October 25, 2005

CONTROL NUMBER

[ED-OIG/A19F0014]{.underline}

Michell Clark

Acting Assistant Secretary for Management

Office of Management

U. S. Department of Education

400 Maryland Avenue, SW

Washington, DC 20202

Dear Mr. Clark:

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This **Final Audit Report** (Control Number ED-OIG/A19F0014) presents
the results of our audit of *Controls Over Purchase Card Use in the
Office of Management*. 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
Management (OM).

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# 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.

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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. The
Executive Officer is responsible for implementing the purchase card
program in OM. The Executive Officer is the only approving official (AO)
in OM and therefore the primary official responsible for authorizing
cardholder purchases and ensuring timely reconciliation of cardholder
statements.

On June 26, 2000, the Office of Inspector General (OIG) issued a report
entitled, "Results of the OIG Review of OM's Internal Controls Over the
Procurement of Goods and Services," (Control Number A&I 2000-004). OIG
reported a number of deficiencies in OM's internal control over the
purchase card program including lack of familiarity with Department
policy and procedures, training and/or refresher training not completed
by staff involved in the program, lack of appropriate warrants for
cardholders, lack of adequate supporting documentation for purchases,
lack of approval of purchase card statements, and lack of written
internal purchase card procedures.

This audit is part of a review of the purchase card program being
performed Department-wide. 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 OM. A summary
report will be provided to the Department's Chief Financial Officer upon
completion of the audits in individual offices.

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#### []{.mark}

#### AUDIT RESULTS

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While improvements were noted from the prior OIG review, OM needs to
further improve internal control over purchase card use. We found that
OM cardholders did not always obtain or maintain adequate documentation
to support purchases as required by Department policy and OM guidelines.
We also noted that one OM cardholder had not completed purchase card
refresher training when required, and that OM did not centrally file
purchase card statements and supporting documentation. We also noted
that arrangements for two purchases were made by a person other than the
cardholder for services that were subsequently paid with the purchase
card.

These issues occurred because OM cardholders and the AO were not always
familiar with the policies and procedures established by the Department,
and the AO did not ensure that the cardholders submitted complete
supporting documentation prior to approving the statements for payment.
OM no longer requires its cardholders to maintain an order log as this
feature is now available in the Contracts and Purchasing Support System
(CPSS), but OM's guidelines had not been updated to reflect this change
in practice. The AO stated he was not aware that a cardholder had not
taken refresher training on time. OM staff stated they do not have a
central filing location that could be locked securely within their
office space. Finally, with respect to the purchase of services made by
an individual other than the cardholder, OM stated that the practice had
been that an individual in the program area would make arrangements for
those purchases.

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

Outdated OM guidelines regarding requirements for an order log that do
not reflect current practice could lead to confusion about the
applicability of other areas of the guidelines. Cardholders that do not
complete purchase card training may not be aware of current policies and
procedures concerning appropriate use of the purchase card.
Decentralized filing of purchase card documentation does not ensure that
records are being appropriately maintained and may result in loss of
information required to support Department purchases. The practice of
allowing purchases to be arranged by staff other than the cardholder
results in purchases made by an individual without appropriate
procurement training and authority to obligate funds on behalf of the
Department.

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Issues noted above regarding lack of adequate documentation, lack of
familiarity with Department policies, and lack of refresher training
were previously reported in the prior OIG review of OM purchase card
activity.

OM responded to our draft report and agreed with our finding and five of
the six recommendations made. OM did not agree with the recommendation
to centrally file purchase card files as required by Department policy.
OM outlined corrective actions to address the other recommendations
contained in the audit report. The full text of OM's response is
included as Attachment 1 to this report.

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

While improvements were noted from the prior OIG review, OM needs to
further improve internal control over purchase card use. We reviewed 32
purchases totaling \$22,683 made by 5 OM Headquarters cardholders. We
found that OM cardholders did not always obtain or maintain adequate
documentation to support purchases as required by Department policy and
OM guidelines. Overall, we found that 22 of the 32 purchases reviewed
(69 percent) did not include one or more elements required.
Specifically, we found:[^1]

-   Four purchases did not include complete documentation to support the
    record of purchase.

-   22 purchases did not include complete documentation to support that
    the goods or services were received. Of these, nine purchases were
    for training services.

We also found that 25 of the 32 transactions were not recorded on an
order log and/or the AO did not initial the order log as required by
OM's purchase card guidelines.

We reviewed training records for OM cardholders and approving official
and noted that one cardholder had not completed purchase card refresher
training during calendar years 2003 through 2004, but did complete the
refresher training on March 28, 2005. OM did not centrally file purchase
card statements and supporting documentation as required. Instead,
cardholders maintained this data for the current and prior fiscal years.

