Purchase Cards
Control Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, and Abuse Gao ID: GAO-03-292 December 20, 2002In July 2001 and March 2002, GAO testified on significant breakdowns in internal controls over purchase card transactions at two Navy sites that resulted in fraud, waste, and abuse. As a result, the Congress asked GAO to audit purchase card controls at DOD. This report focuses on Air Force purchase card controls and addresses whether the overall management control environment and key internal controls were effective in preventing potentially fraudulent, improper, and abusive purchase card transactions.
Weaknesses in the overall control environment and breakdowns in key controls relied on to manage the purchase card program leave the Air Force vulnerable to fraud, waste, and abuse. Major contributors to the weak control environment included excessive numbers of purchase cards, with about one purchase card for every seven employees, approving official span of control that far exceeded DOD guidelines, and credit limits that were 12 to 20 times higher than actual spending. Of the five key control activities tested, the Air Force had significant control breakdowns in at least three of them (1) receiving of goods and services by someone other than the card holder, (2) cardholder reconciliation, and (3) approving official review of the cardholder's reconciled statements. The highest failure rates--69 to 87 percent--at the four locations tested related to approving official review--viewed by DOD as the first line of defense against misuse of the purchase card. The control breakdowns resulted in purchases that were potentially fraudulent, improper, and abusive or questionable. GAO also identified potentially fraudulent transactions for which supporting documentation was not available to show the quantity and type of items purchased. Air Force officials could not recall the purpose of these transactions. In addition, GAO identified (1) improper transactions related to weaknesses in controls relied on to prevent splitting purchases into multiple transactions to circumvent micropurchase and cardholder transaction limits and (2) the failure to use mandated sources of supply. Finally, GAO found that cardholders who abused or improperly used the purchase card were not subject to strong disciplinary action or consequences. The Air Force has taken a number of steps to improve control over the purchase card program. For example, it implemented automated controls during fiscal year 2002 to help monitor approving official span of control, credit limits, and cardholder reconciliation and approving official review of monthly statements. If effectively implemented, these controls should help strengthen the overall Air Force purchase card control environment as well as controls over statement reconciliation and approval.
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-03-292, Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, and Abuse
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United States General Accounting Office:
GAO:
Report to Congressional Requesters:
December 2002:
Purchase Cards:
Control Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, and
Abuse:
GAO-03-292:
GAO Highlights:
Highlights of GAO-03-292, a report to Congressional requesters.
Why GAO Did This Study:
In July 2001 and March 2002, GAO testified on significant breakdowns in
internal controls over purchase card transactions at two Navy sites
that resulted in fraud, waste, and abuse. As a result, the Congress
asked GAO to audit purchase card controls at DOD. This report focuses
on Air Force purchase card controls and addresses whether the overall
management control environment and key internal controls were effective
in preventing potentially fraudulent, improper, and abusive purchase
card transactions.
What GAO Found:
Weaknesses in the overall control environment and breakdowns in key
controls relied on to manage the purchase card program leave the Air
Force vulnerable to fraud, waste, and abuse. Major contributors to the
weak control environment included excessive numbers of purchase cards,
with about one purchase card for every seven employees, approving
official span of control that far exceeded DOD guidelines, and credit
limits that were 12 to 20 times higher than actual spending.
Of the five key control activities tested, the Air Force had
significant control breakdowns in at least three of them”(1) receiving
of goods and services by someone other than the card holder, (2)
cardholder reconciliation, and (3) approving official review of the
cardholder‘s reconciled statements. The highest failure rates”69 to 87
percent”at the four locations tested related to approving official
review”viewed by DOD as the first line of defense against misuse of the
purchase card.
As shown in the table, the control breakdowns resulted in purchases that
were potentially fraudulent, improper, and abusive or questionable. GAO
also identified potentially fraudulent transactions for which supporting
documentation was not available to show the quantity and type of items
purchased. Air Force officials could not recall the purpose of these
transactions.
Table: Examples of Potentially Fraudulent, Improper, and Abusive or
Questionable Transactions:
Types of items purchased: Down payment on a $10,000 sapphire ring;
Examples of vendors: E-Z Pawn;
Amount: $2,443.
Types of items purchased: Suitcases, garment and flight bags,
briefcases;
Examples of vendors: El Portal, 1-800 Luggage, Patagonia, Franklin
Covey;
Amount: $23,760.
Types of items purchased: Clothes for parachutists, pilots, and others
Examples of vendors: REI, LL Bean, Old Navy, Nordstrom;
Amount: $23,602.
Types of items purchased: 2 reclining rocking chairs with full lumbar
support and vibrator-massage features;
Examples of vendors: LA-Z-Boy Furniture;
Amount: $1,935.
Types of items purchased: Tractor rentals;
Examples of vendors: Crown Ford; Ford Motor;
Amount: $52,500.
Types of items purchased: Dinner party and show for visiting general,
including $800 for alcohol;
Examples of vendors: Treasure Island Hotel and Casino;
Amount: $2,141.
[End of table]
In addition, GAO identified (1) improper transactions related to
weaknesses in controls relied on to prevent splitting purchases into
multiple transactions to circumvent micropurchase and cardholder
transaction limits and (2) the failure to use mandated sources of
supply. Finally, GAO found that cardholders who abused or improperly
used the purchase card were not subject to strong disciplinary action
or consequences.
The Air Force has taken a number of steps to improve control over the
purchase card program. For example, it implemented automated controls
during fiscal year 2002 to help monitor approving official span of
control, credit limits, and cardholder reconciliation and approving
official review of monthly statements. If effectively implemented,
these controls should help strengthen the overall Air Force purchase
card control environment as well as controls over statement
reconciliation and approval.
What GAO Recommends:
GAO makes several recommendations to DOD and the Air Force, including
the following:
* Reduce the number of purchase card accounts.
* Minimize credit limits.
* Reduce approving official span of control consistent with DOD
guidelines.
* Establish specific training courses for cardholders, approving
officials, and agency program coordinators tailored to the specific
responsibilities associated with their roles.
* Hold cardholders and approving officials accountable for misuse of the
purchase card.
DOD and Air Force officials concurred or partially concurred on our
recommendations and indicated that some actions have been already been
initiated.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-292]:
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Gregory Kutz, (202) 512-
9505.
[End of section]
Contents:
Letter:
Results in Brief:
Weaknesses in Overall Control Environment:
Tests of Key Control Activities:
Potentially Fraudulent, Improper, and Abusive or Questionable
Transactions:
Management Improvements:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Overview of the Air Force Purchase Card Process:
Appendix III: Examples of Air Force Purchase Card Fraud Cases:
Appendix IV: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Ratio of Cardholder Accounts to Approving Officials, August
2002:
Table 2: Fiscal Year 2001 Historical Purchases vs. Credit Limits for
Selected Air Force Case Study Locations:
Table 3: Lack of Documented Appointment Letters Delegation of
Purchasing Authority, and Training for Cardholders and Approving
Officials:
Table 4: Installation Program Coordinator Span of Control as of
September 30, 2002:
Table 5: Internal Control Activity Statistical Testing Results:
Table 6: Property Items Not Recorded in Property Records:
Table 7: Potentially Fraudulent Air Force Purchase Card Transactions:
Table 8: Improper Air Force Purchase Card Transactions:
Table 9: Purchases from Other Than Required Sources of Supply:
Table 10: Improper Uses of the Purchase Card and Convenience Checks:
Table 11: Abusive or Questionable Air Force Purchase Card Transactions:
Table 12: Installations Audited and Associated Major Commands:
Table 13: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official
Appointments:
Table 14: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official
Initial Training:
Table 15: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder Delegations of Purchasing
Authority:
Table 16: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Advance Purchase Authorization:
Table 17: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Independent Receipt and Acceptance:
Table 18: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder Reconciliations:
Table 19: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Approving Official Review:
Table 20: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Supporting Invoice or Receipt:
Table 21: Number and Value of Air Force Fiscal Year 2001 Purchase Card
Transactions:
Figures:
Figure 1: Air Force Purchase Card Program Management Structure:
Figure 2: Air Force Purchase Card Process:
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
December 20, 2002:
The Honorable Charles E. Grassley:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable Stephen Horn:
Chairman:
The Honorable Janice D. Schakowsky:
Ranking Minority Member:
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations:
Committee on Government Reform:
House of Representatives:
The Department of Defense (DOD) is promoting departmentwide use of
government purchase cards for obtaining goods and services. DOD
reported that during fiscal year 2001, about 230,000 cardholders used
purchase cards to make about 10.7 million transactions for goods and
services costing over $6.1 billion. Within these amounts, the Air Force
reported that it used about 80,000 cardholder accounts to make about
3 million purchase card transactions for goods and services costing
about $1.4 billion. Purchase card transactions include acquisitions at
or below the $2,500 micropurchase threshold and payments on contracts.
The use of purchase cards has increased dramatically as agencies have
sought to eliminate the lengthy process and paperwork associated with
making small purchases. The benefits of using purchase cards versus
traditional contracting and payment processes are lower transaction
processing costs and less red tape for both the government and the
vendor community. We support the use of a well-controlled purchase card
program to streamline the government‘s acquisition processes. However,
it is important that agencies have adequate internal control procedures
to protect the government from fraud, waste, and abuse.
In July 2001 and March 2002, we testified on significant breakdowns in
internal control over purchase card transactions at two Navy sites in
San Diego, California. [Footnote 1] As a result of our initial audit of
purchase card controls at the two Navy sites and continuing concern
about fraud, waste, and abuse in DOD‘s purchase card program, you
requested that we expand our audits of purchase card controls. Our
audit of Army [Footnote 2] purchase card controls identified a weak
internal control environment; ineffective implementation of key control
activities; and potentially fraudulent, improper, and abusive
purchases. Our broader audit of Navy [Footnote 3] purchase card
controls identified continuing control weaknesses and discussed actions
underway by the Navy to resolve these weaknesses. This report focuses
on Air Force purchase card controls.
The objective of our audit of the Air Force purchase card program was to
assess the effectiveness of internal control over purchase card use and
payment of purchase card transactions during fiscal year 2001.
Specifically, we addressed whether (1) the Air Force‘s overall control
environment and management of the purchase card program were
effective, (2) the Air Force‘s key internal control activities operated
effectively and provided reasonable assurance that purchase cards were
used appropriately, and (3) indications existed of potentially
fraudulent, [Footnote 4] improper, and abusive or questionable
transactions. We also identified management actions taken by DOD and
the Air Force during fiscal year 2002 to improve purchase card
controls.
We identified four major Air Force commands that accounted for about
69 percent of total purchase card charges and 65 percent of total
transactions for fiscal year 2001 and selected one location from each
of the four commands based on the magnitude of purchase card
transactions and payments for case study analysis. For each of the case
study locations, we tested a statistical sample of fiscal year 2001
purchase card transactions and conducted other audit work to evaluate
the design and implementation of key internal control procedures and
activities. The results of our audit of the transactions constituting
the statistical samples can only be projected to the individual
installations where we performed the testing and cannot be used to
project the adequacy of control activities at the command level or the
Air Force as a whole. However, the cumulative results of our work offer
significant perspective on the adequacy of the design and
implementation of purchase card controls across the Air Force.
We also looked for indications of potentially fraudulent, improper, and
abusive or questionable purchases as part of our tests of statistical
samples of transactions and through analysis of non-representative
selections of transactions using data mining. Our data mining focused
on identifying transactions with vendors that were likely to sell
unauthorized or personal use items for both our case study locations
and Air Force-wide. Because of the large number of transactions that
met these criteria, we did not look at all potential abuses of the
purchase card. Our work was not designed to identify, and we cannot
determine, the extent of potentially fraudulent, improper, and abusive
or questionable purchases. See appendix I for details on our scope and
methodology.
We performed our audit work from January through mid-November 2002 in
accordance with U.S. generally accepted government auditing standards,
and we performed our investigative work in accordance with standards
prescribed by the President‘s Council on Integrity and Efficiency. We
received oral comments on a draft of this report from DOD and Air Force
purchase card officials on December 13, 2002. We addressed the comments
in the ’Agency Comments and Our Evaluation“ section.
Results in Brief:
Our audit of Air Force controls over fiscal year 2001 purchase card
activity identified control environment weaknesses and breakdowns in key
controls that leave the Air Force vulnerable to fraud, waste, and abuse.
However, we found that the Air Force was aware of many of these
problems and had, in several cases, initiated actions to resolve them.
Major contributors to the weak control environment included excessive
numbers of purchase cards and approving official span of control, and
credit limits that were 12 to 20 times higher than actual spending. As
of September 2002, the Air Force had about 77,000 purchase cards”about
1 purchase card for every 7 employees compared to the Navy‘s ratio of 1
purchase card for every 31 employees.
We also found that although the Air Force had issued standard, Air
Force-wide purchase card operating procedures, [Footnote 5] employees
responsible for carrying out purchase card program activities
frequently did not follow them. For example, many of the problems we
identified related to failure to follow purchase card guidelines in the
Federal Acquisition Regulation and DOD and Air Force policies and
procedures, including guidelines on micropurchases and mandated sources
of supply. Further, we found that misuse of the purchase card was not
always subject to strong disciplinary action or consequences, even
though Air Force operating procedures require installation purchase
card program coordinators to take appropriate action to document
violations and preclude their reoccurrence.
Of the five key control activities we tested, we found that all four
Air Force locations had significant control breakdowns in at least
three of them”(1) receiving of goods and services by someone other than
the cardholder, (2) cardholder reconciliation, and (3) approving
official review of cardholders‘ monthly reconciled statements. Our
statistical test results at the four case study locations showed that
failure rates for these controls ranged from 21 to 87 percent, with the
highest failure rates”69 to 87 percent”relating to approving official
review of reconciled cardholder statements. The high failure rate for
approving official review is of particular concern because the Air
Force uses a ’pay and confirm“ policy, which is inconsistent with
governmentwide [Footnote 6] and DOD guidelines, [Footnote 7] on
reconciliation and payment of purchase card bills. Both Treasury
guidelines and DOD‘s Purchase Card Reengineering Implementation
Memorandum #3 require that purchase card statements be reconciled and
forwarded for payment in a timely manner and allow pay and confirm only
in instances where purchased items have not been received before
payment is due on the monthly purchase card bills. In contrast, Air
Force purchase card policy permits cardholder statements to be
reconciled and approved after payment has been made. While
conscientious post payment reconciliation and approval processes may
provide adequate control, the lack of documented evidence of post
payment reconciliation and approval and the undetected, potentially
fraudulent transactions identified in our work underscore concerns
about noncompliance with DOD and Treasury guidelines. In July 2002, Air
Force management asked its purchase card contractor, U.S. Bank, to
’shut down“ (suspend from use [Footnote8]) over 4,000 unreconciled
cardholder accounts until the reconciliations were completed and the
approving officials had reviewed and approved them. Accounts that had
not been reconciled as of the end of August 2002 were canceled.
Further, our audit identified potentially fraudulent, improper, and
abusive or questionable purchase card transactions. Some of the
potentially fraudulent transactions we identified appear to be due to
compromised accounts related to nationwide credit card fraud. [Footnote
9] While Air Force cardholders identified some of these potentially
fraudulent transactions and took steps to dispute them with U.S. Bank,
other potentially fraudulent purchases were not disputed, even though
the cardholders, approving officials, or program coordinators were
aware of them. Potentially fraudulent transactions that were not
disputed included a $2,443 down payment at a pawn shop on a $10,000
sapphire ring and several purchases totaling $3,232 at San Diego area
stores, such as Old Navy, Target, K-Mart, and a Ross Store. We also
identified potentially fraudulent transactions for which no supporting
documentation was available to show the quantity and type of items
purchased. Air Force officials could not recall the purpose of these
transactions.
In addition, we identified numerous examples of improper and abusive
purchase card transactions. Improper transactions included purchases of
food, clothing, luggage, briefcases, and personal items, such as
sunglasses. We also identified improper transactions related to
weaknesses in controls relied on to prevent splitting purchases into
multiple transactions to circumvent micropurchase and cardholder
transaction limits and the failure to use mandated sources of supply.
One such purchase we identified involved a fiscal 2001 year-end
purchase of about $100,000 in helmets from an installation supply
store. The purchase was split into four separate transactions to stay
within the cardholder‘s $25,000 transaction limit. We also determined
that although the purchase was made to prevent unused funds from
expiring, all the helmets were not actually needed, and the cardholder
left the items in the store until requirements could be better
identified. On October 1 and 2, 2001, the cardholder obtained credits
for the unneeded items and used the credits to purchase other items. The
subsequent credits and reuse of the funds in early October 2001, in
effect, converted fiscal year 2001 appropriations to fiscal year 2002
budget authority”a violation of appropriation law.
In addition to improper transactions, we found numerous examples of
purchase card transactions that involved waste and abuse. One of the
abusive transactions we identified related to a Nellis Air Force Base
(AFB) dinner party to entertain a visiting Joint Forces General. Air
Force policy permits installation commanders to use representation
funds to conduct entertainment on a modest basis. However, we
determined that the cost of the dinner party, which totaled $2,141”over
$100 per person”was excessive. Further, the total cost of the dinner
included about $800 for alcohol”over $40 per person.
We also found instances of questionable purchases and wasteful spending
related to computer equipment. For example, we found that a Travis AFB
unit purchased computer equipment costing $14,128 at the beginning of
fiscal year 2001, and, shortly thereafter, decided to convert to Dell
computers. As a result, within 1 year of their purchase, these items,
as well as a number of other computers, were sent to the Defense
Reutilization Marketing Service as excess property. We also found that
an Edwards AFB unit purchased several computers at the end of fiscal
year 2001 in anticipation of hiring during the first quarter of fiscal
year 2002. Hiring was delayed and we found that about half the computer
equipment was still stored in boxes 8 months later, raising questions
about whether fiscal year 2001 funds should have been used to purchase
these items. Appropriated funds are available only to meet legitimate
needs of the agency during the fiscal year for which the funds were
appropriated.
The Air Force has taken a number of steps to improve controls over the
purchase card program, particularly with respect to the overall purchase
card program management control environment. For example, the Air
Force worked with its contractor, U.S. Bank, to implement automated
controls during fiscal year 2002 to help monitor approving official
span of control, credit limits, and cardholder reconciliation and
approving official review of monthly purchase card statements. The U.S.
Bank controls permit purchase card accounts to be automatically
suspended when specified control requirements, such as cardholder
reconciliations and approving official span of control, are not
followed. If effectively implemented, these controls should help
strengthen the overall Air Force purchase card control environment as
well as controls over purchase card statement reconciliation and
approval. In addition, in response to our DOD purchase card audits, the
Congress recently enacted the DOD fiscal year 2003 appropriation and
authorization acts, which contain requirements for DOD to develop
guidelines on disciplinary actions for employees who abuse or
fraudulently use the purchase card. The DOD authorization act also
includes a number of provisions for purchase card management
improvements.
This report contains recommendations to the Air Force to further improve
the overall control environment for its purchase card program; to
strengthen key internal control activities; and to increase attention to
preventing potentially fraudulent, improper, and abusive and
questionable transactions. We also recommend that the DOD task force
assess the DOD-wide applicability of both the recommendations addressed
to the Air Force and the strengths in the Air Force purchase card
program that we identified, such as the use of automated controls. In
oral comments on a draft of this report, DOD‘s Purchase Card Joint
Program Management Office and Air Force purchase card officials
concurred on 29 of our 39 recommendations and partially concurred with
9 recommendations. At the time we finalized our work, DOD had not
provided a response to our remaining recommendation that the Charge
Card Task Force assess the recommendations in this report and
incorporate them to the extent applicable into its future
recommendations to improve purchase card policies and procedures
throughout DOD.
For the nine recommendations involving partial concurrences, the issues
raised by DOD and Air Force officials generally related to details such
as the terminology or responsible party included in our recommendations.
