Footnote 14]
Split Purchases:
Another category of improper transaction is a split purchase, which
occurs when a cardholder splits a transaction into segments to avoid
the requirement to obtain competition for purchases over the $2,500
micropurchase threshold or to avoid other established credit limits.
The Federal Acquisition Regulation prohibits splitting a purchase into
more than one transaction to avoid the requirement to obtain
competition for purchases over the $2,500 micropurchase threshold. Navy
purchase card instructions also prohibit splitting purchases to avoid
other established credit limits. Once items exceed the $2,500
threshold, they are to be purchased through a contract in accordance
with simplified acquisition procedures that are more stringent than
those for micropurchases.
Our analysis of data on purchases at the four major commands we audited
and our data mining efforts identified numerous occurrences of
potential split purchases. In addition, internal auditors at all four
commands that we audited identified split purchases as a continuing
problem. In some of these instances, the cardholder‘s purchases
exceeded the $2,500 limit, and the cardholder split the purchase into
two or more transactions of $2,500 or less. For example, a Camp Lejeune
cardholder made eight transactions totaling about $17,000 on the same
day to purchase combat boots.
All the commands that we audited represented that the practice of
splitting transactions to circumvent the micropurchase threshold was a
problem. As we previously reported, by circumventing the competitive
requirements of the simplified acquisition procedures, the commands may
not be getting the best prices possible for the government. For the
Navy to reduce split transactions, it will need to monitor the vendors
with whom cardholders are conducting business.
Better Management of Transactions With Frequently Used Vendors Could
Result in Additional Savings:
The Navy has not proactively managed the purchase card program to
identify opportunities for savings. Purchase card sales volume has
grown significantly over the last few years with the Navy now using the
purchase card to procure nearly $2 billion a year in goods and
services. We believe that the Navy could better leverage its volume of
purchases and negotiate discounts with frequently used vendors. For
example, during fiscal year 2001, the Navy paid over $1 million each to
122 different vendors using the purchase card. In total during fiscal
year 2001, the Navy paid those 122 vendors more than $330 million.
However, the Deputy Director of the Navy eBusiness Operations Office
told us that, despite this heavy sales volume, the Navy had not
negotiated reduced-price contracts with any of the vendors.
As previously stated, the benefits of using purchase cards versus
traditional contracting and payment processes include lower transaction
processing costs and less red tape for both the government and the
vendor. Through increased analysis of purchase card procurement
patterns, the Navy has the opportunity to leverage its high volume of
purchases and achieve additional savings from vendors by negotiating
volume discounts similar to those the General Service Administration
(GSA) has negotiated in its Multiple Award Schedule program. Under
GSA‘s Multiple Award Schedule, participating vendors agree to sell
their products at preferred customer prices to all government
purchasing agents. According to the Deputy Director of the Navy‘s
eBusiness Operations Office, 74 of the 122 vendors with which the Navy
spent more than $1 million using the purchase card during fiscal year
2001 did not participate in the Multiple Award Schedule program. In
addition, the opportunity existed for the Navy to negotiate additional
savings form the 48 vendors that participated in the Multiple Award
Schedule. GSA encourages agencies to enter into blanket purchase
agreements (BPAs) and negotiate additional discounts with Multiple
Award Schedule vendors from which they make recurring purchases.
By analyzing Navy-wide cardholder buying patterns, the Navy should be
able to achieve additional savings by identifying vendors and vendor
categories for which it uses the purchase card for a significant amount
of money and negotiating discounts with them. For example, during
fiscal year 2001, the Navy spent about $65 million with 5 national
computer vendors (i.e. Dell, Gateway, CWD Computer Centers, Micro
Warehouse, and GTSI), $22 million with 3 office supply companies (i.e.
Corporate Express, Staples, and Office Depot), and $9 million with 2
national home improvement stores (i.e. Home Depot and Lowe‘s). While 8
of these 10 vendors participate in GSA‘s Multiple Award Schedule
program, the Navy could not tell us whether its purchases from these
vendors were made using that program‘s preferred price schedules.
Further, considering the Navy‘s volume of purchases, it is reasonable
to assume that it could negotiate additional savings with these and
other vendors if it used historical purchase card sales data as a
bargaining tool.
Abusive and Questionable Purchases:
We identified numerous examples of abusive and questionable
transactions at each of the four installations we audited. We defined
abusive transactions as those that were authorized, but in which the
items were purchased at an excessive cost (e.g., ’gold plated“) or for
a questionable government need, or both. Abuse can be viewed when a
government organization, program, activity, or function falls short of
societal expectations of prudent behavior. Often, improper purchases
such as those discussed in the previous section are also abusive.
