GAO-04-988R PNNL Purchase Card Controls 

United States Government Accountability Office

Washington, DC 20548 

August 6, 2004 

Congressional Requesters 

Subject: Pacific Northwest National Laboratory: Enhancements Needed to 

Strengthen Controls Over the Purchase Card Program

The Pacific Northwest National Laboratory (PNNL) located in Richland, Washington, 

is a government-owned, contractor-operated Department of Energy (DOE) national 

laboratory. The Battelle Memorial Institute manages the lab under a costreimbursable contract with DOE. Battelle is paid a management fee to operate the lab 

and is reimbursed for all allowable costs charged to the contract. 

During the fall of 2002, the Federal Bureau of Investigation began investigating two 

Los Alamos National Laboratory employees for alleged misuse of lab credit cards. 

Other allegations of theft and misuse of government funds at Los Alamos soon 

followed. In light of the problems identified at Los Alamos, you asked us to review 

selected procurement and property management practices at two NNSA1

 and two 

DOE contractor labs, including PNNL.2

This report summarizes the information provided during our June 14, 2004 briefing to 

your staff on these issues as they relate to PNNL. The enclosed briefing slides 

highlight the results of our work and the information provided.3

 Specifically, we 

reviewed PNNL’s purchase card program and property management practices to 

determine whether (1) internal controls over the lab’s purchase card (Pcard) program 

provided reasonable assurance that improper purchases would not occur or would be 

detected in the normal course of business, (2) purchase card expenditures made 

under the contract properly complied with lab policies and other applicable 

requirements and were reasonable in nature and amount and thus were allowable 

costs payable to the contractor under the contract, and (3) property controls over 

selected asset acquisitions provided reasonable assurance that accountable assets 

 

1

The National Nuclear Security Administration (NNSA) was created in fiscal year 2000 as a separately 

organized agency within DOE. As part of its national security mission, NNSA has responsibility for the 

institutional stewardship of three national security laboratories. 

2

The four labs we reviewed were DOE’s Lawrence Berkeley National Laboratory and Pacific Northwest 

National Laboratory, and NNSA’s Lawrence Livermore National Laboratory and Sandia National 

Laboratories. 

3

Separate briefings were provided for each of the labs reviewed, which we also summarized in separate 

letters. 
 Page 2 GAO-04-988R PNNL Purchase Card Controls 

would be properly recorded and tracked.4 Our review covered selected transactions 

that occurred during fiscal year 2002 and the first half of fiscal year 2003 (October 1, 

2001, through March 31, 2003), which were the most current data available when we 

requested the data for our review. This report also includes four recommendations 

for action—three related to actions needed to be taken by PNNL and one related to 

action needed to be taken by the DOE contracting officer for PNNL. 

Results in Brief 

The lab had established a number of internal controls to help ensure that improper 

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

However, we identified additional control areas in the lab’s Pcard program that need 

to be strengthened in order to further reduce the risk of improper purchases. For 

example, during the majority of our review period, the Pcard administrator and her 

assistant—who were responsible for monitoring cardholder compliance with Pcard 

policies, requesting new cards, and authorizing spending limit increases—were also 

cardholders. This created a conflict of interest that could compromise program 

oversight. In addition, of the 148 nonstatistically selected Pcard transactions 

obtained through data mining5

 for fiscal year 2002 and the first half of fiscal year 2003, 

we found 12 (9 percent) of the transactions totaling $21,834 lacked sufficient 

documentation such as an invoice, credit receipt, or other sales documentation 

necessary to fully validate the dollar amount, quantity, and nature of the items 

purchased. The lack of such documentation minimizes the effectiveness of 

supervisory review of Pcard transactions. 

We also identified $104,250 of improper, wasteful, and questionable purchases in our 

review of transactions selected on a statistical and nonstatistical basis. While 

relatively small compared to the approximately $44 million in purchase card activity 

that occurred during the review period, it demonstrates areas where additional 

enhancements in controls are needed. Specifically, we found improper purchases 

consisting of: 

• Ten groups of split purchases—that is, groups of two or more similar 

transactions that were split to circumvent single purchase limits—consisting 

of 21 transactions totaling $81,448 from a statistical sample. Based on our 

audit work, we estimate that $777,766 of total fiscal year 2002 and the first half 

of fiscal year 2003 purchase transactions identified as potentially split, were 

split purchases.6

 

4

Throughout this document, references to purchases and transactions refer to those made by the 

contractor employees of the lab that are charged to the DOE contract. Although the lab’s purchase 

cards are issued by the contractor, purchases charged to the DOE contract are ultimately reimbursed 

and thus paid for by the federal government. Similarly, property purchased that is charged to DOE 

becomes government property. 

5

Data mining applies a search process to a data set, analyzing for trends, relationships, and interesting 

associations. For instance, it can be used to efficiently query transaction data for characteristics that 

may indicate potentially improper activity. 

6

The total dollar value of the population of 211 potentially split purchases identified from data mining 

was $1,794,477. We are 95 percent confident that the total dollar value of actual split purchases was 

between $462,787 and $1,092,745. 
 Page 3 GAO-04-988R PNNL Purchase Card Controls 

• Seven transactions totaling $7,956 that were improperly charged to 

cardholders’ accounts by someone other than the cardholder, contrary to lab 

policy. These were for purchases at vendors with whom the cardholders had a 

preexisting account. 

