> September 14, 2005

CONTROL NUMBER

[ED-OIG/A19F0013]{.underline}

Mr. Jack Martin

Chief Financial Officer

Office of the Chief Financial Officer

U.S. Department of Education

400 Maryland Avenue, SW\
Washington, DC 20202

Dear Mr. Martin:

This **Final Audit Report** (Control Number ED-OIG/A19F0013) presents
the results of our audit of *Controls Over Purchase Card Use in the
Office of the Chief Financial Office**r.* The objectives of our audit
were to assess the current effectiveness of internal control over the
purchase card program and the appropriateness of current purchase card
use in the Office of the Chief Financial Officer (OCFO).

**BACKGROUND**

The Government purchase card is a less costly and more efficient way for
offices and organizations to purchase needed goods and services directly
from vendors. The purchase card eliminates the need to process purchase
requests through procurement offices and avoids the administrative and
documentation requirements of traditional contracting processes. The
Department of Education (Department) selected Bank of America to provide
purchase card support and services.

The Office of the Chief Financial Officer (OCFO), Contracts and
Acquisitions Management (CAM), coordinates the purchase card program
within the Department and acts as the liaison with Bank of America.
OCFO's Executive Officer is responsible for administering the purchase
card program in that office. The Executive Officer is also the only
Approving Official (AO) within OCFO, and as such, is the primary
official responsible for authorizing cardholder purchases and ensuring
timely reconciliation of cardholder statements.

On July 26, 2000, the Office of Inspector General (OIG) issued a report
entitled, "Results of OIG Review of OCFO and OCIO Internal Controls Over
the Procurement of Goods and Services," (Control Number A&I 2000-006).
OIG reported a number of deficiencies in OCFO's internal control over
the purchase card program including lack of familiarity with Department
policies and procedures, training and/or refresher training not
completed by staff involved in the program, and lack of adequate
supporting documentation for purchases.

This audit is part of a review of the purchase card program being
performed Departmentwide. A random sample of transactions across the
Department, as well as transactions over \$2,500, charges to blocked
merchant category codes, and potential split purchases are being
reviewed. This report represents the results of the portion of the
random sample and other transaction categories reviewed in OCFO. A
summary report will be provided upon completion of the audits in
individual offices.

#### AUDIT RESULTS

[]{.mark}

While improvements were noted from the prior OIG review of purchase card
activity, we found OCFO needs to further improve internal control over
purchase card use. We found OCFO did not always obtain and maintain
adequate documentation to support purchases, and did not always obtain
advance approval for purchases of furniture and software as required.
These issues occurred because some transactions were completed on-line
or telephonically and appropriate documentation was not generated. With
respect to records of receipt, OCFO staff stated they did not follow up
to determine if Department employees attended and completed training.
OCFO also stated it was general practice to purchase special
accommodation furniture without seeking approval from OM, and that OCIO
approval was not obtained for the software purchase due to an oversight.
Finally, we found the AO did not always ensure the cardholders submitted
complete supporting documentation prior to approving statements for
payment.

Without adequate supporting documentation, OCFO does not have assurance
that purchases were appropriate and were made in accordance with Federal
regulations and Department policy and procedures. Failure to document
receipt of goods and services could result in payment for items that
were ultimately not provided to the Department. Failure to seek required
approvals for purchases of furniture and software could result in the
expenditure of funds for items that are not compatible with existing
items, are already available for use within the Department, or are
available at a lower cost through existing Department contracts and
sources. Approving purchases without adequate supporting documentation
increases the Department's vulnerability to potential misuse or waste of
government resources.

Issues noted above regarding lack of adequate documentation to support
purchases were also reported in the prior OIG review of OCFO purchase
card activity.

In its response to the draft audit report, OCFO concurred with the
finding and recommendations included in our report. The complete text of
OCFO's response is included as Attachment 1 to this report.

