Purchase Cards
Steps Taken to Improve DOD Program Management, but Actions Needed to Address Misuse Gao ID: GAO-04-156 December 2, 2003This study responds to a legislative mandate, which directs the Comptroller General to review the actions taken by the Department of Defense (DOD) to implement provisions included in the Bob Stump National Defense Authorization Act for fiscal year 2003 (Public Law 107-314) concerning management of the purchase card program. This study also discusses DOD efforts to implement provisions in the DOD Appropriations Act for fiscal year 2003 (Public Law 107-248) as well as recommendations and the status of disciplinary actions taken against individuals identified in prior GAO reports as having used the government purchase card for potentially fraudulent, improper, and abusive or questionable purposes.
DOD has initiated actions to implement all of the requirements in the National Defense Authorization Act for fiscal year 2003 and the DOD Appropriations Act for fiscal year 2003. While it has largely completed revamping its policies and other requirements, it still had considerable work to complete in order to implement managerial and oversight mechanisms, such as strategic sourcing, monitoring, and auditing. However, to implement the legislative requirement that DOD evaluate credit worthiness prior to issuing a purchase card, DOD is allowing cardholders to self-certify their credit worthiness rather than conducting credit checks on cardholders, as is typically done in the private sector. DOD started actions to implement nearly all of the 109 GAO recommendations, some of which may closely relate to the legislative provisions. DOD and the military services have taken disciplinary actions against cardholders whom a court of law determined had fraudulently used their purchase cards. They have also started to educate cardholders and approving officials on the proper use of the purchase card. The military services have not taken strong disciplinary actions against cardholders GAO identified as making improper and abusive or questionable purchase card acquisitions. The military services determined that many of these purchases did not directly violate existing policies. Consequently, the services modified these policies to provide a basis for disciplinary actions for similar purchases in the future.
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-04-156, Purchase Cards: Steps Taken to Improve DOD Program Management, but Actions Needed to Address Misuse
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GAO Highlights:
Highlights of GAO-04-156, a report to congressional committees
Why GAO Did This Study:
This study responds to a legislative mandate, which directs the
Comptroller General to review the actions taken by the Department of
Defense (DOD) to implement provisions included in the Bob Stump
National Defense Authorization Act for fiscal year 2003 (Public Law
107-314) concerning management of the purchase card program. This
study also discusses DOD efforts to implement provisions in the DOD
Appropriations Act for fiscal year 2003 (Public Law 107-248) as well
as recommendations and the status of disciplinary actions taken
against individuals identified in prior GAO reports as having used the
government purchase card for potentially fraudulent, improper, and
abusive or questionable purposes.
What GAO Found:
DOD has initiated actions to implement all of the requirements in the
National Defense Authorization Act for fiscal year 2003 and the DOD
Appropriations Act for fiscal year 2003. While it has largely
completed revamping its policies and other requirements, it still had
considerable work to complete in order to implement managerial and
oversight mechanisms, such as strategic sourcing, monitoring, and
auditing. However, to implement the legislative requirement that DOD
evaluate credit worthiness prior to issuing a purchase card, DOD is
allowing cardholders to self-certify their credit worthiness rather
than conducting credit checks on cardholders, as is typically done in
the private sector.
DOD started actions to implement nearly all of the 109 GAO
recommendations, some of which may closely relate to the legislative
provisions. DOD and the military services have taken disciplinary
actions against cardholders whom a court of law determined had
fraudulently used their purchase cards. They have also started to
educate cardholders and approving officials on the proper use of the
purchase card.
The military services have not taken strong disciplinary actions
against cardholders GAO identified as making improper and abusive or
questionable purchase card acquisitions. The military services
determined that many of these purchases did not directly violate
existing policies. Consequently, the services modified these policies
to provide a basis for disciplinary actions for similar purchases in
the future.
What GAO Recommends:
This report provides the Congress with status of actions taken, and
recommends that the military services monitor whether the disciplinary
guidelines established in response to the fiscal year 2003 Bob Stump
National Defense Authorization Act are properly implemented. DOD was
pleased that the report recognized the department‘s efforts to address
previously cited managerial and internal control deficiencies. DOD did
not comment on GAO‘s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-156.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Gregory Kutz, (202)
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[End of section]
Report to Congressional Committees:
December 2003:
PURCHASE CARDS:
Steps Taken to Improve DOD Program Management, but Actions Needed to
Address Misuse:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-156] GAO-04-156:
Contents:
Letter:
Results in Brief:
Background of the Purchase Card Program:
DOD Has Taken Actions to Implement the Requirements of Public Laws 107-
314 and 107-248:
Status of Our Recommendations to Improve Purchase Card Operations:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Status of Army Actions to Implement GAO Recommendations:
Appendix III: Status of Navy Actions to Implement GAO Recommendations:
Appendix IV: Status of Air Force Actions to Implement GAO
Recommendations:
Appendix V: Comments from the Department of Defense:
Appendix VI: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Acknowledgments:
Tables:
Table 1: Number and Value of Fiscal Year 2002 Purchase Card
Transactions:
Table 2: Legislative Mandates in the Fiscal Year 2003 National Defense
Authorization and DOD Appropriations Acts:
Table 3: Sample Schedule of Potential Charge Card Offenses and Remedies/
Penalties:
Table 4: Status of Recommendations Made to the Military Services to
Improve the Management of the Purchase Card Program:
Table 5: Disciplinary Actions Taken Against Cardholders:
Letter December 2, 2003:
Congressional Committees:
In the past few years, the use of purchase cards has dramatically
increased as federal agencies have sought to eliminate the lengthy
process and paperwork long associated with making small purchases. The
Department of Defense (DOD), in particular, accounts for a large
percentage of the federal government's purchase card use. For fiscal
year 2002, DOD reported that an average of about 207,000 cardholders
used purchase cards to make about 11 million transactions at a cost of
nearly $7 billion. In prior years, the DOD purchase card program at DOD
has not been well managed. As we stated in various testimonies[Footnote
1] and reports[Footnote 2] issued between July 2001 and December 2002,
significant breakdowns in internal controls over the Army, Navy, and
Air Force management of the purchase card program left the services
vulnerable to fraud, waste, and abuse. To address the issues
identified, we made over 100 recommendations targeted at improving the
design and implementation of controls over card use and establishing
guidelines for disciplining those who misused their government purchase
cards.
In response to these concerns, the Bob Stump National Defense
Authorization Act for Fiscal Year 2003 (National Defense Authorization
Act), Section 1007, required DOD to improve the management of the
purchase card program. As directed by the conference report[Footnote 3]
accompanying the act, this report provides a status of DOD actions to
comply with the requirements of Section 1007. Additionally, this report
summarizes the actions taken by the Army, Navy, and Air Force to
respond to the legislative mandates in the DOD Appropriations Act,
2003. The report also provides the status of DOD efforts to implement
the recommendations we made in the reports issued during fiscal years
2002 and 2003 aimed at improving the military service's management of
the purchase card program. Finally, we list any action the military
services took against individuals we identified in our testimonies and
reports as having made or authorized potentially fraudulent, improper,
abusive, or questionable purchase card transactions.
To meet the objectives of this assignment, we requested that DOD and
the military services provide us with the (1) status of DOD and the
military services' efforts in implementing the provisions of the
National Defense Authorization Act for fiscal year 2003 and the DOD
Appropriations Act, 2003, (2) status of actions taken to implement the
recommendations included in the four GAO reports, and (3)
administrative or disciplinary actions taken against individuals we
identified as having made potentially fraudulent, improper, and abusive
or questionable transactions. While DOD and the military services
provided evidence documenting actions taken to improve the purchase
card program and to prevent individuals and companies from further
obtaining fraudulent, improper, and abusive or questionable items with
a DOD purchase card, we did not make any field visits to independently
validate whether DOD had effectively implemented the reported changes.
We conducted our review from June through September 2003 in accordance
with U.S. generally accepted government auditing standards. We
requested comments on a draft of this report from the Secretary of
Defense or his designee. We received written comments from the Director
of DOD's Purchase Card Joint Program Management Office, which are
reprinted in appendix V. We have incorporated suggested changes as
appropriate.
Results in Brief:
DOD and the military services have taken positive steps to improve the
controls over the purchase card program in response to requirements in
the fiscal year 2003 National Defense Authorization and DOD
Appropriations acts. In general, DOD has made the most progress in
establishing or modifying policies and procedures and has comparatively
more to do in the managerial or oversight-related areas. The only area
in which actions do not seem to embrace the intent of the laws is that
DOD is allowing cardholders to self certify their credit worthiness
rather than obtaining credit reports, as is typical practice in private
sector companies.
As for implementing our recommendations, the military services have
implemented or initiated actions to implement nearly all 109 of the
recommendations we made, some of which are overall legislative
requirements. The military services have issued revised purchase card
policies and procedures, retrained cardholders and approving officials,
and reduced the number of purchase card accounts and the credit limits
on those accounts. These actions better articulate what the purchase
card can and cannot be used for, and reduce the risks and financial
exposure of the program. Understandably, some of the management-
intensive efforts are not yet mature. The recommendations they have not
yet implemented include obtaining discounts from frequently used
vendors; establishing servicewide databases for data mining;
investigating suspected and known fraud cases; and linking
cardholders', approving officials, and agency program coordinators'
performance appraisals to performance standards. The military services
told us they plan on having most of the legislative provisions and our
recommendations fully implemented by June 2004.
Our reports and testimonies also raised concerns about the disciplinary
actions against those who misused purchase cards. In general, the
efforts to date could be characterized as an all or nothing approach.
We found that the military services generally took strong disciplinary
actions, such as jail time for military personnel or dismissal of
civilian employees, if a court of law determined fraudulent use of the
purchase cards. There was little indication, however, that the military
services took disciplinary actions against those who made or authorized
transactions that we characterized as being improper, abusive, or
questionable. According to the military services, they did not take
disciplinary actions because many of the improper and abusive or
questionable purchases that we identified in the reports and
testimonies were not in direct violation of then existing policies and
procedures. Therefore, the military services told us that rather than
disciplining cardholders and approving officials, the military services
modified their purchase card policies and procedures to prohibit
similar purchases in the future.
This report contains three recommendations for DOD to monitor whether
the disciplinary guidelines established in response to the fiscal year
2003 National Defense Authorization Act are properly implemented. In
response to this report, DOD was pleased that the report recognized the
department's efforts to address previously cited managerial and
internal control deficiencies. DOD did not comment on our
recommendations.
Background of the Purchase Card Program:
The DOD purchase card program is part of the Governmentwide Commercial
Purchase Card Program, which was established to streamline federal
agency acquisition processes by providing a low-cost, efficient vehicle
for obtaining goods and services directly from vendors. The purchase
card can be used for both micropurchases and payment of other
purchases. Although most cardholders have single purchase transaction
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 issued supplemental guidance to the Federal
Acquisition Regulation that contain sections on simplified acquisition
procedures.
General Services Administration (GSA) reports show that DOD used
purchase cards for nearly 11 million transactions, valued at almost
$6.8 billion and representing nearly 45 percent of the federal
government's fiscal year 2002 purchase card activity. According to
unaudited GSA data, the Army, Navy, and Air Force made about $2.7
billion, $1.9 billion, and $1.6 billion, respectively, in purchase card
acquisitions during fiscal year 2002. Other DOD agencies, such as the
Defense Logistics Agency and the Defense Finance and Account Service,
made the remaining $564 million in purchase card acquisitions.
Table 1: Number and Value of Fiscal Year 2002 Purchase Card
Transactions:
DOD component: Army; Number of transactions (in thousands): 4,553; Cost
of transactions (in millions): $2,717; Percentage of DOD purchase card
costs: 40%.
DOD component: Navy; Number of transactions (in thousands): 2,764; Cost
of transactions (in millions): $1,875; Percentage of DOD purchase card
costs: 28%.
DOD component: Air Force; Number of transactions (in thousands): 3,016;
Cost of transactions (in millions): $1,601; Percentage of DOD purchase
card costs: 24%.
DOD component: Other DOD agencies; Number of transactions (in
thousands): 647; Cost of transactions (in millions): $564; Percentage
of DOD purchase card costs: 8%.
DOD component: Total; Number of transactions (in thousands): 10,980;
Cost of transactions (in millions): $6,757; Percentage of DOD purchase
card costs: 100%.
Source: GSA.
[End of table]
The overall management of DOD's purchase card program has been
delegated to the DOD Purchase Card Joint Program Management Office,
which is in the Office of the Assistant Secretary of the Army for
Acquisition Logistics and Technology. At each service installation,
personnel in three positions--program coordinator, cardholder, and
approving official--are collectively responsible for providing
reasonable assurance that purchase card transactions are appropriate
and meet a valid government need. The installation program coordinator
is responsible for the day-to-day management, administration, and
oversight of the program, including developing local operating
procedures, issuing and canceling cards, and providing training to
cardholders and approving officials. Cardholders--members and civilian
personnel--use purchase cards to order goods and services for their
units and their customers, to be picked up or delivered to themselves
or to an end user. The cardholders are responsible for recording the
transactions in their purchase log, obtaining documented independent
confirmation that the items have been received and accepted by the
government, and notifying the property book-officer of accountable
items received so that these items can be recorded in the accountable
property records. Approving officials, who typically are responsible
for more than one cardholder, are to review cardholders' transactions
and the cardholders' reconciled statements and certify the official
consolidated bill for payment. Approving officials are to ensure that
(1) all purchases made by the cardholders within his or her cognizance
are appropriate and that the charges are accurate and (2) the monthly
summary statement is certified for payment on time by the Defense
Finance and Accounting Service (DFAS). DFAS relies on the approving
official's certification of the monthly bill as support to make the
payment.