• Eleven transactions totaling $8,534 that were improper because they were 

unallowable under the contract or were prohibited from being purchased with 

a Pcard. For example, one transaction for $1,277 was for catering services 

that were unallowable at the time of purchase. 

We also identified three transactions totaling $693 that we considered wasteful 

because they were excessive in cost when compared to other alternatives and/or 

were of questionable need and four transactions totaling $5,619 that we considered 

questionable because they were missing key documentation that would enable us or 

the lab to determine what items were purchased and whether they were proper and 

reasonable. Because we only tested a small portion of the transactions we identified 

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. 

Accountable assets we tested generally were properly accounted for and tracked in 

PNNL’s property management system. Of the 32 accountable assets totaling $52,753 

that were in the test population, 3 assets totaling $4,700 had not been recorded in the 

property management system. 

The lab has made a number of recent policy and procedural changes that, if properly 

implemented, should help improve internal controls over its Pcard program. 

However, additional corrective actions are needed to address weaknesses identified. 

Recommendations for Executive Action 

In order to address the issues identified in our review, we recommend that the 

Secretary of Energy direct the Pacific Northwest National Laboratory’s Director to 

take the following three actions to strengthen internal controls over the purchase 

card program and reduce the lab’s vulnerability to improper, wasteful, and 

questionable purchases. 

 

• Cancel purchase card accounts for cardholders who also perform oversight 

functions over the purchase card program to help ensure appropriate 

independence and separation of duties between these functions. 

• Establish policies and procedures requiring that purchasers maintain a copy of 

the detailed sales receipt, invoice, or other independent support showing the 

description, quantity, and price of individual items purchased. 

• Require approving officials, during their review of cardholder transaction 

documentation, to ensure that the cardholders obtained a sales receipt or 
 Page 4 GAO-04-988R PNNL Purchase Card Controls 

invoice to support each purchase, and that the cardholder obtained and 

documented any required preapprovals before purchase. 

We also recommend that the Secretary of Energy direct the DOE contracting officer 

for the lab to review the improper, wasteful, and questionable items we identified to 

determine whether any of these purchases should be repaid to DOE. 

Agency Comments 

We met with laboratory and local DOE officials to obtain their oral comments on a 

draft of this briefing. They generally agreed with our findings and recommendations 

and indicated that the lab has taken or will take action to address the issues 

identified. For example, lab officials indicated that while the practice has been to 

provide the most complete source documentation available, they agreed to formalize 

the requirement and plan to work with the contracting officer to establish the most 

complete level of documentation required to support Pcard transactions. They also 

indicated they would emphasize this and other requirements during training. In 

addition, the lab cancelled the Pcard administrator’s assistant’s Pcard effective 

June 7, 2004. The lab also provided technical and clarifying comments, which we 

incorporated as appropriate. 

Scope and Methodology 

To determine if PNNL’s internal controls over its Pcard program provided reasonable 

assurance that improper purchases would not occur or would be detected in the 

normal course of business, we reviewed PNNL’s contract with DOE and applicable 

provisions of the DOE Acquisition Regulation (DEAR) and the Federal Acquisition 

Regulation (FAR), performed walkthroughs of key processes, interviewed PNNL and 

DOE management and staff, and compared the results to the lab’s policies and GAO’s 

Standards for Internal Control in the Federal Government.

7

 These standards 

provide the overall framework for establishing and maintaining internal control and 

for identifying and addressing major performance and management challenges and 

areas at greatest risk of fraud, waste, abuse, and mismanagement and are based on 

internal control guidance for the private sector.8

To determine whether Pcard expenditures complied with lab policies and other 

applicable requirements and were reasonable in nature and amount, we performed 

data mining on fiscal year 2002 and the first half of fiscal year 2003 Pcard transactions 

to identify indicators of potential noncompliance with policies and procedures and to 

identify purchases that appeared to be from unusual vendors, purchases made on 

weekends, during the holidays, or at fiscal-year end, and purchases of sensitive 

assets. Based on the results, we (1) identified 211 potential split purchases consisting 

of 1,338 transactions. From these, we selected a statistical sample of 27 potential 

 

7

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

GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). 

8

Internal Control—Integrated Framework, Committee of Sponsoring Organizations of the Treadway 

Commission (COSO). 
 Page 5 GAO-04-988R PNNL Purchase Card Controls 

split purchases consisting of 75 transactions and tested to determine whether they 

were in fact split purchases, (2) used a nonstatistical selection of 25 transactions 

made by cardholders while on leave or by former employees to determine whether 

they were proper purchases, and, (3) tested a nonstatistical selection of 148 

transactions for evidence of supervisory review and approval, adequacy of supporting 

documentation, and reasonableness of the purchases. 

To determine if property controls over selected asset acquisitions provided 

reasonable assurance that accountable assets would be properly recorded and 

tracked, we performed walkthroughs to observe property controls, reviewed property 

management policies and procedures, tested accountable property items selected in 

the nonstatistical selection to determine whether these assets had been entered into 

the lab’s property system prior to our review, and performed data mining on the 

property database to identify possible database errors or inaccuracies such as 

property assigned to terminated employees and multiple property items with the 

same serial number. 

We requested oral comments on a draft of the enclosed briefing slides from the 

Secretary of Energy or his designee and have included any comments as appropriate 

in the letter and enclosed slides. While we identified some improper, wasteful, and 

questionable purchases, our work was not designed to determine the full extent of 

such purchases. We conducted our work on all four labs from March 2003 through 

May 2004 in accordance with generally accepted government auditing standards. 

