Government Purchase Cards: Control Weaknesses Expose Agencies to
Fraud and Abuse (01-MAY-02, GAO-02-676T).
The use of government purchase cards has increased in recent
years as agencies have sought to eliminate the bureaucracy and
paperwork long associated with small purchases. At the same time,
agencies need to have adequate internal controls in place to
protect the government from waste, fraud, and abuse. GAO found
significant internal control weaknesses in agency purchase card
programs, including inadequate review and approval processes, a
lack of training for both cardholders and approving officials,
and poor monitoring. This lax environment allowed cardholders to
make fraudulent, improper, abusive, and questionable purchases.
Weak controls also resulted in lost, missing, or misused
government property.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-676T
ACCNO: A03217
TITLE: Government Purchase Cards: Control Weaknesses Expose
Agencies to Fraud and Abuse
DATE: 05/01/2002
SUBJECT: Fraud
Internal controls
Credit
Credit sales
Risk management
DOD Purchase Card Program
Government Purchase Card Program
******************************************************************
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GAO-02-676T
GAO United States General Accounting Office
a
Test i mony Before the Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce, House of Representatives
For Release on Delivery Expected at 10 a. m. Wednesday, May 1, 2002
GOVERNMENT
PURCHASE CARDS Control Weaknesses Expose Agencies to Fraud and Abuse
Statement of Linda M. Calbom Director, Financial Management and Assurance
GAO- 02- 676T
Page 1 GAO- 02- 676T
Mr. Chairman and Members of the Subcommittee: I am pleased to be here today
to provide an overview of our reviews of the government purchase card
programs at two federal agencies and how the control weaknesses we have
identified made these agencies vulnerable to improper or questionable
purchases. At the outset, I want to make clear our support in concept for
the purchase card program. The use of purchase cards has dramatically
increased in past years as agencies have sought to eliminate the bureaucracy
and paperwork long associated with
making small purchases. The benefits of using purchase cards are lower costs
and less red tape for both the government and the vendor community.
At the same time, given the nature, scale, and increasing use of purchase
cards, it is important that agencies 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. Our audits to date have identified
serious internal control weaknesses. In the past year, we have found
improper and fraudulent use of purchase cards at two Navy units reviewed and
at the Department of Education. 1 In addition, a number of Inspectors
General (IG) have identified and reported on control weaknesses in the
purchase card programs at their agencies, including the Departments of
Agriculture, the Interior, and Transportation. 2
Government purchase cards, a type of credit card, are available to agencies
as part of the Governmentwide Commercial Purchase Card Program, which was
established to streamline federal agency acquisition processes
1 U. S. General Accounting Office, Purchase Cards: Control Weaknesses Leave
Two Navy Units Vulnerable to Fraud and Abuse, GAO- 01- 995T (Washington, D.
C.: July 30, 2001);
Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to Fraud
and Abuse, GAO- 02- 32 (Washington, D. C.: November 30, 2001); Purchase
Cards: Continued Control Weaknesses Leave Two Navy Units Vulnerable to Fraud
and Abuse, GAO- 02- 506T (Washington, D. C.: March 13, 2002); Education
Financial Management: Weak Internal Controls Led to Instances of Fraud and
Other Improper Payments, GAO- 02- 406 (Washington, D. C.: March 28, 2002);
and Education Financial Management: Weak
Internal Controls Led to Instances of Fraud and Other Improper Payments,
GAO- 02- 513T (Washington, D. C.: April 10, 2002). 2 U. S. Department of
Agriculture, Office of Inspector General, Financial and IT Operations Audit
Report: Some Changes Would Further Enhance Purchase Card Management System
Internal Controls, 50099- 26- FM (Washington, D. C.: August 2001); U. S.
Department of the Interior, Office of Inspector General, Department of the
Interior, Integrated Charge
Card Program, 2002- I- 0011 (Washington, D. C.: December 2001); and U. S.
