VHA Purchase Cards
Internal Controls Over the Purchase Card Program Need Improvement Gao ID: GAO-04-737 June 7, 2004The Department of Veterans Affairs Office of Inspector General (OIG) has identified significant vulnerabilities in Veterans Affairs' (VA) use of government purchase cards. In its April 26, 2004 report, the OIG reported instances of fraudulent activity totaling $435,900, and numerous improper and questionable uses of the purchase cards totaling $1.1 million. Given that VHA comprised at least 90 percent of VA's dollar and transaction volume for fiscal year 2002, GAO was asked to determine whether existing controls at VHA were designed to provide reasonable assurance that in the future, improper purchases would be prevented or detected in the normal course of business, purchase card and convenience check expenditures were made in compliance with applicable laws and regulations, and purchases were made for a reasonable cost and a valid government need.
Weaknesses in the Veterans Health Administration's (VHA) controls over use of purchase cards and convenience checks resulted in instances of improper, wasteful, and questionable purchases. These internal control weaknesses included inadequate segregation of duties; lack of key supporting documents; lack of timely recording, reconciling, and reviewing of transactions; and insufficient program monitoring activities. This lack of adequate internal controls resulted in numerous violations of applicable laws and regulations and VA/VHA purchase card policies that GAO identified as improper purchases. These included purchases intended for personal use, purchases made from an improper source, purchases split into two or more transactions to circumvent single purchase limits, noncompliance with simplified acquisition procedures, incorrect procurement procedures, and improper use of convenience checks. GAO's work also identified over $300,000 in purchases that were considered wasteful--that is, excessive in cost or for questionable government need--or were considered questionable because there was insufficient or no documentation to determine the propriety of the transaction. Examples of wasteful and questionable purchases included two purchases for 3,348 movie gift certificates totaling over $30,000 for employee awards that were not supported by award letters or justifications; a purchase for a digital camera totaling $999 when there were other less costly digital cameras widely available; and a purchase of 3 cases of beer totaling $38.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-737, VHA Purchase Cards: Internal Controls Over the Purchase Card Program Need Improvement
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Report to the Chairman, Subcommittee on Oversight and Investigations,
Committee on Veterans' Affairs, House of Representatives:
June 2004:
VHA PURCHASE CARDS:
Internal Controls Over the Purchase Card Program Need Improvement:
GAO-04-737:
GAO Highlights:
Highlights of GAO-04-737, a report to the Chairman, Subcommittee on
Oversight and Investigations, Committee on Veterans' Affairs, House of
Representatives.
Why GAO Did This Study:
The Department of Veterans Affairs Office of Inspector General (OIG)
has identified significant vulnerabilities in Veterans Affairs‘ (VA)
use of government purchase cards. In its April 26, 2004 report, the
OIG reported instances of fraudulent activity totaling $435,900, and
numerous improper and questionable uses of the purchase cards totaling
$1.1 million. Given that VHA comprised at least 90 percent of VA‘s
dollar and transaction volume for fiscal year 2002, GAO was asked to
determine whether existing controls at VHA were designed to provide
reasonable assurance that in the future, improper purchases would be
prevented or detected in the normal course of business, purchase card
and convenience check expenditures were made in compliance with
applicable laws and regulations, and purchases were made for a
reasonable cost and a valid government need.
What GAO Found:
Weaknesses in the Veterans Health Administration‘s (VHA) controls over
use of purchase cards and convenience checks resulted in instances of
improper, wasteful, and questionable purchases. These internal control
weaknesses included inadequate segregation of duties; lack of key
supporting documents; lack of timely recording, reconciling, and
reviewing of transactions; and insufficient program monitoring
activities.
This lack of adequate internal controls resulted in numerous violations
of applicable laws and regulations and VA/VHA purchase card policies
that GAO identified as improper purchases. These included purchases
intended for personal use, purchases made from an improper source,
purchases split into two or more transactions to circumvent single
purchase limits, noncompliance with simplified acquisition procedures,
incorrect procurement procedures, and improper use of convenience
checks.
GAO‘s work also identified over $300,000 in purchases that were
considered wasteful – that is, excessive in cost or for questionable
government need – or were considered questionable because there was
insufficient or no documentation to determine the propriety of the
transaction. Examples of wasteful and questionable purchases included
two purchases for 3,348 movie gift certificates totaling over $30,000
for employee awards that were not supported by award letters or
justifications; a purchase for a digital camera totaling $999 when
there were other less costly digital cameras widely available; and a
purchase of 3 cases of beer totaling $38. Some examples of questionable
purchases from vendors that would more likely be selling unauthorized
or personal use items are shown in the table below.
Examples of Purchases Where No Documentation Was Provided:
Vendor: Radio Shack; Transaction amount: $3,305;
Vendor: The Sharper Image; Transaction amount: $2,127;
Vendor: The Brass Elephant (a restaurant, fine dining); Transaction
amount: $2,081;
Vendor: Baltimore Orioles; Transaction amount: $1,705;
Vendor: FFP Palm Computing; Transaction amount: $1,478;
Vendor: Daddy‘s Junky Music; Transaction amount: $1,041;
Vendor: Eddie Bauer; Transaction amount: $900;
Vendor: Gap Kids; Transaction amount: $788;
Vendor: Hollywood Beach Country Club; Transaction amount: $500;
Vendor: Southwest Airlines; Transaction amount: $399;
Vendor: Harbor Cruises; Transaction amount: $357;
Vendor: Hecht‘s; Transaction amount: $280;
Vendor: L.L. Bean; Transaction amount: $239;
Vendor: Christmas Palace; Transaction amount: $209.
Source: GAO‘s analysis of nonstatistical transactions selected for
fiscal year 2002.
[End of table]
What GAO Recommends:
GAO is making 36 recommendations to strengthen VA/VHA‘s internal
controls and compliance in its purchase card program. In responding to
our draft report, VA generally agreed with our conclusions and
expressly concurred with 32 of the 36 recommendations. For the
remaining 4 recommendations, VA, in principle, concurred with 3 of
these recommendations and presented reasons and/or alternative action
steps to address the weaknesses identified in our report.
www.gao.gov/cgi-bin/getrpt?GAO-04-737.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact McCoy Williams at (202)
512-6906 or williamsm1@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Scope and Methodology:
Critical Internal Controls Were Ineffective:
Noncompliance With Purchasing Requirements Resulted in Instances of
Improper Purchases:
Poor Controls Resulted in Some Wasteful and Questionable Purchases:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Comments from the Department of Veterans Affairs:
GAO Comments:
Appendix II: Staff Acknowledgments:
Acknowledgments:
Tables:
Table 1: Description of Statistical Samples:
Table 2: Summarization of VHA Timeliness Standards Exceptions:
Table 3: Range of Days Departed Cardholder Accounts Remained Open:
Table 4: Transactions Identified as Wasteful or Questionable:
Table 5: Examples of Purchases Where No Documentation Was Provided:
Figure:
Figure 1: Time Spent on A/OPC Duties:
Letter June 7, 2004:
The Honorable Steve Buyer:
Chairman:
Subcommittee on Oversight and Investigations:
Committee on Veterans' Affairs:
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 administrative 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.
The Department of Veterans Affairs Office of Inspector General (OIG)
has continued to identify significant vulnerabilities in the Veterans
Affairs' (VA) use of government purchase cards. On April 26, 2004, the
OIG issued a report on its evaluation of internal controls over VA's
purchase card program.[Footnote 1] This report summarizes the results
of 83 reports issued during the period March 1999 through September
2003, that stem from various OIG investigations, hotline calls, and
combined assessment program reviews performed at VA medical facilities
and regional offices. In its 2004 report, the OIG identified internal
control weaknesses such as inadequate segregation of duties and
purchases that lacked supporting documentation. The OIG also reported
instances of fraudulent activity totaling $435,900, and numerous
improper and questionable uses of the purchase cards totaling $1.1
million. The OIG made a number of recommendations for corrective
action.
Given that VA is the second largest user of the governmentwide purchase
card program with reported purchases totaling $1.5 billion for fiscal
year 2002, and because of known program weaknesses previously reported
by the OIG, you requested that we review the Veterans Health
Administration's (VHA) purchase card program for fiscal year 2002,
which comprised at least 90 percent of VA's dollar and transaction
volume, to determine if control problems still existed.
In response to your request, we initiated a body of work designed to
determine whether (1) existing controls at VHA were designed to provide
reasonable assurance that improper purchases would be prevented or
detected in the normal course of business, (2) the VA's purchase card
and convenience check expenditures were made in compliance with
applicable laws and regulations, and (3) purchases were made for a
reasonable cost and a valid government need. Our review focused on the
approximately $1.4 billion of disbursements that the VHA made during
fiscal year 2002, the most recent fiscal year for which complete data
were available when we began our review.
Results in Brief:
VHA's internal controls were not designed to provide reasonable
assurance that improper purchase card and convenience check purchases
would not occur or would be detected in the normal course of business.
We found that (1) VHA lacked adequate segregation of duties between
those purchasing and receiving goods; (2) payments for purchase card
and convenience check transactions often did not have key supporting
documents; (3) timeliness standards for recording, reconciling, and
reviewing transactions were not met; and (4) cardholders did not
consistently take advantage of vendor-offered purchase discounts.
Generally, we found that internal controls were not operating as
intended because cardholders and approving officials were not following
VA/VHA operating guidance governing the program, and in the case of
documentation and vendor-offered discounts, lacked guidance. We also
noted that monitoring activities could be strengthened, such as in
instances where (1) accounts remained active long after the cardholder
had left service at VA, (2) credit limits on accounts were
significantly higher than actual usage, and (3) human capital resources
were insufficient to enable adequate monitoring of the purchase card
program.
This lack of adequate internal controls resulted in numerous violations
of applicable laws and regulations and VA/VHA purchase card policies.
We classified purchases made in violation of applicable laws and
regulations or VA/VHA purchase card policies as improper purchases. We
found violations of applicable laws and regulations that included
purchases for personal use such as food or clothing, purchases that
were split into two or more transactions to circumvent single purchase
limits, purchases over the $2,500 micro-purchase threshold that were
either beyond the scope of the cardholder's authority and/or lacked
evidence of competition, and purchases made from an improper source. We
also found violations of VA/VHA policy that included using convenience
checks to pay for purchases even though the vendor accepted the
government purchase card, convenience check payments that exceeded
established limits, and purchases for which procurement procedures were
not followed. While the total amount of improper purchases we
identified, based on limited scale audit work, is relatively small
compared to the more than $1.4 billion in annual purchase card and
convenience check transactions, we believe our results demonstrate
vulnerabilities from weak controls that may have been exploited to a
much greater extent.
The ineffectiveness of internal controls was also evident in the number
of transactions that we classified as (1) wasteful, that is, excessive
in cost compared to other available alternatives or for questionable
government need or (2) questionable because there was insufficient
documentation to determine what was purchased. Our work identified over
$300,000 in wasteful or questionable purchases, including two purchases
for 3,348 movie gift certificates totaling over $30,000 for employee
awards where award letters or justification for the awards could not be
provided; a purchase for a digital camera totaling $999 when there were
other less costly digital cameras widely available; and a purchase of 3
cases of beer totaling $38, where the cardholder stated that the
purchase was made at the request of a VA pharmacy for a patient. We
also noted 250 questionable purchases totaling $209,496 that lacked key
purchase documentation from vendors that would more likely be selling
unauthorized or personal use items. Examples of these types of
purchases included a purchase from Radio Shack totaling $3,305, a
purchase from Gap Kids totaling $788, and a purchase from Harbor
Cruises totaling $357. Missing documentation prevented us from
determining the reasonableness and validity of these purchases. 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.
Without improvements in its internal controls to strengthen segregation
of duties, documentation of purchase transactions, timely recording,
review and reconciliation of transactions, and program monitoring, VHA
will continue to be at risk for non-compliance with applicable laws and
regulations and its own policies and remain vulnerable to improper,
wasteful and questionable purchases. We make 36 recommendations in this
report to address the internal control and compliance issues we
identified.
In commenting on a draft of this report, VA generally agreed with our
conclusions and expressly concurred with 32 of the 36 recommendations.
For these recommendations, VA reported that it has actions either
already in place or planned that meet the intent of our
recommendations. For the remaining four recommendations, VA, in
principle, concurred with three of these recommendations and presented
reasons and/or alternative action steps to address the weaknesses
identified in our report, which we believe are responsive to the intent
of our recommendations. VA also included some technical comments that
we have addressed in finalizing our report where appropriate.
Background:
The General Services Administration (GSA) administers the federal
government's contracts in support of agencies' purchase card programs.
GSA contracts with commercial banks to issue purchase cards to federal
employees to make official government purchases. Citibank issues
purchase cards to VA operating administrations, including VHA. Use of
the purchase card is intended to streamline federal agency acquisition
processes by providing a low-cost, efficient vehicle for obtaining
goods and services directly from vendors. VA's purchase card program,
including VHA, also includes the use of convenience checks to pay
vendors that do not accept purchase cards as payment.
VA is subject to the Federal Acquisition Regulation (FAR), which
governs the acquisition of goods and services by all executive
agencies. To implement and supplement these regulations, VA issues the
Department of Veterans Affairs Acquisition Regulations (VAAR), which
prescribes VA procurement policies and procedures.