We also reviewed 19 potential split purchases (purchases to the same
vendor on the same day or within a few days). We did not identify any
split purchases, but we did find that two of the transactions
represented arrangements made by a person other than the cardholder for
services that were subsequently paid with the purchase card. This
represents an inappropriate practice because, although the person who
made the arrangements did check funding availability, he did not have
procurement authority.

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

> []{.mark}
>
> 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 . . .
> .
>
> J. The EXO is . . . 11. Responsible for establishing the location of
> Cardholder records, as these are the official records. The records
> must be kept secure and be easily retrievable upon request.

Directive Section VII.B.4.e, includes additional AO requirements that
state:

> Upon approval of the bank statement, forward documentation to a
> central filing location for retention.

Directive Section VII.C.6, states:

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

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) . . . .

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OM established additional guidelines for purchase card use within its
office. These procedures state,

#### 

#### Cardholder Responsibilities . . . 6. At the time of the order, an entry is made in the Order Log. Each \[cardholder\] CH will maintain an order log and will keep it up to date. 

#### Approving Official Responsibilities . . . 4. The AO will ensure all expenditures are valid, have full documentation, and have the appropriate signatures for reconciling the bill. Although electronic signatures will soon replace hard copy signatures in the system, we will continue OM's internal procedure of requiring hard copy signatures for now.  5. Once the review is completed, the AO will sign the CH statement and initial order log pages. 

We found that cardholders and the AO were not always familiar with the
policies and procedures established by the Department, and the AO did
not ensure that the cardholders submitted complete supporting
documentation prior to approving the statements for payment. The AO
stated that in some cases, invoices were requested from vendors but
never received. The AO stated that cardholders did not pursue obtaining
records of receipts for training services since he believed the training
vendors and/or managers would provide notice if staff did not attend
planned training. For records of receipt of other items, the AO stated
that cardholders may have verbally confirmed receipt, but not documented
it.

With respect to the order log, OM no longer requires its cardholders to
maintain an order log, as this feature is now available in CPSS. OM's
guidelines had not been updated to reflect this change in practice. The
AO stated OM was not aware that a cardholder had not taken refresher
training on time.

OM staff stated they do not have a central filing location that can be
locked securely within their office space. The Executive Officer stated
that he has keys to the cardholders' desks so that the data stored with
the cardholders is readily accessible. We discussed this issue with CAM
staff, who stated that having the cardholders maintain the documentation
after the statements are approved is not acceptable. OM published the
room number locations for the purchase card documentation in its
guidelines. The Executive Officer stated that CAM was provided a copy of
these guidelines and he was not informed by CAM that the filing
locations were not appropriate. OM's guidelines do not, however,
indicate that the cardholders are maintaining the documentation, just
the room numbers where the documents are located.

With respect to the purchase of services made by an individual other
than the cardholder, OM stated that the practice had been that the
individual in the program area would make arrangements for the purchase.

Lack of adequate supporting documentation reduces assurance that
purchases were appropriate and were made in accordance with Federal
regulations, Department policy and procedures, and OM 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.

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Outdated OM guidelines regarding requirements for an order log that do
not reflect current practice could lead to confusion about the
applicability of other areas of the OM guidelines. Cardholders that do
not complete purchase card training may not be aware of current policies
and procedures concerning appropriate use of the purchase card.
Decentralized filing of purchase card documentation does not ensure that
records are being appropriately maintained and may result in loss of
information required to support Department purchases.

The practice of allowing purchases to be arranged by staff other than
the cardholder results in purchases made by an individual without
appropriate procurement training and authority to obligate funds on
behalf of the Department.

During our review the Executive Officer updated the OM guidelines to
eliminate the requirement for an order log. OM further stated that the
practice of having program staff make arrangements for the purchases of
services has been corrected and the vendors were notified not to proceed
with work until verification is received from the cardholder.

**[Recommendations:]{.underline}**

We recommend that the Acting Assistant Secretary for Management hold the
Executive Officer/AO and cardholders accountable for their
responsibilities in the purchase card program by establishing a process
to:

1.  Ensure OM cardholders and the AO are familiar with the Department's
    policies and requirements for obtaining and maintaining supporting
    documentation, and that the cardholders should make purchase
    arrangements, not staff in other areas.

> 1.2 Ensure cardholders consistently obtain and maintain records of
> purchase, records of receipt, and other appropriate supporting
> documentation for purchases as required by Department policy and
> procedures and OM guidelines.
>
> 1.3 Require the AO to thoroughly review reconciliation packages
> provided by the cardholders to ensure adequate supporting
> documentation is maintained.
>
> 1.4 Ensure that OM staff participating in the program complete
> refresher training every two years as required by Department policy
> and procedures.

