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94–483 PDF 2004

S. Hrg. 108–556

GOVERNMENT PURCHASE CARDS: SMARTER USE

CAN SAVE TAXPAYERS HUNDREDS OF

MILLIONS OF DOLLARS

HEARING

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 28, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Deleware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

MICHAEL D. BOPP, Staff Director and Chief Counsel 

MICHAEL L. STERN, Deputy Staff Director for Investigations 

DON BUMGARDNER, Detailee, U.S. General Accounting Office 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

PAT HART, Minority Professional Staff Member 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1

WITNESSES 

WEDNESDAY, APRIL 28, 2004

Gregory D. Kutz, Director, Financial Management and Assurance, U.S. General Accounting Office .......................................................................................... 4

Colonel William Kelley, Program Director, Data Mining Division, Office of 

the Inspector General, U.S. Department of Defense, accompanied by David 

Steensma, Assistant Inspector General, Contract Management Directorate . 6

Neal Fox, Assistant Commissioner for Commercial Acquisition, U.S. General 

Services Administration ...................................................................................... 9

ALPHABETICAL LIST OF WITNESSES

Fox, Neal: 

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 70

Kelley, Colonel William: 

Testimony .......................................................................................................... 6

Prepared statement written jointly with David K. Steensma ...................... 52

Kutz, Gregory D.: 

Testimony .......................................................................................................... 4

Prepared statement written jointly with David E. Cooper, and John J. 

Ryan ............................................................................................................... 23

APPENDIX 

Chart entitled ‘‘Fiscal Year 2002 Purchases From Frequently Used Vendors 

(in millions)’’ ......................................................................................................... 49

Chart entitled ‘‘Abusive Purchase Card Acquisitions’’ ......................................... 50

Chart entitled ‘‘Amount Spent in Fiscal Year 2002 with 5 Frequently Used 

Vendors (in millions)’’ .......................................................................................... 51

Senator Russ Feingold, a U.S. Senator from the State of Wisconsin, prepared 

statement .............................................................................................................. 75

Richard J. Griffin, Inspector General, Office of Inspector General (OIG), prepared statement ................................................................................................... 77

Hon. Linda M. Springer, Controller, Office of Federal Financial Management, 

Office of Management and Budget, prepared statement .................................. 82

‘‘Acquisition, Summary Report on the Joint Review of Selected DoD Purchase 

Card Transactions’’ (D–2003–109), Department of Defense, Office of the 

Inspector General, June 27, 2003 ....................................................................... 85

‘‘Contract Management, Agencies Can Achieve Significant Savings on Purchase Card Buys,’’ GAO–04–430, March 2004 ................................................... 109

(1)

GOVERNMENT PURCHASE CARDS: SMARTER 

USE CAN SAVE TAXPAYERS HUNDREDS OF 

MILLIONS OF DOLLARS 

WEDNESDAY, APRIL 28, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:02 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senator Collins. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good morning. Today the Committee on Governmental Affairs 

will explore the Federal Government’s use of purchase cards, which 

are commercial charge cards used by Federal agencies to buy billions of dollars worth of goods and services each year. We will hear 

the results of the General Accounting Office’s investigation into 

waste, fraud, and abuse in the purchase card program. 

The American people have the right to expect the Federal Government to spend their tax dollars carefully and wisely. While this 

is true at all times, it is never more so than today when the government faces enormous fiscal pressures and a growing budget deficit. This Committee has an important mandate to help safeguard 

those tax dollars from waste, fraud, and abuse. To meet this mandate, the Committee has launched an initiative to root out government waste. Today’s hearing is part of that overall effort and will 

focus on wasteful, inefficient, and in some cases, fraudulent transactions using purchase cards. 

Purchase cards were first introduced by the General Services Administration on a governmentwide basis in 1989. These cards are 

primarily used for making routine purchases such as office supplies, computers and copying machines. Purchase cards are similar 

to the personal credit cards that we all carry, but with one important difference. The taxpayer pays the bill. 

Although the card is only supposed to be used for official purposes, the Federal Government is responsible for paying all charges 

by authorized cardholders regardless of what is purchased. While 

legitimate purchases are usually quite small, they nevertheless add 

up to big money. Purchase card use has soared during the past decade, from less than $1 billion in fiscal year 1994 to more than $16 

2

billion in fiscal year 2003. There are more than 134,000 purchase 

cardholders in the Department of Defense alone. 

This explosive growth presents both challenges and opportunities. While there are many benefits to the purchase cards such as 

expediting purchases, cutting down on red tape and paperwork, 

and saving administrative costs, the General Accounting Office and 

the Inspectors General have reported that inadequate controls over 

purchase cards leave agencies vulnerable to waste, fraud, and 

abuse. 

We will hear testimony this morning describing how smarter use 

of purchase cards could save taxpayers hundreds of millions of dollars. A GAO report that I requested, along with Senator Russ Feingold and Congresswoman Shakowsky, which is being released at 

this hearing, highlights several wasteful purchasing practices. 

The GAO concludes that many agency cardholders fail to obtain 

readily available discounts on purchase card buys. In too many 

cases, purchase cardholders are buying goods and services from 

vendors that have already agreed to provide government discounts 

through the GSA schedule, yet cardholders often lack the information and the training needed to obtain these discounted prices. As 

a result, the GAO found numerous instances of cardholders paying 

significantly more for items for which discounts had already been 

negotiated. 

In light of the fact that conscientious shoppers often can obtain 

savings beyond the scheduled discounts, these findings indicate 

that some Federal agencies are substantially overpaying for routine 

supplies. 

Let me give you an example. An analysis of the Department of 

Interior’s purchase card buys of ink cartridges found that most of 

the time the cardholder paid more than the government schedule 

price to which the vendors had already agreed. One vendor, for example, had agreed to a schedule price of $24.99 for a particular ink 

cartridge. Yet of the 791 separate purchases of this cartridge, only 

two were at or below that price. Some purchasers paid $34.99, or 

about 40 percent more for the same item. That may sound like a 

small item and a small amount, but when you start multiplying 

that across Federal agencies it quickly translates into significant 

money. 

In conducting its investigation, the General Accounting Office examined six agencies that together account for more than 85 percent 

of all government purchase card transactions. If the six agencies 

reviewed in the study negotiated discounts of just 10 percent from 

major vendors, and if the agency employees had used those discounts, the GAO estimates annual savings of approximately $300 

million. Over 10 years, that is $3 billion. Since we are in the Dirksen Senate Office Building I will remind everyone of Senator Dirksen’s famous statement that when you’re talking about a billion 

here, a billion there, pretty soon you are talking about real money. 

The GAO also found that agencies should be making greater efforts to collect and analyze data on purchase card transactions. 

