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32–722 PDF 2007

S. Hrg. 109–889

DEPARTMENT OF HOMELAND SECURITY

PURCHASE CARDS: CREDIT WITHOUT

ACCOUNTABILITY

HEARING

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 19, 2006

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

AMY L. HALL, Professional Staff Member 

JAY W. MARONEY, Counsel 

MICHAEL L. ALEXANDER, Minority Staff Director 

TROY H. CRIBB, Minority Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

(III)

C O N T E N T S

Opening statements: Page 

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

Senator Lieberman ........................................................................................... 3

Senator Coleman .............................................................................................. 5

WITNESSES 

WEDNESDAY, JULY 19, 2006

Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office, accompanied by John J. 

Ryan, Assistant Director, Forensic Audits and Special Investigations, U.S. 

Government Accountability Office ...................................................................... 6

David L. Norquist, Chief Financial Officer, U.S. Department of Homeland 

Security ................................................................................................................. 18

ALPHABETICAL LIST OF WITNESSES

Kutz, Gregory D.: 

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

Prepared statement with attachments ........................................................... 27

Norquist, David L.; 

Testimony .......................................................................................................... 18

Prepared statement .......................................................................................... 73

APPENDIX 

Department of Homeland Security ‘‘Headquarters, Purchase Card Manual’’ .... 77

(1)

DEPARTMENT OF HOMELAND SECURITY 

PURCHASE CARDS: CREDIT WITHOUT 

ACCOUNTABILITY 

WEDNESDAY, JULY 19, 2006

U.S. SENATE, 

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10 a.m., in room SD–

342, Dirksen Senate Office Building, Hon. Susan M. Collins, Chairman of the Committee, presiding. 

Present: Senators Collins, Coleman, and Lieberman. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. Good 

morning. Today, the Committee will examine the results of the 

joint investigation conducted by the Government Accountability Office and the Department of Homeland Security’s Office of Inspector 

General into wasteful and potentially fraudulent uses of DHS’ purchase cards. Government purchase cards are similar to the personal credit cards that many of us carry, but with a notable difference: The American taxpayer pays the bill. 

The government is responsible for paying all charges by purchase 

cardholders regardless of what was purchased or whether the 

buyer got a fair price. When used properly, purchase cards allow 

agencies to streamline the acquisition process and reduce costs 

when buying goods and services or paying government contractors. 

When used improperly, purchase cards enable wasteful and even 

fraudulent transactions. 

The American people expect the Federal Government to spend 

their tax dollars wisely, especially in this time of great fiscal pressures and a large budget deficit. That is why this Committee has 

undertaken so many investigations to expose and eliminate wasteful spending. Indeed, this is not our first hearing into the misuse 

of purchase cards. In 2004, this Committee investigated the purchase card program used by the Department of Defense. We heard 

from the same witnesses who are here before us today about a lack 

of oversight and internal controls at DOD. It is disturbing that we 

will hear again today about a similar lack of oversight and internal 

controls at the Department of Homeland Security. 

Today’s hearing will focus on spending associated with DHS 

purchase cards in the months both immediately preceding and following Hurricanes Katrina and Rita when DHS was given exVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
2

panded authority for using purchase cards. I opposed raising the 

micropurchase threshold to $250,000, fearing that hurried and 

wasteful spending might occur. GAO’s investigation indicates that 

my fears were warranted. 

The use of government purchase cards has soared from less than $1 billion in fiscal year 1994 to more than $17 billion in fiscal year 

2004. In fiscal year 2005, DHS spent $430 million through the use 

of purchase cards issued to more than 9,000 cardholders. It is critical that agencies establish and enforce adequate internal controls 

to ensure that cardholders are using their purchase cards responsibly and are held accountable if they misuse them. This becomes 

more urgent as purchase cards increasingly are used not only for 

what are known as micropurchases—under $2,500—but also for 

making contract payments for much greater amounts, as happened 

in the aftermath of Hurricane Katrina. 

DHS, however, failed to implement the basic controls and safeguards across the Department to prevent the misuse of purchase 

cards. Government purchase cards are to be used only for official 

purposes, and they are to be used responsibly. But the GAO and 

the IG discovered numerous instances in which cardholders entered 

into questionable and wasteful transactions on the taxpayers’ dime. 

For example, investigators found that FEMA purchased 200 

laptop computers for the New Orleans Police Department. These 

were meant to be on loan to the police department while its own 

equipment was unusable. But when GAO and the DHS IG attempted to locate these computers, they could not find more than 

half of the computers, 22 printers, and two GPS units, translating 

into approximately $170,000 of lost property. 

Another example involved the unwarranted purchase of eight 

high-definition televisions, including a 63-inch plasma TV purchased at a cost of nearly $8,000 at the end of the fiscal year. One 

cannot help but wonder if this was an example of hurry-up spending to deplete a budget at the close of the fiscal year. Until GAO 

inquired, these televisions had not been entered into the agency’s 

inventory records. The GAO investigators were able to locate these 

televisions, but the plasma TV had not even been removed from its 

box 6 months after it had been purchased. Clearly, this was not a 

necessary purchase. The GAO also found other cases involving excessive prices, duplicative payments, and wasteful purchases. 

I do want to note that at 7:52 this morning, DHS informed the 

Committee that it had miraculously found the missing boats and 

some of the missing computers, although they are ‘‘in the process 

of locating the printers.’’ To me, this is just a further indictment 

of a lack of systems at the Department to account for property, and 

it shows a chaotic and completely unacceptable system when items 

worth hundreds of thousands of dollars are missing one day, found 

the next, and perhaps to be found in the future. 

In addition to testimony from GAO, we will hear this morning 

from the Chief Financial Officer of DHS, David Norquist. The 

CFO’s office is responsible for administering DHS’ purchase card 

program. Now, Mr. Norquist has been in his new position for just 

under 2 months, so I do want to make clear that he was not responsible for the poor management of DHS’ purchase card program 

during the time period that was the subject of this investigation. 

3

But, nevertheless, he is the official responsible for ensuring better 

management and accountability in the future, and I hope it will not 

take a congressional hearing to prompt DHS to make the necessary 

reforms or to find missing equipment, which seems to have happened in this case. 

Providing assurance to the American people that the Federal 

Government is shopping responsibly and honestly is absolutely essential. That is why several Members of this Committee—Senators 

Lieberman, Coleman, Levin, and Akaka—joined Senator Feingold 

and me in introducing the Purchase Card Waste Elimination Act 

last year in the wake of our DOD investigation. This legislation finally passed the Senate last month, and I cannot help but think 

if it had been signed into law last year, this audit may have produced different results. 

The bill requires the Office of Management and Budget to issue 

guidelines to assist agencies in improving the management of purchase card programs. It requires the General Services Administration to identify additional opportunities to achieve savings. And it 

mandates that OMB report annually to Congress on the progress 

agencies are making on both of these fronts. 

