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**OFFICE OF INSPECTOR GENERAL**

**MEMORANDUM**

**DATE:** May 6, 1999

**TO:** Chairman

**FROM:** Inspector General

**SUBJECT:** Report on Audit of the Federal Communications Commission
Purchase Card Program

Attached please find a copy of the subject audit report. The primary
objective was to review the Commission's purchase card program. This
encompassed reviewing documents, conducting interviews, and evaluating
cardholder and approving official compliance with purchase card program
policies and procedures.

The auditors determined that the Commission developed comprehensive
purchase card program internal control policies and procedures,
effectively communicated the program requirements to all cardholders and
approving officials, and made the necessary checklists and supporting
reference materials readily available.

However, this report cites that cardholders and approving officials were
not in full compliance with the purchase card program policies and
procedures because they failed to complete the required Checklist C-1
prior to making purchases. This report contains a recommendation to
address this condition. OIG auditors also identified isolated instances
in which program policies and procedures were also bypassed by
cardholders. Management concurred with our recommendations and will
institute review procedures to ensure compliance with the Commission's
purchase card program policies and procedures.

H. Walker Feaster III

Attachment

Cc: Chief of Staff

Managing Director

Manager, Contracts and Purchasing Center

######## FEDERAL COMMUNICATIONS COMMISSION

# OFFICE OF INSPECTOR GENERAL

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**AUDIT REPORT NO. OIG 98-06**

**REPORT ON AUDIT OF THE FEDERAL**

**COMMUNICATIONS COMMISSION PURCHASE CARD PROGRAM**

**May 6, 1999**

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**ASSISTANT IG FOR AUDITS SENIOR AUDITOR**

**\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_**

**INSPECTOR GENERAL**

**REPORT ON AUDIT OF**

**THE FEDERAL COMMUNICATIONS COMMISSION**

**PURCHASE CARD PROGRAM**

**Table of Contents**

**[Page]{.underline}**

EXECUTIVE DIGEST
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AUDIT OBJECTIVE
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AUDIT SCOPE
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BACKGROUND
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FINDING & RECOMMENDATION
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OTHER ISSUES IDENTIFIED
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APPENDIX -- Management Response
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**EXECUTIVE DIGEST**

As a result of our audit, we determined that the FCC developed
comprehensive policies and procedures for making purchase card
transactions of goods and services up to \$25,000 that are in compliance
with the Federal Acquisition Regulations (FAR). However, even though all
FCC cardholders and approving officials were formally trained in their
FCC Government Purchase Card Program responsibilities, OIG auditors
found that certain FCC employees are not in full compliance with those
internal control policies and procedures because cardholders failed to
complete and file the required *Checklist C-1* (FCC Form A-526)
documenting their purchase card transactions. The Commission's Checklist
C-1 creates a record documenting the card users compliance with the
rules governing each purchase card transaction.

OIG auditors also identified isolated instances in which program
policies and procedures were bypassed as follows:

-   One cardholder placed a split order to evade the single-order
    purchase limit.

-   Two cardholders made information technology component purchases from
    vendors other than those on the approved vendor list.

    **AUDIT OBJECTIVES**

    The audit objectives included determining whether (1) FCC card
    holders and approving officials purchase goods and services in
    compliance with prescribed policies and procedures and, (2) whether
    the Purchase Card Program controls and infrastructure sufficiently
    support card holder and approving official purchase activities[^1].

    **AUDIT SCOPE**

    We conducted our audit in accordance with generally accepted
    government auditing standards. Those standards require that we plan
    and perform the audit to obtain reasonable assurance about whether
    Commission\'s Purchase Card Program is free of material
    misstatement. An audit includes:

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-   obtaining an understanding of the Purchase Card Program system and
    related internal controls;

-   determining if the internal controls are adequate and in operation;

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-   assessing control risk to use as a basis for planning the nature,
    timing, extent of testing;

-   examining, on a test basis, evidence supporting the amounts and
    disclosures in the data and records reviewed; and,

-   evaluating the overall data and records presentation.

    We evaluated approximately 90 percent of the Commission's January
    1998 purchase card transaction dollar volume by selecting all
    transactions that were \$5000 or more, randomly selecting
    transactions from \$1,000 to \$4,999, and judgmentally selecting
    transactions under \$1,000. We used the applicable requirements
    contained in the following as the basis for our review:

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-   OMD FCC Government Purchase Card Program Policies and Procedures
    binder;

-   FCC Directive No. 1097.1, *Use of Federal Government Purchase Card
    for Small Purchases*;

-   Federal Acquisition Regulation (FAR) 90-41, Part 8, *Required
    Sources of Supplies and Services*;

-   FAR 90-40, Part 13, *Simplified Acquisition Procedures*; and,

-   Anti-deficiency Act (31 USC 1341, 1342, and 1512).

