a

GAO

United States General Accounting Office

Testimony

Before the Committee on Veterans’ Affairs, House of 

Representatives

For Release on Delivery

Expected at 10:00 a.m. EDT

Thursday, June 17, 2004

VETERANS HEALTH 

ADMINISTRATION

Inadequate Controls over 

the Purchase Card 

Program Resulted in 

Improper and Questionable 

Purchases

Statement of McCoy Williams

Director, Financial Management and Assurance

GAO-04-857T
www.gao.gov/cgi-bin/getrpt?GAO-04-857T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-6906 or 

williamsm1@gao.gov. 

Highlights of GAO-04-857T, a testimony 

before the Committee on Veterans’ Affairs, 

House of Representatives 

June 17, 2004

VETERANS HEALTH ADMINISTRATION

Inadequate Controls over the Purchase 

Card Program Resulted in Improper and 

Questionable Purchases 

Weaknesses in VHA’s controls over the use of purchase cards and 

convenience checks resulted in instances of improper, wasteful, and 

questionable purchases. These weaknesses included inadequate segregation 

of duties; lack of key supporting documents; lack of timeliness in recording, 

reconciling, and reviewing transactions; and insufficient program monitoring 

activities. Generally, GAO found that internal controls were not operating as 

intended because cardholders and approving officials were not following 

VA/VHA operating guidance governing the program and, in the case of 

documentation and vendor-offered discounts, lacked adequate guidance. 

The lack of adequate internal controls resulted in numerous violations of 

applicable laws and regulations and VA/VHA purchase card policies that 

GAO identified as improper purchases. GAO found violations of applicable 

laws and regulations that included purchases for personal use such as food 

or clothing, purchases that were split into two or more transactions to 

circumvent single purchase limits, purchases over the $2,500 micro-purchase 

threshold that were either beyond the scope of the cardholder’s authority or 

lacked evidence of competition, and purchases made from an improper 

source. While the total amount of improper purchases GAO identified is 

relatively small compared to the more than $1.4 billion in annual purchase 

card and convenience check transactions, they demonstrate vulnerabilities 

from weak controls that may have been exploited to a much greater extent. 

The ineffectiveness of internal controls was also evident in the number of 

transactions classified as wasteful or questionable. GAO identified over 

$300,000 in wasteful or questionable purchases, including two purchases for 

3,348 movie gift certificates totaling over $30,000 for employee awards for 

which award letters or justification for the awards could not be provided and 

a purchase for a digital camera totaling $999 when there were other less 

costly digital cameras widely available. Also, 250 questionable purchases 

totaling $209,496 from vendors that would more likely be selling 

unauthorized or personal use items lacked key purchase documentation. 

Examples of these types of purchases included a purchase from Radio Shack 

totaling $3,305, a purchase from Daddy’s Junky Music totaling $1,041, a 

purchase from Gap Kids totaling $788, and a purchase from Harbor Cruises 

totaling $357. Missing documentation prevented determining the 

reasonableness and validity of these purchases. Because only a small 

portion of the transactions that appeared to have a higher risk of fraud, 

waste, or abuse were tested, there may be other improper, wasteful, and 

questionable purchases in the remaining untested transactions. 

The Department of Veterans Affairs 

(VA) Office of Inspector General 

(OIG) has continued to identify 

significant vulnerabilities in the 

department’s use of government 

purchase cards. Over the years, the

OIG has identified internal control 

weaknesses that resulted in 

instances of fraud and numerous 

improper and questionable uses of 

purchase cards. The OIG has made 

a number of recommendations for 

corrective action. 

Given that VA is the second largest 

user of the governmentwide 

purchase card program, with 

reported purchases totaling $1.5 

billion for fiscal year 2002, and 

because of the program 

weaknesses reported by the OIG, 

GAO was asked to determine 

whether existing controls at the 

Veterans Health Administration 

(VHA) were designed to provide 

reasonable assurance that 

improper purchases would be 

prevented or detected in the 

normal course of business, 

purchase card and convenience 

check expenditures were made in 

compliance with applicable laws 

and regulations, and purchases 

were made for a reasonable cost 

and a valid government need. 

GAO’s report on this issue, released 

concurrently with this testimony, 

makes 36 recommendations to 

strengthen internal controls and 

compliance in VHA’s purchase card 

program to reduce its vulnerability 

to improper, wasteful, and 

questionable purchases. 
Page 1 GAO-04-857T 

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss internal controls over the use of 

purchase cards at the Veterans Health Administration (VHA). At the outset, 

I want to make clear that GAO supports the concept of the purchase card 

program. The benefits of using purchase cards are lower costs and less 

bureaucracy for both the government and the vendor community. At the 

same time, given the nature, scale, and increasing use of purchase cards, it 

is important that agencies have adequate internal controls in place to help 

ensure proper use of purchase cards and thus to protect the government 

from waste, fraud, and abuse.

As you know, the Department of Veterans Affairs (VA) Office of Inspector 

General (OIG) has continued to identify significant vulnerabilities in the 

department’s use of government purchase cards. 1 In its most recent report, 

the OIG identified internal control weaknesses that resulted in instances of 

fraud and numerous improper and questionable uses of purchase cards. 