This would help agencies to eliminate waste and to expose fraud 

and abuse. In addition to testimony from the GAO, we will hear 

today from an official from the Department of Defense’s Inspector 

General’s Office who will report on his very interesting efforts to 

3

use data mining to identify inappropriate purchase card transactions including outright fraud. In one case, an employee used a purchase card to charge $1.7 

million in fraudulent purchases from a fictitious company set up by 

her brother. These fraudulent charges took place over a 3-year period and they were not detected by the officials responsible for reviewing the bills. It was the data mining technique that identified 

these fraudulent charges. 

Examples like this one demonstrate the need for better controls 

over the purchase card program and further demonstrate why it is 

vital to give agencies the tools that they need to control fraud and 

abuse. The testimony from the Inspector General’s Office will illustrate how data can be used as a management tool to detect fraudulent and improper transactions as well as to ensure that agencies 

get the very best prices on their many purchases. 

We will also hear from Neal Fox of the General Services Administration which has overall responsibility for the purchase card program. We must assure taxpayers that the Federal Government is 

shopping carefully, wisely, and honestly. That is why Senator Feingold and I today will introduce the Purchase Card Waste Elimination Act of 2004. Our legislation requires the Office of Management and Budget to direct agencies to better train cardholders and 

to more effectively scrutinize their purchases. 

This legislation also instructs the GSA to increase its efforts to 

secure discounts from vendors and to provide better tools to agencies to control wasteful spending. For example, one common sense 

reform that could be implemented is to make sure that those discounts come up at the point-of-sale. That way even if the individual 

cardholder were not aware of the discount, the discount would 

apply anyway. That is the kind of practical approach that literally 

could save hundreds of millions of dollars. 

I welcome our witnesses today and I look forward to hearing 

their testimony. 

First let me introduce our first witness today, Greg Kutz, who is 

the Director of Financial Management and Assurance in the General Accounting Office. He is responsible for financial management 

issues related to the Department of Defense, NASA, State and 

USAID. I believe that he is accompanied by other GAO officials, including David Cooper and Special Agent John Ryan. We have 

worked with this GAO team before on numerous investigations and 

they do a great job and I am very pleased to have them with us 

today. 

Our second witness will be Colonel William Kelley. Colonel 

Kelley returned to active duty in January 2002 to support Operation Noble Eagle. He is serving both as the senior military officer 

in the Office of the Inspector General at the Department of Defense 

as well as the program director for the data mining division. He 

is accompanied by David Steensma, who is the Assistant Inspector 

General of the Contract Management Directorate. Mr. Steensma is 

responsible for directing audits and managing operations for issues 

that cover acquisition, logistics, contracts, charge cards, military 

construction and environmental policies. I do not think you have 

nearly enough to do. I think we could add just a few more things 

to that list. [Laughter.] 

4

1The joint prepared statement of Gregory D. Kutz, David E. Cooper, and John J. Ryan appears in the Appendix on page 23. 

Our final witness today will be Neal Fox, who is the Assistant 

Commissioner for Commercial Acquisition of the U.S. General 

Services Administration. Mr. Fox is responsible for managing commercial service and product initiatives under the $16 billion purchase card program. 

I very much appreciate all of you being here today and I look forward to your opening statements. Mr. Kutz, we are going to start 

with you. Thank you. 

TESTIMONY OF GREGORY D. KUTZ,1 DIRECTOR, FINANCIAL 

MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE 

Mr. KUTZ. Chairman Collins, thank you for the opportunity to 

discuss the purchase card. We support the use of a well-managed 

purchase card in the Federal Government. However, improved 

management oversight and control is necessary for the Federal 

Government to fully realize the benefits of the card. 

My testimony has three parts. First, use of the purchase card in 

the Federal Government. Second, leveraging the government’s purchasing power. And third, the status of fraud, waste, and abuse. 

First, I have a Navy purchase card in my hand that is also 

shown on the poster board here. As you can see, it looks just like 

a normal credit card. The Navy card can generally be used wherever Mastercard is accepted. Usage of purchase card such as this 

one in the government grew, as you mentioned, from $1 billion in 

1994 to over $16 billion in 2003. Use of the purchase card has fundamentally changed the way that agencies make small, routine 

purchases. In fiscal year 2003 agencies used the purchase card for 

over 26 million transactions. Agencies estimate that hundreds of 

millions of dollars can be saved when using the purchase card 

through reduced transaction processing costs. 

Second, as noted in our report that is released today, increased 

focus on negotiating discounts could result in hundreds of millions 

of dollars in annual savings. The six agencies that we studied, as 

you mentioned, account for over 85 percent of the Federal Government’s purchase card activity. As shown on this poster board, these 

six agencies do substantial business with major vendors, those with 

over $1 million of annual purchase card activity. We found that 

agencies generally have not taken effective action to obtain favorable prices from major vendors such as these. 

In fact our work has shown that cardholders often pay retail 

prices when using the purchase card. For example, we found that 

cardholders paid 12 to 20 percent more than GSA schedule prices 

for office supplies, cell phones, and computer equipment. Our work 

indicates that if these six agencies obtained discounts of only 10 

percent from the major vendors that up to $300 million a year 

could be saved. 

The following examples of annual savings through discounts 

clearly demonstrate the potential for these savings including—Veterans Affairs estimated $8.5 million for medical and surgical supplies, USDA’s $1.8 million for office supplies, and the Air Mobility 

5

1The chart entitled ‘‘Abusive Purchase Card Acquisitions’’ appears in the Appendix on page 

50. 

Command’s estimated $13 million through schedule prices and discounts from local merchants. 

Chairman Collins, we believe that your legislation is consistent 

with our recommendations and has the potential to save the government hundreds of millions of dollars annually. 

Third, although there has been significant focus on fraudulent 

and abusive usage of the purchase card challenges remain. In the 

early years of the purchase card program management focused on 

expanding the use of the card. However, similar attention was not 

paid to putting internal controls in place. As a result, at DOD and 

four civilian agencies we found significant breakdowns in internal 

controls and fraudulent, improper, and abusive usage of the purchase card. 

We used data mining, forensic auditing, and investigative follow 

up to identify these purchases. We identified cardholder fraud, vendor fraud, and the fraudulent usage of compromised purchase card 

accounts. Purchase cards were used for items such as adult entertainment, jewelry, cruises, and designer leather goods.1 The poster 

board shows several other specific examples of improper and abusive purchases including Bose wave radios and headphones to listen to music, leather bomber jackets purchased at the sky mall, 

personal luggage for frequent travelers, and taxidermy services for 

the mounting of a road kill mule deer. 

We also found ineffective inventory control over the purchases of 

sensitive and pilferable property. Examples of lost, missing, or stolen property include digital cameras, laptop computers, Palm Pilots, and cell phones. The key causes of the problems we identified 

were lack of management oversight and accountability, a proliferation of the number of purchase cards, and the ineffective design 

and implementation of internal controls. 

For example, like most Americans, cardholders are expected to 

reconcile their receipts to the monthly credit card bill. However, 

oftentimes purchase cards were simply rubber stamped for approval with no review of the cardholder or the approving official. 