My hope is that this investigation, the latest GAO report, and 

our hearing will encourage prompt passage in the House of Representatives and enactment of this important bill. 

I welcome all of our witnesses here today. We have worked very 

closely with this outstanding team of GAO investigators in the 

past. I look forward to hearing their views and the views of the Department as well as their recommendations to address waste, 

fraud, and abuse in DHS’ purchase card program. 

Senator Lieberman. 

OPENING STATEMENT OF SENATOR LIEBERMAN 

Senator LIEBERMAN. Thanks, Chairman Collins, for convening today’s hearing to examine DHS’ record on using government purchase cards. 

Thanks to Mr. Kutz and Mr. Ryan for another first-rate job of 

investigation and analysis on behalf of Congress and the taxpayers. 

Your investigation has uncovered, what I would call, a number of 

inexcusable abuses of purchase cards, which are symptomatic of 

larger problems the Department has with management controls in 

financial oversight. 

In the interest not just of our responsibility to the taxpayers, but 

in this case, in the interest of homeland security, these problems 

have to be fixed. Purchase cards obviously can save money for the 

taxpayer by streamlining acquisitions and reducing administrative 

costs, especially for small procurements. But absent agency controls, the flexibilities allowed by the use of purchase cards leave 

our government and taxpayers vulnerable to waste and abuse. 

The GAO’s findings make clear that such waste, abuse, and 

fraud have occurred and that better controls are urgently necessary. With over 10,000 purchase cardholders at the Department 

of Homeland Security, the potential for waste, fraud, and abuse is 

enormous. One question I want to ask is whether all 10 thousand 

purchase cardholders really ought to be issued purchase cards. 

That is a very large number. 

4

GAO found that in some instances purchase cards encouraged 

hasty and sloppy spending in the response to Hurricane Katrina. 

Senator Collins has mentioned some of them. A few others: A 

FEMA purchase cardholder bought over 5,000 cases of MREs, 

meals-ready-to-eat, for Katrina relief from a vendor over the Internet at a cost of over $460,000. GAO reaches what certainly seems 

to be an immanently sensible conclusion that FEMA could have 

procured the MREs at far lower cost through the Defense Logistics 

Agency or an existing GSA vendor rather than going over the 

Internet. 

Another example: FEMA entered into a $178,000 contract with 

a broker for the purchase of 20 boats at a cost that was 100 percent 

above retail price. The broker then used the card number to purchase boats and also made additional unauthorized purchases totaling $30,000 using the purchase card. That was done by the 

broker, not by the DHS employee. The FBI is actually investigating 

the vendor. 

And then there were instances where DHS employees purchased 

items that, shall I say respectfully, seem unlikely to have had a legitimate government purpose, such as iPods. And an employee of 

the Coast Guard Academy apparently used a purchase card to pay 

$227 for a home brew beer kit to make beer for academy functions. 

Overall, GAO finds, based on the statistical sample, that 45 percent of DHS’ purchase card transactions were not properly authorized. Clearly, the Department needs to do a lot of work quickly to 

establish adequate procedures for keeping track of goods purchased 

with these cards. The Department has no formal guidance in place 

to instruct employees on proper card use, although, perhaps not coincidentally, yesterday evening DHS notified the Committee that it 

has finally finalized exactly such guidance. 

We are going to hear today from the new Chief Financial Officer 

at DHS, David Norquist, and I hope that he will tell us about his 

plans to improve the tracking and control of purchased goods with 

these cards. Typically, the cards are used for purchases under 

$2,500, but as the GAO testimony will tell us, employees of the Department have used the cards for significantly larger transactions, 

including that $178,000 I talked about for the boat broker. 

Because of the possibility of waste and abuse in the use of cards 

for larger purchases, I strongly opposed a provision added to one 

of the Katrina supplemental spending bills that would have increased from $2,500 to $250,000 the amount that could be charged 

to a Federal purchase card. Chairman Collins also strongly opposed 

that, and she and I successfully reported out a bill from this Committee that would have repealed the provision. Eventually, in fact, 

it was repealed through a separate amendment to a Transportation-Treasury appropriations bill. 

DHS officials have assured us that while the $250,000 limit was 

in effect, the Department never implemented that special authority, but clearly, some of the Department’s personnel relied on other 

procurement authorities to make large purchases, and we want to 

ask today how that happened. 

In sum, government purchase cards can, in some circumstances 

and with adequate controls, bring speed and effectiveness to the 

procurement process, but they also raise special management chalVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
5

lenges. The ease with which the cards may be used can also encourage Federal employees to purchase unnecessary items or to 

rush into spending decisions without spending enough time to get 

the best price for the taxpayers. Goods acquired with purchase 

cards escape the more rigorous inventory controls that accompany 

paper-based transactions that go through more levels of approval. 

And, of course, a card number in the hands of a dishonest vendor 

can result in fraudulent charges against the account. As our April 

2004 hearing, which Chairman Collins has referred to, on purchase 

cards showed, inevitably a few Federal employees have fallen to 

temptation and have used the purchase cards to purchase personal 

items. 

So our task now is to ensure that the Department of Homeland 

Security implements procedures to prevent the abuse of these cards 

and takes appropriate disciplinary or legal action against those 

who abuse the cards or use them fraudulently. The reputation of 

the Department and the confidence of Congress and the taxpayers 

in the Department depend on such action. 

With that in mind, I look forward to the hearing. Again, I thank 

the GAO and you, Madam Chairman. 

Chairman COLLINS. Thank you. Senator Coleman. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Madam Chairman. I want to 

thank you and the Ranking Member for holding this important 

hearing. I am Chairman of the Permanent Subcommittee on Investigations. This issue of the use of purchase cards has been of great 

concern. We have looked at the DOD. We looked at Federal travel, 

premium class travel, a lot of which was done by purchase cards 

and was not authorized, and, again, working with a fabulous team 

here, we found that over $90 million in premium class travel was 

not authorized. So this has been a big issue. With the Chairman’s 

leadership, we have recently passed the Purchase Card Waste 

Elimination Act of 2006, of which I was proud to be a cosponsor. 

So there is more accountability, but so much more work has to be 

done. 

My issue or concern is not the number of cards in the system, 

but the question is the accountability, the training, and the controls in place. So it is not the number. My frustration at times is 

the government does not work as fast as the private sector. When 

we had our Hurricane Katrina hearings and were looking at trying 

to find lost inventory that was ‘‘lost in the pipeline,’’ my question 

was: Why don’t you call FedEx? I mean, people today expect government to work in a way in which in their lives they see it work, 

when they use their ATM cards, when they audit things, and there 

is a tracking system. To me, it is absolutely stunning that we sit 

here and we have what I called these 11th-hour epiphanies of now 

we have found lost goods. To me, one of the problems here has been 

the lack of a system, not having a basic implementation of a manual by which you would train people to say this is how you do it, 

this is how you do not do it. 