- - - - - 

Unless you publicly announce its contents earlier, we plan no further distribution of 

this report until 30 days after its date. At that time, we will send copies of this report 

to the Ranking Minority Member, House Committee on Energy and Commerce; the 

Secretary of Energy; and the Pacific Northwest National Laboratory Director. Copies 

will also be made available to others upon request. In addition, the report will be 

available at no charge on our home page at http://www.gao.gov. If you have any 

questions about this report, please contact me at (202) 512-9508 or Doreen Eng, 

Assistant Director, at (206) 287-4858. You may also reach us by e-mail at 

calboml@gao.gov or engd@gao.gov. Additional contributors to this assignment were 

Rick Kusman, Delores Lee, Kelly Lehr, Diane Morris, Eileen Peguero, Estelle Tsay, 

and Eric Wenner. 

Linda M. Calbom 

Director, Financial Management and Assurance 

Enclosure 
 Page 6 GAO-04-988R PNNL Purchase Card Controls 

List of Requesters

The Honorable Sherwood Boehlert, Chairman 

The Honorable Bart Gordon, Ranking Minority Member 

Committee on Science 

House of Representatives 

The Honorable Joe Barton, Chairman 

Committee on Energy and Commerce 

House of Representatives 

The Honorable Jerry Costello 

The Honorable James Greenwood 

The Honorable W.J. “Billy” Tauzin 

House of Representatives 
Enclosure 

Page 7 GAO-04-988R PNNL Purchase Card Controls 

June 14, 2004, Briefing 

1

Pacific Northwest National Laboratory

Enhancements Needed to Strengthen Controls Over the 

Purchase Card Program

Briefing to the Staff of the Committees on Science and 

Energy and Commerce, House of Representatives 

June 14, 2004
Enclosure 

Page 8 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 2

Table of Contents

• Introduction and Objectives

• Results in Brief

• Background

• Scope and Methodology

• Internal Control Weaknesses 

• Improper, Wasteful, and Questionable Purchases

• Property Management

• Recent Policy and Procedural Changes

• Conclusions

• Recommendations

• Agency Comments
Enclosure 

Page 9 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 3

Introduction and Objectives

• The Pacific Northwest National Laboratory (PNNL) located in Richland, 

Washington, is a government-owned, contractor-operated Department of 

Energy (DOE) national laboratory. It is managed by the Battelle 

Memorial Institute under a cost-reimbursable contract with DOE. Battelle 

is paid a management fee to operate the lab and is reimbursed for all 

allowable costs charged to the contract. 

• During the fall of 2002, the Federal Bureau of Investigation began 

investigating two Los Alamos National Laboratory employees for alleged 

misuse of lab credit cards. Other allegations of theft and misuse of 

government funds at Los Alamos soon followed. 

• In light of the problems identified at Los Alamos, you asked us to review 

selected procurement and property management practices at two 

NNSA1 and two DOE contractor labs, including PNNL.2

1The National Nuclear Security Administration (NNSA) was created in fiscal year 2000 as a separately 

organized agency within DOE. As part of its national security mission, NNSA has responsibility for the 

institutional stewardship of three national security laboratories.

2The four labs we reviewed were DOE’s Lawrence Berkeley National Laboratory and Pacific Northwest 

National Laboratory, and NNSA’s Lawrence Livermore National Laboratory and Sandia National 

Laboratories.
Enclosure 

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Pacific Northwest National Laboratory 4

Introduction and Objectives (cont’d)

The objectives of our review at PNNL were to determine whether:

• Internal controls over the lab’s purchase card (Pcard) program 

provided reasonable assurance that improper purchases would not 

occur or would be detected in the normal course of business. 

• Purchase card expenditures made under the contract (1) properly 

complied with lab policies and other applicable requirements and (2) 

were reasonable in nature and amount and thus were allowable 

costs payable to the contractor under the contract.

• Property controls over selected asset acquisitions provided 

reasonable assurance that accountable assets would be properly 

recorded and tracked.
Enclosure 

Page 11 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 5

Introduction and Objectives (cont’d)

• Our review covered selected transactions that occurred 

during fiscal year 2002 and the first half of fiscal year 2003 

(October 1, 2001, through March 31, 2003), which were the 

most current data available when we requested the data for 

our review. 

• Throughout this document, references to purchases and 

transactions refer to those made by the contractor 

employees of the lab who are charged to the DOE contract. 

Although the lab’s purchase cards are authorized by the 

contractor, purchases charged to the DOE contract are 

ultimately reimbursed and thus paid for by the federal 

government. Similarly, property purchased that is charged 

to DOE becomes government property.
Enclosure 

Page 12 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 6

Results in Brief

• The lab has established a number of internal controls to help ensure that 

improper purchases would not occur or would be detected in the normal 

course of business. However, we identified additional control areas in 

the lab’s Pcard program that need to be strengthened in order to further 

reduce the risk of improper purchases. For example:

• During the majority of our review period, the Pcard administrator and 

her assistant—who were responsible for monitoring cardholder 

compliance with Pcard policies, requesting new cards, and 

authorizing spending limit increases—were also cardholders. This 

created a conflict of interest that could compromise program 

oversight.