5.  Establish a central filing location for purchase card documentation
    once statements are approved as required by the Department
    Directive.

> 1.6 Revise and implement internal purchase card guidelines and
> procedures to correct the requirement for an order log, and to ensure
> that purchase card statements and supporting documentation are
> maintained in a central file consistent with Department policy.

**[OM Response]{.underline}****[:]{.underline}**

OM agreed with our finding and five of the six recommendations made. OM
provided corrective actions to address each recommendation with which it
agreed. OM outlined a new process to ensure that cardholders, not other
OM staff, make final purchase arrangements. OM stated that a
certification will be required from staff upon completion of training,
and that the AO will continue to scrutinize reconciliation packages to
ensure all required documentation is obtained. OM stated that the AO and
cardholder supervisors reminded cardholders of the requirements for
refresher training, and when due, will obtain proof that the training
was completed. OM reported that it had already made changes to its
internal policy.

OM did not agree with Recommendation 1.5 to centrally file purchase card
documentation, as required by Department policy. OM stated that its
central files were not secure and stated its belief that locating the
documentation with the cardholders is more secure. We have not changed
this recommendation, as Department policy requires central filing of
purchase card information. OM should work with CAM to develop an
appropriate corrective action for this recommendation that will satisfy
OM's concerns and comply with the Department's requirements.

# 

# 

# OBJECTIVES, SCOPE, AND METHODOLOGY

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

We conducted interviews with OCFO and OM 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 OM 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 OM, the random sample
included 29 purchases. High-risk purchases for OM included 19 potential
split purchases and 3 blocked merchant category code purchases. No
purchases over \$2,500 were identified for OM. Overall, 48 purchases
totaling \$31,622 made by 5 cardholders were included in our review.

In total, OM headquarters cardholders made 621 purchases totaling
\$277,581 during the scope period. The purchases we reviewed represented
8 percent of the total number and 11 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 OM 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 OM and OCFO staff through CPSS. 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 6, 2005, through July 13, 2005. We held an exit
conference with OM staff on August 30, 2005. Our audit was performed in
accordance with generally accepted government auditing standards
appropriate to the scope of the review described above.

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##### 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 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 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

cc: Keith Berger, OM Executive Officer

Nina Aten, OM Audit Liaison Officer

![](media/image3.wmf)

October 12, 2005

TO: Helen Lew

Assistant Inspector General for Audit

Office of Inspector General

FROM: Michell C. Clark /s/

Acting Assistant Secretary for Management and Chief Information Officer

> SUBJECT: DRAFT AUDIT REPORT: *Controls Over Purchase Card Use in*
>
> *the Office of Management*, Control Number ED-OIG/A19F0014

Thank you for your draft audit report, *Controls Over Purchase Card Use
in the Office of Management*, Control Number ED-OIG/A19F0014 dated
September 16, 2005. The Office of Management (OM) concurs with the
majority of your recommendations for your single finding. Our response
and related corrective action plan follows.

**Finding 1**: OM Needs to Further Improve Internal Control Over
Purchase Card Use

**Recommendation 1.1**: Ensure OM cardholders and the AO are familiar
with the Department's policies and requirements for obtaining and
maintaining supporting documentation, and that the cardholders should
make purchase arrangements, not staff in other area.

**Proposed Corrective Action**: The Section 504 Coordinator will
continue to make the tentative arrangements for CART services upon
request and submit a requisition to the cardholder in the Executive
Office for approval. The vendor will not proceed with the work until the
cardholder in the Executive Office contacts them. The Section 504
Coordinator already contacted the vendors to advise them of these
procedural changes. The reference in your report on page 4, first
paragraph, that the \"cardholder was not aware of the purchase until
invoices were received several weeks later\" is not correct. The
cardholder was informed that the services were being arranged for in
advance of the services by her receipt of the requisition with Section
504 approvals, backup documentation, dates, etc. It had been the
arrangement with the Section 504 coordinator to make preparatory
arrangements with vendors because of the complexity and timing of the
arrangements, as well as their frequency of occurrence. The cardholder
was aware of the estimated costs for these services but would not act on
the obligation until actuals costs were reported. Of course, this would
normally occur after the services were incurred. The August 15, 2005
email exchange between the cardholder and her supervisor, which outlines
these new procedures, will be placed in the audit notebook. The 504
Coordinator's concurrence with these procedures is documented in the
email exchange.

This email exchange includes the cardholder's supervisor's approval of
these procedures. This email exchange, included in Attachment A, is the
documentation supporting the completion of this corrective action.