My fear is that because of the abuse, we are going to make government slower, we are going to make it less responsive. We are 

going to put in place all sorts of controls that in the end may then 

6

1The prepared statement of Mr. Kutz appears in the Appendix on page 27. 

hinder the ability to do the important work that has to be done, 

but in part because we have not had a system in place of control. 

Literally, in my opening statement, I was going to rail about the 

lack of a manual. I am not going to rail about that because that 

has now apparently been put in place yesterday. 

We simply need to do better. The Chairman used the phrase—

and I wrote this down—‘‘chaotic and completely unacceptable.’’ And 

I second that. I think that is really what we looked at. We have 

to do better. We have a new team in place, but what we have seen 

has been unacceptable, and we have to take the steps to make sure 

that the agency is responsible without losing the ability for government to move quickly and to do the things that people expect it to 

do. 

So that is our challenge, and, again, I want to thank the Chairman and the Ranking Member for their focus on this issue. 

Chairman COLLINS. Thank you very much. 

I am very pleased to welcome our first witnesses today to this 

Committee. They really need no introduction. Greg Kutz is the 

Managing Director of the Forensic Audits and Special Investigations Unit of the Government Accountability Office. He has been 

with GAO since 1991 and assumed his position as Managing Director in 2005. He is accompanied by Special Agent John Ryan, Assistant Director of the unit. So we are very pleased to have you return 

to the Committee, and I congratulate you for once again doing outstanding work. 

Mr. Kutz, we will start with you. 

TESTIMONY OF GREGORY D. KUTZ,1 MANAGING DIRECTOR, 

FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, ACCOMPANIED BY 

JOHN J. RYAN, ASSISTANT DIRECTOR, FORENSIC AUDITS 

AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. KUTZ. Chairman Collins, Senator Lieberman, and Senator 

Coleman, thank you for the opportunity to discuss the Department 

of Homeland Security’s purchase card program. DHS has about 

9,000 cardholders and spent over $400 million using purchase 

cards in 2005. I also want to thank Inspector General Skinner and 

his staff, who, as you mentioned, Chairman Collins, worked with 

us jointly on this audit effort. 

The bottom line of my testimony today is that weak internal controls leave DHS vulnerable to fraud, waste, and abuse in its purchase card program. My testimony has two parts: First, internal 

control weaknesses and second, examples of fraud, waste, and 

abuse. 

First, we found a weak control environment related to the purchase card program. However, many of the problems that we identified are not strictly related to the purchase card program. We also 

found symptoms and other issues related to property accountability 

and procurement. With respect to the purchase card program and 

control environment, the first issue we found was the lack of leadership. As was mentioned here, evidence of that was that the DHS 

7

1The posters referenced by Mr. Kutz appear in the Appendix on pages 69–71 respectively. 

purchase card policies and procedures manual had been in draft for 

over 2 years. Although these draft policies generally contain effective controls, we found inconsistent usage of them across the Department. Other control problems include inadequate staffing, monitoring, and training. 

Our statistical sampling also revealed serious breakdowns in 

transaction-based controls. For example, an estimated 45 percent of 

transactions did not have written authorization. Further, 63 percent of transactions did not have documentation of independent receipt of goods and services. This contributed in part to the substantial problems with missing and stolen property. 

Moving on to my second point, given the weak internal controls, 

it is not surprising that DHS is vulnerable to fraud, waste, and 

abuse. Our work was not designed to estimate the magnitude of 

fraud and abuse. However, we found, as you mentioned, numerous 

examples of fraud, waste, and abuse. Let me discuss several of 

these. 

The first issue, as I mentioned, is property accountability. For example, 154 out of 433, or 36 percent, of the property that was 

bought with the purchase card was missing or stolen. For example, 

the posterboard shows a hotel conference room in the French Quarter where several hundred computers, printers, and GPS units 

were supposed to be.1 However, when FEMA staff took us to this 

location in March 2006 where they thought the property was, we 

found this empty conference room. Ultimately, FEMA could not 

find 107 of the laptops, 22 of the printers, and two GPS units—although you said that they miraculously found them, I understand. 

FEMA also could not account for the location of 20 flat-bottomed 

boats and motors that were purchased for body recovery operations 

in New Orleans. FEMA paid $208,000 for these boats, which was 

twice the retail price. The vendor who had purchased these from 

several retailers failed to pay for over half of the boats, which one 

of the retailers has reported are stolen. This vendor is under investigation by local law enforcement and the FBI. 

One example of waste is FEMA’s $68,000 purchase of 2,000 sets 

of canine boots. These boots were purchased by mistake for Hurricanes Katrina and Rita operations and were not used and are now 

in storage. 

The posterboard shows a 63-inch Samsung plasma television that 

you mentioned,1 Chairman Collins, that FEMA purchased in September 2005, costing about $8,000. This, too, was a waste of taxpayer dollars since auditors found the television unused in the 

original box 6 months after it was purchased. 

The Meal-Ready-to-Eat (MRE) poster that I have in my hand is 

another example of waste. To support CBP’s response to Hurricanes Katrina and Rita, they purchased MREs from an Internet 

vendor. However, we identified at least tens of thousands of these 

that are sitting in storage, unused, in El Paso, Texas. 

And, finally, a Coast Guard purchase card was used to buy a 

beer-brewing kit and a Brewers’ Bible. The posterboard shows 

some of the bottles of the Coast Guard’s own home-brewed beer.1

We considered this to be an abusive transaction and question the 

8

use of Homeland Security personnel and resources to brew its own 

beer. 

In conclusion, the purchase card is a valuable tool that provides 

the government great flexibility and reduced transaction processing 

costs. The examples of fraud and abuse related to Hurricanes 

Katrina and Rita show that the government is particularly vulnerable when using purchase cards in times of disaster. Mr. Norquist 

appears to be taking a proactive approach to the challenges that 

I have described for you today. I look forward to working with him, 

the IG, and this Committee to see that DHS realizes the full benefits of using the purchase card. 

Chairman Collins, that ends my statement. Special Agent Ryan 

and I look forward to your questions. 

Chairman COLLINS. Thank you very much, for an excellent statement. 

You have listed several egregious examples of purchases that 

were clearly wasteful, some outright fraud, and poor buying decisions that cost the taxpayers a great deal of money. Did you also 

find that there was a lack of care to make sure that the government was not being billed twice? For example, did you find examples of duplicative billing and a lack of reconciliation with the payments to make sure the property has been received? 

What prompts me to ask that is when we all receive our personal 

credit card bills, we go through them very carefully to make sure 

that the charges are correct. If they are not, we act immediately. 

