FAA Purchase Cards
Weak Controls Resulted in Instances of Improper and Wasteful Purchases and Missing Assets Gao ID: GAO-03-405 March 21, 2003In May 2002, GAO reported on breakdowns in purchasing controls at the Federal Aviation Administration's (FAA) Alaskan Region that resulted in improper and wasteful purchases. Many of the weaknesses were associated with the use of government credit cards--referred to as purchase cards--and raised concerns that similar problems might exist FAA-wide. As a result, GAO was asked to determine whether FAA's purchase card controls reasonably ensured that purchases were proper, at a reasonable cost, and for valid government needs. GAO also assessed whether assets bought with purchase cards were being properly safeguarded and recorded.
Weaknesses in FAA's purchase card controls resulted in instances of improper, wasteful, and questionable purchases, as well as missing and stolen assets. These internal control weaknesses included inadequate segregation of duties, lax supervisory review and approval, missing purchase documentation, inadequate training, and insufficient program monitoring activities, all of which created an environment vulnerable to fraud, waste, and abuse. These weaknesses contributed to the $5.4 million of improper purchases GAO identified. Among these were purchases that were split into two or more segments to circumvent single purchase limits. GAO also identified over $630,000 in purchases that were considered wasteful--that is, excessive in cost, for questionable government needs, or both--or were considered questionable because they were missing a receipt to show what was actually purchased. In addition, over half of the asset purchases--such as computers and other equipment--that GAO examined had not been recorded in FAA's property system, increasing the risk of loss or theft. As a result, FAA could not locate or document the location of over a third of the 692 items that GAO attempted to observe. These missing items totaled almost $300,000. In separate internal reviews, one FAA location identified over 800 items, totaling almost $2 million, that were lost or stolen in fiscal years 2001 through 2002. Given systemic weaknesses in FAA's property controls, the actual amount of missing or stolen equipment FAA-wide could be much higher.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-405, FAA Purchase Cards: Weak Controls Resulted in Instances of Improper and Wasteful Purchases and Missing Assets
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Report to the Chairman, Committee on Transportation and Infrastructure,
House of Representatives :
March 2003:
FAA PURCHASE CARDS:
Weak Controls Resulted in Instances of Improper and Wasteful Purchases
and Missing Assets:
GAO-03-405:
GAO Highlights:
Highlights of GAO-03-405, a report to the Chairman, House Committee on
Transportation and Infrastructure
Why GAO Did This Study:
In May 2002, GAO reported on breakdowns in purchasing controls at the
Federal Aviation Administration‘s (FAA) Alaskan Region that resulted in
improper and wasteful purchases. Many of the weaknesses were associated
with the use of government credit cards”referred to as purchase cards”
and raised concerns that similar problems might exist FAA-wide. As a
result, GAO was asked to determine whether FAA‘s purchase card controls
reasonably ensured that purchases were proper, at a reasonable cost,
and for valid government needs. GAO also assessed whether assets bought
with purchase cards were being properly safeguarded and recorded.
What GAO Found:
Weaknesses in FAA‘s purchase card controls resulted in instances of
improper, wasteful, and questionable purchases, as well as missing and
stolen assets. These internal control weaknesses included inadequate
segregation of duties, lax supervisory review and approval, missing
purchase documentation, inadequate training, and insufficient program
monitoring activities, all of which created an environment vulnerable
to fraud, waste, and abuse.
These weaknesses contributed to the $5.4 million of improper purchases
GAO identified. Among these were purchases that were split into two or
more segments to circumvent single purchase limits. GAO also identified
over $630,000 in purchases that were considered wasteful”that is,
excessive in cost, for questionable government needs, or both”or were
considered questionable because they were missing a receipt to show
what was actually purchased. Some examples of these are shown in the
table below.
[See PDF for image]
[End of table]
In addition, over half of the asset purchases”such as computers and
other equipment”that GAO examined had not been recorded in FAA‘s
property system, increasing the risk of loss or theft. As a result,
FAA could not locate or document the location of over a third of the
692 items that GAO attempted to observe. These missing items totaled
almost $300,000. In separate internal reviews, one FAA location
identified over 800 items, totaling almost $2 million, that were lost
or stolen in fiscal years 2001 through 2002. Given systemic weaknesses
in FAA‘s property controls, the actual amount of missing or stolen
equipment FAA-wide could be much higher.
What GAO Recommends:
GAO is making a number of recommendations to strengthen FAA‘s internal
controls and compliance in its purchase card program, decrease wasteful
purchases, and improve the accountability of assets in order to reduce
vulnerability to improper and wasteful purchases. FAA emphasized its
commitment to a sound purchase card program and highlighted a number of
completed or ongoing actions to strengthen controls.
www.gao.gov/cgi-bin/getrpt?GAO-03-405.
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Linda Calbom at (202)
512-9508 or calboml@gao.gov.
[End of section]
Letter:
Results in Brief:
Background:
Scope and Methodology:
Internal Controls Were Lacking or Ineffective:
Noncompliance with Policies and Procedures Resulted in Some Improper
Purchases:
Poor Controls Resulted in Some Wasteful and Questionable Purchases:
Poor Controls Contributed to Wasted or Missing Assets:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Comments from the Department of Transportation:
Appendix II: Staff Acknowledgments:
Acknowledgments:
Tables:
Table 1: Transactions Not in Compliance with Purchasing Requirements:
Table 2: Transactions Identified as Wasteful or Questionable:
Table 3: Examples of Transactions Where Invoice Documentation Was
Missing:
Abbreviations:
AMS: Acquisition Management System:
APC: Agency Program Coordinator:
DOT: Department of Transportation:
EAGLS: Electronic Account Government Ledger System:
FAA: Federal Aviation Administration:
GSA: General Services Administration:
JWOD: Javits-Wagner-O‘Day:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
PDA: Personal Digital Assistants:
PPIMS: Personal Property In-use Management System:
UNICOR: Federal Prison Industries, Inc.
:
Letter March 21, 2003:
The Honorable Don Young
Chairman
Committee on Transportation and Infrastructure
House of Representatives:
Dear Mr. Chairman:
The use of purchase cards in the federal government has dramatically
increased in past years as agencies have sought to eliminate the
bureaucracy and paperwork long associated with making small purchases.
The benefits of using purchase cards are lower costs and less red tape
for both the government and the vendor community. However, given the
nature, scale, and increasing use of purchase cards, it is important
for agencies to have adequate internal controls in place to help ensure
proper use of purchase cards and thus to protect the government from
waste, fraud, and abuse.
In September 2001, the Department of Transportation‘s (DOT) Office of
Inspector General (OIG) issued a report on the results of its audit of
DOT‘s government purchase card program.[Footnote 1] That review
examined 785 fiscal year 2000 purchase card and convenience check
transactions made by 9 of DOT‘s 11 operating administrations.[Footnote
2] Based on its review of this limited sample of transactions, the OIG
reported that purchases were reasonable, valid, and received. However,
the OIG also noted that within the Federal Aviation Administration
(FAA), internal controls were weak concerning verification of
purchases, splitting purchases to avoid purchase card limits, and
performing reviews of purchase card usage. Subsequently, we reviewed
purchasing controls and activities--including those involving the use
of purchase cards--within the Airway Facilities Division at FAA‘s
Alaskan Region and found similar internal control weaknesses.[Footnote
3] These included an inadequate supervisory review and approval
process, an inadequate segregation of duties, and a lack of oversight
of spending that allowed improper and wasteful expenditures to occur.
Given these results, you requested that we conduct an in-depth audit of
FAA‘s purchase card and convenience check transactions for fiscal year
2001 to determine the validity of purchase card and convenience check
usage.[Footnote 4] Consequently, we designed our review to determine if
FAA‘s
(1) internal controls provided reasonable assurance that improper
purchase card and convenience check purchases would not occur or would
be detected in the normal course of business, (2) purchase card and
convenience check expenditures were made in accordance with established
policies and procedures, (3) purchases were made for reasonable costs
and valid government needs, and (4) controls over purchase card and
convenience check asset acquisitions were adequate to properly record
and safeguard assets.
Results in Brief:
Significant internal control weaknesses in FAA‘s purchase card program
made the agency vulnerable to and in some cases resulted in improper,
wasteful, and questionable purchases, as well as missing assets. These
weaknesses included inadequate segregation of duties over purchases;
lax supervisory review and approval of purchases; lack of required
documentation for purchases; inadequate training for cardholders,
approving officials, and agency program coordinators; and a lack of or
inadequate monitoring activities. For example, we found instances where
supervisors had approved payment of transactions even though key
documentation to support the purchases was missing. Despite prior audit
reports dating back to 1997 communicating some of these weaknesses, we
found the same weaknesses continued during our review, which covered
fiscal year 2001. Because of these internal control breakdowns, FAA did
not have reasonable assurance that improper purchases would be
prevented or detected in the normal course of business.
The lack of adequate internal controls and monitoring of the program
created an environment in which improper purchases--meaning those that
violated law, regulation, or FAA policy--could be made with little risk
of detection. Inadequate controls over expenditures, combined with the
inherent risk of fraud and abuse associated with the purchase cards,
resulted in improper purchases totaling $5.4 million. This included 997
transactions totaling $5.1 million associated with purchases that had
been split into two or more segments to avoid the cardholder‘s single
purchase limit. We also found 54 instances of unauthorized purchase
actions, whereby someone other than the cardholder had made the
purchase.[Footnote 5] For example, at the direction of one cardholder‘s
supervisor, other staff in the office used the cardholder‘s purchase
card number to make 21 purchases of computer and office equipment
totaling over $149,000. Although these types of policy violations are
subject to disciplinary action, we generally found that action had not
been taken against the cardholders or approving officials. Failure to
comply with applicable policies and procedures lessens FAA‘s ability to
ensure that funds are being properly obligated and spent.
The inadequacy and ineffectiveness of internal controls was also
evident in 114 purchase transactions totaling $222,602 that we
considered wasteful because they were excessive in cost, for
questionable government need, or both. For example, we identified 25
purchases for 123 personal digital assistants (PDA) that ranged in cost
from $100 to $558 each, and accessories such as six high-cost leather
PDA cases purchased from the Coach store totaling $717. In addition, we
identified almost $17,000 paid to Internet service providers such as
America Online for individual FAA employees, despite the fact that FAA
provides Internet access for all staff. We also found 162 transactions
totaling $407,356 that we considered questionable, such as purchases
from BestBuy.com totaling $2,440 and Ashford.com (a jewelry Web site)
for $78. While such merchandise could easily have been for personal use
and not for official government use, missing documentation prevented us
and other reviewers from determining the reasonableness and validity of
these purchases. While the $6.1 million of improper, wasteful, and
questionable purchase card and convenience check purchases we
identified is relatively small compared to the over
$150 million in total annual purchase card and convenience check
activity, it demonstrates vulnerabilities from weak controls that could
easily be exploited to a greater extent. In addition, because we only
tested a small portion of the transactions we identified that appeared
to have a higher risk of fraud, waste, or abuse, there may be other
improper, wasteful, and questionable purchases in the remaining
untested transactions.
Inadequate internal controls over computers and other property acquired
with the purchase card contributed to unrecorded and missing equipment.
Specifically, from our detailed testing of transactions, we found that
FAA had not recorded 262 asset-related transactions totaling $4.1
million in its property management system. In addition, during our
unannounced physical inventory, we identified 238 items, totaling
$287,766, that FAA could not locate. Of these, 202 items were missing,
and FAA reported that the remaining 36 items had been transferred to
other FAA locations or returned for repair or replacement, but could
not provide documentation to support these claims. In addition to the
items we found missing, we noted that at one FAA location, the property
management division identified 405 items totaling over $900,000 that
were lost or stolen in fiscal year 2001 and another 437 items totaling
over $1 million that were lost or stolen in fiscal year 2002. These
lost or stolen items were primarily identified through physical
inventory counts performed during those years. We also noted poor
physical controls over FAA‘s computer-related assets. Given the
systemic weaknesses we identified in FAA‘s property controls, the
actual amount of missing or stolen equipment agencywide could be much
higher. Decentralized procedures for receiving property acquisitions,
inadequate safeguarding of assets, and inconsistent recording of those
assets in FAA‘s property management system created an environment in
which assets could be easily lost or stolen without detection.
Management‘s commitment to addressing and correcting these problems is
necessary to reduce FAA‘s vulnerability to improper and wasteful
expenditures and lost or stolen assets. We are making a number of
recommendations that, if properly implemented, will improve internal
controls over FAA‘s purchase card and convenience check program to help
ensure that improper and wasteful purchases are prevented or detected
in the future and vulnerable assets are better accounted for and
protected. In its comments on a draft of this report, DOT described
several actions completed or under way to address our recommendations
and expressed its commitment to running a sound purchase card program
in compliance with applicable requirements.