Department of Transportation, Office of Inspector General, Use of Government
Credit Cards, Department of Transportation, FI- 2001- 095 (Washington, D.
C.: September 24, 2001).
Page 2 GAO- 02- 676T
by providing a low- cost, efficient vehicle for obtaining goods and services
directly from vendors. The Federal Acquisition Regulation, Part 13,
?Simplified Acquisition Procedures,? establishes criteria for using purchase
cards to place orders and make payments. The Department of the Treasury
requires agencies to establish approved uses of the purchase card and to set
spending limits. According to the General Services Administration
(GSA), which administers the governmentwide contract for this program, in
fiscal year 2001, over 400,000 cardholders in about 60 agencies made
purchases totaling about $13.8 billion. Given this widespread usage, you
asked us to provide an overview of internal control weaknesses we have found
in our reviews of purchase card programs at two Navy units and the
Department of Education and improvements needed to correct these weaknesses.
In order to respond to your request, we reviewed our previous reports and
testimonies in this area, as well as reports issued by various IGs. In our
purchase card program reviews, we assessed the internal controls over two
Navy units? and the Department of Education?s purchase card programs 3 and
used forensic auditing techniques, such as database searches, file
comparisons, and other detailed analyses to identify unusual transactions
and payment patterns. As you know, internal controls serve as the first line
of defense in
safeguarding assets and in preventing and detecting fraud, abuse, and
errors. Heads of agencies are required to establish a system of internal
control consistent with our Standards for Internal Control in the Federal
Government. 4 My testimony today discusses some of the common control
weaknesses we and the IGs have identified in agency purchase card programs,
including weaknesses in the review and approval processes, lack of training
for cardholders and approving officials, and ineffective
3 Our initial reviews of purchase card programs covered controls in place
and purchases made (1) in fiscal year 2000 for the Navy and (2) from May
1998 through September 2000 for Education. Because both agencies changed
their policies and procedures, we performed follow- up work to assess the
changes. We reviewed controls in place, including implemented or planned
improvements at the two Navy units for fiscal year 2001, and we
reviewed a sample of purchase card transactions for the fourth quarter of
fiscal year 2001. We also performed follow- up work at Education to review
changes to its policies and procedures, and we reviewed purchase card
transactions for the fourth quarter of fiscal year 2001.
4 U. S. General Accounting Office, Internal Control: Standards for Internal
Control in the Federal Government, GAO/ AIMD- 00- 21. 3.1 (Washington, D.
C.: November 1999).
Page 3 GAO- 02- 676T
monitoring. These weaknesses created a lax control environment that allowed
cardholders to make fraudulent, improper, abusive, and questionable
purchases. Weak controls also resulted or contributed to lost,
missing, or misused government property. I will now describe some of the
problems we found and then provide specific examples of improper payments we
and various IGs identified. I will also lay out some of the key
recommendations we and the IGs have made to address these problems.
Inadequate Review and Approval Processes
According to our Standards for Internal Control in the Federal Government,
transactions and other significant events should be authorized and executed
only by persons acting within the scope of their authority. Although review
of transactions by persons in authority is the principal means of assuring
that transactions are valid, we found that the review and approval process
for purchase card purchases was inadequate in all the agencies reviewed.
At the Department of Education, we found that 10 of its 14 offices did not
require cardholders to obtain authorization prior to making some or all
purchases, although Education?s policy required that all requests to
purchase items over $1,000 be made in writing to the applicable
department executive officer. We also found that approving officials did not
use monitoring reports that were available from Bank of America 5 to
identify unusual or unauthorized purchases. Additionally, Education?s 1990
purchase card policy, which was in effect during the time of our review (May
1998 through September 2000), stated that an approving official was to
ensure that all purchase card transactions were for authorized Education
purchases and in accordance with departmental and other federal regulations.
