Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse

On July 31, 2002, the Army issued Standard Operating Procedures (SOP) covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. In several sections the SOP addresses controls over the issuance and ongoing need for cards. It addresses such controls at the time accounts are established and provides for at least an annual determination of continuing need.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. In several sections the SOP addresses cancellation of cards when a cardholder no longer has a valid need for the card. The billing official and cardholder are responsible for notifying the program coordinator when cards should be canceled. In addition, the need to cancel accounts is addressed during the annual review of all billing official accounts.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP addresses span of control at the different levels of the purchase card program. It established 300 accounts as the standard span of control for the level 4 program coordinator and 7 cardholders as the standard span of control for a billing official. The SOP discusses specific actions when the standards are not met.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP provides that the program coordinator, in coordination with the resource manager and the billing official, shall set each cardholder's spending limit and that both the single purchase limit and the monthly limit should be set at a level that is commensurate with the buying history of the activity or organization. The SOP also cites cardholder limits as an area to be included in approving officials' surveillance checklists.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP establishes a management chain of command for the purchase card program and specifically addresses the roles and responsibilities of program coordinators and billing officials. It provides for semi-annual reports by program coordinators at the major commands and for installation program coordinators to annually inspect 100 percent of billing official accounts.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP establishes a management chain of command for the purchase card program. It provides that (1) Principal Assistants for Contracting are to ensure that adequate resources are dedicated to the purchase card program within their agency/organization and (2) Chief of Contracting Offices are to ensure that adequate resources are dedicated to the program at the installation activity. It provides for semi-annual reports by program coordinators at the major commands and for installation program coordinators to annually inspect 100 percent of billing official accounts.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP includes a section that discusses surveillance and oversight of the program. The SOP establishes the oversight activities that are to be carried out by the program coordinators and the billing officials. Also, Appendix E provides review guidelines and checklists that can be used in program surveillance.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP includes a listing of reports that are available and should be used by the program coordinators in assessing the adequacy of internal controls activities and the oversight program. It also lists seven additional metrics that should be collected and maintained to assess the adequacy of the program.

The Army issued Draft Government Purchase Card (GPC) Army Regulation (AR)715-xx covering the use and management of the Army's purchase card program with an effective date of December 6, 2005. The Deputy Assistant Secretary of the Army (Policy and Procurement) stated in the policy transmittal letter that compliance with GPC AR 715-xx is mandatory and supersedes the previous guidance dated July 31, 2002. To assess ongoing need for purchase cards, GPC AR 715-xx requires that the Activity/Organization Program Coordinator (A/OPC) is responsible for implementing, administering, and monitoring the purchase card programs at the installations and perform an annual review of an approving official's cardholder accounts to determine a cardholder's continuing need to maintain an account. Further, GPC AR 715-xx requires approving officials to notify the A/OPC to close any cardholder accounts for individuals who have transferred, terminated, or who are in "absent without leave" status, retired or have otherwise no further use of the purchase card. To address spending limits, GPC AR 715-xx requires the A/OPC, in coordination with the approving official, to set and maintain each cardholder's spending limits and merchant codes on a reasonable estimation of the cardholder's needs to buy as part of the activity mission and function. In addition, GPC AR 715-xx requires the A/OPC, in coordination with the approving official, to set single purchase limits and monthly limits that are commensurate with the buying history of the activity or organization. Further, the Army has reduced the number of purchase cards from 101,398 in fiscal year 2002 to 55,611 in May 2006.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. Appendix D of the SOP lists prohibited items and items requiring pre-purchase approval. In addition, the SOP provides that cardholders should obtain pre-purchase approval and documentation for requirements that appear to be outside of normal needs of the requesting organization.

On July 31, 2002, the Army issued its Government Purchase Card Standard Operating Procedure, which included requirements that (1) cardholders document property items and services acquired with a purchase card in their purchase card log, (2) billing officials review the purchase log and notify the property book officer of all property acquired, and (3) annual surveillance reviews ascertain whether (a) cardholders have entered all purchases in their purchase log and (b) billing officials have coordinated with property book officers to verify that all purchases of accountable property have been properly documented. In addition, the Standard Operating Procedures state that abuse or repeated non-compliance with property accountability procedures will be grounds to suspend a purchase card account until appropriate corrective actions are taken.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP states that the billing official is responsible for (1) reviewing assigned cardholders' statements, (2) verifying all transactions were necessary government purchases in accordance with policies and guidance, and (3) retaining a copy of the billing statement and maintaining all original supporting documentation (e.g., receipts, logs, invoices, delivery orders, and approvals, etc.).