Questionable transactions are those that appear to be improper or
abusive but for which there is insufficient documentation to conclude
either. We consider transactions to be questionable when they do not
fit within the Navy guidelines on purchases that are acceptable for the
purchase card program, and when there is not a reasonable or documented
justification to acquire the item purchased. When we examined the
support for questionable transactions, we usually did not find evidence
of why the Navy or Marine Corps needed the item purchased.
Consequently, the cardholder provided an after-the-fact rationale that
the item purchased was not improper or abusive. To prevent unnecessary
costs, these types of questionable purchases require scrutiny before
the purchase, not after. The following examples illustrate our point.
* Computer and related equipment exceeding documented need”The Navy
used the purchase card to pay for computer and computer-related items
far in advance of its needs. Considering that computer prices decrease
over time while their capabilities improve, warehousing computers and
related items is an especially ineffective use of government funds.
Despite this time, price, and capability relationship, we found in our
statistical sample that the Atlantic Fleet, Pacific Fleet, and NAVSEA
purchased computers, monitors, and printers that were often not put to
use until more than 12 months had passed. For example, the computers
purchased by the Atlantic Fleet in September 2000 that were discussed
in the section on pilferable property had Pentium III microprocessors.
By the time the Atlantic Fleet issued some of those computers in
January 2002, the manufacturer was selling computers with Pentium IV
microprocessors at a cost of less than what the Atlantic Fleet had paid
for the Pentium IIIs. Further, our statistical sample at the Atlantic
Fleet identified 22 other computers that the Navy purchased in April
2001 that were unused and still in their original boxes in June 2002.
Similarly, we found two $3,500 laser printers purchased in September
2000 that were selected in our statistical sample of Pacific Fleet
transactions still in their original boxes at a Pacific Fleet warehouse
in January 2002.
* Flat Panel Monitors”Our statistical sample selected transactions
containing 243 flat panel monitors purchased by the Atlantic Fleet,
Pacific Fleet, NAVSEA, and Camp Lejeune. The cost of the monitors
selected in our sample ranged from $550 to $2,200. Conversely, the 17-
inch standard monitors selected in the sample cost about $200. As we
have reported in the past, we believe the purchase of flat panel
monitors”particularly those that cost far in excess of standard
monitors”to be abusive and an ineffective use of government funds in
the absence of a documented need based on technical, space, or other
considerations. Further, in our statistical sample, we found that some
of the flat panel monitors that the Atlantic Fleet purchased were
placed in a warehouse and not issued for more than a year after the
Navy took possession. Warehousing flat panel monitors is especially
inefficient because, like computers, as time passes the price of flat
panel monitors decreases and technology increases. The flat panel
monitors that we found still in the box cost the Navy $709 each. As of
June 2002, the GSA price for the same flat panel monitors was about
$480.
* Designer Leather Goods”In September and October 2000, NAVSEA made two
separate transactions totaling nearly $1,800 to obtain designer leather
folios and PDA holders costing up to $300 each made by Coach and Dooney
and Bourke. Two of the folios were given away as gifts to a visiting
officer in the Australian Navy, while other designer items were
personal preferences of the cardholders and requesting individuals.
* Clock radios”As part of our Navy-wide data mining, we inquired about
a $2,443 transaction with Bose Corporation on September 30, 2000. In
response to that inquiry, the Navy command that made the purchase told
us that it purchased seven Bose ’Wave Radios“ costing $349 each. The
command justified the purchase by stating that Navy regulations require
all visiting office quarters to be supplied with a clock radio. While
we do not question the need to supply visiting officer quarters with
clock radios, we do question the judgment of purchasing $349 clock
radios when there are numerous models of clock radios costing about
$15.
Disciplinary Actions Seldom Taken Against Those Who Misuse the Purchase
Card:
Currently, the Navy has not established specific disciplinary and/or
administrative consequences for failure to follow purchase card control
requirements”such as withdrawal of cardholder status, reprimand,
suspension from employment for several days, and, if necessary, firing.
Unless cardholders and approving officials are held accountable for
following key internals controls, the Navy is likely to continue to
experience the types of fraudulent, improper, and abusive or
questionable transactions identified in our work. As part of this
audit, we asked the agency program coordinators at each command that we
audited (1) whether any cardholders referred to in this testimony were
disciplined for improper, abusive, or questionable purchases, or (2) if
the reduction in the number of cardholders could be attributed to
individuals who lost the card because they made improper, abusive, or
questionable purchases. According to the agency program coordinators,
only one of the cardholders referred to in this testimony lost his card
for improper, abusive, or questionable purchases, and no one has had
any disciplinary actions taken against them for abusing the purchase
card and obtaining personal preference items at additional expense to
the government.