• 12 (9 percent) of 148 nonstatistically selected transactions totaling 

$21,834 lacked sufficient documentation such as an invoice, credit 

receipt, or other sales documentation necessary to fully validate the 

dollar amount, quantity, and nature of the items purchased.
Enclosure 

Page 13 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 7

Results in Brief (cont’d)

• We also noted $104,250 of improper, wasteful, and questionable 

purchases in our review of transactions selected on a statistical and 

nonstatistical basis. While relatively small compared to the 

approximately $44 million in purchase card activity that occurred during 

the review period, it demonstrates areas where additional 

enhancements and controls are needed. These included:

• Ten groups of improper split purchases—that is, groups of two or more similar transactions that were split to circumvent single 

purchase limits—consisting of 21 transactions totaling $81,448 from 

the statistical sample. Based on our audit work, we estimate that 

$777,766 of total fiscal year 2002 and the first half of fiscal year 

2003 purchase transactions identified as potentially split, were split purchases.3

• Seven transactions totaling $7,956 that were improperly charged to cardholders’ accounts by someone other than the cardholder, 

contrary to lab policy. These were for purchases at vendors with 

whom the cardholders had a preexisting account.

3The total dollar value of the population of 211 potentially split purchases identified from data mining was 

$1,794,477. We are 95 percent confident that the total dollar value of actual split purchases was 

between $462,787 and $1,092,745.
Enclosure 

Page 14 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 8

Results in Brief (cont’d)

• Eleven transactions totaling $8,534 that were improper because 

they were unallowable under the contract or were prohibited from

being purchased with a Pcard.

• Three transactions totaling $693 that we considered wasteful 

because they were excessive in cost when compared to other 

alternatives and/or were of questionable need, such as $413 for an 

oversized laptop case with wheels when comparable cases were 

available for about $100.

• Four transactions totaling $5,619 that we considered questionable 

because they were missing key documentation that would enable us

or the lab to determine what items were purchased and whether 

they were proper and reasonable.
Enclosure 

Page 15 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 9

Results in Brief (cont’d)

• Accountable assets we tested generally were properly accounted for 

and tracked in PNNL’s property management system. Of the 32 

accountable assets totaling $52,753 that were in the test population, 3 

assets totaling $4,700 had not been recorded in the property 

management system.

• The lab has made a number of recent policy and procedural changes 

that, if properly implemented, should help improve internal controls over 

its Pcard program. We are making four recommendations to address

issues raised in our review that require additional action.

• Lab and local DOE officials generally agreed with our recommendations. 

The lab indicated it cancelled the Pcard administrator’s assistant’s card 

effective June 7, 2004, and agreed to work with the contracting officer to 

establish the most complete level of documentation required to support

Pcard transactions. Lab officials also indicated they would emphasize 

this and other requirements during training.
Enclosure 

Page 16 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 10

Background

• PNNL is a multiprogram research laboratory located in 

Richland, Washington, and has been operated by the 

Battelle Memorial Institute, a nonprofit entity, since 1965. 

• The lab’s 4,000 staff are Battelle employees. Its fiscal year 

2003 budget was about $550 million.

• PNNL implemented the Pcard program in 1995. During 

fiscal year 2002, the lab made about $31 million in Pcard 

purchases. 

• As of March 2003, the lab had 869 active Pcards. In 

response to recent internal and DOE reviews, PNNL 

management has been reducing the number of cardholders. 

As of May 2004, there were 671 active Pcards.
Enclosure 

Page 17 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 11

Background (cont’d)

• Most cardholders have $5,000 or $10,000 single purchase transaction 

limits. Eight cardholders have single purchase limits ranging from 

$25,000 to $100,000, due to their responsibilities for making certain 

labwide purchases (e.g., telephone services, furniture, vehicle leases). 

• PNNL’s property management section provides policy and oversight for 

property management at the lab.

• PNNL uses two receiving facilities to receive procured goods including 

Pcard purchases. As items are received, central receiving staff are to 

review the corresponding purchase records and packing slips to 

determine if the package appears to contain accountable assets. If so, 

they are to open the packages and apply inventory bar-codes and/or 

ownership tags to the items, as appropriate.

• Specific managers within each organization are assigned the 

responsibility for coordinating with property management to track the 

physical assets and ensure that recorded information for each 

accountable asset is current.
Enclosure 

Page 18 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 12

Background (cont’d)

• Items that qualify as accountable assets are bar-coded and 

recorded in the property management system. Accountable 

assets include:

• All assets with an acquisition value of $5,000 or more, and 

• Designated sensitive assets, which are items susceptible to theft and generally have an acquisition value of $500 

or more, and include items such as laptops and DVD 

recorders. 

• As of March 2003, PNNL’s property management system 

contained about 20,000 DOE-owned accountable assets 

with a total recorded acquisition cost of $306 million. 
Enclosure 

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Pacific Northwest National Laboratory 13

Scope and Methodology 

To determine if PNNL’s internal controls over its Pcard program 

provided reasonable assurance that improper purchases would not 

occur or would be detected in the normal course of business, we

• Reviewed PNNL’s contract with DOE and applicable provisions of the DOE Acquisition Regulation (DEAR) and the Federal Acquisition 

Regulation (FAR), and

• Performed walkthroughs of key processes, interviewed PNNL and DOE management and staff, and compared the results to the lab’s 

policies and GAO’s Standards for Internal Control in the Federal 

Government. These standards provide the overall framework for establishing and maintaining internal control and for identifying and 

addressing major performance and management challenges and 

areas at greatest risk of fraud, waste, abuse, and mismanagement

and are based on internal control guidance for the private sector.4

4Internal Control — Integrated Framework, Committee of Sponsoring Organizations of the Treadway Commission (COSO). 
Enclosure 

Page 20 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 14

Scope and Methodology (cont’d)

To test specific control activities and determine whether Pcard 

expenditures complied with lab policies and other applicable 

requirements and were reasonable in nature and amount, we first 

obtained from the lab the database of purchase card transactions for 

fiscal year 2002 and the first 6 months of fiscal year 2003. We

separately obtained from the lab’s Pcard issuing bank the total dollar 

value of Pcard purchases for the period to compare to the database for 

completeness. 