However, in each case, the officials suggested actions that, if
effectively implemented, would address the intent of our
recommendations. A detailed discussion of the DOD and Air Force
comments is presented in the ’Agency Comments and our Evaluation“
section of this report.
Background:
The Air Force purchase card program is part of the governmentwide
Commercial Purchase Card Program established to streamline federal
agency acquisition processes by providing a low-cost, efficient vehicle
for obtaining goods and services directly from vendors. DOD has mandated
the use of the purchase card for all purchases at or below $2,500 and
has authorized the use of the card to pay for specified larger
purchases. Purchases over the $2,500 micropurchase threshold must be in
accordance with simplified acquisition guidelines in the Federal
Acquisition Regulation. The purchase card should normally not be used
for cash advances; travel-related purchases; rentals or leases of land
or buildings; utility services; or hazardous/dangerous items, such as
explosives, munitions, toxins, and firearms.
The Air Force purchase card program operates under a task order
associated with the General Services Administration‘s governmentwide
purchase card contract, as do the purchase card programs of all federal
agencies. Government acquisition laws and regulations, such as Federal
Acquisition Regulation, Part 13, ’Simplified Acquisition Procedures,“
establish the criteria for using purchase cards to place orders and make
payments. The Air Force issued Instruction 64-117, Governmentwide
Purchase Card Program, dated December 6, 2000, to establish
responsibilities and procedures and provide administrative guidance for
its government purchase card operations. The Air Force Instruction
contains standardized Air Force guidance that has been implemented Air
Forcewide.
The Assistant Secretary of the Army for Acquisition, Logistics, and
Technology in coordination with the Under Secretary of Defense
(Comptroller), has overall responsibility for DOD‘s purchase card
program. The DOD Purchase Card Joint Program Management Office, in the
office of the Assistant Secretary of the Army for Acquisition,
Logistics, and Technology [Footnote 10] is responsible for overseeing
DOD‘s program. The Air Force agency program coordinator, within the
headquarters acquisition office has oversight over the Air Force
purchase card program. However, the primary management responsibility
for the purchase card program lies with the Assistant Secretary of the
Air Force for Acquisition, the Deputy Assistant Secretary for
Contracting, and the contracting offices in the major Air Force
commands and local installations. Figure 1 shows the Air Force purchase
card program management hierarchy as it was during our audit. For the
major commands, the figure shows the number of installation program
coordinators within the command. For the four installations we audited,
the figure shows the number of approving officials and cardholders at
each installation.
Figure 1: Air Force Purchase Card Program Management Structure:
[See PDF for image]
This figure is an illustration of the Air Force Purchase Card Program
Management Structure, as follows:
* Assistant Secretary of the Air Force for Acquisition, Logistics, and
Technology:
* DOD Purchase Card Program Management Office:
Both of the above connect to:
* Air Force Agency Program Coordinator:
The coordinator is connected to the following:
* Air Combat Command; Command Program Coordinator:
- Edwards AFB, CA;
- Approving officials - 122;
- Cardholders - 405.
* Air Mobility Command; Command Program Coordinator:
- Travis AFB, CA;
- Approving officials - 131;
- Cardholders - 486.
* Air Force Materiel Command; Command Program Coordinator:
- Nellis AFB, NV;
- Approving officials - 99;
- Cardholders - 542.
Air Force Education and Training Command; Command Program Coordinator:
- Lackland AFB, TX;
- Approving officials - 113;
- Cardholders - 569.
Source: GAO analysis of Air Force purchase card program organization.
[End of figure]
At each Air Force installation, a certifying officer in the installation
Financial Services Office is responsible for certifying the monthly
purchase card statements for payment. This is done within a few days of
receipt of the monthly statement. Accuracy of the monthly statements is
confirmed after payment has been made. Personnel in three
positions”program coordinator, approving official, [Footnote 11] and
cardholder”are collectively responsible for providing reasonable
assurance that purchase card transactions are appropriate and meet a
valid government need. The installation program coordinator, typically
a full-time position under the director of the contracting squadron, is
responsible for the day-to-day management, administration, and
oversight of the program. Installation program coordinators issue and
cancel purchase cards, train cardholders and approving officials, and
coordinate with other Air Force units and U.S. Bank”the Air Force‘s
purchase card-issuing bank. Approving officials, who are typically
responsible for more than one cardholder, are to review cardholders‘
transactions and the cardholders‘ monthly, reconciled purchase card
statements and approve the statements as already paid or ensure that
any invalid transactions are disputed and credited, either by the
merchant or the bank. In accordance with Air Force Instruction 64-117,
cardholders are required to reconcile their monthly purchase card
statements and approving officials are required to review and approve
the reconciled statements within 15 days after receipt of the
statements at the installation but not later than the 15th day of the
month following the statement date. Approving officials receive a
monthly, consolidated statement that covers their cardholders‘ monthly
purchase card statements. Appendix II provides additional details on
the Air Force purchase card program.
Weaknesses in Overall Control Environment:
[Management and employees should establish and maintain an environment
throughout the organization that sets a positive and supportive
attitude toward internal control and conscientious management. A
positive control environment is the foundation for all other standards.
It provides discipline and structure as well as the climate which
influences the quality of internal control. GAO‘s Standards for
Internal Control in the Federal Government (GAO/AIMD-00-21.3.1,
November 1999)]
We found overall control environment weaknesses at the four case study
locations we audited as well as indications of similar weaknesses in
our Air Force-wide analysis that contributed to breakdowns in key
control activities and potentially fraudulent, improper, and abusive
purchase card transactions. For example, we encountered numerous
instances where supporting documentation was not available because
installations destroyed purchase card records on a rolling 1-year basis
due to faulty records retention guidance in the Air Force purchase card
Instruction that did not comply with federal guidelines. We also found
weaknesses in the areas of (1) the number of cardholders and accounts,
(2) approving official span of control, (3) credit limits compared to
historical spending, (4) documentation of cardholder and approving
official training, (5) implementation of audit and internal review
recommendations, and (6) accountability and disciplinary action.
Further, given the magnitude of the purchase card program at the
installations we audited, we found the human capital infrastructure for
program monitoring and oversight to be inadequate. As discussed in a
later section of this report, these control environment weaknesses have
contributed to fraudulent, improper, and abusive purchase card
activity.
We also found some positive aspects of the Air Force purchase card
program, such as Air Force-wide purchase card operating procedures and
aggressive Air Force Audit Agency reviews of installation purchase card
programs since 1996. The importance of the role of management in
establishing a positive internal control environment cannot be
overstated. GAO‘s Standards for Internal Control in the Federal
Government, [Footnote 12] discusses management‘s key role in
demonstrating and maintaining an organization‘s integrity and ethical
values, especially in setting and maintaining the organization‘s
ethical tone, providing guidance for proper behavior, and removing
temptations for unethical behavior.
Failure to Comply with Federal Records Retention Requirements:
During our audit of Air Force fiscal year 2001 purchase card activity,
we encountered numerous instances where supporting documentation was
not available because installations destroyed purchase card records on a
rolling 1-year basis due to faulty records retention guidance in the Air
Force purchase card Instruction. Federal records retention requirements
in the Federal Acquisition Regulation, [Footnote 13] the General
Records Schedule [Footnote 14] established by the National Archives and
Records Administration (NARA), and DOD‘s Financial Management
Regulation [Footnote 15] require records supporting program and
contracting activity to be retained for 3 years and records supporting
financial transactions to be retained for 6 years and 3 months.
However, the records retention guidance in Air Force Instruction 64-117
called for documentation received and generated by the cardholder, such
as vendor invoices, sales receipts, and shipping reports, and
cardholder logs to be maintained for only 1 year after the final
payment. In addition, 36 C.F.R. 1228.30, which covers disposition of
federal records, requires agencies to establish a schedule for
disposing of their records and obtain approval of their records
disposition schedules from the NARA. We saw no evidence that the Air
Force developed a records disposition schedule related for purchase
card records.
While missing records affected all aspects of purchase card controls,
the greatest impact was on cardholder and approving official
appointments and training and cardholder delegations of purchasing
authority. Further, we found that cardholders at Wilford Hall Medical
Center, located at Lackland Air Force Base (AFB), did not adhere to the
Air Force requirement to retain purchase card transaction records for
even the 1-year period. As discussed in the next section of this report
on tests of key controls, 52 of the 152 transactions in our Lackland
AFB sample were for Wilford Hall purchase card activity, and required
supporting documentation was not available for 23 of these 52
transactions.
The Air Force Instruction also called for documentation generated by the
installation program coordinator and approving officials, such as
records of training, delegations of authority, and surveillances, to be
retained only as long as the cardholder and approving official are
performing that function. Air Force headquarters officials told us that
the Air Force Instruction, which is currently being revised, would
include corrections to the records retention guidelines.
Proliferation of Cardholders and Accounts Result in Unreasonable Span of
Control:
While the number of Air Force purchase cardholders peaked at about
80,000 cardholder accounts in September 2001, the overall number of
cardholders from October 2000 through September 2002 has remained
about the same. As of September 2002, the Air Force reported that it had
about 77,000 purchase card accounts”translating to about 1 purchase card
for every 7 employees. In contrast, the Navy had reduced the number of
its purchase cardholders from about 52,000 to about 23,000 and only
about 1 of every 31 employees was a purchase cardholder.
We determined that the Air Force did not have specific policies
governing the number of cards to be issued or criteria for identifying
employees eligible for the privilege of cardholder status. Purchase
cards were given out on the basis of a request from an individual
employee‘s unit commander. The request was then forwarded to the
installation‘s purchase card Agency program coordinator, who approved
the request and began the process for obtaining a new card from U.S.
Bank.
In addition to an excessive number of cardholders, we found that some
Air Force cardholders had as many as 10 government purchase cards. The
Air Force permits cardholders to have numerous purchase card accounts to
facilitate accounting for purchase card expenditures related to
different funding sources”appropriated and nonappropriated funds”as
well as different accounting lines within the same fund source.
Assigning multiple purchase cards is not an appropriate method of
accounting for purchase card transactions. Further, this practice
places substantial credit risk in the hands of one individual.
Some Approving Officials‘ Span of Control over Purchase Card Accounts
Exceeds DOD Guidelines:
In response to concerns about approving official span of control raised
during our initial Navy purchase card work, the Director of DOD‘s
Purchase Card Joint Program Management Office issued a memorandum
on July 5, 2001, that called for no more than five to seven cardholders
per approving official. [Footnote 16] During fiscal year 2002, the Air
Force established goals for reducing the number of cardholder accounts
assigned to approving officials. Our analysis of span of control ratios
at the four installations we audited disclosed that when looking at
average ratios, the Air Force has adhered to the DOD span of control
guidelines. However, as shown in table 1, these averages have masked
the wide range of ratios across each Air Force installation”some of
which exceeded the DOD guidelines. As of August 2002, we found that the
four installations we audited had from 22 to 32 approving officials
that were responsible for more than 7 cardholder accounts, including
four approving officials at two installations”Travis AFB and Edwards
AFB”that were responsible for more than 20 cardholder accounts.
Table 1: Ratio of Cardholder Accounts to Approving Officials, August
2002:
Air Force location: Edwards;
Average ratio of cardholder accounts to approving officials: 4.3 to 1;
Number of approving officials: 122;
Number of cardholder open accounts[A]: 530;
Percentage and number of approving officials with over seven cardholder
monthly account statements to review: 18% (22);
Highest ratio of cardholder accounts to approving officials: 29.
Air Force location: Lackland;
Average ratio of cardholder accounts to approving officials: 5.9 to 1;
Number of approving officials: 113;
Number of cardholder open accounts[A]: 662;
Percentage and number of approving officials with over seven cardholder
monthly account statements to review: 27% (30);
Highest ratio of cardholder accounts to approving officials: 20.
Air Force location: Nellis;
Average ratio of cardholder accounts to approving officials: 6.4 to 1;
Number of approving officials: 99;
Number of cardholder open accounts[A]: 638;
Percentage and number of approving officials with over seven cardholder
monthly account statements to review: 32% (32);
Highest ratio of cardholder accounts to approving officials: 19.
Air Force location: Travis;
Average ratio of cardholder accounts to approving officials: 5.4 to 1;
Number of approving officials: 131;
Number of cardholder open accounts[A]: 702;
Percentage and number of approving officials with over seven cardholder
monthly account statements to review: 20% (26);
Highest ratio of cardholder accounts to approving officials: 31.
Source: GAO analysis of U.S. Bank data provided by the Air Force.
[A] Includes multiple accounts for individual cardholders.
[End of table]
As shown in table 1, the percentage of approving officials whose span of
control exceeded DOD guidelines ranged from 18 percent to 32 percent at
the four Air Force locations we audited.
Credit Limits Exceed Procurement Needs:
Our analysis of purchase card spending compared with credit limits
showed that monthly credit limits for the four case study locations far
exceeded their actual monthly spending. Limiting credit available to
cardholders is a key factor in managing the purchase card program and in
minimizing the government‘s financial exposure. On August 13, 2001,
DOD‘s Director of Defense Procurement sent a memorandum to the
directors of all defense agencies stating that supervisors should set
reasonable limits based on what each person needs to buy as part of his
or her job and that every cardholder does not need to have the maximum
transaction or monthly credit limit.
Air Force officials told us that their credit limits appear excessive
because these limits include credit limits of primary and alternate, or
backup, approving officials and cardholders. The officials explained
that they assign primary and alternate approving officials and
cardholders to local units to ensure that purchases can continue when
primary approving officials or cardholders are on leave, assigned to
temporary duty locations, or deployed. The officials also told us that
alternate approving officials and cardholders are given the same credit
limits as the primary approving officials and cardholders. The Director
of DOD‘s Purchase Card Joint Program Management Office told us that DOD
guidelines suggest that credit limits for inactive accounts, including
alternate accounts, should be reduced to $1. However, Air Force
officials told us that they do not deactivate alternate accounts or
reduce credit limits during periods when alternate purchasing authority
is not needed due to frequent schedule changes and the administrative
burden associated with turning accounts on and off. As shown in table
2, total financial exposure as measured in terms of purchase card
credit limits substantially exceeded historical purchase card spending.
Table 2: Fiscal Year 2001 Historical Purchases vs. Credit Limits for
Selected Air Force Case Study Locations (Dollars in millions):
Historical measures: Total fiscal year 2001 purchases;
Edwards: $23.8;
Lackland: $36.2;
Nellis: $27.7;
Travis: $24.7.
Historical measures: Average monthly purchases;
Edwards: $2.0;
Lackland: $3.0;
Nellis: $2.3;
Travis: $2.7.
Historical measures: Average monthly credit limit[A];
Edwards: $24.1;
Lackland: $36.7;
Nellis: $42.3;
Travis: $55.4[B].
Historical measures: Ratio of credit limit to average fiscal year 2001
monthly purchases;
Edwards: 12 to 1;
Lackland: 12.2 to 1;
Nellis: 18.4 to 1;
Travis: 20.5 to 1.
Source: GAO analysis of U.S. Bank data provided by the Air Force.
[A] We used approving officials‘ credit limits to calculate average
monthly credit limits.
[B] Travis AFB did not retain monthly reports for fiscal year 2001;
therefore, we used the Travis AFB October 2001 monthly report as an
indication of the average credit limit.
Air Force officials told us that to better control cardholder spending
limits, they worked with U.S. Bank to develop an automated control that
will tie quarterly authorizations of budget authority to cardholder
credit limits. According to Air Force officials, this control was
implemented during fiscal year 2002.
Lack of Documentation of Cardholder and Approving Official Training and
Authority:
[Effective management of an organization‘s workforce”its human
capital”is essential to achieving results and an important part of
internal control. Training should be aimed at developing employee skill
levels to meet changing organizational needs. GAO‘s Standards for
Internal Control in the Federal Government (GAO/AIMD-00-21.3.1,
November 1999)].
Documentation of cardholder and approving official training and
authority varied widely across the four locations we audited. For
example, we found that two of our four case study locations had
maintained documentation on cardholder and approving official
appointments, cardholder delegations of purchasing authority, and
cardholder and approving official training. However, at Edwards AFB and
Travis AFB, our test results indicated that 12 percent [Footnote 17]
and 51 percent, [Footnote 18] respectively, of their fiscal year 2001
purchase card transactions were made by cardholders and/or approving
officials who had no documentation showing they had received initial
training. Further, none of the four case study locations we audited had
adequate documentation to show that both cardholder and approving
official training was current for the transactions in our sample.
Air Force Instruction 64-117 requires commanders or chiefs to prepare a
Letter of Appointment designating the proposed cardholder and approving
official and identifying their name, rank, duty title, telephone
number, and e-mail address; the types of purchases to be made; and
funds to be used to pay for the purchase card purchases. The
installation program coordinator is to coordinate single and monthly
purchase limits with the designated billing official and forward
documentation to the bank to set up the purchase card account. While
the Instruction provides for denial of appointments, it does not
provide criteria or qualifications for who may be a cardholder or
approving official.
The Instruction also requires that prior to establishing a purchase card
account and issuing a purchase card, all prospective cardholders and
approving officials must receive training on requirements in the Federal
Acquisition Regulation and Air Force purchase card and acquisition
policies and procedures. Once initial training is received, the
Instruction requires all cardholders to receive supplemental training
in the form of annual refresher training and it implies that approving
officials should have refresher training. [Footnote 19] The Air Force
Instruction requires installation program coordinators to maintain
documentation of approving official and cardholder purchase card
appointments and training and cardholder delegations of purchasing
authority as long as these individuals are serving in those capacities.
Contracting officials at Travis AFB explained that in accordance with
Air Force Instruction 64-117, they did not retain records of
appointments, training, and delegations of authority for approving
officials and purchase cardholders who were no longer performing those
duties or were no longer at Travis AFB. We also found that Travis AFB
did not maintain central files to document cardholder and approving
official appointments and cardholder delegations of purchasing
authority, and documentation of training was incomplete or could not be
located by individual units at that installation. In addition, Edwards
AFB contracting officials told us that they did not retain cardholder
and approving official appointment letters. Table 3 shows the results
of our statistical tests for documentation of appointments, delegations
of purchasing authority, and training for cardholders and approving
officials associated with the transactions in our sample.
Table 3: Lack of Documented Appointment Letters, Delegation of
Purchasing Authority, and Training for Cardholders and Approving
Officials:
Key control: Cardholder and approving official appointment letters;
Percentage of breakdowns in key purchase card controls[A], Edwards: 82;
Percentage of breakdowns in key purchase card controls[A], Lackland: 0;
Percentage of breakdowns in key purchase card controls[A], Nellis: 0;
Percentage of breakdowns in key purchase card controls[A], Travis: 97.
Key control: Initial training;
Percentage of breakdowns in key purchase card controls[A], Edwards: 12;
Percentage of breakdowns in key purchase card controls[A], Lackland: 0;
Percentage of breakdowns in key purchase card controls[A], Nellis: 0;
Percentage of breakdowns in key purchase card controls[A], Travis: 51.
Key control: Cardholder delegations of purchasing authority;
Percentage of breakdowns in key purchase card controls[A], Edwards: 13;
Percentage of breakdowns in key purchase card controls[A], Lackland: 0;
Percentage of breakdowns in key purchase card controls[A], Nellis: 1;
Percentage of breakdowns in key purchase card controls[A], Travis: 84.
[A] The projections represent point estimates for the populations based
on our statistical samples rounded to the nearest percentage point. The
intervals are two-sided 95-percent confidence intervals.
Source: GAO testing and statistical analysis of Air Force purchase card
transaction files.
