July 1, 2005

CONTROL NUMBER

[ED-OIG/A19F0006]{.underline}

Susan Sclafani

Assistant Secretary

U.S. Department of Education\
Office of Vocational and Adult Education\
400 Maryland Avenue, SW\
Washington, DC 20202-7100

Dear Ms. Sclafani:

This **Final Audit Report** (Control Number ED-OIG/A19F0006) presents
the results of our audit of *Controls Over Purchase Card Use in* *the*
*Office of Vocational and Adult Education (OVAE).* 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 OVAE.

**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.
OVAE's Executive Officer is responsible for administering the purchase
card program in that office. Approving officials (AOs) and alternate
approving officials (AAOs) are appointed by the Executive Officer and
are the primary officials responsible for authorizing cardholder
purchases and ensuring timely reconciliation of cardholder statements.

On April 18, 2000, the Office of Inspector General (OIG) issued a report
entitled, "Results of OIG Review of OVAE's Internal Controls Over the
Procurement of Goods and Services," (Control Number ED-OIG/A&I
2000-OVAE). OIG reported deficiencies in OVAE's internal control over
the purchase card program, including approval of purchase card
statements, warrants for cardholders, training, segregation of duties,
lack of familiarity with Department policies, and lack of written OVAE
policies and procedures.

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 all 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 OVAE. A
summary report will be provided to the Department's Chief Financial
Officer upon completion of the audits in individual offices.

#### 

#### AUDIT RESULTS

While improvements were noted from the prior OIG review of purchase card
activity, we found that OVAE needs to further improve internal control
over purchase card use. We found that OVAE did not always obtain and
maintain adequate documentation to support purchases and did not
centrally file purchase card statements and supporting documentation
consistent with Department policy. We also found that OVAE did not
reconcile credit transactions timely, and procurement staff did not
complete purchase card refresher training. These issues occurred because
OVAE staff were not always familiar with Department policy, and did not
consistently follow OVAE's requirements for preapproval of purchases.
AOs did not ensure that cardholders submitted complete supporting
documentation prior to approving the statements for payment. OVAE's
policy on filing purchase card documentation was not consistent with
Department requirements. Unreconciled transactions had not been
addressed because OVAE was waiting for a former cardholder to provide
details needed to reconcile these transactions, and because OVAE did not
closely monitor this area by reviewing reports of unreconciled
transactions. OVAE had not established a process to ensure all staff
completed refresher training as required.

Without adequate supporting documentation, OVAE does not have assurance
that purchases were appropriate and were made in accordance with Federal
regulations, Department policy and procedures, and OVAE guidelines.
Approving purchases without adequate supporting documentation could
result in payment for goods and services that were not received and
increases the Department's vulnerability to potential misuse or waste of
government resources. Decentralized filing of purchase card
documentation may result in loss of required information and does not
ensure the records are easily accessible. Untimely reconciliation of
credit transactions decreases the amount of funds available for other
uses. Cardholders that do not complete purchase card training may not be
aware of current policy and procedures concerning appropriate use of the
purchase card.

Issues noted above regarding lack of familiarity with Department policy
and training were also reported in the prior OIG review of OVAE's
purchase card activity.

In its response to the draft audit report, OVAE concurred with the
findings and provided corrective actions to address each of the
recommendations included in our report. The complete text of OVAE's
response is included as Attachment 1 to this report.

Finding 1 OVAE Needs to Further Improve Internal Control Over Purchase
Card Use

OVAE needs to further improve internal control over purchase card use.
We reviewed nine purchases made by two cardholders totaling \$11,199 and
found:

# 

-   One cardholder made one purchase totaling \$525 that did not include
    documentation to support that the services were received.

-   The same purchase above was not preapproved by OVAE's Executive
    Officer.

-   Another purchase totaling \$1,082 included annotations of "Received"
    by OVAE staff, but not the date received for some of the items.

We also noted that the record of purchase and record of receipt for one
additional purchase, and solicitation of bids from small businesses for
another purchase over \$2,500, were not originally included in the file.
Since OVAE staff were subsequently able to locate supporting
documentation for these two purchases from other sources, these
transactions were not included in the exceptions above.

We also noted improvements were needed regarding filing of purchase card
documentation, timeliness of reconciliations, and training, as follows:

-   OVAE did not centrally file purchase card statements and supporting
    documentation consistent with Department policy. This documentation
    was maintained by the cardholders during the year and then provided
    to the Executive Officer for filing at the end of the fiscal year.