The approving official signified that a cardholder?s purchases were
appropriate by reviewing and signing monthly statements. To test the
effectiveness of Education?s approving officials? review, we analyzed 5
months of cardholder statements and found that 37 percent of the 903 monthly
cardholder statements we reviewed were not approved by the appropriate
official. The unapproved statements totaled about $1.8 million. Further, we
found that Education employees purchased computers using their purchase
cards, which was a violation of Education?s policy prohibiting the use of
purchase cards for
5 Bank of America services the purchase card program at Education.
Page 4 GAO- 02- 676T
this purpose. As I will discuss later, several of the computers that were
purchased with purchase cards were not entered in property records, and we
could not locate them. If approving officials had been conducting a proper
review of monthly statements, the computer purchases could have been
identified and the practice halted, perhaps eliminating this computer
accountability problem. Education implemented a new approval process
during our review. We assessed this new process and found that while
approving officials were generally reviewing cardholder statements, those
officials were not ensuring that adequate supporting documentation existed
for all purchases.
Weaknesses in the approval process also existed at the two Navy units we
reviewed. During our initial review, approving officials in these two units
told us that they did not review support for transactions before certifying
monthly statements for payment because (1) they did not have time and (2)
Navy policy 6 did not specifically require that approving officials review
support. At one of the Navy units, one approving official was responsible
for certifying summary billing statements covering an average of over 700
monthly statements for 1,153 cardholders. Further, Navy?s policy allows
the approving official to presume that all transactions are proper unless
notified to the contrary by the cardholder. The policy appears to improperly
assign certifying officer accountability to cardholders and is inconsistent
with Department of Defense regulations, which state that certifying officers
are responsible for assuring that payments are proper.
During our follow- up review, we found that throughout fiscal year 2001,
approving officials in the two units still did not properly review and
certify the monthly purchase card statements for payment. Although the
Department of Defense Purchase Card Program Management Office issued new
guidance in July 2001 that would reduce the number of cardholders for
which each approving official was responsible, neither of the two units met
the suggested ratio of five to seven cardholders to one approving official
until well after the start of fiscal year 2002. 7 Further, the Department of
Defense agreed with our recommendation that Navy revise its policy to
assure that approving officials review the monthly statements and the 6
Navy?s purchase card policy is contained in two documents- Navy Supply
Command (NAVSUP) Instruction 4200.94 issued September 20, 2000, and a June
3, 1999, policy memorandum from the Navy Comptroller?s office.
7 Although the ratio was met in total by both Navy units, one unit still had
23 approving officials who were responsible for more than 7 cardholders.
Page 5 GAO- 02- 676T
supporting documentation prior to certifying the statements for payment.
However, for the last quarter of fiscal year 2001, one of the Navy units
continued to inappropriately certify purchase card statements for payment.
The other unit issued local guidance that partially implements our
recommendation. IGs at the Departments of Agriculture, the Interior, and
Transportation also identified weaknesses in the review and approval
processes at these agencies. For example, Agriculture?s IG reported that the
department has not effectively implemented an oversight tool in its Purchase
Card Management System (PCMS), the system that processes purchase card
transactions. This tool is an alert system that monitors the database for
pre- established conditions that may indicate potential abuse by
cardholders. Responsible officials are to periodically access their alert
messages and review the details for questionable transactions. These
reviewing officials should contact cardholders, if necessary, so that
cardholders can verify any discrepancies or provide any additional
information in order to resolve individual alert messages. In order to close
out alert messages, reviewers must change the message status to ?read? and
explain any necessary details to resolve the alerts. According to
Agriculture?s IG, only about 29,600 out of 50,500 alerts in the database
during fiscal years 1999 and 2000 had been read as of January 9, 2001, and
only about 6,100 of the alerts that were read contained responses. The
inconsistent use of this oversight tool means that Agriculture management
has reduced assurance that errors and abuse are promptly detected and
that cardholders are complying with purchase card and procurement
regulations.