Our Previous Findings on DOD's Purchase Card Program:
Between July 2001 and December 2002, we testified four times and issued
four reports highlighting a weak control environment and breakdowns in
specific internal controls over the purchase card program at the Army,
Navy, and Air Force. Based on statistical sampling and selected reviews
of at-risk transactions we identified through data mining, we reported
that these weaknesses left the purchase card program at the three
services vulnerable to fraudulent, improper, and abusive purchases. The
testimonies and reports we issued pointed to common weaknesses. We
identified (1) a proliferation of cardholders, (2) lack of documented
evidence of training of cardholders and approving officials, (3)
inadequate program monitoring, and (4) lack of disciplinary actions
against cardholders who abused the purchase cards. We made
recommendations to each of the services for improving the purchase card
program.
Proliferation of Cardholders:
We reported that the proliferation of cardholders resulted in an
unmanageable approving official span of control and excessive credit
limits compared to historical spending. This problem originated from
the fact that the services 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. Consequently, 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. By contrast, the Navy, which in 2000 had 1 cardholder for
every 3 employees in some of its units, had taken positive steps to
reduce the number of its purchase cardholders to only about 1
cardholder for every 31 employees by September 2002. The proliferation
of cardholders also resulted in a span of control problem for some
approving officials. For example, at the end of fiscal year 2002, some
officials at two Air Force installations had multiple job
responsibilities in addition to being approving officials for more than
20 cardholders, making it difficult for them to systemically scrutinize
each purchase card statement they had to certify for payment.
We also found that the credit limits on the purchase cards exceeded
procurement needs. We saw little evidence that limits were set based on
an analysis of individual cardholders' needs or past spending patterns.
For example, at the Marine Corps, the credit limit as of March 2002
exceeded average fiscal year 2001 monthly expenditures by a ratio of 34
to 1, while at an Air Force location, the credit limit exceeded fiscal
year 2001 monthly purchases by a ratio of 20 to 1. At the Army, we saw
infrequently used cards that, nevertheless, had spending limits set at
the maximum. In some cases, we were told that the monthly limits were
based on anticipated peak spending to avoid possible limit changes.
Limits that are higher than justified by the cardholder's authorized
and expected use unnecessarily increase the government's exposure to
fraudulent, improper, and abusive purchases. Limiting credit available
to cardholders is a key factor in managing the purchase card program
and in minimizing the government's financial exposure.
Inadequate Training of Cardholders and Approving Officials:
We reported that cardholders, approving officials, and/or agency
program coordinators did not receive adequate training necessary to
carry out their responsibilities. Specifically, we found that 51
percent of the fiscal year 2001 transactions at one Air Force location,
56 percent of the transactions at the Marine Corps, and as high as 87
percent of the transactions at one Navy command, were made by
cardholders or approved for payment by approving officials for whom
there was no documented evidence of either initial training or
refresher training at the time the transactions were made. At the Army,
cardholders received initial training, but were seldom provided
refresher training as required by DOD guidance. Further, we noted that,
even though the functions performed by the agency program coordinators,
approving officials, and cardholders were substantially different, the
training curriculum for the three positions was identical. The services
did not have specific guidance or training concerning the role and
responsibilities of agency program coordinators or approving officials.
Inadequate Purchase Card Program Monitoring:
We reported that all of the military services needed to improve the
quality of their monitoring and oversight of the purchase card program.
At the time of our audits, the purchase card program offices of the
military services did not systematically monitor the purchase card
program. We also reported that when a military services' purchase card
program office or audit agency did uncover control weaknesses or
improper and abusive or questionable activity, the results of those
efforts were not always used to improve program management.
Lack of Disciplinary Actions:
We also noted in our reports and testimonies that individuals who
misused the purchase card were not always subject to strong
disciplinary action or consequences. For example, we found that
cardholders who purchased and officials who authorized items with
excessive cost or without documented government need, including
designer brief cases, folios, and palm pilot carrying cases from Coach,
Dooney and Bourke, and Louis Vuitton; personal clothing including golf
shirts and ski clothing; food including beer, wine, and cigars; and
Bose stereo headset and clock radios, were not disciplined for their
actions. We reported that without disciplinary actions, improper,
abusive, and questionable purchases like those mentioned above will
likely continue.
Legislative Requirements for Improvements in the DOD Purchase Card
Program:
In response to the concerns we expressed about DOD's management of the
purchase card program, the Congress included Section 1007 in the
National Defense Authorization Act for fiscal year 2003 (Public Law
107-314) and Section 8149 in the fiscal year 2003 DOD Appropriations
Act (Public Law 107-248) to require DOD to take specific actions to
improve the management of the purchase card program, and in particular
the weaknesses we identified. As shown in table 2, these laws limit the
number of purchase cards and require DOD to train purchase card
officials, monitor purchase card activity, discipline cardholders who
misuse the purchase card, and assess the credit worthiness of
cardholders.
Table 2: Legislative Mandates in the Fiscal Year 2003 National Defense
Authorization and DOD Appropriations Acts:
Defense Authorization Act: Limit the number of purchase cards:
Limit the number of purchase cards: * Conduct periodic reviews to
determine whether each purchase cardholder has a need for the purchase
card; * Establish specific policies on the number of purchase cards
issued by various organizations and categories of organizations, the
credit limits authorized for various categories of cardholders, and
categories of employees eligible to be issued purchase cards, and that
those policies are designed to minimize the financial risk to the
federal government of the issuance of the purchase cards and to ensure
the integrity of purchase card holders; DOD Appropriation Act: Limit
the total number of DOD credit cards (purchase cards and travel
cards) in fiscal year 2003 to not exceed 1,500,000.
Defense Authorization Act: Train cardholders and approving officials:
Provide appropriate training to each purchase cardholder and each
official with responsibility for overseeing the use of purchase cards
issued by DOD; DOD Appropriation Act: [Empty].
Defense Authorization Act: Monitor purchase card program: The
Inspector General of DOD, the Inspector General of the Army, the Naval
Inspector General, and the Inspector General of the Air Force perform
periodic audits to identify--; * potentially fraudulent, improper, and
abusive uses of purchase cards; * any patterns of improper card holder
transactions, such as purchases of prohibited items; and; * categories
of purchases that should be made by means other than purchase cards in
order to better aggregate purchases and obtain lower prices; DOD
Appropriation Act: [Empty].
Defense Authorization Act: Disciplining cardholders: * Establish
regulations that provide for appropriate adverse personnel actions or
other punishment to be imposed in cases in which military and civilian
employees of the DOD violate purchase card regulation or are negligent
or engage in misuse, abuse, or fraud with respect to a purchase card,
including removal in appropriate cases; * Provide that a violation of
such regulations by a person subject to the Uniform Code of Military
Justice be punishable as a violation of Article 92 of this code; DOD
Appropriation Act: Establish guidelines and procedures for
disciplinary actions to be taken against department personnel for
improper, fraudulent, or abusive use of government purchase charge
cards; * Guidelines shall include appropriate disciplinary actions
for use of charge cards for purposes, and at establishments, that are
inconsistent with the official business of the department or with
applicable standards of conduct; * The disciplinary actions may
include--; * review of the security clearance of the individual
involved and; * modification or revocation of such security clearance
in light of the review.
Defense Authorization Act: Credit Worthiness: Defense Authorization
Act; * Evaluate the creditworthiness of an individual before issuing
the individual a government purchase charge card; * Do not issue a
government purchase charge card if the individual is found not
creditworthy as a result of the evaluation.
Source: GAO analysis of the Fiscal Year 2003 National Defense
Authorization Act and DOD Appropriation Act.
[End of table]
DOD Has Taken Actions to Implement the Requirements of Public Laws 107-
314 and 107-248:
During fiscal year 2003, DOD and the military services took actions to
implement all of the requirements mandated by the fiscal year 2003
National Defense Authorization and DOD Appropriations acts. In several
cases, although DOD and the services have issued policies and
guidelines that implement the legislative mandates, sufficient time has
not passed for the objective of the legislative mandate to be achieved.
Limit the Number of Purchase Cards Issued:
DOD has substantially reduced the number of purchase cards issued.
According to GSA records, DOD had reduced the total number of purchase
cards from about 239,000 in March 2001 to about 145,000 in March 2003.
DOD also informed us that it manages the gross number of purchase and
travel cards in accordance with the DOD Appropriations Act, 2003. To
that end, DOD had reduced the total number of purchase and travel cards
to about 1.23 million, about .27 million less than the 1.5 million
statutory limit. DOD also issued policy guidance on April 25, 2002, to
field activities to (1) perform periodic reviews of all purchase card
accounts to reestablish a continuing bona fide need for each card
account, (2) cancel accounts that were no longer needed, and (3) devise
additional controls over infrequently used accounts to protect the
government from potential cardholder or outside fraudulent use. The
policy cited as an acceptable control for infrequently used cards the
reduction of the spending limit to $1 until such time as the card is
needed.
Train Cardholders and Approving Officials:
To implement the requirement to train each purchase cardholder and each
official with responsibility for overseeing the use of purchase cards,
DOD's Defense Acquisition University has made available several on-
line, self-paced purchase card courses on its Web site. The on-line
curriculum included a GSA module targeted to cardholders on how to use
the card responsibly, a DOD course for cardholders and billing
officials on the mandatory requirements and other guidelines of the
purchase card program, and a GSA module aimed at providing advanced
training to agency program coordinators who have completed basic
training on the purchase card program. Further, on September 27, 2002,
DOD issued a memorandum requiring all cardholders, approving officials,
and certifying officials to complete the training module.
Monitor Purchase Card Program:
To address the requirement that the Inspectors General of DOD and the
military services periodically audit the program to identify
potentially fraudulent, improper, and abusive uses of the purchase
cards, as well as any patterns of improper cardholder transactions, DOD
indicated that its Office of Inspector General and the Navy have
prototyped and are now expanding a data-mining capability to screen for
and identify high-risk card transactions (such as potentially
fraudulent, improper, and abusive use of purchase cards including
prohibited purchases) for subsequent investigation. According to DOD,
this capability will eventually be implemented across the department.
In addition, on June 27, 2003, the DOD Inspector General issued a
report[Footnote 4] summarizing the results of in-depth review of
purchase card transactions made by 1,357 purchase cardholders. The
report identified 182 cardholders who potentially used their purchase
cards inappropriately or fraudulently.
With respect to the National Defense Authorization Act's requirement to
use strategic sourcing (i.e., that the Inspectors General identify
categories of purchases that should be made by means other than
purchase cards in order to better aggregate purchases and obtain lower
prices), DOD issued a memorandum on June 5, 2003, reiterating a prior
decision requiring all DOD components to review fiscal year 2002
purchase card transaction files and stratify the volume of purchases by
vendors. According to the memorandum, these data will be used to
determine if any componentwide contracts should be established to
optimize purchasing power. DOD also indicated that each of the military
departments have initiated a strategic sourcing plan, contract, or
Blanket Purchase Agreement (BPA) to take advantage of purchase card
demand (sales volume) data. As an example, DOD said that the Army had
awarded a BPA for office supplies in 2002 to address long-standing
concerns over cardholder compliance with mandatory sourcing
requirements. Likewise, the Air Force entered into a BPA with a large
provider of office supplies and anticipates others. The Navy is
expected to make similar BPA arrangements when its sales volume
analysis is completed. According to DOD, the strategic sourcing
initiative is still in the infancy stage, but the department is
committed to expanding opportunities to leverage its purchase card
purchasing power. The issue of strategic sourcing of purchase card
transactions is also the subject of an audit that we initiated at the
request of the Chairman and Ranking Minority Member of the House
Committee on Government Reform, Subcommittee on Government Efficiency,
Financial Management and Intergovernmental Relations.
Disciplining Cardholders:
With respect to establishing regulations that provide for appropriate
adverse personnel actions or other punishment for misuse, abuse, or
fraud with respect to purchase cards, DOD has issued disciplinary
guidelines, separately, for civilian and military employees. In both
updated guidelines, DOD continues to emphasize its policy that
improper, fraudulent, abusive, or negligent use of a government charge
card is prohibited. This includes any use of government charge cards at
establishments or for purposes that are inconsistent with the official
DOD business or with applicable regulations. The intent of the guide is
to ensure that management emphasis is given to the important issue of
personal accountability. The civilian guide has a sample range of
potential charge card offenses and remedies or penalties for such
offenses as shown in table 3.