The OIG made a number of recommendations for corrective action.

Given that VA is the second largest user of the governmentwide purchase 

card program, with reported purchases totaling $1.5 billion for fiscal year 

2002, and because of the program weaknesses reported by the OIG, you 

asked that we review VHA’s purchase card program for fiscal year 2002 to 

determine if control problems still existed. Our report on this issue is being 

released today at this hearing.

You also asked that we review internal control activities (1) over thirdparty billings and collections at selected VHA medical centers to assess 

whether those controls were designed and implemented effectively and 

(2) in three areas of operation at selected VHA medical centers— 

accountability over personal property, drugs returned for credit, and parttime physician time and attendance. These two reports will be issued later 

this month.

In my testimony today, I will discuss the inadequacy of internal controls 

over VHA’s purchase card program. The scope of our work, which was 

performed from April 2003 through April 2004 in accordance with generally 

1

U.S. Department of Veterans Affairs, Office of Inspector General, Evaluation of the 

Department of Veterans Affairs Government Purchase Card Program, Report Number 02-

01481-135 (Washington, D.C.: Apr. 26, 2004).
Page 2 GAO-04-857T 

accepted government auditing standards, is detailed in the report being 

released today. 

Heads of agencies are required to establish systems of internal control 

consistent with our Standards for Internal Control in the Federal 

Government.

2

 Effective internal controls are the first line of defense in 

safeguarding assets and in preventing and detecting fraud. In addition, they 

help to ensure that actions are taken to address risks and are an integral 

part of an entity’s accountability for the stewardship of government 

resources. 

As I will discuss in my testimony, we found that (1) existing controls at 

VHA were not designed to provide reasonable assurance that improper 

purchases would be prevented or detected in the normal course of 

business, (2) lack of compliance with applicable laws and regulations in 

VHA’s purchase card and convenience check programs led to improper 

purchases, and (3) poor controls resulted in some wasteful and 

questionable purchases. We focused on the approximately $1.4 billion of 

disbursements that VHA made during fiscal year 2002, the most recent 

fiscal year for which complete data were available when we began our 

review.

I will first address the inadequacy of VHA’s internal controls.

Critical Internal 

Controls Were 

Ineffective

Our review found that VHA’s internal controls were not designed to provide 

reasonable assurance that improper purchase card and convenience check 

purchases would not occur or would be detected in the normal course of 

business. We found that (1) VHA lacked adequate segregation of duties 

between those purchasing and receiving goods; (2) payments for purchase 

card and convenience check transactions often did not have key supporting 

documents; (3) timeliness standards for recording, reconciling, and 

reviewing transactions were not met; and (4) cardholders did not 

consistently take advantage of vendor-offered purchase discounts. 

Generally, we found that internal controls were not operating as intended 

because cardholders and approving officials were not following operating 

guidance governing the program, and in the case of documentation and 

vendor-offered discounts, they lacked guidance. We also noted that 

2

U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
Page 3 GAO-04-857T 

monitoring activities could be strengthened, for example, as in instances 

where (1) accounts remained active long after the cardholder had left 

service at VA, (2) credit limits on accounts were significantly higher than 

actual usage, and (3) human capital resources were insufficient to enable 

adequate monitoring of the purchase card program.

Our Standards for Internal Control in the Federal Government requires 

that (1) key duties and responsibilities be divided or segregated among 

different people to reduce the risk of error or fraud; (2) all transactions and 

other significant events be clearly documented and readily available for 

examination, and other significant events be authorized and executed only 

by persons acting within the scope of their authority; (3) transactions be 

promptly recorded to maintain their relevance and value to management in 

controlling operations and decisions; and (4) internal control monitoring 

be performed to assess the quality of performance over time and ensure 

that audit findings are promptly resolved. Similarly, internal control 

activities help ensure that management’s directives are carried out. They 

should be effective and efficient in accomplishing the agency’s objectives 

and should occur at all levels and functions of the entity. 

We found that VHA lacked adequate segregation of duties regarding 

independent receiving of goods and separation of responsibilities within 

the purchasing process. Independent receiving, which means someone 

other than the cardholder receives the goods or services, provides 

additional assurance that items are not acquired for personal use and that 

they come into the possession of the government. This reduces the risk of 

error or fraud. From our purchase card internal control testing, we 

estimate that $75 million3

 in transactions did not have evidence that 

independent receiving of goods had occurred. In addition, our data mining 

of the purchase card and convenience check activity identified 15 agency 

or organization program coordinators (A/OPC) who were also cardholders 

and collectively made 9,411 purchases totaling $5.5 million during fiscal 

year 2002. Because A/OPCs are responsible for monitoring cardholders’ 

and approving officials’ activities for indications of fraud, waste, and abuse, 

these A/OPCs were essentially monitoring their own activities.