**Finding 1 OCFO Needs To Further Improve Internal Control Over Purchase
Card Use**

While improvements were noted from the prior OIG review, OCFO needs to
further improve internal control over purchase card use. We reviewed 41
purchases made by 3 cardholders totaling \$35,709, and found the
cardholders did not always obtain or maintain adequate documentation to
support purchases as required by Department policy and OCFO guidelines.
Overall, we noted that 25 of the 41 purchases (61 percent) did not
include one or more required elements. Specifically we found:[^1]

-   One purchase was not supported by a written purchase request.

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-   One purchase was not supported by an invoice or other record of
    purchase.

-   23 purchases were not supported by a record of receipt for the
    good/service.

-   Two purchases -- one for furniture and one for software -- did not
    include documentation showing approval from the Office of Management
    (OM) or Office of the Chief Information Officer (OCIO),
    respectively, as required.

We also noted that complete supporting documentation required by
Department policy and/or OCFO guidelines was not originally provided in
the purchase card files for three additional purchases. OCFO provided
additional documentation that supported these purchases, and these
purchases are not included in the exceptions above.

Departmental Directive OCFO: 3-104, "Government-wide Commercial Purchase
Card Program," dated January 23, 2002, Section VI, defines cardholder
and AO responsibilities. The Directive states,

> H. The Cardholder is responsible for . . . 2. Purchasing goods or
> services in accordance with established Department policy, procurement
> regulations, and individual internal office procedures . . . 6.
> Providing documentation to support purchases for AO approval and
> official record keeping. This documentation includes receipts,
> invoices, logs, etc.

F.  An Approving Official (AO) is responsible for . . . 6. Reviewing,
    validating, and approving for payment the Cardholder\'s reconciled
    bank statement each billing cycle . . . 14. Reviewing all management
    reports of Cardholder activity under his or her authority . . . 15.
    Reviewing appropriateness of purchases. This includes determining
    individual purchases are appropriate, that the goods or services
    were properly received and accepted, and that the payment was
    proper. . . .

Section VII.A.7 of the Directive further states, "The Cardholder should
secure a written request (email or requisition) from the appropriate
Department employee requesting the Cardholder to procure goods or
services."

OCFO Procedure CO-097, "Procedure for Buying, Using a Government
Commercial Purchase Card," revised March 2003, Section 10.d, states the
following regarding documentation,

> Retain data supporting the purchases (including records of oral
> quotations). Keep your files neat, up-to-date, and easily retrievable.
> Documentation will be retained in a central filing location
> established by your Principal Office. The record should be kept for 3
> years after final payment. The records must be kept secure and be
> easily retrievable upon request. Documentation includes:

-   Request for purchase (a written request from the requisitioner).

-   Record of purchase (i.e. written notes, printout of CPSS Quick
    Purchase screen, invoice, internet printout, etc.).

-   Record of receipt and acceptance (i.e. packing slip, training
    certificate). Note -- Forward to the Cardholder for retention if you
    are the recipient of the purchase.

Departmental Directive OM 4-103, "Space Management," revised July 30,
2002, outlines procedures regarding the purchase of furniture. Section
VI, Part C.4, of the Directive states,

> The Principal Officers are responsible for . . . 4. Assuring that all
> furniture procurement is through, coordinated and approved by \[Office
> of Management, Facilities Services\] OM/FS in order to insure these
> products meet the minimum standards and are interchangeable (i.e.
> connectivity, parts, style, color, etc) with our existing inventory,
> and comply with departmental contracting policy and procedures . . . .

Handbook OCIO-08, "Handbook for Software Management and Acquisition
Policy," dated August 25, 2003, outlines procedures regarding the
purchase and management of software. Section VI, Part A.1, of the
Handbook states,

> Requisitions for software and upgrades will be submitted to OCIO by
> the Contracts and Purchasing Support System (CPSS) for approval, and
> upon award, delivery and receipt by the Contracting Officer (CO),
> registered in the Software Library.

Section VI, Part B, of the Handbook states,

> If an application is needed for a specific office, the Principal
> Office(s) may present a business justification and requirements
> document to OCIO for review/approval. OCIO will obtain on behalf of
> the Principal Office(s) software license(s) that meet the guidelines
> set forth in Executive Order 13103 \[guidance on computer piracy\].