Background:
The General Services Administration (GSA) administers the federal
government‘s credit card program. GSA contracts with commercial banks
to issue credit cards to federal employees to make official government
purchases. FAA‘s purchase cards[Footnote 6] are issued by Bank of
America. The FAA purchase card, unless otherwise prohibited, is
intended to be the primary purchasing method when vendors accept
purchase cards as payment. This payment method is intended to
streamline procurement and payment procedures and reduce administrative
burden by reducing the number of procurement requests, purchase orders,
and vendor payments issued. FAA‘s purchase card program also includes
the use of convenience checks to pay vendors that do not accept credit
cards. In fiscal year 2001, FAA made over 364,000 purchases using
purchase cards and convenience checks totaling $151 million. This
reflects a significant increase over the prior fiscal year, when FAA
made a total of 271,000 purchase card and convenience check purchases
(a 34 percent increase) totaling $126 million (a 20 percent increase).
The Department of Transportation and Related Agencies Appropriations
Act of 1996 exempted FAA from the Federal Acquisition Regulation and
other provisions of acquisition law, and directed the FAA Administrator
to develop and implement FAA‘s own acquisition system. The resulting
system, called the FAA Acquisition Management System (AMS), took effect
April 1, 1996. AMS establishes policy for all aspects of the
acquisition life cycle. It was intended to simplify acquisition
management into a system providing more timely and cost-effective
acquisition of equipment and materials. Although FAA is exempted from
certain federal acquisition requirements, many of these requirements
have been incorporated into FAA‘s policies.
FAA also established the FAA Acquisition System Toolset that
supplements AMS by providing additional acquisition policy and
guidance, such as the Commercial and Simplified Purchase Method
guidance, which provides guidance on purchase cards and convenience
checks.[Footnote 7] Within this guidance, FAA delegates to each
acquisition office within a region or center, or within headquarters
the responsibility of managing its own purchase card program and
establishing its own internal processes for issuing purchase cards and
monitoring the program. In addition, FAA‘s internal Purchase Card/Check
User Guide assists cardholders and approving officials in carrying out
their responsibilities.
GSA and Bank of America also provide purchase card guidance and GSA
provides training that is available to cardholders, approving
officials, and program coordinators. For example, GSA‘s Blueprint For
Success: Purchase Card Oversight was prepared by a working group of
agency program coordinators (APC) and provides general program guidance
to APCs in performing their responsibilities. Beginning in fiscal year
2003, GSA made available to APCs a Web-based on-line training course
covering such topics as APC responsibilities, reporting tools, and
preventive measures to use in monitoring the purchase card program.
APCs are generally responsible for setting up and maintaining all
accounts, developing internal program guidelines and procedures,
ensuring that cardholders and approving officials receive proper
training, and monitoring for fraud and misuse. Each agency must
designate an APC to function as the agency‘s primary liaison to the
contract bank and to GSA. FAA‘s operating guidance also requires the
chief of the contracting office within each region or center and within
headquarters to delegate a person or persons to act as the APC for that
location. As a result, FAA has a different APC at each of its 12 major
locations,[Footnote 8] with the headquarters APC designated agencywide
responsibility for the program.
Cardholders are responsible for understanding and complying with
purchasing policies and procedures, maintaining records and receipts of
all purchases, reconciling their purchases to their monthly statements,
and preparing and submitting required property management forms for
assets purchased. Each cardholder‘s designated approving official--
which is normally the next level supervisor--is responsible for
reviewing the cardholder‘s transactions to assure they are properly
documented, comply with purchasing policies, and are necessary for
accomplishing the mission of the agency. Approving officials are also
responsible for reporting fraudulent or improper use of the card. As of
January 2002, 8,534 out of 51,062 (17 percent) FAA employees had
commercial purchase cards, most of which had a single purchase limit
between $2,500 and $10,000 and a monthly purchase limit between $5,000
and $120,000. Each convenience check issued is not to exceed $2,500.
Other key roles affecting purchases include the accounting
certification officer (also known as the funds certification officer),
and the property custodian. FAA‘s procurement guidance specifies that,
prior to purchase, the program office funds certification officer shall
determine whether the expenditure is authorized by the appropriation
and provide either a written certification that adequate funds are
available or condition the purchase upon availability of funds.
Property custodians are responsible for reviewing and processing source
documents for the receipt, transfer, or disposal of accountable
property[Footnote 9] in their assigned custodial areas, conducting
physical inventories, and ensuring that property is adequately
safeguarded.
In September 2001, DOT‘s OIG issued a report on the results of its
audit of DOT‘s purchase card program.[Footnote 10] The OIG examined a
total of 785 purchase card and convenience check transactions totaling
$1.2 million made by FAA, the U.S. Coast Guard, and seven other DOT
operating administrations. Based on this limited sample, the OIG
reported that generally, purchases were reasonable, valid, and
received. However, it also reported that (1) approving officials were
not verifying that purchases were authorized, (2) cardholders were
splitting single purchases into multiple transactions to avoid purchase
card limits, and (3) FAA was not conducting periodic follow-up reviews
of purchase card usage. The OIG also found instances of purchase card
fraud and violations of DOT policies and internal control procedures.
These results were similar to those found during the OIG‘s previous
review of DOT‘s purchase card program. In November 1997, the OIG
reported that approving officials were not performing required reviews
of documentation, cardholders were splitting purchases, and periodic
follow-up reviews were not being conducted.[Footnote 11] It recommended
at that time that DOT reemphasize the requirement for approving
officials to review supporting documentation for cardholder purchases
and provide guidance for conducting periodic follow-up reviews. The OIG
indicated in these reports that DOT and FAA actions taken and planned
to address the recommendations sufficiently addressed the
recommendations made. However, based on our findings the corrective
actions taken were not fully effective.
In May 2002, we issued a report on the results of our review of
purchasing controls and activities within the Airway Facilities
Division at FAA‘s Alaskan Region.[Footnote 12] This was the only unit
in FAA to implement a pilot program, called the Corporate Maintenance
Philosophy, from 1997 to 2001. Due to controversy surrounding this
program, including allegations of inappropriate spending, we reviewed
this unit‘s internal controls and selected expenditures. With respect
to its purchase card program, we found:
* inadequacies in the segregation of purchasing duties, the supervisory
review and approval process, and the tracking of accountable property
and award inventories;
* improper purchases, such as purchases that were split to circumvent
purchase limits, restricted items that were purchased without required
approvals, and items that were not bought from required vendors and
lacked the necessary waivers to do so;
* purchases of expensive items such as flat panel computer monitors
costing over $3,000 each and PDAs ranging from $300 to over $500 each;
and:
* a decentralized operating environment and a lack of training that
contributed to these weaknesses.
Our report resulted in 18 recommendations to FAA to address these
issues. In its response to this report, FAA agreed with the
recommendations and indicated it had initiated action to address all of
the issues.
Scope and Methodology:
The scope of our review included FAA headquarters, FAA‘s two centers,
and eight of its nine regional offices.[Footnote 13] We conducted site
visits to six of these locations. To obtain an understanding of FAA‘s
purchase card and convenience check policies and procedures, the
related internal controls, and policies and controls over assets
purchased, we:
* reviewed FAA‘s AMS policy, procurement guidance, purchase card/check
user guide, property management policies, and local operating
procedures over the purchase card program, and:
* conducted walkthroughs and structured telephone interviews with FAA
management and staff to identify key purchase card, convenience check,
and accountable property policies, procedures, and initiatives.
To assess the adequacy of internal controls, we used our Standards for
Internal Control in the Federal Government,[Footnote 14] Internal
Control Management and Evaluation Tool,[Footnote 15] Guide for
Evaluating and Testing Controls Over Sensitive Payments,[Footnote 16]
and Strategies to Manage Improper Payments.[Footnote 17]
To test internal controls over transactions and determine whether
expenditures were made in compliance with policies and procedures, were
reasonable, and had a valid government need, we selected transactions
using three different methods. For each method of selection, we
provided FAA with the transactions selected and obtained and reviewed
related supporting documentation. The three methods are as follows.
* Data mining.[Footnote 18] We performed data mining on Bank of
America‘s database of FAA‘s fiscal year 2001 purchase card and
convenience check transactions for indicators of potential
noncompliance with established policies and procedures. Specifically,
we looked for purchases that exceeded cardholder or convenience check
spending limits, split purchases, cardholders with multiple purchase
cards, former employees who had active purchase card accounts after
their separation dates, cardholders who were payees on convenience
checks, and cash advances. We forwarded the results of all transactions
that met specific criteria to the cognizant APCs for their responses
and related documentation, which we used to assess whether in fact
these were violations of policy.
* Statistical sampling. We selected a stratified random (statistical)
sample of 333 transactions totaling $4.2 million from the population of
transactions paid from October 1, 2000, through September 30, 2001, to
test specific control activities, such as segregation of duties,
evidence of approving official review and approval, and adequacy of
supporting documentation; whether the purchases complied with
purchasing policies; and whether the purchases appeared reasonable and
had a valid government need. Results from the statistical sample were
projected to the population[Footnote 19] of FAA purchase card and
convenience check transactions for fiscal year 2001.
* Nonstatistical sampling. We also selected transactions on a
nonstatistical basis to allow us to identify transactions that appeared
to have a higher risk of fraud, waste, or abuse, although the results
cannot be projected to the overall population of purchases. To select
these transactions, we first performed data mining on fiscal year 2001
transactions to identify purchases from certain vendors that would more
likely be selling unauthorized or personal use items; purchases made on
the weekends, during holidays, or at fiscal year-end; and purchases of
sensitive assets. This resulted in tens of thousands of transactions
identified, from which we then selected 1,874 transactions totaling
$7.9 million to test whether these purchases were made at excessive
cost and/or for questionable government needs, and whether they
complied with select purchasing policies and procedures.
To determine if controls over purchase card and convenience check
equipment acquisitions were adequate to properly record and safeguard
assets, we did the following.
* Reviewed policies and procedures over the management and control of
accountable property and sensitive items.[Footnote 20]
* Tested accountable property selected in the statistical and
nonstatistical samples to determine whether these assets had been
entered into FAA‘s property management system prior to our review.
* Selected 81 transactions for equipment purchases made by four FAA
locations to conduct an unannounced inventory of desktop computers,
laptops, and other sensitive items that were purchased with government
purchase cards or convenience checks.
While we identified some improper purchases, our work was not designed
to identify all fraudulent or otherwise improper purchases made by FAA.
We conducted our review from January through December 2002 in
accordance with generally accepted government auditing standards. We
requested written comments on a draft of this report from the Secretary
of Transportation or his designee. Written comments were received from
the department‘s Assistant Secretary for Administration and are
reprinted in appendix I.
Internal Controls Were Lacking or Ineffective:
FAA‘s internal controls did not provide reasonable assurance that
improper purchase card and convenience check purchases would not occur
or would be detected in the normal course of business. Internal
controls serve as the first line of defense in safeguarding assets and
in preventing and detecting fraud, waste, and abuse. Our Standards for
Internal Control in the Federal Government requires that (1) key duties
and responsibilities be divided or segregated among different people to
reduce the risk of error or fraud, (2) transactions and other
significant events be authorized and executed only by persons acting
within the scope of their authority, (3) all transactions and other
significant events be clearly documented, and the documentation be
readily available for examination, (4) management ensure that its
workforce has the required skills necessary to achieve organizational
goals, and (5) internal control monitoring be performed to assess the
quality of performance over time and ensure that audit findings are
promptly resolved. We found that FAA lacked these key internal controls
or had not adequately implemented them, increasing the risk that
improper purchases could occur.
Segregation of Purchasing Duties Was Inadequate:
We identified limited segregation of duties during our detailed tests
of transactions. From the statistical sample of 333 purchase card and
convenience check transactions, 93 lacked evidence of adequate
segregation of duties. Based on the results of our review of these
transactions, we estimate that $44 million[Footnote 21] of the total
sampled population of purchase card and convenience check transactions
lacked adequate segregation of duties. What we found most often was
that the cardholder requested the purchase, placed the order, and
picked up or received the acquired goods without any other review or
approval. Although 68 of the 93 transactions had evidence of the
approving official‘s review and approval, we determined that adequate
segregation of duties did not exist because the cardholder had
performed a majority of the purchasing duties with little if any
oversight.
For example, we noted an instance where an employee at one location
served as the funds certification officer, approving official, and
property custodian for purchases in her area. Consequently, she
certified that funds were available for purchases; reviewed and
approved purchases made by cardholders under her supervision; and
accounted for, recorded, and maintained property inventory records for
assets purchased. We also found that 7 of FAA‘s 12 APCs and 4
alternates were also cardholders. One of these APCs also served as an
approving official. Because APCs are responsible for monitoring
cardholders‘ and approving officials‘ activities for indications of
potential fraud, waste, and abuse, these APCs were essentially
monitoring their own activities. In fact, the cardholder with the
largest dollar volume of charges in FAA during fiscal year 2001,
totaling $4 million, was an APC.
