GAO-04-989R Sandia Purchase Card Controls 

United States Government Accountability Office

Washington, DC 20548 

August 6, 2004 

Congressional Requesters 

Subject: Sandia National Laboratories: Further Improvements Needed to 

Strengthen Controls Over the Purchase Card Program

The Sandia National Laboratories (Sandia) operate in Albuquerque, New Mexico and 

Livermore, California. Sandia is a government-owned, contractor-operated national 

laboratory of the Department of Energy’s (DOE) National Nuclear Security 

Administration (NNSA).1 The Lockheed Martin Corporation manages the lab under a 

cost-reimbursable contract with NNSA. Lockheed Martin 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 DOE and two 

NNSA contractor labs, including Sandia.2

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

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

highlight the results of our work and the information provided.3 Specifically, we 

reviewed Sandia’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-04-989R Sandia 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 10 recommendations for 

action—9 related to actions needed to be taken by Sandia and 1 related to action 

needed to be taken by the NNSA contracting officer for Sandia. 

Results in Brief 

Internal control weaknesses in Sandia’s Pcard program increased the lab’s risk of 

improper purchases. These control weaknesses primarily related to the review and 

approval processes, which are key controls in the Pcard program. Specifically, 

during the majority of our review period, cardholders who were managers were 

allowed to approve their own purchases. Of the nonstatistical selection of 141 

transactions obtained through data mining5

 for fiscal years 2002 and the first half of 

fiscal year 2003, 15 purchases (11 percent) were made by such cardholders and thus 

did not have any independent review and approval. In addition, approving officials 

did not review cardholders’ monthly statements in a timely manner for 14 of 49 (29 

percent) transactions tested.6

 For example, one purchase of a digital camera wasn’t 

approved until 16 months after purchase. We also found 7 of the 141 nonstatistically 

selected transactions lacked an invoice, credit card slip, or other sales 

documentation. This may partly be due to the fact that lab policy did not require 

monthly approvers to verify purchases listed in the cardholder statements against 

supporting documents. We further found that Sandia required purchases of restricted 

items to be preapproved, but did not require documentation of such approvals for the 

majority of our review period. Thirty-one of the 36 (86 percent) restricted item 

purchases we reviewed totaling $92,857 did not have any documented preapproval. 

Consequently, neither we nor the lab could determine whether this control was being 

effectively implemented. 

 

These control weaknesses likely contributed to the approximately $479,645 in 

improper, wasteful, and questionable purchases we identified during our review. 

While relatively small compared to the approximately $102 million in purchase card 

activity that occurred during the review period, it demonstrates vulnerabilities from 

weak controls that could be exploited to a greater extent. Specifically, we found 10 

improper split purchases—that is, groups of two or more similar transactions that 

were split to circumvent single purchase limits—consisting of 24 transactions totaling 

$372,321. Eleven purchases totaling $3,606 we determined to be wasteful because 

 

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 NNSA contract. Although the lab’s purchase 

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

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

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

We were unable to test the timeliness of supervisory approval for the remaining 92 transactions 

selected. According to Sandia officials, during a computer conversion all of the approval dates were 

changed to December 23, 2002. Thus, we could only perform this test on transactions that occurred 

after the conversion.
Page 3 GAO-04-989R Sandia Purchase Card Controls 

they were excessive in cost compared to other alternatives and/or of questionable 

need, such as four laser pointers costing $228 each, when other laser pointers were 

available for $90-$120 each. Another 15 transactions totaling $103,718 we considered 

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

the lab to determine what was purchased and whether the purchases 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. 

Sandia also did not ensure that acquired property and equipment were tracked 

properly and in a timely manner. Of 43 assets in our nonstatistical selection of Pcard 

transactions, 21 (49 percent) totaling $39,113 were not recorded in Sandia’s property 

management system at the time we provided the lab with the list of assets selected. 

We performed a physical observation of 88 assets, which included selected assets 

identified from the nonstatistical selection of 141 Pcard transactions as well as assets 

selected from the property database because they were still assigned to separated 

employees or there were multiple assets with the same serial number. All 88 were 

either found or—in the case of 12 assets—the lab indicated that the items had been 

disposed of or written off. However, because they only record the bar-code number 

and not the asset’s serial number on the disposal form or the write-off report, we 

could not verify that the 12 assets had actually been disposed of or written off. 

Furthermore, our physical observation revealed several inaccuracies in the property 

database, including data discrepancies, incorrect location information, and 

inaccurate property custodians listed. 

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

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

However, additional improvements are needed to further reduce the risk of improper 

and wasteful purchases. 

