September 14, 2005

CONTROL NUMBER

[ED-OIG/A19F0021]{.underline}

## 

## Grover Whitehurst, Director

## Institute of Education Sciences

U. S. Department of Education

Capital Place, Room 600D

555 New Jersey Avenue, NW

Washington, DC 20208

Dear Mr. Whitehurst:

This **Final Audit Report** (Control Number ED-OIG/A19F0021) presents
the results of our audit of *Controls Over Purchase Card Use in the
Institute of Education Sciences.* 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
Institute of Education Sciences (IES).

#### 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. IES'
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 August 28, 2000, the Office of Inspector General issued a report
entitled "Review of OERI's Internal Controls Over the Procurement of
Goods and Services," (Control Number A&I 2000-009).[^1] OIG reported a
number of deficiencies in IES' 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, lack of adequate supporting documentation for
purchases, and lack of written internal purchase card 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 IES. 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 IES needs to further improve internal control
over purchase card use. We found that IES did not always obtain and
maintain adequate documentation to support purchases. These issues
occurred because IES cardholders did not consistently follow Department
requirements and IES guidelines, and AOs did not always ensure that
adequate supporting documentation was obtained prior to approving
statements for payment.

Without adequate supporting documentation, IES does not have assurance
that purchases were appropriate and were made in accordance with Federal
regulations and Department policy and procedures. 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.

Issues noted above regarding lack of supporting documentation for
purchases were also reported in the prior OIG review of IES' purchase
card activity.

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

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

While improvements were noted from the prior OIG review, IES needs to
further improve internal control over purchase card use. We reviewed
nine purchases, totaling \$8,913, made by three IES Headquarters
cardholders. We found that IES cardholders did not always obtain or
maintain adequate documentation to support purchases as required by
Department policy and IES guidelines. Overall, we noted seven of the
nine purchases reviewed (78 percent) did not include one or more
required elements.[^2] Specifically we found:

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

-   One purchase did not include a record of purchase.

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

-   One purchase did not include the Purchase Card Approval Form as
    required by IES internal purchase card guidelines.

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 C0-097, "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:

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-   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). . . .

IES established additional guidelines for purchase card use within its
office. IES' "Internal Control Procedures for Purchase Cards," in effect
since October 2002, states the following regarding documentation,
[]{.mark}

Cardholders are to complete and submit the Purchase Card Approval Form
(Attachment A) to their approving official prior to making a charge. The
list may be submitted via email or hardcopy. An approving signature or
return email is required and should be retained as part of the official
file.

Appropriate supporting documentation was not obtained and maintained
because IES cardholders did not consistently follow Department
requirements and IES guidelines. We also noted that AOs did not always
ensure that adequate supporting documentation was obtained prior to
approving statements for payment.

Lack of adequate supporting documentation reduces assurance that
purchases were appropriate and were made in accordance with Federal
regulations, Department policy and procedures, and IES guidelines.
Approving purchases without reviewing adequate supporting documentation
could increase the Department's vulnerability to potential misuse or
waste of government resources. Failure to document receipt of goods and
services could result in payment for items that were ultimately not
provided to the Department.

#### Recommendations:

We recommend that the Director, IES, 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 cardholders and AOs are familiar with the Department's
    policy and procedures and IES guidelines for obtaining and
    maintaining supporting documentation.

2.  Ensure cardholders obtain and maintain written purchase requests and
    approvals, records of purchase, and records of receipt for purchases
    as required by Department policy and procedures and IES guidelines.

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1.  Require AOs to thoroughly review reconciliation packages provided by
    cardholders to ensure that adequate supporting documentation is
    maintained.