To implement and supplement the VAAR, VA issues directives that set
forth policy, and handbooks, that prescribe procedures for implementing
the applicable policy. For the purchase card program, VA issued
departmentwide guidance, VA Directive 4080, Government Purchase Card
Policy, and VA Handbook 4080, Government Purchase Card Procedures, both
dated April 4, 2003. VA has separate policies and procedures for the
use of convenience checks related to the purchase card program: VA
Directive 4010, Agent Cashier Policy, and VA Handbook 4010, Agent
Cashier Procedures, both dated October 17, 1994; and VA Directive 4070,
Cash Management, and VA Handbook 4070.2, Disbursement Mechanisms, both
dated April 21, 1997.
VHA Directive 1730.1 Use of the Government Purchase Card in VHA, (May
19, 2003) and VHA Handbook 1730.1, Use and Management of the Government
Purchase Card Program (June 14, 2000) provide policies and procedures
that VHA facilities and program offices must follow when using the
government purchase card. VHA uses this guidance, in conjunction with
VA's departmentwide guidance, to operate its VHA purchase card program.
VA and VHA mandate the use of the purchase card for all micro-purchases
- acquisitions of supplies and services generally at or below
$2,500[Footnote 2] and provides that the purchase card must be used to
the maximum extent practical for all purchases up to the simplified
acquisition threshold, currently $100,000.[Footnote 3]
In fiscal year 2002, VHA used purchase cards and convenience checks to
make 2.8 million purchases totaling $1.4 billion. During this time
frame, about 14,000 of the approximately 188,000 VHA employees, or 7
percent of the VHA workforce, had purchase cards or convenience check
accounts. For the purchase cards, a majority of the cardholders had
single purchase limits between $2,500 and $25,000. For the convenience
checks, the single purchase limits were either set at $2,500 or
$10,000.
The VHA Chief Financial Officer (CFO) has overall responsibility for
the implementation and oversight of the purchase card program within
VHA. A facility director and/or regional office director at each of
VHA's 21 Veterans Integrated Service Network (VISN)[Footnote 4] is
responsible for implementing the purchase card program at the local
level. These officials are also responsible for designating[Footnote 5]
an agency or organization program coordinator (A/OPC) to oversee the
purchase card program at each facility within the director's geographic
area. There are approximately 162 VHA medical centers and about 148
local A/OPCs responsible for the primary management of the purchase
card activity at their facilities.
Generally, at each facility, personnel in three positions - A/OPC,
cardholder, and approving official - are collectively responsible for
providing reasonable assurance that purchase card transactions are
appropriate and meet a valid government need. The A/OPC is responsible
for the day-to-day management, administration, and oversight of the
program such as ensuring appropriate training has been provided,
setting up cardholder and approving official accounts, retrieving and
canceling all unneeded cards, and performing reviews of purchase card
activity to ensure compliance with applicable laws, regulations,
policies and procedures. VHA's purchase card guidance states that the
A/OPC cannot be a cardholder or an approving official.
The cardholders are responsible for making purchases, inputting
purchase information in the local purchasing system, maintaining
supporting documentation, and electronically reconciling their
purchases by matching the payment charges from the purchase card
program contractor to the local purchasing system. The approving
officials, who typically are responsible for more than one cardholder,
are charged with monitoring purchase card usage to ensure compliance
with applicable laws and regulations and VA/VHA policies and
procedures, are to ensure applicable documentation is maintained, and
according to VHA guidance, certify, through an electronic signature,
that all procurements are legal and proper and that the items have been
received. VA's guidance also provides that in most cases, the approving
official should not be a cardholder. However, where staffing levels
necessitate, the approving official may be a cardholder, but cannot
approve his or her own transactions.
VHA's purchase card program also allows the use of convenience checks
to pay vendors that do not accept credit cards. VA's disbursement
mechanism policy provides that convenience checks be used in lieu of
cash but only when the government purchase card cannot be used. Agent
cashiers are responsible for making payments to the payee upon
receiving authorization and supporting purchase documentation from the
office requesting payment, reconciling the check payments as they clear
VA's purchase card account, and maintaining a copy or carbon copy of
the check for a period of one year.
On February 12, 1999, the OIG issued a report of VA's purchase card
program.[Footnote 6] The OIG reported that management controls were not
effectively implemented to ensure the integrity of the purchase card
program and that maximum benefits were not being realized. Among other
things, the OIG found weaknesses related to account reconciliation and
certification, documentation, split purchases, and safeguarding of
purchase cards. The OIG made several recommendations for corrective
action.
During the period March 1999 through September 2003, the OIG issued an
additional 83 reports that continued to identify internal control
weaknesses in the VA's purchase card program. A summarization of these
results, was reported in the OIG's April 26, 2004 report on its
evaluation of VA's purchase card program. Specifically, during this
time frame, the OIG reported 5 fraud cases totaling $435,900. The fraud
cases involved former and current employees and in one instance, a non-
VA employee. Items purchased included computers, televisions, stereos,
DVD and CD players, a diamond ring, and other merchandise. The OIG
reported that generally, cardholders were able to commit purchase card
fraud because approving officials did not ensure that purchases were
legal and proper and that items had been received and were for official
government use.
In addition, the OIG reported it had identified 457 improper or
questionable purchases totaling $1.1 million that did not comply with
the FAR, VA policy, or were not adequately supported by documentation.
The improper and questionable purchases included (1) procurements over
the $2,500 micro-purchase threshold without the use of competition, (2)
purchases split into two or more transactions to circumvent the micro-
purchase limit, (3) use of the purchase card by someone other than the
cardholder, and (4) recurring purchases from the same vendor where the
cardholders did not maintain vendor documentation to support the
purchases. The OIG made two new recommendations in its 2004 report that
(1) direct VA facility managers to conduct quarterly audits, (2)
provide for the development and implementation of procedures and
checklists for approving officials to use in monitoring cardholder
activity, (3) update VA's purchase card policy to include span of
control criteria for approving officials, and (4) expand internal audit
procedures to include identifying questionable purchases through data
mining. The OIG reported that the Under Secretary for Health, the Under
Secretary for Benefits, and the Assistant Secretary for Management
agreed with the findings and recommendations and provided acceptable
improvement plans.
Scope and Methodology:
To determine whether existing controls at VHA were designed to provide
reasonable assurance that improper purchases would be prevented or
detected in a normal course of business, we obtained an understanding
of VA/VHA's purchase card and convenience check policies and
procedures, and the related internal controls. We then assessed the
adequacy of those controls using various GAO prescribed guidance and by
performing detailed tests of transactions. Specifically, we:
* reviewed applicable laws and regulations, VA and VHA directives and
handbooks, and previous reports issued by VA's OIG,
* conducted walkthroughs and telephone interviews with VHA personnel to
identify key purchase card and convenience check policies and
procedures,
* assessed the adequacy of internal controls, using our Audit Guide:
Auditing and Investigating the Internal Control of Government Purchase
Card Programs,[Footnote 7] Standards for Internal Control in the
Federal Government,[Footnote 8] Internal Control Management and
Evaluation Tool,[Footnote 9] Guide for Evaluating and Testing Controls
Over Sensitive Payments,[Footnote 10] and Executive Guide: Strategies
to Manage Improper Payments,[Footnote 11] and:
* performed tests of those control activities that we considered to be
key in creating a system to provide reasonable assurance that
transactions are correct and proper throughout the purchase card
procurement process and convenience check payment process. The key
internal control activities we tested included the following.
* Segregation of duties - (1) independent receiving and acceptance of
goods and services by someone other than the cardholder, and (2)
dividing key duties and responsibilities among different people to
reduce the risk of error or fraud,
* Adequate supporting documentation - (1) cardholders and agent
cashiers obtaining and maintaining invoices or other documentation that
support their purchases and provide a basis for reconciling purchases,
(2) agent cashiers obtaining written authorization to disburse funds
for payment, and (3) agent cashiers maintaining copies of checks
issued, and:
* Timely recording of transactions and events - prompt recording,
reconciliation, and review of transactions in VHA's electronic purchase
card order system.
In addition, although not a primary focus of the internal control
testing, we reviewed purchase card and convenience check supporting
documentation to determine whether any vendor-offered discounts were
taken for purchased goods. We also inquired of and reviewed VHA's
monitoring procedures over the purchase card program to determine if
ongoing monitoring occurred in the normal course of operations.
To determine whether purchase card and convenience check expenditures
were made in compliance with applicable laws and regulations, we
reviewed the Federal Acquisition Regulation, VA's acquisition
regulation, and VA/VHA policies and procedures, and performed tests of
federal and agency acquisition requirements related to the purchase
card procurement process and convenience check payment process.
To perform tests of internal controls and applicable laws and
regulations, we selected purchase card and convenience check
transactions using two different methods. For each method of selection,
we provided VHA with the transactions selected and obtained and
reviewed related supporting documentation. The two methods are as
follows.
* Data Mining.[Footnote 12] We performed data mining on VA's Financial
Service Center (FSC)[Footnote 13] database of fiscal year 2002 purchase
card and convenience check transactions for indicators of potential
noncompliance with established policies and procedures. Specifically,
we looked for purchases that were split into two or more transactions
to circumvent single purchase limits, convenience check purchases that
exceeded established limits, purchases made against designated blocked
merchant category codes (MCCs),[Footnote 14] A/OPCs with card accounts,
cardholders who were payees on convenience checks, ratio of cardholders
assigned to approving officials, comparison of single and monthly
credit limits to actual purchase card activity, former employees who
had active purchase card accounts after their separation dates, and
purchases from vendors on the Department of Health and Human Services
Office of Inspector General (DHHS OIG) Exclusion List.[Footnote 15] We
forwarded the results of the transactions that met the specific
criteria to the VHA Central Office in Washington, D.C. to obtain
responses and related documentation, which we used to assess whether in
fact these were violations of applicable laws and regulations or
policy.
We also asked Citibank, VHA's purchase card program contractor, to
extract from its database of VHA cardholders, all inactive VHA purchase
card accounts. We analyzed this data and forwarded our results to the
VHA Central Office for further review and assessment of cardholders'
ongoing need for the card.
* Statistical Sampling. We selected five stratified random statistical
samples of purchase card and convenience check transactions from five
populations of purchase card and convenience check transactions paid
from October 1, 2001 through September 30, 2002. See table 1 below for
a description of each sample and their related populations which were
aggregated from a database of all purchase card and convenience check
transactions for fiscal year 2002 to test specific control activities
and compliance with applicable laws and regulations, and policies. We
stratified transactions in each sample on the basis of the total dollar
values for each population. Sample units in each sample were
subsequently weighted in the analysis to account statistically for all
the transactions in the population, including those that were not
selected. Results from these statistical samples were projected to
their respective populations of purchase card and convenience check
transactions for fiscal year 2002.
Table 1: Description of Statistical Samples:
Sample Description: Internal control - purchase cards;
Sample Type: Stratified random;
Number of Strata: 10;
Sample Size: 283;
Total Number of Transactions in the Population: 1,884,695;
Total Dollar Value of Sampled Transactions: $4,766,287;
Total Dollar Value of Transactions in the Population: $1,309,391,363.
Sample Description: Internal control - convenience checks;
Sample Type: Stratified random;
Number of Strata: 8;
Sample Size: 255;
Total Number of Transactions in the Population: 82,582;
Total Dollar Value of Sampled Transactions: $358,917;
Total Dollar Value of Transactions in the Population: $30,675,553.
Sample Description: Split purchases - purchase cards;
Sample Type: Stratified random;
Number of Strata: 9;
Sample Size: 280;
Total Number of Transactions in the Population: 63,502;
Total Dollar Value of Sampled Transactions: $4,047,212;
Total Dollar Value of Transactions in the Population: $89,365,980.
Sample Description: Exceeding limits - convenience checks;
Sample Type: Stratified random;
Number of Strata: 3;
Sample Size: 105;
Total Number of Transactions in the Population: 5,925;
Total Dollar Value of Sampled Transactions: $403,553;
Total Dollar Value of Transactions in the Population: $14,230,649.
Sample Description: Purchases greater than $2,500;
Sample Type: Simple random;
Number of Strata: Not applicable;
Sample Size: 76;
Total Number of Transactions in the Population: 84,375;
Total Dollar Value of Sampled Transactions: $435,249;
Total Dollar Value of Transactions in the Population: $546,026,889.
Source: GAO statistically determined samples for fiscal year 2002
testing.
[End of table]
To determine whether purchases were made for a reasonable cost and a
valid government need, we 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 2002
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; purchases from
travel-related vendors; and purchases of sensitive assets. This
resulted in tens of thousands of transactions identified, from which we
then selected 982 transactions totaling $1.2 million to test whether
these purchases were made at excessive cost and/or for questionable
government need, and whether they complied with select purchasing
regulations, policies, and procedures.
While we identified some improper purchases, our work was not designed
to identify all fraudulent or otherwise improper purchases made by VA.
We conducted our review from April 2003 through April 2004 in
accordance with generally accepted government auditing standards.
Critical Internal Controls Were Ineffective:
VHA's internal controls were not designed to provide reasonable
assurance that improper purchase card and convenience check purchases
would not occur or would be detected in the normal course of business.