Recommendations for Executive Action 

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

Administrator of NNSA direct the Sandia National Laboratories’ Director to take the 

following nine actions. 

• To strengthen internal controls over the purchase card program and reduce 

the lab’s exposure to improper, wasteful, and questionable purchases: 

• Cancel purchase card accounts for cardholders who perform oversight 

functions for the purchase card program to help ensure appropriate 

independence and separation of duties between these functions. 

• Require approving officials to attend initial and periodic refresher 

training on Pcard policies and procedures to help ensure their 

knowledge of purchasing requirements remains current. 
Page 4 GAO-04-989R Sandia Purchase Card Controls 

• Emphasize during training for cardholders and approving officials the 

laboratory’s policies on (1) timely cardholder reconciliation and 

supervisory review of transactions, (2) split purchases, (3) transaction 

documentation requirements, (4) preapproval requirements for 

restricted items, (5) prohibited purchases, and (6) considering best 

value in making and approving purchases. Training should also include 

reminding these staff of the criteria for accountable assets and the 

requirements to notify property management to ensure accountable 

assets purchased are identified, bar-coded, and entered into the 

property management system. 

• Require approving officials to verify purchases on cardholders’ monthly 

statements to the detailed sales receipts, invoices or other independent 

support showing the description, quantity, and price of individual items 

for all purchases made to help ensure that purchases are adequately 

documented and are proper purchases before approving. This should 

include verifying that there is documented approval for all purchases of 

restricted items. 

• Implement tools, such as data mining, for use by Pcard program staff in 

reviewing cardholder purchases for improper purchases. These tools 

should be used to systematically monitor for potential split purchases, 

unusual vendors, restricted items without approval, and other 

potentially improper or wasteful purchases. 

• Consider modifying the Pcard system so that purchases that are not 

reconciled timely by the cardholder are charged to a temporary 

suspense account rather than to each cardholder’s default project and 

task codes. 

• To help improve Sandia’s controls over the purchasing, recording, and 

safeguarding of assets, we recommend the following. 

• Require that key information such as the property custodian, location, 

serial number, and item description are verified against the information 

entered into the property database during physical inventory counts. 

• Develop a report to enable property management staff to review recent 

Pcard purchases for accountable assets that require recording in the 

property management system. 

 

• Require that serial numbers for items being disposed or written off be 

listed on the disposal forms or inventory write-off reports. 

We also recommend that the Administrator of NNSA direct the NNSA 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 NNSA. 
Page 5 GAO-04-989R Sandia Purchase Card Controls 

Agency Comments 

We obtained comments on a draft of this briefing from NNSA headquarters officials. 

They generally agreed with the findings and recommendations, and indicated that the 

lab has made a number of improvements to their controls in light of the problems 

identified at Los Alamos. 

We also obtained comments from NNSA’s Sandia Site Office, who disagreed with the 

recommendation to require approving officials to verify purchases listed on 

cardholders’ statements against detailed sales receipts or invoices, indicating that to 

do so would be labor intensive and cost prohibitive. They suggested periodic reviews 

of statistical samples and data mining instead. While we endorse periodic reviews of 

sample transactions and data mining as part of an overall system of internal control, 

they are not a substitute for adequate supervisory review. The approving official’s 

review of transactions is one of the most critical controls for helping to ensure that 

purchases are necessary and proper. Without reviewing independent, detailed 

support for the individual items purchased, a reviewer cannot ensure that the actual 

items purchased were reasonable and proper, thus increasing the risk of improper 

purchases. 

Lab officials indicated that their efforts over the past 18 months have resulted in 

many process and internal control changes, and further changes are being 

considered. For example, Sandia management is considering making training for 

approving officials mandatory and is looking into the purchase of data mining 

software. In addition, the Pcard manager informed us that the account of the staff 

member responsible for monitoring Pcard activities was cancelled on June 8, 2004. 

The lab also provided technical and clarifying comments, which we incorporated as 

appropriate. 

Scope and Methodology 

To determine if Sandia’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 Sandia’s contract with NNSA and 

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

Acquisition Regulation (FAR), performed walkthroughs of key processes, interviewed 

Sandia and NNSA 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

 

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 6 GAO-04-989R Sandia Purchase Card Controls 

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 attractive 

assets. Based on the results, we (1) identified 50 potential split purchases and tested 

all of them to determine whether they were in fact split purchases and (2) tested a 

nonstatistical selection of 141 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, 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, and performed a physical observation of selected assets to determine 

whether they could be properly accounted for. 