But as I understand the results of your audit, since it is somebody 

else’s money, that same kind of care does not seem to be taken. 

Mr. KUTZ. Yes, we found duplicate payments. There was one $153,000 charge, I believe, that the government first of all paid 

with the purchase card, and they paid in advance, which is not in 

accordance with policies at the Department; and then they paid 

them again using an EFT payment. And the Department was unaware it was a duplicate payment until we informed them of it, 

and then they were able to get a credit back from the vendor 6 or 

8 months after the purchase was made. So that was an example 

of a duplicate payment. 

We found a lot of evidence that people are not reviewing the 

monthly statement, and let me just explain how they do it at DHS. 

Normally, you and I would get our credit card bill and pay it 

monthly after reviewing the transactions. What DHS does is they 

pay every day, so they have a daily—it is called ‘‘pay and confirm,’’ 

or in a bad scenario, it is ‘‘pay and chase.’’ But what they do is they 

pay every day, and then they are supposed to take the monthly bill 

and go back and make sure that all the charges are correct. And 

that can work as long as the reconciliation is done timely because 

you have 60 days to file a dispute with the bank for charges that 

are not yours. But we found, again, breakdowns in the dispute 

process. We found people were not reviewing their monthly bill. 

And I will use the boats as an example. The individual that was 

the cardholder that purchased the boats, there were charges going 

through for purchases that the cardholder did not make that the 

government paid, and that is why you have the boats costing 

$208,000. The agreed-to price was $178,000, but $30,000 or so of 

those charges are for the vendor, who basically stole the governVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
9

ment’s account number and used it to buy the boats that he then 

sold back to FEMA. 

Chairman COLLINS. And in that case, are there indications that 

the FEMA employee gave the middleman the account number to 

use? 

Mr. KUTZ. They gave them the account number to use in that 

case because they were going to have prepaid the purchase of the 

boats for $178,000. So, yes, they gave them the account number, 

but they did not authorize them to use the account number themselves to buy additional goods and services. 

Chairman COLLINS. The purchase card program is intended to 

save money for the government and for the taxpayers ultimately, 

yet you found examples where government agencies within DHS 

actually paid more for goods and services than they should have. 

You gave several examples of that in your report. 

Is competitive bidding curtailed when there is a purchase card 

transaction? How do we ensure we are getting the best price if we 

are using purchase cards? 

Mr. KUTZ. Well, the hearing we had before your Committee here 

in 2004, we estimated hundreds of millions of dollars could be 

saved with better acquisition methods using the purchase card, and 

we found symptoms of some of the very same issues at DHS that 

we spoke to you about in 2004. And there is significant evidence 

here that they could have gotten millions of dollars of savings 

using their purchase card with better acquisition processes. So I 

believe that is another issue that Mr. Norquist needs to take a look 

at. 

Chairman COLLINS. Mr. Ryan, were you surprised that DHS all 

of a sudden on the morning of the hearing was able to find a lot 

of the missing equipment, 74 out of the 107 missing computers? 

Mr. RYAN. I think in this particular case, I am a little taken 

aback, quite honestly, because we have been working on this job for 

a while. They were aware that there were missing computers from 

the ballroom in New Orleans. They were aware that there was a 

problem with the boats. And I guess what I would ask is that if 

they are going to say they found these items, that they maybe 

cross-reference them against the serial numbers that we have that 

we are saying are missing and confirm that what we have is what 

they found. I think that would be the first step, and then obviously, 

as long as it is not a paper verification—because there is a problem 

with paper verifications as we had in other cases that we looked 

at. Numbers are put on a piece of paper, but no one touches the 

item. So I would ask them to touch the item and make sure that 

they are really testing the serial number that we have to what they 

found. 

Mr. KUTZ. Senator, could I add something to that? 

Chairman COLLINS. Mr. Kutz. 

Mr. KUTZ. One issue is that if you do not put the property in the 

property book right after you buy it, and the serial number or a 

bar code, it is never going to be missing in the first place. And so 

a lot of what we found were things that they would have never 

found missing in the first place because it never actually made it 

to the property book. 

10

Chairman COLLINS. Well, that is exactly what my follow-up question to you was going to be. If the Department told you that they 

could not find 12 of the boats and there were a hurricane tomorrow 

that required boats, it seems to me what is going to happen is the 

Department goes out and purchases what it already has but does 

not realize that it has. 

Mr. KUTZ. You are exactly right. Waste is going to happen because they do not know what they have, they do not know where 

it is, and so they are going to say that they need more, and they 

are going to come back and ask you for more money. 

Chairman COLLINS. Exactly. Senator Lieberman. 

Senator LIEBERMAN. Thanks again, Madam Chairman. 

Gentlemen, thank you. Let me ask a couple of the questions that 

I raised in my opening statement. The first is, although I know this 

is a large Department—my first reaction to there being 10,000 government credit cards out there in the hands of DHS employees is 

that is a large number. Did you reach a judgment on that in your 

work? 

Mr. KUTZ. Yes, let me give you some other information that 

would help you with that. There were 2,468 cards that had no activity for 1 year, so right there I can make a pretty strong argument that you could reduce 2,500 of the cards. 

Senator LIEBERMAN. Right. 

Mr. KUTZ. So there is strong indications that they have too many 

cards. 

Senator LIEBERMAN. OK. That is direct and helpful. 

Second, as I mentioned, there is the question of the $2,500 limit 

as opposed to the $250,000. We repealed that limit by statute on 

an appropriations bill, but then the officials at the Department of 

Homeland Security assured us that even while the quarter of a 

million dollar limit was in effect, the Department never implemented the special authority. But, clearly, some of the personnel of 

the Department made purchases well beyond the $2,500, as we 

have documented, over $200,000 for the boats and other purchases 

as well. 

How did that happen? Did they rely on some other procurement 

authority beyond the one we are talking about to make such large 

purchases by credit card? 

Mr. KUTZ. Yes, they used what they called the ‘‘unusual and 

compelling urgency’’ provision of the Federal Acquisition Regulations (FAR) to make those purchases in emergency situations. And 

so that was what they represented was the reason. 

Also, there are certain contracting officers that have the ability 

to use the purchase card as a payment card for ongoing contract 

payments during the year. So there are two things. But for most 

of the transactions you are speaking to, Senator, it was the unusual and compelling urgency provision, and it was mostly FEMA 

related. 

Senator LIEBERMAN. So what about that? Is that a reasonable 

provision? 

Mr. KUTZ. If well controlled. Again, this is all about management 

and controls. 

Senator LIEBERMAN. Right. 

11

Mr. KUTZ. It is not as if the situation is such that it cannot be 

done correctly. It is just a matter of a little bit of oversight, monitoring, and management. It is not as if they should not have that 

flexibility. I think as you said earlier, it probably makes perfect 

sense if controlled properly. 