We also found instances where purchase card and convenience check 

transactions lacked key supporting documentation. This would include 

3

We are 95 percent confident that the total dollar value of purchase card transactions that 

lacked independent receiving was between $37.4 million and $112.6 million. 
Page 4 GAO-04-857T 

internal written authorization for convenience check disbursements and 

vendor invoices that support the description, quantity, and price of what 

was purchased. VHA’s purchase card guidance does not address the types 

of documentation that cardholders should maintain to support their 

purchases. It only addresses documentation requirements in its audit 

guide, which is an appendix to the purchase card guidance that provides 

instructions to internal reviewers for performing their monitoring 

functions. Furthermore, we noted that VA’s operating guidance for 

convenience checks has no requirement that vendor documentation be 

provided before checks are issued. The guidance only provides that 

sufficient documentation, such as a VA-created purchase order, must be 

evident before checks are issued.

The invoice is a key document in purchase card internal control activities. 

Without an invoice, independent evidence of the description and quantity 

of what was purchased and the price charged is not available. In addition, 

the invoice is the basic document that should be forwarded to the 

approving official or supervisor so that he or she can perform an adequate 

review of the cardholder’s purchases. Of the 283 purchase card sample 

transactions we tested, 74 transactions totaling $2.1 million lacked an 

invoice, credit card slip, or other adequate vendor documentation to 

support the purchase. Based on these results, we estimate that 

$312.8 million4 of the fiscal year 2002 purchase card transactions lacked 

key supporting documentation. For the convenience check sample, we 

found 35 of 255 transactions totaling $43,669 lacked the same key 

documentation. Based on these results, we estimate that $3.8 million5 of 

the fiscal year 2002 convenience check transactions lacked key supporting 

documentation.

We also noted that VA’s operating guidance over convenience checks does 

not provide detailed procedures regarding appropriate written 

documentation or authorization that must be forwarded to the authorizing 

employee before funds are disbursed to a third party. VA’s operating 

guidance only provides that the required documentation be the same as 

that for paying with cash, such as a purchase order. The guidance makes 

no mention of independent vendor documentation and that this type of 

4

We are 95 percent confident that the total dollar value of purchase card transactions that 

lacked key supporting documentation was between $243.2 million and $382.4 million. 

5

We are 95 percent confident that the total dollar value of convenience check transactions 

that lacked key supporting documentation was between $2.4 million and $5.3 million. 
Page 5 GAO-04-857T 

documentation be required prior to issuing checks to vendors. In addition, 

VA’s guidance only requires that the authorizing employees issuing 

convenience checks retain copies for 1 year. This documentation 

requirement is inconsistent with the Federal Acquisition Regulation (FAR) 

and VHA’s Records, Control Schedule 10-1, dated February 14, 2002, which 

requires that such records be retained for 6 years and 3 months after final 

payment for procurements exceeding the simplified acquisition threshold 

and for 3 years after final payment for procurements below the simplified 

acquisition threshold.6

We found that of 255 convenience check transactions, 17, totaling $8,890, 

lacked written authorization needed for issuance. Based on these results, 

we estimate that $1.7 million7

 of the fiscal year 2002 convenience check 

transactions lacked written authorization. In addition, we noted that 19 of 

the 255 convenience check transactions lacked a copy of the check or 

carbon copy. Based on these results, we estimate that $2.3 million8

 of the 

fiscal year 2002 convenience check transactions lacked this supporting 

documentation. Although VA only requires copies of convenience checks 

to be retained for 1 year, retaining the copies and the supporting 

documentation for the longer retention period mandated by the FAR and 

incorporated in VHA’s Records, Control Schedule 10-1, would facilitate 

subsequent internal and external reviews in assessing whether a 

transaction was proper and in compliance with acquisition policies and 

procedures.

At the time of our work, VHA had also established several timeliness 

standards for cardholders and approving officials to ensure prompt 

recording, reconciliation, and review of purchases. Specifically, within 1 

workday of making a purchase, cardholders are required to input or record 

the purchase information in VA’s purchase card order system. Within 10 

calendar days of electronically receiving the transaction charge 

information from Citibank,9

 the cardholder must reconcile 75 percent of 

6

48 C.F.R. § 4.805. See also General Records Schedule 3, Transmittal No. 8 (December 1998).

7

We are 95 percent confident that the total dollar value of convenience check transactions 

that lacked written authorization was between $.8 million and $2.7 million. 

8

We are 95 percent confident that the total dollar value of convenience check transactions 

that lacked a copy of the check or carbon copy was between $1.2 million and $3.4 million.

9

Citibank issues purchase cards to VA operating administrations, including VHA.
Page 6 GAO-04-857T 

these Citibank charges to the purchase information in the system. Within 

17 calendar days, 95 percent of the Citibank charges must be reconciled. 

As evidence of reconciliation, the purchase card order system assigns the 

date the cardholder reconciled the purchase in the system. For testing the 

timeliness of cardholder reconciliations, we used the 17 calendar day 

criteria. In addition, VHA requires that within 14 calendar days of 

electronically receiving the cardholder’s reconciled purchases, the 

approving official, through an electronic signature, certify in the purchase 

card order system that all procurements are legal and proper and have been 

received.10 

Our review found untimely recording, reconciliation, and approving official 

review. Table 1 summarizes the statistical results of VHA’s timeliness 

standards that cardholders and approving officials must meet to ensure 

prompt recording, reconciliation, and review of purchases. Our work 

shows that the internal controls were not operating as intended to ensure 

prompt recording of transactions and events. 