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

Administrator of NNSA 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; the Administrator of NNSA; and the Sandia National 

Laboratories 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 Stephanie Chen, David Elder, Barbara House, Kelly Lehr, Gail 

Luna, and Lien To. 

Linda M. Calbom 

Director, Financial Management and Assurance 

Enclosure 
Page 7 GAO-04-989R Sandia 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 8 GAO-04-989R Sandia Purchase Card Controls 

June 14, 2004, Briefing 

1

Sandia National Laboratories

Further Improvements 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 9 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 2

Table of Contents

• Introduction and Objectives

• Results in Brief

• Background

• Scope and Methodology

• Internal Control Weaknesses

• Improper, Wasteful, and Questionable Purchases

• Property Management Weaknesses

• Recent Policy and Procedural Changes

• Conclusions

• Recommendations

• Agency Comments
Enclosure 

Page 10 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 3

Introduction and Objectives

• Sandia is a government-owned, contractor-operated national laboratory 

of the Department of Energy’s (DOE) National Nuclear Security 

Administration (NNSA).1 It is managed by the Lockheed Martin 

Corporation under a cost-reimbursable contract with NNSA. Lockheed 

Martin 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 DOE 

and two NNSA contractor labs, including Sandia.2

1NNSA 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 the three national 

security laboratories which includes Sandia.

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 

Page 11 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 4

Introduction and Objectives (cont’d)

• The objectives of our review of the Sandia National Laboratories were to 

determine whether:

• Internal controls over Sandia’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 12 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 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 that are charged to the NNSA contract. 

Although the lab’s purchase cards are issued by the 

contractor, purchases charged to the NNSA contract are 

ultimately reimbursed and thus paid for by the federal 

government. Similarly, property purchased that is charged 

to NNSA becomes government property.
Enclosure 

Page 13 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 6

Results in Brief

Internal control weaknesses in Sandia’s Pcard program increased the 

lab’s risk of improper purchases. Our review of a nonstatistical selection 

of 141 transactions, while not projectable to the universe of transactions, 

indicated a number of control weaknesses. For example,

• During the majority of our review period, cardholders who were managers were allowed to approve their own purchases. Fifteen of

the 141 purchases we reviewed were made by such cardholders 

and thus did not have any independent review and approval.

• Approving officials did not timely review cardholders’ monthly statements for 14 of 49 transactions tested. In some instances, 

statements were not approved up to 16 months after purchase. 

• Sandia required purchases of restricted items to be preapproved, but did not require documentation of such approvals for the majority 

of our review period. Thirty-one of the 36 restricted item purchases 

we reviewed totaling $92,857 did not have any documented 

preapproval. Consequently, neither we nor the lab could determine 

whether this control was being effectively implemented.
Enclosure 

Page 14 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 7

Results in Brief (cont’d.)

These control weaknesses likely contributed to the approximately

$479,645 in improper, wasteful, and questionable purchases we 

identified during our review. These included: 

• Ten improper split purchases—that is, groups of 2 or more similar transactions that were split to circumvent single purchase limits— consisting of 24 transactions totaling $372,321.

• Eleven purchases totaling $3,606 that we determined to be wasteful because they were excessive in cost compared to other alternatives 

and/or of questionable need, such as four laser pointers costing 

$228 each, when other laser pointers were available for $90-$120 

each.

• Fifteen transactions totaling $103,718 that we considered questionable because they were missing key documentation that 

would enable us or the lab to determine what was purchased and 

whether the purchases were proper and reasonable.
Enclosure 

Page 15 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 8

Results in Brief (cont’d.)

Sandia also did not ensure that acquired property and equipment were 

properly tracked.

• Of 43 assets tested, 21 (49 percent) totaling $39,113 were not 

recorded in Sandia’s property management system at the time we 

provided the lab with the list of assets selected.

• Furthermore, our physical observation revealed several inaccuracies 

in the property database, including data discrepancies, incorrect 

location information, and inaccurate property custodians listed.

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

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

its Pcard purchases. We are making 10 recommendations to address 

issues raised in our review that require additional action.
Enclosure 

Page 16 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 9

Results in Brief (cont’d.)

• NNSA headquarters officials generally agreed with the 

findings and recommendations. The Sandia Site Office of 

NNSA disagreed with the recommendation to require 

approving officials to verify cardholders’ purchases against 

receipts, suggesting instead to review samples and perform 

data mining. While these are good controls, they are not a 

substitute for adequate supervisory review of independent, 

detailed support for individual items purchased. Lab 

officials indicated they have made a number of 

improvements and additional actions are being considered.
Enclosure 

Page 17 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 10

Background

• Sandia is a nuclear weapons lab that was established in 

1949 in Albuquerque, New Mexico, and expanded to 

Livermore, California in 1956.