Table 3: Sample Schedule of Potential Charge Card Offenses and
Remedies/Penalties:
Offenses: Unauthorized use of or failure to appropriately control use
of Government Purchase Card as a cardholder, approving official
responsible for use or oversight of the card; First offense: Letter of
Counseling to removal; Second offense: 14-day suspension to removal;
Third offense: 30-day suspension to removal.
Source: DOD memorandum.
[End of table]
According to the disciplinary guidelines, there is no single response
for all cases. Instead, a progression of increasingly severe
disciplinary measures is often appropriate in the case of minor
instances of misuse, but more serious cases may warrant the most severe
sanctions in the first instance. The disciplinary guide for military
employees indicates that actions available when military personnel
misuse a purchase or travel card include counseling, admonishment,
reprimand, nonjudicial punishment (Article 15, Uniform Code of Military
Justice - UCMJ), court-martial, and administrative separation. In
addition to corrective disciplinary actions, military personnel who
misuse their government charge cards may have their access to
classified information modified or revoked if warranted in the
interests of national security. These guidelines emphasized that while
the merits of each case may be different, timeliness, proportionality,
and the exercise of good judgment and common sense are always
important.
Credit Worthiness:
Finally, with regard to the requirement that DOD evaluate the credit
worthiness of cardholders, DOD told us that a senior focus group
consisting of acquisition, financial management, and general counsel
executives had concluded that there are conflicts between this
legislation and the Fair Credit Reporting Act. The department is
pursuing an alternative solution that would rely on a self-
certification process by prospective cardholders. The legality and
practicality of this alternative are being staffed and coordinated.
This process, however, is in stark contrast to the standard industry
practice of conducting credit checks on credit card applicants.
Status of Our Recommendations to Improve Purchase Card Operations:
According to information provided by representatives of the Army, Navy,
and Air Force, the three services have either completed or initiated
actions to implement nearly all of the 109 recommendations we made to
improve the management of the purchase card program. As shown in table
4, we made 22 recommendations to the Army to improve its purchase card
program and the Army provided us with information that it had
implemented 18 of those recommendations and initiated actions to
implement the remaining 4 recommendations. In addition, the Navy told
us that it had implemented 38 of our 48 recommendations, and initiated
actions to implement the 10 other recommendations. Similarly, the Air
Force reported that it had implemented 24 of our 39 recommendations and
initiated actions to implement the 15 other recommendations.
Table 4: Status of Recommendations Made to the Military Services to
Improve the Management of the Purchase Card Program:
Recommendations: Made; Army: 22; Navy: 48; Air Force: 39; Total: 109.
Recommendations: Fully implemented; Army: 18; Navy: 38; Air Force: 24;
Total: 80.
Recommendations: Partially implemented; Army: 4; Navy: 10; Air Force:
15; Total: 29.
Source: GAO analysis of military services responses.
[End of table]
The recommendations that the Army, Navy, and Air Force told us they
have implemented related to issuing new purchase card policies and
procedures, retraining cardholders and approving officials, and
reducing the number of purchase card accounts to improve management of
the purchase card program. The recommendations they have not fully
implemented generally were those dealing with leveraging purchase card
buying power, establishing servicewide databases for data mining,
investigating suspected and known fraud cases, and linking the
cardholders', approving officials, and agency program coordinators'
performance appraisals to performance standards.
The Air Force and Navy reported to us that they planned to complete
implementation of most of the remaining GAO recommendations by June
2004. The Air Force planned to complete implementation of all of the
partially completed recommendations by January 4, 2004. The Navy
indicated that some of the recommendations would be implemented by June
2004. The Army and the Navy did not provide a date for when some of the
partially completed recommendations would be implemented, but indicated
that there was an ongoing effort to identify opportunities to leverage
purchasing power, develop data mining, analysis, and investigation
functions, and develop databases of known fraud cases to improve
internal controls.
Appendixes II, III, and IV summarize GAO recommendations and the
military services' representations of actions taken. We have not
verified whether the military services are effectively implementing the
policies and procedures that we recommended they establish and/or
modify.
Limited Disciplinary Actions Taken:
In our purchase card reports and testimonies, we identified 51 cases
where cardholders had used the government purchase card to make
fraudulent or potentially fraudulent purchases and 120 cases where
cardholders had made improper and abusive or questionable purchases. In
general, when a court of law determined that a cardholder fraudulently
used the purchase card, all the military services took strong
disciplinary actions (i.e., assessed fines, and in the case of
uniformed personnel, sentenced the individual to jail/confinement). We
also found that the military services either took strong disciplinary
actions or were actively investigating the cases we reported as
potentially fraudulent. For example, our two Navy reports identified 26
fraudulent and potentially fraudulent transactions totaling more than
$1,342,000. The Navy reported that in response, it fired six
cardholders, reduced the grade of others, confined several uniformed
serviceman to from 14 months to 60 months, and required repayment to
the government of over $460,000. Other actions taken on fraudulent or
potentially fraudulent transactions included suspending or revoking
purchase card privileges, requiring repayment to the government for the
cost of the items obtained, giving the items obtained back to the
government, and written reprimands. In eight instances where no action
was taken against cardholders we categorized as having used the
purchase card in a fraudulent or potentially fraudulent manner, the
military services and the credit card company determined that the fraud
was committed by a third party, and the government had no
responsibility for the charge. The military services were still
investigating 15 cases for fraud.
However, as shown in table 5, the military services often did not
discipline the 120 individuals that we identified as having made
improper, abusive, or questionable transactions. Further, the
discipline, if it was imposed at all, was usually retraining. The
responses the military services provided to our inquiries concerning
disciplinary actions indicated that in three instances the cardholder
had to repay the government for the cost of the improper, abusive, or
questionable item(s) we identified. Of the remaining cardholders, 7 had
their purchase card privileges revoked, 5 received verbal or written
reprimands, and 6 had to return items that we deemed improper, abusive,
or questionable to the government.
Table 5: Disciplinary Actions Taken Against Cardholders:
Dollars in thousands:
Potentially fraudulent transactions: Number of
potentially fraudulent transactions identified by GAO; Army: 13;
Navy: 26; Air Force: 12; Total: 51.
Potentially fraudulent transactions: Value of
potentially fraudulent transactions identified by GAO; Army: $209,561;
Navy: $1,342,257; Air Force: $71,749; Total: $1,623,567.
Potentially fraudulent transactions: No action
taken because it was third party fraud; Army: 2; Navy: 3; Air Force: 3;
Total: 8.
Potentially fraudulent transactions: Fired; Army: 5; Navy: 6; Air
Force: 0; Total: 11.
Potentially fraudulent transactions: Suspended from
work; Army: 0; Navy: 0; Air Force: 0; Total: 0.
Potentially fraudulent transactions: Court-martial,
confinement, probation, reduction in grade, and restitution; Army: 3;
Navy: 7; Air Force: 1; Total: 11.
Potentially fraudulent transactions: Repay the cost
of the fraudulent items; Army: 2; Navy: 0; Air Force: 1; Total: 3.
Potentially fraudulent transactions: Give item to
government; Army: 0; Navy: 0; Air Force: 0; Total: 0.
Potentially fraudulent transactions: Written
reprimand; Army: 3; Navy: 1; Air Force: 0; Total: 4.
Potentially fraudulent transactions: Verbal
reprimand; Army: 0; Navy: 0; Air Force: 0; Total: 0.
Potentially fraudulent transactions: Credit card
revocation; Army: 9; Navy: 1; Air Force: 1; Total: 11.
Potentially fraudulent transactions: Credit card
suspension; Army: 6; Navy: 0; Air Force: 1; Total: 7.
Potentially fraudulent transactions: Required to
take training; Army: 0; Navy: 2; Air Force: 1; Total: 3.
Potentially fraudulent transactions: Still under
review/investigation; Army: 7; Navy: 6; Air Force: 2; Total: 15.
Potentially fraudulent transactions: No action
taken; Army: 0; Navy: 5; Air Force: 4; Total: 9.
Improper, abusive, or questionable transactions: Number of
transactions identified by GAO; Army: 34; Navy: 59; Air Force: 27;
Total: 120.
Improper, abusive, or questionable transactions: Value of
transactions identified by GAO; Army: $999,094; Navy: $1,102,647; Air
Force: $960,704; Total: $3,062,445.
Improper, abusive, or questionable transactions: Fired; Army:
0; Navy: 0; Air Force: 0; Total: 0.
Improper, abusive, or questionable transactions: Suspended from
work; Army: 0; Navy: 0; Air Force: 0; Total: 0.
Improper, abusive, or questionable transactions: Repay for cost
of improper, abusive, or questionable charge; Army: 1; Navy: 0; Air
Force: 2; Total: 3.
Improper, abusive, or questionable transactions: Give item to
government; Army: 0; Navy: 0; Air Force: 6; Total: 6.
Improper, abusive, or questionable transactions: Written
reprimand; Army: 2; Navy: 0; Air Force: 0; Total: 2.
Improper, abusive, or questionable transactions: Verbal
reprimand; Army: 1; Navy: 1; Air Force: 1; Total: 3.
Improper, abusive, or questionable transactions: Credit card
revocation; Army: 1; Navy: 4; Air Force: 2; Total: 7.
Improper, abusive, or questionable transactions: Credit card
suspension; Army: 1; Navy: 0; Air Force: 0; Total: 1.
Improper, abusive, or questionable transactions: Required to
take training/guidance; Army: 8; Navy: 20; Air Force: 11; Total: 39.
Improper, abusive, or questionable transactions: Still under
review/investigation; Army: 0; Navy: 3; Air Force: 0; Total: 3.
Improper, abusive, or questionable transactions: Written policy
authorized purchase - no disciplinary action taken; Army: 0; Navy: 0;
Air Force: 3; Total: 3.
Improper, abusive, or questionable transactions: No action
taken; Army: 27; Navy: 36; Air Force: 5; Total: 68.
Source: Responses provided by the Army, Navy, and Air Force.
Note: Total actions taken exceed transactions identified because
multiple actions were taken for some transactions.
[End of table]
Further, in their response to our inquiries concerning the disciplinary
actions taken against cardholders who we identified as making improper,
abusive, or questionable purchases, the military services stated that
they did not take any action in over half of the transactions we
identified. We believe that these items were imprudent use of tax
dollars, but the military services claimed that policies existing at
the time the purchases were made permitted the acquisitions. Therefore,
the military services did not think that they had the authority to
discipline the cardholders or approving officials. Rather, the military
services told us they modified their policies and procedures to
prohibit similar acquisitions in the future. The Navy, for example,
told us that it had issued numerous e-mails and updated its policies to
indicate that some products purchased in the past were now prohibited,
and that it planned to better monitor purchases so that none of these
purchases would occur in the future. While clarifying purchase card
policies and procedures is appropriate, failure to take any
disciplinary actions against individuals who purchased or authorized
the purchase of items that clearly exceed the needs of the government
(designer briefcases) or were excessive in cost ($350 clock radios)
does not serve as a deterrent to future abuse or the waste of tax
dollars.
Conclusions:
DOD and the military services have taken strong actions to improve the
controls over the purchase card program. DOD has initiated actions to
implement all of the requirements that were mandated in the fiscal year
2003 National Defense Authorization and DOD Appropriations acts. In
addition, DOD and the military services have taken actions on nearly
all of 109 recommendations that GAO made in its four reports on the
purchase card program, and DOD has plans to have most of the
recommendations implemented by June 2004. While the military services
have generally taken strong disciplinary actions against cardholders
who we identified as having made fraudulent or potentially fraudulent
purchases, the military services generally have done little or nothing
to discipline cardholders who have made improper, abusive, or
questionable purchases.
Recommendations for Executive Action:
To help provide reasonable assurance that DOD holds cardholders and
approving officials accountable for improper and abusive purchase card
acquisitions, we recommend that the Secretary of Defense direct the
service secretaries and the heads of DOD agencies to establish
procedures to:
* monitor the results of purchase card reviews conducted by the
military services and the DOD agencies,
* track whether the major commands and units are consistently applying
DOD's disciplinary guidelines to those who made and/or authorized
improper or abusive acquisitions, and:
* notify the appropriate officials at the major commands or units if
DOD's disciplinary guidelines are not being consistently applied.
Agency Comments and Our Evaluation:
In comments on a draft of this report, reprinted in appendix V, DOD
stated that while more needs to be done, it appreciated our recognition
of the department's efforts to address previously cited managerial and
internal control deficiencies. In its response, DOD requested that we
add some perspective to table 5 that shows the extent to which DOD had
not taken disciplinary actions on purchases that we had characterized
as improper, abusive, or questionable because the military services
belief that they had documented policies that specifically authorized
the purchases we questioned. To provide this additional perspective, we
modified table 5 to separately identify the three transactions that we
considered abusive or questionable that the military services believe
were specifically authorized by existing Air Force regulations. While
we believe that this differentiation is useful, we continue to question
whether the purchase card was the appropriate vehicle to make the
purchases we identified as abusive or questionable in our prior report.