10VA revised its timeliness standards in the agencywide government purchase card 

procedures issued April 4, 2003. Specifically, cardholders are now required to reconcile all 

of their purchases within 5 working days instead of 10 calendar days. VA has removed the 

incremental reconciliation goals of 75 percent of the purchases within 10 calendar days and 

95 percent within 17 calendar days. Also, VA converted the 14 calendar days formerly 

allotted to approving officials for review and certification to 10 working days.
Page 7 GAO-04-857T 

Table 1: Summarization of VHA Timeliness Standards Exceptions

Source: GAO.

Note: GAO’s estimate of the audit results for 283 sampled transactions selected to test VHA timeliness 

standards for fiscal year 2002. The population total of transactions from which this stratified random 

sample was selected was 1,884,695.

The following examples illustrate the extent of untimely recording, 

reconciliation, and review of the purchase card transactions. For instance, 

one cardholder made a purchase on July 9, 2002, of $994, but did not record 

the information in VA’s purchase card order system until August 29, 2002—

51 days later and 50 days after VHA policy required that the information be 

entered. Another cardholder made a purchase of $100 on August 24, 2002. 

Citibank sent charge information for this purchase to VHA on October 8, 

2002. According to VHA policy, the cardholder should have reconciled this 

charge within 17 days. Instead, we found that the account was not 

reconciled until September 8, 2003, or 335 days after receiving the charge 

information. In another instance, a cardholder reconciled a purchase card 

transaction totaling more than $3,000, which should have been reviewed 

and certified by an approving official within 14 calendar days. We found no 

evidence that the approving official reviewed this cardholder’s 

reconciliation until 227 days later. It is critical that cardholders and 

approving officials promptly record, reconcile, and review purchase card 

transactions so that erroneous charges can be quickly disputed with the 

vendor and any fraudulent, improper, or wasteful purchases can be quickly 

detected and acted upon.

We also found instances where cardholders did not consistently take 

advantage of vendor-offered purchase discounts. Our review identified 69 

invoices containing vendor-offered discounts totaling $15,785 that were not 

taken at the time of purchase or subsequently credited for the discount 

VHA timeliness 

tests of purchase 

card order system

Number of sample 

transactions 

in error 

Estimated total 

number of 

transactions

in error

Confidence interval 

at a 95 percent 

confidence level

Estimated dollar 

value of amount

in error

(in millions)

Confidence interval 

at a 95 percent 

confidence level 

(in millions)

Purchase card 

orders were entered 

within 1 day 36 289,352 164,100 – 458,414 $152.5 $99.9 – $205.1

Cardholder 

reconciliation within 

17 days 53 351,256 216,683 – 522,909 $252.7 $184.4 – $321.0

Approving official 

certification within 14 

days 44 308,448 181,930 – 475,207 $212.4 $149.2 – $275.7
Page 8 GAO-04-857T 

amount. When purchases are made, vendors may offer purchase discounts 

if buyers make early payments of their invoices. Typically, the vendor 

specifies a period during which the discount is offered, but expects the full 

invoice amount for payments made after that period. When cardholders 

use the purchase card, payment to vendors, via Citibank, generally occurs 

at the time of purchase. In turn, Citibank bills VA for the purchases through 

a daily electronic file. Therefore, it is critical that cardholders ask about 

any vendor-offered discounts at the time of purchase and make efforts to 

obtain a credit upon receipt and review of the invoice. Our detailed testing 

indicated that VHA did not always take advantage of vendor-offered 

discounts and that it lacked purchase card guidance to ensure cardholders 

ask about vendor payment terms to determine whether discounts were 

being offered. 

For example, one vendor offered VHA a discount of 2.9 percent, or $896, for 

an invoice amount of $30,888 if it was paid within 15 days. Citibank, on 

behalf of VA, made payment to the vendor within the 15-day time frame, yet 

the vendor charged the cardholder’s account for the full invoice amount. 

We found no evidence that the cardholder attempted to obtain a credit for 

the available discount offered. In another example, we found that a 

cardholder had taken advantage of the vendor-offered discount. 

A factor that may contribute to cardholder inconsistencies in taking 

advantage of vendor discounts is the lack of established policies and 

procedures that address this issue. We found that VHA’s purchase card 

guidance did not include procedures to ensure that cardholders take 

advantage of available vendor discounts before making payments or 

require that approving officials identify instances when cardholders did not 

take advantage of vendor discounts in order to determine the frequency of 

these occurrences. Without such guidance, VHA will not be able to 

determine the frequency of these occurrences and actual dollars lost by the 

government.

While VHA’s purchase card guidance includes prescribed monitoring 

procedures to help ensure purchases are legal and proper, we found no 

monitoring procedures to identify active accounts of cardholders who had 

separated from VA nor any provisions to assess cardholder credit limits. 