Several factors contributed to these segregation of duties weaknesses.
From our discussions with several APCs, we noted that generally,
segregation of duties was not an area of focus in the training for
cardholders and approving officials. We also were told that certain
field offices may not be able to adequately segregate purchasing duties
because of the small number of employees located at those sites. In
addition, we found that FAA‘s operating guidance did not specify how
purchasing duties should be separated. Although the guidance describes
key duties and responsibilities involved in the purchasing process, it
generally does not specify that these key duties and responsibilities
be segregated among different people. For example, the guidance states
that an approving official is normally the cardholder‘s immediate
supervisor. However, the guidance does not require other key roles,
such as the funds certification officer and the property custodian, to
be filled by someone other than the cardholder and the approving
official. Lacking appropriate segregation, FAA cannot ensure that
purchases are appropriate, have been duly authorized, and comply with
purchase requirements.
Supervisory Review and Approval Process Was Inadequate:
Because the only segregation of duties required by FAA policy is
between the purchaser and approving official for a particular
transaction, the approving official often may be the only party aside
from the purchaser who reviews the transaction. Consequently, the
approving official‘s review is a critical internal control for ensuring
that purchases are appropriate and comply with FAA requirements.
However, we found FAA‘s supervisory review and approval process was
inadequate for ensuring that purchases were proper. Specifically, we
found numerous transactions that did not have evidence of supervisory
approval, had been approved even though they were missing key
documents, did not comply with one or more purchasing policies or
procedures, or were wasteful purchases. We also identified duplicate
charges that had not been promptly disputed with the bank to ensure
that they were removed from accounts and refunded to FAA.
Review of transactions by persons in authority is the principle means
of assuring that transactions are valid. Although FAA requires that
approving officials review and approve cardholders‘ purchases, this was
not consistently done. For example, of the 333 purchase card and
convenience check transactions in the statistical sample, 52
transactions lacked evidence of approving official review. Based on the
results of our review of these transactions, we estimate that $27
million[Footnote 22] of the total sampled population of purchase card
and convenience check transactions lacked evidence of approving
official review. We also nonstatistically selected 1,874 transactions
from fiscal year 2001 that appeared to have a higher susceptibility to
fraud, waste, and abuse, and found that 419 of these transactions (22
percent) also lacked evidence of supervisory review. Because the
approving official review is the first, and sometimes only, line of
defense for detecting improper transactions, it is critical that
approving officials perform and document adequate, timely reviews.
The number of purchase transactions that had been approved even though
they were missing key documents further illustrates FAA‘s inadequate
supervisory review and approval. Specifically, from our statistical and
nonstatistical samples, we noted 155 transactions totaling $402,439
were missing key purchase documents such as a credit card slip or
invoice, yet approving officials still approved 66 of these
purchases.[Footnote 23] Missing invoice documentation raises questions
about the adequacy of the approving official‘s review, since without
such documentation, it can be difficult to determine what was purchased
based on the cardholder‘s monthly credit card statement alone. For
example, we identified a $1,240 transaction at Sears, Roebuck and Co.
that the cardholder claimed was used to purchase a refrigerator.
However, the monthly billing statement only indicated where the
purchase was made, and did not contain a description of what was
purchased. Without a credit card receipt or invoice, we could not
verify what was purchased or whether it was being used for government
purposes. As noted later in this report, we also found that cardholders
throughout the agency made numerous improper purchases (i.e., purchases
that did not comply with one or more purchasing policies or procedures)
and wasteful purchases (i.e., purchases that were excessive in cost or
for questionable government needs) that nevertheless were approved.
Without documented approval and a thorough review of all supporting
documentation by approving officials, there is no assurance that items
purchased comply with purchasing requirements and have a legitimate
government purpose. For example, in fiscal year 2001 a former FAA
employee was convicted of illegally making over $58,000 in personal
charges with his government purchase card over at least a 9-month
period, including numerous purchases made at various auto specialty
businesses and a custom auto body shop. We could not determine from the
case documentation provided to us whether the cardholder‘s supervisor
approved any of these purchases. However, had the approving official
timely and thoroughly reviewed the credit card statements and
supporting documentation for each transaction, he could have identified
numerous improper purchases at vendors such as Commercial Van
Interiors, Exclusive Window Tint, The Custom Shop, and Fairway
Chevrolet on the government purchase card. In another case, a
cardholder made six cash advances totaling $1,800 that occurred over
four monthly billing cycles. File documentation contained a copy of one
of the cardholder‘s bank statements from that period. Although cash
advances are prohibited, the authorizing official approved this
statement even though the charges on that statement included three cash
advances. In addition, the cash advances were made at two gambling
establishments, including one called the Normandie Club, which should
have raised at least some suspicions on the part of the approving
official in reviewing the cardholder‘s statement.[Footnote 24] These
violations were not identified by the approving official, but were
identified by the accounting department. The cardholder was reprimanded
and the account was closed. However, FAA officials informed us that
because the cardholder repaid the cash advances, no further
disciplinary actions were taken against the cardholder. In addition, no
disciplinary actions were taken against the approving officials in
either case, despite the fact that approving officials are responsible
for reviewing all transactions against supporting documentation and
reporting potential fraud and abuse by cardholders.
We also noted that three transactions totaling $3,712 were charged
twice to cardholders‘ accounts and had not been credited at the time of
our review. Bank of America only allows a cardholder 60 days from the
time a disputed transaction first appears on a cardholder‘s monthly
credit card statement to submit a written dispute form to the bank, but
the cardholders in these three cases did not do so. In each case, the
cardholders initiated verbal inquiries to the vendor or to Bank of
America regarding the duplicate charges, but did not follow through
with written dispute forms as required. In addition, approving
officials did not perform timely follow up with the cardholders to
ensure that the written dispute forms were submitted promptly.
Therefore, these erroneous charges were not credited back to the
cardholders‘ accounts, and FAA was not reimbursed for the duplicate
payments made to the bank.
One factor that might contribute to FAA‘s inadequate supervisory review
is that, in certain instances, there was a high ratio of cardholders to
approving officials. Having a manageable number of cardholders is
essential for approving officials to be able to conduct timely,
thorough reviews of transactions to help facilitate detection of
possible purchase card misuse and fraud. Although there is no
definitive requirement, GSA‘s Blueprint for Success: Purchase Card
Oversight indicates that most approving officials are assigned from 4
to 10 cardholders each. However, we found that 228 of FAA‘s 1,741
approving officials, or 13 percent, were assigned from 11 to 47
cardholders each.[Footnote 25] FAA‘s operating guidance does not
address the number of cardholders that would be appropriate to enable
approving officials to adequately perform their supervisory
responsibilities. However, approving officials who have more
cardholders than they can effectively supervise are less likely to
adequately perform their responsibilities in a timely manner.
Some Purchases Lacked Key Documentation:
We found that some of FAA‘s purchase card transactions lacked key
supporting documentation. FAA‘s procurement guidance requires that all
purchase transactions made by a cardholder must be supported by a
certification of funds availability and an invoice or credit card slip.
Furthermore, FAA Order 1350.15B, Records Organization, Transfer, and
Destruction Standards, requires that acquisition records for purchases
of $25,000 or less be maintained for 3 years after final payment.
Acquisition records for purchases exceeding $25,000 should be
maintained for 6 years and 3 months after final receipt of goods or
services.
Of the 333 transactions tested in the statistical sample, we found 18
instances where FAA lacked an invoice, credit card slip, or other store
receipt. Based on these results, we estimate that $8 million[Footnote
26] of the total fiscal year 2001 purchase card and convenience check
transactions lacked key supporting documentation. Similarly, our review
of 1,874 nonstatistically selected transactions identified 131
transactions
(7 percent) totaling $356,487 that were missing such key purchase
documents.[Footnote 27] In some instances, cardholders or FAA employees
indicated that the invoice had been lost, shredded, or not retained
when the cardholder retired or separated from FAA. However, we also
found instances where no explanation was provided as to why cardholders
could not submit supporting documentation as of the end of our
fieldwork. The invoice is the basic document that cardholders are
required to attach to their monthly statements for approving official
review. Without such documentation, FAA does not have any independent
evidence of the description and quantity of what was purchased and the
price paid. Therefore, it cannot determine whether the purchase was
appropriate.
Although the percentage of missing invoices was lower than the
exceptions for other internal control activities we tested, we believe
it is still unacceptable for such a key document. A valid invoice to
show what was purchased and the price paid is a basic document for
these transactions, and a missing invoice could be an indicator of
potential fraud. A near zero failure rate is a reasonable goal
considering that invoices are easily obtained or replaced when
inadvertently lost.
We also identified 178 instances in the statistical sample where FAA
lacked a written certification from the responsible fiscal authority
that funds were available to make the specific purchase. Based on the
results of our review of these transactions, we estimate that $84
million[Footnote 28] of the total sampled population of purchase card
and convenience check transactions lacked a written certification that
adequate funds were available. FAA requires this documentation to help
ensure compliance with the Anti-Deficiency Act (31 U.S.C. 1341) and
other fiscal laws that require that specific expenditures be authorized
under the particular appropriation to be charged, and that funds are
available in the appropriation for the expenditure.
Training Was Inadequate to Perform Key Functions:
With the many purchase requirements that cardholders, approving
officials, and APCs must follow, adequate training is essential for
them to perform their duties effectively. However, we found that FAA
had not provided adequate training for these key purchase card program
participants. Our Standards for Internal Control in the Federal
Government states that training should be aimed at developing and
retaining employee skill levels to meet changing organizational needs.
FAA‘s purchase card procurement guidance requires APCs to ensure that
both cardholders and approving officials receive proper training on the
policies and procedures for use of the card. However, it does not
specify how frequently such training must be provided. Although APCs
are required to provide initial training to cardholders and approving
officials, they are not required to provide any refresher training on
an ongoing basis.
The lack of refresher training may have contributed to the numerous
policy violations we identified during our detailed testing (as
discussed later in this report), such as purchases that exceeded
various purchasing limits, purchases that were not made from required
vendors, and purchases of accountable property that were not recorded
in the property management system. Cardholder responses to our
questions on these control areas also indicated that they were not
aware of key requirements. For example, during our transaction testing,
one cardholder said that certification of funds availability--which FAA
policy clearly states must be performed for all transactions prior to
purchase--was not required at the time of purchase. Another cardholder
said it was not required because the particular transaction was under
$2,500, while a third cardholder noted that the manager‘s signature on
the credit card statement constituted certification of funds.
FAA recently began implementing steps to ensure that existing
cardholders and approving officials obtain refresher training on the
purchase card program. For example, an FAA memorandum from the
Assistant Administrator for Regional and Center Operations, dated April
25, 2002, emphasized that all cardholders and approving officials under
her line of reporting would be required to obtain refresher training,
although no final date for completion of training was given. Another
FAA memorandum, dated April 30, 2002, from the Assistant Administrator
for Financial Services and Chief Financial Officer also recommended,
but did not require, that all parties involved in the purchase card
program take periodic refresher training.
Since then, some APCs have taken actions to implement the applicable
requirements/recommendations at their locations. For example, at one
FAA location the APC began requiring all cardholders and approving
officials to complete purchase card retraining, including reading FAA‘s
internal purchase card operating procedures and certifying completion,
reading GSA‘s Blueprint for Success: Purchase Card Oversight,
completing GSA‘s on-line quiz, and submitting the certificate of
completion to the APC. We were informed that the APC closed 40
cardholders‘ accounts for failure to comply with the retraining
requirement. This APC also held six ’special emphasis“ training
sessions for all cardholders and approving officials, which emphasized
areas of weakness that we had identified during our site visit. Another
APC developed a database for her location to track the dates that
cardholders and approving officials completed the initial and updated
training.
While FAA has begun to address the lack of refresher training for its
cardholders and approving officials, the agency still has no specific
training requirement or courses for its APCs. Adequate training for
APCs is critical because they are responsible for overseeing the entire
purchase card program. While FAA‘s procurement guidance requires APCs
to ensure that cardholders and approving officials receive proper
training, the guidance is silent on ensuring the same for APCs.
Consequently, the training available to APCs during fiscal year 2001
was limited to training offered by GSA and Bank of America; however,
these sources were not fully utilized. For example, GSA conducts an
annual governmentwide conference to train APCs on account
administration, program management, reporting tools available for
monitoring the program, and the banks‘ various electronic access
systems. However, we noted that only 6 of FAA‘s 12 APCs attended GSA‘s
August 2002 training conference, and only 1 of the APCs attended any
bank-sponsored training during fiscal years 2001 and 2002 for the
purchase card program.