Conclusions:
We support the use of a well-controlled purchase card program as a
valuable tool for streamlining the government‘s acquisition processes.
However, the Navy program is not well controlled and as a result is
vulnerable to fraud, waste, and abuse. The primary cause of the control
breakdowns is the lack of adherence to valid policies and procedures.
The control environment at the Navy has improved over the last year.
For example, the Navy has reduced the number of cardholders by over 50
percent, from 59,000 to 25,000, thus improving the prospects for
effective program management. However, further actions are needed to
achieve an effective control environment. Specifically, leadership by
major command and unit management and a strong system of accountability
must be established and sustained for effective program control.
Strengthening the control environment will require a commitment by the
Navy to build a robust purchase card control infrastructure.
Our related report on these issues released today builds on the
progress the Navy has made and includes recommendations that address
the need for the Navy to strengthen the overall control environment and
improve internal control activities. Our recommendations focus on the
need for the Navy to improve (1) overall program management and its
control environment, (2) guidance on the requirements for the specific
control activities, and (3) procedures to help prevent fraudulent,
improper, and abusive or questionable purchases.
In written comments on a draft of our related report, DOD concurred or
partially concurred with our recommendations and described actions
completed, underway, or planned to implement them. While DOD partially
concurred with our recommendations dealing with linking the performance
appraisals of purchase card officials to achieving performance
standards, and maintaining accountability over pilferable property, the
actions DOD has agreed to take will implement the most significant
aspects of those recommendations. DOD also partially concurred with our
recommendation concerning establishing a schedule of disciplinary
actions to be taken against cardholders who make improper or abusive
acquisitions, but stated that the Navy will examine whether actions the
department has already taken will appropriately address improper or
abusive use of purchase cards.
Mr. Chairman, Members of the Subcommittee, and Senator Grassley, this
concludes my prepared statement. I would be pleased to answer any
questions that you may have.
Contacts and Acknowledgments:
For future contacts regarding this testimony, please contact Gregory D.
Kutz at (202) 512-9505, John J. Ryan at (202) 512-9587, or John V.
Kelly at (202) 512-6926. Individuals making key contributions to this
testimony included Eric Essig, Francine Delvecchio, John Ledford, and
Steve Lipscomb.
[End of section]
[1] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-01-995T
(Washington, D.C.: July 30, 2001), and Purchase Cards: Continued
Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse,
GAO-02-506T (Washington, D.C.: Mar. 13, 2002).
[2] U.S. General Accounting Office, Purchase Cards: Navy Vulnerable to
Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses, GAO-
02-1041 (Washington, D.C.: Sept. 27, 2002).
[3] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-844T
(Washington, D.C.: July 17, 2002).
[4] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-732
(Washington, D.C.: July 17, 2002).
[5] GAO-01-995T and GAO-02-506T.
[6] NAVSUP Instruction 4200.94 authorizes agency program coordinators
to administer the purchase card program within their designated units,
establish credit limits, and authorize the issuance of cards to Navy
employees. The agency program coordinator also serves as the
communication link between the purchase card issuing bank and the unit.
[7] The approving official is responsible for reviewing and verifying
the monthly purchase card statements of the cardholders under his or
her purview. The approving official is responsible for verifying that
all purchases were necessary and were made for official government
purposes in accordance with applicable policies, laws, and regulations.
Unless otherwise specified, the approving official must also be the
certifying officer for his/her cardholders and in that capacity must
certify that the monthly purchase card statement is appropriate and
ready for payment.
[8] There are two credit limits that can restrict a cardholder‘s
ability to use a purchase card” the approving official‘s credit limit
and the cardholder‘s credit limit”both of which are set by the unit
agency program coordinator. A cardholder‘s credit limit is the maximum
amount that a cardholder can purchase in a billing cycle, normally 1
month. An approving official‘s credit limit is the maximum amount that
all the cardholders who report to an approving official may spend.
However, the available credit limit of the approving official cannot
exceed the sum of the credit limits available to all of the cardholders
he or she authorizes for payment.
[9] The maximum credit limit allowed by NAVSUP Instruction 4200.94 is
$9.9 million.
[10] The numbers represent point estimates for the population based on
our sampling tests. The estimated percentages have 95 percent
confidence intervals of plus or minus 13 percentage points or less.
[11] In pencil, ink, or electronically.
[12] 63 Comptroller General Decisions 245, 247 (1984). In requesting
the Comptroller General‘s approval of the purchases, the agency
represented that ’the parkas would be labeled as [agency] property,
centrally controlled, and issued and reissued to employees only for job
requirements.“
[13] 72 Comp. Gen. 178, 179 (1993); 65 Comp. Gen. 508, 509 (1986). 1465
Comp. Gen. 738, 739 (1986).
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