Interior?s IG reported that it reviewed the work of 53 reviewing officials
and found that 42 of them performed inadequate reviews. The IG defined an
adequate review as one in which the reviewing official, on a monthly basis,
reconciled invoices and receipts to the purchase card statements to ensure
that all transactions were legitimate and necessary. The IG found that
several reviewing officials signed off on monthly statements indicating
completed reviews where supporting documentation was not available.
Lack of Training Another common internal control weakness we identified was
lack of or inadequate training related to the use of purchase cards. Our
Standards
for Internal Control in the Federal Government emphasize that effective
management of an organization?s workforce- its human capital- is essential
to achieving results and is an important part of internal control.
Page 6 GAO- 02- 676T
Training is key to ensuring that the workforce has the skills necessary to
achieve organizational goals. Lack of or inadequate training contributed to
the weak control environments at several agencies.
Navy?s policies required that all cardholders and approving officials must
receive initial purchase card training and refresher training every 2 years.
We determined that the two Navy units lacked documentation to demonstrate
that all cardholders and approving officials had received the
required training. We tested $68 million of fiscal year 2000 purchase card
transactions at the two Navy units and estimated that at least $17.7 million
of transactions were made by cardholders for whom there was no documented
evidence they had received either the required initial training or refresher
training on purchase card policies and procedures. Although
we found during our follow- up work that the two Navy units had taken steps
to ensure cardholders receive training and to document the training, many
cardholders at one of the units still had not completed the initial training
or the required refresher training. Similarly, at Education, we found that
although the policy required each cardholder and approving officials to
receive training on their respective responsibilities, several cardholders
and at least one approving official were not trained. Interior?s IG also
reported a lack of training related to the purchase card
program. Specifically, the IG reported that although Interior provided
training to individual cardholders, it did not design or provide training to
reviewing officials. According to the IG, several reviewing officials said
that they did not know how to conduct a review of purchase card
transactions, nor did they understand how and why to review supporting
documentation. As previously mentioned, the IG found that many reviewing
officials were not performing adequate reviews.
Ineffective Monitoring Our Standards for Internal Control in the Federal
Government state that internal control should generally be designed to
assure that ongoing
monitoring occurs in the course of normal operations. Internal control
monitoring should assess the quality of performance over time and ensure
that findings of audits and other reviews are promptly resolved. Program and
operational managers should monitor the effectiveness of control activities
as part of their regular duties.
At the two Navy units we reviewed, we found that management had not
established an effective monitoring and internal audit function for the
purchase card program. The policies and procedures did not require that
Page 7 GAO- 02- 676T
the results of internal reviews be documented or that corrective actions be
monitored to help ensure they are effectively implemented. The NAVSUP
Instruction calls for semiannual reviews of purchase card programs,
including adherence to internal operating procedures, applicable training
requirements, micro- purchase procedures, receipt and acceptance procedures,
and statement certification and prompt payment procedures. These reviews are
to serve as a basis for initiating appropriate action to
improve the program and correct problem areas. Our analysis of fiscal year
2000 agency program coordinator reviews at one of the Navy units showed that
the reviews identified problems with about 42 percent of the monthly
cardholder statements that were reviewed. The problems identified were
consistent with the control weaknesses we found. Unit management considered
the findings but directed that corrective actions not be implemented because
of complaints about the administrative burden associated with the procedural
changes that would be needed to address the review findings. These reviews
generally resulted in the reviewer counseling the cardholders or in some
instances, recommending that cardholders attend purchase card training. As a
result,
the agency program coordinator had not used the reviews to make systematic
improvements in the program. During our follow- up work, we noted that this
unit had recently made some efforts to implement new policies directed at
improving internal review and oversight activities. However, these efforts
are not yet complete.