As FAA makes changes to strengthen controls over the purchase card
program, APCs require detailed guidance and training for carrying out
some of these initiatives. However, they have not always received this.
For example, an April 30, 2002, FAA memorandum, required each region
and center, and the headquarters office to begin conducting annual
reviews of purchase card and convenience check transactions effective
fiscal year 2002. Although the memorandum provided information
regarding the type of sampling methodology to use, what to review, and
the criteria to be used when conducting the annual review, there was no
discussion regarding the population to be used in selecting the sample
or specific data analysis techniques to be performed to identify
potentially fraudulent, improper, or questionable transactions. In
addition, the annual review only focused on reviewing the cardholder‘s
records for compliance with limited policies and procedures, and did
not include an assessment of key control activities such as assessing
the ongoing need for cards, appropriate segregation of duties, and
record retention.
Without detailed guidance and commensurate training, locations may not
conduct adequate annual reviews. In addition, inconsistent
methodologies used to perform reviews may not provide meaningful
results for determining how the overall program is functioning. As
noted later in this report, we identified instances where APCs were
unaware of the monitoring tools available to them or were untrained in
how to use them. Without proper training, APCs are limited in how
effectively they can manage their programs, which in turn limits their
ability to prevent and detect fraud, waste, and abuse.
Program Monitoring Was Inadequate:
FAA did not adequately monitor and evaluate the effectiveness of
controls over its purchase card program to ensure that findings of
audits were promptly resolved. The OIG reported deficiencies in DOT‘s
departmentwide purchase card program, which included FAA, as far back
as 1997, yet FAA did not take sufficient action to address these
weaknesses. For example, in the 1997 review[Footnote 29] the OIG
reported that cardholders purchased restricted and prohibited items and
made split purchases to circumvent cardholders‘ single purchase limits;
approving officials did not adequately perform required supervisory
reviews, such as reviewing the documentation to support cardholder
purchases; and operating administrations did not statistically sample
purchase card transactions for potentially improper purchases in part
because they lacked adequate guidelines or procedures to do so.
DOT‘s primary response was to issue memorandums reiterating purchasing
requirements, and issue guidance for conducting statistical reviews.
However, it did not follow up to determine whether those actions were
sufficient to resolve the cited weaknesses. Consequently, the OIG
reported similar audit results in 2001,[Footnote 30] finding that
cardholders continued to make split purchases, primarily at FAA;
approving officials were not verifying that purchases were authorized;
FAA was not sampling purchase card transactions to determine if
purchases were authorized and complied with purchasing requirements;
and disciplinary actions were inconsistent when cardholders or
approving officials violated policies. As in 1997, DOT and FAA
responded primarily by issuing memorandums and guidance. Although FAA
management stated that the headquarters APC would begin performing
internal audits of the purchase card program, the headquarters APC
informed us that these internal reviews would be limited to
headquarters‘ purchase card activity and would not cover the controls
or transactions at FAA‘s 11 regions and centers.
Without adequate monitoring to determine whether policies are being
properly implemented, the issuance of new policies and guidance was
generally ineffective. Our May 2002 report on FAA‘s Alaskan Region
purchases[Footnote 31] and this report identified many of the same
weaknesses reported by the OIG as well as other findings. While the
work performed by the OIG and us differed as to the specific scope and
periods covered, the nature and scope of weaknesses identified were
indicative of insufficient attention by management to establish and
maintain sound internal controls over its purchase card program.
Despite these repeated warnings, FAA management has not ensured that
its efforts to address audit findings have actually corrected the
problems.
In April 2002, the Office of Management and Budget (OMB) directed all
federal agencies to prepare a remedial action plan for their purchase
card programs about the adequacy of internal control systems that
monitor the use of purchase cards. DOT‘s plan, which was approved by
OMB on
August 8, 2002, set forth several actions it planned to complete by
November 30, 2002, such as reviewing cardholder spending limits to
ensure that limits match cardholders‘ needs, and reviewing, adjusting,
and restricting certain merchant category codes to lessen the risk of
fraud or misuse. We noted that FAA was still in the process of
implementing these actions at the end of our fieldwork.
The inadequate follow-up on prior audit findings may be due in part to
the lack of centralized oversight of FAA‘s purchase card program.
During our entrance conference with FAA officials, they admitted that
no oversight or monitoring was performed at the FAA-wide level due to
FAA‘s decentralized operations and reporting structure. Consequently,
they were unable to provide us even basic information about their
overall purchase card program, such as the total number of cardholders
and approving officials, or the volume of purchase card activity. FAA
officials stated that the headquarters APC was FAA‘s designated
national representative, which the APC acknowledged. However, we found
no monitoring activities directed at assessing overall program results,
evaluating internal control and compliance with purchasing procedures,
or ensuring that local purchase card policies and procedures were
consistent with FAA acquisition policy.
With the lack of centralized oversight of the purchase card program,
FAA has had to rely upon the 12 individual APCs (1 at each location) to
manage activities within their jurisdictions. However, we found that
APCs‘ primary attention appeared to focus on basic program activities
such as opening and closing cardholder accounts and providing training
for new cardholders and approving officials, with little if any
attention paid to monitoring for compliance with program requirements
or for improper purchases. Consequently, we found that APCs generally
were not
(1) consistently utilizing Bank of America‘s Electronic Account
Government Ledger System (EAGLS)[Footnote 32] reporting functions to
detect potential misuse and/or fraud within their programs, (2)
canceling accounts of departed employees in a timely manner, and (3)
monitoring for increased risk of improper purchases due to cardholders
with multiple accounts, as further discussed below. Given that FAA
makes thousands of purchase card transactions annually, which, in
fiscal year 2001, exceeded $150 million, it is essential that FAA
management devote adequate attention to monitoring its purchase card
program to ensure that it is properly managed and to reduce the risk of
fraud, waste, or abuse.
* EAGLS reports. EAGLS can generate account activity reports, which
identify trends such as purchases from merchants that would not be
expected to be traditional suppliers or unusually high spending
patterns; dispute reports, which identify cardholders with excessive
disputes that may indicate cardholder misuse or fraudulent activity;
and various other exception reports that can track information such as
unallowable automated teller machine transactions or cash withdrawals
or charges at specific merchant category codes for businesses unrelated
to FAA‘s mission. Several APCs told us that they did not know that some
of these essential reports existed or were not sure how to access the
data to print these reports from EAGLS. As a result, they were not
using them to systematically monitor cardholder activity for potential
fraud or abuse.
* Separated employees. We also found that accounts of cardholders who
resign, retire, or otherwise leave FAA employment were not promptly
closed upon their departure. Although FAA‘s procedures require that the
APC be notified via an employee clearance form when cardholders leave
the agency, some APCs acknowledged that they did not always receive the
forms or receive them timely. However, at the time of our review, only
1 of the 11 APCs[Footnote 33] actively reviewed cardholder names
against monthly personnel reports to ensure that departed employees‘
accounts were canceled soon after their departure. Consequently, our
data mining identified five cardholders from three FAA locations whose
accounts remained open a month or more after their fiscal year 2001
separation dates. Although we did not identify any associated
fraudulent activity, charges continued to be made to four of the five
accounts from automatic monthly billings, such as Internet service
fees, or when other employees incurred charges at vendors that had the
departed cardholders‘ account numbers on file. FAA identified and
closed three of the open accounts but was unaware of and did not close
the remaining two accounts until we brought them to its attention,
including one that was closed 6 months after the cardholder left the
agency.
* Multiple accounts. We also found that APCs were not monitoring for
increased risk of improper purchases by cardholders with multiple
purchase cards. During our data mining, we identified 176 cardholders
who were issued from two to eight purchase cards each. According to
FAA, multiple cards were issued so that the originating office could
separately track expenditures against different funding allocations.
However, because every transaction requires an accounting
classification code to indicate the appropriation and fund that the
purchase is to be charged against, there is no need for separate
purchase cards to do this. In addition, the issuance of multiple cards
to the same cardholder places an additional administrative burden on
APCs, cardholders, and approving officials in carrying out their
respective responsibilities, and increases FAA‘s risk of improper
purchases. As a result of our audit, APCs have begun to review and
cancel the excess purchase cards issued to these cardholders and have
stopped issuing multiple cards to individual cardholders.
FAA officials informed us that a national purchase card program
coordinator and a national organization reporting coordinator were
appointed to oversee the program beginning January 6, 2003. Proper
oversight at this level will be critical for ensuring that identified
program weaknesses are addressed nationally and program improvements
are implemented consistently.
Noncompliance with Policies and Procedures Resulted in Some Improper
Purchases:
The lack of adequate internal controls was evident in identified
violations of FAA acquisition requirements that we classified as
improper purchases. These included (1) purchases that were split into
two or more transactions to circumvent single purchase limits, (2)
purchases that exceeded other limits established by FAA, (3) purchases
from other than required vendors without the appropriate waivers, (4)
unauthorized purchase actions whereby someone other than the cardholder
made the purchase, and
(5) withdrawals or payments to cardholders through cash advances or
convenience checks. Table 1 shows the number of exceptions we
identified for each category, as described further below.
Table 1: Transactions Not in Compliance with Purchasing Requirements:
Policy violation of purchasing requirement: Transactions associated
with purchases that were split into two or more segments to avoid
established single purchase limits; Number of transactions not
in compliance: 997; Dollar amount of transactions not in compliance:
$5,111,147.
Policy violation of purchasing requirement: Purchases that exceeded
limits established by FAA; Number of transactions not
in compliance: 30; Dollar amount of transactions not in compliance:
214,666.
Policy violation of purchasing requirement: Purchases that were not
made from required vendors; Number of transactions not
in compliance: 20; Dollar amount of transactions not in compliance:
35,903.
Policy violation of purchasing requirement: Unauthorized purchase
actions, that is, purchases by someone other than the cardholder;
Number of transactions not
in compliance: 12; Dollar amount of transactions not in compliance:
75,646.
Policy violation of purchasing requirement: Withdrawals or payments
through cash advances or convenience checks; Number of transactions not
in compliance: 4; Dollar amount of transactions not in compliance:
2,462.
Policy violation of purchasing requirement: Total; Number of
transactions not
in compliance: 1,063; Dollar amount of transactions not in compliance:
$5,439,824.
Source: GAO.
Note: GAO‘s analysis of FAA purchase card transactions and related
documentation.
[End of table]
While the total amount of improper purchases we identified is
relatively small compared to the over $150 million in annual purchase
card and convenience check transactions, it demonstrates
vulnerabilities from weak controls that could easily be exploited to a
greater extent.
The above policy violations are discussed in more detail below.
* Split purchases. During our data mining and detailed tests of
transactions, we found 997 split purchase transactions[Footnote 34]--
purchases that had been split into more than one transaction to stay
within established single purchase limit--totaling $5.1 million. For
example, a cardholder with a single purchase limit of $5,000 purchased
a printer and accessories totaling $8,391. The cardholder had the
vendor make three separate charges to the purchase card, on the same
day, to avoid exceeding the single purchase limit. Another cardholder
informed us that she was directed by her supervisor to issue multiple
convenience checks to pay a vendor in order to work around the $2,500
convenience check limit, despite the fact the cardholder advised her
supervisor that this was contrary to procurement policy. After the
split purchases were discovered, the cardholder stated that the
incident was investigated, she was counseled, and her account was
subsequently closed in January 2002. However, no disciplinary action
was taken against the supervisor. We noted that cardholders and
approving officials generally were not disciplined when these types of
policy violations occurred.
We identified another 201 transactions totaling over $543,000 that we
considered potential split purchase transactions, but could not confirm
this because cardholders did not provide adequate documentation to
enable us to fully assess the transactions. The purpose of the single
purchase limit is to require that purchases above established limits be
subject to additional controls to ensure that they are properly
reviewed and approved before the agency obligates funds. By allowing
these limits to be circumvented, FAA has less control over the
obligation and expenditure of its resources.
* Purchases that exceeded limits established by FAA policy. We found
that several purchases exceeded FAA‘s established purchase card
thresholds for the procurement of services and the dollar limit for
purchases made with convenience checks. When cardholders circumvent
these management controls, FAA has no assurance that purchases comply
with certain labor laws[Footnote 35] and that cardholders are making
contractual commitments on behalf of FAA within the limits of their
delegated purchasing authority. FAA‘s operating procedures prohibit the
use of the purchase card and convenience checks when procuring certain
nonconstruction services of $2,500 or more, such as janitorial,
grounds, and guard services,[Footnote 36] or when procuring certain
services, such as temporary help and consulting services, regardless of
the amount.[Footnote 37] During our detailed tests of transactions, we
identified four transactions totaling $16,460 for nonconstruction
services costing $2,500 or more. We also identified seven transactions
totaling $111,648 for consulting services even though FAA prohibits
using the purchase card for these types of purchases. For example, a
cardholder procured consulting services for engineering, technical
analysis, and program management support activities from the same
vendor over a 3-month period totaling $67,000 because management had
directed that these services continue while a new contract was awarded.