[End of table]
Although Edwards AFB and Travis AFB officials asserted that their
cardholders and approving officials had received required purchase card
training, we found numerous improper purchase card transactions related
to failure to follow federal guidelines on micropurchases and mandated
sources of supply that indicate that cardholders and approving officials
either had not been trained, training was inadequate, or cardholders
were not following guidelines addressed in the training classes. For
example, we found that cardholders at Edwards AFB were unaware that
they are required to obtain competitive price quotes from three
different vendors when their purchases exceed the $2,500 micropurchase
threshold. We also found that Travis AFB cardholders frequently were
not following these guidelines. Further, we found that the Edwards AFB
installation program coordinator routinely waived micropurchase and
cardholder transaction limits to permit cardholders to purchase goods
and services at higher amounts. We also found that Edwards AFB
cardholders frequently did not follow federal guidelines on mandated
sources of supply and Travis AFB cardholders did not notify property
book officers when they used the purchase card to buy computer
equipment and other pilferable property.
In addition, we were unable to determine whether cardholder and
approving official training was current due to missing documentation and
the use of E-mail notices, bulletins, and newsletters used to update
purchase card training at three case study locations. Travis AFB lacked
documented evidence that most of its cardholders and approving officials
had received annual refresher training and the other three case study
locations could not document informal training that was provided outside
of classrooms. During fiscal year 2002, due to concerns about whether
approving officials and cardholders had received adequate refresher
training, Edwards AFB and Nellis AFB began using classroom training and
sign-in sheets to document annual purchase card refresher training for
both approving officials and cardholders.
Significant Audit Activity, but Corrective Actions Not Always Taken:
[Monitoring of internal control should include policies and procedures
for ensuring that the findings of audits and other reviews are promptly
resolved. GAO‘s Standards for Internal Control in the Federal
Government (GAO/AIMD-00-21.3.1 November 1999)].
We found that the four case study locations conducted annual purchase
card internal reviews, called surveillances, and the Air Force Audit
Agency performed aggressive reviews; [Footnote 20] however, we also
identified significant repeat findings indicating a lack of commitment
to adhere to purchase card regulations and DOD and Air Force policies
and procedures. In addition, at one of the four case study locations we
audited”Edwards AFB”internal reviewers did not disclose all identified
problems in the reports on surveillance results. The Air Force Audit
Agency reported [Footnote 21] similar findings in its reviews of fiscal
year 2000 installation-level purchase card activity. The Air Force
auditors concluded that without enforcement of purchase card
requirements, such as administratively disciplining the offenders or
revoking purchase card privileges, purchase card discrepancies will
likely continue. The Air Force Audit Agency reported that inaction by
contracting officials reduced the effectiveness of other purchase
controls, increased transaction errors, and undermined the Air Force
purchase card goals.
As stated in GAO‘s Standards for Internal Control in the Federal
Government, monitoring of internal control should include policies and
procedures for ensuring that the findings of audits and other reviews
are promptly resolved. Managers are to (1) promptly evaluate findings
from audits and other reviews, including those showing deficiencies, and
recommendations reported by auditors and others who evaluate agency
operations, (2) determine proper actions in response to findings and
recommendations from audits and reviews, and (3) complete, within
established time frames, all actions that correct or otherwise resolve
the matters brought to management‘s attention.
Internal Surveillances:
The Air Force purchase card Instruction, which was issued in December
2000, requires the installation purchase card program coordinator to
perform a surveillance (internal review) of each approving official‘s
billing account [Footnote 22] and 25 percent of the cardholders‘
accounts at least every 12 months. The Air Force Instruction includes
an optional surveillance checklist that covers key purchase card
requirements, including most of the control activities covered in our
audit. Our review of the surveillances associated with the approving
officials and cardholders responsible for the transactions in our case
study samples showed that many of the problems identified by
installation internal reviewers were consistent with the problems we
found in our audit. For example, these surveillance results identified
failure to adhere to Air Force guidance on $2,500 micropurchase limits,
purchases from required sources, failure of billing officials to review
their cardholders‘ accounts, prohibited purchases, and failure to
maintain purchase logs.
Further, we determined that Edwards AFB intentionally did not address
problems related to noncompliance with micropurchase requirements and
mandated sources of supply nor did it recommend corrective actions in
its reports on surveillance results. For example, 40 of the 44 Edwards
AFB surveillance reports that we reviewed stated ’no discrepancies were
noted,“ even though documentation supporting this conclusion for 11
surveillance reports indicated that problems, such as splitting
purchases to avoid obtaining competitive prices when purchases exceeded
the $2,500 micropurchase threshold and failure to use mandated vendors,
were identified. Further, while use of the surveillance checklist is
optional, we found that several of the checklists provided as
documented support for the surveillances that we reviewed were blank.
As a result, we were unable to determine whether a review had been
performed, but was not documented, or if no review had been performed
as a basis for the conclusions in the associated surveillance letters.
When we discussed our concerns with the Director of Contracting at
Edwards AFB, the Director told us that internal reviewers do not
address splitting purchases to avoid micropurchase requirements and
failure to use mandated sources of supply in their surveillance reports
because they consider these requirements to be ’procedural matters.“
However, the guidelines on micropurchases and mandated sources of
supply are prescribed in law and the Federal Acquisition Regulation and
are not merely procedural. It is important that surveillance reports
identify noncompliance with requirements in law and regulations, which
are designed to prevent improper purchases. Air Force headquarters
officials agreed with our position.
In addition, we found that installation program coordinators at two of
our four case study locations had issued their surveillance reports to
approving officials rather than unit commanders. In contrast, Nellis
AFB surveillance letters were addressed to unit commanders and were
signed by the Contracting Director. Further, the Nellis AFB Contracting
Director wrote personal notes on the face of the surveillance letters
commending unit commanders for good surveillance results and noting
areas that must be improved when the surveillances had identified
failure to follow purchase card guidelines. This positive ’tone at the
top“ served to hold unit commanders accountable for effective
implementation of their purchase card programs.
Air Force Audit Agency Audits:
In its August 2002 report on the results of its audit of fiscal year
2000 purchase card transactions at 46 Air Force installations, Air
Force Audit Agency auditors concluded that overall, Air Force guidance
established adequate purchase card controls and oversight procedures.
At the same time, Air Force auditors found that installation purchase
card program coordinators and approving officials did not adhere to
this guidance in executing their surveillance responsibilities. For
example, consistent with our audit, Air Force auditors found continuing
problems with (1) advance approval for purchases of computer equipment,
(2) splitting purchases into multiple transactions to circumvent
micropurchase and cardholder single transaction limits, (3)
accountability for pilferable property items purchased with a purchase
card, and (4) purchase card statement reconciliations and approving
official review. Further, according to Air Force auditors, of the
nearly $150 million in transactions evaluated, cardholders acquired
supplies and services totaling approximately $25.4 million using
purchase methods specifically disallowed under established policy and
guidance.
Specifically, Air Force auditors reported the following findings
related to their audits of purchase card activity during fiscal year
2000 at Edwards, Lackland, and Travis Air Force bases and purchase
activity during fiscal year 2001 at Nellis AFB.
* At Edwards AFB, Air Force auditors had repeat findings [Footnote 23]
of split purchases and lack of required advance purchase authorizations
for purchases of computer equipment. The auditors also found that
cardholders were not familiar with micropurchase requirements.
* At Lackland AFB, Air Force auditors reported [Footnote 24] that the
issues of improper reconciliation procedures to validate purchases and
charges and ineffective surveillance of cardholders and billing
officials were repeat conditions reported in a prior audit report.
* Air Force auditors reported [Footnote 25] a repeat finding that
Travis AFB did not always maintain property accountability for items
costing over $500. In addition, the auditors reported that cardholders
did not always obtain required advance authorizations for purchases of
computer and communication equipment.
* Air Force Audit Agency auditors reported [Footnote 26] that the 99th
Wing at Nellis AFB effectively controlled purchase card purchases,
noting that purchases were properly approved, recorded in cardholder
logs, and that approving officials reviewed cardholder records monthly.
However, the auditors found that some units improperly purchased
bottled water and that opportunity existed for unit commanders to
ensure greater visibility over unit purchases by reviewing automated
records in U.S. Bank‘s database.
Weaknesses in Accountability and Lack of Disciplinary Actions:
[Management plays a key role in demonstrating and maintaining an
organization‘s integrity and ethical values, especially in setting and
maintaining the organization‘s ethical tone, providing guidance for
proper behavior, removing temptations for unethical behavior, and
providing discipline when appropriate. GAO‘s Standards for Internal
Control in the Federal Government (GAO/AIMD-00-21.3.1 November 1999)].
During our work, we noted that misuse of the purchase card was not
always subject to strong disciplinary action or consequences, even
though Air Force Instruction 64-117 requires installation purchase card
program coordinators to take appropriate action to document violations
and preclude their reoccurrence. The Instruction also requires approving
officials to document cardholder violations and forward the information
to the program coordinator. The Instruction states that action(s) taken
should be commensurate with the violation(s) and gives examples of
actions, such as suspending the cardholder or approving official
account, requiring remedial training, requiring restitution for any
unauthorized purchases, and permanently revoking purchase card
privileges. Holding individuals responsible for proper program
execution is an integral part of a strong control environment.
Our review of the results of annual purchase card surveillances
performed all four case study locations determined that the
surveillances found violations of Federal Acquisition Regulation
guidelines on micropurchases and requirements to use mandated sources
of supply. Recommended disciplinary actions for violations of these
federal regulations were limited to requiring the offending approving
officials and cardholders to take remedial training. For repeat
offenders, the surveillance reports generally recommended that the
cardholder‘s and/or approving official‘s purchase card account(s) be
suspended until remedial training was completed. In only a few cases,
had surveillance reports recommended canceling the accounts and
revoking cardholder privileges, even for repeat offenders. As
previously discussed, Edwards AFB surveillances did not include
findings on these issues and, therefore, Edwards AFB did not take
disciplinary action for failure to follow federal guidelines on
micropurchases and using mandated sources of supply.
Further, although three Edwards AFB surveillance reports identified
improper use of the purchase card to buy food for employees, pay for
party supplies, and purchase invitations for a change of command
ceremony, the reports did not recommend disciplinary action, and we saw
no evidence that the cardholder or the benefiting individuals were
required to pay for the unauthorized purchases. According to the
Edwards AFB Contracting Director, cardholders have been counseled and
in some cases referrals were made to unit commanders to take
appropriate disciplinary action for improper use of the purchase card.
However, Edwards AFB officials provided no documentation that any
disciplinary actions were taken.
The Air Force Audit Agency reported that inaction by contracting
officials reduced the effectiveness of other purchase controls,
increased transaction errors, and undermined the Air Force purchase
card goals. Air Force auditors concluded that without enforcement of
purchase card requirements, such as administratively disciplining the
offenders or revoking purchase card privileges, purchase card
discrepancies will likely continue. We agree with the Air Force Audit
Agency‘s conclusions.
In response to our DOD purchase card audits, the Congress has recently
addressed the question of discipline for those who misuse the government
purchase card. Section 8149(c) of the Department of Defense
Appropriations Act, 2003 (fiscal year 2003 appropriations act),
[Footnote 27] and section 1007(a) of the Bob Stump National Defense
Authorization Act for Fiscal Year 2003 (fiscal year 2003 authorization
act) [Footnote 28] provide that the Secretary of Defense establish
guidelines and procedures for disciplinary actions to be taken against
department personnel for improper, fraudulent, or abusive use of
government purchase cards.
Inadequate Infrastructure for Program Monitoring and Oversight:
[Management should ensure that skill needs are continually assessed and
that the organization is able to obtain a workforce that has the
required skills that match those necessary to achieve organizational
goals—.As a part of its human capital planning, management should also
consider how best to retain valuable employees, plan for their eventual
succession, and ensure continuity of needed skills and abilities. GAO‘s
Standards for Internal Control in the Federal Government (GAO/AIMD-00-
21.3.1, November 1999)].
Ineffective oversight of the purchase card program also contributed to
weaknesses in the overall environment. Installation program coordinators
are established as the pivotal officials in managing and overseeing the
purchase card program. The coordinators at the installations we audited
had little training on what they should be doing to oversee the program
and limited time to carry out oversight activities that are called for
in Air Force Instruction 64-117, such as reviewing U.S. Bank exception
reports and following up on suspicious transaction activity as well as
conducting annual surveillances. Effective oversight activities also
would include other management reviews and evaluations to assess risks
associated with the number of credit card accounts, credit limits, and
approving official span of control and to assess the effectiveness of
controls, identify systemic weaknesses, and determine the extent of
potentially fraudulent, improper, and abusive or questionable
purchases.
We also found that the program coordinators did not have the grade
level or organizational authority”’clout“”to routinely deal with unit
commanders, approving officials, and resource managers across the
installation, who may significantly outrank them, to enforce purchase
card guidelines and controls. Program coordinators have the primary
responsibility for purchase card program management and significant
control over procurement activities carried out by a large number of
individuals. For example, during fiscal year 2001, the Nellis AFB
program coordinator who was a GS-9, similar in grade to a master
sergeant, had responsibility for over 55,000 purchase card transactions
totaling over $27 million involving 638 cardholder accounts and 99
approving officials.
Installation contracting officials told us that program coordinator
staffing had not kept pace with the growth in the purchase card
program. GSA data show that Air Force purchase card activity has grown
from 2.8 million transactions totaling $1.3 billion at the beginning of
fiscal year 2000 to 3.2 million transactions totaling about $1.4
billion at the end of fiscal year 2001. During fiscal year 2002,
Lackland AFB increased the number of staff assigned to the program
coordinator‘s office from three staff assigned in fiscal year 2001 to a
total of six staff to provide better oversight of Wilford Hall‘s
purchase card program as well as to monitor purchase card use by units
transferred to Lackland AFB when Kelly AFB closed. The other three
installations we audited had not increased their program coordinator
staffing. As of September 2002, Edwards AFB had three staff assigned,
Nellis AFB had two staff, and Travis AFB had one and a half staff to
oversee their purchase card programs. Further, at Travis AFB, where
military employees have held the program coordinator position, there
have been four different individuals assigned to the program
coordinator position since October 2000 due to high turnover associated
with military positions. As a result, Travis AFB program coordinators
spend much of their time learning versus overseeing the purchase card
process. Table 4 shows the grade level, staffing, and span of control
data for installation purchase card program coordinators at our four
case study locations as of August 2002.
Table 4: Installation Program Coordinator Span of Control as of
September 30, 2002:
Air Force installation: Edwards AFB;
Grade level of installation program coordinator: GS-12;
Staff in program coordinator‘s office: 3;
Number of approving officials[A]: 122;
Number of cardholder accounts[A]: 530;
Number of transactions: 39,600;
Value of transactions (in millions): $21.7.
Air Force installation: Lackland AFB'
Grade level of installation program coordinator: GS-11;
Staff in program coordinator‘s office: 6;
Number of approving officials[A]: 113;
Number of cardholder accounts[A]: 662;
Number of transactions: 93,446;
Value of transactions (in millions): $43.9.
Air Force installation: Nellis AFB;
Grade level of installation program coordinator: GS-9;
Staff in program coordinator‘s office: 2;
Number of approving officials[A]: 99;
Number of cardholder accounts[A]: 638;
Number of transactions: 52,591;
Value of transactions (in millions): $30.6.
Air Force installation: Travis AFB;
Grade level of installation program coordinator: 1st lieutenant;
Staff in program coordinator‘s office: 1.5;
Number of approving officials[A]: 131;
Number of cardholder accounts[A]: 703;
Number of transactions: 56,682;
Value of transactions (in millions): $30.3.
Source: GAO analysis of U.S. Bank data.
[A] Data presented are as of the end of August 2002.
[End of table]
In September 2002, the Travis AFB Contracting Director told us that he
had requested approval to hire a full-time GS-9 staff member to assist
the program coordinator. In early November, the Deputy Contracting
Director told us that they had received approval hire a GS-11 civilian
employee as the installation purchase card program coordinator as well
as the GS-9 assistant, beginning in January 2003.
Given the risks associated with ineffective purchase card program
management identified in our purchase card work, it is imperative that
agencies have sufficient numbers of qualified, experienced purchase card
program coordinator staff to help oversee their purchase card programs
and that their grade levels be commensurate with their
responsibilities.
Tests of Key Control Activities:
[Internal control activities help ensure that management‘s directives
are carried out. The control activities should be effective and
efficient in accomplishing the agency‘s control objectives. GAO‘s
Standards for Internal Control in the Federal Government (GAO/AIMD-
00-21.3.1, November 1999)].
Our tests of statistical samples of transactions at four Air Force
installations found weaknesses in key purchase card control activities.
For example, of the five key control activities we tested, we found
that all four Air Force locations had significant control breakdowns in
at least three of them. However, on a positive note, our tests of
easily pilferable property items included in our statistical sample
transactions showed that two of the four Air Force installations we
audited were able to account for all the property items that we
selected for testing.
Control activities occur at all levels and functions of an agency. They
include a wide range of diverse activities such as approvals,
authorizations, verifications, reconciliations, performance reviews,
and the production of records and documentation. For the Air Force
purchase card program, we tested those control activities that we
considered to be key in creating a system to provide reasonable
assurance that transactions are correct and proper throughout the
procurement process. The key control activities and techniques we
tested include (1) advance approval of purchases, (2) independent
receiving and acceptance of goods and services, (3) cardholder
reconciliation of monthly statements, (4) independent review by an
approving official of the cardholder‘s reconciled statements and
supporting documentation within the Air Force-prescribed time frame,
and (5) cardholders obtaining receipts and maintaining invoices that
support their purchases and provide the basis for reconciling cardholder
statements. Table 5 summarizes the results of our statistical testing.
Appendix I includes the specific criteria that we used to conclude on
the effectiveness of these controls.
Table 5: Internal Control Activity Statistical Testing Results:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A], Advance
authorization: 6;
Percentage of breakdowns in key purchase card controls[A], Independent
receiving: 68;
Percentage of breakdowns in key purchase card controls[A], Cardholder
reconciliations: 22;
Percentage of breakdowns in key purchase card controls[A], Approving
official review: 70;
Percentage of breakdowns in key purchase card controls[A], Supporting
invoice/receipt: 9.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A], Advance
authorization: 12;
Percentage of breakdowns in key purchase card controls[A], Independent
receiving: 61;
Percentage of breakdowns in key purchase card controls[A], Cardholder
reconciliations: 26;
Percentage of breakdowns in key purchase card controls[A], Approving
official review: 87;
Percentage of breakdowns in key purchase card controls[A], Supporting
invoice/receipt: 30.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A], Advance
authorization: 4;
Percentage of breakdowns in key purchase card controls[A], Independent
receiving: 53;
Percentage of breakdowns in key purchase card controls[A], Cardholder
reconciliations: 37;
Percentage of breakdowns in key purchase card controls[A], Approving
official review: 69;
Percentage of breakdowns in key purchase card controls[A], Supporting
invoice/receipt: 0.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A], Advance
authorization: 2;
Percentage of breakdowns in key purchase card controls[A], Independent
receiving: 56;
Percentage of breakdowns in key purchase card controls[A], Cardholder
reconciliations: 21;
Percentage of breakdowns in key purchase card controls[A], Approving
official review: 73;
Percentage of breakdowns in key purchase card controls[A], Supporting
invoice/receipt: 8.
[A] The numbers represent point estimates for the population based on
our sampling tests rounded to the nearest percentage point. The
confidence intervals for our sample estimates are presented in appendix
I of this report.
Source: GAO analysis.
[End of table]
The results in table 5 include transactions for which supporting
documentation was destroyed due to improper records retention guidance
in the Air Force Instruction.
Advance Authorization of Purchases:
Our test work showed that, for the most part, the four case study
locations we tested had documentation of required advance authorization
with estimated failure rates for required advance authorization of
purchases ranging from 2 percent to 12 percent. The segregation of
duties between officials who authorize a purchase and the cardholder
who makes the purchase helps reduce the risk of fraud, waste, and abuse
in the purchase card program. The Air Force purchase card program
Instruction 64-117 requires cardholders to obtain authorization from
the specified controlling/servicing organization on base for certain
purchases, including purchases of computer and communication equipment,
video equipment, medical items, and hazardous materials, before making
the purchase. The Air Force installations we audited documented advance
authorizations on forms established specifically for that purpose.