OCFO officials generally believed their practices effectively met
requirements for purchase card use. OCFO stated a written purchase
request was not prepared for the transaction noted in our review because
the purchase required both the cardholder and end-user to be present to
complete an on-line transaction. OCFO staff stated the transaction
without a record of purchase was completed by telephone and no written
record of the transaction existed other than the entry in the training
database. In these two instances, written notes by the end user and the
cardholder, respectively, would be allowable documentation as noted in
Procedure CO-097 cited above.

With respect to records of receipt, OCFO staff stated they did not
follow up to determine if Department employees attended and completed
training. In several instances, OCFO indicated that receipt of training
was not possible at the time of payment because the training occurred
after the date the purchase was invoiced. OCFO further stated it was a
general practice for OCFO and other offices to purchase special
accommodation furniture without seeking approval from OM. However, OCFO
did not provide any documentation from OM allowing an exemption from its
policy requirements. OCFO staff also stated OCIO approval was not
obtained for the software purchase due to an oversight. We also found
that the AO did not always ensure that the cardholder submitted complete
supporting documentation prior to approving the statements for payment.

[]{.mark}

Lack of adequate supporting documentation reduces assurance that
purchases were appropriate and were made in accordance with Federal
regulations and Department policy and procedures. Failure to document
receipt of goods and services could result in payment for items that
were ultimately not provided to the Department. Failure to seek required
approvals for purchases of furniture and software could result in the
expenditure of funds for items that are not compatible with existing
items, are already available for use within the Department, or are
available at a lower cost through existing Department contracts and
sources. Approving purchases without adequate supporting documentation
increases the Department's vulnerability to potential misuse or waste of
government resources.

[]{.mark}

During our review, OCFO staff began to take corrective action to address
issues noted. The Executive Officer stated that following our meeting to
discuss the issues noted, he established a process to follow up with
employees to document completion of training. The Executive Officer
stated that he is clarifying with OM its requirement to approve
furniture that is purchased occasionally as a reasonable accommodation
or in response to a doctor's prescription provided by an employee. The
Executive Officer also stated that all software purchases would be sent
through OCIO for approval.

**Recommendations:**

We recommend the Chief Financial Officer hold the Executive
Officer/Approving Official and cardholders accountable for their
responsibilities in the purchase card program by establishing a process
to:

1.  Ensure that cardholders and the AO are familiar with the
    Department's policies and requirements for: (a) obtaining and
    maintaining supporting documentation, and (b) goods and services
    that require special approval or clearance.

2.  Ensure cardholders consistently obtain and maintain written purchase
    requests and approvals, records of purchase, records of receipt, and
    other appropriate supporting documentation for purchases as required
    by Department policy and procedures and OCFO guidelines.

3.  Require the AO to thoroughly review reconciliation packages provided
    by cardholders to ensure that adequate supporting documentation is
    maintained.

[]{.mark}

**OCFO Response:**

[]{.mark}

In its response to the draft audit report, OCFO concurred with the
finding and recommendations included in our report. OCFO also asked OIG
to continue to work with its Executive Officer to implement corrective
actions.

**OBJECTIVES, SCOPE, AND METHODOLOGY**

The objectives of our audit were to assess the current effectiveness of
internal control over the purchase card program and the appropriateness
of current purchase card use in OCFO. To accomplish our objectives, we
performed a review of internal control applicable to OCFO's
administration and management of its purchase cards. We evaluated the
prior OIG review of the purchase card program in OCFO to determine
issues previously reported. We reviewed requirements related to the
purchase card program in the Treasury Financial Manual, Federal
Acquisition Regulation, Office of Management and Budget memoranda, and
Bank of America's contract and task order. We also reviewed Departmental
Directives, OCFO procedures, and internal OCFO guidelines applicable to
the purchase card program.

[]{.mark}

### We conducted interviews with OCFO officials to obtain information and an understanding of the purchase card program. We also reviewed training records for staff participating in the program.  To test controls and evaluate the appropriateness of purchase card use, we reviewed supporting documentation provided by OCFO staff for purchases made during the scope period noted below. 