-   Transactions were not always reconciled timely. On February 23,
    2005, OCFO sent to all cardholders and approving officials a
    detailed list of all unreconciled transactions from July 2001
    through January 2005. This list included five OVAE credit
    transactions totaling \$233 for a cardholder whose account had been
    closed in September 2004.

-   One cardholder and an AAO had not completed Governmentwide refresher
    training since calendar year 2001. The cardholder transferred to
    another PO in September 2004, but should have completed the
    refresher training during calendar year 2003.

Departmental Directive (Directive) OCFO: 3-104, "Government-wide
Commercial Purchase Card Program," 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.B.4.e of the Directive includes additional AO requirements
> that state, "Upon approval of the bank statement, forward
> documentation to a central filing location for retention."

With respect to requirements for timely reconciliation and approval of
purchase card statements, Section VII.B of the Directive states,

> 2\. The Cardholder must perform the following duties within 5 working
> days of receipt of his/her monthly statement: a. Reconcile the
> Cardholder\'s bank statement with his or her own records and with
> obligations recorded in the Department\'s financial system. Confirm
> receipt of items.
>
> 4\. The AO is required to perform the following duties within 5
> working days after receipt of the reconciled bank statement from the
> Cardholder, (but no later than 15 calendar days from the bank
> statement date): a. Ensure each purchase was made for official use and
> in accordance with established internal procedures.

In addition to the general timeliness requirements above, OCFO
establishes specific deadlines to complete these tasks when it transmits
monthly electronic statements to cardholders and AOs for reconciliation
and approval.

Section VII.C.6 of the Directive states,

> It is required that all employees involved in the Purchase Card
> Program attend mandatory training prior to receiving the card and/or
> actively participating in the Program. Refresher training for AOs,
> AAOs, Cardholders, Principal Officers, \[Executive Officers\] EXOs,
> and Program Managers is required every 2 years.

OVAE also established guidelines for purchase card use, including
preapproval of purchases, specific requirements for documenting receipt,
and filing of purchase card documentation. OVAE's guidelines state,

> If funds are available and the dollar amount is within the
> cardholder\'s limit, the request is forwarded to the Executive Officer
> to sign off or approve for processing.
>
> Upon receipt and acceptance of the goods or services, the cardholder
> shall notate on the documentation the date of receipt . . ..
>
> After the Approving Official reconciles and approves the monthly
> transactions for payment, the cardholder\'s statement and support
> documentation are filed by the cardholder in a secured or locked
> location at or near their workstation. After the close of each fiscal
> year, all of OVAE\'s cardholder files are stored together in a file
> drawer in the Executive Office, across from room 11-129 PCP.

Cardholders were not familiar with Department requirements to document
receipt and acceptance of goods or services. In some cases, OVAE staff
were not aware records of receipt must be obtained and retained with
purchase card documentation. OVAE staff stated records of receipt were
provided to staff that requested the goods. Cardholders did not
consistently follow OVAE internal guidelines regarding preapproval of
purchases. In the case noted, the purchase was preapproved by the AAO,
but not by the Executive Officer as required by OVAE's guidelines. In
addition, AOs did not ensure cardholders submitted complete supporting
documentation in accordance with Department policy and OVAE guidelines
prior to approving the statements for payment.

OVAE's guidelines requiring purchase card documentation to be filed with
the cardholder until after the end of the fiscal year conflicts with
Department policy requiring documentation to be centrally filed upon
approval of the statement each month. OVAE procurement staff were not
familiar with the Department policy in this area. With regard to
reconciliation, the Executive Officer stated that the outstanding
transactions had not been reconciled because OVAE was waiting for the
former cardholder to provide details needed to reconcile these
transactions. OVAE staff also did not review management reports of
outstanding transactions, and as such, did not closely monitor this
area. OVAE stated that the AAO was not aware that he was due for
refresher training. In addition, OVAE did not have a system to ensure
all staff participating in the purchase card program took refresher
training when required.

Without adequate supporting documentation, OVAE does not have assurance
that purchases were appropriate and were made in accordance with Federal
regulations, Department policy and procedures, and OVAE guidelines.
Approving purchases without adequate supporting documentation could
result in payment for goods and services that were not received and
increases the Department's vulnerability to potential misuse or waste of
government resources. Decentralized filing of purchase card
documentation may result in loss of required information and does not
ensure the records are easily accessible. Untimely reconciliation of
credit transactions decreases the amount of funds available for other
uses within the PO. Cardholders that do not complete purchase card
training may not be aware of current policies and procedures concerning
appropriate use of the purchase card.