Independent Receiving and Acceptance:
The requirement for documentation of independent receiving and
acceptance by someone other than the cardholder is not specifically
addressed in DOD policy or Air Force purchase card program Instruction
64-117. We believe that independent documentation of receipt of items
purchased by a cardholder is a basic internal control activity that
provides additional assurance to the government that purchased items
are not acquired for personal use and that they come into the
possession of the government. Based on our statistical testing, we
estimated that the failure rate for independent documentation of
receipt and acceptance”receiving of goods and services by someone other
than the cardholder”ranged from 53 percent to 68 percent at the four
Air Force locations we tested. The types of items in our sampled
transactions that lacked independent evidence of receipt and acceptance
included computer software and memory cards, a fax machine, a cassette
recorder, camera film, hardware, supplies, and tools. These items were
purchased at stores such as Homebase, Staples, and Radio Shack. Because
the Air Force purchases items for valid, government purposes from
stores that are widely used by consumers to acquire items for personal
use, verification of receipt of goods and services by an individual
other than the cardholder is necessary to reduce the risk of fraudulent
transactions.
Cardholder Reconciliation and Approving Official Review:
Cardholder reconciliation is a key control activity for detecting
invalid transactions, including billing errors and unauthorized
purchases. However, based on our statistical testing, we estimated that
cardholders at the four case study locations lacked documented evidence
of timely reconciliations of monthly purchase card statements from 21
percent to 37 percent of the time. As evidence that purchase card
statements were reconciled, we accepted check marks, notes, sequential
numbering, and numbering systems that tied transactions on the
statement to items on the cardholders‘ purchase card logs. Independent
approving official review of monthly, reconciled cardholder statements
is a key control activity for segregation of duties, whereby no one
individual has control over all aspects of a transaction. Based on our
statistical testing, we estimated that approving officials at the four
case study locations lacked documented evidence that they had reviewed
monthly, reconciled purchase card statements, or had reviewed them
within required time frames, from 69 percent to 87 percent of the time.
Our statistical tests of approving official review considered only
documented review of statements with evidence of reconciliation. The
high failure rates are due, in part, to approving officials‘ failure to
date the reconciled monthly statements when they reviewed them. The
failure rate also may be attributable to approving official duties
falling into the category of ’other duties as assigned“ and the span of
control issues discussed earlier.
The high failure rate for approving official review is of particular
concern because the Air Force uses a ’pay and confirm“ policy, which is
inconsistent with governmentwide and DOD guidelines on reconciliation
and payment of purchase card bills. In a letter dated April 30, 2002,
DOD informed us that its reengineering memorandums and other
pronouncements are in compliance with 10 U.S.C. 2784, which requires the
Secretary of Defense to issue regulations that require, among other
things, reconciliation of purchase card statements to receipts before
the statements are forwarded to the disbursing office. Both section
4535 of volume 1 of the Treasury Financial Manual and DOD‘s Purchase
Card Reengineering Implementation Memorandum #3 (change 1, June 30,
1998) require that purchase card statements be reconciled and forwarded
for payment in a timely manner and allow ’pay and confirm“ only with
respect to verification of government receipt of the purchased items or
services.
In contrast, Air Force purchase card policy permits cardholder
statements to be reconciled and approved after payment has been made.
While a conscientious postpayment reconciliation and approval process
may provide reasonable control, the lack of documented evidence of
postpayment reconciliation and approval and the undisputed, potentially
fraudulent transactions identified in our work underscore concerns about
noncompliance with the law. In July 2002, Air Force management asked its
contractor, U.S. Bank, to ’shut down“ (suspend from use [Footnote 29])
over 4,000 unreconciled, unapproved cardholder accounts until the
reconciliations were completed and the approving officials had reviewed
them. Accounts that had not been reconciled as of the end of August
2002 were canceled. According to an Air Force headquarters official,
these accounts would need to be manually reconciled because they are no
longer active in U.S. Bank‘s system.
Under Air Force ’pay and confirm“ procedures, the installation Financial
Services Office designates a certifying officer to verify availability
of funding and certify the monthly installation purchase card invoices
for payment prior to receipt of the confirmation of reconciled
statements from the approving official. Monthly invoices are to be paid
in full and are not to be adjusted for disputed items. Instead,
cardholders and approving officials are to resolve any irregularities
through a separate dispute process. The Air Force Instruction requires
that approving officials review and approve reconciled cardholder
statements and submit the confirmed statements to the Financial
Services Office within 15 days of receipt of the monthly statement, but
no later than the 15th day of the following month”commonly referred to
as the 15-day rule. The Financial Services Office files the confirmed
statements with a copy of the previously certified statement.
The pay and confirm process has yielded benefits, such as increased
rebate earnings, and has almost eliminated late payment interest.
However, without effective controls over cardholder reconciliation and
approving official review, the pay and confirm process increases the
risk that fraudulent, improper, and wasteful purchase card expenditures
could occur and go undetected. DOD and Air Force officials told us that
they were concerned about the lack of compliance with requirements for
purchase card statement reconciliation and approval.
DOD and U.S. Bank officials told us that this control was implemented
upon receipt of the April 25, 2002, monthly purchase card statements.
The officials told us that on July 1, 2002, approximately 4,000
cardholder accounts were suspended and no further charges could be made
to these accounts until they were reconciled, and reviewed and approved
by the approving officials. The officials also told us that
reconciliation of these accounts resulted in a high volume of disputed
transactions as cardholders began to reconcile their statements and
approving officials had to review and approve them, indicating that
fraudulent or erroneous transactions may have occurred and had not been
previously detected.
On August 22, 2002, DOD‘s Purchase Card Joint Program Management Office
Director told us that 149 of the purchase card accounts that were
suspended on July 1, 2002, had not been reviewed and confirmed by the
approving officials and, as a result, the accounts had not been
reactivated. The DOD Director said that he planned to cancel these
accounts because they apparently are not needed. However, the failure
to reconcile these accounts raises questions about whether cardholders
and/or approving officials may have made fraudulent or improper
transactions for which they want to avoid scrutiny. Without
reconciliation and independent review, DOD and the Air Force have no
assurance that such purchase card activity did not involve fraudulent
or improper transactions.
Supporting Invoice or Receipt:
As shown in table 5, three of the Air Force case study locations we
audited”Edwards, Nellis, and Travis Air Force bases”maintained the vast
majority of the receipts for items purchased with the government
purchase card. For example, our statistical test results showed the
estimated failure rates for this control activity ranged from 0 to
about 9 percent across these three locations. Our statistical test
results for Lackland AFB showed that this location had an estimated 30
percent failure rate for this control activity. Of the 37 Lackland AFB
transactions that were missing receipts, 23 related to Wilford Hall
Medical Center transactions. Another three of the transactions in our
Lackland AFB sample related to a security forces unit that transferred
to another Air Force installation and did not retain purchase card
documentation. In testing for evidence of a receipt, we accepted either
the original or a copy of the invoice, sales slip, or other store
receipt.
GAO‘s Internal Control Standards state, ’all transactions and other
significant events need to be clearly documented, and the documentation
should be readily available for examination. All documentation and
records should be properly managed and maintained.“ Without supporting
sales receipts or invoices, it is not possible to tell the quantity and
type of items purchased or whether those items were for government
business or of a personal nature. In such cases, a thorough
investigation would be needed to determine whether a transaction was
proper, or if it represented a potentially fraudulent, improper, or
abusive transaction needing corrective action. Further, without a
receipt, two other key control activities”independent receipt and
acceptance and approving official review”become ineffective.
Independent receiving cannot confirm that the purchased items were
received and the approving official cannot review a cardholder
statement reconciled with the supporting receipt. A near zero failure
rate is a reasonable goal considering that receipts are easily obtained
or replaced when inadvertently lost.
Controls Over Accountable Property:
As shown in table 6, three of the four installations we audited recorded
most of the items we selected for testing in their accountable property
records. In addition, the Air Force was able to locate and we confirmed
that all of the items that were not recorded at two installations were
in the possession of the government. However, Air Force officials were
unable to locate 4 of the 114 accountable property items we tested at
Edwards AFB and 14 of the 70 accountable items we tested at Travis AFB,
indicating that these items may have been lost or stolen. The property
book officer at Travis AFB told us that cardholders do not always
notify the property office and provide documentation of accountable
items purchased with the government credit card”even though many of
them are easily pilferable and desirable items. As previously
discussed, Travis AFB‘s failure to record in the installation‘s
property records, accountable property purchased using a government
purchase card was also an Air Force Audit Agency repeat audit finding.
Table 6: Property Items Not Recorded in Property Records:
Air Force installation: Edwards;
Property items selected for testing: 114;
Items not on property books: 12;
Items that could not be located: 4.
Air Force installation: Lackland;
Property items selected for testing: 35;
Items not on property books: 1;
Items that could not be located: 0.
Air Force installation: Nellis;
Property items selected for testing: 68;
Items not on property books: 10;
Items that could not be located: 0.
Air Force installation: Travis;
Property items selected for testing: 70;
Items not on property books: 49;
Items that could not be located: 14.
Source: GAO nonrepresentative selection of property items included in
statistical samples of Air Force purchase card transactions.
[End of table]
Items such as a digital camera, a laser printer, and computers and
monitors were not included in base property records. The Edwards AFB
property items that could not be located included two computer servers
and two monitors costing a total of $11,258 that were ordered for other
installations. The Travis AFB property items that could not be located
included a digital camera costing $812 that, according to investigative
records, was previously reported stolen from an employee‘s office and
eight computers costing $14,128 that were allegedly sent to the Defense
Reutilization Marketing Service (DRMS) as excess items during the year
they were purchased. Because serial numbers for the computers had not
been recorded, we could not confirm that the eight computers we
selected for testing were items that were sent to DRMS. A Travis AFB
contracting official told us that these new computers should not have
been sent to DRMS as excess property. The official told us that
unneeded computer equipment is required to be turned in to the
information technology unit for assignment to other installation units.
Other missing items included a laptop computer and four computer
monitors costing under $500.
GAO‘s internal control standards and DOD Instruction 5000.64, Defense
Property Accountability, require that accountable property be recorded
in property records as it is acquired. The DOD Instruction refers to
accountable property as ’controlled inventory items“ and defines these
items as those designated as having characteristics that require them
to be identified, accounted for, secured, segregated, or handled in a
special manner to ensure their safekeeping and integrity. The
Instruction defines pilferable items as those that have a ready resale
value or application to personal possession and that are, therefore,
especially subject to theft. However, the DOD Instruction does not
include a list of items that fall into these categories. Accountable
property generally includes high-cost property items and easily
pilferable or sensitive items, such as computers and related equipment,
cameras, cell phones, and power tools.
Air Force Instruction 33-112, Computer Systems Management, requires
mandatory inclusion of computer items costing $500 or more in inventory
records. However, the Air Force does not have a policy for recording
other types of easily pilferable or sensitive items in its property
records. According to an Air Force headquarters acquisition official,
decisions on how to control items, such as computers and related
equipment, cameras, cell phones, and power tools, are left to the
discretion of the installation commanders. As a result, there is no
assurance that Air Force installations are following DOD policy. At the
four installations we audited, we found that most computers were
recorded in either central or unit-level property systems. However,
cardholders at the installations we audited were not always aware that
items such as digital cameras, fax machines, or computer items costing
less than $500 meet the definition of controlled inventory items and/or
pilferable items and thus should be recorded in their property records.
One factor that may explain the positive Air Force test results at
three of the four installations we audited is that these installations
made greater use of centralized purchasing and receiving for computer
equipment. As a result, contracting and information technology units
controlled purchasing and receiving for these items and assured that
the items were recorded in the property records when they were
received. In contrast, at Travis AFB, nearly half of the property items
tested were not recorded in property records and management could not
locate many of these items. The use of central purchasing and receiving
helps to mitigate against control breakdowns where cardholders do not
take action to ensure that accountable items are recorded in property
records.
Potentially Fraudulent, Improper, and Abusive or Questionable
Transactions:
We identified numerous purchase card transactions at the four
installations we audited and in our Air Force-wide data mining that
were potentially fraudulent, improper, and abusive or questionable.
Buying items with purchase cards without the requisite control
environment and key control activities in place creates unnecessary
risk of fraud and abusive and wasteful spending. Also, the lack of
records previously discussed raises concerns about whether files could
have been destroyed so that potentially fraudulent, improper, or
abusive transactions were not documented and subjected to review. In
addition, we saw a number of potentially fraudulent transactions at the
case study locations we audited and in our Air Force-wide analysis that
related to compromised accounts. We did not review all potentially
fraudulent, improper, and abusive transactions identified in our work.
As discussed in appendix I, our work was not designed to identify, and
we cannot determine, the extent of potentially fraudulent, improper,
and abusive or otherwise questionable transactions.
Potentially Fraudulent Purchase Card Transactions:
We identified transactions that Air Force officials acknowledged to be
fraudulent, as well as potentially fraudulent transactions for which no
supporting documentation was available, at all four installations we
audited, as well as in our Air Force-wide analysis. Some transactions
identified as potentially fraudulent resulted from compromised accounts
in which a purchase card or account number was stolen and used by
someone other than the cardholder to make unauthorized purchases. We
found five potentially fraudulent transactions involving two purchase
card accounts that were not disputed with the bank. Further, none of
these transactions were referred to Air Force investigators until we
questioned them. We considered potentially fraudulent purchases to
include those made by cardholders that were unauthorized and intended
for personal use. We also considered transactions for which there was
no supporting documentation to be potentially fraudulent because, in
the absence of supporting documentation, it is not possible to
determine whether these transactions represented valid government
purchases, fraudulent transactions that went undetected, or fraudulent
transactions for which documentation was intentionally destroyed to
cover up the fraud. In these instances, cardholders and approving
officials were unable to tell us the types of items purchased or the
purpose of the transactions. However, we determined that they had not
disputed any of these transactions. Potentially fraudulent transactions
can also involve vendors charging purchase cards for items that
cardholders did not buy. 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.
Air Force and U.S. Bank officials told us that in July 2001, U.S. Bank
identified numerous fraudulent transactions due to compromised
accounts. According to U.S. Bank officials, this was a widespread fraud
involving many credit card banks that was apparently related to a fraud
ring that used a computer to randomly generate credit card account
numbers and/or counterfeit credit cards, which they then used. U.S. Bank
officials told us that the compromised accounts initially were believed
to be associated with transactions in a few states, including
California and Georgia. However, the fraud was subsequently determined
to be a nationwide problem. According to Air Force and U.S. Bank
officials, numerous Air Force purchase card accounts were canceled due
to this fraud. Given the risk associated with such fraud, it is
extremely important that cardholders reconcile their monthly statements
in order to detect and dispute potentially fraudulent transactions.
Table 7 illustrates the types of potentially fraudulent transactions
that we identified.
Table 7: Potentially Fraudulent Air Force Purchase Card Transactions:
Air Force locations: Andrews;
Vendor: E-Z Pawn;
Total amount: $2,443.
Air Force locations: Edwards;
Vendor: BEF Corporation;
Total amount: $19,000.
Air Force locations: Travis;
Vendor: Flowers Sent Today, Inc., Flowers Anytime
Total amount: $432.
Air Force locations: Scott;
Vendor: Ocean Drive Fashions, Inc., Rendezvous on the Beach, Donald
Pliner Concept Store, Sunglass Hut, Watch World;
Total amount: $2,401.
Air Force locations: Patrick;
Vendor: Citgo 7-Eleven, Publix, Chevron, Kash N Karry, Speed SM;
Total amount: $249.
Air Force locations: McConnell;
Vendor: Ross Stores, Old Navy, K-Mart, Target;
Total amount: $3,232.
Air Force locations: Luke;
Vendor: Nationwide Gourmet of AZ;
Total amount: $100.
Air Force locations: Lackland;
Vendor: Oakley, Cabela‘s, Rebel Hobbies, LACAF Golf Course, Franklin
Covey, Handspring, Inc., That Fish Place, and Gargoyles;
Total amount: $8,707.
Air Force locations: Nellis;
Vendor: Eb‘s Stuff;
Total amount: $185.
Source: GAO analysis of selected Air Force fiscal year 2001 purchase
card transactions.
[End of table]
Our Air Force-wide data mining and analysis of purchase card
documentation identified potentially fraudulent purchase card
transactions at Andrews and McConnell Air Force bases that were never
disputed with the bank or credited to the government. Our analysis of
documentation related to the potentially fraudulent transactions that
were not disputed disclosed the following facts.
* The E-Z Pawn transaction was for a $2,443 down payment on a $10,000
sapphire ring. An October 4, 2001, agency program coordinator purchase
card surveillance report indicated that the reviewer had questioned the
lack of receipt for the E-Z Pawn transaction; however, the surveillance
did not question the propriety of this transaction. No further action
was taken, even though pawnshops are coded to a merchant category that
is required to be blocked as a means of preventing fraudulent
transactions from being processed. In response to our inquiry, the
program coordinator told us that there is no evidence that either the
cardholder or the approving official disputed the transaction. Also, we
found no credit for this transaction in the Air Force purchase card
database from U.S. Bank. According to the cardholder, at the time the
potentially fraudulent transaction occurred, he did not have possession
of the purchase card. The cardholder told us that his purchase card
account was being closed due to outsourcing of his unit‘s function, and
he had turned over his purchase card to another individual. The
cardholder stated that, as a result, he never received his monthly
statement and thus did not perform a reconciliation or identify the
potentially fraudulent transaction. We determined that the program
coordinator took no further action to ensure that the potentially
fraudulent transaction was disputed.
The Air Force headquarters acquisition official who obtained the
supporting documentation on these transactions for our review and
analysis told us that she referred these transactions to the Air Force
Office of Special Investigations and our investigators confirmed that
Air Force investigators had opened a case to investigate these frauds.
* The four potentially fraudulent McConnell AFB transactions totaling
$3,232 were made on July 31, 2001. These potentially fraudulent
transactions included charges made at San Diego area stores, including
$690 at a Ross Store, $873 at Old Navy, $689 at K-Mart, and $980 at
Target. These charges were all made when the purchase card was in the
possession of the approving official while the cardholder was assigned
to Biloxi, Mississippi, for over 2 months for noncommissioned officer
training. Although the approving official stated that his review of the
cardholder‘s August 2001 statement detected the potentially fraudulent
transactions, he did not dispute these transactions. The program
coordinator told us that disputing erroneous charges is covered
repeatedly in cardholder and approving official training. The program
coordinator also told us that she counseled the approving official
extensively on cardholder and approving official responsibilities. The
program coordinator told us that she informed the approving official
that she had reduced the credit limit on the account to $1 to avoid
further charges. She also said that she instructed the approving
official that he should dispute these transactions in the absence of the
cardholder‘s dispute. However, instead of disputing these transactions,
the approving official waited for the cardholder to return from training
in mid-September and asked the cardholder to seek guidance from the
program coordinator. A circular discussion ensued about who would take
action to dispute the potentially fraudulent transactions, with the
approving official stating that the cardholder was to dispute these
transactions and the cardholder stating that he thought the program
coordinator would dispute the transactions. As a result, the
transactions were never disputed and the program coordinator took no
further action.
The Air Force headquarters acquisition official who obtained the
supporting documentation on these transactions for our review and
analysis told us that she referred these transactions to the Air Force
Office of Special Investigation. However, Air Force investigators told
us they did not initiate an investigation because they believed that the
transactions had been credited. Our review of the Air Force purchase
card database and discussions with the installation program coordinator
determined that the transaction had not been credited and the potential
fraud is unresolved. Therefore, we have referred this matter to our
investigators for further investigation.