Senator LIEBERMAN. Yes. Let me build on that answer and put 

it in this context. That these abuses occurred in the aftermath of 

Hurricane Katrina is in one sense even more remarkable considering that GAO has produced a long line of reports and testimony 

over the last few years detailing what I would call ridiculous purchases made with government purchase cards. And in that sense, 

one would have hoped that DHS would have been on notice of the 

risks of waste and abuse. 

So I want to ask you, as you continue your important work here, 

how do you explain why it is taking Federal agencies so long to get 

the message that these purchase cards, while necessary and costeffective in many cases, also can be misused and that the agencies 

need to implement better oversight procedures? 

Mr. KUTZ. Well, here I think it was kind of a little bit of a match 

between acquisition and CFO as to who was actually in charge, and 

it appeared no one was actually in charge the last several years, 

or you would have had policies sent out from the Secretary level 

that this is what people are supposed to do in the Department of 

Homeland Security. And you did not have that so you effectively 

had no real operating program office. 

The actual policies and procedures as they are written—I read 

them in detail; Special Agent Ryan read them in detail—are actually pretty good, and if people had followed them, most of the 

issues that I talked about in my opening statement and that you 

have mentioned as examples could have been avoided. 

Senator LIEBERMAN. Yes. Do you have plans, or does the DHS Inspector General, to do systematic reviews through audits and investigations to follow up on the findings that you have made in the 

report that you presented today? 

Mr. KUTZ. We always do follow-up on our findings to make sure 

that recommendations are implemented, and they usually send us 

a response within 60 days as to how they are going to deal with 

things. But we are going to issue a subsequent report to this testimony that has a series of recommendations, and I will jointly sign 

that with either Rick Skinner or Matt Jadacki from the IG’s office. 

Senator LIEBERMAN. OK. That is excellent. Maybe the next question gets a little bit ahead of us, but if you are prepared, I was 

going to ask you what kind of oversight you think the Department 

should put in place to discourage the wasteful and unnecessary 

spending by government purchase cards that you have documented 

in this report? 

Mr. KUTZ. The policies and procedures they have call for periodic 

audits of a random sample of transactions, and I think that would 

be effective if they did it. And I don’t know how effectively that has 

been done. It also calls for periodic review by the Chief Financial 

Officer’s staff of the entire program. So if they did some of those 

things from a management perspective, again, I believe they would 

be able to find the very same things that we had found here and 

12

try to curtail those abuses and pricing issues and other things like 

that. 

Senator LIEBERMAN. A related and final question. What is the 

exact cause, to the best of your knowledge, of the poor inventory 

controls that you have identified for goods procured with purchase 

cards? 

Mr. KUTZ. Oftentimes with purchase cards, we have found that 

there is less control over property. Sometimes you are buying one 

and two or a dozen rather than a bigger procurement of computers 

that is done through the IT part of an organization. And so these 

are shipped—again, you mentioned 9,000 or 10,000 cardholders. If 

they are buying property, they may not be trained how to put a bar 

code on. They may not call the property people and get bar codes 

or serial numbers in. And I think the decentralized nature of using 

the purchase card subjects the property to less accountability, and 

that is what we found across the government. 

Senator LIEBERMAN. Very good. Good work. Thank you. 

Chairman COLLINS. Senator Coleman. 

Senator COLEMAN. Thank you, Madam Chairman. 

I want to second the comment about good work. You have done 

tremendous work, both on this and in other areas, and we really 

appreciate it. 

Let me follow up on—when you walked into the hotel room, the 

conference room, and the computers were not there, what did the 

FEMA staff say, the folks you were with? 

Mr. RYAN. The agent and the auditor who went there, when they 

opened up the door, the FEMA employee was surprised that they 

were not there and, quite honestly, said, ‘‘I don’t know where they 

are at,’’ and kind of like left. If it was not for the agent and the 

auditor, I am not so sure we would have found the 107. 

Senator COLEMAN. My kind of just a human reaction, you walk 

in, you cannot find something that you are supposed to find, I 

would suspect that common sense would have said, OK, well, now 

let’s go find it. And I am stunned that even as we sit here today, 

Madam Chairman, we have just found them this morning. 

Mr. KUTZ. Well, there were supposed to be 200 items we tried 

to find. We actually, working with the Department, found 93 of 

them, and there were 100-some we could not find. So we worked 

proactively with them on it, and I guess subsequent to when we 

stopped looking, they continued and right up until this morning 

have found many of them, they are saying. 

Senator COLEMAN. Talk a little bit about the system because I 

want to keep coming back to that system and review. Again, if you 

had a system of reviews of purchase card compliance, I would suspect you could at least on an annual basis kind of update—I think 

the figures you gave, about 20 percent of the purchase cards have 

not been used in a year. You would think that would raise a signal 

as to whether then those are needed. Is there any kind of review 

system in place to look at purchase card compliance within DHS? 

Mr. KUTZ. On paper, there has been. In reality, it appears no. 

Senator COLEMAN. And explain the difference between the paper 

and the reality. When you say paper, is there a manual or is there 

kind of a directive? 

13

Mr. KUTZ. Yes, the draft manual I talked about had a lot of the 

provisions you are talking about. It just was not being exercised efficiently. And just because they say they are going to implement it 

as of today does not mean they are going to actually follow it. 

There still needs to be oversight and follow-up because there were 

certain components of the Department that were supposedly following this manual during our audit, and they had some of the 

very same problems. So that gets into actual implementation 

versus just the design of the program. 

Senator COLEMAN. So what kind of system needs to be in place 

to ensure that you have adherence to policy, that you have reviews 

of controls in place and in effect? Is there an internal component 

to this and an external component? 

Mr. KUTZ. Yes, mostly it would be an internal—again, I think 

this is a management function, not an auditor function. You want 

the auditors to check periodically to see that management is doing 

their job. But from a management perspective, I think systematic 

testing of controls on a sample basis, which is what the policies say 

that they are doing, along with some data mining for some of the 

unusual transactions we have talked about and some follow-up investigation would be the kind of oversight I would do. 

Senator COLEMAN. Can I just briefly go to the vendor who did the 

boat deal and, in effect, used the purchase card to get some of the 

boats? This is fraud then by a vendor rather than a Federal employee. 

Mr. RYAN. At this stage of the game, yes. We are referring to the 

Department the purchase cardholder. 

Senator COLEMAN. I am trying to understand how the vendor got 

the number. Did the purchase cardholder actually give the number 

to the vendor with the assumption that the vendor would use the 

purchase card? 

Mr. RYAN. Yes, someone told the cardholder to use this vendor. 

We have not been able to determine why. The vendor had no boats. 