Significant steps have been taken at agencies such as DOD to 

improve the management, oversight, and internal controls over the 

purchase card. For example, agencies recognized that the proliferation of purchase cards was a key cause of the problems. As a result, 

the number of government purchase cards has been reduced from 

a peak of 500,000 to about 315,000 today. DOD alone eliminated 

100,000 purchase cards. 

DOD has also taken actions to address 109 recommendations 

that we made to improve their program. 

Members of Congress and taxpayers may wonder what happened 

to cardholders that misused the government purchase cards. Unfortunately, the answer is not much. The items on the poster board 

and other items such as food, clothing, toys and alcohol were paid 

for by taxpayers. We believe that the use of Federal funds for personal items is not appropriate. The lack of consequences for misuse 

of government money does not create an effective control environment. 

6

1The joint prepared statement of Colonel Kelley and David K. Steensma with attachments 

appears in the Appendix on page 52. 

In conclusion, the purchase card has improved the efficiency of 

the Federal Government’s operations. Positive actions have also 

been taken to improve internal controls. However, continued management focus and congressional oversight is needed to ensure that 

fraud and abuse are minimized. Finally, to achieve the full benefits 

of the purchase card more attention is needed to the prices paid. 

With the serious fiscal challenges facing our Nation, it is critical 

that the government realize the hundreds of millions of dollars of 

potential savings discussed today. 

Chairman Collins, this ends my testimony. Special Agent Ryan 

and Mr. Cooper and I would be happy to answer your questions. 

Chairman COLLINS. Thank you. Colonel Kelley. 

TESTIMONY OF COLONEL WILLIAM KELLEY,1 PROGRAM DIRECTOR, DATA MINING DIVISION, OFFICE OF THE INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE 

Colonel KELLEY. Thank you very much for giving us the opportunity, for myself and Dave Steensma, to talk to you today about 

the purchase cards. 

Although the Department has taken aggressive action like Greg 

Kutz has talked about, we have some additional problems in better 

implementation and oversight and management controls at the activity level. Every dollar we spend that is not prudently used could 

result in us not having dollars available in our global war on terrorism efforts. In fiscal year 2003, we in DOD did almost 11 million 

transactions at a value of $7.2 billion. Every working day, DOD 

employees make about 41,000 purchases valued at about $27 million. A day’s worth of purchase receipts for these transactions could 

make a pile that stands over 13 feet tall. 

We need to build processes that pick the most important receipts 

from that pile to review because we cannot review them all. We do 

not have the resources. Management oversight we think could include processes such as restacking those receipts in an automated 

concept so that we could array them based on risk, for example. 

That risk could be identifying receipts that are for services or items 

that are potentially inappropriate, or trying to decide if we are 

making the best buys. 

Today we will present the results very briefly on three of the 

audit reports that we have issued recently, and we will discuss further action to promote our data mining and to partner with other 

activities within the government to prevent fraud, waste and 

abuse. Finally, we will present information that shows improvements in management of the purchase card program. 

The Office of Inspector General and auditors led a joint review. 

You have seen the report I believe, ma’am. We reviewed 1,357 

cardholders that we identified using business rules and fraud indicators. Based on that review we determined that 182 of those cardholders either inappropriately used the card or fraudulently spent 

about $5 million of our scarce resources. Further, 41 of those cardholders were referred for criminal investigations. 

7

One example was a cardholder used the purchase card to make 59 fraudulent purchases totaling more than $130,000. The purchases included two automobiles, a motorcycle, cosmetic surgical 

enhancements. Currently, that cardholder is in prison. 

In a review of Washington headquarters services, as was dis- cussed, the lack of management controls and oversight led to $1.7 

million in fraudulent purchases and at least $201,000 of additional 

purchases that were abusive or inappropriate. The director, a GS–

15, and her deputy and her brother, who was the vendor, were convicted of the theft. We actually were buying paper for the bills. 

That is all we were getting from that vendor was the bills and that 

is what we were paying for. The director and the vendor are in 

prison. They received 3 and 4 years’ worth of incarceration respectively and were required to make restitution. 

Cardholders also circumvented required contracting procedures 

and did not receive the best value for supplies and services. For example, we paid $36,000 for 9,000 American flag decals. They could 

have been bought for $3,000. The director of the headquarters services agreed to implement any corrective actions and improve management controls. 

Controls over purchase cards were also ignored by senior management at the information technology center in New Orleans, Louisiana. Approximately $1 million of purchases were questionable 

because there was no obvious or documented mission need for the 

items purchased. For example, they bought 10 pairs of binoculars, 

six bicycles and three global positioning systems without a need. 

Further, cardholders acquired computer equipment and office supplies and did not use available discounts and reduced prices. 

In this case, the former director, his former deputy did not set 

the tone of accountability. The Navy agreed to the implementation 

of many of the recommended corrective actions and the four senior 

officials involved in this case have all retired. 

In all of these examples the first line of oversight official either 

did not perform their duties or were involved in the inappropriate 

acts themselves. After this statement we can discuss ways management could use data mining to identify these kinds of activities at 

higher risk. 

The Department is actively working to maintain a culture that 

promotes a positive and supportive attitude towards active management controls of purchase cards and accountability. Positive 

trends include, as was previously mentioned, the reductions in the 

number of purchase cards. We have been able in the Department 

to reduce them by 47 percent. 

The Department has developed new training for all cardholders 

and billing officials to improve their understanding of the purchase 

card program management responsibilities and needed management controls. In addition, government charge card disciplinary 

guidelines for both military and civilians have been issued. 

Further, the General Accounting Office noted the Department 

has made strong improvements over controls in the purchase card 

program, and we have initiated actions on almost all of the 109 recommendations they have made. 

In January 2003, Mr. Steensma established the data mining division that I am currently the program director for after we ran the 

8

1The graph referred to appears in the Appendix on page 67. 

initial testing. We took 12 personnel from our other audit activities 

to pioneer the data mining techniques in the Department to identify previously unknown relationships or patterns among charge 

card data. Our intent is to pass these techniques on to DOD managers, the Department’s managers, to assist them in their oversight 

of the charge card program. 

The Office of the Inspector General has been the focal point in 

the Department for charge card data mining, audits and investigations. Additionally, we have provided a forum for management to 

identify issues for audits and investigations. This increasing communications resulted in a positive approach to improve the purchase card program and is also to enhance our management relations with them. Additionally, the data mining division provided 

assistance and lessons learned to 12 other governmental agencies 

that are not part of the Department. 

The data mining division continues to mine data for purchase, 

travel, and aviation cards. Since March the division has been working with the Navy to develop a pilot program for purchase card 

transaction oversight. In the pilot program the data mining division identifies high-risk transactions that are sent to the Navy pilot 

program via management who sends them via E-mail to the official 

who is responsible in the cardholder’s chain of command requesting 

additional information for assessing the appropriateness of the purchase card transaction. The management official’s response to the 

questions regarding the transactions populates a database and it 

gives us a way to better manage the program by using that additional data that we have requested. 