**IES Response:**

In its response to the draft audit report, IES concurred with the
finding and recommendations and provided corrective actions to address
each of the three recommendations included in our report. IES stated a
training session was held on August 17, 2005, with all cardholders and
approving officials to review the audit findings and to ensure that
cardholders and approving officials are thoroughly familiar with the
Department's policy and procedures and IES guidelines for obtaining and
maintaining supporting documentation. IES indicated additional training
sessions would be held annually. IES stated it revised and distributed
the Institute's Internal Control Procedures for Purchase Cards to
specifically outline the documentation requirements for each purchase
card transaction. Finally, IES stated the Executive Officer has been
directed to review all the purchase card documentation submitted each
month to ensure that cardholders obtain and maintain written purchase
requests and approvals, records of purchase, and records of receipt for
purchases, and that approving officials thoroughly review reconciliation
packages provided by cardholders to ensure that adequate supporting
documentation is maintained.

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

We conducted interviews with OCFO and IES 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 IES 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 IES, the random sample
included nine purchases totaling \$8,913 made by three cardholders. No
purchases over \$2,500, charges to blocked merchant category codes, or
potential split purchases were identified for IES.

In total, IES Headquarters cardholders made 233 purchases totaling
\$72,363 during the scope period. The purchases we reviewed represented
4 percent of the total number and 12 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 IES 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 IES 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 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 June 13, 2005, through July 11, 2005. We held an exit
conference with IES staff on July 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 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 recommendations 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 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. §552),
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

#########   {#section-3 .unnumbered}

######### Attachment 1

[]{.mark}

**MEMORANDUM**

TO: Michele Weaver-Dugan, Director

Operations Internal Audit Team

Office of Inspector General

FROM: Grover J. Whitehurst

SUBJECT: Draft Audit Report of Controls Over Purchase Card Use in the
Institute of

> Education Sciences (Control Number ED-OIG/A19F0021)

This is in response to your letter of August 12, 2005, concerning the
Draft Audit Report of Controls Over Purchase Card Use in the Institute
of Education Sciences (Control Number ED-OIG/A19F0021). We appreciate
the opportunity to respond to your findings and recommendations.

IES concurs with the auditors' finding that IES cardholders did not
always obtain or maintain adequate documentation to support purchases as
required by Department policy and IES guidelines. Specifically the
auditors found that for the nine purchases reviewed:

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

-   One purchase did not include a record of purchase.

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

-   One purchase did not include the Purchase Card Approval Form as
    required by IES internal purchase card guidelines.

The audit recommends that the IES Director 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 cardholders and AO's are familiar with the Department's
    policy and

procedures and IES guidelines for obtaining and maintaining supporting

documentation.

2.  Ensure cardholders obtain and maintain written purchase requests and
    approvals, records of purchase, and records of receipt for purchases
    as required by Department policy and procedures and IES guidelines.

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

In response to the three recommendations, we have taken a number of
steps to correct the problems identified and make improvements in the
IES purchase card program:

A training session was held on August 17, 2005, with all cardholders and
approving officials to review the audit findings and to ensure that
cardholders and approving officials are thoroughly familiar with the
Department's policy and procedures and IES guidelines for obtaining and
maintaining supporting documentation. Additional training sessions will
be held annually.

In addition, we have revised the Institute's Internal Control Procedures
for Purchase Cards to specifically outline the documentation
requirements for each purchase card transaction:

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

-   Signed Purchase Card Approval form (or similar document).

-   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)

Copies of the revised procedures were distributed to all card holders
and approving officials at the August 17 training session.

The executive officer has been directed to review all the purchase card
documentation submitted each month to ensure that cardholders obtain and
maintain written purchase requests and approvals, records of purchase,
and records of receipt for purchases and that

approving officials thoroughly review reconciliation packages provided
by cardholders to ensure that adequate supporting documentation is
maintained.

Thank you for the opportunity to respond to this draft. We look forward
to the issuance of the final audit report. If you have any questions,
please feel free to contact Sue Betka at (202) 219-1385.

[^1]: The Office of Educational Research and Improvement (OERI) became
    the Institute of Education Sciences (IES) in 2002.

[^2]: Some purchases were missing more than one element.