    Our audit specifically covered the FCC Government Purchase Card
    Program system\'s internal control procedures associated with the
    following control objectives:

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-   Operational control ensures that card holders and approving
    officials make and approve purchases effectively and efficiently;
    and,

-   Compliance control ensures that cardholders and approving officials
    comply with applicable laws and regulations.

We believe that our audit provides a reasonable basis for our opinion.

**BACKGROUND**

On October 13, 1994, Congress enacted the Federal Acquisition
Streamlining Act of 1994[^2] (FASA) in order to streamline the
acquisition process and better align Government with commercial
practices and empower contracting officers (CO) with maximum flexibility
wherever possible. FASA also encourages Agencies to use the
Government-wide commercial purchase card and electronic purchasing
techniques to the maximum extent practicable[^3].

In August 1995, OMD issued FCC Directive FCCINST 1097.1[^4], *Use of
Federal Government Purchase Cards for Small Purchases*, detailing the
policies and procedures for FCC use of Federal government purchase
cards. Under this program, select FCC employees outside the Office of
the Managing Director's (OMD) Contracts and Purchasing Center, were
issued VISA purchase cards to make official purchases of goods and
services. OMD provided these employees with VISA purchase cards to
improve efficiency, save time, and eliminate non-value-added processing
and paperwork for making purchases in accordance with FASA.

Prior to issuing purchase cards to cardholders and approving officials,
OMD instructed Commission employees on its purchase card program policy,
responsibility hierarchy, unauthorized purchase card transactions and
establishments, required sources for supplies and services, and security
responsibilities. Additionally, OMD notified each cardholder and
approving official of the prescribed penalties for violating the
Commission directive.

On February 27, 1997, OMD began formally training all FCC cardholders
and approving officials on their duties and responsibilities under the
program. OMB provided each participant with a policies and procedures
binder, entitled \"FCC Purchase Card Program For Small Purchases \$25K
and Below,\" and instructed them on using and approving purchase cards
in accordance with the above Directive and FASA. Employees unable to
attend the classes, such as the Compliance and Information Branch (CIB)
field office employees, received instruction through interactive compact
disks. Once trained, each employee signed a \"PROCUREMENT INTEGRITY
CERTIFICATION OF FCC PROCUREMENT OFFICIALS,\" certifying their
familiarity with the applicable provisions of the Federal Procurement
Policy Act (41 U.S.C. Section 423) concerning prohibited conduct by
procurement officials and certifying that they will not engage in any
conduct prohibited by that Act.

Since empowering FCC employees with VISA purchase cards to make small
purchases under the program, the Commission has experienced improved
efficiency, time-savings, and eliminated non-value-added processing and
paperwork for making small purchases under the program. For example,
from January 9, 1998, through February 6, 1998, FCC cardholders made 441
purchases for \$206,711 in goods and services, which, prior to the
program's inception, would have required processing by OMD's Contracts
and Purchasing Center.

# FINDING AND RECOMMENDATION

**Approximately 88 percent (sixteen of eighteen cardholders) reviewed by
the OIG did not complete and file the required *Checklist C-1* (FCC Form
A-526) documenting their purchase card transactions.** Additionally,
interviews with the cardholders' approving officials revealed that the
approving officials did not require their cardholders to complete the
Checklist C-1.

Reasons given for failing to complete the Checklist C-1 by cardholders
and approving officials included:

-   Preparing the Checklist C-1 for each transaction became redundant;

-   The cardholder keeps alternative records and tracks purchases
    against the budget;

-   Approving officials review the monthly statement of account and
    signs the *CARDHOLDER CERTIFICATION STATEMENT* printed on the back
    of each statement; and,

-   Per an Information and Technology Center (ITC) approving official,
    "ITC is not necessarily held to the letter of the Purchase Card
    Program because ITC knows the procurement rules and information
    technology for selected vendors/products."

    The above occurred even though the Contracts and Purchasing Center
    required that, before being accepted into the program, all
    prospective FCC cardholders and approving officials had to attend
    the *FCC Purchase Card Program for Small Purchases \$25,000 and
    below* training program and certify to their familiarity with, and
    agree to, abide by the Office of Federal Procurement Policy Act
    Amendments of 1988.

    FCC Directive FCCINST 1097.1, Section 6.i. requires cardholders to
    complete the Checklist C-1 provided by the Acquisitions Branch for
    each transaction in order to establish an audit trail. This audit
    trail includes obtaining the approving official's purchase
    authorization **before** the user makes the transaction. The
    Directive also requires that users "must retain the checklist and
    other records of the transaction in his/her files for the one (1)
    year retention period specified in Federal Acquisition Regulations
    4.805(b)(10).

    When a purchase cardholder fails to complete the Checklist C-1
    documenting his/her transaction's compliance with FAR requirements
    and approving official authorization prior to making purchases,
    cardholders and approving officials are circumventing the internal
    control requirements prescribed in FCC Directive FCCINST 1097.1.
    This noncompliance breaks the audit trail, thereby jeopardizing the
    integrity of Commission's purchase card program and increases the
    possibility for misuse of purchase cards and increases the
    likelihood for fraud. FCC cardholders violating this responsibility
    also expose themselves to losing their purchase card privileges and
    possible disciplinary action.