The DOD program management office plans to implement some 

of these procedures and techniques used by the Navy pilot on a 

DOD-wide basis. 

The concept of using data mining as a continuous monitoring system is depicted graphically to my right.1 The biggest issue with 

that chart, and we can discuss it later, is the Department will have 

to resolve the issue of how bank data will be obtained and stored 

within the Department. That is probably one of the more difficult 

tasks. 

We support the conclusions of the General Accounting Office report that was released today. We look forward to using data mining 

techniques and working with the Department’s acquisition community to creatively reduce cost related to prices on purchase card 

buys. We support the GAO recommendations in obtaining more 

point-of-sales discounts. 

Other areas to improve that you might want to explore include 

the following: There needs to be better training developed and provided to all cardholders on how to be more efficient and effective 

buyers, and obtain best price and value for the government. There 

should be a central repository for all charge card type data received 

from the banks. This will reduce the cost of the banks and to each 

of the agencies for developing their own solution set for storage and 

access to the data. All transactions should flow through the same 

process. All data elements would be standardized and business 

rules for data mining could be shared. 

9

1The prepared statement of Mr. Fox appears in the Appendix on page 70. 

The data in the central repository could be mined to identify 

spending trends and utilization of vendors. This will help identify 

which vendors that we need to do a point-of-sale or some type of 

a discount with. There should also be continuous research on data 

mining tools and techniques, how to best educate and create smarter purchase buyers, how to improve and streamline management of 

the charge cards, and prevent fraud, waste, and abuse, and strategic buying of goods and services. A center of excellence for use 

of cards could be established to perform these previously mentioned 

duties. 

The digital data available from the banks on the use of charge 

cards coupled with the purchasing power of the Federal Government has created an historic opportunity for the government to 

transform itself and its buying habits. We need an organization to 

take the lead in this area because we do not want vendors to have 

to negotiate discount agreements with numerous Federal agencies, 

and numerous agencies developing similar training to create smarter buyers. We think we ought to couple all of this together. 

In conclusion, we think the Department has made great strides 

in improving the program. There is still more work to be done and 

we thank you for giving us the opportunity to talk to you. 

Chairman COLLINS. Thank you. Mr. Steensma. 

Mr. STEENSMA. The Colonel already spoke to my remarks. 

Chairman COLLINS. OK. Thank you. Mr. Fox. 

TESTIMONY OF NEAL I. FOX,1 ASSISTANT COMMISSIONER, OFFICE OF COMMERCIAL ACQUISITION, FEDERAL SUPPLY 

SERVICE, U.S. GENERAL SERVICES ADMINISTRATION 

Mr. FOX. Good morning, Senator Collins. I am pleased to be here 

on behalf of the Administrator of General Services to discuss the 

government-wide charge card program, commonly referred to as 

GSA SmartPay, which issues purchase, travel, and fleet cards to 

Federal agencies, organizations, and Native American tribes. 

Today, I will discuss the purchase card program. 

GSA has been managing the purchase card program since 1989. 

The most recent purchase card contracts were awarded in 1998 to 

five banks as part of the GSA SmartPay program. The purchase 

card has proven to be the most flexible purchasing tool available 

to the U.S. Government. Agencies use the purchase card to acquire 

mission-related goods and services. The card has proven especially 

vital in enabling rapid response to and recovering from disasters 

and other emergency situations. 

Purchase card use has evolved from a mid-1990s best practice to 

a common practice today, and the annual savings to the Federal 

taxpayer are tremendous, approximately $1.4 billion in fiscal year 

2003 transaction costs saved. Purchase card usage has reduced 

process cost, increased efficiency, and reduced the time it takes to 

obtain goods and services. With annual card purchases of approximately $16.3 billion, the purchase card is the primary payment and 

procurement method for purchases under $2,500, often referred to 

as micro purchases. Additionally, the purchase card is now emergVerDate 0ct 09 2002 08:57 Aug 23, 2004 Jkt 094483 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\DOCS\94483.TXT SAFFAIRS PsN: PHOGAN
10

ing as a valuable contract payment mechanism for transactions 

above $2,500. 

In the mid-1990s, the focus of government purchase card usage 

was to cut through red tape and streamline micro purchases. More 

recently, the focus of the program has shifted to provide mechanisms for improved management and control and oversight. 

According to Professor Richard Palmer of Eastern Illinois University, considered to be the leading academician of purchase card 

studies, the percentage of misuse is lower in Federal agencies than 

among any other institution, public or private. His survey indicates 

that purchase card misuse accounts for only 0.017—that is 17-onethousandths of a percent—of purchase card spending at State and 

Federal agencies, which is equivalent to $170 of misuse for every 

$1 million of purchase card spending. This is lower than any other 

institution, including corporations, universities, and city and county governments. 

Building on our successes to date, GSA and its customer agencies 

are taking further actions to significantly reduce program risk, 

such as decreasing the government’s financial exposure through 

closing unused or infrequently used card accounts. Fewer cards 

equate to less risk. As previously mentioned, the number of open 

card accounts has been cut in half over the last 3 years. 

Realigning the span of control between purchase card holders 

and approving officials, which at 23 major departments and agencies has dropped significantly, and averages one approving official 

for every 3.5 card holders. 

And taking appropriate action against employees whenever fraud 

or misuse are detected, including training or discipline, based upon 

the nature of the misuse. 

At GSA, we are now turning our attention to the next round of 

priorities for the purchase card program, including those mentioned 

in the recent GAO draft audit report. GSA agrees with the draft 

report’s findings and recommendations. The report provided an objective analysis of the savings that can be obtained by agencies 

through the use of GSA schedules, combined with the GSA 

SmartPay program. 

I would now like to discuss the specific recommendations GAO 

made to GSA and our actions supporting those recommendations. 

The report concluded that agencies have just begun to tap the potential savings of leveraging the purchase card volume for better 

pricing and states that hundreds of millions of dollars could be realized annually if agencies took advantage of their buying power. 

We agree that obtaining more detailed purchase card data and offering customers opportunities to leverage spending through GSA 

schedules, our online tools ‘‘GSA Advantage’’ and ‘‘e–Buy,’’ and 

other procurement and education resources will further enhance 

the government’s ability to obtain more favorable pricing. 

GAO recommended that GSA work with the banks to obtain 

more detailed purchase spend data, to include information such as 

top merchants, total transactions, and total dollars by agency and 

by industry. GSA continues to work with the banks and card associations in pursuit of these data. The banks’ electronic access systems currently provide agencies with a record of all purchase card 

transactions, similar to what private citizens see on their personal 

11

bank card statements. This electronic record is available to analyze 

spending patterns and to highlight questionable transactions. 