We also modified the report's title to be focused on future program
improvements. DOD did not comment on our recommendations to monitor
implementation of the disciplinary guidance.
We will send copies to interested congressional committees; the
Secretary of Defense; the Under Secretary of Defense, Comptroller; the
Under Secretary of Defense for Acquisition Technology and Logistics;
the Secretary of the Army; the Secretary of the Navy; the Secretary of
the Air Force; the Director of the Defense Finance and Accounting
Service; and the Director of Management and Budget. We will make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at [Hyperlink, http://
www.gao.gov] http://www.gao.gov.
Please contact Gregory D. Kutz at (202) 512-9505 or [Hyperlink,
kutzg@gao.gov] kutzg@gao.gov, or John V. Kelly at (202) 512-6926 or
[Hyperlink, kellyj@gao.gov] kellyj@gao.gov if you or your staffs have
any questions concerning this report. Major contributors to this report
are acknowledged in appendix VI.
Gregory D. Kutz:
Director Financial Management and Assurance:
Robert J. Cramer:
Managing Director Office of Special Investigations:
Signed by Gregory D. Kutz and Robert J. Cramer:
List of Committees:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Ted Stevens:
Chairman:
The Honorable Daniel Inouye:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Duncan Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representative:
The Honorable Jerry Lewis:
Chairman:
The Honorable John Murtha:
Ranking Minority Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representative:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
This study responded to the legislative mandate in the conference
report to the Bob Stump National Defense Authorization Act of 2003,
that directs the Comptroller General to review the actions taken by the
Department of Defense (DOD) to comply with the requirements of Section
1007 of the act and submit a report on those actions to the
congressional defense committees no later than December 2, 2003. At the
request of the committee, this report also summarizes the actions taken
by the Army, Navy, and Air Force to respond to the legislative mandates
in Section 8149 of fiscal year 2003 DOD Appropriations Act, and actions
taken by the military services to implement the recommendations we made
in four reports issued during fiscal years 2002 and 2003 aimed at
improving the military services' management of the purchase card
program. Finally, the report also discusses the actions taken by the
military services against individuals we identified in our testimonies
and reports as having made potentially fraudulent, improper, abusive,
or questionable purchase card transactions.
To meet the objectives of this assignment, we requested that DOD and
the military services provide us the (1) status of DOD and the military
services' efforts in implementing certain provisions of the National
Defense Authorization Act for fiscal year 2003 and the fiscal year 2003
DOD Appropriations Act, (2) status of actions taken to implement the
recommendations included in our four reports, and (3) administrative or
disciplinary actions taken against individuals we identified as having
made potentially fraudulent, improper, and abusive or questionable
transactions. While we asked DOD and the military services to provide
evidence documenting actions taken to improve the purchase card program
and prevent individuals and companies from further obtaining
fraudulent, improper, and abusive or questionable items with a DOD
purchase card, we did not make any field visits to independently
validate whether DOD had effectively implemented the reported changes.
We briefed DOD managers, including DOD officials in the Office of the
Undersecretary of Defense (Comptroller), and the Inspector General;
Army officials in the Office of Deputy Chief of Staff for Logistics;
Navy officials in the Office of the Assistant Secretary of the Navy for
Research Development and Acquisition; and Air Force officials in the
Office of the Deputy Chief of Staff for Installation and Logistics. We
conducted our review from June through September 2003 in accordance
with U.S. generally accepted government auditing standards. We
requested comments on a draft of this report from the Secretary of
Defense or his designee. We received written comments from the Director
of DOD's Purchase Card Joint Program Management Office, which are
reprinted in appendix V. We have incorporated suggested changes as
appropriate.
[End of section]
Appendix II: Status of Army Actions to Implement GAO Recommendations:
Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud,
Waste, and Abuse (GAO-02-732, June 27, 2002):
GAO recommendation: Overall program management and environment:
GAO recommendation: Address key control environment issues in Army-
wide standard operating procedures. At a minimum, the following key
issues should be included in the procedure:
GAO recommendation: 1. Controls over the issuance and assessment of
ongoing need for cards; Status of GAO recommendation, as reported by
the Army: Identified in Army Standard Operating Procedure (SOP)
Section 15. Also reinforced by Army in memorandum issued May 22, 2002,
requesting that heads of contracting activities ensure cards are
issued only to individuals with bonafide needs and that the limits
reflect actual needs and available funding; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 2. Cancellation of cards when a cardholder leaves
the Army, is reassigned, or no longer has a valid need for the card;
Status of GAO recommendation, as reported by the Army: Identified in
Army SOP Section 15; GAO observation on the status of recommendation:
Reported implemented.
GAO recommendation: 3. Span of control of the approving officials;
Status of GAO recommendation, as reported by the Army: Identified in
Army SOP Section 5; GAO observation on the status of recommendation:
Reported implemented.
GAO recommendation: 4. Appropriate cardholder spending limits; Status
of GAO recommendation, as reported by the Army: Identified in Army SOP
Sections 15 and 16. Also reinforced by Army in memorandum issued May
22, 2002, requesting heads of contracting activities to ensure cards
are issued only to individuals with bonafide needs and that the limits
reflect actual needs and available funding; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 5. Help ensure that program coordinators and
approving officials have the needed authority, including grade level,
to serve as the first line of defense against purchase card fraud,
waste, and abuse by issuing a policy directive that specifically
addresses their positions, roles, and job descriptions. Policies
should also be established that hold these officials accountable for
their purchase card program duties through performance expectations
and evaluations; Status of GAO recommendation, as reported by the
Army: Issued Memorandum endorsed by General John Keane, Vice Chief of
Staff articulating the focus on the number of purchase card
organizations for each card account (300), and the skill sets
typically require a GS-11 and also required in-depth skills in
financial and contracting policy and procedures with strong verbal
communications skills. The DOD Concept of Operations (CONOPS) report
has been updated to further identify skill sets for the billing
official and cardholders; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 6. 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;
Status of GAO recommendation, as reported by the Army: Memorandum
signed by Vice Chief of Staff, July 8, 2002, directed Army commanders
to provide adequate resources for purchase card program coordinators
to ensure a system of strong internal controls. This was also
reemphasized in the Army SOP; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 7. Develop and implement a program oversight
system for program coordinators that includes standard activities and
analytical tools to be used in evaluating program results; Status of
GAO recommendation, as reported by the Army: Identified in Army SOP
Section 9; GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: 8. Develop performance measures and goals to
assess the adequacy of internal control activities and the oversight
program; Status of GAO recommendation, as reported by the Army:
Identified in Army SOP Section 9 and appendixes J and I. Also
reinforced in Secretary of the Army memorandum dated January 28, 2003;
GAO observation on the status of recommendation: Reported implemented.
GAO recommendation: 9. Require reviews of existing cardholders and
their monthly spending limits to help ensure that only those
individuals with valid continuing purchasing requirements possess
cards and that the monthly spending limits are appropriate for the
expected purchasing activity. These reviews should result in canceling
unneeded cards Army-wide and especially at Fort Hood where we found a
significant problem; Status of GAO recommendation, as reported by the
Army: September 2002 the Army had 101,398 cardholders. Army canceled
35,778 since September. Additionally, agency program coordinators are
required to review this as part of their surveillance reviews as
identified in the Army SOP; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: Direct the implementation of specific internal
control activities for the purchase card program in an Army-wide
standard operating procedure. While a wide range of diverse activities
can contribute to a system that provides reasonable assurances that
purchases are correct and proper, at a minimum, the following
activities should be included in the promulgated procedure:
GAO recommendation: 10. Advance approval of purchases, including
blanket approval for routine, low dollar purchases; Status of GAO
recommendation, as reported by the Army: Identified in SOP Sections 12
and 18; GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: 11. Independent receiving and acceptance of goods
and services; Status of GAO recommendation, as reported by the Army:
Identified in SOP 13; GAO observation on the status of recommendation:
Reported implemented.
GAO recommendation: 12. Independent review by an approving official of
the cardholder's monthly statements and supporting documentation;
Status of GAO recommendation, as reported by the Army: Identified in
SOP Section 11; GAO observation on the status of recommendation:
Reported implemented.
GAO recommendation: 13. Approving official reconciling the charges on
the monthly statement with invoices and other supporting documentation
and forwarding the reconciled statement to the designated disbursing
office for payment as required by governmentwide and DOD regulations;
Status of GAO recommendation, as reported by the Army: Identified in
SOP Section 11; GAO observation on the status of recommendation:
Reported implemented.
GAO recommendation: 14. Cardholders obtaining and retaining invoices
that support their purchases and provide the basis for reconciling
cardholder statements; Status of GAO recommendation, as reported by
the Army: Identified in SOP Section 12; GAO observation on the status
of recommendation: Reported implemented.
GAO recommendation: 15. Develop and implement procedures and
checklists for approving officials to use in the monthly review of
cardholders' transactions. These procedures and checklists should
specify the type and extent of review that is expected and the
required review documentation; Status of GAO recommendation, as
reported by the Army: Identified in SOP Appendix E; GAO observation on
the status of recommendation: Reported implemented.
GAO recommendation: 16. Reiterate records retention policy for
purchase card transaction files and require that compliance with
record retention policy be assessed during the program coordinator's
annual review of each approving official; Status of GAO
recommendation, as reported by the Army: Identified in SOP Section
19; GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: 17. Require the development and implementation of
coordination and reporting procedures to help ensure that accountable
property bought with the purchase card is brought under appropriate
control; Status of GAO recommendation, as reported by the Army:
Identified SOP Section 8; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 18. Require additional prior documented
justification and approval of those planned purchases that are
"questionable" that fall outside the normal procurements of the
cardholder in terms of either dollar amount or type of purchase;
Status of GAO recommendation, as reported by the Army: Identified in
SOP Section 18 and Appendix D; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 19. Analyze the procurements of continuing
requirements through micropurchases and require the use of appropriate
contracting processes to help ensure that such purchases are acquired
at the best prices; Status of GAO recommendation, as reported by the
Army: Ongoing effort. If the Army identifies leveraging opportunities,
they will be implemented through some form of contracting process; The
Army issued 12 mandatory Blanket Purchase Agreements for office
products and supplies in September 2002. The army has also teamed with
the Army Comptroller's office in awarding a support contract to assess
the Army's purchasing data to determine if leveraging opportunities
exist; GAO observation on the status of recommendation: Reported
partially implemented.
GAO recommendation: 20. Develop an Army-wide database on known fraud
cases that can be used to identify potential deficiencies in existing
internal control and to develop and implement additional control
activities, if warranted or justified; Status of GAO recommendation,
as reported by the Army: The Army participates in the DOD charge card
special focus group to look at this issue DOD-wide. However, the Army
has teamed with the Army Criminal Investigative Command and the Public
Affairs office to identify, report, and publish newsworthy fraud cases
and to inform Army soldiers and Department of the Army civilian
personnel, their supervisors, and the public of corrective actions
taken to resolve misuse of the Army Purchase Card; GAO observation on
the status of recommendation: Purchase Cards: Control Weaknesses Leave
Army Vulnerable to Fraud, Waste, and Abuse (GAO-02-732, June 27,
2002): Reported partially implemented.
GAO recommendation: 21. Develop and implement an Army-wide data
mining, analysis, and investigation function to supplement other
oversight activities. This function should include providing oversight
results and alerts to major commands and installations when warranted;
Status of GAO recommendation, as reported by the Army: Ongoing. Army
will continue to work with the DOD Charge Card Focus Group; The Army
participates in the DOD Charge Card Focus Group to look at this issue
DOD-wide. DOD is currently working with the DOD IG to test a Navy
prototype data-mining system. A July 2003 Draft Army Audit Report
Audit of Army Government Purchase Card (using DOD IG data-mining
techniques) stated that about 6 percent (281) of the 4,537 reviewed
Army purchase card transactions were improper. Over half of those
instances were instances of compromised purchase cards used by third
parties for charges and in billing adjustments that returned about 98
percent of the improperly charged Army funds. This left about 3
percent of purchases that were improper, which is less than commercial
industry standards of 4.2 percent identified in the 2003 Purchase Card
Benchmark survey results, a VISA survey conducted by Palmer and
Mahendra Gupta dated July 21, 2002; GAO observation on the status of
recommendation: Reported partially implemented.
GAO recommendation: 22. Incorporate GAO recommendations, to the
extent applicable, into the Charge Card Task Force's future
recommendations to improve purchase card policies and procedures
throughout DOD; Status of GAO recommendation, as reported by the Army:
The Army participates in the DOD Charge Card Focus Group to look at
these issues DOD-wide; GAO observation on the status of
recommendation: Reported partially implemented.
Source: GAO analysis of DOD responses.