In contrast to the failure to dispute the potentially fraudulent
transactions discussed above, the following are examples of potentially
fraudulent transactions that Air Force cardholders detected and
disputed.
* A $19,000 charge for a duplicator from BEF Corporation”an imaging
technology vendor in Allentown, Pennsylvania”related to a compromised
purchase card account. Our investigators confirmed that the Edwards AFB
cardholder called the bank and disputed the transaction before the item
was delivered. As a result, neither the government nor the bank
incurred a loss related to this compromised account. Our investigators
confirmed that the cardholder had referred the transaction to Air Force
investigators.
* Three unauthorized Travis AFB purchases, including one transaction at
Flowers Sent Today, Inc., and two transactions at Flowers Anytime,
totaling $432 were made by an inmate at a local county jail. Travis AFB
officials told us that they disputed these transactions because they
were unauthorized and they believed that the account had been
compromised. These potentially fraudulent transactions were
subsequently investigated by U.S. Bank and the purchase card account
was canceled.
* Five potentially fraudulent charges were made to a Scott AFB,
Illinois, cardholder‘s account on August 21 and August 22, 2001,
totaling about $2,400. The charges were made at vendors in the Miami
area, including charges at Ocean Drive Fashions, Inc., for $426,
Rendezvous on the Beach for $224, Donald Pliner Concept Store for $520,
Sunglass Hut for $586, and Watch World for $645. Our review of Air
Force records showed that the cardholder disputed these transactions
and a U.S. Bank investigation of the potentially fraudulent
transactions was initiated on November 9, 2001. Our review of U.S. Bank
records showed that the purchase card account was credited for the
fraudulent transactions on June 6, 2002”nearly a year after the
transactions were made.
* A Patrick AFB cardholder identified unauthorized purchase card
transactions totaling $249 that were made at Citgo 7-Eleven, Publix,
Chevron, Kash N Karry, and Speed SM by his wife between April 1 and 6,
2001. According to the unit commander, the cardholder‘s purchase card
privileges were revoked, and the cardholder agreed to pay for his wife‘s
unauthorized charges. However, as of the end of October 2002, we
determined that the cardholder had not reimbursed the government for
his wife‘s unauthorized use of the purchase card. We suggested that the
employee should submit a check to the installation‘s Financial Services
Office along with an explanation for the payment.
We also contacted the Air Force Office of Special Investigations to
inquire about their purchase card fraud cases. Investigators told us
that their investigative database did not contain codes that permit
them to identify purchase card fraud cases. As a result, the
investigators had to manually review all procurement-related cases to
attempt to identify cases involving purchase card fraud. Appendix III
summarizes some of the purchase card fraud cases that were investigated
by the Air Force Office of Special Investigations.
Improper Purchases and Improper Use of the Purchase Card:
Besides potentially fraudulent activity, our work also identified
numerous examples of transactions related to improper purchases, as
well as improper use of the purchase card. Improper purchases are those
purchases that, although approved by Air Force officials and justified
as intended for government use, are not permitted by law or regulation
or DOD or Air Force policy. Improper use of the purchase card related
to use of the card as an acquisition tool without a negotiated
contract, use of the card by a nongovernment activity, and improper use
of convenience checks [Footnote 30] associated with purchase card
accounts.
Improper Purchases:
We identified the following three types of improper purchases.
* Purchases that did not serve a legitimate government purpose.
* Split purchases in which the cardholder circumvents the micropurchase
limit [Footnote 31] or other transaction limits.
* Purchases from improper sources. Various federal laws and regulations
require procurement officials to acquire certain products from
designated sources, such as Javits-Wagner-O‘Day Act (JWOD) vendors.
[Footnote 32] In addition, agencies are required to purchase furniture,
if available, from Federal Prison Industries, Inc. (UNICOR), and DOD
policy requires that printing services be obtained in-house through the
Defense Automated Printing Service.
We found several instances of purchases, such as clothing, luggage, and
food, in which cardholders improperly used their purchase cards, or they
purchased goods 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 regulation. We identified the
improper Air Force transactions as part of our analysis of questionable
vendor transactions at the four installations we audited and in our Air
Force-wide data mining. Table 8 summarizes examples of the improper
transactions we identified that do not serve a legitimate government
purpose.
Table 8: Improper Air Force Purchase Card Transactions:
Types of items purchased: Clothing: Physical fitness clothing and fleece
jackets for drill instructors;
Vendors: LL Bean, Oakley;
Amount: $1,696.
Types of items purchased: Clothing: Blazer and dresses for participants
in Eubank Service Award Ceremony;
Vendors: Filene‘s Sports Coats, Dress Barn;
Amount: $828.
Types of items purchased: Clothing: Wool coats for a flight attendant;
Vendors: Hecht‘s;
Amount: $380.
Types of items purchased: Clothing: Clothes for parachutists, pilots,
and others;
Vendors: REI;
Amount: $20,698.
Types of items purchased: Luggage: Samsonite pullman suitcases;
Vendors: El Portal Luggage;
Amount: $5,500.
Types of items purchased: Luggage: Garment bags;
Vendors: SM Discount Luggage, 1-800 Luggage;
Amount: $2,291.
Types of items purchased: Luggage: Pathfinder pullmans for recruiters;
Vendors: Foley‘s;
Amount: $620.
Types of items purchased: Luggage: Duffel bags;
Vendors: Patagonia;
Amount: $685.
Types of items purchased: Food/Water: Meals provided during planning
meeting and unit luncheons;
Vendors: Marriott Hotel, Rusty Pelican, Where Pigs Fly;
Amount: $2,692.
Types of items purchased: Food/Water: Bottled water;
Vendors: Wishing Well Florist;
Amount: $796.
Types of items purchased: Other: Personal exercise equipment;
Vendors: Target;
Amount: $100.
Types of items purchased: Other: Sunglasses;
Vendors: Oakley;
Amount: $540.
Types of items purchased: Other: Briefcases and flight bags;
Vendors: Franklin Covey;
Amount: $14,664.
Source: GAO analysis of Air Force fiscal year 2001 transactions and
related documentation.
[End of table]
The following examples illustrate the types of purchases included in
table 8.
Clothing and sunglasses. We identified numerous purchases of clothing
for military personnel that appeared to be personal preference items. We
determined that these purchases were improper based on our review of
DOD directives, [Footnote 33] Air Force policies, [Footnote 34] and
discussions with Air Force headquarters officials. For example, at
Lackland AFB, one of our test locations, we identified purchases of
clothing for drill instructors, including physical fitness clothing
items from LL Bean costing $816 and 16 fleece jackets from Oakley
costing $880. We also identified numerous purchases of military
clothing items from REI totaling $20,698, including paratrooper
jumpsuits and cold weather pilot jackets. These clothing items are
covered under the military pay clothing allowance funded in the
Military Personnel, Air Force, appropriation and should not have been
purchased with Operation and Maintenance appropriations using the
purchase card.
In addition, we found purchases of what we consider to be personal
clothing and accessory items that were authorized by installation
officials. For example, Hanscom AFB, Massachusetts, authorized the
purchase of a blue blazer from Filene‘s costing $180 and eight dresses
from Dress Barn costing $648 for civilian employees who participated in
the Eubank Service Award Competition. [Footnote 35] Hickam AFB, in
Hawaii, purchased two wool coats from Hecht‘s in Waldorf, Maryland,
costing $380 for a flight attendant assigned to the 65th Airlift
Squadron. In addition, the Lackland AFB pararescue team purchased 12
pairs of sunglasses from Oakley costing $540 and improperly justified
them as meeting the requirement for free-fall paratrooper goggles.
Oakley sunglasses do not qualify as paratrooper goggles. None of these
items are authorized by Air Force policy. Therefore, we concluded that
all of these purchases involved personal items, which employees should
pay for from their own salaries.
Luggage and briefcases. We identified numerous purchases of luggage
deemed necessary for employees who travel frequently, including 50
Samsonite suitcases costing $5,500 for members of the Thunderbirds team
and garment bags costing $2,250 for the Bolling AFB band, and purchases
of two Pathfinder Pullman suitcases costing $620 for recruiters. In
addition, our review of a limited selection of Franklin Covey
transactions identified six purchases of leather briefcases costing
$212 each (after a 20 percent discount) and purchases of 203 flight
bags (similar to a briefcase) costing from about $50 to $86 each.
Luggage and briefcases are considered personal items that should be
paid for from employees‘ salaries.
Food and water for employees. We identified purchases of meals, bottled
water, and payment for a unit luncheon. Without statutory authority,
appropriated funds may not be used to furnish meals to employees within
their normal duty stations. [Footnote 36] We identified improper
charges for food provided to employees during an internal government
meeting and unit luncheons. For example, Lackland AFB scheduled a
strategic planning meeting for local employees of the Tri-Care
organization at a Marriott Hotel in San Antonio, Texas. The total cost
of the meeting was $1,052, including $538 for breakfast and lunch for
18 individuals”3 consultants and 15 employees who were not on travel.
In addition, appropriated funds may not be used to purchase bottled
water for employees unless they are assigned to a duty station without
potable water. Food and bottled water are considered personal items
that employees should pay for from their own salaries.
Split Purchases:
Another category of improper transactions is a split purchase, which
occurs when a cardholder splits a transaction into more than one segment
to circumvent the requirement to obtain competitive prices for purchases
over the $2,500 micropurchase threshold or to avoid the other
established credit limits. The Federal Acquisition Regulation and Air
Force Instruction 64-117 prohibit these practices. Once items exceed
the $2,500 threshold, they are to be purchased in accordance with
simplified acquisition procedures, which are more stringent than those
for micropurchases. Our analysis of purchases made at the four case
study locations and our Air Force-wide data mining identified numerous
split purchases. In addition, Air Force Audit Agency auditors
identified split purchases as a continuing Air Force-wide problem.
One split purchase we identified involved a violation of appropriations
law. The purchase was made to avoid the expiration of unused fiscal
year 2001 operation and maintenance appropriations. Our inquiries
disclosed the following events surrounding this transaction. On
September 30, 2001, at approximately 9:00 p.m. Eastern Standard Time,
Air Combat Command headquarters at Langley AFB, Virginia, determined
that $100,000 in fiscal year 2001 operation and maintenance
appropriations would expire in 3 hours”at midnight”unless the funds
could be obligated and spent quickly. At 6:00 p.m. Pacific Standard
Time, the command contacted the USAF Weapons School, 57th Operations
Support Squadron at Nellis AFB, Las Vegas, Nevada, with the direction
to use the funds before they expired. At approximately 7:00 p.m., the
Nellis AFB cardholder purchased 120 helmets at more than $800 each and
several other items totaling just under $100,000 from the base supply
store. The purchase was split into four separate transactions to stay
within the cardholder‘s single transaction limit of $25,000 per
transaction. The items purchased were placed ’on hold“ and were not
taken from the store. Over the next few days”October 1 and October
2”the cardholder ’returned“ the items, exchanging them for other items
totaling the same amounts. In an explanatory memorandum, the cardholder
wrote that the unit had not previously identified its unfilled
requirements and, therefore, did not have a list of items for purchase
if ’end-of-year“ money was available. The subsequent credits and reuse
of the funds in early October 2001, in effect, converted fiscal year
2001 appropriations to fiscal year 2002 budget authority.
Improper Sources:
Another type of improper purchase occurs when cardholders do not buy
from a mandatory procurement source. Various federal laws and
regulations, such as the Javits-Wagner-O‘Day Act (JWOD), require
government cardholders to acquire certain products from designated
sources. The JWOD program is a mandatory source of supply for all
federal entities. It generates jobs and training for Americans who are
blind or have other severe disabilities by requiring federal agencies
to purchase supplies and services furnished by nonprofit agencies, such
as the National Industries for the Blind and the National Institute for
the Severely Handicapped. Most JWOD program supplies are small-value
items such as office supplies, cleaning products, or medical/surgical
supplies that nearly always fall into the micropurchase category. We
noted that most cardholders at the four installations we audited made
purchases from required sources and three of the four installations had
JWOD stores on base. However, we found numerous Air Force-wide
purchases from Franklin Covey for office supplies, such as calendars
and day planners, which could have been purchased from JWOD vendors. We
also found that Air Force cardholders charged $2,220 for 82 high-
quality pens from Franklin Covey costing from $16 to $60 each. Table 9
summarizes transactions we identified that were made from other than
required sources of supply.
Table 9: Purchases from Other Than Required Sources of Supply:
Source: GAO Analysis of Air Force fiscal year 2001 transactions and
related documentation.
Type of item purchased: Office supplies;
Vendor: Franklin Covey;
Total amount: $188,834.
Type of item purchased: Printing;
Vendor: Kinkos, Mayes Printing;
Total amount: $336,680.
[End of table]
The failure to purchase designated items from JWOD vendors who support
the handicapped undermines public policy objectives to support programs
for the handicapped. For example, as discussed in our Army purchase card
report, [Footnote 37] the Director of Sales for the National Industries
for the Blind told us that this program has experienced large decreases
in sales over the past 2 years because cardholders were purchasing from
commercial firms rather than buying the mandated products. Further,
operating revenues of government service organizations, such as the
Defense Automated Printing Service (DAPS), which is a required source
of printing services for DOD agencies, and Federal Prison Industries,
Inc. (UNICOR), which is a required source for furniture, are
significantly reduced to the extent that cardholders do not use these
sources for mandated printing and related services.
Improper Use of Purchase Cards and Convenience Checks:
In addition to the improper transactions discussed above, our analysis
of Air Force-wide purchase card transactions identified the following
three types of improper use of the purchase card.
* Use of the purchase card as acquisition tool where a negotiated
contract is required;
* Purchase card use by a religious fund activity without authority in
law, regulation, or DOD or Air Force policy, and;
* Improper use of convenience checks billed to the purchase card
account.
Table 10: Improper Uses of the Purchase Card and Convenience Checks:
Improper use: Multiyear tractor rentals;
Vendors: Crown Ford;
Amount: $52,500.
Improper use: Expenses of Chaplain‘s Office volunteer;
Vendors: Cheap Tickets, United Air Lines, Marriott Hotels, J.C. Penney,
K-Mart, Wal-Mart, Sav-On Drugs, JoAnn Fabric and Crafts, Hobby Lobby;
Amount: $6,609.
Improper use: Convenience checks;
Vendors: Payments over $2,500 and reimbursement of tuition expense to
employees;
Amount: $212,898.
Source: GAO analysis of Air Force fiscal year 2001 purchase card
transactions.
[End of table]
The following examples illustrate the types of purchases included in
table 10.
Month-to-Month Equipment Rental. We found that a cardholder at Whiteman
AFB, Missouri, improperly used the purchase card as an acquisition
vehicle without a negotiated contract. Specifically, the cardholder
used the purchase card to rent tractors for use by the installation‘s
waste treatment facility at a cost of about $10,000 during fiscal year
2001. Our analysis of records related to this lease showed that an
initial month-to-month rental of a tractor covered 3 years beginning in
November 1997. In November 2000, the cardholder initiated monthly rental
of a new tractor for 2 years. According to the installation program
coordinator, the current cost to purchase the type of tractor that was
rented during fiscal years 2000 and 2001 would be in the $35,000 to
$45,000 range; however, a lease versus purchase cost-benefit analysis
was never performed. We determined that the cost of the two rentals,
which together covered a 5-year period, totaled over $50,000.
Unauthorized Use of the Card by Chaplain‘s Religious Fund. Our analysis
of fiscal year 2001 FE Warren AFB, Wyoming, purchase card transactions
totaling over $6,600 by a Chaplain Office volunteer, who later became a
contractor, raised a number of questions about the proper use of the
purchase card. Air Force purchase card policies state that commercial
purchase cards are provided to military members and federal civilian
employees to pay for official government purchases, and that only
employees may be cardholders. According to the Chaplain Office
officials, these transactions were for authorized purchases. They said
they often use parishioners and volunteers to assist them in carrying
out religious activities. However, Air Force purchase card policies
state that commercial purchase cards are provided to military members
and federal civilian employees to pay for official government
purchases. Chaplain Office officials told us that because the Chaplain
Religious Fund did not fall under Air Force purchase card authority as
either an appropriated fund or a nonappropriated fund activity, they
believed they could set up the government purchase card program for
their office by working independently with the bank.
We discussed our concerns about Chaplain Office authority to use the
government purchase card with Air Force attorneys and acquisition and
Chaplain Office officials. After reviewing Air Force policy, Air Force
attorneys advised us that the Chaplain‘s Office did not have authority
to use the government purchase card for Chaplain Religious Fund
activities.
Convenience Checks. We identified improper use of convenience checks
related to payments in amounts over $2,500, payments for recurring
services, and payments to vendors who accept purchase card payments.
Air Force Instruction 64-117 limits the use of convenience checks to
amounts of no more than $2,500 per check, prohibits the use of
convenience checks for recurring services, and restricts convenience
check use to instances where vendors do not accept purchase cards.
Splitting amounts across more than one check to keep below the $2,500
limit also is prohibited. Another area of improper use of convenience
checks related to reimbursement of employees for tuition assistance. We
determined that reimbursement to employees is not a permitted use of
convenience checks. Further, because there is a 1.7 percent fee for
using a convenience check, cost-benefit considerations are required
when using convenience checks.
Our analysis of fiscal year 2001 convenience check use determined that
Air Force purchase cardholders who had convenience check authority had
issued 45 convenience checks totaling over $200,000 for amounts over
$2,500. We also found that a cardholder at Luke AFB, Arizona, improperly
used convenience checks for recurring monthly payments on a 2-year
automobile lease for authorized use by a military officer. It is common
knowledge that car dealerships accept credit cards. At one of our case
study locations”Travis AFB”we found that a cardholder had reimbursed
employees for $12,214 in tuition expenses. The cardholder wrote two
convenience checks”one check for $2,090 and another for $500”to
reimburse an employee for a total of $2,590 in tuition expenses. The
cardholder wrote two additional convenience checks”one check for
$6,125 and another for $3,500”to reimburse two other employees for
$9,614 in tuition expenses. The 1.7 percent fee on the first two checks
was $44 and the fee on the second two checks was about
$163”significantly more that the Defense Finance and Accounting Service
fee of approximately $7 to process electronic payments.
In its August 2002 purchase card report, the Air Force Audit Agency
stated that its review found that cardholders issued convenience checks
to pay salaries and wages totaling $512,378 for dieticians, nurses, and
administrative personnel, and to acquire recurring services, such as
aircraft washing totaling $84,830, local area network support costing
$110,495, equipment rentals costing $20,700, and lawn-care services
costing $43,505. Air Force auditors determined that cardholders
expended $2.6 million for recurring services and incurred unnecessary
bank fees of $15,228 associated with the 1.7 percent service fee.
Abusive or Questionable Use of the Purchase Card:
We also identified abusive and questionable transactions at
installations we audited and in our Air Force-wide data mining. We
defined abusive transactions as those that were authorized, but the
items purchased were at an excessive cost (e.g., ’gold plated“) or for
a questionable government need, or both. Abuse occurs when the conduct
of a government organization, program, activity, or function falls
short of societal expectations of prudent behavior. Often, improper
purchases, such as those discussed in the previous section, are also
abusive. For example, the purchases of personal clothing and luggage
for employees were also abusive purchases because they were for a
questionable government need.
Questionable transactions are those that appear to be improper or
abusive but for which there is insufficient documentation to conclude
either. We deemed questionable those purchases for which there was not
a reasonable and/or documented justification. Questionable purchases
often do not easily fit within generic governmentwide guidelines on
purchases that are acceptable for the purchase card program. They tend
to raise questions about their reasonableness. Many, such as gym-
quality exercise equipment for fitness centers, are common Air
Force”and DOD”purchases because the Air Force must provide more than
merely a work environment for its soldiers. However, others involving
excessive purchases of alcohol, payment for taxidermy services, and
purchases of expensive leather computer cases discussed in this
section, raise questions about whether they are appropriate purchases.