Obtaining Level 3 data depends upon individual merchants upgrading their credit card reporting infrastructure, over which we 

have no direct control. Individual merchants decide to pass Level 

3 data based upon individual business decisions. The government 

obtains Level 3 data on approximately only ten to 15 percent of its 

transactions because only a small percentage of merchants have 

the systems infrastructure in place to pass Level 3 data today. This 

issue will require continued research and discussion to attain the 

intended goal of providing more detailed purchase data. 

GSA has recently been pursuing point-of-sale discounts with 

large vendors, especially those that are already on GSA’s schedule. 

We have recently added Office Depot and Home Depot as walk-in 

stores offering discounts, and these stores are fielding automatic 

purchase card recognition in their electronic check-out systems. 

It should be noted that the decision to incorporate point-of-sale 

capabilities, more precisely, automated check-out systems that will 

recognize a Federal Government purchase card and apply the appropriate GSA schedule discount to the card holder’s order is largely merchant-dependent. Although several government contractors 

provide point-of-sale discounts under GSA’s schedule, the vast majority of these discounts are not triggered by electronic card recognition. Similar to the Level 3 dynamics, automated point-of-sale 

discount systems are a function of the merchants’ willingness to invest in systems infrastructure upgrades. 

Notwithstanding the inherent challenges, point-of-sale discounts 

and Level 3 data are emerging trends and GSA desires to encourage these trends and also utilize them for the benefits of our customers. The GAO report notes examples of agencies that have leveraged their buying power in innovative ways and GSA intends to 

use such examples to educate our customers on these best practices 

and enable other agencies to do the same. GSA also will engage in 

updating its web-based training for card holders to include methods 

for comparing prices, including purchases through GSA Advantage 

and e–Buy. 

GSA has recognized from the program’s inception that card holder training is essential to proper use of the charge cards. GSA provides online training free to purchase card holders. The training 

discusses roles and responsibilities of card holders, proper use of 

the card, and ethical conduct. Many agencies choose to supplement 

this training with written, oral, or online training of card holders 

on agency-specific procedures. 

GSA holds an annual training conference for over 3,000 agency 

program coordinators, auditors, and investigators on a variety of 

subjects, including innovative best practices and charge card management and use of electronic management control and oversight 

tools. 

GSA’s mission is to help Federal agencies serve the public by offering acquisition services at the best value. We expect our purchase card issuers to support this mission and deliver the best 

value to our purchase card customers, including providing more robust purchase card spend data. GSA recognizes the inherent challenges of attaining Level 3 data and point-of-sale discounts, but we 

12

are making progress and are confident that leveraging buying 

power will be one of the next great success stories for the GSA 

SmartPay program. 

Senator Collins, that concludes my prepared remarks for today. 

I would be happy to answer any questions. Thank you. 

Chairman COLLINS. Thank you, Mr. Fox. 

Mr. Fox, in your testimony, you cited a study and suggested to 

the Committee that the rate of misuse of purchase cards is very 

small. Of course, the problem with that study is that it is only looking at outright frauds, not the kinds of inefficient and wasteful purchases that GAO has documented could amount to something like 

$300 million a year. But also, it seems to me you are underplaying 

the problem, because if you take even a small percentage and apply 

it to $16 billion in purchase card transactions, you are very quickly 

getting into millions of dollars in outright fraud, not to mention the 

hundreds of millions of dollars that are being lost when card holders are not taking advantage of discounted prices that the government has already negotiated. 

In our investigation, for example, and in working with GAO, the 

IGs, and reviewing various cases, we found many examples of 

fraud, for example, the $1.7 million purchase card fraud that occurred at the Department of Defense Washington Headquarters 

Services, which I referred to in my opening statement. There was 

also a Navy card holder who used her purchase card 59 times to 

make $132,000 in fraudulent purchases, including two automobiles 

and a motorcycle. We have heard of the kinds of abusive transactions that the GAO uncovered. There was a case in the VA which 

the Inspector General has outlined in his statement for the record 

where an employee used a purchase card to buy more than 

$200,000 worth of electronic equipment for personal use, yet another case where an employee at a VA medical center charged 

$170,000 in computers and other equipment. I could go on and on 

and on with examples. 

Do you think this is just a tiny problem. It sounds like pretty serious cases of abuse to me that would be upsetting to the American 

taxpayer. 

Mr. FOX. Senator Collins, any amount of fraud in the Federal 

Government by members of the Federal Government is too much 

fraud. So although we do like to point out that progress has been 

made, and that was the intention of the statements is to show that 

progress is being made, we want to get to that next level of 

progress just as everyone here at this table and on your Committee 

wants to get to that next level of progress. 

You mentioned the progress that can be gained through data 

mining and we are fully on board at GSA with the need for more 

data mining. As we can try to get more merchants using, transmitting Level 3 data so that we can then have better data mining capability to drill down to see those exact purchases, what they were, 

where they were purchased, and who purchased them, exact dollar 

amounts, that next level of data is important to rooting out the remaining fraud. 

As you mentioned, it does add up to millions of dollars, and 

again, any amount of fraud inside the Federal Government to GSA 

and all of us inside the Federal Government is unacceptable. 

13

Chairman COLLINS. The problem is, if GSA, as the chief acquisition agency in the Federal Government, minimizes this problem by 

quoting studies that suggest it is a very small percentage, it doesn’t 

exactly send the right signal to other agencies about the importance of using time, energy, and resources, such as DOD clearly 

has done, to try to crack down and eliminate this kind of waste, 

fraud, and abuse. 

I want to ask Mr. Kutz GAO’s opinion of the scope of the problem 

and of the study cited by Mr. Fox. 

Mr. KUTZ. Yes. I would say that it is kind of an academic study 

of a real world problem. I mean, it was a survey, so it was a voluntary thing. If you were to survey the Department of Defense, 

where we did our work and where Colonel Kelley has done his 

work, they would, of course, have answered, ‘‘We have no fraud and 

abuse.’’ And so how valid is a survey in identifying what is a real 

problem in the government? 

The VA report itself, as I read it, identified 2 percent as misuse 

in that report, and I will tell you this. Could you put that 

posterboard back up? All the items that we identified on that 

posterboard and all of the other things we identify, when we went 

to the Department of Defense and at the other agencies that we did 

also, they did not acknowledge, they didn’t recognize, they didn’t 

have the controls in place to find these items. So if they had answered a survey, none of these would have been recognized on that 

survey as being fraudulent or misuse of Federal funds. So I really 

think that there are some serious flaws in doing a self-study of 

what this problem is. 

I do think that the controls that are in place today versus several 

years ago mean that the problem is going to be less, and the bottom line is, most card holders are honest and they are doing the 

right thing and the vast majority is. But is it a 0.017 percent problem? I don’t think so. I think we have seen it is probably higher 

than that. And certainly when you start getting to be like VA, 1 

or 2 percent misuse of government purchase cards, that is fairly 

significant. 