He had no inventory. He took the card number from the cardholder, ran two transactions through a family member’s night club, 

had—and, again, I might emphasize that the manual had a restricted Merchant Category Code (MCC). If that would have been 

in place, the transaction would not have taken place. So we paid 

for boats that the vendor did not have, and we paid for them before 

we even got them. 

Senator COLEMAN. I presume there are titles to boats. Did you 

get titles to the boats? 

Mr. RYAN. No. The government does not have titles to these 

boats simply because, one, the vendor who did take possession of 

some of the boats never transferred titles. With another vendor, he 

failed to pay that vendor. Since that vendor did not get paid, he 

went to the local police department and filed a stolen property report. 

Senator COLEMAN. Was there a point in time before you looked 

at this where somebody in FEMA said we have boats to which we 

have no titles? And was that ever reported to anyone at a level 

above the employee involved in the transaction? 

Mr. RYAN. I really do not know. The only thing I can tell you is 

that when I started to look at this transaction, I was told this was 

14

a civil matter. And, quite honestly, because the cardholder failed 

to review his own card transactions, we discovered three additional 

transactions as unauthorized transactions because the cardholder 

never gave permission. 

Senator COLEMAN. If the manual that is now apparently in place, 

was followed, if the procedures laid out in that manual were followed, would these kind of problems be avoided? 

Mr. RYAN. I think a lot of the recommendations in the manual 

that talk about MCC codes, if they were put in place, I don’t think 

you would be seeing two $80,000, $90,000 transactions running 

through a night club. 

Senator COLEMAN. Thank you. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you, Senator Coleman. 

Mr. Kutz, let me follow up on Senator Coleman’s questions about 

the manual. You testified that there had been a draft manual for 

2 years. Were you able to discover why that manual was not completed and issued as official policy? 

Mr. KUTZ. We were told that it was a dispute between Acquisition and Chief Financial Officer, and Mr. Norquist can hopefully 

shed more light on that. But it appeared to be an internal dispute, 

and I do not really know what they were disputing because the 

policies and procedures actually were pretty good. 

Chairman COLLINS. And they seemed to be the standard procedures that have been recommended by GAO in the past and by 

OMB. Is that correct? 

Mr. KUTZ. Yes. There were a couple things that I think we would 

have added to them, but overall, they were well thought out and 

someone had spent some considerable time putting them together. 

Chairman COLLINS. Well, that is why I conclude, as you do, that 

there was a failure of leadership here because whatever disputes 

there were should have been resolved at some point long before 

Hurricanes Katrina and Rita hit. 

I want to go back to the issue of prior authorization for major 

purchases. It is my understanding that at least for purchases above 

a certain amount—and I would think that would have covered the 

$8,000 plasma TV—the cardholder is supposed to get prior authorization. Is that correct? 

Mr. KUTZ. Yes. The draft manual requires prior authorization in 

writing, and it can be something as simple as an e-mail. 

Chairman COLLINS. Is there any indication that the individual 

who purchased the television sets, including that particularly large 

and expensive one, received prior authorization? 

Mr. KUTZ. They may have received it, but I do not believe it was 

in writing. And let me tell you what happens with that. Then we 

end up getting a lot of these interesting cases where there is no 

prior written authorization, and then what we get is a written authorization that happens 4 months after the transaction, where 

they are trying to rationalize why they spent taxpayer resources in 

a certain way. The iPods are an example of that. I think that some 

of the usage of conferences at some of these resort hotels, there was 

no documentation showing what they did, why they did it. If they 

had compared different alternatives that they had, they could have 

saved the government tens of thousands of dollars. So the authorizations are a very important control here. 

15

Chairman COLLINS. And you did not come across any kind of justification for those expensive television sets? 

Mr. KUTZ. No. 

Chairman COLLINS. And I think the facts speak for themselves, 

that the 63-inch TV was still in the box when GAO discovered it. 

Mr. KUTZ. Yes, the Inspector General’s staff actually visited 

Mount Weather. That is where these were. And the one 63-inch 

was in storage. The seven 40-inchers were mounted, and they were 

being used to watch ‘‘CNN Headline News.’’ And so, again, we do 

not know—we did not even go after that issue as to why did you 

need them in the first place. We were looking to see, first of all, 

if they had accountability, and that is another issue. They were not 

in the accountability records until the Inspector General’s staff 

showed up at Mount Weather. So these had not been recorded in 

accountable property books either. 

Chairman COLLINS. Did you find any indication of counseling or 

disciplinary action taken against employees who engaged in these 

wasteful transactions? 

Mr. KUTZ. No, because management was not aware of any of our 

findings until we did it, so they had not found any of this as part 

of their own internal control systems. Now, Mr. Norquist has represented that he wants to take a look at administrative actions for 

the people who misused the card, and we are going to refer them 

to him for consideration. 

Chairman COLLINS. But, indeed, if I were representing those employees, I would say there was no final manual for me to follow. 

Mr. KUTZ. You could, yes. And, again, you may recall on the 

DOD we had thousands and thousands of cases of referral, whether 

it be for improper travel or misuse of purchase cards. We are not 

aware of two things: Any disciplinary action against any people, or 

anybody ever paying the money back. So there is no accountability 

in this kind of situation. Hopefully at the Department of Homeland 

Security, they will establish a system of accountability for people 

here. 

Chairman COLLINS. Thank you. Senator Lieberman. 

Senator LIEBERMAN. Thanks, Madam Chairman. Let me just pick 

up on that a bit. 

As we mentioned, the new guidelines arrived yesterday at the 

Committee, and am I correct that GAO normally takes a look at 

the guidelines as they are being prepared so you have some general 

awareness of what is in them? 

Mr. KUTZ. Sometimes agencies will ask us to look at drafts while 

they are being prepared, other times afterwards, but both Special 

Agent Ryan and I have read them cover to cover. 

Senator LIEBERMAN. You have looked at them. 

Mr. KUTZ. Absolutely. 

Senator LIEBERMAN. OK, good. I will give you an opportunity 

first to say if you have not said everything you want already about 

what kind of job you think DHS has been doing in disciplining employees who abuse the cards. But the real question then is: Do you 

think the new guidelines, as you have looked at them, will improve 

the process for taking disciplinary actions? 

Mr. KUTZ. Well, it is hard to discipline people when you do not 

know that they are committing abuse. They were not aware of any 

16

of the cases that we came across, so there was, thus, no discipline 

of any of the people. There are general references in the draft policies, I believe, to disciplinary action for misuse of the cards, and 

how those will be actually applied would be a good question for the 

witness on the next panel. 

Senator LIEBERMAN. Right. But your point is a good one, that the 

first necessity is to find out that abuse is occurring before you can 

discipline. 

Mr. KUTZ. Yes. 

Senator LIEBERMAN. OK. The second question about the guidelines: They will limit each approving official at the Department to 

overseeing only seven cardholders or 300 transactions per month. 