We also noted insufficient human capital resources at the A/OPC level for 

executing the prescribed monitoring activities. For instance, we identified 

18 instances in which purchase card accounts remained active after the 

cardholders left VA and all related outstanding purchase orders had been 

reconciled. Of the 18 purchase card accounts that remained active after 
Page 9 GAO-04-857T 

the cardholders had left VA, we determined that 14 accounts remained 

active 6 or more days after the cardholders’ outstanding purchase orders 

had been reconciled, which we deemed too long. The remaining 4 

purchase cards had been promptly canceled after all outstanding purchase 

orders were reconciled. 

Of the 14 accounts that were untimely cancelled, 11 accounts remained 

open between 6 and 150 days and 3 accounts remained open between 151 

and 339 days. For example, one cardholder separated from VA on April 3, 

2002, with five outstanding purchase card orders made prior to separation. 

The last purchase transaction was reconciled on May 21, 2002, but the 

account was not canceled until April 25, 2003, or 339 days after 

reconciliation. Requiring monitoring procedures to identify active 

accounts of departed cardholders and to ensure prompt closure once 

outstanding purchase orders have been reconciled would assist in reducing 

the risk of fraud, waste, and abuse that could occur when accounts remain 

open beyond the necessary time frame.

In addition to accounts left open, our analysis of purchases VHA 

cardholders made in 2002 showed that cumulatively they bought 

$112 million of goods and services per month on average, but they had 

credit limits of $1.2 billion, or about 11 times their actual spending. 

According to VHA’s purchase card guidance, the approving official, in 

conjunction with the A/OPC, billing officer, and head of contracting 

activity, recommends cardholder single purchase and monthly credit limits. 

However, we found no guidance on what factors to consider when 

recommending the dollar amounts to be assigned to each cardholder. 

Further, we found no monitoring procedures that require the A/OPC or 

approving official to determine periodically whether cardholder limits 

should be changed based on existing and expected future use. 

Periodic monitoring and analysis of cardholders’ actual monthly and 

average charges, in conjunction with existing credit limits would help VHA 

management make reasonable determinations of cardholder spending 

limits. Without adequate monitoring, the financial exposure in VHA’s 

purchase card program can become excessive when its management does 

not exercise judgment in determining single purchase and monthly credit 

limits. During our review, for instance, the difference between the 

monlthly cumulative credit limits of $1.2 billion and actual spending of $112 

million represents a $1.1 billion financial exposure. Limiting credit 

available to cardholders is a key factor in managing the VHA purchase card 
Page 10 GAO-04-857T 

program, minimizing the government’s financial exposure, and enhancing 

operational efficiency.

Furthermore, VHA has not provided sufficient human capital resources to 

enable monitoring of the purchase card program. One key position for 

monitoring purchases and overseeing the program is the A/OPC. While the 

A/OPC position is a specifically designated responsibility, we found in 

many instances that the A/OPC also functioned in another capacity or 

performed other assigned duties, for example, as a systems analyst, budget 

analyst, and contract specialist. Of the 90 A/OPCs who responded to a GAO 

question regarding other duties assigned, 55 A/OPCs, or 61 percent, 

reported that they spend 50 percent or less of their time performing A/OPC 

duties. For example, at the extreme low end of the scale, one A/OPC 

responded that he was also the budget analyst and that he spends 100 

percent of his time on budget analyst duties, leaving no time for A/OPC 

duties on an ongoing basis. Given that VHA makes millions of purchase 

card and convenience check transactions annually, which in fiscal year 

2002 exceeded $1.4 billion, it is essential that VHA management devote 

adequate attention to monitoring its purchase card program to ensure that 

it is properly managed to reduce the risk of fraud, waste, and abuse.

Noncompliance with 

Purchasing 

Requirements Resulted 

in Instances of 

Improper Purchases

The lack of adequate internal controls resulted in numerous violations of 

applicable laws and regulations and VA/VHA purchase card policies. We 

classified purchases made in violation of applicable laws and regulations or 

VA/VHA purchase card policies as improper purchases. We found 

violations that included purchases for personal use such as food or 

clothing, purchases that were split into two or more transactions to 

circumvent single purchase limits, purchases over the $2,500 micropurchase threshold that were either beyond the scope of the cardholder’s 

authority or lacked evidence of competition, and purchases made from an 

improper source. We also found violations of VA/VHA policy that included 

using convenience checks to pay for purchases even though the vendor 

accepted the government purchase card, convenience check payments that 

exceeded established limits, and purchases for which procurement 

procedures were not followed. While the total amount of improper 

purchases we identified, based on limited scale audit work, is relatively 

small compared to the more than $1.4 billion in annual purchase card and 

convenience check transactions, we believe our results demonstrate 

vulnerabilities from weak controls that could have been exploited to a 

much greater extent. 
Page 11 GAO-04-857T 

For instance, from the nonstatistical sample, we identified 17 purchases, 

totaling $14,054, for clothing, food, and other items that cardholders 

purchased for personal use. Items that are classified as personal expenses 

may not be purchased with appropriated funds without specific statutory 

authority. The FAR emphasizes that the governmentwide commercial 

purchase card may be used only for purchases that are otherwise 

authorized by law or regulation.11 

We identified eight purchases totaling $7,510, in the nonstatistical sample 

that were subject to procurement from a mandatory source of supply but 

were obtained from other sources. Various federal laws and regulations, 

such as the Javits-Wagner-O’Day Act (JWOD), require government 

cardholders to acquire certain products from designated sources. The 

JWOD program generates jobs and training for Americans who are blind or 

have severe disabilities by requiring that federal agencies purchase 

supplies and services furnished by nonprofit agencies, such as the National 

Industries for the Blind and the National Institute for the Severely 

Handicapped. 