Chairman COLLINS. I think your point is a very good one, that 

if agencies have not yet implemented effective controls, they could 

be answering the survey very honestly and yet missing the whole 

extent of fraudulent transactions. 

I want to follow up on a point that you made in your testimony 

about the relatively few cases where disciplinary action had been 

taken. Colonel Kelley mentioned some cases, and I was glad to 

hear of them, where criminal prosecutions had been brought and 

people had actually gone to jail. And I also want to emphasize that 

you are absolutely right that the vast majority of card holders are 

ethical and honest and use these cards in appropriate ways that 

save money for the taxpayer. But I am concerned, I am troubled 

that relatively few disciplinary actions have been taken in cases involving really egregious examples of fraudulent transactions for 

personal use. 

Now, I understand that you examined 120 improper transactions 

and that you found that only 20 led to disciplinary actions, and this 

included improper purchases of clothing, of Coach leather briefcases, a $600 computer bag, Lego toy robots, day planners, and a 

14

host of other illegal or inappropriate items. Could you give me a 

sense of what happened in those 120 cases? Did the individuals end 

up repaying the Federal Government for these personal items, for 

example? 

Mr. KUTZ. Well, first of all, we reported 120 misuses. It was a 

very target-rich environment for data mining, I would say. And so 

as Colonel Kelley said in his opening statement, there was no way 

for us to follow up and investigate every single item. So we had 

thousands and thousands of potentially fraudulent and misuse-type 

cases, but we reported on 120 in the reports we did. 

Three of the individuals involved that were card holders repaid 

the government for those, and 20 of the 120 had some sort of disciplinary action taken, such as a verbal or written reprimand. They 

had to, in some cases, turn the items back. As I mentioned, three 

people paid the money back. And otherwise, there was really nothing that was done to those individuals. 

I think to this day, and you get into the culture of the Department of Defense in some cases, some of the items that we are talking about here, they still believe were appropriate government purchases. They never really agreed with us on the Coach briefcases. 

They said, well, they are better quality and therefore they are 

worth us buying. But I think they just missed the point completely. 

Chairman COLLINS. Well, it is disturbing that only three actually 

repaid the government. It concerns me that the lack of consequences for the use of purchase cards makes it more likely that 

these abuses will continue. Would you agree with that? 

Mr. KUTZ. Yes, I would agree with that. In fact, it isn’t just isolated to the purchase card. We had the same thing with the individually billed travel card. We have seen it with premium-class 

travel. Senators Coleman and Levin had a hearing on extensive improper usage of first and business class airline travel. We have got 

some draft reports with Senators Coleman and Levin right now on 

potential voucher fraud and other misuses with respect to centrally 

billed travel accounts. And again, I seriously question what kind of 

actions are going to be taken to individuals that misuse government funds, and that is probably one of the areas we are most disappointed in where the Department has gone. 

As Colonel Kelley said, they have issued guidance, but they 

didn’t agree at the Department level to follow up that this guidance 

will be consistently followed across the Department, and so certainly it is going to be inconsistently followed, which is what we 

saw before when we did our work. Some people will reprimand individuals. Others will do nothing. 

Chairman COLLINS. Could I ask Mr. Ryan to join you at the table 

for the next question. You just mentioned that you are looking at 

the issue of vendor fraud, and I know Mr. Ryan has done a great 

deal of work in the whole area of looking at vendor fraud, whether 

it is dealing with purchase cards or fleet cards or other kinds of 

credit cards. 

Could you tell us a little bit about your experience looking at the 

vendor side of the purchase card program? We tend to focus on the 

card holder misusing the card, but are there cases where vendors 

are ripping off the Federal Government through the purchase card 

program, as well? 

15

Mr. RYAN. I think the system is set up that the vendor can take 

advantage of employees that pay less attention to the bills that 

come in. You can find that certain vendors are holding the government’s purchase card in a database. They can keep submitting a 

transaction slip to the financial institution for monies to be received from that particular account. They can set it up where they 

will send $2,500 to the bank on a purchase card transaction slip 

and constantly get paid that $2,500, and if no one is confirming the 

services that the government is getting, the government will pay 

that vendor. 

Chairman COLLINS. So it could be repeated payments of the 

same bill? 

Mr. RYAN. That is exactly right, Senator. 

Chairman COLLINS. Is there also a problem created by the incentives for an employee to make sure that they are paying bills on 

time? I remember years ago Congress reacting to complaints from 

small business people that the Federal Government paid in a delinquent manner that it caused a lot of cash flow problems. So as I 

recall, we passed something called the Prompt Pay Act and I am 

wondering if perversely that has created an incentive to move these 

bills, pay them quickly, and not necessarily review them to see if 

they have been paid already. 

Mr. RYAN. That is absolutely correct. If I am receiving a bill and 

the money is not coming out of my pocket, it is coming out of somebody else’s pocket, and my performance rating is based on how fast 

I can move paper, I am going to move it on because I want to get 

a good rating. 

So if you are paying, and I think you have heard me say this before, you are making business decisions over security decisions, in 

this particular case, you are paying the bill. You have no idea if 

you have gotten the services. You are relying on other people. But 

as the processor of that paper, you have so many days to move it 

off your desk, and that is what they do. There are no checks and 

balance in regards to confirming that. 

Mr. KUTZ. And the metrics that are in place are, in fact, for timeliness of payment. There are no metrics to look at the other issues 

we have talked about. And what it is called, basically—I am not 

sure it is—pay and confirm is what they call it, but it is really pay 

and chase, and unfortunately, oftentimes, the chase never happens. 

The bill gets paid and no one ever looks to see if we got the goods 

or services that we were supposed to, or whether they were in the 

same quality or quantity we ordered. 

Chairman COLLINS. Thank you. Colonel Kelley, you mentioned in 

your testimony a case that I cited to Mr. Fox, or actually it is yet 

another case where a card holder used his card 52 times over an 

8-week period to make a total purchase of $551,000. I understand 

that case is under investigation, but I wonder if you could use that 

example to explain more to the Committee how you use data mining to flag an example that appears to be questionable at best, 

egregious fraud at worst. 

Mr. KELLEY. Yes. 

Chairman COLLINS. Could you walk us through the process? 

Mr. KELLEY. Yes, ma’am. Basically, the tools we use are your expectations from your business rules. For example, in this instance, 

16

this vendor was not used by a number of different card holders. An 

expectation would be the more card holders you have using a vendor, the less risk you have. So those vendors that are doing business with a small number of card holders have a higher risk. In 

this instance, those transactions were flagged for that reason. 

The other business rule we used to couple with that was the fact 

that we were looking for card holders that made repetitive buys 

near the dollar limit over certain periods of time, and we can move 

that line in the sand anywhere you want, depending on what you 

are looking to do. 

In this instance, these transactions popped up for two of those 

indicators, which we thought were pretty significant, and they 

went out and did the work to look at them and the DSA organization that did the work for us is smart partnering now with our 

DCIS investigators and I can say that this is going to probably end 

up in a referral for criminal prosecution for a number of reasons. 