At the time of our review, Education did not have a monitoring system in
place for purchase card activity. However, in December 2001, the department
issued new policies and procedures that, among other things, establish a
quarterly quality review of a sample of purchase card transactions to ensure
compliance with key aspects of the department?s policy. Transportation?s IG
reported that the Federal Aviation Administration (FAA) had not performed
required internal follow- up reviews on purchase
card usage since 1998. A follow- up review is to consist of an independent
official (other than the approving official) reviewing a sample of purchase
card transactions to determine whether purchases were authorized and
that cardholders and approving officials followed policies and procedures.
The types of weaknesses that I have just described create an environment
where improper purchases could be made with little risk of detection. I will
now provide a few examples of how employees used their purchase
Page 8 GAO- 02- 676T
cards to make fraudulent, improper, abusive, and questionable purchases. We
also found that property purchased with the purchase cards was not always
recorded in agencies? property records, which could have contributed to
missing or stolen property.
Poor Controls Resulted in Fraudulent, Improper, Abusive, and Questionable
Purchases
In a number of cases, the significant control weaknesses that we and the IGs
identified resulted in or contributed to fraudulent, improper, abusive, and
questionable purchases. We considered fraudulent purchases to be those that
were unauthorized and intended for personal use. Improper purchases included
those for government use that were not, or did not appear to be, for a
purpose permitted by law or regulation. We defined abusive or questionable
transactions as those that, while authorized, were for items purchased at an
excessive cost, for a questionable government need, or both. Questionable
purchases also include those for which there
was insufficient documentation to determine whether they were valid. For
example, at Education, we found an instance in which a cardholder made
several fraudulent purchases from two Internet sites for pornographic
services. The name of one of the sites- Slave Labor Productions. com- should
have caused suspicion when it appeared on the employee?s monthly statement.
We obtained the statements containing the charges and noted that they
contained handwritten notes next to the
pornography charges indicating that these were charges for transparencies
and other nondescript items. According to the approving official, he was not
aware of the cardholder?s day- to- day responsibilities, and therefore,
could not properly review the statements. The approving official stated that
the primary focus of his review was to ensure there was enough money
available in that particular appropriation to pay the bill. As a result of
investigations related to these pornography purchases, Education management
issued a termination letter, prompting the employee to resign.
We also identified questionable charges by an Education employee totaling
$35,760 over several years for herself and a coworker to attend college.
Some of the classes the employees took were apparently prerequisites to
obtain a liberal arts degree, but were unrelated to Education?s mission. The
classes included biology, music, and theology, and represented $11,700 of
the $35,760. These classes costing $11,700 were improper charges. The
Government Employees Training Act, 5 U. S. C. 4103 and 4107, requires that
training be related to an employee?s job and prohibits expenditures to
obtain a college degree unless necessitated by retention or recruitment
needs, which was not the case here. We also identified as questionable
Page 9 GAO- 02- 676T
purchases totaling more than $152, 000 for which Education could not provide
any support and did not know specifically what was purchased, why it was
purchased, or whether these purchases were appropriate.
The breakdown of controls at the two Navy units we reviewed made it
difficult to detect and prevent fraudulent purchases made by cardholders. We
identified over $11,000 of fraudulent purchases including gifts, gift
certificates, and clothing from Macy?s West, Nordstrom, Mervins, Lees Men?s
Wear, and Footlocker, and a computer and related equipment from Circuit
City.
During our follow- up work, we also identified a number of improper,
questionable, and abusive purchases at the Navy units, including food for
employees costing $8,500; rentals of luxury cars costing $7,028; designer
and high- cost leather briefcases, totes, portfolios, day planners, palm
pilot cases, wallets, and purses from Louis Vuitton and Franklin Covey
costing $33,054; and questionable contractor payments totaling $164,143.
The designer and high- cost leather goods from Franklin Covey included
leather purses costing up to $195 each and portfolios costing up to $135
each. Many of these purchases were of a questionable government need and
should have been paid for by the individual. To the extent the day
planners and calendar refills were proper government purchases, they were at
an excessive cost and should have been purchased from certified nonprofit
agencies under a program that is intended to provide employment
opportunities for thousands of people with disabilities. Circumventing the
requirements to buy from these nonprofit agencies and purchasing these items
from commercial vendors is not only an abuse and
waste of taxpayer dollars, but shows particularly poor judgment and serious
internal control weaknesses.