Subsequent to our review, OVAE stated that it had implemented corrective
actions to address the weaknesses we identified. OVAE also stated that
it had reconciled the outstanding credits on the former cardholder's
account, and had revised its internal guidelines to eliminate the
conflict with Department policy and to strengthen internal control over
the purchase card program.

**Recommendations:**

We recommend that the Assistant Secretary for OVAE hold the Executive
Officer, Approving Officials, and cardholders accountable for their
responsibilities in the purchase card program by establishing a process
to:

1.  Ensure that staff participating in the purchase card program are
    familiar with Department policy and procedures and OVAE guidelines
    for the program.

    2.  Ensure cardholders consistently obtain and maintain appropriate
        supporting documentation for purchases as required by Department
        policy and OVAE guidelines, and that this documentation is filed
        with the purchase card statements.

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

1.4 Revise and implement internal purchase card guidelines to ensure
that purchase card statements and supporting documentation are
maintained in a central file consistent with Department policy.

1.5 Require AOs to review reports of unreconciled transactions and
ensure purchases are timely reconciled and approved for payment. Ensure
AOs and cardholders work with OCFO staff, as necessary, to resolve
unreconciled transactions.

1.6 Ensure that staff involved in the purchase card program complete
refresher training every two years as required by Department policy.

######## OVAE Response:

In its response to the draft audit report, OVAE concurred with the
findings and provided corrective actions to address each of the
recommendations included in our report. OVAE plans to conduct annual
training sessions, develop a checklist to ensure appropriate supporting
documentation is maintained in the file, conduct monthly reviews of
reports of unreconciled transactions, and document when staff complete
required training. OVAE also reported that it had already revised its
internal guidelines to ensure that purchase card documentation is
maintained in a central file consistent with Department policy.

**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 OVAE.

To accomplish our objectives, we performed a review of internal control
applicable to OVAE's administration and management of its purchase
cards. We evaluated the prior OIG review of the purchase card program in
OVAE 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, OVAE and OCFO procedures and guidance
applicable to the purchase card program.

We conducted interviews with staff in OCFO and OVAE 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 OVAE 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 OVAE, the random
sample included seven purchases. High-risk purchases for OVAE included
two purchases over \$2,500. No purchases to blocked merchant codes, or
potential split purchases were identified for OVAE. Overall, nine
purchases totaling \$11,199 made by two cardholders were included in our
review.

In total, OVAE Headquarters cardholders made 180 purchases totaling
\$65,762 during the scope period. The purchases we reviewed represented
5 percent of the total number of transactions, and 17 percent of the
total amount of purchases made by OVAE 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 OVAE
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 OVAE and 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 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 January 12, 2005, through March 14, 2005. We held an
exit conference with OVAE management and staff on March 29, 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

CONTROL NUMBER

# [ED-OIG/A19F0006]{.underline}

Michele Weaver-Dugan, Director

Operations Internal Audit Team

U.S. Department of Education

Office of Inspector General

400 Maryland Avenue, S.W.

Washington, DC 20202-1510

Dear Ms. Weaver-Dugan:

This memorandum is in response to the **Draft Audit Report** (Control
Number ED-OIG/A19F0006), dated May 26, 2005, that presents the results
of the Office of Inspector General (OIG) audit of *Controls Over
Purchase Card Use in the Office of Vocational and Adult Education
(OVAE).* The objectives of the audit were to assess the current
effectiveness of internal controls over the purchase card program and
the appropriateness of current purchase card use in OVAE.

Thank you for the information on the results of the audit. I am
committed to the Secretary's goal to strive for zero tolerance in all
management and administrative areas. It is very important to me that
OVAE's purchase card program complies with all federal regulations,
departmental policies and procedures, and OVAE's guidelines. I have
informed the OVAE Deputy Assistant Secretary for Programs and Management
and the OVAE Executive Officer, who is also OVAE's Approving Official
for authorizing cardholder purchases, that I expect OVAE's purchase card
program to be exemplary and serve as a model to be emulated by the
department. Thank you for noting in your report that OVAE has improved
since the OIG review of purchase card activity conducted in April 2000.
More importantly, I appreciate that your report identifies additional
opportunities by which OVAE can improve. I take the findings and
recommendations seriously, and I have directed my staff to begin
corrective actions immediately.

OVAE concurs with the report findings. The report identified a need to
further improve our internal controls over purchase card use.
Specifically, the report states that OVAE did not:

-   always obtain and maintain adequate documentation to support
    purchases;

-   centrally file purchase card statements and supporting documentation
    consistent with departmental policy;

-   reconcile credit transactions totaling \$233 timely; and

-   complete purchase card refresher training for procurement staff.