We noted that cardholders did not consistently purchase items from JWOD 

suppliers when they should have. For example, a cardholder purchased 

day planner starter kits and refills for employees, totaling $1,591, from 

Franklin Covey, a high-end office supply store. These items provide 

essentially the same features as the JWOD items, which would have cost 

$1,126, or $465 less. During our data mining, we noted that VHA made 652 

purchases totaling $76,350 from Franklin Covey during 2002. While we did 

not review all of the individual purchases, based on our detailed testing of 

similar transactions, it is likely that many of them should have been 

procured from a mandatory source at a much lower cost.

Using data mining techniques, we identified purchases that appeared to 

have been split into two or more transactions by cardholders to circumvent 

their single purchase limit. We requested documentation for a statistically 

determined sample of 280 potential split transactions totaling $4 million. 

Of these 280 transactions, we determined that 49 were actual splits. Based

1148 C.F.R. § 13.301 (a).
Page 12 GAO-04-857T 

on these results, we estimate that $17.1 million12 of the total fiscal year 2002 

purchase card transactions were split transactions.

For example, a cardholder with a single purchase limit of $2,500 purchased 

accommodations in 110 hotel rooms totaling $4,950. When performing 

follow-up, the cardholder stated that VA provides lodging accommodations 

for veterans receiving medical services such as radiation therapy, 

chemotherapy, and day surgery who live at least 150 miles from the medical 

facility. The cardholder created two separate purchase orders and had the 

vendor create two separate charges, one for $2,500 and the other for $2,450, 

so that the purchase could be made. On the documentation provided, the 

cardholder stated the “purchase was split per the direction of the previous 

purchase card program administrator.” The cardholder also stated that 

currently, her purchase card at that facility is no longer used to pay hotel 

lodging for veterans. Hotel payments are now disbursed electronically via 

VA’s Financial Service Center. The purpose of the single purchase limit is to 

require that purchases above established limits be subject to additional 

controls to ensure that they are properly reviewed and approved before the 

agency obligates funds. By allowing these limits to be circumvented, VA 

had less control over the obligation and expenditure of its resources.

The FAR provides that the purchase card may be used by contracting 

officers or individuals who have been delegated micro-purchase authority 

in accordance with agency procedures.13 Only warranted contracting 

officers, who must promote competition to the maximum extent practical, 

may make purchases above the micro-purchase threshold using the 

purchase card. Contracting officers must consider solicitation of 

quotations from at least three sources,14 and they must minimally 

document the use of competition or provide a written justification for the 

use of other than competitive procedures.15 When cardholders circumvent 

these laws and regulations, VHA has no assurance that purchases comply 

with certain simplified acquisition procedures and that cardholders are 

12We are 95 percent confident that the total dollar value for actual split purchase card 

transactions was between $12.4 million and $21.9 million.

1348 C.F.R. § 13.301 (a).

1448 C.F.R. § 13.104. 

1548 C.F.R. § 13.106-3(b).
Page 13 GAO-04-857T 

making contractual commitments on behalf of VHA within the limits of 

their delegated purchasing authority.

From the statistical sample of purchases over $2,500, we found that for 19 

of the 76 transactions, cardholders lacked warrant authority needed to 

make these types of purchases. Based on these results, we estimate that 

cardholders with only micro-purchase authority, made $111.9 million16 of 

the total fiscal year 2002 purchases that exceeded $2,500. In addition, we 

found that 12 of the 76 transactions lacked evidence of competition. Based 

on these results, we estimate that $60 million17 of the total fiscal year 2002 

purchases totaling more than $2,500 lacked evidence of competition. 

We identified 23 purchase card transactions totaling $112,924 in the 

nonstatistical sample related to the rental of conference room facilities 

used for internal VA meetings, conferences, and training. For these 

purchases, the cardholders could not provide documentation to show that 

efforts had been made to secure free conference space. VA’s acquisition 

regulations state that rental conference space may be paid for only in the 

event that free space is not available, and require that complete 

documentation of efforts to secure free conference space be maintained in 

the purchase order file.18 For one purchase, VHA paid $31,610 for 

conference room facilities and related services for 3 days at the Flamingo 

Hilton Hotel in Las Vegas. The cardholder provided no evidence that 

attempts to secure free facilities had been made. In addition, of the 23 

purchase card transactions cited, 12 purchases totaling $103,662 occurred 

at one VHA facility. This included one transaction totaling $12,000 for a 3-

day training course on Prevention and Management of Disruptive Behavior 

at the MGM Grand Hotel in Las Vegas. Again, we were not provided 

evidence that efforts had been made to secure free conference space. 