Precisely because these types of purchases tend to raise questions and
subject the Air Force to criticism, they require a higher level of
advance purchase review and documentation than other purchases.
When we examined these types of purchases, we usually did not find
evidence of advance purchase justification. In attempting to justify
whether purchases were acceptable, improper, or abusive, program
coordinators, approving officials, and cardholders often provided after-
the-fact rationales for the purchases. We believe that these types of
questionable purchases require scrutiny before the purchase, not after.
The examples in table 11 illustrate our point.
Table 11: Abusive or Questionable Air Force Purchase Card Transactions:
Location: Nellis AFB;
Type of item purchased: Entertainment - dinner party and
show for visiting general, including excessive purchases of alcohol
totaling $800;
Vendor: Treasure Island Hotel and Casino;
Total amount: $2,141.
Location: Tyndall AFB;
Type of item purchased: 2 reclining rocking chairs with vibrator
massage feature;
Vendor: LA-Z-Boy;
Total amount: $1,935.
Location: Air Force Academy, Colorado Springs;
Type of item purchased: Mounted mule deer head;
Vendor: Timberline Taxidermy;
Total amount: $375.
Location: Wright-Patterson AFB;
Type of item purchased: Leather laptop case for Brigadier General;
Vendor: Bentley‘s Luggage;
Total amount: $595.
Location: Edwards AFB;
Type of item purchased: Pictures for legal office;
Vendor: SkyMall Airline Catalog;
Total amount: $1,459.
Location: Edwards AFB;
Type of item purchased: Leather backpack for Dell laptop computer;
Vendor: The Complement;
Total amount: $224.
Location: Edwards, Kelly, Travis and Peterson AFBs;
Type of item purchased: Civilian clothes for military assistants;
Vendor: Old Navy, Eddie Bauer, The Men‘s Warehouse, Macy‘s;
Total amount: $2,016.
Location: Elmendorf, Lackland, Peterson, and Travis AFBs;
Type of item purchased: Costumes for Air Force regional band members;
Vendor: Nordstrom‘s, Macy‘s, Purple Pansy, Gentlemen‘s Choice, Foley‘s,
Men‘s Warehouse, Dorothy Keck Dance;
Total amount: $2,948.
Source: GAO Analysis of Air Force fiscal year 2001 transactions and
related documentation.
[End of table]
The following examples illustrate the problems associated with some of
the transactions we identified as abusive or questionable.
* At Nellis AFB, the purchase card was used to pay for dinner and a
show for 18 people costing $2,141 at Treasure Island”a Las Vegas hotel
and casino. The purpose of the event was to entertain the General of
U.S. Joint Forces Command, who was visiting the base. Air Force
Instruction 65-603, Official Representation Funds – Guidance and
Procedures, permits the use of government funds for official
entertainment. However, we determined that the nature of this
entertainment did not meet certain Force guidelines related to
requirements to conduct entertainment on a modest basis that is in the
interest of the taxpayer. For example, we determined that the cost of
the dinner party, which totaled $2,141, included about $800 for alcohol
for the 18 people who attended the event”over $40 per person. We
believe the excessive cost of alcohol purchased at this event falls
short of societal expectations of prudent behavior and modest cost.
* An Air Force Academy Natural Resource office in Colorado Springs,
Colorado, used the purchase card to pay Timberline Taxidermy $375 to
prepare a shoulder mount of a mule deer head. According to the
approving official, the deer was ’road kill“ that he found on the
roadside and brought to the Natural Resources Office. The approving
official then approved the purchase of the taxidermy service to prepare
a stuffed shoulder mount of the deer. The deer head was hung on the wall
in the Natural Resources Office. The justification of the purchase of
taxidermy services provided to our auditors stated, "The mule deer
(Odocoileus hemionus) is the most common large mammal present on
US Air Force Academy grounds. The mount was created as an
educational/interpretive tool and is on display in the USAFA Natural
Resources office. The mount can be removed from the office wall for
use in educational presentations to the base population (e.g., that only
males have antlers which are shed and re-grown each year.) The deer
died after being struck by a vehicle and was salvaged by USAFA Natural
Resources personnel." When our auditor asked the cardholder how often
the deer head was removed from the office wall and used for educational
purposes, the cardholder stated, "not much." The cardholder, the
approving official, and two other Natural Resource employees occupy the
office where the deer head currently hangs.
* The Edwards AFB, 412th Test Wing/Electronic Warfare used fiscal 2001
year-end funds to purchase 21 computers and monitors at a total cost of
$47,372. An e-mail message dated September 13, 2001, within the 412th
Test Wing had subject lines stating ’Last Minute Purchasing“ and
included one message line that stated, ’— I gather they have quite a bit
of unspent credit card money and want to move out on it this week.“
The 21 computers and monitors were received on October 23, 2001. At
the time of our inspection of these items in June 2002, 11 of the
computers and 9 of the monitors were located in a storage area and
many of the items were still in the original shipping boxes. According
to the Contracting Director, the computers were purchased to support
hiring of engineers and engineering contractors. However, recruiting
efforts were delayed because some applicants did not accept offered
positions and further recruiting efforts were suspended during
implementation of a new personnel system in the fall of 2001. The
Contracting Director told us that the unit commander directed that the
computers be stored in their original boxes for safekeeping until
recruiting was completed and the equipment could be assigned to
engineering staff, which was accomplished in July or August 2002. The
fact that the computers were still in their original boxes at least 9
months after they were ordered raises questions about whether there
was a legitimate need for these items to be purchased with fiscal year
2001 appropriations. Appropriated funds are available only to meet
legitimate needs of the agency during the fiscal year for which the
funds were appropriated.
* Our testing of property items identified two Travis AFB transactions
dated October 4, 2000, for purchases of computer equipment totaling
$14,128 that involved wasteful spending. For example, when we attempted
to observe the items to confirm their existence, we were told that the
unit had decided to convert to Dell computers. As a result, within 1
year of their purchase, these items, as well as a number of other
computers, were sent to the Defense Reutilization Marketing Service as
excess property.
In addition, we questioned purchases of civilian clothing for military
assistants and costumes for regional band members. While DOD and the
Air Force have issued policy [Footnote 38] that permits the purchase of
these types of clothing and designates them as ’uniforms,“ we believe
this clothing represents personal preference attire and should be paid
for by the employees. For example, in addition to standard issue
uniform clothing items, military assistants are permitted to purchase
slacks or skirts, shirts, and blazers to wear while serving as aides to
general officers. In addition, we noted purchases including two
tuxedos, six dresses, and earrings as costumes for members of regional
Air Force bands. Under Air Force policy, regional bands are permitted
to purchase tuxedos and evening gowns to be worn as costumes during
performances. While the civilian clothing for military assistants and
band costumes are considered government property, which may be reused
as appropriate, they are not likely to be reissued to others.
Therefore, we question whether taxpayer funds should be used to pay for
these items.
Management Improvements:
DOD and Air Force managers told us that they initiated a number of
actions during fiscal year 2002 to improve purchase card controls.
These initiatives include use of automated U.S. Bank controls to (1)
tie cardholder credit limits to allocations of budget authority, (2)
automatically deactivate purchase card accounts where monthly
statements have not been reconciled and reviewed by the approving
officials within prescribed time frames, and (3) cancel purchase card
accounts for approving officials with responsibility for excessive
numbers of cardholders. According to Air Force officials, they plan to
periodically lower the threshold for suspending purchase card accounts
until the approving official‘s span of control complies with DOD span
of control guidelines.
In addition, the DOD Comptroller appointed a Charge Card Task Force,
which issued its final report on June 27, 2002. 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 the purchase cards. The recommendations address many of the
concerns we identified in our Air Force work.
In response to our DOD audits, the Congress has recently enacted
amendments in section 1007(a) of DOD‘s fiscal year 2003 authorization
act that address requirements for (1) periodic reviews to be performed
to determine whether each purchase card holder has a need for the
purchase card, (2) periodic inspector general audits to identify
potentially fraudulent, improper, and abusive uses of purchase cards,
(3) appropriate training for cardholders and oversight officials, and
(4) specific policies regarding the number of purchase cards issued by
various organizations, authorized credit limits, and categories of
employees eligible to be issued purchase cards. Further, DOD‘s fiscal
year 2003 appropriation and authorization acts each include
requirements that the regulations issued by the Secretary of Defense
provide for appropriate disciplinary actions or other punishment to be
imposed in cases in which DOD employees violate purchase card
regulations or are negligent or engage in misuse, abuse, or fraud with
respect to a purchase card, including removal in appropriate cases.
Conclusions:
A well-controlled purchase card program is a valuable tool for
streamlining the government‘s acquisition processes. However, the
problems we identified with missing receipts, lack of cardholder
reconciliations and approving official review, and failure to follow
requirements in laws, regulations, and DOD and Air Force policies and
procedures resulted in control environment weaknesses that leave the
Air Force vulnerable to fraud and improper use of the purchase card, as
well as abuse and wasteful spending. Also, although Air Force
management has been proactive in establishing improved controls, it has
not ensured that installation-level program coordinators”the primary
program management officials”have the tools to develop local control
systems and adequate oversight activities. Further, installation
contract officials have not consistently demonstrated the commitment to
enforce established controls. Strengthening the control environment
will require a renewed focus and attention and commitment to building a
robust purchase card infrastructure.
Recommendations for Executive Action:
To strengthen the overall control environment and improve internal
control over the Air Force purchase card program, we recommend that the
following actions be taken.
Overall Program Management and Environment:
We recommend that the Secretary of the Air Force direct the Assistant
Secretary of the Air Force for Acquisition and the Deputy Assistant
Secretary for Contracting to take the following actions.
* Establish specific policies and strategies governing the number of
purchase cards to be issued with a focus on minimizing the number of
cardholders.
* Direct all command and installation-level agency program coordinators
to review purchase card use with a view toward eliminating unneeded
purchase card accounts.
* Eliminate purchase cards used to facilitate line item accounting.
* Direct all agency program coordinators to review the number of
cardholders who report to an approving official and make the changes
necessary so that approving officials do not have responsibility for
reviewing more cardholder accounts than allowed by Air Force and DOD
policies.
* Review existing credit limits and monthly spending and develop
policies and strategies on credit limits provided to cardholders with a
focus on minimizing specific cardholder spending authority and
minimizing the federal government‘s financial exposure.
* Deactivate purchase card accounts of alternate cardholders and
approving officials when primary cardholders and approving officials
are available.
* Establish specific training courses for cardholders, approving
officials, and agency program coordinators tailored to the specific
responsibilities associated with each of those roles.
* Require installation program coordinators to track and monitor
corrective actions on purchase card audit and annual surveillance
findings and provide periodic status reports to their installation
contracting directors.
* Develop and implement a program oversight system for program
coordinators that includes standard activities and analytical tools to
be used in evaluating program results.
* Require reports on annual surveillance results to include an
assessment of control environment issues, including the ratio of
cardholders to employees, ratio of approving officials to cardholder
accounts, ratio of monthly credit limits to actual spending, and number
of cardholders and approving officials requiring training.
* Assess the adequacy of human capital resources devoted to the
purchase card program, especially for oversight activities, at each
management level, and provide needed resources where appropriate.
We also recommend that the Secretary of the Air Force direct the
Assistant Secretary of the Air Force for Acquisition and the Deputy
Assistant Secretary for Contracting to make to following revisions to
Air Force Instruction 64-117, Air Force Government-wide Purchase Card
Program.
* Correct faulty records retention guidance by referring to specific
guidelines in the Federal Acquisition Regulation, National Archives and
Records Administration federal records retention guidelines, DOD‘
Financial Management Regulation, and other federal guidelines as
appropriate.
* Require purchase card program management and administrative records
generated by installation program coordinators and approving officials,
such as records of cardholder and approving official appointments and
training, cardholder delegations of authority, and purchase card
surveillances, to be retained for 3 years.
* Stipulate, in the body of the Instruction, that approving officials
are required to have annual purchase card refresher training.
* Require that the surveillance checklist, which is included in an
appendix to the Air Force Instruction, be used to guide and document
surveillance results.
* Require reports on the results of annual surveillances to be signed by
installation contracting directors to demonstrate management oversight
and ’tone at the top.“
* Require reports on surveillance results to be addressed to unit
commanders.
* Require reports on surveillance results to include recommendations for
unit commander action, where approving officials and cardholders have
failed to follow Air Force policy”particularly policy related to federal
regulations, such as micropurchase requirements and mandated sources of
supply.
Key Control Activities:
To resolve noncompliance with requirements in law for proper
certification of purchase card payments, we recommend that the
Secretary of the Air Force take the following actions.
* Direct the Assistant Secretary of the Air Force for Acquisition and
the Deputy Assistant Secretary for Contracting to work with the Under
Secretary of Defense (Comptroller) to resolve inconsistencies between
DOD and Air Force policies and procedures for reconciling purchase
card statements prior to payment.
* Develop a strategy for achieving Air Force compliance with
requirements in the law that DOD purchase card policies and procedures
require reconciliation of purchase card statements prior to payment.
We recommend that the Secretary of the Air Force direct the Assistant
Secretary of the Air Force for Acquisition and the Deputy Assistant
Secretary for Contracting to revise Air Force Instruction 64-117 to
provide cardholders, approving officials, and installation program
coordinators with detailed instructions on the following specific
control activities.
* Establish appropriate criteria, including types of items and dollar
thresholds for documenting independent receiving and acceptance of
items obtained with a purchase card.
* Establish specific procedures for documenting independent receiving,
such as requiring the approving official or supervisor to sign and date
the vendor invoice, sales receipt, or credit card receipt, or requiring
the approving official to sign the cardholder‘s monthly purchase log to
verify that items noted as having been received were actually received.
• Require cardholders to maintain documentation of timely and
independent receiving and acceptance of items obtained with a purchase
card.
* Require reconciliation of monthly purchase card statements associated
with accounts that were ’shut down“ (suspended) in July 2002 due to
lack of cardholder reconciliation and approving official review.
* Verify that all potentially fraudulent and erroneous transactions that
have been detected are disputed and properly resolved.
* Require timely cardholder notification to the property accountability
officer of pilferable property, such as fax machines, digital cameras,
and palm pilots obtained with the purchase card.
* Encourage installation contracting officers to consider the benefits
of central purchasing and receiving and acceptance of computer
equipment by installation information technology units to facilitate
recording computer equipment in accountable property records at the
time it is received.
We also recommend that the Deputy Assistant Secretary for Contracting
revise Air Force Instruction 64-117 to define and list examples of
sensitive and pilferable property purchased with a government purchase
card, including cell phones, digital cameras, fax machines, palm
pilots, and copiers and printers, and require prompt recording of these
items in installation property systems.
In addition, we recommend that the Assistant Secretary of the Air Force
for Logistics establish policies and procedures for recording all
pilferable and sensitive property, including digital cameras, palm
pilots, and cell phones, in installation accountable property records.
At a minimum, require installations to follow DOD policies and
procedures on accountable property.
Potentially Fraudulent, Improper, and Abusive and Questionable Purchase
Card Activity:
We recommend that the Assistant Secretary of the Air Force for Financial
Management (Comptroller) direct the Air Force Audit Agency and Air
Force Office of Special Investigations to establish an Air Force-wide
database of known fraud cases by type of fraud, including purchase card
fraud, that can be used to identify systemic weaknesses and
deficiencies in existing internal control and to develop and implement
additional control activities, if warranted or justified.
We recommend that the Assistant Secretary of the Air Force for
Acquisition and the Deputy Assistant Secretary for Contracting take the
following actions.
* Establish an Air Force-wide database of known purchase card fraud
cases by type of fraud, including vendor fraud and compromised
accounts, that can be used to identify deficiencies in existing internal
control and implement additional control activities, if warranted.
* Identify vendors with which the Air Force used purchase cards to make
frequent, recurring purchases, evaluate Air Force purchasing practices
with those vendors, and where appropriate, develop contracts with
those vendors to optimize Air Force purchasing power.
* Review organizational use of the purchase card and revoke purchase
cards issued to organizations that do not have authority to participate
in the governmentwide purchase card program.
* Cancel convenience check privileges of cardholders who have continued
to improperly use convenience checks.
* Require accounting adjustments to be made to correct transactions that
were charged to the wrong appropriation account with respect to fiscal
year and purpose of the expenditures.
* Establish appropriate, consistent Air Force-wide policy as a guide for
taking disciplinary actions with respect to cardholders and approving
officials who make or approve fraudulent, improper, or abusive purchase
card transactions.
* Require cardholders and/or approving officials to reimburse the
government for any unauthorized or erroneous purchase card transactions
that were not disputed.
* Require benefiting individuals to reimburse the government for the
cost of any personal items that they requested or directed a cardholder
to purchase for them.
We also recommend that the Under Secretary of Defense (Comptroller)
direct the Charge Card Task Force to assess the above recommendations,
as well as the strengths in the Air Force purchase card program that we
identified, and to the extent applicable, incorporate them into its
future recommendations to improve purchase card policies and procedures
throughout DOD.
Agency Comments and Our Evaluation:
On December 13, 2002, DOD‘s Purchase Card Joint Program Management
Office and the Air Force provided oral comments on a draft of this
report. DOD and Air Force purchase card officials concurred on 29 of
our 39 recommendations and partially concurred with the remaining 9
recommendations. At the time we finalized our work, DOD had not
provided a response to our remaining recommendation that the Charge
Card Task Force assess the recommendations in this report and
incorporate them to the extent applicable, into its future
recommendations to improve purchase card policies and procedures
throughout DOD. Of the 9 recommendations involving partial
concurrences, the DOD and Air Force officials (1) agreed in substance
with 5 of our recommendations, (2) noted that the Air Force Office of
Special Investigations and DOD Inspector General have responsibility
for actions on two of our recommendations related to establishing a
database of fraud cases by type of fraud that can be used to identify
systemic weaknesses and deficiencies in controls, and (3) indicated
alternative actions have been initiated on the remaining 2
recommendations.
With regard to agreement on the substance of our recommendations, Air
Force officials stated that they would (1) suspend alternate accounts
when primary cardholders and billing officials are available, (2)
revise the Air Force purchase card Instruction to require reports on
purchase card surveillance results to be signed by contracting squadron
commander or chief of the contracting office, (3) require
reconciliation of monthly purchase card statements associated with
accounts that were ’shut down“ (suspended) in July 2002, (4) issue a
policy letter to encourage installation Contracting Officers to
consider the benefits of central purchasing and receiving and
acceptance of computer equipment by installation Information Technology
units, and (5) revise the Air Force purchase card Instruction to define
and list examples of sensitive and pilferable property and establish
clear accountability and/or visibility criteria.
With regard to two recommendations related to establishing an Air
Forcewide database of known fraud cases by type of fraud to identify
and correct systemic weaknesses and deficiencies in existing internal
control, Air Force officials stated that the Air Force Office of
Special Investigations in conjunction with the other Defense Criminal
Investigative Organizations now reports quarterly information on
purchase card investigations to the DOD Inspector General. The
officials told us that the DOD Inspector General has been directed to
develop a centralized purchase card database on known fraud cases and
audit results that can be used to identify potential deficiencies in
existing internal controls. They said that the Air Force will evaluate
the Air Force cases and audits to determine the effectiveness of
existing internal controls and implement additional control activities,
if warranted.
Alternative Air Force actions relate to our recommendations that the
Deputy Assistant Secretary for Contracting (1) review organizational
use of the purchase card and revoke purchase cards issued to
organizations that do not have authority to participate in the
governmentwide purchase card program and (2) establish appropriate,
consistent Air Force-wide policy as a guide for taking disciplinary
actions with respect to cardholders and approving officials who make or
approve fraudulent, improper, or abusive purchase card transactions.