The report recommended that the Assistant Secretary hold the Executive
Officer, Approving Officials (AOs), and cardholders accountable for
their responsibilities in the purchase card program by establishing a
process to:

1.  Ensure that staff participating in the purchase card program is
    familiar with the department policy and procedures and OVAE
    guidelines for the program.

2.  Ensure cardholders consistently obtain and maintain appropriate
    supporting documentation for purchases, as required by department
    policy and OVAE guidelines, and that this documentation is filed
    with purchase card statements.

3.  Require the Approving Official (AO) to thoroughly review
    reconciliation packages provided by cardholders to ensure adequate
    supporting documentation is maintained.

4.  Revise and implement internal purchase card guidelines to ensure
    that purchase card statements and supporting documentation are
    maintained in a central file consistent with department policy.

5.  Require AOs to review reports of unreconciled transactions and
    ensure purchases are timely reconciled and approved for payment.
    Ensure AOs and cardholders work with OCFO staff, as necessary, to
    resolve unreconciled transactions.

6.  Ensure that staff involved in the purchase card program completes
    refresher training every two years as required by department policy.

In accordance with the requirements of the One-ED initiative, the
following corrective actions are proposed to address each of the
report's recommendations:

1.  To ensure that OVAE staff participating in the purchase card program
    are familiar with the department policy and procedures and OVAE
    guidelines for the program, the OVAE Executive Officer (who is also
    OVAE's AO) will conduct an annual training session with the Office
    of the Chief Financial Officer (OCFO) and the OVAE Alternate
    Approving Official (AAO) and cardholders to review and discuss all
    relevant policies, procedures, and guidelines.

```{=html}
<!-- -->
```
2.  To ensure that OVAE cardholders consistently obtain and maintain
    appropriate supporting documentation for purchases, as required by
    department policy and OVAE guidelines, and that this documentation
    is filed with purchase card statements, the Executive Officer/AO
    will conduct an annual training session with OCFO and the OVAE AAO
    and cardholders to review and discuss all relevant policies,
    procedures, and guidelines. In addition, a checklist to identify
    supporting documents used in the completion of each transaction will
    be developed and maintained in the file.

3.  To ensure that the AO thoroughly reviews reconciliation packages
    provided by cardholders to ensure adequate supporting documentation
    is maintained, the Executive Officer/AO or the AAO will initial off
    on all items on the checklist and sign and date the checklist.

4.  We have already acted on the recommendation to revise and implement
    internal purchase card guidelines to ensure that purchase card
    statements and supporting documentation are maintained in a central
    file consistent with department policy. OVAE's internal purchase
    card guidelines were revised in April 2005 to require that
    statements and supporting documents be maintained in a central file.
    The Executive Officer/AO will spot check the location of files and
    use a department financial report to randomly spot check individual
    files to verify that purchase documents are properly filed. The
    Executive Officer/AO will post the OVAE internal purchase card
    guidelines on our Web site.

5.  To ensure that AOs review reports of unreconciled transactions, that
    purchases are timely reconciled and approved for payment, and that
    AOs and cardholders work with OCFO staff, as necessary, to resolve
    unreconciled transactions, the Executive Officer/AO will review the
    monthly OCFO reports on unreconciled transactions, document all
    transactions over 60 days old, and hold OVAE cardholders responsible
    for resolving all transactions within 90 days. The Executive
    Officer/AO will work with OCFO to resolve complex transactions.

6.  To ensure that staff involved in the purchase card program completes
    refresher training every two years, as required by department
    policy, the Executive Officer/AO will identify OVAE\'s cardholders
    and AAO; formally inform them (and their supervisors) of refresher
    training available at OCFO\'s Web site of Government-Wide Commercial
    Purchase Card Training at
    [http://tln/cbt1/purchase%20card/attendancereview.cfm](http://tln/cbt1/purchase card/attendancereview.cfm)[;]{.underline}
    and document when these staff complete the required training.

I have attached a proposed corrective action plan to this memorandum
that addresses each of the report's recommendations. I will see to it
that the OVAE Executive Officer sends you a quarterly update. Again, I
want to thank you for your assistance in ensuring that OVAE's purchase
card program is a leader in the department. Please contact me or
Nicholas Dorka, the OVAE Executive Officer, if you have any questions
concerning this response.

Sincerely,

Susan Sclafani /s/

Assistant Secretary for

Vocational and Adult Education