We found that VHA lacked adequate segregation of duties between
purchasing and receiving goods; that purchase card and convenience
check transactions often did not have key supporting documents; that
timeliness standards for recording, reconciling, and reviewing
transactions were not met; and that cardholders did not consistently
take advantage of vendor-offered purchase discounts. Generally, we
found that internal controls were not operating as intended because
cardholders and approving officials were not following VA/VHA operating
guidance governing the program, and in the case of documentation and
vendor-offered discounts, lacked guidance. We also noted instances
where monitoring activities could be strengthened through prescribed
operating procedures to decrease the risk of improper purchases.
Effective internal controls are the first line of defense in
safeguarding assets and in preventing and detecting fraud. In addition,
they help to ensure that actions are taken to address risks, and are an
integral part of an entity's accountability for the stewardship of
government resources. 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) all transactions and other significant events be clearly
documented and readily available for examination, and other significant
events be authorized and executed only by persons acting within the
scope of their authority, (3) transactions should be promptly recorded
to maintain their relevance and value to management in controlling
operations and decisions, and (4) internal control monitoring be
performed to assess the quality of performance over time and ensure
that audit findings are promptly resolved. Similarly, internal control
activities help ensure that management's directives are carried out.
The control activities should be effective and efficient in
accomplishing the agency's control objectives. Control activities occur
at all levels and functions of the entity. They include a wide range of
diverse activities such as approvals, authorizations, verifications,
reconciliations, performance reviews, and the production of records and
documentation.
Segregation of Purchasing Duties Was Inadequate:
VHA lacked adequate segregation of duties regarding independent
receiving of goods and separation of responsibilities within the
purchasing process. Independent receiving-receiving of goods and
services by someone other than the cardholder-provides additional
assurance that purchased items are not acquired for personal use and
that the purchased items come into the possession of the government.
Such separation of responsibilities within the purchasing process
reduces the risk of error or fraud. From our purchase card internal
control testing, we estimate that $75 million[Footnote 16] in
transactions did not have evidence that independent receiving of goods
had occurred. In addition, our data mining of the purchase card and
convenience check activity identified 15 A/OPCs who were also
cardholders that collectively made 9,411 purchases totaling $5.5
million during fiscal year 2002. Because A/OPCs are responsible for
monitoring cardholders' and approving officials' activities for
indications of fraud, waste, and abuse, these A/OPCs were essentially
monitoring their own activities.
VA's and VHA's purchase card guidance varied regarding segregation of
duties within the purchasing process. VHA's guidance does not require
independent receiving by someone other than the cardholder; however, it
does state that cardholders are responsible for ensuring that goods and
services ordered are received. In addition, VA's current guidance,
dated April 4, 2003, makes no mention of the receiving function
regarding cardholder purchases. The guidance only requires a clear
separation of duties for authorizing transactions, making purchases,
and recording transactions.
Although there is no written agency-wide requirement for independent
receiving, agency officials informed us that the purchase card order
system includes an option that allows for independent receiving when a
cardholder creates a detailed purchase card order[Footnote 17] in the
system. Specifically, the cardholder can select an option that requires
independent receiving of goods at the applicable VHA facility
warehouse. Once goods are physically received and notated to that
effect via an electronic signature in the purchase card order system,
the cardholder can print the receiving report and maintain it in his or
her files. Although this option is available, we found that cardholders
did not consistently select the detailed process option when creating a
purchase card order in the system. One of the factors contributing to
this inconsistency is the ambiguity of the criteria that VA has
instituted for determining when the detailed process option should be
selected for creating a purchase card order. According to the purchase
card order system's user guide, the cardholder should use the detailed
process option to keep track of specific items in the inventory system.
However, this user guide does not identify the types of procured goods
that should be inventoried, tracked, and accounted for by this system.
To test the independent receiving function, we requested certain system
data print screens for each transaction included in the purchase card
internal control sample to determine whether the cardholder had created
a detailed purchase card order that would allow for independent
receiving. From the documentation provided, we determined that 142 of
the 283 sample transactions were detailed purchase card orders and
thus, had characteristics of independent receiving. Of the 142, we
found 16 transactions totaling $70,475 where cardholders did not
provide evidence that independent receiving had occurred. Based on the
results of our review, we estimate that $75 million[Footnote 18] of the
total sampled population of purchase card transactions lacked evidence
of independent receiving. We believe documented independent receiving
is a basic internal control activity that provides additional assurance
to the government that purchased items come into the possession of the
government.
Another weakness we identified regarding segregation of duties included
A/OPCs who are also cardholders. VHA's purchase card guidance
explicitly prohibits A/OPCs from being cardholders. When A/OPCs perform
in this dual capacity, they are essentially monitoring their own
activities. During our data mining of the purchase card and convenience
check activity, we identified 15 of 180 A/OPCs who were also
cardholders and had collectively made 9,411 purchases totaling $5.5
million during fiscal year 2002. When we inquired about the dual
responsibilities, we were told that certain VHA facilities cannot
adequately segregate purchasing duties because of the small number of
employees located at those sites and that management is aware of the
dual responsibilities. Although this segregation of duties issue was
prevalent during fiscal year 2002, our period of review, it has been
largely rectified, since all but one A/OPC account had been closed as
of the end of fieldwork. Regarding the open account, the national
program coordinator provided us a copy of a memorandum, dated December
1, 1997, from the Chief of Acquisition and Material Management to the
director of that facility requesting approval to keep the A/OPC as a
cardholder because the office has no other staff to perform these
cardholder responsibilities. In the memorandum, the Chief also stated
that the office has a "double check audit" in place to ensure there are
no problems with any of the A/OPC's purchases.
Purchases Lacked Key Documentation:
We found instances where purchase card and convenience check
transactions lacked key supporting documentation such as internal
written authorization for convenience check disbursements and vendor
invoices that independently support the description and quantity of
what was purchased and the price paid. We also found that VHA's
purchase card guidance does not address the types of documentation that
cardholders should maintain to support purchases made. The guidance
only addresses documentation requirements in its audit guide, which is
an appendix to the purchase card guidance that provides instructions to
internal reviewers when performing their monitoring functions.
Furthermore, we noted that VA's operating guidance for convenience
checks has no requirement that vendor documentation be provided before
checks are issued. The guidance only provides that sufficient
documentation, such as a VA-created purchase order, must be evident
before checks are issued.
The invoice is a key document in purchase card internal control
activities. Without an invoice, independent evidence of the description
and quantity of what was purchased and the price charged is not
available. In addition, the invoice is the basic document that should
be forwarded to the approving official or supervisor so that he or she
can perform an adequate review of the cardholder's purchases.
In testing for evidence of an invoice, we accepted either a copy of the
invoice, sales receipt, packing slip, in cases where the item
description could be directly traced to the cardholder's detailed
purchase card order, and the purchase card order amount agreed to the
charged amount, or other store receipt. Of the 283 purchase card sample
transactions, 74 transactions totaling $2.1 million lacked an invoice,
credit card slip, or other adequate vendor documentation to support the
purchase. Based on these results, we estimate that $312.8
million[Footnote 19] of the fiscal year 2002 purchase card transactions
lacked key supporting documentation. For the convenience check sample,
we found 35 of 255 transactions totaling $43,669 lacked the same key
documentation. Based on these results, we estimate that $3.8
million[Footnote 20] of the fiscal year 2002 convenience check
transactions lacked key supporting documentation.
We also noted missing documentation in the other three statistical
samples (purchases over $2,500, purchase card split purchases, and
convenience checks exceeding established limits) and one nonstatistical
sample. For the three statistical samples, in instances where VHA did
not provide documentation to us to perform our test work, we reported
these purchases as exceptions for each attribute tested. Based on our
audit work, we estimate that $45.9 million[Footnote 21] of the fiscal
year 2002 purchase card and convenience check transactions had missing
documentation. For the nonstatistical sample, we reported all
transactions with key missing documentation as questionable
transactions, as discussed later in this report. In some instances,
cardholders or others told us that the invoice or other file
documentation had been lost, sent to storage, destroyed after a year,
or not retained when the cardholder retired or separated from VA.
However, there were instances for which no explanation was provided as
to why cardholders could not submit supporting documentation as of the
end of our fieldwork. Without such documentation, we could not verify
what was purchased, whether it was for a legitimate government purpose,
or complied with acquisition requirements.
A valid invoice to show what was purchased and the price paid is a
basic document for the transactions, and a missing invoice could be an
indicator of potential fraud. Without an invoice, two key internal
control activities-independent receiving and approving official
review-become ineffective. Independent receiving cannot confirm that
the purchased items were received and the approving official cannot
review a cardholder's reconciled purchase with the supporting invoice.
A near zero failure rate is a reasonable goal considering that invoices
are easily obtained or replaced when inadvertently lost.
VA's operating guidance over convenience checks does not provide
detailed procedures regarding appropriate written documentation or
authorization that is required to be forwarded to the authorizing
employee (agent cashier) prior to the disbursement of funds to a third
party. VA's operating guidance only provides that the required
documentation be the same as that for paying with cash such as a
purchase order. The guidance makes no mention of independent vendor
documentation and that this type of documentation be required prior to
issuing checks to vendors. In addition, VA's guidance requires that the
agent cashiers issuing convenience checks retain copies of issued
convenience checks for only one year. This documentation requirement is
inconsistent with the Federal Acquisition Regulation and VHA's Records,
Control Schedule 10-1, dated February 14, 2002, which requires that
such records be retained for 6 years and 3 months after final payment
for procurements exceeding the simplified acquisition threshold and for
3 years after final payment for procurements below the simplified
acquisition threshold.[Footnote 22]
In testing for evidence of written authorization, we accepted either a
copy of a purchase order, standard forms VA uses for certain types of
expenditures such as salary and travel, or signed internal memorandums.
Of the 255 convenience check transactions, 17 transactions totaling
$8,890 lacked written authorization needed to issue the convenience
check. Based on these results, we estimate that $1.7 million[Footnote
23] of the fiscal year 2002 convenience check transactions lacked
written authorization. In addition, we noted that 19 of the 255
convenience check transactions lacked a copy of the check or carbon
copy. Based on these results, we estimate that $2.3 million[Footnote
24] of the fiscal year 2002 convenience check transactions lacked this
supporting documentation. Although VA only requires copies of
convenience checks to be retained for one-year, retaining the copies
and the supporting documentation for the longer retention period
mandated by the FAR and incorporated in VHA's Records, Control Schedule
10-1, would facilitate subsequent internal and external reviews in
assessing whether or not transaction activity was proper and in
compliance with acquisition policies and procedures.
Timeliness Standards Were Not Met for Recording, Reconciling and
Reviewing Transactions:
As part of the purchase card process, VHA has established several
timeliness standards that cardholders and approving officials must meet
to ensure prompt recording, reconciliation, and review of purchases.
Specifically, within 1 workday of making a purchase, cardholders are
required to input or record the purchase information in VA's purchase
card order system. Within 10 calendar days of electronically receiving
the transaction charge information from Citibank, the cardholder must
reconcile 75 percent of these Citibank charges to the purchase
information in the system. Within 17 calendar days, 95 percent of the
Citibank charges must be reconciled. As evidence of reconciliation, the
purchase card order system assigns the date the cardholder reconciled
the purchase in the system. For testing the timeliness of cardholder
reconciliations, we used the 17 calendar day criteria. In addition, VHA
requires that within 14 calendar days of electronically receiving the
cardholder's reconciled purchases, that the approving official, through
an electronic signature, certify in the purchase card order system that
all procurements are legal, proper, and have been received.[Footnote
25]
Table 2 summarizes the statistical results of VHA's timeliness
standards that cardholders and approving officials must meet to ensure
prompt recording, reconciliation, and review of purchases. Our work
shows that the internal controls were not operating as intended to
ensure prompt recording of transactions and events.
Table 2: Summarization of VHA Timeliness Standards Exceptions:
VHA Timeliness Tests of Purchase Card Order System: Purchase card
orders were entered within 1 day;
Number of Sample Transactions in Error: 36;
Estimated Total Number of Transactions in Error: 289,352;
Confidence Interval at a 95 Percent Confidence Level: 164,100 -
458,414;
Estimated Dollar Value of Amount in Error: (in millions): $152.5;
Confidence Interval at a 95 Percent Confidence Level: (in millions):
$99.9 - $205.1.
VHA Timeliness Tests of Purchase Card Order System: Cardholder
reconciliation within 17 days;
Number of Sample Transactions in Error: 53;
Estimated Total Number of Transactions in Error: 351,256;
Confidence Interval at a 95 Percent Confidence Level: 216,683 -
522,909;
Estimated Dollar Value of Amount in Error: (in millions): $252.7;
Confidence Interval at a 95 Percent Confidence Level: (in millions):
$184.4 - $321.0.
VHA Timeliness Tests of Purchase Card Order System: Approving official
certification within 14 days;
Number of Sample Transactions in Error: 44;
Estimated Total Number of Transactions in Error: 308,448;
Confidence Interval at a 95 Percent Confidence Level: 181,930 -
475,207;
Estimated Dollar Value of Amount in Error: (in millions): $212.4;
Confidence Interval at a 95 Percent Confidence Level: (in millions):
$149.2 - $275.7.