Of course, it is an open investigation, so that is all I would like to 

say on that for right now. 

Chairman COLLINS. But it is an example of a case that was identified by you through data mining, correct? 

Mr. KELLEY. Yes, ma’am. 

Chairman COLLINS. Mr. Steensma, as you know and as GAO has 

indicated, it isn’t just the purchase card program that has had 

problems with waste, fraud, and abuse. There have been similar 

concerns with the travel card, the fleet card, and the aviation card 

programs. Do you believe that—well, first of all, is DOD looking at 

extending data mining techniques that are being used successfully 

in the purchase card program card to those other cards, as well? 

Mr. STEENSMA. Yes, we are, ma’am. We are already looking at 

the travel card and data mining that. We are looking at the air 

card and have done that actually in the past once and issued a report on it. We will be looking at the fleet card. But when you have 

millions of transactions like Colonel Kelley talked about, data mining is the only way you can actually get a handle and put the auditors or investigators in the right place to look at something and determine if it is valid or not. 

Chairman COLLINS. What role do you believe that GSA should 

play in promoting greater use of data mining techniques, such as 

you are using successfully at DOD, to identify questionable transactions? 

Mr. STEENSMA. Well, what we would like to see is that GSA get 

all the data from all the banks, create a central repository of all 

the charge card data. Then GSA would promote the data mining 

and use standard business rules and techniques across all the 

cards and all the data, and we would also like them to operate or 

run a program such as Colonel Kelley was going to explain. There 

aren’t enough auditors or investigators out there to check on everything, but the way to cut down all these frauds and inappropriate 

purchases, it didn’t just happen once. It happened numerous times. 

If you have data mining and a central repository, with standard 

business rules for all agencies, what we would like to see is that 

on a regular basis, things that look inappropriate, E-mails or some 

electronic notice gets sent to the supervisor or the approving official that said, ‘‘hey, this looks strange. Give us some feedback on 

17

it.’’ The supervisor would then respond and explain in the E-mail, 

after looking into the transaction, whether it was valid or not. That 

type of information would then be kept in a database also to be 

looked at to determine patterns and techniques. 

But I think GSA needs to take the lead for the whole Federal 

Government, and like Colonel Kelley said, we have helped out 13 

other agencies. That really isn’t our job. We need somebody to take 

the lead on data mining for everything. We also need them to do 

additional research on how to develop new data mining techniques 

and also so they can be used to improve the management controls 

and push it back out to the agency managers so they can actually 

manage this program and they can be the ones that help prevent 

fraud, waste, and abuse, or at least catch it before it gets widespread like we talked about today. 

Chairman COLLINS. Mr. Fox, what is GSA doing to promote the 

expansion of data mining techniques in other agencies? DOD has 

indicated that they have had inquiries from several other agencies. 

They have been providing information to the Department of Commerce, the Postal Service, and the CIA. But that is not really 

DOD’s job. That is more GSA’s job. Could you inform us of what 

actions GSA is taking in this area? 

Mr. FOX. Yes. We are working with all the agencies to look at 

ways to better accomplish the data mining. We have discussions, 

certainly monthly discussions with the DOD folks, as our largest 

customer, on how we can help them better accomplish this task. 

We are looking at building a next generation SmartPay program 

that will accomplish—that will encompass more sophisticated data 

mining capabilities into it. 

But in the short term, we are working with the agencies to do 

a better job of data mining. Again, much of it goes back to trying 

to obtain more detailed data that comes out of the merchants themselves. Many of the merchants that are beneficiaries of the card are 

small businesses and have not jumped forward to put in place the 

systems to pass the Level 3 data. So trying to get the card agency 

associations to work with their merchants to try to pass more detailed data into the system and then find ways to accomplish the 

data mining. 

We often find that the data mining is best done at the local level, 

as opposed to the centralized level. We are looking at both options 

as to what the right way to do it is. But if abuse is going to be 

found, it is most often going to be found at the local level and to 

provide that data mining available to the lowest-level folks, those 

folks who immediately supervise the purchase card holders, that is 

where we can have the most impact, is to provide them the tools 

at the most local level. 

Chairman COLLINS. Mr. Kutz, what does GAO see as GSA’s role 

in this area as far as data mining or improving the internal controls used by other agencies? 

Mr. KUTZ. I would concur with Mr. Steensma and I would go further with respect to, and I think that there are certain agreements 

we have with the banks now, and the GSA representative could 

probably be more specific with that, but the banks have their own 

fraud detection software. If you ever got a call from your bank with 

18

an unusual charge on your account saying, is that really your 

charge, I have gotten those before certainly. 

We didn’t see that happening at the Department of Defense. So 

our suspicions when we have talked about this are that the banks 

were running the software but not making the calls, and so I think 

that is another part of the prevention of fraud and misuse that 

could be utilized across the Department, because we did see examples where people took these cards and they went down to the mall 

and they hit each of the stores in the mall. They were clearly 

fraudulent purchases. And if someone had made a call, they could 

have shut it off before more transactions had occurred. 

Chairman COLLINS. That is a good point, as well. 

We have spent a considerable amount of time talking about 

fraudulent purchases and how data mining techniques could identify those in the sea of bills that agencies are dealing with. But at 

least as important, perhaps even more important, is taking advantage of negotiated discounts. 

Mr. Fox, why doesn’t the GSA negotiate agreements with vendors so that these discounts come up at the point of sale, so you 

don’t have to worry about the card holder being aware of what the 

price should be on a particular item? 

Mr. FOX. We are aggressively pursuing that. We are up to 19 

stores that our customers can walk into and get point-of-sale discounts. They include, as I mentioned, Home Depot, Office Depot, 

and others. We are adding others. We are working with Staples 

right now. We have talked to folks like Wal-Mart, talked to other 

large vendors who do not have schedule contracts to try to bring 

them onboard. Some of them resist. Wal-Mart has consistently resisted a GSA schedule contract for their own business reasons. 

But we are aggressively working at it. Again, we are up to 19 

walk-in stores and 32 catalogs. We have catalogs that customers 

can use to get—with discount companies and they provide the GSA 

discounts. So we do promote—we are up to a total of over 14,500 

total GSA schedule contracts with vendors of all sizes around the 

country, 75 percent of which are small businesses, which tend to 

use the purchase card sometimes almost exclusively. 

So we are trying to expand our programs all the time. We are 

adding new vendors at the rate of 20 percent per year right now 

and trying to expand those opportunities for our customers, and 

also the automatic credit card recognition is a big item for us as 

we add these walk-in, walk-out stores where customers can go in 

and present their card and not even mention they are with the 

Federal Government but get that automatic discount from places 

like Home Depot and Office Depot, as they are now. That is high 

on our agenda. 