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP states that the billing official is responsible for (1) reviewing assigned cardholders' statements, (2) verifying all transactions were necessary government purchases in accordance with policies and guidance, and (3) certifying and forwarding, to the paying office for payment, the official invoice. The SOP requires that billing officials certify the statement for payment within 5 working days of the statement date.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP states that the cardholder's responsibility include (1) maintaining receipts and other supporting documentation, (2) reviewing and reconciling all transactions and approved statements, and (3) resolving invalid transactions with vendors and disputing unresolved invalid transactions.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP identifies 13 responsibilities for the billing official, including key control activities discussed in our report, but states that the official's responsibilities are not limited to these 13 items. The identified responsibilities include (1) reviewing assigned cardholder's statements, (2) verifying that all transactions were necessary purchases in accordance with policies and procedures, (3) retaining a copy of the billing statement, and (4) maintaining all original supporting documentation, including receipts, logs, invoices, delivery orders, and approvals. The Army's SOP also includes a surveillance review checklist for confirmation of 20 billing official requirements, including additional requirements related to convenience checks and approving official span of control.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP states that, in accordance with DOD FMR, Volume 1, certified billing statements and supporting documents will be retained for 6 years and 3 months after final payment and cardholder statement can be disposed of 3 years after final payment. In Appendix E of the SOP, guidelines and checklists discuss records being in good shape and easy to track billings with purchases and billing officials maintaining original supporting documents.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP provides that major command specific procedures are to be developed to ensure that accountable property purchased with the card is brought under appropriate control and adds that procedures should emphasize documentation subsequent to purchase. Also, installation program coordinators and property book officers are to provide installation specific guidance. Furthermore, property book officers are to assist in reviews of billing officials/cardholders to ensure that property accountability procedures are followed.

On July 31, 2002, the Army issued a SOP covering the use and management of the Army's purchase card program. The covering memorandum for the SOP notes that the document consolidates existing guidance and policy and is a comprehensive document that identifies processes and procedures, establishes standards, and strengthens controls over the purchase card program. The SOP discusses the need for special approvals. It notes that some purchases are clearly permitted, others are obviously prohibited, and others fall within gray areas. It includes an appendix on general rules to be used in determining whether a particular buy is appropriate. It further notes that cardholders should obtain pre-purchase approval and documentation for requirements that appear to be outside of normal needs of the requesting organization.

In response to our recommendation, the Army awarded several Blanket Purchase Agreements (BPA) for office supplies to improve purchasing power for continuing requirements of these items and to ensure compliance with statutory requirements to purchase comparable products available from mandatory sources. In a memorandum dated September 13, 2004, the Deputy Assistant Secretary of the Army (Policy and Procurement) directed that purchases of office supplies be made against the BPA. In addition, on December 6, 2005, the Army issued Draft Government Purchase Card (GPC) Army Regulation (AR) 715-xx covering the use and management of the Army's purchase card program. In the transmittal memorandum on the draft policy, the Deputy Assistant Secretary of the Army (Policy and Procurement) stated that compliance with GPC AR 715-xx is mandatory and supersedes the previous guidance. Draft GPC AR 715-xx explicitly prohibits requirements to be split into smaller component parts to avoid formal contracting procedures and requires cardholders to comply with federal laws and regulations establishing mandatory sources of supplies and services. Further, in a memorandum dated December 13, 2005, the Deputy Assistant Secretary of the Army (Policy and Procurement) requires Army contracting offices to fully leverage purchasing volume in the marketplace by using General Services Administration Federal Supply Schedule contracts and requires cardholders to inquire about and obtain customary trade discounts when using the purchase card.

The Army Audit Agency has partnered with the DOD Inspector General (IG) to establish a fraud database and data mining capability for purchase card oversight and detection of potentially fraudulent, abusive, and improper purchase card transactions. The DOD IG established a Data Mining Division with personnel from Army Audit Agency and other DOD audit activities in January 2003. GAO confirmed with DOD IG Data Mining Division personnel that the Army is actively working with the IG staff by providing input to the credit card database and conducting audits of problem transaction activity detected in the IG's data mining effort.

In its June 2002 response to draft report, DOD concurred with this recommendation and stated that the DOD Inspector General had initiated a DOD data-mining program that will evaluate Army and other defense component card transactions. The response further notes that the Army will work closely with the data-mining group to ensure Army activities are quickly alerted to identify transactions and effective actions are taken. We are working with DOD officials to enhance DOD capability to use data mining as one means to improve oversight of purchase card transactions and deter fraudulent transactions. The results of the initial data-mining effort are expected to be available later in calendar year 2002.

DOD incorporated the recommendations in our Army purchase card report in the Department of Defense Charge Card Task Force Status Report dated December 18, 2002, which is referred to within DOD as Management Initiative Decision (MID) 904. In addition, DOD established a Senior Steering Group charged with ensuring successful implementation of MID 904 and created an Integrated Product Team (IPT) to create solutions based upon the Steering Group's strategic direction. GAO staff participated in the March 21, 2003 IPT meetings and confirmed that DOD charge card corrective actions were planned or underway to address all GAO credit card report recommendations.