• The lab’s 8,300 staff are employees of the Lockheed Martin 

Corporation. Its fiscal year 2004 budget is expected to be 

about $2.2 billion.

• The lab’s Pcard program was established in 1996 and has 

about 1,800 cardholders. 

• During fiscal year 2002, the lab made about $68 million in 

Pcard purchases.
Enclosure 

Page 18 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 11

Background (cont’d.)

• Most cardholders have a $25,000 single purchase limit and 

monthly limit, although selected employees may have 

higher transaction and/or monthly limits, which range from 

$35,000 to $500,000.

• Sandia’s property management department provides policy 

and oversight for property management at the lab. 

• Staff within the property management department are 

responsible for supporting Sandia employees in tracking 

and maintaining records of accountable property.
Enclosure 

Page 19 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 12

Background (cont’d.)

• Items that qualify as accountable assets are recorded and tracked in the 

lab’s property management system. Sandia’s accountable assets 

consist of both “equipment” and “attractive” (sensitive or attractive to 

theft) items.

• Equipment consists of items costing at least $5,000 with a useful life of at least 2 years.

• Attractive property are items susceptible to misappropriation for personal use or readily convertible into cash. This includes 

cameras, personal computers, and portable power tools costing at

least $1,000; and firearms and two-way radios regardless of 

acquisition cost.

• Pcards are not to be used to purchase accountable assets without prior approval.

• The lab’s property management system had about 52,000 NNSA-owned accountable assets with a total recorded acquisition cost of about $1 

billion.
Enclosure 

Page 20 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 13

Scope and Methodology

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

provided reasonable assurance that improper purchases would be 

prevented or detected in the normal course of business, we

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

Regulation (FAR),

• Performed walkthroughs of key processes, interviewed Sandia and NNSA 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.3

3Internal Control — Integrated Framework, Committee of Sponsoring Organizations of the Treadway Commission (COSO). 
Enclosure 

Page 21 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 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. 

• 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), cardholders with multiple purchase cards, 

and former employees who had active purchase card accounts 

after their separation dates.
Enclosure 

Page 22 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 15

Scope and Methodology (cont’d)

• We forwarded the results of all transactions that met 

specific criteria to the lab for a response and related 

documentation that we then used to assess these 

transactions.

• Nonstatistical selection. We performed additional data mining on Pcard transactions to first identify purchases 

that appeared to be from unusual vendors, purchases 

made on the weekends, during the holidays, or at fiscal 

year-end, and purchases of attractive assets.

• As these analyses yielded thousands of transactions, 

we then made a nonstatistical selection of 150 of 

these transactions totaling $246,035, taking into 

account factors such as item description, amount, and 

frequency of similar purchases, among other things.
Enclosure 

Page 23 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 16

Scope and Methodology (cont’d)

• After obtaining the supporting documentation, we found that nine

transactions were reversed for various reasons, such as three 

charges made by unknown perpetrators with stolen Pcards, two 

due to vendor errors, and one accidental personal use that was 

repaid the month after purchase. Because we verified that all 

nine transactions had been reversed, we eliminated these from 

the selection.

• We used the remaining 141 transactions totaling $225,727 to test

specific control activities, such as segregation of duties, evidence 

of supervisory review and approval, and adequacy of supporting 

documentation, as well as to examine the allowability 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,
Enclosure 

Page 24 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 17

Scope and Methodology (cont’d)

• 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,

• 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, and

• Performed a physical observation of selected assets to determine

whether they could properly be accounted for.

While we identified some improper, wasteful, and questionable 

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

improper purchases. We conducted our work on all four labs from 

March 2003 through May 2004 in accordance with generally accepted 

government auditing standards.
Enclosure 

Page 25 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 18

Internal Control Weaknesses

During the period of our review, Sandia’s internal controls did not 

provide reasonable assurance that improper Pcard purchases would not 

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

Weaknesses we identified included the following.

Segregation of Duties: Sandia did not ensure that Pcard duties were 

adequately separated to minimize the risk of waste, fraud, or abuse.

• The Standards for Internal Control in the Federal Government states 

that key duties and responsibilities should be divided or segregated 

among different people to reduce the risk of error or fraud. This 

should include separating the responsibilities for authorizing 

transactions, processing and recording them, reviewing the 

transactions, and handling any related assets.
Enclosure 

Page 26 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 19

Internal Control Weaknesses (cont’d.)