The scope of our review included purchases made by Washington, DC,
(Headquarters) cardholders during the period July 1, 2003, through June
30, 2004. We used sampling and data mining to select purchases for
review. From the universe of purchases made by Department Headquarters
cardholders, we randomly selected purchases of \$50 or more for review.
The random sample was chosen to provide a representative review of
purchases across the Department. We also identified high-risk categories
of potentially inappropriate purchases and reviewed all transactions in
those categories -- purchases over \$2,500, charges to blocked merchant
category codes, and potential split purchases. In OCFO, the sample
included 41 purchases, 38 of which were part of the random sample and 3
of which were made against blocked merchant category codes. No purchases
over \$2,500 or potential split purchases were identified for OCFO.
Overall, 41 purchases totaling \$35,709 made by 3 cardholders were
included in our review.

In total, OCFO Headquarters cardholders made 568 purchases totaling
\$285,333 during the scope period. The purchases we reviewed represented
7 percent of the total number and 13 percent of the total amount of
purchases made during the period. Since the random sample was selected
based on the universe of all purchases of \$50 or more made by
Headquarters cardholders in the Department, the results of this review
cannot be projected to the universe of OCFO purchases.

We relied on computer-processed data initially obtained from Bank of
America's Electronic Account Government Ledger System to select
cardholder purchases made during the scope period. This data was also
recorded in the Department's Contracts and

Purchasing Support System and reconciled by OCFO staff through
Education's Central Automated Processing System. We verified the
completeness and accuracy of the data by reviewing cardholder
statements, invoices, receipts, and other supporting documentation to
validate purchase amounts recorded in these systems. Based on our
testing, we concluded that the computer-processed data were sufficiently
reliable for the purpose of our audit.

We also reviewed reports prepared by OCFO staff that reported purchase
card transactions that were overdue for reconciliation. These reports
were part of the "Fast Facts" reports distributed monthly to all
Department staff through the Department's Intranet. We did not validate
the accuracy of these reports, as we used them for informational
purposes only, as an indicator of reconciliation timeliness.

We conducted fieldwork at Department offices in Washington, DC, during
the period May 5, 2005, through July 13, 2005. We held an exit
conference with OCFO staff on August 5, 2005. Our audit was performed in
accordance with generally accepted government auditing standards
appropriate to the scope of the review described above.

##### 

##### ADMINISTRATIVE MATTERS

Corrective actions proposed (resolution phase) and implemented (closure
phase) by your office will be monitored and tracked through the
Department's Audit Accountability and Resolution Tracking System.
Department policy requires that you develop a final corrective action
plan (CAP) for our review in the automated system within 30 days of the
issuance of this report. The CAP should set forth the specific action
items, and targeted completion dates, necessary to implement final
corrective actions on the finding and recommendation contained in this
final audit report.

In accordance with the Inspector General Act of 1978, as amended, the
Office of Inspector General is required to report to Congress twice a
year on the audits that remain unresolved after six months from the date
of issuance.

Statements that managerial practices need improvements, as well as other
conclusions and recommendations in this report represent the opinions of
the Office of the Inspector General. Determinations of corrective action
to be taken will be made by the appropriate Department of Education
officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 522),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

We appreciate the cooperation provided to us during this review. Should
you have any questions concerning this report, please call Michele
Weaver-Dugan at (202) 245-6941. Please refer to the control number in
all correspondence related to the report.

> Sincerely,

Helen Lew /s/

> Assistant Inspector General for Audit Services

**Attachment 1**

Ms. Michele Weaver-Dugan, Director

Operations Internal Audit Team

U.S. Department of Education

Office of Inspector General

400 Maryland Ave SW

Washington, DC 20202-1510

Dear Ms. Weaver-Dugan:

Thank you for providing your Draft Audit Report entitled *[Controls Over
Purchase Card Use in the Office of the Chief Financial
Officer]{.underline} (ED-OIG/A19-F0013)*, dated August 12, 2005. We have
reviewed the draft and concur with your findings and recommendations.

Please continue to work with OCFO\'s Executive Officer, Michael
Holloway, to implement the corrective actions.

Sincerely,

Jack Martin

[^1]: Some purchases include issues in more than one category.