Source: GAO's estimate of the audit results for 283 sampled
transactions selected to test VHA timeliness standards for fiscal year
2002. The population total of transactions from which this stratified
random sample was selected was 1,884,695.
[End of table]
The following examples illustrate the extent of untimely recording,
reconciliation, and review of the purchase card transactions.
* Untimely recording. A cardholder made a purchase on July 9, 2002 for
$994, but did not input information into the VA's purchase card order
system until August 29, 2002 or 51 days later. According to VHA policy,
the cardholder was required to input information about this purchase
within one workday of making a purchase. The purpose of this timeliness
standard is to ensure that VHA has proper control over the obligation
and expenditure of its resources. By allowing this timeliness standard
to be circumvented, VHA has less control over its financial resources.
* Untimely reconciliation. A cardholder made a purchase of $100 on
August 24, 2002. Citibank electronically sent charge information to VHA
for this purchase on October 8, 2002. According to the VHA policy, the
cardholder should have reconciled this charge within 17 days, or by
October 25, 2002, of receiving the Citibank charge information to meet
the 95 percent reconciliation timeliness standard. However, the
cardholder did not reconcile this charge until September 8, 2003, or
335 days later after receiving the Citibank charge information. The
purpose of cardholder reconciliation is to detect invalid transactions,
including billing errors and unauthorized purchases. If cardholders do
not promptly reconcile their purchase card charges, the risk increases
that fraudulent, improper, and wasteful purchase card expenditures
could occur and go undetected.
Also, during our review of cardholder reconciliations, we found 17
instances of cardholders who had electronically notated that the
reconciliation had been completed, but the invoice amount and the
charged amount did not agree and there was no documentation to explain
the difference. VHA's purchase card guidance requires that cardholders
match Citibank payment charges to VA's purchase card order system
within VHA's prescribed tolerance level, currently $100 or 10 percent,
whichever is less.[Footnote 26] However, VHA's guidance only requires
that cardholders provide a written explanation when differences, at the
prescribed tolerance level, occur between the vendor invoice amount and
Citibank payment charged amount. Cardholders are not required to
document any differences below the prescribed tolerance level. We
believe cardholder reconciliation is a key control activity for
detecting invalid transactions, including billings and unauthorized
purchases. Documenting any difference between the invoice amount and
payment charged amount provides additional assurances that transactions
are properly reconciled and charged amounts are correct. We brought
this issue to the attention of several VHA officials. VHA officials
agreed that cardholders should explain any difference in the purchase
card order system and said they would proceed to have VHA's purchase
card guidance revised to clarify this cardholder responsibility.
* Approving Official Review. A cardholder reconciled his purchase card
transaction totaling $3,149 on December 21, 2002. According to the VHA
policy, the approving official should review the reconciled purchase
and certify within 14 calendar days that the purchase was legal,
proper, and has been received. We noted that for this transaction,
there was no evidence that the approving official reviewed this
cardholder's reconciliation until August 6, 2003 or 227 days later from
the receipt of cardholder reconciliation. The purpose of an independent
approving official review of reconciled cardholder purchase card
transactions is to ensure that key responsibilities in the purchase
card program are segregated and that no one individual has control over
all aspects of a purchase card transaction. If approving officials do
not promptly review cardholder purchase card transactions, VHA has no
assurance that purchase card activity did not involve fraudulent,
improper, or wasteful transactions.
It is critical that cardholders and approving officials promptly
record, reconcile, and review purchase card transactions so that
erroneous charges can be quickly disputed with the vendor and any
fraudulent, improper, or wasteful purchases can be quickly detected and
acted upon.
Vendor Discounts Not Consistently Taken:
From our detailed tests of transactions, we found instances where
cardholders did not consistently take advantage of vendor-offered
purchase discounts. Specifically, we identified 69 invoices containing
vendor-offered discounts totaling $15,785 that were available to the
cardholder, but not taken at the time of purchase or subsequently
credited for the discount amount, as evident by the amount charged to
the cardholders' account. When purchases are made, vendors may offer
purchase discounts if buyers make early payments of their invoices.
Typically, the vendor specifies a period of time during which the
discount is offered, but expects the full invoice amount for payments
made after that period. When cardholders use the purchase card, payment
to vendors, via Citibank, generally occurs at the time of purchase. In
turn, Citibank bills VA for the purchases through a daily electronic
file. VA makes daily payments to Citibank to pay charges made from the
previous day. Therefore, it is critical that cardholders inquire of any
vendor-offered discounts at the time of purchase and make efforts to
obtain a credit upon receipt and review of the invoice. Our detailed
testing indicated that VHA did not always take advantage of vendor-
offered discounts and that VHA lacked purchase card guidance to ensure
cardholders inquired of or reviewed vendor payment terms to determine
whether discounts were being offered for the applicable goods and
services rendered.
For example, one vendor offered VHA a discount of 2.9 percent, or $896,
for an invoice amount of $30,888, if paid within 15 days. Citibank, on
behalf of VA, made payment to the vendor within the 15-day timeframe,
yet the vendor charged the cardholder's account for the full invoice
amount. We found no evidence that the cardholder attempted to obtain a
credit for the available discount offered. In another example, we found
that a cardholder had taken advantage of the vendor-offered discount.
The vendor offered VHA a discount of 3 percent, or $180, for an invoice
amount of $6,000, if paid within 30 days. We noted that the vendor
charged the cardholder's account for the discount amount of $5,820.
A factor that may contribute to cardholder inconsistencies for taking
advantage of vendor discounts is the lack of established policies and
procedures that address this issue. Specifically, we found that VHA's
purchase card guidance did not include established procedures to ensure
cardholders take advantage of available vendor discounts prior to
making payments, or require that approving officials identify instances
when cardholders did not take advantage of vendor discounts in order to
determine the frequency of these occurrences. Without such guidance,
VHA will not be able to determine the extent of this type of occurrence
and actual dollars lost to the government.
Program Monitoring Improvements Could Be Made:
Our review found that VHA's monitoring requirements lacked procedures
to ensure that cardholder accounts were cancelled promptly when an
employee left service and that cardholder credit limits were based on
actual spending patterns. In addition, we found that VHA management has
not provided sufficient human capital resources at the A/OPC level, to
enable adequate monitoring of the purchase card program. Our Standards
of Internal Control state that internal control monitoring assess the
quality of performance over time and that ongoing monitoring should
occur in the course of normal operations. It includes regular
management and supervisory activities, comparisons, reconciliations,
and other actions people take in performing their duties.
VHA's purchase card guidance includes prescribed monitoring procedures
over its purchase card program to help ensure purchases are legal and
proper. For example, the purchase card guidance requires that on a
monthly basis, the Head of the Contracting Activity office at each VHA
facility, the A/OPC and billing officer, perform joint reviews to
include various aspects of the purchase process, such as proper
accounting of purchases; proper oversight to ensure purchases were for
a legitimate government need; and timely recording, reconciliation, and
review of purchases. Although VHA's guidance requires these reviews, we
found no monitoring procedures to identify active accounts of
cardholders who had separated from VA nor provisions for ongoing
assessment of cardholders' credit limits. We also noted insufficient
human capital resources at the A/OPC level, for executing the
prescribed monitoring activities over its purchase card program.
* Prompt cancellation of departing cardholder accounts. We identified
18 instances of purchase card accounts that remained active after the
cardholder separated from VA and all related outstanding purchase
orders had been reconciled. Specifically, we found that the
cancellation of these accounts varied from the date that the last
purchase had been reconciled, ranging from 1 day to 339 days. Of the 18
purchase card accounts that remained active after the cardholder had
left VA, we determined that 14 accounts remained active 6 or more days
after the cardholders' outstanding purchase orders had been reconciled,
which we deemed too long.[Footnote 27] For example, one cardholder
separated from VA on April 3, 2002 with 5 outstanding purchase card
orders that were made against the cardholder's account prior to
separation. The last purchase transaction was reconciled on May 21,
2002, but the account was not canceled until April 25, 2003, or 339
days after reconciliation.
According to VHA's purchase card guidance, departed cardholders are
responsible for turning in their purchase card to the A/OPC in
accordance with facility procedures, and providing the approving
official with records of outstanding orders and unreconciled charges
prior to leaving service. The approving official is responsible for
ensuring a designated alternate approving official takes appropriate
action necessary to complete the pending orders of departed cardholders
and notifies the A/OPC when the last purchase has been reconciled so
that the card account will be canceled promptly. However, VHA has no
specific procedures for determining the time period for prompt
cancellation of card accounts once all outstanding orders have been
reconciled. As a result, for analysis purposes, we determined that
untimely cancellation of cardholder accounts occurred when accounts
were not canceled within 5 days of the reconciliation date for the last
purchase charged against that account, as shown in table 3 below.
Table 3: Range of Days Departed Cardholder Accounts Remained Open:
Range of Days Accounts Remained Open: 6-50 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 5.
Range of Days Accounts Remained Open: 51-100 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 4.
Range of Days Accounts Remained Open: 101-150 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 2.
Range of Days Accounts Remained Open: 151-200 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 0.
Range of Days Accounts Remained Open: 201-250 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 1.
Range of Days Accounts Remained Open: 251-300 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 1.
Range of Days Accounts Remained Open: 301-339 days;
Number of Departed Cardholders' Accounts That Were Untimely Cancelled
Within the Range of Days: 1.
Source: GAO's analysis of VHA departed cardholder accounts that were
untimely cancelled in fiscal year 2002.
[End of table]
In addition to the above analysis, we also identified 3 card accounts
from two VHA facilities where the applicable A/OPC did not provide us
the necessary documentation as of the end of our audit fieldwork to
determine the time period when the departed cardholders' accounts had
been canceled once the transactions against their accounts had been
reconciled. Therefore, we were unable to determine if these departed
cardholder accounts had been promptly canceled once all outstanding
purchase orders had been reconciled. Requiring monitoring procedures to
identify active accounts of departed cardholders and ensure prompt
closure once outstanding purchase orders have been reconciled would
assist in reducing the risk of fraud, waste, and abuse that could occur
when accounts remain open beyond the necessary time frame.
* Reasonableness of cardholder credit limits. Our analysis of purchases
VHA cardholders made in fiscal year 2002 showed that, on average per
month, cardholders cumulatively purchased $112 million of goods and
services, but they had credit limits of $1.2 billion or 11 times their
actual spending. The difference between the cumulative credit limits of
$1.2 billion and actual spending of $112 million per month on average
represents a monthly financial exposure of $1.1 billion to VHA. For
example, we identified 5 cardholders with monthly credit limits of
about $10 million each, yet each cardholder's average purchases for one
month only totaled $111,310.
According to VHA's purchase card guidance, the approving official, in
conjunction with the A/OPC, billing officer, and head of contracting
activity, recommends cardholder single purchase and monthly credit
limits. However, we found no guidance on what factors to consider when
recommending the dollar amounts to be assigned to each cardholder, such
as existing and continuing needs of program operations and cardholders.
Further, we found no monitoring procedures that require the A/OPC or
approving official to determine, on an ongoing basis, whether or not
cardholder limits should be changed based on existing and expected
future use. Although 29 of the 111 A/OPCs who responded to a GAO data
collection instrument question regarding monitoring cardholder's
single and monthly credit limits, reported that such monitoring occurs
and that cardholders' limits were increased or decreased to reflect
actual spending patterns, we found no consistent application VHA-wide.
A determination of cardholders' spending limits requires an objective
effort by operational supervisors and management, with assistance from
purchase card program management, to evaluate the existing and
continuing needs of operations and cardholders. Periodic monitoring and
analysis of cardholders' actual monthly and average charges, in
conjunction with existing credit limits would aid VHA management in
making reasonable determinations of cardholder spending limits. Without
adequate monitoring, the financial exposure in VHA's purchase card
program can become excessive when its management does not exercise
judgment in determining single purchase and monthly credit limits.
Limiting credit available to cardholders is a key factor in managing
the VHA purchase card program, minimizing the government's financial
exposure, and enhancing operational efficiency.
* Inadequate human capital resources. VHA has not provided sufficient
human capital resources to enable monitoring of the purchase card
program. One key position for monitoring purchases and overseeing the
program is the A/OPC. While the A/OPC position is a specifically
designated responsibility, we found in many instances that the A/OPC
also functioned in another capacity and/or performed other assigned
duties such as a systems analyst, budget analyst, and contract
specialist. Of the 90 A/OPCs that responded to a GAO data collection
instrument question regarding other duties assigned, including a
percentage breakdown of time spent on the various duties,[Footnote
28]55 A/OPCs, or 61 percent, reported that they spend 50 percent or
less of their time performing A/OPC duties. The bar graph below
provides further information on the allocation of resources directed at
monitoring the VHA purchase card programs at the local level.
Figure 1: Time Spent on A/OPC Duties:
[See PDF for image]
[End of figure]
The bar graph above depicts the percentage of time that A/OPCs reported
they spend to carry out their duties related to the purchase card
program. Of the 90 A/OPCs who provided a percentage breakdown of
performing their assigned duties, we found that 31 A/OPCs spend up to
25 percent of their time performing A/OPC assigned tasks, 24 A/OPCs
spend between 26 and 50 percent, 11 A/OPCs spend between 51 and 75
percent, and the remaining 24 A/OPCs spend between 76 and 100 percent.