The contractor payments in question were 75 purchase card transactions with
a telecommunications contractor that appeared to be advance payments for
electrical engineering services. Paying for goods and services before the
government has received them (with limited exceptions) is prohibited by law
8 and Navy purchase card procedures. Navy employees told us the purchase
card was used to expedite the procurement of goods and services from the
contractor because the preparation, approval, and issuance of a delivery
order was too time- consuming in certain
8 Section 3324 of title 31, United States Code.
Page 10 GAO- 02- 676T
circumstances. For all 75 transactions, we found that the contractor?s
estimated costs were almost always equal or close to the $2,500
micropurchase threshold. Because we found no documentation of independent
receipt and acceptance of the services provided or any documentation that
the work for these charges was performed, these charges are potentially
fraudulent, and we have referred them to our Office of Special
Investigations for further investigation. IGs also identified fraudulent
purchases. The Transportation Department?s IG reported on two cases
involving employees? fraudulent use of their purchase cards. In one case, a
cardholder used a government purchase card to buy computer software and
other items costing over $80,000 for a personal business. In the other case,
a cardholder made numerous unauthorized charges totaling more than $58,000,
including a home stereo system and a new engine for his car. Additionally,
Interior?s IG identified fraudulent purchases such as payments for monthly
rent and phone bills,
household furnishings, jewelry, and repairs to personal vehicles. One type
of improper purchase we identified is the ?split purchase,? which we defined
as purchases made on the same day from the same vendor that appear to
circumvent single purchase limits. The Federal Acquisition
Regulation prohibits splitting a transaction into more than one segment to
avoid the requirement to obtain competitive bids for purchases over the
$2,500 micro- purchase threshold or to avoid other established credit
limits. For example, one cardholder from Education purchased two computers
from the same vendor at essentially the same time. Because the total cost of
these computers exceeded the cardholder?s $2, 500 single purchase limit, the
total of $4,184.90 was split into two purchases of $2,092.45 each. We found
27 additional purchases totaling almost $120,000 where Education
employees made multiple purchases from a vendor on the same day. Similarly,
our analysis of purchase card payments at the two Navy units identified a
number of purchases from the same vendor on the same day. To determine
whether these were, in fact, split purchases, we obtained and
analyzed supporting documentation for 40 fiscal year 2000 purchases at the
two Navy units. We found that in many instances, cardholders made multiple
purchases from the same vendor within a few minutes or a few hours for items
such as computers, computer- related equipment, and software, that involved
the same, or sequential or nearly sequential purchase order and vendor
invoice numbers. Based on our analysis, we
concluded that 32 of the 40 purchases were split into two or more
transactions to avoid the micro- purchase threshold. During our follow- up
Page 11 GAO- 02- 676T
work, we found that 23 of 50 fiscal year 2001 purchases by the two Navy
units were split into two or more transactions to avoid the micro- purchase
threshold.
Split purchases were also identified by the IGs at the Departments of
Agriculture and Transportation. For example, Agriculture?s IG reported that
it investigated two employees who intentionally made multiple purchases of
computer equipment with the same merchant in amounts exceeding their
established single purchase limits. During 3 different months, these
employees purchased computer systems totaling $121,123 by structuring their
individual purchases of components in amounts less than the individual
single purchase limit of $2,500. In September 1999, a computer procurement
totaling $47,475 was made using 20 individual purchase card transactions
during a 4- day period. Other computer purchases were made in November 1999
involving 15 purchase card transactions over a 3- day period totaling $36,
418 and in June 2000 involving 15 individual transactions over a 5- day
period totaling $37, 230. The IG
reported that these procurements should have been made by a warranted
contracting officer. Similarly, Transportation?s IG reported that it
identified 13 transactions totaling about $106,000 that violated the
department?s policies against splitting purchases.