We identified improper use of convenience checks related to purchases 

that exceeded VA’s established limits of $2,500 and $10,000 and payments to 

vendors who accept the purchase card payments. VA’s convenience check 

16We are 95 percent confident that the total dollar value for purchases over $2,500 made by 

nonwarranted cardholders was between $52.8 million and $170.9 million.

17We are 95 percent confident that the total dollar value for purchases over $2,500 that 

lacked evidence of competition was between $26.3 million and $93.7 million. 

18We are 95 percent confident that the total dollar value for actual split convenience check 

transactions was between $13.6 million and $14.0 million.
Page 14 GAO-04-857T 

guidance requires that a single draft transaction be limited to $2,500 or in 

some cases $10,000 unless a waiver has been obtained from the 

Department of the Treasury, restricting convenience check use to instances 

when vendors do not accept purchase cards. From the statistical testing of 

convenience check limits, we found that 91 of 105 convenience check 

purchases were paid using multiple checks because the total purchase 

amount exceeded the established convenience check limit. Based on these 

results, we estimate that $13.8 million19 of the total fiscal year 2002 

convenience check transactions were improperly used to pay for purchases 

exceeding the established limits. In April 2003, VA issued new purchase 

card guidance providing that for micro-purchases, convenience checks 

may be used in lieu of purchase cards only when it is advantageous to the 

government and it has been documented as the most cost-effective and 

practical procurement and disbursement method. However, we found no 

established criteria for determining the most cost-effective and practical 

procurement and disbursement method. 

Poor Controls Resulted 

in Some Wasteful and 

Questionable 

Purchases

The ineffectiveness of internal controls was also evident in the number of 

transactions that we classified as (1) wasteful, that is, excessive in cost 

compared to other available alternatives or for questionable government 

need, or (2) questionable because there was insufficient documentation to 

determine what was purchased. Of the 982 nonstatistical sample 

transactions we reviewed, 250 transactions, totaling $209,496, lacked key 

purchase documentation. As a result, we could not determine what was 

actually purchased, how many items were purchased, the cost of each of 

the items purchased, and whether there was a legitimate government need 

for such items. Because we tested only a small portion of the transactions 

that appeared to have a higher risk of fraud, waste, or abuse, there may be 

other improper, wasteful, and questionable purchases in the remaining 

untested transactions.

We identified 20 purchases totaling $56,655 that we determined to be 

wasteful because they were excessive in cost relative to available 

alternatives or were of questionable government need. The limited number 

of wasteful purchases found in the nonstatistical sample demonstrates that 

cardholders are generally prudent in determining that prices of goods and 

services are reasonable before they make credit card purchases. We 

19The Department of Veterans Affairs Acquisition Regulation, Part 870, subpart 113 (VAAR 

870.113).
Page 15 GAO-04-857T 

considered items wasteful if they were excessive in cost when compared to 

available alternatives, and questionable if they appeared to be items that 

were a matter of personal preference or convenience, were not reasonably 

required as part of the usual and necessary equipment for the work the 

employees were engaged in, or did not appear to be for the principal 

benefit of the government. We identified 18 purchases, totaling $55,156, for 

which we questioned the government need and 2 purchases, totaling 

$1,499, that we considered excessive in cost. A majority of the purchases 

were related to officewide and organizational awards. 

Many award purchases were for gift certificates and gift cards. Although 

VA policy gives managers great latitude in determining the nature and 

extent of awards, we identified 10 purchases, totaling $51,117, for award 

gifts for which VHA was unable to provide information on either the 

recipients of the awards or the purposes for which the recipients were 

being recognized. Therefore, we categorized these purchases as of 

questionable government need. For example, we identified two 

transactions for 3,348 movie gift certificates, totaling over $30,000. For 

these purchases, the cardholders and A/OPCs could provide neither the 

award letters nor justification for the awards. Consequently, VHA could 

provide no evidence that these purchases were actually used for awards. 

We also identified two purchases that we considered wasteful because of 

excessive cost. We identified a cardholder who purchased a $999 digital 

camera when there were other less costly digital cameras widely available. 

For example, during the same 6-month period from February 2002 through 

July 2002, two other cardholders purchased digital cameras for $526 and 

$550. No documentation was available to show why the more expensive 

model was necessary. In the second example, we identified a purchase for 

a 20-minute magic show, totaling $500, that was performed during a VA 

volunteer luncheon. Although VA policies allow for funds for volunteer 

events, this expenditure, at roughly $25 per minute, seemed excessive. 