We then selected transactions using the following methods.

• Data mining. We performed data mining on the Pcard transaction database to identify indicators of potential noncompliance with 

policies and procedures.

• We looked for potential split purchases (i.e., groups of two or 

more similar transactions that potentially were split to circumvent single purchase limits) and transactions on cards assigned to 

employees on leave or former employees.
Enclosure 

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Pacific Northwest National Laboratory 15

Scope and Methodology (cont’d)

• Because our data mining for split purchases yielded 1,338 

transactions that made up 211 potential split purchases, we 

selected a statistical sample of 75 transactions that made up 27

potential split purchases. We reviewed the related supporting 

documentation and the lab’s response in assessing whether 

these were in fact split purchases.

• Because our data mining for transactions made by cardholders 

while on leave or by former employees also yielded hundreds of 

transactions, we made a nonstatistical selection of 25 of these 

transactions and forwarded the results to the lab for a response

and related documentation that we used to assess the 

transactions. 

• Nonstatistical selection. We performed additional data mining on 

Pcard transactions to identify purchases that appeared to be from 

unusual vendors, purchases made on weekends, during the 

holidays, or at fiscal-year end, and purchases of sensitive assets.
Enclosure 

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Pacific Northwest National Laboratory 16

Scope and Methodology (cont’d)

• As these analyses yielded thousands of transactions, we then 

made a nonstatistical selection of 150 of these transactions 

totaling $175,936, taking into account factors such as item 

description, amount, and frequency of similar purchases, among 

other things. We did not select any transactions that were 

previously identified by internal audit and agreed to by PNNL 

management as unallowable items. However, we did select 

some in which the lab had not yet determined allowability.

• Based on our review of supporting documents, we determined 

that two transactions were made by unknown perpetrators with 

stolen Pcards. Because we were able to verify that the charges 

were subsequently reversed by the issuing bank, we eliminated 

these from the nonstatistical selection, thus reducing the total

selection to 148 transactions. 

• We tested the 148 transactions for specific control activities, such as evidence of supervisory review and approval, adequacy of 

supporting documentation, as well as to examine the 

reasonableness of the purchases.
Enclosure 

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Pacific Northwest National Laboratory 17

Scope and Methodology (cont’d)

To determine if property controls over selected asset 

acquisitions provided reasonable assurance that 

accountable assets would be properly recorded and 

tracked, we 

• Performed walkthroughs to observe property controls,

• Reviewed property management policies and procedures,

• Tested accountable property items selected in the nonstatistical selection to determine whether these 

assets had been entered into the lab’s property system 

prior to our review, and
Enclosure 

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Pacific Northwest National Laboratory 18

Scope and Methodology (cont’d)

• Performed data mining on the property database to 

identify possible database errors or inaccuracies such as 

property assigned to terminated employees and multiple 

property items with the same serial number.

• While we identified some improper, wasteful, and 

questionable purchases, our work was not designed to 

determine the full extent of such purchases. 

• We conducted our work on all four labs from March 2003 

through May 2004 in accordance with generally accepted 

government auditing standards.
Enclosure 

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Pacific Northwest National Laboratory 19

Internal Control Weaknesses

PNNL management has recognized the inherent risks 

associated with the Pcard program and has implemented 

controls to help ensure that improper purchases would not 

occur or would be detected in the normal course of 

business. However, the exceptions noted in our review, 

primarily split purchases, point to additional areas that need 

to be addressed to further enhance controls over the Pcard 

program. PNNL management is already addressing some 

of these issues in response to recent audits.
Enclosure 

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Pacific Northwest National Laboratory 20

Internal Control Weaknesses (cont’d)

Examples of Pcard controls that were instituted at PNNL to reduce the 

risk of improper purchases and help ensure that accountable property 

was recorded and tracked included the following:

• Based on the dollar amount of the purchase entered into the Pcard system for each order, the Pcard system automatically flagged 

certain purchases to alert central receiving staff that the item may 

require certain ownership tags and property bar-codes.

• Central receiving staff could access the Pcard system for detailed purchase information to facilitate the identification of accountable 

assets and alert the Pcard office of purchases that appeared 

improper.

• Property management reviewed exception reports to identify potential accountable assets purchased via Pcards that had been 

marked as received but were not entered in the property 

management system.
Enclosure 

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Pacific Northwest National Laboratory 21

Internal Control Weaknesses (cont’d)

However, during our review, we noted two weaknesses in 

the design of the controls over the Pcard program that 

increased the risk of improper purchases.

• Segregation of Duties: The Pcard administrator and her 

assistant were also cardholders.