Chairman COLLINS. Mr. Steensma, based on your experience—actually, I am not sure whether this should go to Colonel Kelley or 

to you, so either of you can respond. Based on your experience, do 

you think that purchase card holders usually get the discounted 

price? 

Mr. STEENSMA. No, I don’t, especially on many of the activities 

we went to. Colonel Kelly talked about we were down there at Louisiana and they spent over $800,000 buying normal computers and 

office equipment and supplies. They didn’t get one discount off any 

19

contract, GSA schedule, or anything. We found the same problem 

at Washington Headquarters Service. 

Part of this comes from an education standpoint. Well, those two 

activities, it was a lack of controls, but we have in DOD well over 

a hundred-and-some-thousand buyers right now. If you go look at 

the training that they are provided, it is pretty good training on 

what they are required to do, the controls they should follow, and 

so on, but there really is no training in there on how to become a 

smarter buyer. 

When we are talking about $16 million in purchases, we need 

somebody that is going to do research and teach people, come up 

with web-based training, how to create better buyers for DOD, not 

just DOD but the whole Federal Government, and we need somebody to do that and that should be a role of GSA, how to make 

smarter buyers. We can save a lot more money than we have even 

talked about today once we can educate people not to just what is 

out there, but what the trends are and where people are going to 

buy and maybe we can negotiate lower discounts than we have already. 

Chairman COLLINS. I think this is an area where there is a possibility of tremendous savings and we could make a real difference 

by instituting point-of-sale discounts and also by better training 

buyers, as you have suggested, and by being more aggressive in 

seeking these discounts from vendors with large volumes. 

The final issue I want to touch on today is the proliferation of 

purchase cards. We obviously want to make sure that everyone 

who needs a purchase card has one, uses it appropriately, and that 

should save money for the Federal Government and make the process more efficient. 

On the other hand, Colonel Kelley, I was struck by your statement—I think I got it correctly—that you have reduced the number 

of purchase cards at DOD by 47 percent. Is that correct? 

Mr. KELLEY. Yes, ma’am. We didn’t do it. The DOD—the Department did it. 

Chairman COLLINS. I didn’t mean you personally. 

Mr. KELLEY. OK. Thank you. [Laughter.] 

Chairman COLLINS. You took away each one of those, right? 

[Laughter.] 

Mr. KELLEY. I have been accused of that, ma’am. [Laughter.] 

Chairman COLLINS. But a 47 percent reduction is really significant, and I guess what I would ask you and Mr. Steensma is did 

reducing the number of card holders by that extraordinary number 

have a negative impact on the efficiency of the Department or the 

ability of individuals to get the items they needed quickly? Mr. 

Steensma. 

Mr. STEENSMA. No, I would say not in the least. They eliminated 

cards from people who didn’t need them, shouldn’t have had them, 

don’t use them. But the volume of purchases actually went up. I 

haven’t heard one complaint about people couldn’t get things that 

they needed on time because there wasn’t a buyer there. We just 

had way too many cards, not just DOD but all the agencies out 

there. It was a good move to eliminate the thousands of cards that 

are already gone. 

20

Chairman COLLINS. Mr. Fox, does the GSA put out guidelines for 

agencies to follow on how to decide whether employees should have 

purchase cards? 

Mr. FOX. We do put out guidelines and they are available 

through our training programs. We have our annual training conference where, again, last year, we had 3,000 folks come to our 

training, annual training conference for SmartPay. We put out 

guidance to them. 

We think that we have pushed the reduction of number of card 

holders out of GSA and the agencies have certainly done a great 

job of picking up on that, because we believe that reducing the 

numbers has a positive impact in two ways. It eliminates—it 

makes the agencies make tough choices about who will get the card 

and, therefore, they give them to those who need them the most. 

And also, it decreases the number of card holders managed per supervisory card manager and that is down, on average, to about 

three-and-a-half card holders per supervisory manager, which we 

believe is a great statistic. 

Now, the agencies where you see them going up to 10, 15, or 20 

card holders per supervisory manager, it is very difficult for those 

managers to keep track of those and reconcile the accounts and reduce fraud. We think accurate card reconciliation at the local level 

is an extremely important part of fighting fraud. 

Chairman COLLINS. Mr. Kutz, is part of the problem here the 

proliferation of cards? 

Mr. KUTZ. That was a major problem. Some of the initial looks 

we did at the Navy, for example, we found one out of every three 

employees would have a purchase card and they did not have 

enough approving officials, as I think the GSA representative mentioned here, and so you had instances where approving officials had 

100 or more people that were making transactions that they were 

responsible for reviewing the statement, and it wasn’t their fulltime job. It was an ‘‘other duty as assigned,’’ which meant it was 

a rubber stamp. There was no review of the bills being paid and 

that was where a lot of the cases, we found that was one of the 

symptoms or causes of the problem. 

Chairman COLLINS. Thank you. It seems to me if you have so 

many card holders, that means you have way more transactions 

and that lessens the chance they are going to be reviewed and it 

increases the chances that they are going to be misused. It would 

be good if other agencies took the kind of aggressive approach that 

DOD did in really evaluating who needs a card. 

It is highly significant to me, as Mr. Steensma testified, that you 

could reduce the number of card holders by 47 percent and yet the 

purchases have gone up. So that does suggest that the proliferation 

of cards is another area that we need to examine. 

I want to thank each of you for being here today. I want to thank 

the GAO for doing a terrific job in taking a look at this issue and 

DOD also for the aggressive work you are doing. 

Data mining has been a very touchy issue, as you know, in Congress, but this seems to me to be an ideal use of data mining that 

would allow us to identify questionable or outright fraudulent 

transactions without raising some of the privacy and personal inVerDate 0ct 09 2002 08:57 Aug 23, 2004 Jkt 094483 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 C:\DOCS\94483.TXT SAFFAIRS PsN: PHOGAN
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formation issues that are so controversial when data mining is applied in other arenas. 

Mr. Fox, I would like to see GSA work more closely with the 

agencies to promote best practices, to learn from the experience at 

DOD and to implement fully the recommendations made by the 

General Accounting Office. It is my understanding GSA has endorsed those recommendations and is working to expand point-ofsale discounts and to implement the other reforms. 

We look forward to working with you. I will be pursuing the legislation with Russ Feingold, as well, which I also think will be 

helpful. But thank you all very much for your assistance today. 

I am convinced that if we focus on issues like this one that we 

can make a real difference in saving literally hundreds of millions 

of dollars across our government each year, and Colonel Kelley put 

it well, because each of those dollars are dollars that could be put 

to the war against terrorism or used to reduce the deficit or for 

other important programs. We have an obligation to the taxpayers 

to make sure that their money is wisely spent, and I think that the 

discussion today will help advance that goal. 

The hearing record will remain open for 14 days for the submission of any additional materials. I want to thank my staff also for 

their hard work on this hearing. 

This hearing is now adjourned. 

[Whereupon, at 11:17 a.m., the Committee was adjourned.] 

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