I wonder whether those ratios sound right to you and if you know 

how they compare to ratios at other Federal Government departments. 

Mr. KUTZ. The 7:1 ratio is something OMB has supported. The 

Department of Defense, after we did all those audits and investigations there, uses the 7:1 as a maximum. And, again, that was 

something in our findings we had. The Coast Guard, I believe, had 

170 approving officials that had greater than a 7:1 ratio, and that 

opens up the opportunity for cardholders sometimes that are unscrupulous to take advantage of that, and that is what we have 

seen in the past. So that is very important. 

Senator LIEBERMAN. So 7:1 is a good ratio? 

Mr. KUTZ. It is reasonable, yes. 

Senator LIEBERMAN. And also the 300 transactions per month? 

Mr. KUTZ. I am not sure. In what context are the 300 transactions? 

Senator LIEBERMAN. Each approving official at the Department 

will be limited to overseeing seven cardholders maximum and 300 

transactions per month. 

Mr. KUTZ. I don’t remember seeing that in the policies, but, 

again, assuming the person has enough time to do that—that is 

probably a several-hour-a-month job—that would be reasonable 

also. 

Senator LIEBERMAN. OK. Thanks. No further questions. 

Chairman COLLINS. Senator Coleman. 

Senator COLEMAN. In regard to the cards that were unused for 

long periods of time, how do other agencies handle termination of 

cards, kind of culling back on cards? Are there procedures in place 

at other agencies that would provide guidance to DHS? 

Mr. KUTZ. Yes, there are. I mean, there has to be justification of 

the card, and I will go back to the Defense Department. After we 

started taking a look at their use of the purchase card, they canceled over 100,000 cards. But when they went back and looked, do 

they have a real business need for 10 people in one unit to have 

purchase cards, they found that they did not. So they were able to 

cancel a large number. Senator Coleman, I think your point is 

probably the fewer cards, the better trained the people can be, and 

the better it is from an oversight standpoint to have a program. 

Senator COLEMAN. And what about performance of trying to get 

procedures in place—I have not had a chance to look at the manual, but does it deal with monitoring—I presume it deals with employee performance. What about monitoring performance of the 

17

contract, the remedies for non-performance, this issue about whether anything has ever been paid back? 

Mr. KUTZ. I don’t recall anything on that in the manual. 

Senator COLEMAN. Are there procedures commonly used in other 

agencies to monitor performance that are particularly effective? 

Mr. KUTZ. They may have other contractor oversight and performance guidance. I don’t know. 

Senator COLEMAN. But you are not sure what DHS does in this 

area? 

Mr. KUTZ. No, we are not sure. There is nothing in the manual 

on that that we are aware of. 

Senator COLEMAN. I would be interested in that, and perhaps we 

will follow up with the next witness on that. Again, thank you for 

your incredible work. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. Just one final question for you, 

Mr. Ryan. I was struck by the fact that the MREs that you cited 

were purchased on the Internet. Now, it seems to me that MREs 

are an example of a commodity that FEMA and the Department 

should already have purchased in advance of disasters, have a certain amount in storage. Could you tell us more about that particular transaction? 

Mr. RYAN. In this particular case, FEMA had already a contract 

with DLA to provide MREs during Hurricanes Rita and Katrina. 

This transaction was specific to CBP. 

What it was supposed to do was to provide MREs to their employees who were detailed to the area. Well, what happened was 

the cardholder failed to ask the necessary question: What are the 

requirements of an MRE for my employee? 

This is considered a civilian MRE, which is different than a military MRE. We were told by people down in El Paso that for the 

Border Patrol people that were going out to do the work, these civilian MREs did not contain sufficient calories, that they would 

need to carry twice as many to be able to get the calories to do the 

job. So in thinking of that, what you have is a cardholder who purchased MREs that did not meet the requirements of their own employees; second of all, paid and purchased over the Internet, failed 

to check with DLA, and there was another civilian MRE contractor 

that was on the GSA schedule that they could have gotten a cheaper price and we would not have had to pay for shipping. And what 

we have are MREs sitting in El Paso, over 20,000 that I have been 

told, that just showed up and told them to store them. So the people in El Paso have basically tried to do something with them. I 

give them a lot of credit. They have told me that they have sent 

these civilian MREs to special units around the country so that 

when Border Patrol actually detains or arrests illegals, they can 

give these to them to feed them. 

These MREs were bought with Hurricanes Rita and Katrina 

money. Now they are being used to feed the illegal aliens coming 

into the country. I mean, it is a good use. They are not sitting there 

going to waste. 

Mr. KUTZ. Well, presumably they would have gotten money in 

their budget to do the other anyway. So it raises other questions, 

Senator. 

18

1The prepared statement of Mr. Norquist appears in the Appendix on page 73. 

Chairman COLLINS. Thank you. I wanted to end with that example because it is such an egregious and wasteful one. The agency 

failed to establish what was really needed. The agency paid excessively for the product. And there was a lack of coordination within 

the Department, not to mention the funding issues about whether 

the whole purchase was inappropriate. 

It also is stunning to me that an individual in charge of procuring the MREs would not realize that there is a prescreened vendor for civilian MREs on the GSA schedule. That is just extraordinary. 

Mr. RYAN. Yes. 

Mr. KUTZ. It is symptomatic of stovepiped operations because 

FEMA was working with DLA and, as you may recall, at the time, 

DOD has a huge reserve stock of meals-ready-to-eat, and many of 

those were then used, redeployed to support the National Guard 

troops and to feed victims of Hurricane Katrina. So they had that 

going. This CBP group was operating kind of in a separate silo, 

was not aware of that, apparently, and went out and just did their 

own thing on the Internet. 

Chairman COLLINS. It is a perfect example of a lack of coordination, training, knowledge, judgment, and preparation that wastes a 

great deal of taxpayer dollars. Actually, these civilian MREs would 

have been much more useful to feed people in the Superdome or 

in shelters. It is just another example of poor planning and wasteful spending. 

Again, I want to thank you very much for your audit and your 

work. We really appreciate the great work that you do, and I hope 

the Department will also. It is important that the Department 

learn from your findings and recommendations. I am convinced 

that the boats and the computers would still be lost were it not for 

your investigation. So I thank you for your work. 

Senator Coleman, do you have anything else? 

Senator COLEMAN. No, thank you, Madam Chairman. 

Chairman COLLINS. Thank you. 

I would now like to call forward our second witness today. David 

Norquist was confirmed by the Senate on May 26 of this year as 

the Chief Financial Officer of the Department of Homeland Security. This is his first appearance before the Committee since he was 

confirmed for this position. I truly mean it when I say that I wish 

it were under better circumstances. And I do want to reiterate 

what I said in my opening remarks, that Mr. Norquist was not at 

the Department, he was not the Chief Financial Officer during the 

time in question. But he is the person that we are looking to for 

solutions to the problems that the GAO and the IG have identified. 