FAA‘s operating procedures also prohibit the use of the purchase card
or convenience check when procuring construction services valued at
$2,000 or more. FAA defines these services as the construction,
alteration, or repair of buildings, structures, or other real
property.[Footnote 38] During our detailed tests of transactions, we
identified eight transactions totaling $35,735 that exceeded the $2,000
limit for purchasing construction services with the purchase card.
These included a $5,224 purchase for the repair of wiring and
replacement of lighting at an FAA cafeteria and two purchases totaling
$12,684 from the same vendor on two different occasions for electrical
work at an FAA facility.
Our data mining also identified 11 transactions totaling $50,823 where
cardholders exceeded the $2,500 convenience check limit.[Footnote 39]
The most serious violation was the use of a convenience check to pay
for equipment modifications totaling $18,690. FAA indicated it had
previously identified this purchase as a violation of policy, notified
the cardholder‘s approving official, and taken steps to ensure the
cardholder was reminded of convenience check policies and procedures.
However, we noted that no disciplinary action was taken against the
approving official who was responsible for ensuring that the purchase
was made in accordance with policies and procedures.
* Purchases were not made from required vendors. Cardholders made
numerous purchases from other than required vendors without obtaining
appropriate waivers to indicate that they were authorized to buy
elsewhere.[Footnote 40] During our testing of the 333 transactions in
the statistical sample, we identified 36 purchases that were required
to be purchased from a mandatory source. Of the 36, 20 transactions
were not purchased from the mandatory vendors and did not have the
required waiver from Federal Prison Industries, Inc. (UNICOR) or any
documentation that would support that a Javits-Wagner-O‘Day (JWOD) Act
supplier did not offer the items or that the items were currently
unavailable. Based on the results of our review of these transactions,
we estimate that $9 million[Footnote 41] of the related sample
population of purchase card and convenience check transactions lacked
the required waivers or other supporting documentation. For example, a
cardholder purchased 24 office chairs totaling $15,246 from a
commercial vendor without obtaining a waiver indicating that UNICOR
could not meet the purchase request. In another example, a cardholder
purchased a leather binder, refills, and other accessories totaling
$196 from Franklin Covey, a high-end office supply store, instead of
purchasing similar products from a JWOD supplier. The cardholder
provided an explanation that the purchase was for business use, but
provided no documentation why similar products were not procured from a
JWOD supplier. During our data mining, we noted that FAA made 2,903
purchases totaling $492,643 from Franklin Covey in fiscal year 2001.
While we did not review all of these individual purchases, based on our
detailed testing of similar transactions, it is likely many of them
should have been procured from a mandatory source, if at all. In
response to our questions about such purchases, FAA‘s Director of
Acquisitions responded to us in a November 21, 2002, memorandum that
FAA is reviewing the need to establish guidelines on what can be
purchased from this vendor.
* Unauthorized purchase actions made with the purchase card. During our
detailed tests of transactions, we found several unauthorized
transactions where noncardholders made purchases using cardholders‘
accounts, increasing the risk that the card may be used to make
improper purchases. FAA‘s operating guidance requires that the named
cardholder on the purchase card be the only one to use the card to make
purchases. Allowing someone other than the cardholder to use the card
is considered an unauthorized purchase action that is subject to
disciplinary action. However, we found that FAA did not always comply
with this requirement.
Specifically, we identified 12 unauthorized purchases totaling $75,646
where someone other than the cardholder made the purchase. Seven of
these unauthorized purchases, totaling $70,000, related to one
cardholder‘s account. According to the cardholder, her supervisor had
requested her purchase card account number so that others in the office
could make purchases, which included various computer and office
equipment, including 20 PDAs. Because the total order exceeded the
cardholder‘s single purchase limit, the vendor split the order into
seven different purchase transactions, which is also a violation of
policy. When her monthly billing statement came, the cardholder stated
that she was unable to account for some of the transactions because the
purchasers did not provide her with all of the related receipts for the
items purchased. Furthermore, the cardholder informed us that an
additional 14 transactions totaling $79,445 that were not in the sample
but were listed on her monthly billing statement were also unauthorized
purchase actions made by others in her office. Because of these
unauthorized uses and the related frustrations associated with
attempting to reconcile her monthly billing statements, the cardholder
informed us that per her request, the APC closed her account on October
27, 2002.
We identified another unauthorized transaction when a cardholder was
unable to provide any supporting documentation for the item in the
sample, stating she had not made the purchase. The cardholder stated
that she transferred from the unit that issued her the card in July
1999, but was asked to leave the active credit card with the assistant
manager so that the office could continue to use it to make purchases.
Because the cardholder left the issuing unit in July 1999, all
purchases made to her account during fiscal year 2001, our period of
review, were unauthorized purchase actions. As a result, we identified
an additional 28 unauthorized purchase transactions totaling $3,595
that were charged to the cardholder‘s account from October 2000 through
January 2001. The APC eventually closed the cardholder‘s account on
January 28, 2002, approximately 2 ½ years after the cardholder had
left.
* Cash advances and cash payments made to cardholders. FAA‘s operating
guidance prohibits the use of the purchase card for cash advances and
prohibits cardholders from issuing convenience checks payable to
themselves. However, during our data mining we identified three cash
advance transactions and one transaction where the cardholder wrote a
convenience check payable to herself. For example, one cardholder used
the government purchase card to obtain a $100 cash advance to pay a
vendor for lawn services rendered at an FAA facility. The approval form
for this transaction showed that the key authorizers and reviewers of
this transaction--including the funds certification officer and the
approving official--had approved the cash advance even though it was a
violation of policy. In another example, a cardholder wrote a
convenience check payable to herself totaling $214, in violation of
policy. She purchased an item at a warehouse club that did not accept
the brand of the government purchase card. Because the cardholder did
not have authorization to use a convenience check at the time of
purchase, she made the purchase with her personal credit card and
subsequently requested and received authorization from her supervisor
to be reimbursed by writing a convenience check payable to herself,
even though this was a violation of policy.
As described above, our review of FAA‘s purchase card activities
identified numerous policy violations that resulted in improper
purchases. However, we generally found that disciplinary action was not
taken against the cardholders or approving officials when these policy
violations occurred. Enforcement of disciplinary action procedures
helps prevent or deter future policy violations from occurring and
assists in holding cardholders and approving officials accountable for
carrying out their responsibilities when using, reviewing, and
approving purchase card transactions.
Poor Controls Resulted in Some Wasteful and Questionable Purchases:
The inadequacies and ineffectiveness of internal controls were also
evident in the number of transactions identified that we classified as
wasteful--that is, were excessive in cost compared to other available
alternatives and/or were for questionable government needs. Our reviews
of transactions in both the statistical and nonstatistical samples
identified transactions that we considered wasteful. In addition, FAA
cardholders frequently did not document their determination that the
purchase represented the ’best value“ to the government, which FAA
purchasing policy defines as the solution that is most advantageous to
FAA based on an evaluation of price and other factors. We also
identified other transactions that we classified as questionable
because there was insufficient documentation to determine what was
purchased or because the charges were made to a third party billing
company that did not identify the actual vendor. Lacking this
documentation or identity, neither we nor other reviewers of the
transactions could verify the reasonableness and appropriateness of the
purchases.
Table 2 indicates the number of transactions and dollar amounts in both
the statistical and nonstatistical samples that we determined to be
excessive in cost relative to similar products on the market, for
questionable government needs, or for which we were unable to determine
the reasonableness of the item due to missing invoices or because the
charges were paid to third party on-line billing services. While not
significant to the overall purchase card program, these transactions
are indicative of what can occur when the use of the cards is not
properly controlled. Because we tested only a small portion of the
transactions that appeared to have a higher risk of fraud, waste, or
abuse, there may be other improper, wasteful, and questionable
purchases in the remaining untested transactions.
Table 2: Transactions Identified as Wasteful or Questionable:
Transaction category: Wasteful transactions; Number of
transactions[A]: [Empty]; Dollar amount of transactions: [Empty].
Transaction category: Excessive cost; Number of transactions[A]: 46;
Dollar amount of transactions: $140,131.
Transaction category: Questionable government need; Number of
transactions[A]: 10; Dollar amount of transactions: 3,312.
Transaction category: Both excessive cost and; questionable government
need; Number of transactions[A]: 58; Dollar amount of transactions:
79,159.
Transaction category: Total; Number of transactions[A]: 114; Dollar
amount of transactions: $222,602.
Transaction category: Questionable transactions; Number of
transactions[A]: [Empty]; Dollar amount of transactions: [Empty].
Transaction category: Missing invoice; Number of transactions[A]: 149;
Dollar amount of transactions: 401,347.
Transaction category: Third party on-line billing; Number of
transactions[A]: 13; Dollar amount of transactions: 6,009.
Transaction category: Total; Number of transactions[A]: 162; Dollar
amount of transactions: $407,356.
Source: GAO.
Note: GAO‘s analysis of statistical and nonstatistical transactions
selected for fiscal year 2001.
[A] Of the 114 transactions identified as wasteful, 9 came from the
statistical sample and 105 came from the nonstatistical sample results.
Of the 162 transactions identified as questionable, 18 came from the
statistical sample and 144 came from the nonstatistical sample.
[End of table]
Wasteful Purchases:
We identified 114 purchases totaling $222,602 that we determined to be
wasteful because they were excessive in cost relative to available
alternatives, were of questionable government need, or both. We
considered them excessive in cost when compared to available
alternatives that would meet the same basic needs or questionable as
government expenditures because they appeared to be items that were a
matter of personal preference or personal convenience, were not
reasonably required as part of the usual and necessary equipment for
the work the employees were engaged in, and/or did not appear to be for
the principal benefit of the government. Specifically, we identified 46
purchases totaling $140,131 that we considered excessive in cost, 10
purchases totaling $3,312 for which we questioned the government need,
and an additional 58 purchases totaling $79,159 that we considered both
excessive in cost and for questionable government need. Such purchases
included purchases of store gift cards for later use; hotel and resort
charges, including room rentals and food costs for internal management
meetings; award, retirement, and farewell gifts; Internet services for
individual FAA employees; and purchases of PDAs and accessories. These
examples are described below.
* Store gift cards. We noted several purchases of store gift cards for
which we question the government need. Purchases of gift cards are
particularly risky because they are the equivalent of cash. Unlike
purchases made with a purchase card, which appear on a monthly billing
statement to be approved by an approving official and supported by
receipts, purchases made with a gift card have no such subsequent audit
trail. Consequently, if the gift cards are lost, stolen, or misused,
there is no means for determining how they were spent. In addition,
gift cards used after the end of the fiscal year in which they are
purchased violate the ’bona fide“ needs rule under 31 U.S.C. 1502(a)
(2000).[Footnote 42] For example, one cardholder purchased 10 $100 Home
Depot store gift cards, totaling $1,000, that the cardholder stated
were to be used to purchase tile and mini blinds for installation in
the day care facility after the close of the fiscal year. However, the
cardholder was only able to provide one receipt dated 3 months after
the close of the fiscal year, which showed that 3 of the gift cards
were used to purchase items totaling $203.49. In addition to violating
the bona fide needs rule, we identified several problems with this
purchase. One, the $96.51 balance due from that purchase--government
funds--was refunded in cash to the person using the gift cards, which
we confirmed with the vendor. However, because the purchase was made
with gift cards, which do not identify the purchaser, we could not
determine who received the cash back nor what happened to it. Two,
among the items purchased were two pairs of cowhide gloves, which were
not part of the intended purpose the cardholder stated.[Footnote 43]
Three, because the purchase was made with gift cards rather than the
government purchase card, the state sales tax was charged and paid even
though the federal government was exempt from state sales tax. In
addition to these problems, the cardholder could not show how the
remaining 7 gift cards were used, whether they were spent for
government purposes, when they were used, or even who used them.
Another cardholder spent $775 on Wal-Mart gift cards, but similarly was
unable to provide any documentation on how the cards were ultimately
spent.
In another example, one cardholder told us she was given verbal
approval to spend a certain amount on an awards ceremony. When the
award ceremony expenses totaled less than the allocated amount, the
cardholder purchased a grocery store gift card for the remaining $179,
which was later used to buy postage stamps for Christmas cards to send
to other FAA facilities, and food and utensils for a Christmas luncheon
and a retirement gathering, all of which are unallowable government
expenditures. When we asked FAA for its policy on the purchase of gift
cards, the Director of Acquisitions responded to us in a November 21,
2002, memorandum that FAA‘s present policy is that gift cards will not
be purchased for later use because such purchases are a violation of
the fiscal law statute regarding bona fide need. However, unless
cardholders and approving officials are aware of this policy and
management adequately monitors compliance, such expenditures are likely
to continue.