• During the majority of our review period, the lab’s policy 

allowed cardholders that were managers to approve their 

own purchases. Consequently, 15 out of the 141 (11 

percent) Pcard transactions we tested totaling $18,253 

had not been reviewed or approved by a second party 

because the cardholder was a manager.

• In addition, one of the Pcard staff responsible for 

monitoring Pcard activities for compliance was also a 

cardholder. This creates a conflict of interest between 

the cardholder and program oversight role, elevating the 

risk that spending improprieties would not be detected.
Enclosure 

Page 27 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 20

Internal Control Weaknesses (cont’d.)

Supervisory Review: The approving official’s review of each purchase 

card transaction is one of the most important controls to help ensure that 

all purchases are appropriate. We found that this critical control was 

compromised because of untimely supervisory review.

• After cardholders reconciled the charges listed on their monthly statements to supporting documents, approving officials were 

required to review and approve the monthly statements within about 

a month of the statement date. However, we found that 14 of the 49 

transactions we could test4 (29 percent) totaling $21,437 were approved from 3 to 16 months after the cardholder’s statement date. 

For example, one purchase of a digital camera wasn’t approved until 16 months after purchase.

• Without timely review and approval of purchases, the lab’s ability to deter improper purchase card use, file a dispute, or return an item if 

the charge or purchase is improper is severely limited.

4We were unable to test the timeliness of supervisory approval for the remaining 92 transactions 

selected. According to Sandia officials, during a computer conversion all of the approval dates were 

changed to December 23, 2002. Thus, we could only perform this test on transactions that occurred 

after the conversion.
Enclosure 

Page 28 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 21

Internal Control Weaknesses (cont’d.)

Transaction Documentation: We also identified 

weaknesses in the documentation of transactions, including 

transactions that lacked key supporting documentation to 

identify specifically what was purchased and the related 

cost, as well as documented approval for restricted 

purchases. 

• 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. 

• Sandia cardholders were required to retain their receipts for 3 years for purchases of $2,000 or less and 7 years 

for purchases over $2,000. 
Enclosure 

Page 29 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 22

Internal Control Weaknesses (cont’d.)

• We found seven of the transactions (5 percent) totaling 

$4,845 in the nonstatistical selection lacked an invoice, 

credit card slip, or other sales documentation. 

• Without such documentation, the laboratory did not 

have any independent evidence of the description and 

quantity of what was purchased and/or the price paid.

• One contributing factor to the missing documentation 

may partly be the fact that lab policy did not require 

monthly approvers to verify purchases listed in the 

cardholder statements against supporting documents. 

Therefore, there was no supervisory review to help 

ensure such documentation was retained.
Enclosure 

Page 30 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 23

Internal Control Weaknesses (cont’d.)

• Although Sandia required cardholders buying designated 

restricted items to obtain approval before purchase, it did 

not require documentation of such approvals until 

January 2003. As a result, 31 of the 36 (86 percent) 

restricted item purchases we reviewed totaling $92,857, 

did not have any documented preapproval for the 

purchase. Consequently, there was no assurance that 

such approval had actually been obtained. Examples of 

some of these included:

• Radios: 20 2-way radios totaling $10,961.

• Computers: 9 computers totaling $25,384.

• Cameras: 3 cameras and accessories totaling 

$19,083.
Enclosure 

Page 31 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 24

Internal Control Weaknesses (cont’d.)

Reconciliation of transactions: Cardholders were to reconcile their 

transactions electronically on the Pcard system to supporting documents 

monthly to verify that the charges were correct, input the item 

descriptions, and record the proper project and task codes for each 

transaction. If the cardholder did not perform this reconciliation, the 

Pcard system automatically charged the transactions to the cardholder’s 

default project and task codes which may or may not be appropriate for 

each purchase. 

• Each cardholder must establish a default project and task code 

when they open a Pcard account. The project and task codes 

determine whether costs are charged to the NNSA contract, a 

contract for another agency or sponsor, or absorbed by the 

contractor as in the case of unallowable costs. These codes also 

indicate the specific project or overhead account that the expense is 

to be charged to. 
Enclosure 

Page 32 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 25

Internal Control Weaknesses (cont’d.)

• Since each cardholder may make purchases for many 

requesters and purposes, their default codes may not be 

appropriate for some purchases. If the cardholder’s 

default codes are for a specific NNSA project and they 

make purchases that are not supposed to be charged to 

the contract, failure to perform the monthly reconciliation 

will result in these purchases initially being charged to 

NNSA. If uncorrected, NNSA may reimburse the lab for 

these non-NNSA expenditures. 