For example, at the extreme low end of the scale, one A/OPC responded
that he was also the budget analyst and that he spends 100 percent of
his time on budget analyst duties, leaving no time for A/OPC duties on
an ongoing basis. In another example, an A/OPC responded that she was
also the director of the finance center and that she spends 99.5
percent of her time on these director duties, leaving less than 15
minutes per 40-hour week for A/OPC duties on an ongoing basis. Given
that VHA makes millions of purchase card and convenience check
transactions annually, which in fiscal year 2002, exceeded $1.4
billion, it is essential that VHA management devote adequate attention
to monitoring its purchase card program to ensure that it is properly
managed to reduce the risk of fraud, waste, and abuse.
Although VHA has prescribed some monitoring procedures to ensure
purchases are made in compliance with laws, regulations, policies, and
procedures, these procedures do not adequately address other aspects of
the program as described previously, that, if not frequently monitored,
could increase the program's risk of fraud, waste, and abuse. In
addition, these types of monitoring activities become more critical
when existing internal controls are not operating as intended and
result in improper, wasteful, and questionable purchases as we identify
in the remainder of this report.
Noncompliance With Purchasing Requirements Resulted in Instances of
Improper Purchases:
The lack of adequate internal controls resulted in numerous purchases
made in violation of either applicable laws and regulations or VA/VHA
purchase card policies that we classified as improper purchases.
Improper purchases we found due to violations of applicable laws and
regulations included (1) purchases of items for personal use, such as
food for internal meetings and clothing, (2) purchases made from an
improper source, (3) purchases split into two or more transactions to
circumvent single purchase limits, (4) purchases, over the $2,500
micro-purchase threshold that exceeded the cardholders' delegated
purchasing authority, and (5) no evidence of competition for purchases
exceeding the $2,500 micro-purchase threshold. Improper purchases we
found due to violations of VA/VHA policy included (1) obtaining
conference rooms and other items without following applicable
procurement procedures, (2) convenience check payments that exceeded
established limits, and (3) using convenience checks to pay purchases
even though the vendor accepted the government purchase card.
While the total amount of improper purchases we identified is
relatively small compared to the over $1.4 billion in annual purchase
card and convenience check transactions, it demonstrates
vulnerabilities from weak controls that could easily be exploited to a
greater extent.
The just-cited violations are discussed in more detail here.
* Purchases of items for personal use. From the nonstatistical sample,
we identified 17 purchases totaling $14,054 for clothing, food, and
other items in which cardholders purchased goods that were for personal
use. Items that are classified as personal expenses may not be
purchased with appropriated funds without specific statutory authority.
The Federal Acquisition Regulation emphasizes that the governmentwide
commercial purchase card may be used only for purchases that are
otherwise authorized by law or regulation.[Footnote 29] We identified 6
purchases of clothing totaling $2,377 that were for personal use and
not authorized by law. One transaction was a purchase of 4 winter
jackets totaling $286 for warehouse employees exposed to inclement
weather. Absent specific statutory authority, cold weather clothing is
an employee's personal responsibility for which appropriated funds are
not available.[Footnote 30] In another example, we found a purchase of
18 pairs of Wrangler and Levi's jeans totaling $405 that VHA indicated
were to be used as "employee uniforms" for the engineering office.
Under 5 U.S.C. § 5901, appropriated funds are available to furnish
employees with either uniforms or a uniform allowance. Because the
statute does not define "uniform," the Comptroller General has relied
on the common meaning of the term "uniform" in determining what wearing
apparel may be purchased with appropriated funds.[Footnote 31] Merriam-
Webster's Tenth Collegiate Dictionary (2001) defines a "uniform" as
"dress of a distinctive design or fashion worn by members of a
particular group and serving as a means of identification" and broadly
regarded as "distinctive or characteristic clothing." Jeans would not
qualify as a uniform under that definition as jeans are common everyday
attire and would not distinguish or set a group apart.
We also found 11 transactions that included purchases of food totaling
$11,677 that were for personal use and not authorized by law. We
identified 5 transactions that included the purchase of food for
government meetings totaling $3,142 and 6 transactions where a
significant portion of the purchases were for food related to
refreshments or meals for training sessions or conferences in the
medical center's immediate geographic area totaling $11,309. For
example, one transaction totaling $575 included lunch and beverages
purchased from the Pacific Athletic Club in the amount of $277 in
addition to a room rental fee. According to documentation provided,
this purchase was for seven VA employees to discuss the Compensated
Work Therapy program. In another example, breakfast and lunch meals
totaling $2,430 were purchased during a weeklong training conference
for new supervisors at a local inn. All attendees were on staff at the
nearby medical facility and the documentation provided indicates that
networking was scheduled to take place during breakfast and lunch. This
and other purchases of refreshments identified during our testing were
improper to the extent that employees were not in a travel status or
the agency did not justify providing meals to employees.[Footnote 32]
* Improper Source. We identified 8 purchases totaling $7,510 in the
non-statistical sample that were subject to procurement from a
mandatory source of supply but were obtained from other sources.
Various federal laws and regulations such as the Javits-Wagner-O'Day
Act (JWOD) require government cardholders to acquire certain products
from designated sources. The JWOD program is a mandatory source of
supply for all federal entities. It generates job and training for
Americans who are blind or have severe disabilities by requiring that
federal agencies purchase supplies and services furnished by nonprofit
agencies, such as the National Industries for the Blind and the
National Institute for the Severely Handicapped. Most JWOD program
supplies are small value items such as office supplies, cleaning
products, or medical/surgical supplies that nearly always fall into the
micro-purchase category.
Based on our nonstatistical testing, we noted that cardholders did not
consistently purchase items from JWOD when they should have. For
example, a cardholder purchased planner starter kits and refills for
employees totaling $1,591 from Franklin Covey, a high-end office supply
store. These items provide essentially the same features as the JWOD
items, and would have cost $1,126, or $465 less, if they had been
procured through JWOD or a JWOD supplier. During our data mining, we
noted that VHA made 652 purchases totaling $76,350 from Franklin Covey
during 2002. While we did not review all of these individual purchases,
based on our detailed testing of similar transactions, it is likely
that many of them should have been procured from a mandatory source at
a much lower cost.
* Split purchases. Using data mining techniques, we identified card
purchases that appeared to have been split into two or more
transactions by cardholders to circumvent their single purchase
limit.[Footnote 33] We requested documentation for a statistically
determined sample of 280 potential split transactions totaling $4
million. Of these 280 transactions, we determined that 49 transactions
were actual splits. Based on these results, we estimate that $17.1
million[Footnote 34] of the total fiscal year 2002 purchase card
transactions were split transactions. For example, a cardholder with a
single purchase limit of $2,500 purchased accommodations at 110 hotel
rooms totaling $4,950. When performing follow-up, the cardholder stated
that VA provides lodging accommodations for veterans receiving medical
services such as radiation therapy, chemotherapy, and day surgery who
live at least 150 miles from the medical facility. The cardholder
created two separate purchase orders and had the vendor create two
separate charges, one for $2,500 and the other for $2,450, so that the
purchase could be made. On the documentation provided, the cardholder
stated the "purchase was split per the direction of the previous
purchase card program administrator." The cardholder also stated that
currently, her purchase card at that facility is no longer used to pay
hotel lodging for veterans. Hotel payments are now disbursed
electronically via VA's Financial Service Center. 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, VA had less control over the
obligation and expenditure of its resources.
* Noncompliance with simplified acquisition procedures. The Federal
Acquisition Regulation provides that the purchase card may be used by
contracting officers or individuals who have been delegated micro-
purchase authority in accordance with agency procedures.[Footnote 35]
Purchases above the micro-purchase threshold using the purchase card
are permissible only by warranted contracting officers who must promote
competition to the maximum extent practicable when making such
purchases.[Footnote 36] Contracting officers must consider
solicitation of quotations from at least three sources,[Footnote 37]
and they must minimally document the use of competition or provide a
written justification for the use of other than competitive
procedures.[Footnote 38] When cardholders circumvent these laws and
regulations, VHA has no assurance that purchases comply with certain
simplified acquisition procedures and that cardholders are making
contractual commitments on behalf of VHA within the limits of their
delegated purchasing authority.
From the statistical sample of purchases over $2,500, we found that for
19 of the 76 transactions, cardholders lacked warrant authority needed
to make these types of purchases. Based on these results, we estimate
that cardholders with only micro-purchase authority, made $111.9
million[Footnote 39] of the total fiscal year 2002 purchases that
exceeded $2,500. In addition, we found that 12 of the 76 transactions
lacked evidence of competition. Based on these results, we estimate
that $60 million[Footnote 40] of the total fiscal year 2002 purchases
totaling more than $2,500 lacked evidence of competition.
For example, one cardholder made a purchase of 2,000 washcloths
totaling $3,100, but could provide no evidence that competition was
used. According to the cardholder, at the time of purchase, he was
under the impression that VA had a contract with the vendor to procure
the goods and therefore, did not seek competition. We also found one
cardholder who purchased flu vaccine syringes for a VA pharmacy
totaling $19,943, but was not a warranted contracting officer. In
addition, we found instances where cardholders were warranted
contracting officers, but not at the time of purchase for specific
transactions we selected. Specifically, we found seven cardholders who
made purchases over the micro-purchase threshold, with a combined total
of $27,473, where the warrants provided were dated after the purchase
of goods. These cardholders could not provide documentation to show
that they were warranted contracting officers at the time these
purchases were made.
* Incorrect procurement procedures used to obtain conference room
rentals and other items. We identified 23 purchase card transactions
totaling $112,924 in the nonstatistical sample related to the rental of
conference room facilities used for internal VA meetings, conferences,
and training. For these purchases, the cardholders could not provide
documentation to show that efforts had been made to secure free
conference space. VA's acquisition regulations state that rental
conference space will be obtained (paid for) only in the event that
free space is not available and that complete documentation of efforts
to secure free conference space will be maintained in the purchase
order file.[Footnote 41] For one purchase, VHA paid $31,610 for
conference room facilities and related services for 3 days at the
Flamingo Hilton Hotel in Las Vegas. The cardholder provided no evidence
that attempts to secure free facilities had been made. In addition, of
the 23 purchase card transactions cited, 12 purchases totaling $103,662
occurred at one VHA facility. This included one transaction totaling
$12,000 for a 3-day Training Course on Prevention and Management of
Disruptive Behavior at the MGM Grand Hotel in Las Vegas. Again, we were
not provided evidence that efforts had been made to secure free
conference space.
Two additional transactions totaling $755 were for different types of
purchases where VA's acquisition regulation was not followed. One
purchase was a recruitment advertisement totaling $690. VA requires
that approval be obtained prior to making this type of purchase and
that evidence of this approval be maintained in the file. We found no
evidence that approval had been obtained prior to making the purchase.
For the second transaction, the cardholder paid annual membership dues
associated with an international honor society of nursing in an
employee's name totaling $65. VA used its general post funds to pay
this charge despite the fact that VA policy prohibits the use of
general post funds for membership fees. Additionally, as appropriated
funds are not available to pay employees' membership fees in societies
or associations,[Footnote 42] VA policy requires that membership in
organizations be in the agency's name, not the employee's name.
* Improper use of the convenience checks. We identified improper use of
convenience checks related to purchases that exceeded VA's established
limits of $2,500 and $10,000 and payments to vendors who accept the
purchase card payments. VA's convenience check guidance requires that a
single draft transaction be limited to $2,500 or in some cases $10,000
unless a waiver has been obtained from Department of the Treasury, and
restricts convenience check use to instances where vendors do not
accept purchase cards. From our statistical testing of convenience
check limits, we found that 91 of 105 convenience check purchases were
paid using multiple checks because the total purchase amount exceeded
the established convenience check limit. Based on these results, we
estimate that $13.8 million[Footnote 43] of the total fiscal year 2002
convenience check transactions were improperly used to pay purchases
exceeding the established limits.
For example, we found 29 different purchases for metered postage from
the United States Postal Service (USPS) where the purchase amount
exceeded the convenience check limit. One purchase for postage totaled
$50,000, but the single transaction limit on convenience checks for
that facility is $2,500. In order to make payment, the agent cashier
issued 20 different checks at $2,500 each. Regarding an explanation of
the purchase, the agent cashier stated that separate checks were
written because the convenience checks cannot be written over $2,500.
The agent cashier also stated that since this purchase, the VHA
facility has implemented new procedures that allow for electronic funds
transfers (EFT) to USPS. During our review, we also found another VHA
facility that is currently using EFTs as an alternate payment mechanism
to USPS. Based on the explanations obtained for the various improper
check purchases we identified, it appears to be routine practice for
agent cashiers to issue numerous checks when the purchase amount
exceeds the established check limit of $2,500 or $10,000. For example,
at one VHA facility, the agent cashier provided a written explanation
that it is their policy to issue numerous checks instead of increasing
the check limit.