* Conference room rentals and related food charges.[Footnote 44] We
identified several purchases for the rental of hotel and resort
facilities used for internal FAA meetings, conferences, and training.
For example, FAA paid $2,660 for a conference room and audiovisual
rentals at the Tropicana Resort and Casino in Las Vegas, with no
explanation as to the reason why this location was chosen to hold an
internal FAA management meeting. After we reported similar findings in
our report on FAA‘s Alaskan Region, the Chief Financial Officer issued
a June 4, 2002, memorandum that established new spending restrictions,
one of which now requires that internal FAA conferences and off-site
meetings be held in federal facilities. However, this memorandum was
issued after the period of our review. We also identified transactions
for conference room rentals that included significant food and beverage
costs, which we considered excessive and for which we questioned the
government need. For example, in one case FAA spent $12,866 for food at
a Hyatt Hotel for a conference, and $18,050 for food at another
conference. We also noted a wasteful purchase representing a
cancellation fee charge totaling $5,398 that resulted because the
cardholder did not cancel FAA‘s reservation for a conference room
rental in time to avoid the fee.
* Award, retirement, and farewell gifts. We noted several purchases for
award, retirement, and farewell gifts. Although FAA policy gives
managers a wide berth in determining the nature and extent of awards,
we identified six purchases for award gifts for which they were unable
to provide the purposes for which the recipients were being recognized.
For example, we identified three purchases of Waterford crystal costing
from $110 to $220 each. For these purchases, FAA could not provide the
award letters or justification for the awards. Consequently, it could
provide no evidence that these purchases were truly awards. We also
identified two purchases for award events for which FAA was unable to
provide the basis for the awards. These included a purchase of $225 for
the rental of bowling lanes and shoes for 27 employees with no
justification as to why the individuals were receiving the award, and
$459 for 100 movie passes for ’employee appreciation day“ with no list
of awardees or basis for the award.
We also identified eleven purchases that FAA cardholders characterized
as either retirement gifts or farewell gifts. However, they were unable
to demonstrate that the gifts were authorized under applicable agency
authority. The retirement gifts included two Waterford crystal gifts, a
glass clock, and an inscribed globe, which ranged in cost from $101 to
$209 each. The farewell gifts included a $329 engraved desk statue for
a manager transferring to another unit within FAA.
* Internet services. During our data mining, we identified 472
purchases totaling $16,894 for individual subscriptions to various
Internet service providers, such as America Online, CompuServe, and
EarthLink.[Footnote 45] We inquired with FAA regarding these types of
purchases. In his
November 21, 2002, response to us, the Director of Acquisitions
indicated that these were unnecessary, stating that FAA provides
Internet access for employees through eight authorized Internet access
points and that employees should obtain the necessary services from one
of these access points. The Director stated that FAA would work with
the cardholders and FAA‘s information resource management contact
points and staff offices to ensure that employees do not
inappropriately obtain individual subscriptions to Internet service
providers.
* PDAs and accessories. During our detailed testing, we identified 25
purchase transactions for 123 PDAs and/or PDA accessories totaling
$66,684. For example, one of these transactions included a purchase of
30 PDAs and accessories totaling $13,189. However, no documentation was
available to show how the office determined that these 30 PDAs were
necessary to fulfill a valid government need, rather than for the
personal preference of employees. We also noted a wide range in cost
for the PDAs purchased. Specifically, the statistical and
nonstatistical samples contained transactions for PDAs that ranged in
cost from $100 to $558. Cardholders did not provide justification as to
why the more expensive PDAs were needed, nor why there was a valid
government need for these items. In addition, FAA incurred other costs
to support the PDAs, such as those for PDA keyboards, carrying cases,
and PDA Internet services. For example, in one instance we identified a
purchase of six leather PDA accessories from the Coach store totaling
$717. In addition to being excessive in cost, we question whether such
items are necessary government expenses.
In a June 4, 2002, memorandum prepared in response to our report on
FAA‘s Alaskan Region, FAA established new spending restrictions that
included prohibiting the use of federal funds to purchase PDAs except
where the affected associate or assistant administrator personally
decides that it is vital to a person or organization successfully
achieving their mission in an effective and efficient manner.
We also identified numerous other individual purchases that we
considered wasteful or, in some cases, abusive. Such purchases included
a $299 Bose headset, which the cardholder indicated was used by her
director and other senior managers during long flights; $206 for key
chains and crystal hearts for training participants; and a $65 picture
frame for a cardholder‘s use in her office. In another example, a
cardholder purchased a $3,707 Sony Vaio laptop computer because an
assistant division manager saw it while on travel and asked the
cardholder to buy it for him, despite the fact that other, less costly
laptop computers were widely available. For example, during the same
month another cardholder in the same region purchased 22 lower-end Sony
Vaios for $1,330 each; a midrange Sony Vaio in the sample cost $1,700.
According to the first cardholder, the model the assistant division
manager wanted was new on the market and thus was only available
directly from the manufacturer at that time.
Part of the problem with these purchases is that cardholders often did
not document their determination that the specific purchase represented
the best value to the government. FAA policy requires purchasers to
determine that prices are fair, reasonable, and provide the best
value[Footnote 46] to FAA. Its policy states that the determination
that price is fair and reasonable should be documented and the extent
of the documentation depends on the complexity and dollar value of the
procurement action.
We examined transactions in the statistical sample to determine whether
there was any evidence that cardholders considered best value in making
their purchase decisions, such as any evidence that at the time of
purchase the cardholder considered prices from other vendors, services
provided by the vendor, quality of product versus alternatives, prior
experience with a vendor, or useful life of a product. We identified
213 purchases to which the determination of best value
applied.[Footnote 47] Of these, 152 purchases did not have any
documentation demonstrating that cardholders considered best value
before making their purchases. Based on the results of our review of
transactions, we estimate that $74 million[Footnote 48] of the sampled
population of purchase card and convenience check transactions lacked
documentation of the best value determination.
While FAA has issued some new policies to prohibit or better control
certain types of expenditures, the types of wasteful purchases we
identified can only be prevented through proper employee training,
adequate segregation of duties, and thorough management review and
enforcement. Until FAA provides adequate management oversight of its
purchase card program, including more thorough, systematic monitoring
of expenditures with appropriate disciplinary action when warranted,
the types of wasteful and abusive purchases we identified, as well as
those that may not have appeared in the sample, are likely to continue.
Questionable Purchases:
As discussed earlier in this report, we identified numerous
transactions that were missing adequate supporting documentation to
identify what was purchased and the amount. Specifically, 18 of the 333
transactions in the statistical sample[Footnote 49] and 131 of the
1,874 transactions in the nonstatistical sample lacked an invoice,
credit card slip, or other sales documentation. Lacking key purchase
documentation, neither approving officials nor we could determine or
support what was actually purchased, how many items were purchased, the
cost of the items purchased, and whether there was a legitimate
government need for such items. However, based on the vendor names and
explanations provided by the cardholders, we believe at least some of
these items may have been determined to be improper or wasteful had the
documentation been provided or available. For example, in one
transaction that was missing an invoice, the cardholder stated that the
purchase was for a $499 Bose Wave radio/CD player that was needed to
monitor the news and weather. Table 3 illustrates some of the other
transactions in the sample for which cardholders were unable to provide
an invoice or other documentation to support what was purchased.
Table 3: Examples of Transactions Where Invoice Documentation Was
Missing:
Vendor: Ashford.com (a jewelry Web site); Transaction amount: $78.
Vendor: Bed, Bath, and Beyond; Transaction amount: 63.
Vendor: BestBuy.com; Transaction amount: 2,440.
Vendor: BJ‘s Wholesale Club; Transaction amount: 251.
Vendor: Home Depot; Transaction amount: 1,042.
Vendor: Harbourtowne Resort; Transaction amount: 5,100.
Vendor: L.L. Bean Mail Order; Transaction amount: 90.
Vendor: Service Merchandise; Transaction amount: 216.
Vendor: Treasure Isle Food; Transaction amount: 1,755.
Vendor: Wal-Mart; Transaction amount: 332.
Source: GAO.
Note: GAO‘s analysis of nonstatistical transactions selected for fiscal
year 2001.
[End of table]
In addition, during our data mining, we identified 50 transactions
totaling $13,450 that involved the use of third party on-line payment
services to pay for cardholder purchases. We selected 30 of these
transactions totaling $7,802 for further review. When using these types
of services, the cardholder charges the amount of the transaction to
the third party payment company. The payment company then forwards the
funds to the vendor, generally because the vendor does not accept
credit cards for payment. There is no additional expense to the
government for using these third party payment companies. However,
because the name of the third party payment company appears on the
cardholder‘s billing statement and not the name of the actual vendor
that provided the goods or services purchased, there is no certainty
that the purchase was for a bona fide government need and use. For
example, one of the purchases included a transaction totaling $470 that
the cardholder stated was for payment of software design services.
Although the cardholder provided an invoice for the amount, there is no
way to verify that the invoice belonged to the actual transaction
because the merchant name on the cardholder‘s billing statement was the
name of the third party payment company, not the name of the vendor
that purportedly supplied the software design services. In addition,
the invoice date and the transaction date on the cardholder‘s monthly
billing statement did not match. As a result, we could not verify that
the invoice supported the transaction.
Furthermore, of the 30 transactions reviewed, 17 transactions involving
four different third party payment companies were for purchases the
cardholders claimed they did not make.[Footnote 50] Except for 2
transactions totaling $180, we noted that Bank of America subsequently
credited the cardholders‘ accounts because it determined that the
charges were fraudulent in nature. This type of fraudulent activity
demonstrates the risk that purchases made using third party payment
companies may not be for valid government needs.
We asked FAA for its policy on using third party payment companies. In
its November 21, 2002, response to us, FAA indicated that it plans to
issue guidance in the near future to emphasize that when the cardholder
knows a purchase will be processed by a third party payment company,
the cardholder must immediately make the approving official aware of
the transaction and provide supporting documentation once the purchase
is received. However, this does not resolve the difficulty of ensuring
that the supporting documentation is in fact associated with the
transaction, given that the merchant name on the invoice and the name
on the billing statement will not match.
Poor Controls Contributed to Wasted or Missing Assets:
In reviewing purchases of computers and other portable assets bought
with purchase cards, we found that FAA lacked adequate controls over
such purchases to ensure that they were properly recorded and accounted
for. Assets bought with purchase cards were not required to go through
a central receiving point to help ensure that items were recorded in
FAA‘s property system before they were distributed to users. As a
result, we identified 262 asset-related transactions totaling $4.1
million that contained one or more property items that had not been
recorded in FAA‘s property management system. In testing a selection of
unrecorded items, we identified 238 items totaling $287,766 for which
FAA could not account. Of these, 202 items were missing; FAA reported
that the other 36 items had been transferred to other FAA locations or
had been returned for repair and replacement, although FAA could not
provide any documentation to support these claims. In addition to the
items we found missing, the property management division at one FAA
location identified during its physical inventory counts over 800 items
totaling almost $2 million that were lost or stolen in fiscal years
2001 and 2002. Given the systemic weaknesses we identified in FAA‘s
property controls, the actual amount of missing or stolen equipment
agencywide could be much higher.
FAA‘s cardholders buy a significant amount of computers and computer-
related equipment with purchase cards. For example, in fiscal year 2001
FAA purchased at least $26.4 million in computers and computer-related
equipment at vendors that primarily sell such items, such as Dell,
Micron, and Gateway.[Footnote 51] Our Standards for Internal Control in
the Federal Government requires agencies to establish physical control
to secure and safeguard vulnerable assets. FAA policy requires that
accountable property, items that meet specific FAA criteria and dollar
thresholds, be recorded in FAA‘s Personal Property In-use Management
System (PPIMS) to establish accountability for these items. However,
FAA did not require purchases of such property to go through a central
receiving point where they could be adequately safeguarded until they
were bar coded and recorded in PPIMS. Instead, purchase cardholders who
bought sensitive items such as computers often took physical delivery
of these items at the time of purchase or had them delivered directly
to them. Consequently, FAA generally relied on the cardholders to
determine whether assets met the requirements for tracking in PPIMS and
to forward the appropriate information to property custodians for
input. However, during our transaction review, we noted that
cardholders did not appear to be knowledgeable of the different asset
classifications that required input into PPIMS. For example, in
selecting the statistical and nonstatistical sample transactions, we
asked cardholders to provide documentation showing the item had been
entered into PPIMS for all purchases of accountable property. Several
cardholders responded ’not applicable“ to this request, even though the
items they purchased met FAA‘s criteria for tracking in PPIMS.