[End of table]
[End of section]
Appendix III: Status of Navy Actions to Implement GAO Recommendations:
GAO recommendation: Purchase Cards: Control Weaknesses Leave Two Navy
Units Vulnerable to Fraud and Abuse (GAO-02-32, Nov. 30, 2001):
Proliferation of cardholders:
GAO recommendation: 1. Establish specific policies and strategies
governing the number of purchase cards to be issued with a focus on
minimizing the number of cardholders; Status of GAO recommendation, as
reported by the Navy as of August 29, 2003: The revised eBusiness
Operations Office Instruction (EBUSOPSOFFINST) 4200.1 incorporates the
Department of Defense "Span of Control Goals" which resulted in
approving officials having a reasonable number of cardholders. The
Navy executes the DOD Purchase Card Program in a decentralized manner
consistent with DOD policy. This allows individual commands to issue
purchase cards to employees as mission requirements warrant. No less
than semiannually, Agency Program Coordinators (APC) review the
continuing need for each account under their purview; GAO observation
on the status of recommendation: Reported implemented.
GAO recommendation: 2. Develop criteria for identifying employees
eligible for the privilege of cardholder status. As part of the effort
to develop these criteria, assess the feasibility and cost-benefit of
performing credit checks on employees prior to assigning them
cardholder responsibilities to ensure that employees authorized to use
government purchase cards have demonstrated credit worthiness and
financial integrity; Status of GAO recommendation, as reported by the
Navy as of August 29, 2003: The criterion on eligibility for
cardholder's duties has been developed and is incorporated in
Department of Navy (DON) PC desk guides. The issue of credit checks
was deferred to DOD. DOD is seeking additional legislative action
required to implement credit checks; GAO observation on the status of
recommendation: Reported partially implemented.
GAO recommendation: 3. 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; Status of GAO recommendation, as reported by the
Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1, chapter 2,
paragraph 3, defines DON policy. In addition, the EBUSOPSOFF monitors
credit limits quarterly and takes action when it appears that existing
credit limits exceed mission requirements. Credit limits are now a
critical element in the revised semiannual review procedures; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 4. Confirm that required training has been
completed and documented; Status of GAO recommendation, as reported by
the Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1, chapter 3,
paragraph 9, addresses mandatory requirements for training. In
addition, chapter 4, paragraph 1b.2, mandates that program compliance
with applicable training be reported as part of the semiannual APC
review. Major claimants have been reporting status of training
completion via the semiannual review report and have reported
corrective actions are necessary; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 5. Incorporate into purchase card training
programs any relevant changes in policies and procedures made as a
result of the recommendations in this report; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003: Policy
changes resulting from previous GAO audit recommendations were
incorporated into revised desk guides and training modules as well as
the September 2002 revision of the DON EBUSOPSOFFINST 4200.1.
Furthermore, a second combined Purchase Card/Travel Card APC
conference was held in San Diego Nov. 5-8, 2002. A third combined
conference was held in Philadelphia, Mar 17-20, 2003. On Sept 27,
2002, the Navy commenced distribution of training CDs that contained
four training modules for purchase cardholders and approving officials
(AO). A total of 30,000 CDs were distributed at that time. In
December, 2002, the remaining three training modules were completed
and posted to the DON eBusiness Web site for downloading of complete
training modules. A second version of the Navy training CD was
released and distributed at the March 2003 APC conference. This
version contains seven training modules and a desk guide for each
module for use by APCs. Each module contains both a Citidirect (shore)
and WINSAALTS (afloat) version; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: Rebates:
GAO recommendation: 6. Investigate ways to maximize potential rebates,
such as (1) working with Citibank to facilitate timely receipt of
monthly purchase card statements and (2) reducing the time associated
with mailing and receipt of hard copy billing statements; Status of
GAO recommendation, as reported by the Navy as of August 29, 2003: A
plan for the "on-line statement process" (electronic certification)
was presented to APCs at the March 2003 APC conference in
Philadelphia. All general fund activities are expected to be
performing electronic certification by Sept. 30, 2003. All others,
including outside the continental United States (OCONUS),
nonappropriated fund (NAF), and Navy working capital fund (NWCF)
activities, are expected to be performing electronic certification by
June 30, 2004. In April 2003, a Navy Working Capital Fund users
conference convened to discuss issues, explore problem areas, and
develop an implementation plan. The electronic certification tool
provides Navy purchase card customers with the ability to
significantly decrease payment timelines, thereby optimizing rebate
amounts; GAO observation on the status of recommendation: Reported
partially implemented.
GAO recommendation: 7. Establish effective policies and procedures for
routinely calculating and verifying Citibank rebates; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003: The
Defense Contract Audit Agency (DCAA) was assigned the task of auditing
the integrity of the rebate computation process. A number of systems
issues have been discussed with the banks and DCAA has finalized its
audit recommendations. The Navy and the PC Program Management Office
are assessing the results; GAO observation on the status of
recommendation: Reported partially implemented.
GAO recommendation: 8. Develop guidance for routine distribution of
rebate earnings to Navy units and activities; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003: The
Navy made a determination to retain the rebates at the department
level in lieu of disbursing them to lower echelons; GAO observation on
the status of recommendation: Reported implemented.
GAO recommendation: Monitoring and review:
GAO recommendation: 9. Establish in Navy Supply Systems Command
(NAVASUP) Instruction 4200.94 further guidelines for an effective
internal review program, such as having reviewers analyze monthly
summary statements to identify (1) potentially fraudulent, improper,
and abusive purchases and (2) any patterns of improper cardholder
transactions, such as purchases of food or other prohibited items;
Status of GAO recommendation, as reported by the Navy as of August 29,
2003: EBUSOPSOFFINST 4200.1, chapter 4, addresses this issue; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 10. Revise NAVSUP Instruction 4200.94 to require
that (1) written reports on the results of internal reviews along with
any recommendations for corrective actions be prepared and submitted
to local management and cognizant commands and (2) commands identify
and report systemic weaknesses and corrective action plans to the
Naval Supply Systems Command for monitoring and oversight; Status of
GAO recommendation, as reported by the Navy as of August 29, 2003:
EBUSOPSOFFINST 4200.1, chapter 4, addresses this issue. Semiannual
program reviews have been established and reports are being submitted
to the DON EBUSOPSOFF; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 11. Require purchase card agency program
coordinators to report in writing to the unit commander and the
Commander of Naval Supply Systems Command any internal control
weakness identified during the semiannual program reviews; Status of
GAO recommendation, as reported by the Navy as of August 29, 2003:
EBUSOPSOFFINST 4200.1, chapter 4, addresses this issue. Semiannual
program reviews have been established and reports are being submitted
to the DON EBUSOPSOFF; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 12. Disclose systemic purchase card control
weaknesses along with corrective action plans in the Secretary of the
Navy's Annual Statement of Assurance, prepared under 31 U.S.C. 3512
(d); Status of GAO recommendation, as reported by the Navy as of
August 29, 2003: The Navy included systemic purchase card weaknesses
identified in the semiannual report in the Secretary of the Navy's
Annual Statement of Assurance; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: Receipt of goods and services:
GAO recommendation: 13. Revise NAVSUP Instruction 4200.94 to eliminate
ambiguous language suggesting that advance independent authorization
of a purchase can be substituted for independent confirmation that
goods and services ordered and paid for with a purchase card have been
received and accepted by the government; Status of GAO recommendation,
as reported by the Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1
is a comprehensive instruction that addresses the roles of each
participant in the purchase card process, with specific guidance
addressing the responsibilities of each program participant.
EBUSOPSOFFINST 4200.1, chapter 2, section 4d--Approving Official
Duties, states that the AO will "ensure proper receipt, acceptance,
and inspection is accomplished on all items being certified for
payment." Additionally, EBUSOPSOFF 4200.1, chapter 3, section 7-
Establishing Internal Management Controls, discusses the separation of
functions between receipt and acceptance of goods and services; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 14. Implement procedures to require and document
independent confirmation of receipt of goods and services acquired
with a purchase card; Status of GAO recommendation, as reported by the
Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1, chapter 3,
paragraph 7c, under Establishing Internal Management Controls
separation of function, addresses this issue; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 15. Revise NAVSUP Instruction 4200.94 to require
that (1) cardholders notify approving officials prior to payment that
purchase card statements have been reconciled to supporting
documentation, (2) approving officials certify monthly statements only
after reviewing them for potentially fraudulent, improper, and abusive
transactions, and (3) approving officials verify, on a sample basis,
supporting documentation for various cardholders' transactions prior
to certifying monthly statements for payment; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003:
EBUSOPSOFFINST 4200.1 has been revised to reflect the issues noted.
The specific provisions are cited below: (1) Chapter 2, Section 6e,
Cardholders Duties--Review the monthly purchase card statement to
ensure that all charges are proper and accurate; (2) Chapter 2,
Section 6f, Cardholders Duties--Forward the monthly purchase card
statement to the AO with the appropriate supporting documentation,
(i.e., sales slips, documentation of receipt and acceptance, purchase
log) promptly to maximize rebates and minimize prompt payment
penalties; (3) Chapter 2, Section 4.c, Approving Official Duties--
Notify the Commanding Officer and APC in the event of any suspected
unauthorized purchase (purchases that would indicate noncompliance,
fraud, misuse, and/or abuse); (4) Chapter 2, Section 4.b, Authorizing
Official Duties--Verify supporting transaction documentation on all
card accounts prior to certifying the monthly invoice; GAO observation
on the status of recommendation: Reported implemented.
GAO recommendation: 16. The Navy Comptroller withdrew the June 3,
1999, policy memorandum or revised the policy guidance to be
consistent with the preceding recommendation for revising payment
certification guidance in NAVSUP Instruction 4200.94; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003:
Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to
Fraud and Abuse (GAO-02- 32, Nov. 30, 2001): The Navy Comptroller
policy letter dated June 3, 1999, was rescinded effective March 12,
2002; GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: Proper and timely accounting:
GAO recommendation: 17. Monitor and confirm that purchase card
transactions are recorded to projects that benefited from the goods
and services or to relevant overhead accounts promptly, in accordance
with internal control standards and federal accounting standards;
Status of GAO recommendation, as reported by the Navy as of August 29,
2003: Both Public Works Center, San Diego, and Naval Space and Warfare
Systems Command (SPAWAR) Systems Center, San Diego, concurred and are
complying. Internal operating procedures at both sites include
guidance on the issue; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 18. Revise NAVSUP Instruction 4200.94 to require
that purchase card expenses be properly classified in the Navy's
detailed accounting records; Status of GAO recommendation, as reported
by the Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1, chapter 2,
paragraph 4, addresses this issue; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 19. Verify that the detailed purchase card
transaction records reflect the proper object classification of
expense; Status of GAO recommendation, as reported by the Navy as of
August 29, 2003: Both Public Works Center, San Diego, and SPAWAR
Systems Center, San Diego, concurred and are complying. The Navy
issued policy as an interim change to NAVSUP Instruction 4200.94--
Standards of Compliance for Timely Recording and Classifying of Navy
Purchase Card Commitments and Obligations, which reiterates existing
Navy and DOD Financial Management Regulation policy on the issue; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: Accountable property.
GAO recommendation: 20. Require and verify that accountable property
obtained using a purchase card is promptly recorded in property
records as it is acquired, in accordance with DOD and Navy policies
and procedures; Status of GAO recommendation, as reported by the Navy
as of August 29, 2003: The EBUSOPSOFFINST 4200.1 definition of
accountable property reads as follows: Accountable Property: A term
used to identify property recorded in a formal property management or
accounting system. Accountable Property includes all property
purchased, leased (capital leases), or otherwise obtained, having a
unit acquisition cost of $5,000 or more (land, regardless of cost),
and items that are sensitive, or classified. Additional and/or
separate records or other recordkeeping instruments shall be
established for management purposes, or when otherwise required by
law, policy, regulation, or Agency direction, including, but not
limited to pilferable items (items that have a ready resale value or
application to personal possession and which are, therefore,
especially subject to theft). Additionally, EBUSOPSOFFINST 4200.1,
chapter 2, sections 6d and f, require a detailed purchase log to
identify all purchase card transactions, including defined "Pilferable
Personal Property." Purchase log data are also forwarded to the AO as
part of its purchase review process. A similar change is included in
the draft revision to Secretary of Navy (SECNAV) Instruction 7320.10,
which is currently in the coordination phase; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: Fraudulent, improper, and abusive transactions:
GAO recommendation: 21. Immediately cancel all known active
compromised purchase card accounts; Status of GAO recommendation, as
reported by the Navy as of August 29, 2003: All compromised accounts
are closed; GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: 22. Determine whether purchases of excessive cost,
questionable government need, or both, such as items for personal use,
including personal digital assistants (such as Palm Pilots) and flat
screen computer monitors, that were identified by GAO, are proper
government purchases. If not, the Commander should prohibit their
purchase; Status of GAO recommendation, as reported by the Navy as of
August 29, 2003: EBUSOPSOFFINST 4200.1, chapter 4, paragraphs 1 and 2
require a monthly 100 percent APC review and a semiannual APC review
that addresses this issue; GAO observation on the status of
recommendation: Reported Implemented.