• As Pcard administrators, they were responsible for 

monitoring and enforcing cardholder compliance with 

Pcard policies. The Pcard administrator was also 

responsible for taking disciplinary actions such as 

warnings, suspensions, and/or card cancellations.
Enclosure 

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Pacific Northwest National Laboratory 22

Internal Control Weaknesses (cont’d)

• The Pcard administrator was the primary contact with 

the bank, and thus had authority to order new cards 

and request credit-limit increases. 

• This situation created a conflict of interest between the 

cardholder and program oversight roles, elevating the 

risk that spending improprieties would not be 

detected. 
Enclosure 

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Pacific Northwest National Laboratory 23

Internal Control Weaknesses (cont’d)

• Transaction Documentation: During our testing of a nonstatistical 

selection of transactions, we identified several transactions that 

lacked key supporting documentation to verify specifically what was 

purchased and the related cost. 

• GAO’s Standards for Internal Control in the Federal Government 

states that transactions and other significant events need to be

clearly documented, and the documentation should be readily 

available for examination. 

• Out of 148 transactions reviewed, we found 12 (9 percent) 

totaling $21,834 that lacked sufficient documentation such as an

invoice, credit receipt, or other sales documentation necessary to 

fully validate the dollar amount, quantity, and nature of the items 

purchased.
Enclosure 

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Pacific Northwest National Laboratory 24

Internal Control Weaknesses (cont’d)

• Without such documentation, the laboratory did not have 

sufficient independent evidence of the description and quantity of 

what was purchased and/or the price paid.

• This lack of documentation is partly due to PNNL policy. Although 

lab policy requires each transaction to be supported, it does not 

specifically require cardholders to request or retain the sales 

receipts or invoices. A lab official informed us that the Pcard 

office will allow packing slips or order forms in lieu of such 

documents if a reviewer can reasonably validate the quantity and

items purchased. However, packing slips typically do not show 

the costs of the items purchased, and order forms do not 

represent confirmation of goods actually purchased and received.

While lab officials stated they emphasize to cardholders that 

receipts are the preferable form of evidence, they acknowledged 

that the current policy does not clearly specify this.
Enclosure 

Page 31 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 25

Improper, Wasteful, and Questionable 

Purchases

We also identified improper, wasteful, and questionable 

transactions totaling $104,250 indicating additional areas 

where controls could be improved. As discussed below, 

most of these related to split purchases. Based on our 

review of a statistical sample of potential split purchases, we estimate that $777,766 of total fiscal year 2002 and the first 

half of fiscal year 2003 purchase transactions were actual 

split purchases.5

Improper Purchases: We identified 39 transactions totaling $97,938 of improper purchases, which we defined as 

purchases that violated the DOE contract or lab policy. 

These included the following: 

5Our population of 211 potential split purchases had a total value of over $1,794,477. We are 95 percent 

confident that the total dollar value of actual split purchases was between $462,787 and $1,092,745.
Enclosure 

Page 32 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 26

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• Split purchases: PNNL’s Pcard policy prohibits splitting purchases into more than one transaction to circumvent 

single purchase limits. Using data mining techniques, 

we identified 211 potential split purchases—that is, 

groups of two or more similar transactions that 

potentially were split to circumvent single purchase 

limits. In the statistical sample of 27 of these potential split purchases consisting of 75 total transactions, we 

found 10 were in fact improper split purchases consisting 

of 21 transactions totaling $81,448. Based on these 

results, we estimate that $777,766 of total fiscal year 

2002 and the first half of fiscal year 2003 purchase 

transactions were split purchases.
Enclosure 

Page 33 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 27

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• For example, a cardholder with a $10,000 limit made two 

separate purchases of hardware totaling $14,929. Supporting 

documents indicated that the orders were placed on the same 

date with the same vendor. Both orders were received the same 

day.

• Reviewing officials had approved the monthly statements 

containing these split purchases, indicating some approving 

officials were not fully aware of the split purchase policy.

• While PNNL’s internal controls (central receiving and Pcard office 

staff) had previously discovered two of these split purchases 

totaling $13,558, it had not detected the other eight. According to 

PNNL officials, up until October 2003, the computer program 

which the Pcard office was using to monitor cardholder activity 

for compliance was not effective in detecting split purchases.
Enclosure 

Page 34 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 28

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• Unauthorized purchase actions: We also identified seven 

transactions totaling $7,956 that were placed against cardholders’ 

accounts by someone other than the cardholders. 

• PNNL policy prohibits the use of Pcards by anyone other than the

cardholder. Although cardholders may have delegates to help 

them perform some of their purchasing responsibilities such as 

reconciling transactions, delegates may not place orders for the

cardholders. 

• We reviewed a nonstatistical selection of 25 Pcard transactions 

that occurred while cardholders were on leave or after they 

retired from or terminated employment with PNNL. While most 

turned out to be proper purchases (e.g., cardholder placed order

prior to leaving but was not charged by the vendor until after they 

left), we identified seven transactions where the orders were 

placed by the cardholders’ delegates during their absence.
Enclosure 

Page 35 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 29

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• In all of these instances, the cardholders had preexisting 

accounts with the vendors from whom the purchases were made. 

For example:

• Two transactions totaling $2,009 were placed by a 

cardholder’s delegate for services related to an on-going 

building improvement project. The vendor charged the 

cardholder’s account on file. 

• Two other transactions totaling $5,158 were placed by a delegate to purchase a computer, two printers, and 

peripherals. The order appeared to have been placed by 

someone accessing the cardholder’s account on the lab’s 

internal online ordering system.