• Until December 2002, Pcard administrators did not run 

any exception reports to identify cardholders who did not 

reconcile their purchases to ensure such transactions 

were properly recorded.
Enclosure 

Page 33 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 26

Internal Control Weaknesses (cont’d.)

Training: Although approving officials play a critical role in helping to 

ensure that purchases are allowable and reasonable, they were not 

required to attend any training to help ensure they were knowledgeable 

about current Pcard policies and procedures.

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

states that training should be aimed at developing and retaining

employee skill levels to meet changing organizational needs. 

Qualified and continuous supervision should be provided to ensure 

that internal control objectives are achieved.

• Lab officials told us that approving officials were given e-mail reminders and periodic newsletters reminding them of Pcard 

policies. In addition, Web-based and classroom training is available 

for approving officials, but is voluntary. However, as discussed later, 

we identified many instances where approving officials had 

approved improper purchases. Consequently, required training for

approving officials—who are responsible for ensuring that the 

purchases they approve comply with requirements—is essential.
Enclosure 

Page 34 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 27

Improper, Wasteful, and Questionable 

Purchases

We also identified improper, wasteful, and questionable purchases 

totaling $479,645 indicating additional areas where controls could be 

improved. As discussed below, most of these related to split purchases.

Improper Purchases: We identified 24 transactions totaling $372,321 of 

improper purchases, which we defined as purchases that violated the 

NNSA contract or lab policy. All of these improper purchases were 

improper “split” purchases. Sandia’s purchase card policy prohibits 

splitting purchases into more than one transaction to circumvent single 

purchase limits. Using data mining techniques, we identified 50

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

transactions that potentially were split to circumvent single purchase 

limits. After reviewing the supporting documents, we determined 10 

were in fact split purchases consisting of 24 transactions totaling 

$372,321. 
Enclosure 

Page 35 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 28

Improper, Wasteful, and Questionable 

Purchases (cont’d.)

• For example, a cardholder purchased one 61-inch plasma screen 

costing $32,048. Because the total exceeded her single purchase

limit of $25,000, the total was split into two separate transactions so 

that the two individual charges fell below the limit. 

• We also identified three potential split purchases consisting of 10 

transactions totaling $98,945 for which the lab was unable to 

provide sufficient documentation to determine whether these were in 

fact split purchases. However, based on the available information, 

these transactions shared similar characteristics—i.e., multiple 

purchases by a cardholder at one vendor on the same day that in 

total exceeded the cardholder’s single purchase limit—with the 

types of transactions that we were able to confirm as being split 

purchases, and therefore, we considered these transactions to be

potentially improper.
Enclosure 

Page 36 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 29

Improper, Wasteful, and Questionable 

Purchases (cont’d.)

Wasteful Purchases: We also identified 11 purchases 

totaling $3,606 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 

need, 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 NNSA.
Enclosure 

Page 37 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 30

Improper, Wasteful, and Questionable 

Purchases (cont’d.)

Examples of wasteful purchases we identified included:

• $912 for four laser pointers costing $228 each. We 

found laser pointers available ranging from $90 to 

$120 each.

• $350 for an air purifier from Sharper Image. We 

question both the need for this item as well as the 

cost, given that other air purifiers are available for 

$100-$220, and there was no documented medical 

need.

• $170 to a limousine service for a 15-passenger 

vehicle and driver to take a visiting researcher and his 

family to the airport. Door-to-door van shuttle service 

costs about $65.
Enclosure 

Page 38 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 31

Improper, Wasteful, and Questionable 

Purchases (cont’d.)

Questionable Purchases: We identified 15 transactions totaling $103,718 that we classified as questionable because there was 

insufficient documentation to determine what was actually purchased, 

and whether purchases were proper and reasonable.

• Five of these transactions totaling $4,773 were purchases from the following vendors, for which the cardholders or the lab indicated 

they couldn’t find the receipts:

• Skymall.com - $175

• Staples - $1,504

• IGO.com5 - $114

• CompUSA - $2,778

• Hilton Hotels - $201

5This Internet vendor sells mobile electronics such as mobile phones, notebook computers, and 

PDAs.
Enclosure 

Page 39 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 32

Improper, Wasteful, and Questionable 

Purchases (cont’d.)

• As mentioned previously, we also identified three potential split 

purchases consisting of 10 transactions totaling $98,945 for which 

the lab was unable to provide sufficient supporting documentation to 

determine whether these were in fact split purchases. Because of

this lack of documentation, we also could not determine whether the 

purchases were proper and therefore consider these to be 

questionable.