GAO recommendation: 23. Establish written policies and criteria
requiring documented justifications and procurement management
approval for types of items that can be acquired with a government
purchase card; Status of GAO recommendation, as reported by the Navy
as of August 29, 2003: EBUSOPSOFFINST 4200.1, Enclosure 2, contains a
list of generally prohibited items. Due to differing mission
requirements and unique requirements throughout the Department of the
Navy and DOD, it is difficult to develop a general list of what items
can be purchased with or without special justification. Ticket
purchases to Disneyland may be an appropriate purchase not requiring
special justifications within a Non-Appropriated Funded activity, but
may require such documentation at an Appropriated Funded activity.
These decisions are best left to the local command; GAO observation on
the status of recommendation: Reported implemented.
GAO recommendation: 24. Examine purchase card acquisition guidance to
determine whether the purchase card is the right vehicle for acquiring
certain goods and services, such as vehicle and equipment maintenance,
installation of upgraded computer software, and other recurring or
installationwide services, or whether these items should be subject to
negotiated contracts; Status of GAO recommendation, as reported by the
Navy as of August 29, 2003: The cardholder training CD in use Navy-
wide contains specific information on the requirement to verify other
contracting sources prior to making all purchases. EBUSOPSOFFINST
4200.1 chapter 2, section 6.b, Purchase Cardholder Duties, includes a
requirement to "screen all requirements for their availability from
mandatory Government sources of supply." Additionally, the Naval
Facilities Engineering Command (NAVFAC) has undertaken an initiative
to facilitate client ordering of Indefinite Delivery Indefinite
Quantity (IDIQ) services from Base Operations Support (BOS) contracts
using the Department of Defense Electronic Mall (DOD EMALL). The
NAVFAC Electronic Facilities support Contracts (e-FSC) initiative was
created to facilitate direct client ordering by governmentwide
commercial purchase cards (GCPC), thereby streamlining the BOS IDIQ
ordering process and providing better compliance with DFARS 213.270
(Use of the Governmentwide Commercial Purchase Card). Each NAVFAC
contract's IDIQ schedule that is posted to the DOD EMALL is from a
competed contract that has satisfied Competition In Contracting Act
(CICA) requirements. This distinguishes NAVFAC contracts on the DOD
EMALL from blanket purchase agreements (BPA) and other contracting
instruments since orders off of the IDIQ catalogs are not considered
stand-alone (open- market) purchases. The e-FSC initiative is
currently in its early stages. NAVFAC is in the process of adding the
Payment by Third Party clause (48 C.F.R. 52.232-36) and an e-FSC
requirement to all new BOS solicitations and selected existing BOS
contracts from installations and regions across the DON. As new BOS
IDIQ schedules continue to be uploaded to the DOD EMALL, NAVFAC
anticipates that within the next year many BOS contracts at most major
installations will be available for electronic ordering by GCPC. This
strategic initiative is expected to result in significant labor-hour
savings and expedite the order and delivery process; GAO observation
on the status of recommendation: Reported implemented.
GAO recommendation: 25. Work with the Under Secretary for Acquisition,
Technology, and Logistics and DOD's Purchase Card Joint Program Office
to determine whether the purchase card should be used to acquire
computers and other equipment or property items individually that
could be more economically and efficiently procured through bulk
purchases; Status of GAO recommendation, as reported by the Navy as of
August 29, 2003: The DOD EMALL is now available to the Navy and its
use and availability are being articulated to Navy purchasers as a
single point for commercial purchases, including computers, using the
government purchase card. Most recently, a DOD EMALL representative
spoke at the March 2003 APC conference. The DON EBUSOPSOFF is in the
process of querying all Level III APCs to identify all strategic
sourcing agreements in their respective claimancies. This information
will then be shared Navywide; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 26. Revise NAVSUP Instruction 4200.94 to make it
consistent with the Federal Acquisition Regulation, 48 C.F.R.
13.301(a), which states that the "card may be used only for purchases
that are otherwise authorized by law or regulation." The clarifying
guidance should specifically state that in the absence of specific
statutory authority, purchases of items for the personal benefit of
government employees, such as flowers or food, are not permitted and
are therefore improper transactions; Status of GAO recommendation, as
reported by the Navy as of August 29, 2003: Reported implemented.
GAO recommendation: Split purchases:
GAO recommendation: 27. Prohibit splitting purchases into multiple
transactions as required by the Federal Acquisition Regulation and
emphasize this prohibition in purchase card training provided to
cardholders and approving officials; Status of GAO recommendation, as
reported by the Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1,
chapter 1, paragraph 5a, addresses this specific issue. In addition,
training modules emphasize the prohibition on split purchases, as do
all monthly and semiannual program reviews. Also, APCs have an on-line
tool to monitor split purchases; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 28. Require approving officials to monitor monthly
purchase card statements and identify and report to them regarding any
split purchases and the names of cardholders who made the
transactions; Status of GAO recommendation, as reported by the Navy as
of August 29, 2003: EBUSOPSOFFINST 4200.1, chapter 2, paragraph 4,
requires the approving official to verify supporting documentation on
all card accounts prior to certifying the monthly accounts. Detecting
potential split purchases and notifying AOs to review these
transactions will be a capability of the data-mining tool. The tool
will push the suspected split purchase down to the AO for review. The
data-mining tool will identify the cardholder(s) who are splitting
purchase requirements, along with the disciplinary actions associated
with the transaction; GAO observation on the status of recommendation:
Reported partially implemented.
GAO recommendation: 29. Incorporate GAO recommendations, to the extent
applicable, into the Commander of the Naval Supply Systems Command's
future revisions to NAVSUP Instruction 4200.94, to include specific
consequences for noncompliance with these guidelines and not enforcing
the guidelines; Status of GAO recommendation, as reported by the Navy
as of August 29, 2003: Guidance for actions that may be taken for
noncompliance with the regulations have been incorporated as
disciplinary guidelines in the draft revision of EBUSOPSOFFINST
4200.1A; GAO observation on the status of recommendation: Reported
partially Implemented.
Purchase Cards: Navy Is Vulnerable to Fraud and Abuse but Is Taking
Action to Resolve Control Weaknesses (GAO-02-1041, Sept. 27, 2002):
GAO recommendation: Overall program management and environment:
GAO recommendation: 30. Direct all agency program coordinators to
review the number of cardholders who report to an approving official
and make the changes necessary to prevent approving officials from
having the responsibility of reviewing more cardholders than allowed
by Navy and DOD policies; Status of GAO recommendation, as reported by
the Navy as of August 29, 2003: On September 19, 2002, DON issued
EBUSOPSOFFINST 4200.1 that mandates a maximum span of control of card
accounts to approving officials (AO) of 7:1: this metric (span of
control ratio of 7:1) is monitored by the Navy on a monthly basis and
corrective action is taken as required; GAO observation on the status
of recommendation: Reported implemented.
GAO recommendation: 31. Establish a database that maintains
information on all purchase card training taken by cardholders,
approving officials, and agency program coordinators. Require that
agency program coordinators update that database whenever these
purchase card program officials take training; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003: DON
EBUSOPSOFF is building and will maintain an automated centralized
training database using an e- mail response mechanism. Training
completion responses are currently being accumulated and held off-line
until the centralized training database is completed. After
completion, e-mail responses will be electronically processed and
student records will be recorded in the database; GAO observation on
the status of recommendation: Reported partially implemented.
GAO recommendation: 32. Establish specific training courses for
cardholders, approving officials, and agency program coordinators
tailored to the specific responsibilities associated with each of
these roles; Status of GAO recommendation, as reported by the Navy as
of August 29, 2003: Role-based training for APCs, Aos, and cardholders
have been developed and distributed to all participants on CD ROM and
are also posted to the DON EBUSOPSOFF Web site for downloading. This
version contains seven training modules and a desk guide for each
module for use by APCs. Each module contains both a Citidirect (shore)
and WINSAALTS (afloat) version; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 33. Direct agency program coordinators to review
an approving official's overall workload and determine whether the
approving official has the time necessary to perform the required
review functions; Status of GAO recommendation, as reported by the
Navy as of August 29, 2003: EBUSOPSOFFINST 4200.1 mandates a maximum
7:1 ratio (seven accounts for each AO). Additionally, approximately 1
year ago, a one-time purge was done to realign the hierarchies in
accordance with this policy. Compliance is monitored by EBUSOPSOFF
twice a month with data from Citidirect. When an AO is found to be
operating outside the ratio, they are notified and are required to
take corrective action. Also on October 29, 2001, DON issued a policy
letter PC02-05 and PCPN #69 requiring all agency program coordinators
to review an approving official's overall workload and determine
whether the approving official has the time necessary to perform the
required review functions. If the determination is that an approving
official does not have the necessary time, the APC will address this
situation with the approving official's commander or supervisor; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 34. Establish job descriptions that identify
responsibility and performance standards for cardholders, approving
officials, and agency program coordinators; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003:
Established recommended guidelines in the DON PC desk guides; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 35. Link the cardholders', approving officials,
and agency program coordinators' performance appraisals to achieving
their performance standards; Status of GAO recommendation, as reported
by the Navy as of August 29, 2003: The Office of the Secretary of
Defense, Personnel and Readiness, has advised that inclusion of
purchase card duties in the performance goals is solely a supervisory
responsibility, just as the inclusion of other performance outcomes,
and should not be separately mandated. The DON EBUSOPSOFF cannot
mandate this requirement. Performance goals are established by
supervisors and employees and are a reflection of the employee's major
duties/responsibilities and the desired performance outcomes based on
those duties. The goals established and the performance appraisals
given are unique to the individual. However, roles and
responsibilities have been outlined in DON PC desk guides. Internal
management controls have been identified (e.g., span of control
ratios, credit limit determination, delinquency management, separation
of functions); GAO observation on the status of recommendation:
Reported partially implemented.
GAO recommendation: 36. Work with the Naval Audit Service and Command
Evaluation staff to begin periodic audits of the purchase card program
to provide Navy management at the command and unit levels an
independent assessment of the control environment and whether the
agency program coordinators, approving officials, and cardholders are
adhering to control procedures; Status of GAO recommendation, as
reported by the Navy as of August 29, 2003: The DON EBUSOPSOFF and the
Assistant Secretary of the Navy (Research Development & Acquisition)
Acquisition Business Management (ABM) offices are engaged with the
Naval Audit Service (NAVAUDSVC) to finalize a schedule of purchase
card command assessments. Ongoing audits: NAVAUDIT; Activity reviews;
Validate filters; Rebates; GAO; Leveraging buying power; DODIG;
Convenience checks; OCONUS transactions; GAO observation on the status
of recommendation: Reported implemented.
GAO recommendation: 37. Identify vendors with which the Navy or Marine
Corps uses purchase cards to make frequent purchases, evaluate Navy
purchasing practices with those vendors, and forward the results of
that evaluation to the Assistant Secretary of the Navy for Research,
Development, and Acquisition to contract with them, when applicable,
to optimize Navy purchasing power; Status of GAO recommendation, as
reported by the Navy as of August 29, 2003: The data mining of
purchase card transactions was completed in September 2002 and May
2003. Total transactions by vendor were extracted from the bank
database and forwarded to the Office of the ASN (ACQ) for further
review to determine whether Navy-wide contracts should be established;
GAO observation on the status of recommendation: Reported implemented.
GAO recommendation: 38. Modify the definition of "Pilferable Personal
Property" in SECNAV Instruction 7320.10 dated August 1, 2001, by
eliminating the requirement that a portable item easily converted to
personal use also be difficult to repair or replace, and specifically
identify items such as computers, cameras, personal digital
assistants, and audiovisual equipment as meeting the definition of
being pilferable and thus accountable; Status of GAO recommendation,
as reported by the Navy as of August 29, 2003: The EBUSOPSOFFINST
4200.1 definition of accountable property reads as follows:
Accountable Property: A term used to identify property recorded in a
formal property management or accounting system. Accountable Property
includes all property purchased, leased (capital leases), or otherwise
obtained, having a unit acquisition cost of $5,000 or more (land,
regardless of cost), and items that are sensitive, or classified.