• While all of the purchases appeared to be for legitimate 

purposes, the ability for someone other than the cardholder to 

make purchases against their account increases the vulnerability of fraud, waste, or abuse.
Enclosure 

Page 36 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 30

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• Unallowable and Pcard-prohibited purchases: In the nonstatistical 

selection of 148 transactions, we identified 11 transactions totaling 

$8,534 that were improper because they were unallowable under the 

contract or were prohibited from being purchased with a Pcard.

• Six of these transactions totaling $1,472, which related to 

unallowable food and personal items, had been discovered by 

PNNL’s internal reviews. These were repaid to DOE by the lab.

• Some of the remaining five transactions totaling $7,062 included

• One transaction of $2,866 for graphics services. PNNL policy 

prohibits the use of Pcards to purchase services over $2,500.

• One transaction totaling $1,277 for catering services that were 

unallowable at the time of purchase.

• Two transactions totaling $1,360 for gifts or mementos.
Enclosure 

Page 37 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 31

Improper, Wasteful, and Questionable 

Purchases (cont’d)

Wasteful Purchases: Out of 148 transactions, we also 

identified 3 transactions totaling $693 that we determined to 

be wasteful—that is, were excessive in cost compared to 

other available alternatives and/or were of questionable 

need.

• We considered them excessive in cost when compared 

to available alternatives that would meet the same basic 

needs, or of questionable need when they appeared to 

be items that were a matter of personal preference or 

convenience, were not part of the usual and necessary 

equipment for the work the employees were engaged in, 

and/or did not appear to benefit DOE. These consisted 

of the following:
Enclosure 

Page 38 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 32

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• One $413 oversized, laptop-carrying case with wheels. 

PNNL management concluded that this purchase was 

reasonable because it was made to accommodate a 

staff member with an injury and who had a need for 

frequent business travel. However, this purchase 

appears excessive given that comparable oversized, 

laptop-carrying cases with wheels could be purchased 

for around $100. 

• A $72 transaction for Hawaiian leis given to graduates of 

a management development program, and $208 for 

tablecloths purchased for use while serving meals to 

training participants. We questioned the business need 

for these items.
Enclosure 

Page 39 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 33

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• Questionable Purchases: We also identified four transactions totaling $5,619 that we classified as questionable because there was insufficient 

documentation to determine what was actually purchased, how many 

items were purchased, the cost of the items purchased, and whether the 

purchase was reasonable. Some of these included the following:

• Two of these transactions totaling $5,575 were for the purchase of $75 and $100 gift certificates from Barnes and Noble. They were

issued to staff to allow them to purchase training materials for staff 

development. However, they did not require the staff to provide any 

subsequent receipts to ensure that the gift certificates were used for 

their intended purpose. As such, PNNL management agreed to 

make a cost correction for the total amount even though they 

believed that some purchases may have been appropriate.

• One transaction was for a $25 gift certificate originally purchased for award purposes. PNNL records indicate that the certificate was 

used to purchase office supplies instead, but no receipt was 

provided to support how the gift card was ultimately spent.
Enclosure 

Page 40 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 34

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• Purchases of gift cards are particularly risky because 

they can be used like cash. Unlike purchases made 

with a Pcard, which appear on a monthly billing 

statement to be approved by an approving official and 

supported by receipts, purchases made with a gift 

card have no such subsequent audit trail. 

Consequently, if the gift cards are lost, stolen, or 

misused, there is no means for determining how they 

were spent.
Enclosure 

Page 41 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 35

Improper, Wasteful, and Questionable 

Purchases (cont’d)

• These instances of improper, wasteful, and questionable transactions 

may be attributable, in part, to inadequate training of cardholders, 

reviewing officials, and cardholder delegates on the Pcard policy. 

• During our scope of review, only new cardholders received formal

Pcard training. There were no refresher training courses offered for 

cardholders. Additionally, there were no requirements for approving 

officials or cardholder delegates to attend initial or refresher Pcard 

training. 

• Because purchasing requirements often change, adequate training 

on the proper use of the Pcard for all parties involved in the 

purchasing process is essential. While updates to Pcard policies 

were sent to cardholders and made available via an internal Web 

site, without formal training and refresher courses, Pcard policies 

and changes are more likely to be forgotten or overlooked. 
Enclosure 

Page 42 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 36

Improper, Wasteful, and Questionable 

Purchases (cont’d)

While the $104,250 of improper, wasteful, and questionable 

transactions is relatively small compared to the 

approximately $44 million in lab purchase card activity 

during the review period, it demonstrates vulnerabilities from 

weak controls that could be exploited to a greater extent. In 

addition, because we only tested a small portion of the 

transactions we identified 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.
Enclosure 

Page 43 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 37

Property Management

GAO’s Standards for Internal Control in the Federal Government 

requires establishing physical control to secure and safeguard 

vulnerable assets. Such assets should be periodically counted and 

compared to control records. PNNL policy requires that controlled and 

sensitive property be tagged with bar-code property numbers and 

tracked in the property management system.

• In our review of 148 transactions, there were 19 transactions for the 

purchase of 32 accountable assets totaling $52,753.

• PNNL property management recorded all but three of the assets 

totaling $4,700 in its property management system.