We also found instances where convenience checks were used to pay
vendors who accept the purchase card as payments. VA's disbursement
mechanism guidance provides that third party drafts (convenience
checks) should be used in lieu of cash but only when the government
purchase card cannot be used. From a statistical sample of 255
convenience checks transactions, we found 23 instances where vendors
accepted the purchase card as payment, yet convenience checks were
issued instead to make payments. In these instances, we were provided
no documentation as to why the convenience check was used in lieu of
the purchase card. Based on these results, we estimate that $2.6
million[Footnote 44] of the total fiscal year 2002 convenience check
payments made to vendors in lieu of the purchase card lacked this type
of documentation. For example, an agent cashier made a convenience
check payment of $8,327.32 to a party rental vendor for the purchase of
various stage equipment, chairs and tents used for an outside cemetery
dedication. We contacted the vendor and found that it accepts credit
cards as a form of payment. The agent cashier provided no documentation
showing why the convenience check was used in lieu of the purchase
card.
In April 2003, VA issued new purchase card guidance that attempted to
clarify the use of convenience checks. Specifically, this guidance
provides that for micro-purchases, convenience checks may be used in
lieu of the purchase card only when it is advantageous to the
government and it has been documented as the most cost-effective and
practical procurement and disbursement method. However, we found no
established criteria for determining the "most cost-effective and
practical procurement and disbursement method.":
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, excessive in cost compared to other available
alternatives or for questionable government need. We also identified
other transactions that we classified as questionable because there was
insufficient or no documentation to determine what was purchased.
Specifically, of the 982 nonstatistical sample transactions we
reviewed, 250 transactions totaling $209,496 lacked key purchase
documentation. As a result, we could not determine what was actually
purchased, how many items were purchased, the cost of each of the items
purchased, and, whether there was a legitimate government need for such
items.
Table 4 summarizes the number of transactions and dollar amounts that
we determined to be wasteful or questionable. 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 4: Transactions Identified as Wasteful or Questionable:
Transaction category: Wasteful transactions;
Number of transactions: 20;
Dollar amount of transactions: $56,655.
Transaction category: Questionable transactions: Missing invoice[A];
Number of transactions: 250;
Dollar amount of transactions: $209,496.
Transaction category: Questionable transactions: Inadequate/incomplete
documentation;
Number of transactions: 65;
Dollar amount of transactions: $37,100.
Total Questionable Transactions;
Number of transactions: 315;
Dollar amount of transactions: $246,596.
Total Wasteful and Questionable Transactions;
Number of transactions: 335;
Dollar amount of transactions: $303,251.
Source: GAO's analysis of nonstatistical transactions selected for
fiscal year 2002.
[A] The missing invoice category includes (1) 184 transactions totaling
$155,429 where VHA provided internal documentation, but no independent
vendor documentation to support the purchase, and (2) 66 transactions
totaling $54,068 where VHA provided no documentation at all regarding
the purchases.
[End of table]
Wasteful Purchases:
We identified 20 purchases totaling $56,655 that we determined to be
wasteful because they were excessive in cost relative to available
alternatives or were of questionable government need. The limited
number of wasteful purchases found in the nonstatistical sample
demonstrates that cardholders are generally prudent in determining that
prices of goods and services are reasonable prior to making credit card
purchases. For items labeled as wasteful, 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
convenience, were not reasonably required as part of the usual and
necessary equipment for the work the employees were engaged in, or did
not appear to be for the principal benefit of the government.
Specifically, we identified 18 purchases totaling $55,156 for which we
questioned the government need and 2 purchases totaling $1,499 that we
considered excessive in cost. A majority of the purchases were related
to office-wide and organizational awards.
We noted several purchases for items to be presented as awards. Many of
these types of purchases were for gift certificate and gift card
awards. Although VA policy gives managers great latitude in determining
the nature and extent of awards, we identified 10 purchases totaling
$51,117 for award gifts for which VHA was unable to provide information
on the recipients of the award or the purposes for which the recipients
were being recognized. Therefore, we categorized these purchases as
questionable government need. For example, we identified two
transactions for 3,348 movie gift certificates totaling over $30,000.
For these purchases, the cardholders and A/OPCs could not provide the
award letters or justification for the awards. Consequently, it could
provide no evidence that these purchases were truly used for awards. We
also identified one purchase for an award event totaling $2,500 for
which the cardholder was unable to provide a justification for the
ceremony or detail what awards were presented. Also, based on VHA
purchase order documentation provided, we noted one additional purchase
of items to be used as awards totaling $250 for which no vendor
documentation was provided to support the purchase. Therefore, we
classified and reported this transaction under our missing invoice
category.
We also identified two purchases that we considered wasteful because of
excessive cost. We identified a cardholder who purchased a $999 digital
camera when there were other less costly digital cameras widely
available. For example, during the same six-month period from February
2002 through July 2002, two other cardholders purchased digital cameras
for $526 and $550. No documentation was available to show why that
particular model camera was necessary. In the second example, we
identified a purchase for a 20-minute magic show totaling $500 that was
performed during a VA volunteer luncheon. Although VA policies allow
for funds for volunteer events, this expenditure as roughly $25 per
minute, seemed excessive.
Questionable Purchases:
As discussed earlier in this report, we identified numerous
transactions from the statistical samples that were missing adequate
supporting documentation to identify what was actually purchased, how
many items were purchased, and the cost of the items purchased. In
these instances, we reported those sample transactions as exceptions
for each attribute we tested. In addition, we requested supporting
documentation for a nonstatistical sample of 982 transactions totaling
$1.2 million. Of these, we identified 315 transactions totaling
$246,596 that appeared to be improper or wasteful, but for which VHA
either provided insufficient or no documentation to support the
propriety of the transactions.
We classified 250 of these 315 transactions, totaling $209,496, as
missing invoices because the cardholders provided either VHA internal
documentation, but no vendor documentation to support the purchase, or
provided no documentation at all to support the purchase. VHA internal
documentation includes purchase orders, reconciliation documents, and
receiving reports. Vendor documentation includes invoices, sales
receipts, and packing slips. Specifically, internal documentation was
available for 184 of these transactions totaling $155,429 but no vendor
documentation was available. No documentation was available at all for
the remaining 66 transactions totaling $54,068.
An example of a transaction with internal documentation, but no vendor
documentation included a purchase from Circuit City where the
cardholder stated that the purchase was for three $650 television sets
and three $100 television stands, totaling $2,300 (including $50
shipping), that were needed to replace the existing ones in the VA
facility's waiting area. In another transaction, no vendor
documentation was available for a transaction from Black & Gold Beer
where the cardholder stated that the purchase of beer was for a
patient. The purchase order shows that three cases were purchased at
$12.50 each, totaling $38. The cardholder stated that the purchase was
at the request of the pharmacy for a specific patient; however, no
documentation was provided to support this claim. Table 5 illustrates
some transactions in the nonstatistical sample for which cardholders
provided no documentation to support what was purchased.
Table 5: Examples of Purchases Where No Documentation Was Provided:
Vendor Name: Radio Shack;
Transaction Amount: $3,305.
Vendor Name: Wyndham Hotels Resort;
Transaction Amount: $2,953.
Vendor Name: The Sharper Image;
Transaction Amount: $2,127.
Vendor Name: The Brass Elephant;
(a restaurant, fine dining);
Transaction Amount: $2,081.
Vendor Name: Gibby's Steak and Seafood;
Transaction Amount: $1,758.
Vendor Name: Baltimore Orioles;
Transaction Amount: $1,705.
Vendor Name: FFP Palm Computing;
Transaction Amount: $1,478.
Vendor Name: Daddy's Junky Music;
Transaction Amount: $1,041.
Vendor Name: Eddie Bauer;
Transaction Amount: $900.
Vendor Name: Gap Kids;
Transaction Amount: $788.
Vendor Name: Hollywood Beach Country Club;
Transaction Amount: $500.
Vendor Name: Southwest Airlines;
Transaction Amount: $399.
Vendor Name: Harbor Cruises;
Transaction Amount: $357.
Vendor Name: Hecht's;
Transaction Amount: $280.
Vendor Name: L.L. Bean;
Transaction Amount: $239.
Vendor Name: Christmas Palace;
Transaction Amount: $209.
Vendor Name: Macys.com;
Transaction Amount: $163.
Source: GAO's analysis of nonstatistical transactions selected for
fiscal year 2002.
[End of table]
Based on these examples and other transactions identified in the
nonstatistical sample, we believe that at least some of these items may
have been determined to be potentially fraudulent, improper, or
wasteful had the documentation been provided or available. In addition,
we noted that of the 66 transactions where VHA cardholders provided no
documentation to support the purchase, 32 transactions (48 percent)
represented 2 or more transactions to the same cardholder. For example,
one cardholder did not provide documentation for 5 transactions
totaling $5,799 from various types of merchants, including two
restaurants, a movie theater, a country club, and an airport café.
For 65 transactions totaling $37,100 that appeared to be either
improper or wasteful, the documentation we received was not the correct
supporting documentation or was inadequate, and we were unable to
determine the propriety of the transactions. For example, one
transaction was for $1,350 to Hollywood Entertainment; however, the
purchase order and invoice listed Hear, Inc. as the vendor for closed
captioning services. The cardholder stated that she believed Hollywood
Entertainment is an associate company name for Hear, Inc.; however,
they could not provide any documentation to support this statement.
Additionally, from our Internet searches of both Hollywood
Entertainment and Hear, Inc. we found no information to indicate that
these two companies were associated in any way.
In another example, the transaction was for $1,400 to Fabulous
Pewterware, a company that sells handcrafted items made of pewter;
however, the purchase order and invoice listed Ball Med & Associates
Inc., a company that provides medical services, as the vendor and
described the purchase as repairs. The A/OPC stated that Fabulous
Pewterware is synonymous with Ball Med & Associates Inc.; however, he
could not provide documentation supporting this claim. From our
Internet search of Fabulous Pewterware, we found no information to
indicate that these two companies were one and the same.
We also identified 68 transactions totaling $31,772 involving the
purchase of tickets for sporting events, plays, movies, amusement/theme
parks, and other recreation activities for veterans and VA volunteers.
The documentation provided for these transactions was inadequate or
missing a vendor invoice; therefore, we could not determine whether
these tickets were used in support of the volunteers or
veterans.[Footnote 45] As a result, these purchases were also
categorized as questionable. Various programs under VHA, such as
Recreation Therapy, Voluntary Services, and Blind Rehabilitation
Service, sponsor assorted activities for the benefit of veterans and
for VA volunteers. From our review of these types of purchases, we
found that VHA does not have procedures in place to ensure that the
purchased items were used by the intended recipients and are properly
accounted for. In most cases, there was inadequate or no documentation
to account for how the tickets were distributed and who participated in
the events.
For example, we found one purchase of 62 theme park tickets to Six
Flags totaling $997 for veterans. Upon request, we received a list of
veterans to whom tickets were distributed and we noted that the list
only accounted for 28 tickets. When we contacted the cardholder to
obtain clarification for the discrepancy, we were told that the
difference was due to veterans receiving additional tickets for their
family members; however, there was no evidence to support this claim.
As a result, we were unable to determine whether the remaining 34
tickets were provided to veterans for the intended purpose. In another
example, we found a purchase of 46 tickets totaling $812 for veterans
to attend a Pittsburgh Pirates baseball game. However, we were provided
no documentation that identified who received the tickets or who
attended the baseball game. Proper accountability over the distribution
and receipt of tickets for such events is needed to help ensure that
tickets are not improperly used for personal use.
Conclusions:
Overall, VHA's internal controls were not designed to ensure improper
purchases would be detected or prevented in the normal course of
business. While VHA has some internal controls, they are often not
operating as intended because cardholders and approving officials are
not adhering to internal control requirements guidance, resulting in
violations of federal acquisition regulations as well as VA/VHA's own
policies. In other instances, internal controls are lacking, as in the
case of documentation requirements, in which there is not adequate
guidance. The lack of compliance with established internal control
requirements coupled with a lack of internal control guidance in some
areas such as documentation, resulted in improper, wasteful, and
questionable purchases. Although the total amount of these purchases is
small in comparison with the size of the purchase card and convenience
check program, it reveals a vulnerability from weak controls that could
be exploited. Until controls are strengthened and guidance is expanded
and clarified, VHA will continue to be at risk of improper payments
through purchase card and convenience check transactions.
Recommendations for Executive Action:
We are making the following 36 recommendations to the Acting Under
Secretary for Health and, in some instances, the Secretary of Veterans
Affairs to strengthen internal controls and compliance in its purchase
card program in order to reduce VHA's vulnerability to improper,
wasteful, and questionable purchases.
Internal Controls:
With regard to improving internal controls over purchasing, we
recommend that the Acting Under Secretary for Health do the following.
Segregation of duties:
* Establish appropriate criteria, including types of items and dollar
thresholds for requiring and documenting independent receiving and
acceptance of items obtained with a purchase card.
* Establish specific procedures for documenting independent receiving,
such as requiring the cardholder to maintain a signed copy of the
receiving report showing the purchase was received in the warehouse, or
requiring the approving official or supervisor to sign and date the
vendor invoice, packing slip, sales or credit card receipt to verify
that the items purchased were actually received.
* Require that VHA senior management at the VA headquarters in
Washington, D.C. document its approval that the one VHA Agency/
Organization Program Coordinator (A/OPC) can continue to function as a
cardholder since this is inconsistent with VA/VHA policy.