Additional and/or separate records or other recordkeeping instruments
shall be established for management purposes, or when otherwise
required by law, policy, regulation, or Agency direction, including,
but not limited to pilferable items (items that have a ready resale
value or application to personal possession and which are, therefore,
especially subject to theft). Additionally, EBUSOPSOFFINST 4200.1,
chapter 2, sections 6d and f, requires a detailed purchase log to
identify all purchase card transactions, including defined "Pilferable
Personal Property." Purchase log data are also forwarded to the AO as
part of the AO purchase card review process. A similar change is
included in the draft revision of SECNAV Instruction 7320.10, which is
currently in the coordination phase; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: Specific internal control activities:
GAO recommendation: Modify NAVSUP Instruction 4200.94 to provide
cardholders, approving officials, and agency program coordinators
detailed instructions on the following:
GAO recommendation: 39. Timely and independent receiving and
acceptance of items obtained with a purchase card and documenting the
results of that process; Status of GAO recommendation, as reported by
the Navy as of August 29, 2003: Complete - This subject was addressed
in the DONEBUSOPSOFF Instruction 4200.1 dated September 19, 2002; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 40. Screening purchases for the availability from
required vendors and documenting the results of the screening; Status
of GAO recommendation, as reported by the Navy as of August 29, 2003:
Complete - This subject was addressed in the DONEBUSOPSOFF Instruction
4200.1 dated September 19, 2002; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 41. Promptly reconciling the monthly purchase card
statements to supporting documentation and documenting the results of
that reconciliation; Status of GAO recommendation, as reported by the
Navy as of August 29, 2003: Complete - This subject was addressed in
the DONEBUSOPSOFF Instruction 4200.1 dated September 19, 2002; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 42. Promptly reviewing a cardholder purchase card
statement by the approving official prior to certifying the statement
for payment and documenting the results of that review; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003:
Complete - This subject was addressed in the DONEBUSOPSOFF Instruction
4200.1 dated September 19, 2002; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 43. Prompt cardholder notification to property
accountability officer of the pilferable property obtained with the
purchase card, and approving official responsibility for monitoring
that the pilferable property has been recorded in the accountability
records; Status of GAO recommendation, as reported by the Navy as of
August 29, 2003: Complete - This subject was addressed in the
DONEBUSOPSOFF Instruction 4200.1 dated September 19, 2002; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: Potentially fraudulent, improper, and abusive or
questionable purchases:
GAO recommendation: 44. Modify NAVSUP Instruction 4200.94 to require
cardholders to maintain documented justification and advanced approval
of purchases that fall outside the normal procurements of the
cardholder in terms of either dollar amount or type of purchase;
Status of GAO recommendation, as reported by the Navy as of August 29,
2003: Complete - This subject was addressed in the DONEBUSOPSOFF
Instruction 4200.1 dated September 19, 2002; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 45. Establish a Navy-wide database of known
purchase card fraud cases by type of fraud that can be used to
identify deficiencies in existing internal control and to develop and
implement additional control activities, if warranted or justified;
Status of GAO recommendation, as reported by the Navy as of August 29,
2003: This is a parallel effort to the Automated Review and Response
Oversight Wizard (ARROW) data-mining tool discussed below. ARROW is in
the early stages of development. Additionally, the Office of the DOD
IG, Investigative Policy and Oversight, has established a Government
Purchase Card Fraud Investigations database that is already
operational; GAO observation on the status of recommendation: Reported
partially implemented.
GAO recommendation: 46. Establish a Navy-wide data-mining, analysis,
and investigation function to supplement other oversight activities.
This function should include providing oversight results and alerts to
major commands and installations when warranted; Status of GAO
recommendation, as reported by the Navy as of August 29, 2003: The
EBUSOPSOFF, in partnership with DOD IG, is conducting the ARROW data-
mining project. Phase I of the data-mining pilot was completed in June
2003 at the Marine Corps site at Camp LeJeune, Fayetteville, N.C. The
automated process is functioning as planned and initial reaction to
the process from the participants has been positive; however, the
fraud indicators were not adequately validated in Phase I. Phase 2
development will focus on validating the proposed fraud indicators.
The Phase 2 pilot will begin in January 2004; GAO observation on the
status of recommendation: Reported partially implemented.
GAO recommendation: 47. Modify NAVSUP Instruction 4200.94 to include a
schedule of disciplinary actions as a guide for taking action against
cardholders who make improper or abusive acquisitions with the
purchase card; Status of GAO recommendation, as reported by the Navy
as of August 29, 2003: A schedule of disciplinary actions has been
incorporated in the revised EBUSOPSOFF instruction 4200.1A; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 48. Incorporate GAO recommendations, to the extent
applicable, into the Charge Card Task Force's future recommendations
to improve purchase card policies and procedures throughout DOD;
Status of GAO recommendation, as reported by the Navy as of August 29,
2003: The Navy sent this recommendation to OUSD for action; GAO
observation on the status of recommendation: Reported partially
implemented.
Source: GAO analysis of military service respones.
[End of table]
[End of section]
Appendix IV: Status of Air Force Actions to Implement GAO
Recommendations:
Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to
Fraud, Waste, and Abuse (GAO-03-292, Dec. 20, 2002):
GAO recommendation: Overall program management and environment.
GAO recommendation: Direct the Assistant Secretary of the Air Force for
Acquisition and the Deputy Assistant Secretary for Contracting to take
the following actions:
GAO recommendation: 1. Establish specific policies and strategies
governing the number of purchase cards to be issued with a focus on
minimizing the number of cardholders; Status of GAO recommendation, as
reported by the Air Force: Air Force Policy Memo #03-C-05, issued
March 18, 2003, directed that the number of cards issued should be
minimized. Item closed; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 2. Direct all command and installation-level
agency program coordinators to review purchase card use with a view
towards eliminating unneeded purchase card accounts; Status of GAO
recommendation, as reported by the Air Force: Air Force Policy Memo
#03-C-05, issued March 18, 2003, directed that Installation Purchase
Card Managers eliminate unneeded purchase card accounts. Item closed;
GAO observation on the status of recommendation: Reported implemented.
GAO recommendation: 3. Eliminate purchase cards used to facilitate
line-item accounting; Status of GAO recommendation, as reported by the
Air Force: Air Force Policy Memo #03- C-05, issued March 18, 2003,
directed that Installation Purchase Card managers, in conjunction with
Financial Services officers, review all purchase cardholders with
multiple accounts and eliminate those accounts existing to facilitate
line-item accounting. Item closed; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 4. 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; Status of GAO recommendation, as reported
by the Air Force: Air Force Policy Memo #03-C-05, issued March 18,
2003, directed that Installation Purchase Card managers and
coordinators 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. Item closed; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 5. 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;
Status of GAO recommendation, as reported by the Air Force: Air Force
Policy Memo #03-C-05, issued March 18, 2003, directed that
installation purchase card program managers shall to review existing
credit and monthly spending limits against current spending patterns
and determine if cardholder spending authority can be reduced in the
interest of minimizing the federal government's financial exposure;
GAO observation on the status of recommendation: Reported implemented.
GAO recommendation: 6. Deactivate purchase card accounts of alternate
cardholders and approving officials when primary cardholders and
approving officials are available; Status of GAO recommendation, as
reported by the Air Force: Air Force Policy Memo #03-C-05, issued
March 18, 2003, directed that alternate cardholders and billing
official accounts be suspended when primary cardholders and billing
officials are available. Item closed; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 7. Establish specific training courses for
cardholders, approving officials, and agency program coordinators
tailored to the specific responsibilities associated with each of
those roles; Status of GAO recommendation, as reported by the Air
Force: Air Force Policy Memo #03-C-05, issued March 18, 2003, directed
that, in addition to already instituted mandatory training through the
Defense Acquisition University for cardholders, billing officials, and
financial services officers, all A/ OPCs are required to take the
A/OPC training developed by GSA. Item closed; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 8. 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; Status of GAO recommendation, as
reported by the Air Force: Air Force Policy Memo #03-C-05, issued
March 18, 2003, directed that Installation Purchase Card managers
track and monitor corrective actions on purchase cards and annual
surveillance findings and provide quarterly status reports to their
installation Contracting Director. Item closed; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 9. Develop and implement a program oversight
system for program coordinators that includes standard activities and
analytical tools to be used in evaluating program results; Status of
GAO recommendation, as reported by the Air Force: Air Force Policy
Memo #03-C-05, issued March 18, 2003, directed mandatory use of the
review checklist in the GPC Surveillance Guide. Item closed; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 10. 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;
Status of GAO recommendation, as reported by the Air Force: Air Force
Policy Memo #03-C-05, issued March 18, 2003, directed that reports on
annual surveillance results 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. Item closed; GAO observation
on the status of recommendation: Reported implemented.
GAO recommendation: 11. 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; Status of GAO recommendation, as reported by the
Air Force: Air Force Policy Memo #03- C-05, issued March 18, 2003,
directed that the Directors of Contracting address the adequacy of
personnel devoted to the purchase card program, especially for
oversight activities, at each management level, and work to increase
manpower authorizations where appropriate; GAO observation on the
status of recommendation: Reported implemented.
Direct the Assistant Secretary of the Air Force for Acquisition and
the Deputy Assistant Secretary for Contracting to make the following
revisions to Air Force Instruction 64-117, Air Force Government-wide
Purchase Card Program:
GAO recommendation: 12. 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's Financial Management Regulation,
and other federal guidelines as appropriate; Status of GAO
recommendation, as reported by the Air Force: Per the Air Force
response to the GAO final report, correction was incorporated into the
December 6, 2002, revision to AFI 64-117. Item closed; GAO observation
on the status of recommendation: Reported implemented.
GAO recommendation: 13. 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; Status of GAO recommendation, as reported by the Air Force:
Anticipate publication of revised AFI in March 2004; Air Force
Instruction 64-117, Air Force Government-wide Purchase Card Program,
will be revised to 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; GAO observation on the status of recommendation: Reported
partially implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 14. Stipulate, in the body of the Instruction,
that approving officials are required to have annual purchase card
refresher training; Status of GAO recommendation, as reported by the
Air Force: Anticipate publication of revised AFI in March 2004; Air
Force Instruction 64-117, Air Force Government-wide Purchase Card
Program, will be revised to specify that approving officials are
required to have annual purchase card refresher training; GAO
observation on the status of recommendation: Reported partially
implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 15. Require that the surveillance checklist, which
is included in an appendix to the Air Force Instruction, be used to
guide and document surveillance results; Status of GAO recommendation,
as reported by the Air Force: Anticipate publication of revised AFI in
March 2004; Air Force Instruction 64- 117, Air Force Government-wide
Purchase Card Program, will be revised to require that the
surveillance checklist be used to guide and document surveillance
results; GAO observation on the status of recommendation: Reported
partially implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 16. Require reports on the results of annual
surveillances to be signed by installation contracting directors to
demonstrate management oversight and "tone at the top."; Status of GAO
recommendation, as reported by the Air Force: Anticipate publication
of revised AFI in March 2004; Air Force Instruction 64-117, Air Force
Government-wide Purchase Card Program, will be revised to require
reports on the results of annual surveillances to be signed by the
contracting squadron commander/chief of the contracting office; GAO
observation on the status of recommendation: Reported partially
implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 17. Require reports on surveillance results to be
addressed to unit commanders; Status of GAO recommendation, as
reported by the Air Force: Anticipate publication of revised AFI in
March 2004; Air Force Instruction 64- 117, Air Force Government-wide
Purchase Card Program, will be revised to require reports on
surveillance results to be addressed to unit commanders; GAO
observation on the status of recommendation: Reported partially
implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 18. 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; Status of
GAO recommendation, as reported by the Air Force: Anticipate
publication of revised AFI in March 2004; Air Force Instruction
64-117, Air Force Government-wide Purchase Card Program, will be
revised to require reports on surveillance results to include
recommendations for unit commander action, where approving officials
and cardholders have failed to follow Air Force policy related to
federal regulations; GAO observation on the status of recommendation:
Reported partially implemented pending March 2004 issuance of revised
Air Force Instruction 64-117.
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:
GAO recommendation: 19. 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;
Status of GAO recommendation, as reported by the Air Force: The Under
Secretary of Defense (Comptroller) requested an opinion from the
Deputy General Counsel (Fiscal) (DGC(F)) to determine whether "pay and
confirm" is in compliance with Title 10, United States Code (U.S.C.),
section 2784. In its response, the DGC(F) stated that the business
practice of paying a purchase card statement of account before receipt
of a reconciled statement and detailed supporting documentation is
supported by governmentwide policy, and not otherwise prohibited by
statute. Counsel did caution that the practice is contingent upon
maintaining appropriate internal controls sufficient to ensure that
the benefits associated with this practice outweigh the risk of loss.
Item closed; GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: 20. 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; Status of GAO recommendation, as reported
by the Air Force: The Under Secretary of Defense (Comptroller)
requested an opinion from the Deputy General Counsel (Fiscal) (DGC(F))
to determine whether "pay and confirm" is in compliance with Title 10,
United States Code (U.S.C.), section 2784. In its response, the
DGC(F) stated that the business practice of paying a purchase card
statement of account before receipt of a reconciled statement and
detailed supporting documentation is supported by governmentwide
policy, and not otherwise prohibited by statute. Counsel did caution
that the practice is contingent upon maintaining appropriate internal
controls sufficient to ensure that the benefits associated with this
practice outweigh the risk of loss. Item closed; GAO observation on
the status of recommendation: Reported implemented.
GAO recommendation: 21. Establish appropriate criteria, including
types of items and dollar thresholds for documenting independent
receipt and acceptance of items obtained with a purchase card; Status
of GAO recommendation, as reported by the Air Force: Anticipate
publication of revised AFI in March 2004; The Deputy Assistant
Secretary of Contracting will revise Air Force Instruction 64-117 to
provide cardholders, approving officials, and installation program
coordinators appropriate criteria, including types of items and dollar
thresholds for documenting independent receipt and acceptance of items
obtained with a purchase card; GAO observation on the status of
recommendation: Reported partially implemented pending March 2004
issuance of revised Air Force Instruction 64-117.