**Completed:** August 15, 2005

**Recommendation 1.2**: Ensure cardholders consistently obtain and
maintain records of purchase, records of receipt, and other appropriate
supporting documentation for purchases as required by Department policy
and procedures and OM guidelines.

**Proposed Corrective Action**: The missing documentation discussed in
this recommendation concerned documents relating to training
requests/actions. The Approving Official (AO) consistently reviews
reconciliations packages, reconciles in the CPPS system, and will
continue to scrutinize the packages upon receipt. To correct the
deficiency regarding training requests/actions, the Executive Office
procurement staff will send a copy of the purchase order for training
with instructions on registering for courses, how to cancel a course
when necessary, and a completion certification sheet. The employee and
his/her supervisor must sign the certification upon completion of the
training. A copy of the certification form sent to the employee will be
kept by the Executive Office in a tickler file and filed by the date the
training is to be completed. The employee will have 5 days after course
completion to submit the signed form to the Executive Office. If the
Executive Office does not receive the form within the 5 days, the
employee will be sent a reminder. After the completed form is received,
it will be filed with the purchase order and used as proof of services
rendered. The certification form, along with instructions for the new
procedure, will be distributed in an email from the Executive Officer to
all OM and Office of the Chief Information Officer staff. A copy of the
email and the certification form will be placed in the audit notebook as
documentation supporting the completion of this corrective action.

**Proposed Completion Date**: October 30, 2005.

**Recommendation 1.3**: Require the AO to thoroughly review
reconciliation packages provided by the cardholders to ensure adequate
supporting documentation is maintained.

**Proposed Corrective Action**: See the response to recommendation 1.2
above.

**Proposed Completion Date**: October 30, 2005

**Recommendation 1.4**: Ensure that OM staff participating in the
program complete refresher training every two years as required by
Department policy and procedures.

**Proposed Corrective Action**: The Executive Officer/AO and the
supervisor of the cardholders again reminded all cardholders that they
must take the refresher courses and when a notice is issued by OCFO
regarding the training the AO and the employee\'s supervisor will remind
them until they show proof that they took the training on time. Also,
the single individual that did not take the refresher course on time was
counseled at their final performance rating discussion. To assist AO\'s,
it would be helpful if OCFO/CAM provided follow-up status reports to
offices on cardholder training fulfillment like what is done for other
Department-wide training activities (IT security training, ethics
training, etc.). A copy of the training completion certificate for the
single individual that did not take the refresher course on time, dated
March 28, 2005, will be placed in the audit notebook as documentation
supporting the completion of this corrective action. This documentation
is included in Attachment B.

**Completed:** March 28, 2005

**Recommendation 1.5**: Establish a central filing location for purchase
card documentation once statements are approved as required by the
Department Directive.

**Response**: OM does not concur with this recommendation. Purchase card
documentation is centrally located in the Executive Office within the
respective filing locations for the cardholders. The central files in
the Executive Office surround files are not secure. They are in the
open, are of poor quality and in many instances can be forced open. The
files located at each cardholder\'s work area are much more secure. The
AO has keys to those individual files for accessibility. If the files
are centrally located, there is access by all cardholders and the
possibility for misfiling or leaving a file cabinet unlocked is more apt
to happen than if only the cardholder retains them at their individual
work area. The directive states under Section V.J.11. that the
\"Executive Officer is responsible for establishing the location of
cardholder records, as these are the official records. The records must
be kept secure and be easily retrievable upon request\". Then under
Section VII.B.e., the directive states that \"Upon approval of the bank
statement, forward documentation to a central filing location for
retention\...\....\" The OCFO argument that \"decentralized filing or
purchase card documentation does not ensure that records are being
appropriately maintained and may result in loss of information required
to support Department purchases\" and that it is \"not acceptable\" in
our view cannot be defended with the assertion that a centralized filing
location is any more safe or secure or would result in any less loss of
information. Just as it is the cardholder's obligation and
responsibility to safeguard their card, why wouldn\'t this fall under
that same responsibility?

**Recommendation 1.6**: Revise and implement internal purchase card
guidelines and procedures to correct the requirement for an order log,
and to ensure that the purchase card statements and supporting
documentation are maintained in a central file consistent with the
Department policy.

**Proposed Corrective Action**: The Executive Officer/AO made the
necessary internal policy changes in August 2005, with the exception of
the placement of records in a central file location on which we
non-concur. A copy of the *Office of Management Policy and Guidelines
for Purchase Card Use*, dated June 9, 2005, will be placed in the audit
notebook as documentation supporting the completion of this corrective
action. This documentation is included in Attachment C.

**Completed**: June 9, 2005

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