* Establish procedures that require an independent person to
periodically review this A/OPCs' purchasing activities.
Documentation:
* Establish guidance dictating vendor documentation needed to support
the purchase transactions (in description, quantity, and price) that
provides the basis for reconciling electronically received charges from
Citibank.
* Require cardholders to maintain documentation of timely and
independent receiving and acceptance of items obtained with a purchase
card.
* Incorporate into VHA's existing purchase card guidance, file
retention requirements as mandated by FAR Subpart 4.805 Storage,
Handling, and Disposal of Contract Files.
* Identify cardholders who repeatedly fall outside the required
timeframes for recording purchase card order information into the VA's
purchase card order system and for performing reconciliations of
purchases.
* Identify approving officials who continually fail to meet the
required timeframes for reviewing and certifying that cardholder
purchases are legal and proper.
* Provide adequate retraining for these cardholders and approving
officials and consider whether to suspend their responsibilities if the
established timeframes continue not to be met.
Vendor Discounts:
* Establish procedures that require cardholders, at the time of
purchase, to determine whether vendors offer purchase discounts when
early payments are made for goods and services rendered.
* Establish procedures requiring internal management review auditors
to:
* identify loss of vendor-offered discounts,
* determine frequency of occurrences and actual dollars lost to the
government, and:
* periodically report to VHA management for consolidation and further
review so that appropriate actions can be taken.
Program Monitoring:
* Establish timeframes for the prompt cancellation of purchase card
accounts when the cardholder has left the agency and all outstanding
purchase orders have been reconciled.
* Establish procedures to ensure prompt cancellation of purchase cards
when cardholders leave VA, are reassigned, or no longer have valid
needs for the cards.
* Establish procedures to periodically assess whether each cardholder
continues to have a valid need for a purchase card.
* Review existing credit limits and monthly spending and develop
policies and strategies on credit limits provided to cardholders with a
focus on minimizing specific cardholder spending authority and
minimizing the federal government's financial exposure.
* Assess the adequacy of human capital resources devoted to the
purchase card program, especially for oversight activities, at the A/
OPC level, and provide needed resources.
Compliance with Purchasing Requirements:
With regard to improving and enforcing compliance with purchasing
requirements, we recommend that VHA develop written detailed procedures
and guidelines to aid cardholders in complying with the Federal
Acquisition Regulation, Veterans Affairs Acquisition Regulations and
other internal policies and procedures when using the purchase cards
and convenience checks as procurement and payment mechanisms for goods
and services rendered. Such procedures could be either incorporated in
VHA's existing guidance over the purchase card program or presented
separately. Specifically, we recommend that the Acting Under Secretary
for Health do the following.
* Establish steps to be followed when circumstances permit the purchase
of generally prohibited items such as clothing, food, and gifts.
* Establish steps to be followed when the purchase amount will exceed
the $2,500 micro-purchase limit or the cardholders' single purchase
limit to prevent splitting the purchase.
* Establish steps to be followed if the cardholders, with only micro-
purchase authority, need to make a purchase over the $2,500 micro-
purchase threshold.
* Establish steps to be followed when cardholders request to make
purchases of office supplies and other goods from other than a
mandatory source supplier for items that are "essentially the same.":
* Establish steps on how to document the use of competition and
circumstances under which it can be justified not to use competitive
procedures.
* Establish steps on how to document efforts to secure free conference
space before purchasing rental of conference room facilities.
* Reiterate in VHA's refresher training to cardholders and approving
officials areas discussed in this report, such as segregation of
duties, documentation requirements and retention of supporting
documentation, taking advantage of available vendor-offered discounts,
canceling of departed cardholders' accounts, applicable laws and
regulations, and agency policies and procedures.
* Provide refresher training to agent cashiers on the areas discussed
in this report, such as purchases that exceeded established check
limits and payments to vendors who accept the purchase card as a form
of payment.
* Consider whether to 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, procuring goods and services beyond their purchasing
authority, or making purchases exceeding established dollar thresholds.
Wasteful and Questionable Purchases:
With regard to purchases that may be at an excessive cost or for
questionable government need, we recommend that the Acting Under
Secretary for Health do the following.
* Require that cardholders or others track and document award purchases
to the end user, including who received the award and the purposes for
which the recipient is being recognized. Copies should also be
maintained in the purchase card order file.
* Require that cardholders or others track and document ticket
purchases for recreational activities to the end user, including who
received the ticket, date received, and signature by the recipient as
evidence of receipt. Copies should also be maintained in the purchase
card order file.
* Follow up on transactions we identified for which no supporting
documentation was provided to determine whether the items purchased
were for a legitimate government need.
* Take appropriate disciplinary or corrective action for purchases
determined to be not for a legitimate government need.
Convenience Checks:
Policies and procedures over convenience checks are established at the
department level only. Therefore, we are making four recommendations to
the Secretary of Veterans Affairs to strengthen and improve controls
over convenience check usage in its purchase card program.
Specifically, to improve internal controls over convenience check
purchasing, we recommend that the Secretary of the Veterans Affairs, in
conjunction with the Acting Under Secretary for Health, do the
following.
* Require agent cashiers to maintain written documentation that
authorizes the disbursement of funds to third parties.
* Establish detailed procedures that specify the types of documentation
that agent cashiers must obtain from the requesting office that support
the disbursement of funds to third parties via convenience checks.
* Establish detailed criteria in VA's purchase card guidance for
determining under what situations convenience checks provide the "most
cost-effective and practical procurement and disbursement method" when
using in lieu of the purchase card. Incorporate this criteria in VA's
convenience check guidance as well.
* Incorporate into VA's existing convenience check guidance, file
retention requirements as mandated by FAR Subpart 4.805 Storage,
Handling, and Disposal of Contract Files.
Agency Comments and Our Evaluation:
The Department of Veterans Affairs (VA) provided written comments on a
draft of this report. In its response, VA generally agreed with our
conclusions and expressly concurred with 32 of the 36 recommendations.
For these recommendations, VA reported that it has actions either
already in place or planned that meet the intent of the
recommendations. For the remaining four recommendations, VA, in
principle, concurred with three of these recommendations and presented
reasons and/or alternative action steps to address the weaknesses
identified in our report.
Regarding these four recommendations, two recommendations addressed
segregation of duties weaknesses related to an A/OPC that also
functioned as a cardholder. We recommended that VHA senior management
in Washington, D.C. approve this dual responsibility since this is
inconsistent with VA/VHA policy and that procedures be established to
require an independent person to periodically review this A/OPC's
purchasing activities. In essence, VA agreed that the dual
responsibility of the A/OPC constituted a violation of department
policy and stated that VHA headquarters never granted approval for the
A/OPC to function in this dual capacity and would not do so. VA also
reported that it has instructed the director of the facility in
question that the dual responsibilities of the A/OPC is a violation of
department policy and may not continue. We believe that VA's planned
action is an acceptable approach to solving the problem we identified,
and if implemented will address the intent of our recommendations and
resolve this segregation of duties issue and policy violation.
We also recommended that VHA establish steps to be followed if
cardholders, with only micro-purchase authority, need to make a
purchase over the $2,500 micro-purchase threshold. VA responded that
purchases greater than $2,500 should require a warrant and that any
exception could complicate and thereby weaken existing policy. We agree
that cardholders must have the applicable purchasing authority to make
purchases over the $2,500 micro-purchase threshold and did not intend
for VHA to establish procedures that were contrary to this FAR
purchasing requirement. We believe VA has misinterpreted the intent of
our recommendation. Our intent was to address the need for additional
written purchase card guidance for cardholders who need to procure
specific goods and services, yet the purchase amount exceeds their
micro-purchase threshold. Such guidance could include instructing
cardholders to contact their local procurement office so that a
contracting officer can make the purchase instead. We believe
additional written guidance to cardholders is needed as evidenced by
our findings and similar findings reported by the OIG as far back as
1999.
Lastly, we recommended that VHA require cardholders or others to track
and document ticket purchases for recreational activities to the end
user. VA reported that the burden of having each patient sign for each
ticket would be onerous. As an alternative, VA stated that the
cardholder should ensure that an accurate patient count is kept on file
in the purchase card order file. We believe this proposed alternative
method does not sufficiently address the accountability issue over
these types of purchases. By only maintaining an accurate patient
count, internal and external reviewers still will not have enough
information available to determine who received the ticket or attended
the event. A "patient count" provides only limited assurances over the
accountability of tickets. Independent evidence from the recipient is
needed to support that he/she received or attended such events and
would increase the accountability over these types of purchases to help
ensure that tickets are not improperly used for personal use. In a few
instances, we found that VHA local offices had implemented, at varying
degrees, tracking procedures of ticket purchases similar to those
envisioned by our recommendation. For example, one field office,
maintained an attendance sheet that identified the recreational
activity, date and time of the activity, the particpants' names and
check marks as to whether or not participants attended the event. At
another field office, we were provided a similar attendance sheet,
including each recipient's signature and last four digits of his/her
social security number. Employing these types or similar procedures
agencywide appears reasonable since some of the VHA field offices
already have existing procedures in place.
Also, in its response letter, VA included some technical comments that
we have addressed in finalizing our report where appropriate. VA's
written comments and our evaluation of certain comments not addressed
above are presented in appendix I.
As arranged with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 2 days from its
issuance date. We will then send copies of this report to the Secretary
of the Department of Veterans Affairs, the Acting Under Secretary for
Health, appropriate congressional committees, and other interested
parties. We will also make copies available to others upon request. In
addition, this report will be available at no charge on GAO's Web site
at [Hyperlink, http://www.gao.gov].
Should you or your staff have any questions on matters discussed in
this report, please contact me at (202) 512-6906 or [Hyperlink,
williamsm1@gao.gov]; or Alana Stanfield, Assistant Director, at (202)
512-3197 or [Hyperlink, stanfielda@gao.gov]. Major contributors to
this report are acknowledged in appendix II.
Sincerely yours,
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
[End of section]
Appendixes:
Appendix I: Comments from the Department of Veterans Affairs:
THE SECRETARY OF VETERANS AFFAIRS
WASHINGTON:
May 24, 2004:
Mr. McCoy Williams:
Director:
Financial Management and Assurance Issues:
U. S. General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Williams:
The Department of Veterans Affairs (VA) has reviewed your draft report,
VHA PURCHASE CARDS: Internal Controls Over the Purchase Card Program
Need Improvement (GAO-04-737) and generally agrees with your
conclusions and concurs with 32 of its 36 recommendations. VA has
actions either already in place or planned that meet the intent of the
recommendations. However, VA does not concur with four of the
recommendations. The enclosure cites the specific recommendations with
which the Department disagrees and presents the reasons for not
concurring with them.
The relative scarcity of improper purchases or inadequate guidance
regarding internal controls cited in your report indicates (despite the
number of recommendations) that the program is effective overall-your
stated conclusion at the exit conference on April 26, 2004. Indeed, the
reported $435,900 identified in fraudulent activity for the period of
the review represents less than 1/100TH of one percent of Veterans
Health Administration (VHA) purchase card activity. VA agrees with you
that its purchase card program is effectively managed, and that the
actions the Department is taking will further strengthen internal
controls over VA's purchase card program.
The report's "Results in Brief' section states, "VHA lacked adequate
segregation of duties between those purchasing goods and receiving
goods." VA believes that one of the express purposes of the program is
to minimize administrative costs for low dollar purchases by
encouraging the end user to make purchases and receive the goods to
reduce overhead for warehousing, etc. as described in current VHA
policy. VA considers the certification of the order by the approving
official, who is required to have knowledge of the control point funds,
to be sufficient independent certification of receipt for most micro-
purchases, and requests that this be noted in the report.
Finally, the report states that VHA should follow up on transactions
GAO identified to determine whether the items purchased were for a
legitimate government need. However, the report provides no supporting
documentation to:
identify the cardholders and purchases in question. When GAO provides
VA with this information, VHA will assess the purchases to determine
their legitimacy.
VA appreciates the opportunity to comment on your draft report.
Sincerely yours,
Signed by:
Anthony J. Principi:
Enclosure:
Enclosure:
DEPARTMENT OF VETERANS AFFAIRS:
COMMENTS ON GAO DRAFT REPORT VHA PURCHASE CARDS: Internal Controls Over
the Purchase Card Program Need Improvement (GAO-04-737):
The following are those recommendations with which VA disagrees.
Require that VHA senior management at the VA headquarters in
Washington, DC document its approval that the one VHA Agency/
Organization Program Coordinator (A/OPC) can continue to function as a
cardholder since this is inconsistent with VA/VHA policy. (page 57):
Do not concur - VHA Headquarters never granted approval will not do so.
VHA has instructed the director of the facility in question that this
is a violation of Department policy and may not continue.
Establish procedures that require an independent person to periodically
review this A/OPCs' purchasing activities. (page 57):
Do not concur - As stated above, VHA policy does not allow an A/OPC to
be a cardholder; therefore, there is no need for such procedures.
Establish steps to be followed if cardholders, with only micro-purchase
authority, need to make a purchase over the $2,500 micro-purchase
threshold. (page 60):
Do not concur - VA believes that purchases greater than $2500 should
require a warrant. Any exception could complicate and thereby weaken
existing policy.