GAO recommendation: 22. 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; Status of GAO recommendation, as
reported by the Air Force: Anticipate publication of revised AFI in
March 2004; The Deputy Assistant Secretary of Contracting will revise
Air Force Instruction 64-117 to provide cardholders, approving
officials, and installation program coordinators with detailed
instructions on 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; GAO observation on the status of recommendation: Reported
partially implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 23. Require cardholders to maintain documentation
of timely and independent receiving and acceptance of items obtained
with a purchase card; Status of GAO recommendation, as reported by the
Air Force: Anticipate publication of revised AFI in March 2004; Deputy
Assistant Secretary of the Air Force (Contracting) will revise Air
Force Instruction 64-117 to require cardholders to maintain
documentation of independent receiving and acceptance of items
obtained with a purchase card; GAO observation on the status of
recommendation: Reported partially implemented pending March 2004
issuance of revised Air Force Instruction 64-117.
GAO recommendation: 24. 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; Status of GAO recommendation, as reported
by the Air Force: A SAF/AQC letter, dated March 27, 2003, was sent to
the purchase card points of contact at the Air Force major commands
requesting that they direct their A/OPCs to review all accounts
subject to automatic suspension in July 2002 due to lack of cardholder
reconciliation and approving official review to ensure that they have
been manually reconciled. Item closed; GAO observation on the status
of recommendation: Reported implemented.
GAO recommendation: 25. Verify that all potentially fraudulent and
erroneous transactions that have been detected are disputed and
properly resolved; Status of GAO recommendation, as reported by the
Air Force: Anticipate publication of revised AFI in March 2004; The
Deputy Assistant Secretary of Contracting will revise Air Force
Instruction 64-117 to instruct cardholders, approving officials, and
installation program coordinators to verify that all potentially
fraudulent and erroneous transactions that have been detected are
disputed and properly resolved; GAO observation on the status of
recommendation: Reported partially implemented pending March 2004
issuance of revised Air Force Instruction 64-117.
GAO recommendation: 26. 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; Status of GAO recommendation, as reported by the Air Force:
Anticipate publication of revised AFI in March 2004; The Deputy
Assistant Secretary of Contracting will revise Air Force Instruction
64-117 to provide cardholders, approving officials, and installation
program coordinators with detailed instructions to require timely
cardholder notification to the property accountability officer of
accountable pilferable property obtained with the purchase card; GAO
observation on the status of recommendation: Reported partially
implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 27. 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; Status of GAO
recommendation, as reported by the Air Force: Air Force Policy Memo
#03-C-05, issued March 2003, encouraged 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. Item closed;
GAO observation on the status of recommendation: Reported
implemented.
GAO recommendation: 28. 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; Status of GAO recommendation, as
reported by the Air Force: Anticipate publication of revised AFI in
March 2004; Air Force Instruction 64- 117 will be revised 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. Sub-paragraph
5.3.1 of DODI 5000.64 allows additional and/or separate records or
other recordkeeping instruments when required by law, policy,
regulation, Agency direction, or for management purposes (e.g.,
pilferable item, property hazardous to health and human safely).
Property not meeting the minimum accountability threshold is still
subject to appropriate internal controls which, depending on the
property, can include an accountable property record. SAF/AQCP is
working with USAF/ILGP, Materiel Management Policy Division, to
establish clear accountability and/or visibility criteria that will
meet the intent of GAO's accountability concerns; GAO observation on
the status of recommendation: Reported partially implemented pending
March 2004 issuance of revised Air Force Instruction 64-117.
GAO recommendation: 29. 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; Status of GAO
recommendation, as reported by the Air Force: Anticipate publication
of revised AFI in March 2004; Current guidance (DODI 5000.64, AFI 33-
112, AFI 23-111, and AFI 23-110) all indicate that organizational
commanders must account for property issued to them or procured by
them. These guidelines do not mandate a mechanism to ensure
accountability is established for items procured from outside of the
standard base supply system. SAF/AQCP is working with USAF/ILGP,
Materiel Management Policy Division, to establish clear accountability
and/or visibility criteria that will meet the intent of GAO's
accountability concerns. These changes will be incorporated into AFI
64-117; GAO observation on the status of recommendation: Reported
partially implemented pending March 2004 issuance of revised Air Force
Instruction 64-117.
GAO recommendation: 30. Direct the Air Force Audit Agency and Air
Force Office of Special Investigations to establish an Air Forcewide
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; Status of
GAO recommendation, as reported by the Air Force: The Air Force Office
of Special Investigations (AFOSI), in conjunction with the other
Defense Criminal Investigative Organizations (DCIO), now reports
information on initiated and ongoing Government Purchase Card (GPC)
investigations quarterly to the Department of Defense Inspector
General for macro-level analysis of systemic weaknesses in the GPC
program DOD-wide; GAO observation on the status of recommendation:
Reported implemented.
We recommend that the Assistant Secretary of the
Air Force for Acquisition and the Deputy Assistant Secretary for
Contracting take the following actions:
GAO recommendation: 31. 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; Status of GAO recommendation, as reported by the Air
Force: The DOD IG 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. 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; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 32. 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; Status of GAO recommendation, as reported by the Air Force: Air
Force Policy Memo #03-C-11, issued May 22, 2003, directed that A/OPCs
identify vendors with which they used purchase cards to make frequent,
recurring purchases, evaluate purchasing practices with those vendors,
and where appropriate, develop contracts with those vendors to
optimize Air Force purchasing power. Item closed; GAO observation on
the status of recommendation: Reported implemented.
GAO recommendation: 33. 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;
Status of GAO recommendation, as reported by the Air Force: Anticipate
publication of revised AFI in Mar 04; The Deputy Assistant Secretary
for Contracting will 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.
However, AF/HC does not agree that the Chaplain Service had no
authority to use GPCs. DODD 1015.1. recognizes Chaplain Religious
Funds and states that "funds are administered and managed in
accordance with separate DOD Component regulations" (Par. 2.2. and
2.2.11.). Based on DODD 1015.1, AFI 52-101 (May 19, 1997) was issued
that stated "The International Merchant Purchase Authorization Card
(IMPAC) is the official Chaplain Service funds credit card" (Para.
4.3.). AF/HC will recommend reinstatement of the Chaplain Funds into
the revised publication of DODD 1015.1, Establishment, Management, and
Control of Nonappropriated Fund Instrumentalities. AFI 52-101 is in
the process of being updated to reflect the current DOD and AF
policies regarding the GPC; GAO observation on the status of
recommendation: Reported partially implemented pending March 2004
issuance of revised Air Force Instruction 64-117.
GAO recommendation: 34. Cancel convenience check privileges of
cardholders who have continued to improperly use convenience checks;
Status of GAO recommendation, as reported by the Air Force: Air Force
Policy Memo #03-C-05, issued March 18, 2003, directed that
installation purchase card managers cancel convenience check
privileges of cardholders who have misused convenience checks more
than once. Item closed; GAO observation on the status of
recommendation: Reported implemented.
GAO recommendation: 35. 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;
Status of GAO recommendation, as reported by the Air Force: A SAF/AQC
letter, dated March 27, 2003, was sent to SAF/FMP requesting that an
accounting adjustment be made to correct any GPC transactions that
were charged to the wrong appropriations account with respect to
fiscal year and items purchased. Item closed; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 36. 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; Status of GAO
recommendation, as reported by the Air Force: The Deputy Assistant
Secretary of the Air Force (Contracting) does not make 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. Guidelines for
procedures regarding the violation of Air Force GPC procedures are
already contained in AFI 64-117. In addition, the Deputy Assistant
Secretary of the Air Force (Contracting) has issued a memorandum
requiring a summary of each case of purchase card fraud and each
instance of repeated misuse of the purchase card and a quarterly
briefing by the contracting squadron commander to the installation
commander including the disciplinary action taken. Item closed; GAO
observation on the status of recommendation: Reported implemented.
GAO recommendation: 37. Require cardholders and/or approving officials
to reimburse the government for any unauthorized or erroneous purchase
card transactions that were not disputed; Status of GAO
recommendation, as reported by the Air Force: Air Force Policy Memo
#03-C-05, issued March 18, 2003, directed that installation purchase
card managers remind all cardholders and billing officials that they
are "accountable officials" in accordance with Attachment 2, paragraph
1.b. of AFI 64-117, and as such, may be pecuniarily liable for
erroneous payments (see DOD Financial Management Regulation, Volume 5,
Chapter 33, August 1998, page 33-1) and may be required to reimburse
the government for any unauthorized or erroneous purchase card
transaction that was not disputed within the 60-day grace period. In
addition, all "benefiting individuals" who have requested personal
items to be purchased for their use may also be required to reimburse
the government for such purchases. Item closed; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 38. 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; Status of GAO
recommendation, as reported by the Air Force: Air Force Policy Memo
#03-C-05, issued March 18, 2003, directed that installation purchase
card managers remind all cardholders and billing officials that they
are "accountable officials" in accordance with Attachment 2, paragraph
1.b. of AFI 64-117, and as such, may be pecuniary liable for erroneous
payments (see DOD Financial Management Regulation, Volume 5, Chapter
33, August 1998, page 33-1) and may be required to reimburse the
government for any unauthorized or erroneous purchase card transaction
that was not disputed within the 60-day grace period. In addition, all
"benefiting individuals" who have requested personal items to be
purchased for their use may also be required to reimburse the
government for such purchases. Item closed; GAO observation on the
status of recommendation: Reported implemented.
GAO recommendation: 39. Incorporate GAO recommendations, to the extent
applicable, into the Charge Card Task Force's future recommendations
to improve purchase card policies and procedures throughout DOD;
Status of GAO recommendation, as reported by the Air Force: This
recommendation was directed to the Under Secretary of Defense
(Comptroller), not to the Air Force; GAO observation on the status of
recommendation: Reported partially implemented.
Source: GAO analysis of DOD responses.
[End of table]
[End of section]
Appendix V: Comments from the Department of Defense:
DEPARTMENT OF THE ARMY:
OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY
ACQUISITION LOGISTICS AND TECHNOLOGY
103 ARMY PENTAGON
WASHINGTON DC 20310-0103:
NOV 14 2003:
Mr. Gregory D. Kutz:
Director:
Financial Management and Assurance
United States General Accounting Office Washington, DC 20548:
Dear Mr. Kutz:
This is in response to your draft report entitled Purchase Cards: Steps
Taken to Improve DoD Program Management, But Little Done to Address
Prior Misuse (GAO-04-156). The Department of Defense appreciates the
opportunity to provide comments to this draft report.
The Department takes quite seriously its stewardship of the Government
purchase card program and the attendant public trust. We believe that
we have implemented a wide-ranging and comprehensive package of
regulatory, policy, and administrative initiatives to underpin the
integrity of this card program. Although there is more yet to be done,
we are pleased that this draft report recognizes the Department's
efforts to address previously cited managerial and internal control
deficiencies:
However, we do take exception to the original title of your draft
report. The "But Little Done to Address Prior Misuse" portion of the
title leaves the incorrect perception that the Department has done
little to correct previously cited deficiencies in our program. In
addition, it does not correspond to the overall favorable tenor of your
report as to actions that the Department has taken to address problems
in our program. We are pleased that you have tentatively agreed to
amend the title to "But Action Needed to Address Misuse.":
We believe that your original characterization (table 5 of the draft
report) of the disciplinary actions taken with respect to improper,
abusive or questionable transactions cited in previous GAO audits did
not take into account that a number of these transactions were in fact
legitimate and authorized by existing Component policy at the time the
purchase was made. We are pleased that you have agreed to add another
category to this table (tentatively titled "Documented Component Policy
Authorized Purchase - No Disciplinary Action Taken") and that you have
agreed to re-categorize transactions from the No Action Taken category
to this new category provided that the Component can document to your
satisfaction that the purchase in question was authorized under an
existing policy.
Again, we appreciate the opportunity to comment on the draft report.
Sincerely:
Signed by:
LeAntha D. Sumpter:
Director, Purchase Card Joint Program Management Office:
[End of section]
Appendix VI: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
John V. Kelly, (202) 512-6926 James D. Moses, (213) 830-1085:
Acknowledgments:
Staff making key contributions to this report were Francine DelVecchio,
Gail Luna, Jerrod O'Nelio, Harold Reich, John Ryan, Quan Thai, and Gary
Wiggins.
(192090):
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); Purchase Cards, Continued Control
Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-
506T (Washington, D.C.: Mar. 13, 2002); Purchase Cards: Control
Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-
844T (Washington, D.C.: July 17, 2002); Purchase Cards: Navy Vulnerable
to Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses,
GAO-03-154T (Washington, D.C.: Oct. 8, 2002).
[2] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-32
(Washington D.C.: Nov. 30, 2001); Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-732
(Washington, D.C.: Jun. 27, 2002); 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); Purchase Cards: Control
Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, and Abuse,
GAO-03-292 (Washington, D.C.: Dec. 20, 2002).
[3] H.R. Conf. Rep. No. 107-772, at 686 (2002).
[4] Department of Defense, Office of the Inspector General, Summary
Report on Joint Review of Selected DOD Purchase Card Transactions,
D2003-109 (Washington, D.C.: June 27, 2003).
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