With regard to action on the first recommendation, Air Force officials
stated that the Chaplain Service has authority to issue its own
policies and procedures, including purchase card authority. However,
they stated that the Head of the Air Force Chaplain Office will
recommend reinstatement of the Chaplain Funds in DOD Directive 1015.1,
Establishment, Management, and Control of Nonappropriated Fund
Instrumentalities, which is in the process of being updated to reflect
current DOD and Air Force policies regarding the government purchase
card. The Air Force also agreed to review organizational use of the
purchase card and revoke purchase cards issued to organizations that do
not have authority to participate in the governmentwide purchase card
program.
With regard to action on our recommendation to establish Air Force-wide
policy as a guide for taking disciplinary actions, Air Force officials
noted the existing guidance in the Air Force purchase card Instruction,
which is discussed earlier in this report. They also stated that the
Deputy Assistant Secretary of the Air Force (Contracting) has issued a
memorandum requiring that a summary of each purchase card fraud and
each instance of repeated misuse of the purchase card be briefed
quarterly by the contracting squadron commander to the installation
commander along with the disciplinary action taken. The Congress
recently enacted provisions in DOD‘s appropriation and authorization
acts that require the Secretary of Defense to establish guidelines and
procedures for disciplinary actions to be taken against department
personnel for improper, fraudulent, or abusive use of government
purchase cards.
In addition, the Air Force provided technical comments on our draft
report stating that it disagreed with our position that civilian
clothing for enlisted aides and costumes for military band members
represented abusive or questionable transactions. The Air Force
referred to its Enlisted Aide Handbook and Air Force Instruction 36-
2123 as authority for purchasing civilian attire, which is designated
as a ’uniform“ for enlisted aides. Air Force officials pointed out that
their handbook specifically states, ’operation and maintenance funds
are used when purchasing uniform items“ and ’local purchase is
authorized and encouraged.“ Air Force officials also stated that band
costumes are authorized purchases in accordance with Air Force
Instruction 35-101 and that band costumes may be reused, as
appropriate. The Air Force‘s position appears to be that any item
defined in its policy as a uniform or band costume can be purchased
using a purchase card and paid for with appropriated funds. We continue
to believe that these clothing purchases are questionable because the
Air Force did not adequately explain the circumstances of the
purchases, such as the purpose of clothing and the vendor. The Air
Force‘s policy opens the door for abuse and its implementation merits
close scrutiny.
As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute this report until 30 days from
its date.
At that time, we will send copies to interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
for Acquisition, Technology, and Logistics; the Under Secretary of
Defense (Comptroller); the Secretary of the Air Force; the Assistant
Secretary of the Air Force for Acquisition; the Deputy Assistant
Secretary of the Air Force for Contracting; the Assistant Secretary of
the Air Force for Logistics; the Director of the Defense Finance and
Accounting Service; and the Director of the Office of Management and
Budget. We will make copies available to others upon request. The
report also will be available free of charge on GAO‘s Web page at
[hyperlink, http://www.gao.gov].
Please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov, John
Ryan at (202) 512-9587 or ryanj@gao.gov, or Gayle L. Fischer at (202)
512-9577 or fischerg@gao.gov, if you or your staff have any questions
concerning this report. Major contributors to this report are
acknowledged in appendix IV.
Signed by:
Gregory D. Kutz:
Director:
Financial Management and Assurance:
Signed by:
Robert J. Cramer:
Office of Special Investigations:
Managing Director:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
We audited the effectiveness of the Air Force‘s internal controls and
payment of its fiscal year 2001 purchase card transactions. The Air
Force‘s purchase card program is the smallest of the three services,
with fewer transactions and dollars spent than the Army or the Navy. We
selected our four case study locations by identifying major commands
with the largest purchase card sales volume and number of transactions.
We selected major Air Force commands that accounted for about 69
percent of total purchase card charges and 65 percent of total
transactions for fiscal year 2001. We then selected one installation
within each of the four commands based on the magnitude of purchase
card activity (sales volume and number of transactions). We also
considered the results of prior Air Force Audit Agency work. We
selected the following Air Force installations for our case study work.
Table 12: Installations Audited and Associated Major Commands:
Installation and location: Edwards AFB, California;
Major command:Air Force Materiel Command.
Installation and location: Lackland AFB, Texas;
Major command:Air Education and Training Command.
Installation and location: Nellis AFB, Nevada;
Major command:Air Combat Command.
Installation and location: Travis AFB, California;
Major command:Air Mobility Command.
[End of table]
At the four Air Force installations, we evaluated the policies and
procedures used to guide the purchase card program, and we evaluated the
activities they engage in to oversee the program. We used a case study
approach to evaluate the local purchase card program, and our work
consisted of three major segments”(1) an assessment of the overall
control environment, including the adequacy of the Air Force‘s policies
and procedures, (2) an evaluation of the effectiveness of key internal
control activities, and (3) a determination of whether evidence existed
of potentially fraudulent, improper, and abusive or questionable
transactions. Finally, we assessed management actions taken in fiscal
year 2002 to improve purchase card controls.
To assess the overall control environment, we used as our primary
criteria applicable laws and regulations; our Standards for Internal
Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999);
and our Internal Control Standards: Internal Control Management and
Evaluation Tool (GAO-01-1008G, August 2001). To assess the management
control environment, we applied the fundamental concepts and standards
in GAO‘s Internal Control Standards to the practices followed by
management.
To test the implementation of key control activities during fiscal year
2001 at the four installations we audited, we obtained from DOD, U.S.
Bank‘s database of Air Force purchase card transactions from October 1,
2000, through September 30, 2001. We did not verify the accuracy of
U.S. Bank‘s database. We selected stratified random probability samples
of 150 to 152 purchase card transactions from the population of Air
Force transactions [Footnote 39] for each case study location. With
these statistically valid samples, each transaction in the four
locations‘ populations had a nonzero probability of being included, and
that probability could be computed for any transaction. Within each
installation we stratified the population of transactions by the dollar
value of the transaction and by whether the transaction was likely to
be for a purchase of computers and related equipment. Each sample
transaction for an installation was subsequently weighted in the
analysis to account statistically for all the transactions in the
population of that installation, including those that were not
selected.
For each transaction sampled, we tested whether key internal control
activities had been performed. For each control activity tested, we
projected an estimate of the percent of transactions for which the
control activity was not performed, for each installation. Because we
followed a probability procedure based on random selections of
transactions, our sample for each installation is only one of a large
number of samples that we might have drawn. Since each sample could
have produced different estimates, we express our confidence in the
precision of our particular samples‘ results (that is, the sampling
error) as 95 percent confidence intervals. These are intervals that
would contain the actual population value for 95 percent of the samples
we could have drawn. As a result, we are 95 percent confident that each
of the confidence intervals in this report will include the true
(unknown) values in the study populations.
Although we projected the results of our samples to the populations of
transactions at the respective case study locations, the results cannot
be projected to the population of Air Force transactions or
installations as a whole. Tables 13 through 20 present (1) the results
of our tests for one or more control attributes, (2) the point
estimates of the failure rate for the attributes, (3) the two-sided 95
percent confidence intervals for the failure rates for each attribute,
(4) our assessments of the effectiveness of the controls, and (5) the
relevant lower and upper bounds of a one-sided 95 percent confidence
interval for the failure rate. All numbers in these tables are rounded
to the nearest percentage point.
We use one-sided confidence bounds to classify the effectiveness of a
control activity. If the one-sided upper bound does not exceed 5
percent, then the control activity is effective. If the one-sided lower
bound exceeds 10 percent, then the control is ineffective. Otherwise,
we say that the control is partially effective. Partially effective
controls may include those for which there is not enough evidence to
assert either effectiveness or ineffectiveness. For example, if we were
95 percent confident that the failure rate for a particular control is
less than 3 percent, we would categorize that control activity as
’effective“ because 3 percent is less than the 5 percent standard.
Similarly, if we were 95 percent confident that the failure rate for a
particular control is greater than 72 percent, we would categorize that
control as ’ineffective“ because 72 percent is greater than the 10
percent standard.
Table 13 shows the results of our tests of controls for documenting
cardholder and approving official appointments. Local commanders
appoint cardholders and approving officials for their units and notify
the installation program coordinator who then schedules these
individuals for purchase card training.
Table 13: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official
Appointments:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals):82% (71% to 90%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 73%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals):0% (0% to 4%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 3%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals):0% (0% to 4%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 3%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals):97% (89% to 100%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound =90%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 14 shows the results of our tests of controls for documenting
initial training of cardholders and approving officials. Air Force
Instruction 64-117 requires cardholders and approving officials to
receive purchase card training before they can be assigned a purchase
card account.
Table 14: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official
Initial Training:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 12% (5% to 23%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 6%, or
upper bound = 21%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 0% (0% to 4%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 3%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 0% (0% to 4%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 3%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 51% (39% to 64%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 41%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 15 shows the results of our tests of controls for documenting
cardholder delegations of purchasing authority. After cardholders
complete purchase card training, installation program coordinators are
to prepare a letter of delegation of purchasing authority indicating the
cardholder‘s transaction level spending limit and monthly credit limit.
Table 15: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder Delegations of Purchasing
Authority:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 13% (6% to 23%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 7%, or
upper bound = 21%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 0% (0% to 2%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 2%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 1% (0% to 5%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 4%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 84% (73% to 93%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 75%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 16 presents the results of our tests for documentation of advance
purchase authorization. Air Force Instruction 64-117 requires advance
authorization for purchases of certain items, including computer and
communication equipment, video equipment, medical items, and hazardous
materials. Estimates for this table are based only on the sample
transactions for which advance authorization of purchases was required.
Table 16: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Advance Purchase Authorization:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 6% (1% to 16%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 2%, or
upper bound = 15%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 12% (2% to 32%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 3%, or
upper bound = 29%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 4% (1% to 11%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 1%, or
upper bound = 10%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 2% (0% to 8%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 0%, or
upper bound = 7%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 17 presents the results of our tests for documentation of
independent receiving and acceptance, by someone other than the
cardholder, of goods and services purchased with a government purchase
card. This requirement is not specifically addressed in DOD policy or
Air Force purchase card program Instruction 64-117. We believe that
independent documentation of receipt of items purchased by a cardholder
is a basic internal control activity that provides additional assurance
to the government that purchased items are not acquired for personal
use and that they come into the possession of the government.
Table 17: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Independent Receipt and Acceptance:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 68% (56% to 79%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 58%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 61% (48% to 73%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 50%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 53% (41% to 65%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 43%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 56% (44% to 68%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 46%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 18 presents the results of our tests for documentation of
cardholder reconciliations. Cardholder reconciliations are key to
identifying potentially fraudulent transactions resulting from
compromised accounts, duplicate or improper vendor charges, and errors.
As evidence that purchase card statements were reconciled, we accepted
check marks, notes, sequential numbering, and numbering systems that
tied transactions on the statement to items on the cardholders‘
purchase card logs.
Table 18: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder Reconciliations:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 22% (13% to 34%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 14%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 26% (15% to 39%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 17%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 37% (25% to 51%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 27%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 21% (12% to 33%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 13%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 19 presents the results of our tests of timely approving official
review of cardholders‘ monthly, reconciled statements. Approving
official review is a recognized control activity at all levels of the
purchase card program, and the approving official review process has
been described as the first line of defense against misuse of the card.
DOD‘s Purchase Card Joint Program Management Office and Air Force
Instruction 64-117 recognize that approving official review of monthly
purchase card statements is central to ensuring that purchase card
transactions are appropriate. The Air Force Instruction requires that
approving officials review and approve reconciled cardholder statements
within 15 days of receipt of the monthly statement, but no later than
the 15th day of the following month.
Table 19: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Approving Official Review:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 70% (58% to 81%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 60%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 87% (78% to 94%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 80%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 69% (56% to 80%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 58%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 73% (60% to 84%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 62%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
Table 20 shows the results of our tests for documentation of supporting
invoices or receipts. GAO‘s Internal Control Standards state, ’all
transactions and other significant events need to be clearly documented,
and the documentation should be readily available for examination. All
documentation and records should be properly managed and maintained.“
Without a receipt, independent evidence of the description and quantity
of what was purchased and the price paid is not available. In testing
for evidence of a receipt, we accepted either the original or a copy of
the invoice, sales slip, or other store receipt.
Table 20: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Supporting Invoice or Receipt:
Air Force installation: Edwards;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 9% (3% to 19%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 4% or
upper bound = 18%.
Air Force installation: Lackland;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 30% (19% to 44%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Ineffective; lower bound = 21%.
Air Force installation: Nellis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 0% (0% to 4%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Effective; upper bound = 3%.
Air Force installation: Travis;
Percentage of breakdowns in key purchase card controls[A] (and 2-sided
95% confidence intervals): 8% (3% to 19%);
Assessment of effectiveness of controls (and relevant bounds of 1-sided
95% confidence intervals): Partially effective; lower bound = 3% or
upper bound = 17%.
Source: GAO analysis.
[A] The numbers represent point estimates for the population based on
our sampling tests.
[End of table]
We also tested nonrepresentative selections of accountable property
items that were included in our sampled transactions. Because some
transactions were for property items that were physically located off
base, we elected to perform our test work on property items that were
assigned to the base. We tested whether these items had been recorded
in the installation‘s accountable property records, including unit-
level records, in a timely manner and whether the installation could
demonstrate the item‘s existence. We confirmed existence of the items
we tested through physical observation.
In addition to our audit of statistical samples of transactions at the
four case study installations, we also used data mining techniques to
identify other selected transactions at the four locations and
throughout the Air Force‘s fiscal year 2001 purchase card transactions
to determine if indications exist of potentially fraudulent, improper,
and abusive or questionable purchase card activity. Our data mining
included identifying transactions with certain vendors were more likely
to sell items that would be unauthorized or that would be personal
items. We also based our selection on the nature, dollar amount, date,
and other identifying characteristics of the transactions. Because of
the large number of transactions that met these criteria, we did not
look at all potential abuses of the purchase card. For a small number
of these transactions at each of the four installations and from the
Air Force-wide database, we requested limited documentation, usually
the supporting invoice, that could provide additional indications as to
whether the transactions were potentially fraudulent, improper, or
abusive or questionable. If the additional documentation indicated that
the transactions were likely proper and valid, we did not pursue
further documentation. If the additional documentation was not
provided, or if it indicated further issues related to the
transactions, we obtained and analyzed additional documentation or
information about these transactions. While we identified some
potentially fraudulent, improper, and abusive or questionable
transactions, our work was not designed to identify, and we cannot
determine, the extent of potentially fraudulent, improper, or abusive
transactions.
For those potentially fraudulent transactions that had been or were
being investigated at the four audited installations, we discussed the
cases with the investigators and/or obtained records and reports on the
investigations. We also interviewed purchase card officials and Air
Force criminal investigators to identify other Air Force purchase card
fraud cases that had been or were being investigated.
We did not audit the Defense Finance and Accounting Service‘s purchase
card payment process. We also did not audit electronic data processing
controls used in processing purchase card transactions. The
installations received hard copy paper monthly bills containing the
charges for their purchases and used manual processes for much of the
period we audited, which reduced the relevance of auditing electronic
data processing controls.
We briefed DOD managers, including officials in DOD‘s Purchase Card
Joint Program Management Office, major command purchase card program
coordinators, and purchase card program officials at the installations
we audited on the details of our audit, including our objectives,
scope, and methodology and our findings. On November 20, we requested
comments on a draft of this report. We obtained oral comments from DOD
and Air Force purchase card officials on December 13, 2002, and have
summarized those comments in the ’Agency Comments and Our Evaluation“
section of this report. We conducted our audit work from January
through mid-November 2002 in accordance with U.S. generally accepted
government auditing standards, and we performed our investigative work
in accordance with standards prescribed by the President‘s Council on
Integrity and Efficiency.
[End of section]
Appendix II: Overview of the Air Force Purchase Card Process:
The Air Force purchase card program is part of the governmentwide
Commercial Purchase Card Program established to streamline federal
agency acquisition processes by providing a low-cost, efficient vehicle
for obtaining goods and services directly from vendors. Under the
General Services Administration‘s blanket contract, the Air Force has
contracted with U.S. Bank for its purchase card services. DOD reported
that it used purchase cards to make about 10.7 million transactions for
goods and services at a cost of over $6.1 billion. During this same
period, the Air Force reported that it used government purchase cards
to make about 3 million transactions at a cost of about $1.4 billion.
This represents about 23 percent of DOD‘s activity for fiscal year
2001. Air Force purchase card transactions were made using about 80,000
VISA cards issued to civilian and military employees.
Table 21: Number and Value of Air Force Fiscal Year 2001 Purchase Card
Transactions:
Major Air Force command: Air Education and Training Command;
Number of transactions: 410,564
Cost of transactions (in millions): $173.1;
Percent of total Air Force cost: 12.4.
Major Air Force command: Air Force Materiel Command;
Number of transactions: 597,212;
Cost of transactions (in millions): $305.2;
Percent of total Air Force cost: 21.9.
Major Air Force command: Air Force Reserve Command;
Number of transactions: 89,423;
Cost of transactions (in millions): $28.1;
Percent of total Air Force cost: 2.0.
Major Air Force command: Air Force Space Command;
Number of transactions: 158,799;
Cost of transactions (in millions): $75.0;
Percent of total Air Force cost: 5.4.
Major Air Force command: Air Force Special Operations Command;
Number of transactions: 52,822
Cost of transactions (in millions): $20.8;
Percent of total Air Force cost: 1.5.
Major Air Force command: Air Force Services Agency[A];
Number of transactions: 266,916;
Cost of transactions (in millions): $61.5;
Percent of total Air Force cost: 4.4.
Major Air Force command: Air Combat Command;
Number of transactions: 607,402;
Cost of transactions (in millions): $282.3;
Percent of total Air Force cost: 20.2.
Major Air Force command: Air Mobility Command;
Number of transactions: 452,927;
Cost of transactions (in millions): $197.8;
Percent of total Air Force cost: 14.2.
Major Air Force command: Pacific Air Forces;
Number of transactions: 188,722;
Cost of transactions (in millions): $90.1;
Percent of total Air Force cost: 6.4.
Major Air Force command: Other major commands;
Number of transactions: 336,186;
Cost of transactions (in millions): $162.7;
Percent of total Air Force cost: 11.6.
Major Air Force command: Total, all major commands;
Number of transactions: 3,160,973;
Cost of transactions (in millions): $1,396.6;
Percent of total Air Force cost: 100.0.
Source: GAO analysis of Air Force purchase card program data.
[A] The Air Force Services Agency is funded by nonappropriated sources.
[End of table]
DOD has mandated the use of the purchase card for all purchases at or
below $2,500 and has authorized the use of the card to pay for specified
larger purchases. For example, the purchase card may be used to purchase
authorized supplies, equipment, and nonpersonal services up to the
$2,500 micropurchase threshold. If authorized to make purchases above
$2,500, cardholders not in contracting organizations are to use the
government purchase card only to obtain items from prepriced contracts
and other pricing agreements, such as the Federal Supply Schedule,
blanket purchase agreements, and Indefinite Delivery/Indefinite
Quantity contracts. Purchases over the $2,500 micropurchase threshold
and up to the simplified acquisition threshold of $25,000 must be in
accordance with streamlined acquisition guidelines in the Federal
Acquisition Regulation (FAR). The purchase card should normally not be
used for cash advances; travel-related purchases; rentals or leases of
land or buildings; utility services; or hazardous/dangerous items, such
as explosives, munitions, toxins, and firearms.