While the $479,645 of improper, wasteful, and questionable transactions 

is relatively small compared to the $102 million in purchase card activity 

that occurred during our 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 40 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 33

Property Management Weaknesses

Property Management: GAO’s Standards for Internal 

Control in the Federal Government requires agencies to 

establish physical control to secure and safeguard 

vulnerable assets. Such assets should be periodically 

counted and compared to control records. Sandia policy 

requires that equipment and attractive property be tagged 

with bar-code property numbers and tracked in the property 

management system through this unique identifier. 

Sandia’s property controls did not provide reasonable 

assurance that accountable assets would be properly 

recorded and tracked. We identified the following 

weaknesses in Sandia’s controls over property:
Enclosure 

Page 41 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 34

Property Management Weaknesses 

(cont’d.)

• In our review of the nonstatistical selection of Pcard transactions, we 

found that 21 out of the 43 accountable assets purchased (49 percent) 

with a value of $39,113 had not been recorded in the lab’s property 

management system prior to the items being selected for our review. 

This can be attributed at least in part to the following:

• Items purchased using a Pcard were not required to be delivered to the lab’s central receiving department. If they were delivered there, 

those items were not opened by central receiving to determine the 

contents, but were simply passed on unopened to the requestor’s 

building. 

• As a result, the end user was responsible for determining whether the items were equipment or attractive assets and, if so, contacting 

property management to bar-code the item(s) and enter them into 

the property management system. Consequently, these assets 

were at greater risk of not being recorded in the property 

management system.
Enclosure 

Page 42 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 35

Property Management Weaknesses 

(cont’d.)

• We performed a physical observation of 88 assets, which included

selected assets identified from the nonstatistical selection of Pcard 

transactions as well as assets selected from the property database 

because they were still assigned to separated employees or there were 

multiple assets with the same serial number. While we did not find any 

missing assets, we did note the following:

• Five items totaling $502,317 were entered under the wrong serial

number in the property database. For example, we observed two 

assets that had the same serial number in the property database,

and found that both had been entered incorrectly in the database. In 

another example, the serial number we obtained from the vendor 

matched the serial number on the asset, but the serial number 

entered into the database under the bar-code number on the asset 

was incorrect.
Enclosure 

Page 43 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 36

Property Management Weaknesses 

(cont’d.)

• Lab officials informed us that 12 items totaling $89,574 had been 

subsequently disposed of or written off and provided us copies of 

the documentation. However, because they only record the barcode number and not the asset’s serial number on the disposal form 

or the write-off report, we could not verify whether the correct item 

was disposed of or written off.

• Nine items totaling $231,438 were located in a different building 

than that indicated in the property database. Inaccurate location 

information makes it more difficult to maintain accountability for lab 

assets.

• Eight items totaling $233,809 were assigned to a different custodian 

than that listed in the database. Consequently, the lab did not have 

the proper accountable party recorded for the assets.
Enclosure 

Page 44 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 37

Recent Policy and Procedural Changes

During or subsequent to the period covered by our review, 

Sandia took a number of steps to improve its oversight and 

control over purchases and property. According to the Pcard 

program manager, these changes included the following:

• Beginning in December 2002, the Pcard program office 

began running monthly reports to monitor and follow up 

on potential problems, including reports on the following:

• Items that were reconciled to the default project and 

task codes,

• Monthly statements that had not been approved by 

the supervisors, and,

• Disputed items.
Enclosure 

Page 45 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 38

Recent Policy and Procedural Changes 

(cont’d)

• Beginning January 2003, managers who were cardholders were no longer allowed to approve their own purchases. They are now 

required to have their monthly statements approved by the next 

(higher) level manager.

• After January 2003, cardholders were required to obtain documented approval from their manager and the Pcard office 

before purchasing restricted items. In the case of approved 

purchases of property items, the documented approval included 

instructions to the end user and their management to obtain barcodes for the items and enter them into the property management 

system.

Because these changes primarily occurred subsequent to our review 

period, we have not assessed the effectiveness of the changes. If 

implemented properly, these should help improve the lab’s oversight of 

its Pcard purchases. However, additional issues remain which, if not 

addressed, will continue to expose the lab to improper and wasteful 

purchases.
Enclosure 

Page 46 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 39

Conclusions

Although Sandia had established some internal controls 

over its Pcard program and property management functions, 

weaknesses in the design and operation of these internal 

controls limited their effectiveness. The lab has made some 

changes to its Pcard policies and procedures in response to 

weaknesses identified. While these are positive steps, 

management needs to ensure that it gives continued 

attention to ongoing monitoring of compliance with policies 

and procedures, continually assessing and addressing the 

risks and evaluating and improving the effectiveness of its 

controls to reduce its exposure to improper, wasteful, or 

potentially fraudulent purchases. 
Enclosure 

Page 47 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 40

Recommendations

We recommend that the Administrator of NNSA direct the Sandia 

National Laboratories’ Director to take the following nine actions:

• To strengthen internal controls over the purchase card program and 

reduce the lab’s exposure to improper, wasteful, and questionable 

purchases, 

• Cancel purchase card accounts for cardholders who perform 

oversight functions for the purchase card program to help ensure

appropriate independence and separation of duties between 

these functions.