We also found questionable purchases. As I discussed earlier, we identified 

numerous transactions from the statistical samples that were missing 

adequate supporting documentation on what was actually purchased, how 

many items were purchased, and the cost of the items purchased. We 

requested supporting documentation for a nonstatistical sample of 982 

transactions, totaling $1.2 million. Of these, we identified 315 transactions, 

totaling $246,596, that appeared to be improper or wasteful, for which VHA 

either provided insufficient or no documentation to support the propriety 

of the transactions. 
Page 16 GAO-04-857T 

We classified 250 of these 315 transactions, totaling $209,496, as missing 

invoices because the cardholders either provided VHA internal 

documentation but no vendor documentation to support the purchase or 

provided no documentation at all to support the purchase. VHA internal 

documentation includes purchase orders, reconciliation documents, and 

receiving reports. Vendor documentation includes invoices, sales receipts, 

and packing slips. For 184 of these transactions, totaling $155,429, internal 

documentation was available but no vendor documentation was available. 

No documentation at all was available for the remaining 66 transactions, 

totaling $54,068. These purchases were from vendors that would more 

likely be selling unauthorized or personal use items. Examples of these 

types of purchases included a purchase form Radio Shack totaling $3,305, a 

purchase from Daddy’s Junky Music totaling $1,041, a purchase from Gap 

Kids totaling $788, and a purchase from Harbor Cruises totaling $357.

An example of a transaction with internal documentation but no vendor 

documentation included a purchase from Circuit City where the cardholder 

stated that the purchase was for three $650 television sets and three $100 

television stands, totaling $2,300 (including $50 shipping), that were 

needed to replace the existing ones in the VA facility’s waiting area. In 

another transaction, no vendor documentation was available for a 

transaction from Black & Gold Beer where the cardholder stated that the 

purchase of beer was for a patient. The purchase order shows that three 

cases were purchased at $12.50 each, totaling $37.50. The cardholder 

stated that the purchase was at the request of the pharmacy for a specific 

patient; however, no documentation was provided to support this claim. 

We believe that at least some of the items we identified may have been 

determined to be potentially fraudulent, improper, or wasteful had the 

documentation been provided or available. In addition, we noted that of 

the 66 transactions for which VHA cardholders provided no documentation 

to support the purchase, 32 transactions (49 percent) represented 2 or 

more transactions by the same cardholder. For example, one cardholder 

did not provide documentation for 5 transactions, totaling $5,799, from 

various types of merchants, including two restaurants, a movie theater, a 

country club, and an airport café.

For 65 transactions, totaling $37,100, that we characterized as questionable 

but appeared to be either improper or wasteful, the documentation we 

received either was not correct or was inadequate, and we were unable to 

determine the propriety of the transactions. For example, one transaction 

was for $1,350 to Hollywood Entertainment; however, the purchase order 

and invoice listed Hear, Inc., as the vendor for closed captioning services. 
Page 17 GAO-04-857T 

The cardholder stated that she believed Hollywood Entertainment is an 

associate company name for Hear, Inc.; however, the company could not 

provide any documentation to support this statement. Additionally, from 

our Internet searches of both Hollywood Entertainment and Hear, Inc. we 

found no information to indicate that these two companies were associated 

in any way. 

We also identified 68 transactions, totaling $31,772, involving the purchase 

of tickets for sporting events, plays, movies, amusement or theme parks, 

and other recreation activities for veterans and VA volunteers. The 

documentation provided for these transactions was inadequate or missing 

vendor invoices; therefore, we could not determine whether these tickets 

were used in support of the volunteers or veterans. As a result, we 

categorized these purchases as questionable. Various programs under 

VHA, such as Recreation Therapy, Voluntary Services, and Blind 

Rehabilitation Service, sponsor assorted activities for veterans and VA 

volunteers. From our review of these types of purchases, we found that 

VHA does not have procedures in place to ensure that the purchased items 

were used by the intended recipients and accounted for properly. In most 

cases, there was inadequate or no documentation to account for how the 

tickets were distributed and who participated in the events. For example, 

we found a purchase of 46 tickets, totaling $812, for veterans to attend a 

Pittsburgh Pirates baseball game. However, we were provided no 

documentation that identified who received the tickets or who attended the 

baseball game. Proper accountability over the distribution and receipt of 

tickets for such events is needed to help ensure that tickets are not 

improperly used for personal use.

In closing, Mr. Chairman, I want to emphasize that without improvements 

in its internal controls to strengthen segregation of duties; documentation 

of purchase transactions; timely recording, review, and reconciliation of 

transactions; and program monitoring, VHA will continue to be at risk for 

noncompliance with applicable laws and regulations and its own policies 

and remain vulnerable to improper, wasteful, and questionable purchases. 

Our report, which is being released at this hearing, makes 36 

recommendations to strengthen internal controls and compliance in VHA’s 

purchase card program to reduce its vulnerability to improper, wasteful, 

and questionable purchases.

This concludes my statement. I would be happy to answer any questions 

you or other members of the committee may have.
Page 18 GAO-04-857T 

Contact and 

Acknowledgments

For information about this statement, please contact McCoy Williams, 

Director, Financial Management and Assurance, at (202) 512-6906, or Alana 

Stanfield, Assistant Director, at (202) 512-3197. You may also reach them 

by e-mail at williamsm1@gao.gov or stanfielda@gao.gov. Individuals who 

made key contributions to this testimony include Lisa Crye, Carla Lewis, 

and Gloria Medina.

(195041)
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