Government Purchase Card Program Guidelines:
The purchase card can be used for both micropurchases and payment of
other purchases. Although most cardholders have limits of $2,500, some
have limits of $25,000 or higher. The Federal Acquisition Regulation,
Part 13, ’Simplified Acquisition Procedures,“ establishes criteria for
using purchase cards to place orders and make payments. DOD has a
supplement to this regulation that contains sections on simplified
acquisition procedures. U.S. Treasury regulations govern purchase card
payment certification processing and disbursements. DOD‘s Purchase
Card Joint Program Management Office, which is in the Office of the
Assistant Secretary of the Army for Acquisition Logistics and
Technology, has issued departmentwide guidance related to the use of
purchase cards. However, each service has its own policies and
procedures governing the purchase card program.
Air Force Purchase Card Acquisition and Payment Processes:
The Air Force purchase card program operates under federal Air Force
guidance as the policy and procedural foundation for its purchase card
program. The Air Force headquarters Acquisition Office is responsible
for the overall management of the Air Force‘s purchase card program. The
Acquisition Office has published servicewide guidelines in Air Force
Instruction 64-117, Governmentwide Purchase Card Program, dated
December 6, 2000, to establish responsibilities and procedures and
provide administrative guidance for its government purchase card
operations. Under the Air Force instruction, each Air Force command‘s
head contracting officer authorizes agency purchase card program
coordinators in local Air Force units to obtain purchase cards and
establish credit limits. The program coordinators are responsible for
administering the purchase card program within their designated span of
control and serve as the communication link between Air Force units and
the purchase card-issuing bank. The other key personnel in the purchase
card program are the approving officials and the cardholders. They are
responsible for implementing internal controls to ensure that
transactions are appropriate.
Purchase Card Process:
Figure 2 illustrates the general design of the purchase card processes
for the Air Force. The overall process begins with the cardholder
ordering or purchasing goods or services. Each Air Force installation‘s
Financial Services Office certifies monthly bills for payment upon
receipt. After certification, the Financial Services Offices notify the
Defense Finance and Accounting Service that monthly purchase card
statements are ready for payment. The process ends with cardholder
reconciliation and approving official review and approval of monthly
purchase card statements after the bills have been paid. Any invalid
transactions identified during the reconciliation and review process
are to be disputed first with the vendor, and if not resolved, a
’Disputed Item“ form is to be submitted to U.S. Bank for credit.
Figure 2: Air Force Purchase Card Process:
[See PDF for image]
This figure is an illustration of the Air Force purchase card process,
as follows:
* Purchase cardholder orders/charges goods and services;
- Items picked up (Vendor).
* Goods and services received with or without documentation of
independent receiving;
- Pilferable items to be recorded in accountable property records.
* U.S. Bank reviews disputed charges and credits monthly statement or
rejects the dispute; Monthly purchase card statements are received
from bank;
- Installation Financial Services Office establishes obligation,
certifies consolidated monthly purchase card statement and forwards to
DFAS for payment to U.S. Bank within 3 to 5 days;
- DFAS processes purchase card payments to U.S. Bank.
* Cardholders are to reconcile underlying receipts/sales slips to
monthly purchase card statements, identify any invalid charges, and
prepare dispute forms.
- Cardholders are to log items not received and follow up to (1)
confirm receipt or (2) dispute the charge.
* Approving official reviews cardholder support and approves reconciled
cardholder statement within 15 days, or no later than 15th day of the
following month.
* Cardholder or approving official are to log disputed charges and send
forms to U.S. Bank for credit.
Source: GAO analysis of Air Force purchase card program organization.
[End of figure]
Purchase cardholders are delegated limited contracting officer-ordering
responsibilities, but they do not negotiate or manage contracts. When a
supervisor requests that a staff member receive a purchase card, the
agency program coordinator is to first provide training on purchase
card policies and procedures and then establish a credit limit and
issue a purchase card to the staff member. After receiving training,
cardholders are issued a purchase card, which bears their name and the
account number that has been assigned to them. The cardholder is
expected to safeguard the purchase card as if it were cash. Each
cardholder has an established daily and monthly credit limit and is
designated to make purchases at selected types of vendors. Cardholders
use purchase cards to order goods and services for their units as well
as their customers. Cardholders may pick up items ordered directly form
the vendor or request that items be shipped directly to receiving
locations or end users.
The approving official is responsible for providing assurance that all
purchases made by the cardholders within his or her cognizance were
appropriate and that the charges are accurate. The approving official is
supposed to resolve all questionable purchases with the cardholder. In
the event an unauthorized purchase is detected, the approving official
is supposed to notify the agency program coordinator and other
appropriate personnel within the command in accordance with the command
procedures. Under governmentwide guidelines, agencies are required to
first attempt to resolve invalid transactions with the vendors.
Transactions that are not resolved with the vendors may be disputed
with the U.S. Bank.
The purchase card payment process begins with receipt of the monthly
purchase card billing statements from the bank. The Air Force uses a pay
and confirm process whereby the monthly purchase card statements
received from U.S. Bank are certified as proper for payment by each
installation‘s Financial Services Office within 3 to 5 business days and
forwarded to the Defense Finance and Accounting Service (DFAS) for
payment. Under guidelines in the Air Force purchase card Instruction,
cardholders are required to review and reconcile their monthly purchase
card statements within 5 days of receipt, and approving officials are
required to review cardholders‘ monthly statements as reconciled and
dispute any invalid charges within 15 days of receipt, but no later
than the 15th day of the following month.
DFAS effectively serves as a payment processing service and relies on
the Air Force Financial Services Office certification of the
consolidated monthly bill for each installation as support to make the
payment. The DFAS vendor payment system then makes a single payment to
U.S. Bank by electronic funds transfer for each Air Force
installation‘s monthly purchase card expenditures.
During the summer of 2001, the Air Force began implementing U.S. Bank‘s
Customer Automation and Reporting Environment (CARE) system. CARE
provides several automated purchase card management features, including
on-line cardholder purchase logs, transaction histories, and management
reporting and inquiry functions. CARE management reports identify
managing accounts, approving officials and cardholders‘ accounts,
transaction history, rejected transactions, and the reasons for the
rejections, such as transactions in excess of the cardholder‘s credit
limit, potential split purchases, inactive accounts, and blocked
merchant category codes.
During fiscal year 2002, the Air Force implemented additional purchase
card management controls using U.S. Bank‘s CARE system. These
enhanced controls include an automated link of cardholder credit limits
to budgetary funding authorizations to help ensure that purchase card
activity will not exceed available funds. Another control feature
monitors approving official span of control over cardholder accounts to
help ensure that installations are meeting DOD and Air Force goals for
reducing and eliminating excessive approving official span of control.
The enhanced controls also include automated tracking of cardholder
review of individual transactions on their monthly purchase card
statements and billing officials‘ approval of those statements.
Statements cannot be approved until the cardholders have physically
’touched“ (clicked on) each transaction on the computer screen to
indicate that they have reviewed the transactions. CARE automatically
shuts down the accounts of billing officials who have not approved
their consolidated statements within 60 days. No charges can be
processed against these accounts until they are reviewed/reconciled and
approved. U.S. Bank has also shut down accounts that indicate potential
fraud. For example, the bank has shut down Air Force purchase card
accounts due to out of state transactions on weekends and other
suspicious patterns of activity that indicate potentially compromised
accounts.
[End of section]
Appendix III: Examples of Air Force Purchase Card Fraud Cases:
The following examples illustrate the types of cases investigated by
the Air Force Office of Special Investigations.
Case #1:
During May 2000, after a Nellis AFB approving official retired, the new
approving official‘s review of a cardholder‘s monthly statements
detected questionable transactions for which no receipts were
available. The new official notified contracting officials who
contacted Air Force investigators. The cardholder, an E-4, senior
airman, used her government purchase card to obtain between $5,000 and
$20,000 in merchandise, which she then stole and sold, pawned, or left
at her residence. When questioned by her supervisor, who was the
approving official, the airman admitted that she stole the items she
had purchased with the government purchase card. When confronted by
investigators, the airman refused to identify specific items of
equipment that she stole. For example, the airman only stated that she
purchased items from Home Depot and a local hardware store. Nellis AFB
contracting officials told us that the cardholder used the purchase
card to buy fax machines, calling cards, cordless telephones, digital
cameras, chairs, and laser jet printers and sold them to pawnshops and
at swap meets for personal gain.
The day before being court-martialed, the airman paid back approximately
$7,100 to the government. The airman waived her Article 31 rights
[footnote 40] and pleaded guilty to purchasing and pawning over $7,100
worth of personal items on her purchase card between May 1, 1999, and
May 1, 2000. The airman was convicted of larceny in a General Court-
Martial and sentenced on March 17, 2001, resulting in a reduction in
grade to E-1, $14,768 in military pay forfeiture, 7 month‘s
confinement, and a Bad Conduct Discharge. This fraud was able to occur
and continue because the first approving official apparently had not
reviewed the cardholder‘s monthly purchase card statements and,
therefore, had not detected or questioned the fraudulent transactions.
Case #2:
On September 27, 2000, the purchase card program coordinator at Misawa
Air Base, Japan, notified Air Force investigators about possible
government purchase card fraud. The program coordinator‘s audit of a
cardholder‘s account had revealed numerous undocumented
charges/purchases. Air Force investigators determined that the fraud
was committed by an E-4, senior airman, in the Civil Engineering
Squadron whose own purchase card had been revoked for misuse. The
airman took advantage of a co-worker‘s inexperience and limited English
language capability to obtain and improperly use her purchase card. The
cardholder was a Japanese citizen employed by the Air Force.
In early October 2000, the cardholder gave investigators a signed, sworn
statement, in which she related that from approximately March through
September 2000, an E-4, senior airman in the Civil Engineering Squadron
had repeatedly used the cardholder‘s government purchase card to pay
bills and make purchases, often without the cardholder‘s knowledge.
While the cardholder was aware that some of the purchases were made at
the squadron‘s Self Help Store, she told Air Force investigators that
she had no knowledge of the types of items purchased. The cardholder
also stated that when she inquired as to the nature of the purchases,
the senior airman told her that he would take care of purchases using
the card because of her limited English language capabilities. No
attempt was made to correct this misuse of the purchase card until the
bank declined a large purchase of approximately $50,000 due to the high
dollar amount. The declined transaction flagged the account, and the
contracting squadron initiated an inquiry.
Contracting squadron records showed that the senior airman had
purchased approximately $10,000 of merchandise using the Japanese
cardholder‘s account. Air Force investigators‘ review of Self Help Store
records failed to identify what was purchased and/or if the items had
ever been received at the store. As a result, investigators were unable
to determine whether criminal abuse had occurred. However, because the
investigation did identify procedural violations, investigators
referred this matter to the command for action. The airman subsequently
was reassigned from the civil engineering squadron. The airman was able
to use the purchase card for unauthorized transactions because the
cardholder failed to maintain custody of the purchase card.
Case #3:
On August 14, 2001, investigators assigned to the 325th Security Forces
Squadron at Tyndall AFB, Florida, received an allegation that a WG-5
[Footnote 41] maintenance employee was using his government purchase
card to buy personal use items. According to a witness, the cardholder
had bragged about using his government purchase card to purchase tools,
a television set, and a computer for his personal use. The witness told
the investigators that he had accompanied the cardholder to a local
hardware and auto parts stores in Panama City, Florida, and had
observed the cardholder using his government purchase card to buy tools
and other items for his son‘s vehicle. The cardholder subsequently gave
one of the tools to the witness and told him to keep it for his
personal use. Squadron investigators coordinated with a local hardware
store and obtained security videotape as evidence. The video depicted
the cardholder, who was present with the witness, purchasing a drill
bit, which the cardholder subsequently gave to the witness. The
cardholder also allegedly used his government purchase card to pay for
major engine repairs to his son‘s vehicle.
The investigators‘ preliminary review of the cardholder‘s account
disclosed several unauthorized charges for dental work totaling
approximately $1,800 and charges for an automotive engine repair for
$1,181. Numerous additional suspect charges were identified on the
cardholder‘s purchase card account. The investigation, which is
ongoing, has identified an estimated $5,000 in fraudulent purchases.
Coordination with the cardholder‘s command disclosed indications of an
almost total lack of oversight on the part of the approving official.
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Gayle L. Fischer, (202) 512-9577:
Harold D. Reich, (213) 830-1078:
Acknowledgments:
Staff making key contributions to this report include Bertram J. Berlin,
James D. Berry, Jr., Cindy Barnes-Brown, Francine DelVecchio, Carlos M.
Garcia, Kenneth M. Hill, Jeffrey A. Jacobson, Noel J. Lance, Richard A.
Larsen, James D. Moses, Jerrod J. O‘Nelio, Mark F. Ramage, Kenneth H.
Roberts, Sidney H. Schwartz, and Gary R. Wiggins.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-01-995T
(Washington, D.C.: July 30, 2001) and Purchase Cards: Continued Control
Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-
506T (Washington, D.C.: Mar. 13, 2002).
[2] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-732
(Washington, D.C.: June 27, 2002) and Purchase Cards: Control
Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-
844T (Washington, D.C.: July 17, 2002).
[3] U.S. General Accounting Office, Purchase Cards: Navy is Vulnerable
to Fraud and Abuse, but Is Taking Action to Resolve Control Weaknesses,
GAO-03-154T (Washington, D.C.: Oct. 8, 2002) and Purchase Cards: Navy
is Vulnerable to Fraud and Abuse, but Is Taking Action to Resolve
Control Weaknesses, GAO-02-1041, Washington D.C.: Sept. 27, 2002).
[4] For this report, we limit the use of the term ’fraudulent“ to
describe those instances in which someone has been convicted, or
punished, for fraudulent activity under the Uniform Code of Military
Justice. In all other instances, we use the phrase ’potentially
fraudulent.“
[5] Air Force Instruction, 64-117, Air Force-wide Purchase Card
Program, issued December 6, 2000.
[6] Section 4535 of volume 1 of the Treasury Financial Manual.
[7] In a letter dated April 30, 2002, DOD informed us that its
reengineering memorandums and other pronouncements comply with 10
U.S.C. 2784, which requires the Secretary of Defense to issue
regulations that require, among other things, reconciliation of
purchase card statements to receipts before the statements are
forwarded to the disbursing office.
[8] Suspended purchase card accounts are placed in inactive status
pending further decisions about their use, such as returning them to
active status after a required action has occurred or canceling the
accounts.
[9] U.S. Bank officials told us that in July 2001, they became aware of
fraudulent Air Force purchase card transactions due to compromised
accounts. The compromised accounts were caused by a fraud ring that
used computers to randomly generate purchase card accounts and/or make
counterfeit credit cards that resulted in fraudulent charges to credit
cards issued nationwide by several banks.
[10] DOD has assigned agencywide purchase card program management
responsibility to the Assistant Secretary of the Army (Acquisition,
Logistics, and Technology).
[11] Approving officials are also referred to as billing officials or
accountable officials. These terms are used interchangeably by the Air
Force.
[12] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/AIMD-00-21.3.1 (Washington D.C.: November
1999).
[13] Federal Acquisition Regulation, Part 4, Section 4.805 states that
contracts and related documents at or below the simplified acquisition
threshold of $100,000 must be retained for 3 years.
[14] General Records Schedule No. 6, ’Accountable Officer‘s Accounts
Records.“
[15] DOD Financial Management Regulation, Volume 1, Chapter 9,
"Financial Records Retention."
[16] Memorandum from Director, Purchase Card Joint Program Management
Office to assistant secretaries of defense agencies. Subject: Internal
and Management Controls – DOD Purchase Card Program (July 5, 2001).
[17] The range of our confidence interval, at a 95-percent confidence
level, was between 5 percent and 23 percent.
[18] The range of our confidence interval, at a 95-percent confidence
level, was between 39 percent and 64 percent.
[19] While the Air Force Instruction does not require that approving
officials have refresher training, the surveillance checklist, which is
included in the Instruction, includes a question on whether approving
officials have received refresher training, thus implying that this
training is required.
[20] The Air Force Audit Agency has performed 253 reviews of
installation purchase card controls since fiscal year 1996.
[21] Air Force Audit Agency, Air Force Purchase Card Program, Audit
Report F2002-0006-C06400 (Aug. 6, 2002).
[22] Approving official billing accounts (also referred to as managing
accounts) are summary accounts that include the accounts of individual
cardholders under the purview of the approving official. To approve the
monthly billing account statement, the approving official is required
to review the monthly, reconciled statements for each of the cardholder
accounts that are included in the approving official‘s monthly billing
statement.
[23] Air Force Audit Agency, Installation Report of Audit: Air Force
Purchase Card Program, Air Force Flight Test Center, Edwards AFB CA,
Audit Report F2002-0005-DD0000 (Washington, D.C.: Jan. 31, 2002).
[24] Air Force Audit Agency, Installation Report of Audit: Air Force
Governmentwide Purchase Card Program, 37th Training Wing, Lackland AFB
TX, Audit Report WR002003 (Washington, D.C.: Oct. 17, 2001).
[25] Air Force Audit Agency, Installation Report of Audit: Air Force
Purchase Card Program, 60th Air Mobility Wing, Travis AFB CA, Audit
Report F2002-0019-WM0000 (Washington, D.C.: Nov. 29, 2001).
[26] Air Force Audit Agency, Commanders Audit Program, Report of Audit:
Unit Purchase Controls for the International Merchants Purchase
Authorization Card, 99th Air Base Wing, Nellis AFB NV, Audit Report
WN001C02 (Washington, D.C.: Apr. 4, 2001).
[27] Public Law 107-248, 116 Stat. 1519, 1572.
[28] Public Law 107-314 (H. R. Rep. No. 107-702).
[29] Suspended purchase card accounts are placed in inactive status
pending further decisions about their use, such as returning them to
active status after a required action has occurred or canceling the
accounts.
[30] Convenience checks are courtesy checks provided by the purchase
card-issuing bank, which are charged to a related purchase card
account. DOD and Air Force policy permit use of convenience checks
within specified purposes and amounts.
[31] Federal Acquisition Regulation guidelines prohibit splitting
purchase requirements into more than one transaction to avoid the need
to obtain competitive bids on purchases over the $2,500 micropurchase
threshold.
[32] The JWOD program is a mandatory source of supply for all federal
entities. It generates jobs and training for Americans who are blind or
have other severe disabilities by requiring federal agencies to
purchase supplies and services furnished by nonprofit agencies, such as
the National Industries for the Blind and the National Institute for
the Severely Handicapped.
[33] DOD Directive, Armed Forces Clothing Monetary Allowance Policy,
(Number 1338.5, Mar. 9, 1998), and DOD Instruction, Armed Forces
Clothing Monetary Allowance Procedures, (Number 1338.18, Jan. 7, 1998).
[34] Air Force Instruction 36-2903, Dress and Personal Appearance of
Air Force Personnel (June 8, 1998) and AFI 36-3014, Clothing Allowances
for Air Force Personnel (Sept. 1, 1998).
[35] The Eubank Service Award was established in 1990 to recognize the
best Air Force Services Program at small bases with 5,000 or fewer
civilian and military employees.
[36] 72 Comp. Gen. 178, 179 (1993); 65 Comp. Gen. 508, 509 (1986).
[37] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-732
(Washington, D.C.: June 27, 2002).
[38] DOD Directive, Armed Forces Clothing Monetary Allowance Policy,
(Number 1338.5, March 9, 1998); DOD Instruction, Armed Forces Clothing
Monetary Allowance Procedures, (Number 1338.18, January 7, 1998); Air
Force Instruction 36-2123, Management of Enlisted Aides; Air Force
Enlisted Aide Handbook; and AFI 35-101, Public Affairs Policies and
Procedures, Chapter 8, ’Community Relations.“
[39] We only included positive transaction amounts in the population.
[40] Article 31 of the Uniform Code of Military Justice prohibits
compulsory self-incrimination. Thus, the individual waived her right to
refuse to answer questions, which may have tended to incriminate her.
[41] Wage Grade (WG) positions are paid at hourly rates and generally
pertain to blue collar government positions, such as maintenance,
printing, and landscaping.
[End of section]
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