Consequently, we identified 262 asset-related transactions totaling
$4.1 million where one or more property items had not been recorded in
FAA‘s property management system. Specifically, from the statistical
sample,39 asset-related transactions totaling $737,951 had not been
recorded in PPIMS even though the property items had been purchased at
least 1 year earlier.[Footnote 52] Based on the sample results, we
estimated that
$17 million[Footnote 53] of the sampled population were unrecorded in
PPIMS. From the nonstatistical sample, 223 asset-related transactions
totaling $3.4 million had one or more items that had not been entered
into PPIMS.[Footnote 54] When an asset is not recorded in the property
management system, there is no systematic means of identifying where it
is located or when it is moved, transferred, or disposed of and no
record of its existence when physical inventories are performed. Thus,
unrecorded assets can be easily lost or stolen without detection.
Given the high risk of theft or loss, we conducted an unannounced
inventory to test FAA‘s ability to account for its assets. We selected
81 purchases of assets totaling over $1.3 million made during fiscal
year 2001 by four FAA locations. The 81 transactions were for the
purchase of 692 items consisting primarily of computer-related
equipment, such as personal computers, laptops, and printers, as well
as certain sensitive items, such as PDAs, that are easily pilfered. All
of the transactions selected contained 1 or more items that had not
been recorded in PPIMS. Of the 692 items we attempted to observe, we
found that FAA could not locate 238 items (34 percent) totaling
$287,766 at the time of our observation. Although FAA reported that 36
of these missing items had been transferred to other FAA locations or
had been returned for repair and replacement, contrary to policy FAA
could not provide any documentation to support these claims.
In addition to the items we found missing, we noted that at one FAA
location the property management division identified 405 items totaling
over $900,000 that were lost or stolen in fiscal year 2001 and another
437 items totaling over $1 million that were lost or stolen in fiscal
year 2002. These lost or stolen items were primarily identified through
physical inventory counts performed during those years. During our
follow-up with that location‘s property management division, we noted
that employees and FAA units responsible for safeguarding the assets
were not held accountable when items were identified as lost or stolen.
This lack of disciplinary action when items were lost or stolen,
combined with poor recordkeeping within those FAA units, created an
environment where there was little accountability for government
assets. Because lost or stolen items that were not recorded in PPIMS
might never be identified as missing, the actual number of missing or
stolen items at this and other FAA locations may be much higher.
During our site visits and unannounced physical inventories, we also
observed instances where computers were not stored in a separate and
secured storage room, and as a result, employees had unlimited access
to these assets. For example, during an unannounced physical inventory
at one location, we observed that an unsecured common office area was
being used to store computer equipment. Without enhanced physical
security, FAA will continue to be at risk for further computer
equipment losses.
We also noted instances in which cardholders purchased varying brands
of computer equipment in small quantities from different vendors at
various times of the year with no documented coordination with FAA‘s
information technology or acquisitions unit. For example, the
statistical and nonstatistical samples contained 47 transactions for
108 computers or laptops totaling over $400,000 where cardholders
purchased fewer than 5 computers or laptops in a single transaction. By
not coordinating such purchases, FAA could not take advantage of
quantity discounts that it might have otherwise received had it
combined, negotiated, and purchased similar items in large quantity
with a single vendor. In addition, the wide variety of equipment
purchased makes it more difficult for the information technology unit
to provide user and network support and equipment maintenance.
In an official response to us on November 21, 2002, FAA stated that it
is developing standard policy guidance that will require equipment
items over $500 to be centrally purchased to take advantage of
economies of scale and to facilitate equipment standardization.
However, it also needs to ensure that the purchases are needed to avoid
wasted purchases. For example, one cardholder purchased 30 personal
computers costing over $36,000 in November 2000. Although this
particular transaction had been coordinated through the information
technology unit prior to purchase, we physically observed that as of
July 2002 all but 1 of these computers were still unused, sitting in
their unopened boxes in a warehouse. Given how quickly computer
technology advances, those computers will likely never be used by the
agency. Had there been adequate central oversight, FAA could have
prevented this purchase or directed the items to a unit that needed
them. We noted 10 subsequent transactions for the purchase of a total
of 134 personal computers made by cardholders in the same center as the
cardholder that purchased the 29 unused computers.
Conclusions:
Although weaknesses with FAA‘s purchase card program were reported as
far back as 1997, FAA has not corrected the identified problems.
Consequently, improper and questionable purchases continued to occur,
and numerous items purchased were lost or stolen because appropriate
accountability had not been established. FAA has taken the first step
towards addressing some of these issues by establishing new positions
and responsibilities for overseeing its purchase card program at the
national level, and issuing new policies to address some of the
weaknesses identified. However, correcting the problems we identified
will require a thorough evaluation and strengthening of current
policies and procedures, a strong commitment at all levels of the
agency to carrying them out, and appropriate oversight to continually
assess the effectiveness of its controls. Until this occurs, FAA will
continue to be exposed to fraud, waste, abuse, and lost assets in
connection with its purchase card program.
Recommendations for Executive Action:
We recommend that the Administrator of FAA take the following actions
to strengthen internal controls and compliance in its purchase card
program, decrease wasteful purchases, and improve the accountability of
assets in order to reduce FAA‘s vulnerability to improper and wasteful
purchases.
Internal Controls:
With regard to improving FAA‘s internal controls over purchasing, we
recommend that FAA do the following.
* Establish policies and procedures that segregate duties for all
phases of the purchasing process when using the purchase card. No
individual should be able to take all the steps needed to request,
purchase, pick up, and receive goods and services purchased. Such
policies should also require that responsibilities of the cardholders,
approving officials, funds certification officers, property
custodians, and APCs be performed by different people to ensure that
management controls are not circumvented.
* Develop detailed procedures that specify the type and extent of
approving official review that is expected. Such procedures might
include a checklist for approving officials to use in their monthly
reviews of cardholders‘ transactions. At a minimum, these procedures
should describe the types of supporting documentation that the
approving official should ensure that the cardholder has provided, such
as the invoice and/or credit card receipt, certification of funds
availability, documentation of best value, applicable waivers, PPIMS
input forms, and written dispute forms for any disputed charges; the
purchasing requirements that the approving official should review for
compliance with policies and procedures, such as reviewing for split
purchases, cash advances, and compliance with purchase card and
convenience check spending limits and limits for construction and
nonconstruction services; and a requirement that as evidence of review,
the approving official sign the cardholder‘s monthly billing statement.
* Establish policies and procedures to limit the number of cardholders
assigned to any one approving official consistent with GSA guidelines.
* Follow up on transactions we identified that were missing invoice
documentation to determine what was purchased and whether the items
were for legitimate government needs, and take appropriate disciplinary
actions as warranted.
* Reiterate records retention policy for purchase card transaction
files.
* Establish procedures to be performed by the approving official or
issuing office when a cardholder leaves that office to ensure that his
or her purchase files are retained in accordance with policy.
* Require refresher training for all cardholders and approving
officials. Such training should cover the areas discussed in this
report, such as proper segregation of duties, purchasing policies and
procedures, approving official responsibilities for reviewing and
approving individual purchases, and reporting potential purchase card
fraud and abuse.
* Establish a systematic process that each APC can use to track and
monitor training for cardholders and approving officials to help ensure
that they receive (1) training before being granted purchase cards or
approval authority and (2) timely, periodic refresher training.
* Require initial and periodic refresher training for APCs, the
national purchase card coordinator, and the national organization
reporting coordinator that will assist them in carrying out their
purchase card program management and oversight responsibilities. This
should include developing a training curriculum specific to FAA
purchase card policies and procedures.
* Develop a national purchase card program monitoring and oversight
system that includes assigning specific responsibility for following up
on the effectiveness of actions to address prior audit or management
review findings, overseeing local APC activities to ensure that local
policies and procedures are adequate and consistent FAA-wide, and
developing and using analytical tools to evaluate overall program
results.
* Develop operating guidance to assist APCs in performing their
monitoring responsibilities. At a minimum, the guidance should:
* provide detailed procedures for conducting annual reviews of
cardholder and approving official activities, including the population
to use when selecting the sample, the internal controls that should be
assessed to ensure that they are operating as intended, and data
analysis techniques and tools to use in analyzing bank electronic data,
and:
* specify the monthly EAGLS and other reports that should be monitored
for potential fraud, waste, and abuse.
* Establish procedures to monitor and ensure purchase cards are
canceled when cardholders leave FAA, are reassigned, or no longer have
valid needs for the cards.
* Identify cardholders with multiple purchase cards and cancel
additional cards.
* Establish policies and procedures that prohibit the future issuance
of multiple cards to cardholders.
* Establish procedures to periodically assess whether each cardholder
continues to have a valid need for a purchase card and the
appropriateness of the individual‘s spending limits. This should
include verifying that current APCs and their alternates are not
purchase cardholders.
Compliance with Purchasing Requirements:
With regard to improving and enforcing compliance with purchasing
requirements at FAA, we recommend the following.
* Revoke or suspend purchasing authority of cardholders who are found
to be frequently or flagrantly noncompliant with policies and
procedures, such as cardholders making split purchases, cash advances,
or purchases exceeding established dollar thresholds.
* Exercise appropriate disciplinary action against supervisors or
approving officials who direct or approve purchase transactions that
are noncompliant with policies and procedures.
* Clarify FAA policy regarding the type of documentation required of
cardholders, in lieu of a waiver, when not using a JWOD supplier, since
JWOD suppliers do not issue standard waivers.
Wasteful and Questionable Purchases:
With regard to purchases that may be at an excessive cost or for
questionable government need, we recommend that FAA do the following.
* Establish agency policies covering the allowability, justifications,
and approvals required for purchasing items that should be controlled
or restricted such as store gift cards and food.
* Clarify AMS policy and operating guidance regarding documentation
requirements for the best value determination, including types of
acceptable documentation.
* Establish policies and procedures to better limit and control the use
of third party on-line payment companies as a payment mechanism. This
might include requiring documented advance approval from the approving
official to help ensure that the item is needed and that the on-line
payment company is the only viable method of payment, as well as a
subsequent verification to help ensure that the item or service
purportedly purchased was in fact received.
Recording and Safeguarding of Assets:
With regard to improving FAA‘s controls over the purchasing, recording,
and safeguarding of assets, we recommend the following.
* Require centralized receiving and acceptance of accountable assets
and sensitive property items purchased.
* Establish required time frames for completing and submitting property
input forms, and for recording accountable assets in the property
management system.
* Follow up on property items that FAA officials were unable to locate
at the time of our unannounced inventory to determine whether the items
were subsequently located and entered into FAA‘s property management
system or whether the items were in fact lost or stolen, and take
appropriate disciplinary actions as warranted.
* Establish procedures to ensure that appropriate disciplinary action
is taken against cardholders, approving officials, and/or property
custodians as applicable who are unable to account for purchased assets
under their responsibility in order to improve accountability for these
assets.
* Improve physical security over the storage of computer-related
equipment, such as placing these items in locked storage until they can
be entered into the property management system and assigned to users.
* Require purchases of certain assets, such as computer equipment, to
be coordinated centrally to take advantage of economies of scale,
standardize types of equipment purchased, and to better ensure bona
fide government need for each purchase.
Agency Comments and Our Evaluation:
We received written comments from DOT on a draft of this report, which
are reprinted in appendix I. DOT expressed its commitment to the
principles of the program and said that FAA has taken or plans to take
a number of actions to ensure that the issues identified in our report
are effectively addressed and appropriately enforced. For example, FAA
established a (1) National Purchase Card Coordinator position to
provide centralized program monitoring and (2) National Organization
Reporting Coordinator position to enhance operating guidance and assist
agency program coordinators in improving guidance for monitoring the
purchase card program. In addition, FAA has revised its operating
guidance to assist in strengthening controls over the purchase card
program. Examples include clarifying segregation of duties
requirements, specifying the type and extent of the approving official
review, and developing standard policy guidance requiring that high
cost or high quantity items be centrally purchased to take advantage of
economies of scale. Implementation of these and other recommendations
in our report should greatly reduce FAA‘s vulnerability to improper,
wasteful, and questionable purchases and missing assets.
:
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 10 days
after its date. At that time, we will send copies of this report to the
Ranking Democratic Member, House Committee on Transportation and
Infrastructure; the Secretary of Transportation; and the FAA
Administrator. Copies will also be made available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202)
512-9508 or calboml@gao.gov; Doreen Eng, Assistant Director, at
(206) 287-4858 or engd@gao.gov; or Steven Haughton, Assistant Director,
at (202) 512-5999 or haughtons@gao.gov. Major contributors to this
report are acknowledged in appendix II.