• Require approving officials to attend initial and periodic refresher 

training on Pcard policies and procedures to help ensure their 

knowledge of purchasing requirements remains current.
Enclosure 

Page 48 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 41

Recommendations (cont’d.)

• Emphasize during training for cardholders and approving officials 

the laboratory’s policies on (1) timely cardholder reconciliation 

and supervisory review of transactions, (2) split purchases, (3)

transaction documentation requirements, (4) preapproval 

requirements for restricted items, (5) prohibited purchases, and

(6) considering best value in making and approving purchases. 

Training should also include reminding these staff of the criteria 

for accountable assets and the requirements to notify property 

management to ensure accountable assets purchased are 

identified, bar-coded, and entered into the property management 

system.

• Require approving officials to verify purchases on cardholders’

monthly statements to the detailed sales receipts, invoices or 

other independent support showing the description, quantity, and

price of individual items for all purchases made to help ensure 

that purchases are adequately documented and are proper 

purchases before approving. This should include verifying that 

there is documented approval for all purchases of restricted 

items.
Enclosure 

Page 49 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 42

Recommendations (cont’d.)

• Implement tools, such as data mining, for use by 

Pcard program staff in reviewing cardholder 

purchases for improper purchases. These tools 

should be used to systematically monitor for potential 

split purchases, unusual vendors, restricted items 

without approval, and other potentially improper or 

wasteful purchases.

• Consider modifying the Pcard system so that 

purchases that are not reconciled timely by the 

cardholder are charged to a temporary suspense 

account rather than to each cardholder’s default 

project and task codes. 
Enclosure 

Page 50 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 43

Recommendations (cont’d.)

• To help improve Sandia’s controls over the purchasing, 

recording, and safeguarding of assets, we recommend 

the following:

• Require that key information such as the property 

custodian, location, serial number, and item 

description are verified against the information 

entered into the property database during physical 

inventory counts. 

• Develop a report to enable property management staff 

to review recent Pcard purchases for accountable 

assets that require recording in the property 

management system. 
Enclosure 

Page 51 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 44

Recommendations (cont’d.)

• Require that serial numbers for items being disposed 

or written off be listed on the disposal forms or 

inventory write-off reports.

• We also recommend that the Administrator of NNSA direct 

the NNSA 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 NNSA.
Enclosure 

Page 52 GAO-04-989R Sandia Purchase Card Controls 

Sandia National Laboratories 45

Agency Comments

• We obtained comments on a draft of this briefing from NNSA 

headquarters officials. They generally agreed with the findings and 

recommendations, and indicated that the lab has made a number of

improvements to their controls in light of the problems identified at Los 

Alamos.

• We also obtained comments from NNSA’s Sandia Site Office, who 

disagreed with the recommendation to require approving officials to 

verify purchases listed on cardholders’ statements against detailed sales 

receipts or invoices, indicating that to do so would be labor intensive and 

cost prohibitive. They suggested periodic reviews of statistical samples 

and data mining instead.

• While we endorse periodic reviews of sample transactions and data 

mining as part of an overall system of internal control, they are not a 

substitute for adequate supervisory review. The approving official’s 

review of transactions is one of the most critical controls for helping to 

ensure that purchases are necessary and proper. Without reviewing 

independent, detailed support for the individual items purchased, a 

reviewer cannot ensure that the actual items purchased were 

reasonable and proper, thus increasing the risk of improper purchases.
Enclosure 

Page 53 GAO-04-989R Sandia Purchase Card Controls 

(190132) 

Sandia National Laboratories 46

Agency Comments (cont’d)

• Lab officials indicated that their efforts over the past 18 

months have resulted in many process and internal control 

changes, and further changes are being considered. For 

example, Sandia management is considering making 

training for approving officials mandatory and is looking into 

the purchase of data mining software. In addition, the Pcard

manager informed us that the account of the staff member 

responsible for monitoring Pcard activities was cancelled on 

June 8, 2004.

• The lab also provided technical and clarifying comments, 

which we incorporated as appropriate. 
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