    **[Recommendation]{.underline}** The OMD takes appropriate measures
    to ensure that all FCC cardholders and approving officials be
    required to comply with FCC Directive FCCINST 1097.1 requirements by
    completing the Checklist C-1 prior to making purchase card
    transactions or promulgating explicit exceptions to the policies of
    the FCC Directive.

    **[Management Response]{.underline}** The Managing Director and
    Contracts and Purchasing Center concur with this finding (Please see
    the Appendix). They further stated that they will start conducting
    random audits to verify use of the Checklist C-1 and will revoke
    purchase card privileges from individuals that do not comply.

    **OTHER ISSUES IDENTIFIED**

1.  **One cardholder placed a split-order to evade the \$25,000
    single-order purchase limit.** The cardholder stated that the
    subject split-order transaction was made on the same day in order to
    renew the FCC's annual subscription for the Commission's library
    from a sole source vendor. Per both the cardholder and the approving
    official, they felt that this type purchase card transaction was not
    subject to the split-order limitation because they were renewing a
    long-standing subscription for the FCC library.

> The FCC Government Purchase Card Program User Guide UG-1, No. 8,
> *Consider Applicable Dollar Limitations*, expressly prohibits
> cardholders from making split orders in order to evade single-order
> dollar limits. This prohibition is founded in FAR Part 13.103(c),
> which prescribes that: "Requirements aggregating more than the
> simplified acquisition threshold or the micro-purchase threshold shall
> not be broken down into several purchases that are less than the
> applicable threshold merely to permit use of simplified acquisition
> procedures, or to avoid any requirements that apply to purchases
> exceeding the micro-purchase threshold."
>
> Violations of the above FAR and FCC prohibitions could result in the
> cardholder and approving official losing their purchase card
> privileges and other sanctions. Additionally, per Acquisitions
> officials, should split orders continue to be used for evading
> single-order dollar limits, the FCC could be suspended from
> participating in the purchase card program.

Per discussion with the Contracts and Purchasing Center, subscription
renewals are problematic for the purchase card program. However, they
are working on making FCC library subscription renewals an exception to
the purchase card program's \$25,000 single purchase limitation.

Management concurred and directed the library to stop splitting purchase
card transactions (see the Appendix).

2.  **Two cardholders made information technology component purchases
    from vendors other than those on the approved vendor list.**

At the direction of an employee other than the approving official, a
cardholder in the Office of General Counsel (OGC) purchased six Hewlett
Packard LaserJet 6Lse printers directly from an office supply store that
was not on the approved vendor list. We also found that the cardholder
had no record of making price comparisons from at least three vendors
and did not consult with their Information Technology Center (ITC)
customer service representative (CSR) prior to making the above
purchases. The cardholder stated that the printers were purchased from
the non-approved vendor because time was of the essence and the office
supply store's prices were approximately the same as other quoted
prices.

An ITC cardholder purchased computer hardware from a vendor other than
one on the approved vendor list. Additionally, the cardholder had no
record of price quotations for the above transaction and did not
complete the Checklist C-1. The cardholder stated that they make
purchases through the approved vendor list except when emergency and
availability are at issue for keeping the Commission's computer networks
operating.

In addition to completing a Checklist C-1 and obtaining approving
official authorization prior to making a purchase, the FCC Government
Purchase Card Program User Guide UG-1 also requires cardholders to:

-   Consult with their ITC CSR before purchasing information technology
    items;

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-   Select vendors from the approved vendor list for the item(s) being
    purchased; and,

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-   Obtain at least three vendor price quotations for all purchases over
    \$2,500.00 and at least one quote (preferably two) for every
    purchase less than \$2,500.00.

    Purchase card holders who do not comply with the FCC's purchase card
    program requirements are circumventing Commission internal controls
    and violating their responsibility to make transactions in
    accordance with FCC Directive FCCINST 1097.1. This noncompliance
    jeopardizes the integrity of Commission's purchase card program and
    increases the possibility for misuse of purchase cards and
    unnecessarily exposes the Commission to possible fraud. FCC
    cardholders violating this responsibility also expose themselves to
    losing their purchase card privileges and possible disciplinary
    action.

    Management concurred and stated that they will continue emphasizing
    the importance of utilizing vendors on the approved vendor list (see
    the Appendix).

[^1]: FCC Directive 1097.1, [Use of Federal Government Purchase Card for
    Small Purchases]{.underline}, effective August 8, 1997, and User
    Guide UG-1, [FCC Government Purchase Card Program]{.underline},
    February 23, 1998.

[^2]: Public Law 103-355, effective October 1, 1995.

[^3]: 48 CFR, Chapter 1, Part 13, subpart 13.103.

[^4]: Amended, effective August 19, 1997.