• According to PNNL officials, this occurred because a new staff 

member in property management erroneously sent the 

cardholders government property ownership tags instead of barcode tags with assigned inventory numbers. 
Enclosure 

Page 44 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 38

Recent Policy and Procedural Changes

• PNNL management has been responsive to recent Pcard 

reviews and has implemented or is in the process of 

implementing several changes in its Pcard policies and 

procedures to address audit concerns. Many of these 

changes are the result of recent internal audits and other 

reviews of the Pcard program, including ours.

• Beginning in January 2003, the Pcard office began receiving a monthly report of all personnel status 

changes such as organizational assignments, leave of 

absences, terminations, and retirements. Prior to this 

date, it was left up to the cardholder to notify the Pcard 

office of any changes in status.

• In January 2003, the lab cancelled the Pcard administrator’s Pcard account. 
Enclosure 

Page 45 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 39

Recent Policy and Procedural Changes 

(cont’d)

• In June 2003, the lab revised its list of Pcard-prohibited purchases. Among the new items prohibited from being purchased with a Pcard

were gifts, gift certificates, decorations and party favors, food and 

beverages, and tablecloths.

• In July 2003 PNNL implemented new Pcard training requirements for cardholders, approving officials, and delegates (cardholders’ 

backups). 

• New cardholders, approving officials, and delegates are required

to take the initial Pcard training course and successfully complete 

a test. 

• Every 2 years, cardholders, approving officials, and delegates must successfully complete a Web-based recertification training 

course. This training reemphasizes the lab’s policies on split purchases, authorized users of Pcards, restricted and prohibited

items, and consideration of best value in making purchases. In 

addition, the training reemphasizes the criteria for determining

accountable assets and the requirement to notify property 

management if such assets are purchased.
Enclosure 

Page 46 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 40

Recent Policy and Procedural Changes 

(cont’d)

• The cardholder’s or approving official’s failure to successfully

complete the required training will result in the suspension of the 

cardholder’s Pcard. The delegate’s failure to successfully 

complete the required training will result in the suspension of the 

delegate’s Pcard duties.

• The internal audit group performed a review of cell phone practices. 

As a result of their review, the following changes took effect in 

September 2003: 

• Cardholders were prohibited from using Pcards to purchase 

cellular phones and services.

• The lab assigned a centralized unit the responsibility for 

procuring cellular phone services. It also required the lab’s 

managers to periodically review their staff members’ cellular 

phone bills for proper telephone use.
Enclosure 

Page 47 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 41

Recent Policy and Procedural Changes 

(cont’d)

• According to PNNL officials, in October 2003, PNNL’s 

internal audit group began training Pcard office staff on a 

new software program to perform data mining 

techniques to better detect improper and wasteful 

purchases, such as split purchases. According to the 

Pcard program manager, this includes performing key 

word searches to find items and vendors that could be 

considered high-risk purchases. Identified purchases 

are further reviewed for allowability and/or prohibited use 

of the Pcard.
Enclosure 

Page 48 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 42

Conclusions

PNNL has established a system of internal controls over its 

Pcard program and property management functions to help 

prevent and detect improper purchases and safeguard 

assets. However, our testing indicated that additional 

enhancements to strengthen these controls are needed. To 

its credit, the lab has been responsive to recent audit 

findings and, as a result, has made some significant 

changes to its Pcard policies and procedures. While these 

are positive steps, it will be important for lab management to 

monitor compliance with these new policies and procedures 

and to periodically assess their effectiveness in helping 

minimize improper and wasteful purchases.
Enclosure 

Page 49 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 43

Recommendations

We recommend that the Secretary of Energy direct the Pacific 

Northwest National Laboratory’s Director to take the following three 

actions to strengthen internal controls over the purchase card program 

and reduce the lab’s vulnerability to improper, wasteful, and 

questionable purchases.

• Cancel purchase card accounts for cardholders who also perform 

oversight functions over the purchase card program to help 

ensure appropriate independence and separation of duties 

between these functions.

• Establish policies and procedures requiring that purchasers 

maintain a copy of the detailed sales receipt, invoice, or other

independent support showing the description, quantity, and price

of individual items purchased.
Enclosure 

Page 50 GAO-04-988R PNNL Purchase Card Controls 

Pacific Northwest National Laboratory 44

Recommendations (cont’d)

• Require approving officials, during their review of 

cardholder transaction documentation, to ensure that 

the cardholders obtained a sales receipt or invoice to 

support each purchase, and that the cardholder 

obtained and documented any required preapprovals 

before purchase.

• We also recommend that the Secretary of Energy direct the 

DOE contracting officer for the lab to review the improper, 

wasteful, and questionable items we identified to determine 

whether any of these purchases should be repaid to DOE.
Enclosure 

Page 51 GAO-04-988R PNNL Purchase Card Controls 

(190131) 

Pacific Northwest National Laboratory 45

Agency Comments

• We met with laboratory and local DOE officials to obtain their oral 

comments on a draft of this briefing. They generally agreed with our 

findings and recommendations and indicated that the lab has taken or 

will take action to address the issues identified. 

• For example, lab officials indicated that while the practice has been to 

provide the most complete source documentation available, they agreed 

to formalize the requirement and plan to work with the contracting officer 

to establish the most complete level of documentation required to 

support Pcard transactions. They also indicated they would emphasize 

this and other requirements during training. In addition, the lab 

cancelled the Pcard administrator’s assistant’s Pcard effective June 7, 

2004. 

• The lab also provided technical and clarifying comments, which we 

incorporated as appropriate.
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