Missing Property Another problem we and the IGs identified is that some
property purchased with purchase cards was not entered in agency property
records.
According to our Standards for Internal Control in the Federal Government,
an agency must establish physical control to secure and safeguard vulnerable
assets. Such assets should be periodically counted and compared to control
records. Recording the items purchased in
property records is an important step to ensure accountability and financial
control over these assets and, along with periodic inventory counts, to
prevent theft or improper use of government property. At Education and the
Navy units, we identified numerous purchases of computers and computer-
related equipment, cameras, and palm pilots that were not recorded in
property records and for which the agencies could not provide conclusive
evidence that the items were in possession of the federal government.
For example, the lack of controls at Education contributed to the loss of
179 pieces of computer equipment costing over $200,000. We compared serial
numbers obtained from a vendor where the computers were purchased to those
in the department?s asset management system and
Page 12 GAO- 02- 676T
found that 384 pieces of computer equipment were not listed in the property
records. We conducted an unannounced inventory to determine whether the
equipment was actually missing or inadvertently omitted from the property
records. We found 205 pieces of equipment. Education officials have been
unable to locate the remaining 179 pieces of missing
equipment. They surmised that some of these items may have been surplused;
however, there is no documentation to determine whether this assertion is
valid.
At the Navy units, our initial analysis showed that the Navy did not record
46 of 65 sampled items in their property records. When we asked to inspect
these items, the Navy units could not provide conclusive evidence that 31 of
them- including laptop computers, palm pilots, and digital cameras-
were in the possession of the government. For example, for 4 items, the
serial numbers of the property we were shown did not match purchase or
manufacturer documentation. In addition, we were told that 5 items were at
other Navy locations throughout the world. Navy officials were unable
to conclusively demonstrate the existence and location of these 5 items. We
were unable to conclude whether any of these 31 pieces of government
property were stolen, lost, or being misused. We and the IGs have made
recommendations to the various agencies that, if fully implemented, will
help improve internal controls over the purchase card programs so that
fraudulent and improper payments can be prevented or detected in the future
and vulnerable assets can be better protected. These recommendations include
(1) emphasizing policies on appropriate use of the purchase card and
cardholder and approving official responsibilities, (2) ensuring that
approving officials are trained on how to perform their responsibilities,
and (3) ensuring that approving officials review purchases and their
supporting documentation before certifying the statements for payment.
Agencies have taken actions to respond to the recommendations made. However,
during our follow- up work at Education and the Navy units, we found that
weaknesses remain that continue to leave them vulnerable to fraudulent and
improper payments and lost assets. Management?s ongoing commitment to
improving internal controls is necessary to minimize this vulnerability.
In closing, Mr. Chairman, the use of government purchase cards has succeeded
in reducing the bureaucracy and paperwork associated with small purchases,
and we support the concept. However, control weaknesses and the resulting
abuse existing in the agencies reviewed so far
Page 13 GAO- 02- 676T
show that controls over the use of purchase cards need to be strengthened.
While the amount of fraud and abuse that we and the IGs have identified is
relatively small compared to the total amount of purchases made each year,
they represent major vulnerabilities that could easily be exploited to a
greater extent. Mr. Chairman, this concludes my statement. I would be happy
to answer
any questions you or other members of the subcommittee may have. Contact and
Acknowledgments
For information about this statement, please contact Linda Calbom, Director,
Financial Management and Assurance, at (202) 512- 9508 or at calboml@ gao.
gov or Gregory D. Kutz, Director, Financial Management and Assurance at
(202) 512- 9095 or at kutzg@ gao. gov. Individuals who made key
contributions to this testimony include Diane Morris, Lisa Crye, and Gayle
Fischer. Numerous other individuals made contributions to the work at the
Navy units and the Department of Education.
(190058)
*** End of document. ***