Sincerely yours,
Linda M. Calbom
Director, Financial Management and Assurance:
Signed by Linda M. Calbom:
[End of section]
Appendixes:
Appendix I: Comments from the Department of Transportation:
U.S. Department of Transportation
Assistant Secretary for Administration
400 Seventh St., S.W.
Washington, D.C. 20590:
MAR 11 2003:
Ms. Linda Calbom:
Director, Financial Management and Assurance, U.S. General Accounting
Office:
441 G Street, N.W. Washington, D.C. 20548:
Dear Ms. Calbom:
Thank you for the opportunity to comment on the General Accounting
Office (GAO) draft report about the Federal Aviation Administration‘s
(FAA) purchase card program. Based on input from internal reviews, and
previous work by the Office of Inspector General (OIG) and GAO, FAA is
tightening up program controls and improving program operation. Our
objective is to ensure that all use of the purchase card is
appropriate, comports with the purchase card program requirements, and
fulfills the purchase card program objective of improved economy.
To fully appreciate the complexity of the FAA purchase card program, it
is important to keep an overall perspective of its scope and extent in
mind. FAA has more than 50,000 employees spread over the 50 United
States and abroad, in headquarters, 9 regions and 2 centers. Individual
offices range in size from thousands in headquarters to some as small
as two to three people. Cumulatively, during FY-2001, the year examined
in the GAO draft report, FAA made over 364,000 purchase card related
transactions valued at $151 million.
Extensive Action Taken and Underway To Ensure Effective Controls over
the Purchase Card Program:
We cannot overemphasize FAA‘s commitment to running a sound purchase
card program in compliance with all applicable requirements. FAA has
numerous actions completed or underway intended to ensure the program
functions effectively and within the parameters established by law and
regulation. In fact, FAA has already completed or taken action on
recommendations from previous OIG reports, GAO‘s recent report on one
of FAA‘s regional operations, and the recommendations included in this
draft. For example:
* FAA established a National purchase card coordinator position to
provide National program monitoring and oversight. In addition, a
National Organization Reporting Coordinator has been established to
enhance operating guidance and assist agency program coordinators in
improving guidance for monitoring the purchase card program.
* FAA issued guidance on June 4, 2002, restricting the use of Federal
funds for purchasing or renting flat panel computer display monitors,
plasma displays, or personal digital assistants.
* FAA revised its Federal Aviation Administration Acquisition System
Toolset (FAST) to strengthen controls over the FAA purchase card
program. These actions included:
* clarifying segregation of duty requirements for the purchasing
process
to better ensure objective oversight of purchases;
* providing detailed procedures specifying the type and extent of
approving official review that is expected for the purchase card;
* clarifying requirements and procedures for purchase card record
retention;
* defining refresher training requirements for both cardholders and
approving officials;
* developing standard policy guidance requiring that any high-cost,
high-quantity items such as computer equipment and handheld radios, be
centrally purchased within a line-of-business, center, or
headquarters to take advantage of economies of scale; and
* establishing procedures to periodically assess whether each
cardholder continues to have a valid need for a purchase card.
Overall, we appreciate GAO‘s efforts to help us ensure that the FAA‘s
purchase card program functions appropriately and effectively. We
maintain that the vast preponderance of the 364,000 annual transactions
are appropriate, and conducted by conscientious individuals, working
within the program‘s guidelines, to fulfill its intent of increasing
efficiency and reducing costs for the taxpayer. At the same time, we
recognize the potential for further improvement, and are working hard
to ensure that all transactions fulfill every program requirement.
If you have any questions, please contact Martin Gertel of my staff on
(202) 366-5145.
Sincerely,
Signed for Vincent T. Taylor
[End of section]
Appendix II: Staff Acknowledgments:
Acknowledgments:
Staff members who made key contributions to this report include Brooks
Bare, Beverly Burke, Sharon Byrd, Anh Dang, Christine Fant, Angela
Fernandez, Richard Kusman, Carla Lewis, and Russell Rowe.
(190043):
:
FOOTNOTES
[1] U.S. Department of Transportation Office of Inspector General,
Department of Transportation Use of Government Credit Cards, FI-2001-
095 (Washington, D.C.: Sept. 24, 2001).
[2] Operating administrations are the agencies within DOT such as the
U.S. Coast Guard, the Federal Aviation Administration, and the Federal
Highway Administration.
[3] U.S. General Accounting Office, FAA Alaska: Weak Controls Resulted
in Improper and Wasteful Purchases, GAO-02-606 (Washington, D.C.: May
30, 2002).
[4] Convenience checks issued are charged against the cardholder‘s
purchase card account and are used when the merchant does not accept
credit cards.
[5] Of these transactions, 12 were identified during our detailed
sampling, and 42 additional transactions were identified by two of the
cardholders who had unauthorized purchases in our detailed sample.
[6] The government also uses commercial credit cards for government-
related travel expenditures (travel cards) and for expenditures related
to the maintenance and operation of government-owned vehicles (fleet
cards). Travel and fleet cards are not covered within the scope of this
report.
[7] References to FAA policies in this report refer to policies
established in AMS, the Toolset, or other FAA orders.
[8] FAA‘s organization consists of nine geographical regions, two major
centers, and its headquarters office.
[9] FAA Order 4650.21C, Management and Control of In-Use Personal
Property, defines accountable property as a term used to identify
government property that is required to be recorded in a formal
personal property accounting system and controlled by an identification
system and supporting records from acquisition through disposal. The
type of asset and its cost determine whether it is considered
accountable property. For example, mandatory sensitive items, such as
photographic and automated data processing equipment costing $500 and
above, and all items $2,500 and above are required to be recorded in
FAA‘s property management system.
[10] FI-2001-095.
[11] U.S. Department of Transportation Office of Inspector General,
Government Credit Card Program Departmentwide, MA-1998-004
(Washington, D.C.: Nov. 4, 1997).
[12] GAO-02-606.
[13] We excluded FAA‘s Alaskan Region from the scope of our review due
to our ongoing work at that region that included a review of purchase
card controls and selected purchase card transactions (GAO-02-606).
FAA‘s other regions are the Central, Eastern, Great Lakes, New England,
Northwest Mountain, Southern, Southwest, and Western Pacific regions.
The two centers are the Michael Monroney Aeronautical Center and the
William J. Hughes Technical Center. FAA headquarters consists of the
Washington, D.C., metropolitan area.
[14] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November
2000).
[15] U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
[16] U.S. General Accounting Office, Guide for Evaluating and Testing
Controls Over Sensitive Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May
1993).
[17] U.S. General Accounting Office, Strategies to Manage Improper
Payments: Learning From Public and Private Sector Organizations, GAO-
02-69G (Washington, D.C.: October 2001).
[18] Data mining applies a search process to a data set, analyzing for
trends, relationships, and interesting associations. For instance, it
can be used to efficiently query transaction data for characteristics
that may indicate potentially improper activity.
[19] The sample population consisted of purchase card charges totaling
$148.3 million. This excludes adjustments for returned items and
reversals of disputed charges, as well as Alaskan Region transactions
since this region was not included in the scope of our audit.
[20] Sensitive property items are especially susceptible to theft,
loss, or conversion to personal use.
[21] We are 95 percent confident that the total dollar value of
transactions that lacked adequate segregation of duties was between $36
million and $52 million.
[22] We are 95 percent confident that the total dollar value of
transactions that lacked evidence of approving official review was
between $20 million and $34 million.
[23] The remaining 89 transactions provided no evidence of supervisory
review.
[24] The name of the second establishment was abbreviated on the bank
statement, making it less obvious where the charges were made.
[25] The remaining 1,513 approving officials were responsible for 10 or
fewer cardholders.
[26] We are 95 percent confident that the total dollar value of
transactions that lacked key supporting documentation was between $3
million and $13 million.
[27] This category also included several transactions in which FAA
provided purchase documentation, but the purchase amount on the
vendor‘s invoice, credit card slip, or other store receipt did not
agree to the amount included on the cardholder‘s monthly statement and
the cardholder was unable to reconcile these two amounts.
[28] We are 95 percent confident that the total dollar value of
transactions that lacked a written certification that adequate funds
were available was between $75 million and $93 million.
[29] MA-1998-004.
[30] FI-2001-095.
[31] GAO-02-606.
[32] EAGLS is a Web-based system designed to help APCs perform
administrative and accounting tasks and analyze program activities on-
line.
[33] Our finding only relates to 11 of 12 APCs because the scope of our
review excluded the Alaskan Region.
[34] Using data mining, we identified instances where one cardholder
made multiple purchases from the same vendor on the same day that, in
total, exceeded the cardholder‘s established single purchase limit. We
then followed up with the APCs and cardholders and, based on the
documentation and responses provided, determined whether split
purchases had been made.
[35] FAA must comply with the Service Contract Act of 1965, as amended;
the applicable provisions of the Fair Labor Standards Act of 1938, as
amended; and related Secretary of Labor regulations and instructions.
These laws and regulations govern various labor standards for
construction and nonconstruction services.
[36] FAA exempts the following types of services from this requirement:
maintenance, calibration, or repair of automated data processing
equipment, scientific equipment and medical apparatus, and office or
business machines.
[37] FAA prohibits the use of the purchase card or convenience checks
for certain types of services, including advisory and assistance
services. It defines advisory and assistance services as ’those
services that are provided by nongovernmental sources that support or
improve agency policy development, decision-making, management, and
administration, or support or improve the operation of management
systems. Advisory and assistance services provide outside points of
view from individuals with special skills or knowledge from industry,
universities or research foundations. Examples include studies,
analyses, and evaluations, management and professional support
including consultants, experts and advisors.“
[38] FAA specifies that this definition includes but is not limited to
improvements of all types, such as painting, fencing, and carpet
installation at air traffic control facilities, communication towers,
radar facilities, and office facilities.
[39] Unlike purchase card transactions, there is no authorization
process at the point of sale for convenience checks. However, agencies
may elect to have a dollar limit imprinted on the check, as FAA has
done.
[40] FAA policy requires that purchasers acquire certain products and
services from designated mandatory sources, including JWOD Act
suppliers and UNICOR. FAA purchasers are permitted to purchase from
other sources only after a mandatory source provides a waiver
indicating that it cannot provide the requested items. Although FAA‘s
procurement guidance requires that waivers be obtained from both JWOD
and UNICOR, we found that JWOD suppliers generally do not issue
waivers. According to the Director of Customer Service for the JWOD
program, it is not normal practice to issue a waiver for items that are
not currently available or items that it does not stock. Waivers are
rarely issued, and if a waiver were granted to an agency, it would most
likely be in the form of an E-mail. As a result, we accepted any
documentation that would support that a JWOD supplier did not offer the
items or that the items were currently unavailable.
[41] We are 95 percent confident that the total dollar value of
transactions that lacked the required waivers or other supporting
documentation was between $8 million and
$10 million.
[42] Simply stated, the bona fide needs rule stands for the proposition
that a fixed period appropriation may not be used to purchase a future-
year need after the expiration of the appropriation‘s period of
availability for incurring obligations.
[43] The bulk of the purchase was for a line item on the receipt that
only showed a customer agreement number. We attempted to verify what
was purchased with the vendor, but due to the age of the receipt, we
were unable to obtain the detailed information by the time of our
report.
[44] Due to a lack of documentation and explanation for these
transactions, we were unable to determine whether any of these charges
were also improper purchases.
[45] Only 7 of these transactions were selected in the nonstatistical
or statistical samples and were thus included in the totals shown in
table 2. The remainder was identified by conducting a query on the
database for Internet service providers such as those listed.
[46] FAA policy defines best value as a term used during the
procurement source selection to describe the solution that is most
advantageous to FAA, based on the evaluation of price and other factors
specified by FAA.
[47] Not all purchases in our 333-item selection were subject to the
determination of best value. For example, purchases from required
sources and purchases made through a single source selection process
are not subject to the determination of best value requirement.
[48] We are 95 percent confident that the total dollar value of
transactions that lacked documentation of the best value determination
was between $65 million and $84 million.
[49] We estimate that $8 million of the total fiscal year 2001 purchase
card and convenience check transactions lacked key supporting
documentation. We are 95 percent confident that the total dollar value
of transactions that lacked key supporting documentation was between $3
million and $13 million.
[50] For the remaining 13 transactions, we were unable to determine
whether the purchase was for a bona fide government need or use.
Therefore, we included these transactions in table 2 of this report.
[51] Because FAA also purchased computers and related equipment from
vendors that sold computers and noncomputer-related items, we could not
determine the total amount of such equipment FAA purchased.
[52] We identified 92 asset-related transactions in the statistical
sample. Of the 92, 39 had not been recorded in PPIMS.
[53] We are 95 percent confident that the total dollar value of
transactions that were unrecorded in PPIMS was between $14 million and
$19 million.
[54] We identified 355 asset-related transactions in the nonstatistical
sample. Of the 355, 223 (63 percent) had not been recorded in PPIMS.
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