Require that cardholders or others track and document ticket purchases
to the end user, including who received the ticket, date received, and
signature by the recipient as evidence of receipt. Copies should also
be maintained in the purchase card order file. (page 62):
Do not concur - Tickets are generally for patient events. The burden of
having each patient sign for each ticket would be onerous. As an
alternative the cardholder should ensure that an accurate patient count
is kept on file in the purchase card order file.
The following are those recommendations with which VA concurs with
comments (pages 58 and 59):
Establish procedures requiring approving officials to identify loss of
vendor-offered discounts, determine frequency of occurrences and actual
dollars lost to the government, and, periodically report to VHA
management for consolidation and further review so that appropriate
actions can be taken.
Concur with comment - The responsibility for ensuring discounts are
taken when they are available rests with the cardholder. Approving
officials cannot be expected to review each purchase to the extent of
documenting that all possibilities for discounts were explored. VA
concurs that periodic internal reviews would be beneficial, and
recommends re-wording of the recommendation to make cardholders and
periodic internal management review auditors responsible, rather than
the approving officials.
Require agent cashiers to maintain written documentation that
authorizes the disbursement of funds to third parties.
Concur with comment - VA's current policy, as stated in VA Handbook
4010, section G, paragraph 6.b. requires that the first copy of the
draft be forwarded daily, with the supporting documentation, to the
accounting activity. VA's Office of Financial Policy will work in
conjunction with VHA's Finance Office to draft a revision to VA
Handbook 4010, which will require that the agent cashier maintain
documentation that points to written documentation authorizing the
disbursement of funds to third parties when such documentation is
forwarded to the accounting office.
Establish detailed procedures that specify the type of documentation
that agent cashiers must obtain from the requesting office that support
the disbursement of funds to third parties via convenience checks.
Concur with comment - VA Handbook 4010 will be revised to include
detailed procedures that address this recommendation.
Establish detailed criteria in VA's purchase card guidance for
determining under what situations convenience checks provide the "most
cost-effective and practical procurement and disbursement method" when
using in lieu of the purchase card. Incorporate this criteria in VA's
convenience check guidance as well.
Concur with comment - VA is following the current Treasury guidance:
(1 TFM 4515) applicable to use of government purchase cards and other
small purchase methods. All agencies are following the same consistent
guidance. As needed, VA will ensure that the language in 1 TFM 4515 is
referenced in Departmental guidance. However, VA recommends that
Treasury establish government-wide criteria for determining cost-
effectiveness to ensure all agencies follow the same consistent
guidance.
VA will also continue to follow guidance in the Debt Collection
Improvement Act that (1) requires maximum usage of electronic payments,
(2) requires that disbursement methods, such as convenience checks and
Treasury checks that are non-electronic funds transfers, be used for
micro-purchases if the payee does not accept the government purchase
card and (3) provides for the use of third party drafts when `payments
are made in emergencies, or in mission-critical circumstances, that are
of such an unusual and compelling urgency that the Government would
otherwise be seriously injured, unless payment is made by cash'.
Incorporate into VA's existing convenience check guidance, file
retention requirements as mandated by FAR Subpart 5.805 Storage,
Handling, and Disposal of Contract Files.
Concur with comment - VA Handbook 4010, section G, paragraph 6.b.
already states that the first copy of the third party draft
(convenience check) must be forwarded daily, with the supporting
documentation, to the accounting activity. Paragraph 6.c. states that
the second copy of the draft must be retained for a period of 1 year by
the authorized employee issuing the draft. The copy retained by the
accounting activity falls under the retention requirements in MP-4,
part X, Controller Records Control Schedule, items 5-1 a & 5-1c. that
require a retention of 6 years and 3 months, which is the same as the
retention requirements in FAR subpart 5.805. The VA Office of Finance
will work with the VHA Finance Office to ensure the existing retention
requirements are referenced as a reminder in convenience check
guidance.
The following are GAO's comments on VA's letter dated May 24, 2004.
GAO Comments:
1. We did not indicate that the VHA purchase card program operations
were effective overall. During the exit conference meeting on April 26,
2004, we communicated that the weaknesses identified at VHA were
similar to the internal control weaknesses we reported at other federal
agencies, although the extent of fraud, waste, and abuse that we
identified at some of those agencies were not as prevalent at VHA. We
also communicated that our findings stemmed from weak internal controls
over the purchase card program and that strengthening controls would
reduce the program's vulnerability to improper, wasteful, and
questionable purchases. We further stated that we would be making a
number of recommendations for each of the identified areas that were
discussed at the meeting.
Regarding the $435,900 cited as fraudulent activity, we reported that
this amount was identified from the OIG's work and not GAO's work.
However, VA should not be deriving unjustified levels of assurances
that its program is "effectively managed" based on the OIG's findings
and our findings identified in this report from data mining and
nonstatistical testing of transactions. As we indicated in our report,
while the total amount of improper purchases we identified, based on
limited scale audit work, is relatively small compared to the more than
$1.4 billion in annual purchase card and convenience check
transactions, we believe our results demonstrate vulnerabilities from
weak controls that may have been exploited to a much greater extent. In
addition, our internal control findings and noncompliance with federal
and agency purchasing requirements identified from the statistical
testing further illustrate that controls were ineffective and improved
management is needed over program operations.
2. In our opinion, the approving official's certification of the
purchase card order for most micro-purchases does not provide
sufficient assurance that purchased items are not acquired for personal
use and that they come into the possession of the government. Various
types of sensitive items such as personal digital assistants, cell
phones, digital cameras, laptops, and computers can be purchased below
the $2,500 micro-purchase threshold. These and other items that can be
easily pilfered should go through a central receiving point to reduce
the risk of error or fraud.
3. We recently provided VHA a schedule of purchase card transactions in
which no documentation was provided during our fieldwork to support the
purchases selected for review.
[End of section]
Appendix II: Staff Acknowledgments:
Acknowledgments:
Staff members who made key contributions to this report include:
Sharon Byrd, Polly Cheung, Lisa Crye, Danielle Free, Carla Lewis, Julia
Matta, Gloria Medina, Tarunkant Mithani, Donell Ries, and Stacey Smith.
(195011):
FOOTNOTES
[1] Department of Veterans Affairs Office of Inspector General:
Evaluation of the Department of Veterans Affairs Government Purchase
Card Program, Report Number 02-01481-135 (Washington, D.C.: April 26,
2004).
[2] This requirement is more stringent than the FAR, which only
provides that the purchase card shall be the preferred method to
purchase and pay for micro-purchases, 48 C.F.R. § 13.201(b).
[3] 48 C.F.R. § 2.101.
[4] A VISN represents integrated networks of health care facilities
that provides coordinated services to veterans to facilitate continuity
through all phases of health care.
[5] The VISN director is also responsible for designating a billing
officer and dispute officer whose roles affect the purchase card
process.
[6] Department of Veterans Affairs Office of Inspector General: Audit
of the Department of Veterans Affairs Purchase Card Program, Report
Number 9R3-E99-037 (Washington, D.C.: February 12, 1999).
[7] U.S. General Accounting Office, Audit Guide: Auditing and
Investigating the Internal Control of Government Purchase Card
Programs, GAO-04-87G (Washington, D.C.: November 2003).
[8] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November
2000).
[9] U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).
[10] U.S. General Accounting Office, Guide for Evaluating and Testing
Controls Over Sensitive Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May
1993).
[11] 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).
[12] 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.
[13] The FSC is the designated payment office responsible for making
payments to the purchase card program contractor, Citibank, for all VA
purchase card accounts. FSC makes daily electronic payments to Citibank
for purchase card and convenience check purchases.
[14] MCCs are standard codes that the credit card industry maintains to
categorize merchants.
[15] Section 4331(c) of the Balanced Budget Act of 1997, Public Law
105-33, 111 Stat. 251, 396, amended sections 1128 (a) and (b) of the
Social Security Act 42 U.S.C. § 1320a-7, to significantly expand the
authority of the DHHS OIG to exclude certain individuals and entities
from all federal health care programs. Accordingly, these programs are
now required to ensure that no excluded individual or entity is
receiving payments from any federal health care program for items or
services furnished on or after the effective date of the OIG exclusion.
[16] We are 95 percent confident that the total dollar value of
purchase card transactions that lacked independent receiving was
between $37.4 million and $112.6 million.
[17] VA uses the term "detailed purchase card order" to identify orders
where cardholders need to track items for inventory purposes and/or
enter additional information about specific items on the order.
[18] See footnote 16.
[19] We are 95 percent confident that the total dollar value of
purchase card transactions that lacked key supporting documentation was
between $243.2 million and $382.4 million.
[20] We are 95 percent confident that the total dollar value of
convenience check transactions that lacked key supporting documentation
was between $2.4 million and $5.3 million.
[21] We are 95 percent confident that the total dollar value of
purchase card and convenience check transactions that had missing
documentation was between $30.8 million and $61 million.
[22] 48 C.F.R. § 4.805. See also General Records Schedule 3,
Transmittal No. 8 (Dec. 1998).
[23] We are 95 percent confident that the total dollar value of
convenience check transactions that lacked key supporting documentation
was between $.8 million and $2.7 million.
[24] We are 95 percent confident that the total dollar value of
convenience check transactions that lacked a copy of the check or
carbon copy was between $1.2 million and $3.4 million.
[25] VA revised its timeliness standards in the agency-wide government
purchase card procedures issued April 4, 2003. Specifically,
cardholders are now required to reconcile all of their purchases within
5 working days instead of 10 calendar days. VA has removed the
incremental reconciliation goals of 75 percent of the purchases within
10 calendar days and 95 percent within 17 calendar days. Also, VA
converted the 14 calendar days formerly allotted to approving officials
for review and certification to 10 working days.
[26] VHA's operating guidance incorrectly reports the tolerance level
at $100 or 100 percent, whichever is less. When we inquired about the
tolerance criteria, VHA officials stated that the tolerance level
included in the operating guidance was incorrect and that the correct
tolerance level for matching transactions is $100 or 10 percent. VHA
officials stated that they would revise the guidance to correct this
error.
[27] For the remaining four purchase card accounts, we determined that
these had been promptly canceled after all outstanding purchase orders
were reconciled. Specifically, two accounts were canceled within 1 day,
one account within 2 days, and the remaining account within 4 days of
reconciliation.
[28] We actually received 111 responses to this question, and found
that 97, or 87 percent of the A/OPCs, function in another capacity and/
or perform other assigned duties. However, 21 of these responses did
not include a breakout of the percentage of time spent on each
responsibility and therefore, were excluded from this analysis for
comparative purposes.
[29] 48 C.F.R. § 13.301 (a).
[30] B-289683, Purchase of Cold Weather Clothing, Rock Island District,
U.S. Army, Oct. 7, 2002; B-288828, Purchase of Insulated Coveralls,
Vicksburg, Mississippi, Oct. 3, 2002.
[31] B-251189, Agency for International Development - Purchase of
Business Suits for Agency Chauffeurs, Apr. 8, 1993.
[32] We recognize that VA may have been relying in part on a provision
of the Federal Travel Regulation in effect at the time of VA's
purchases that allowed for the purchase of light refreshments at
conferences where more than 50 percent of attendees were in travel
status. However, as discussed in B-288266, this provision was not
authorized. Matter of: Use of Appropriated Funds to Purchase Light
Refreshments at Conferences, B-288266 (Jan. 27, 2003).
[33] 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 A/OPCs and cardholders and, based on the
documentation and responses provided, determined whether split
purchases had been made.
[34] We are 95 percent confident that the total dollar value for actual
split purchase card transactions was between $12.4 million and $21.9
million.
[35] 48 C.F.R. § 13.301 (a).
[36] The FAR uses the term "contracting officer" to mean a person with
the authority to enter into, administer, and/or terminate contracts and
make related determinations and findings, 48 C.F.R. § 2.101. The term
"warrant" is commonly used to refer to the SF 1402, Certificate of
Appointment, which is the written document appointing an individual to
be a contracting officer and stating any limitations on the scope of
authority to be exercised, other than limitations already contained in
applicable laws or regulations, 48 C.F.R. § 1.603-3(a).
[37] 48 C.F.R. § 13.104
[38] 48 C.F.R. § 13.106-3(b).
[39] We are 95 percent confident that the total dollar value for
purchases over $2,500 made by a non-warranted cardholder was between
$52.8 million and $170.9 million.
[40] We are 95 percent confident that the total dollar value for
purchases over $2,500 that lacked evidence of competition was between
$26.3 million and $93.7 million.
[41] The Department of Veterans Affairs Acquisition Regulation, Part
870, subpart 113 (VAAR 870.113).
[42] 5 U.S.C. § 5946.
[43] We are 95 percent confident that the total dollar value for actual
split convenience check transactions was between $13.6 million and
$14.0 million.
[44] We are 95 percent confident that the total dollar value for
convenience check transactions that were incorrectly used was between
$1.4 million and $3.7 million.
[45] Of the 68 transactions, 52, totaling $24,442, did not have
adequate documentation and therefore, are included in the inadequate/
incomplete documentation category. The remaining 16 transactions,
totaling $6,600 were missing vendor documentation and therefore, are
included in the missing invoice category.
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