So, Mr. Norquist, please proceed with your testimony. 

TESTIMONY OF DAVID L. NORQUIST,1 CHIEF FINANCIAL 

OFFICER, U.S. DEPARTMENT OF HOMELAND SECURITY 

Mr. NORQUIST. Thank you very much. Good morning, Chairman 

Collins and Senator Coleman. Thank you for allowing me this opportunity to testify before you regarding the Department of Homeland Security’s Government Purchase Card program. My name is 

19

1Department of Homeland Security ‘‘Headquarters, Purchase Card Manual’’ appears in the 

Appendix on page 77. 

David Norquist, and I was sworn in as the Chief Financial Officer 

of the Department of Homeland Security on June 5, 2006. 

DHS uses purchase cards as its preferred method for making 

small-dollar purchases, particularly those under $2,500. Using a 

purchase card saves the taxpayer’s money because it provides a 

streamlined and automated purchasing and payment process that 

reduces administrative costs, and it provides refunds for the government, which saves money. 

Another advantage of the purchase card program is that it provides the means for holding individuals accountable for their transactions. Purchases made with this card can be traced to a specific 

card assigned to a specific person used on a specific day at a specific store. If a cardholder misuses a purchase card, they can be 

held accountable, to include administrative action, being compelled 

to reimburse the government, or, when appropriate, criminal prosecution. 

During its initial years of operation, the Department issued a 

policy directing all the components with existing purchase card programs to continue to use their established procedures. That policy 

is still in effect. 

The testimony presented by the Government Accountability Office identified weaknesses in both the policies and the implementation of those policies by the various components in the Department. 

The Department shares those concerns. 

In fact, prior to the GAO audit, the Department had drafted a 

Purchase Card Manual that would strengthen and standardize the 

internal controls and procedures for this program. It has been 

adopted by DHS headquarters.1 That is the copy you have. We will 

be implementing it department-wide. 

The manual makes a number of changes, but let me just highlight a few of the improvements. In addition to the GSA online 

training currently required before someone is given a card, it will 

require additional DHS training and annual refresher training. We 

will also require that records of that training be kept. One of 

GAO’s concerns was they could not know whether or not people 

had had the training. The manual also will require written authorization before making a purchase, and it limits each approving official to overseeing only seven cardholders or no more than 300 

transactions per month to ensure there is an adequate opportunity 

to do review. 

GAO has reviewed this draft manual as part of its study. With 

the addition of requiring independent validation of receipt and acceptance of goods, which we intend to do, GAO has stated that 

when implemented department-wide, this manual will address the 

problems identified in their review. It is DHS’ intention to issue 

this policy manual as soon as possible after making any additional 

changes in light of GAO’s findings. 

I was first briefed on the specific cases of GAO’s findings last 

Thursday, so I have not had time to explore and resolve these 

issues. But I want you to understand that we take this issue very 

seriously. After GAO’s briefing last week, I asked each of the comVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
20

ponents to look into these cases. In the few days that have passed, 

FEMA’s field office reports that they have located 80 percent of the 

equipment that was reported missing by GAO. This includes 74 of 

the missing computers and all 12 of the missing boats. 

But let me flag an important point because I completely agree 

with the GAO representative on this. Next week, Headquarters 

FEMA will be physically verifying that equipment, and we will use 

the serial numbers that GAO is talking about because verify, 

verify, verify. 

GAO has committed to providing me the additional information, 

both in a case like this and in the other cases, to allow me to fully 

examine these issues. As we do with ones that arise during the 

course of our own internal reviews, we will examine these on a 

case-by-case basis to determine what administrative, disciplinary, 

or other actions are appropriate. 

I am committed to strengthening the purchase card program at 

DHS as part of a broader effort to improve all internal controls 

across the Department. 

Thank you for your leadership and your continued support of the 

Department of Homeland Security and its management programs. 

I look forward to working with the Committee on this issue, and 

I would be happy to answer any questions you may have. 

Chairman COLLINS. Thank you, Mr. Norquist. 

GAO noted in its testimony that the purchase card manual was 

in draft form and had been in draft form for 2 years due to disputes internally within the Department. When did you approve the 

manual? 

Mr. NORQUIST. Let me be clear because I think there was some 

confusion when we transferred the manual to you. We had adopted 

this manual at the headquarters. It has not yet been fielded to the 

components as a requirement. They are still operating under the 

existing procedure, which says if you had a purchase card program 

with a set of controls, use that when you have merged with DHS. 

And so that is what you are seeing that the audit was of. 

One of your staff during a meeting late last week asked for a 

copy of it, and so what I did was I made sure that we provided that 

to you as the manual used by the headquarters. It is the basis 

upon which we will implement it department-wide. But one of the 

things I want to make sure we do is GAO had one or two additional recommendations, particularly related to independent receipt 

and validation, which ties to the issue of inventory control. And before we issue this as a department-wide standard, I want to build 

those extra ones in. I mean, this is not a rush to get it done in 2 

days. This is a rush to get this done correctly over the next period 

of time so we have this to the right standard. 

Chairman COLLINS. Well, it is not 2 days. It is 2 years. And I 

realize that preceded your time in the Department. How long is it 

going to take to make sure that we have controls in place that 

apply to every agency within the Department that applies to every 

transaction? 

Mr. NORQUIST. Well, I think the important thing here is that 

there are going to be several stages to this. We talked about this 

is not just a manual. This is the whole implementation. For examVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
21

ple, the first step is going to be adopting the manual as a department-wide policy. 

Chairman COLLINS. Right, but when is that going to happen? 

Mr. NORQUIST. I talked with the chief procurement officer, and 

I have told my staff to put in the changes GAO recommended. If 

the chief procurement officer is OK with it, we will send it out for 

a very short internal coordination to make sure we did not miss 

anything. It is my intent that before GAO’s report becomes final 

with their recommendations, it will be able to talk about the things 

we have done, the implementation we have done, and not the 

things we intend to do. 

Chairman COLLINS. I would like to ask you to give the Committee a timeline for implementation of the manual for training 

people, for fully implementing the kinds of internal controls that 

have been so lacking. 

Do you have any insights of why it has taken so long for DHS 

to resolve this issue? Other departments have government-wide 

procedures for purchase cards. This is not an example where DHS 

has to come up with something new. The best practices are pretty 

widely available. 

Mr. NORQUIST. DHS has a small number of people in my office 

who are responsible for financial management policies across a 

number of areas. They also have additional oversight responsibilities. So part of this was, prior to my getting there, simply a volume of work for them, and I know the Committee has been supportive on trying to help us address those concerns. 

When I came in, my view on policy is that it is the basis upon 

which you train people; it is the standards by which you hold them 

accountable; it is the building block that will let you attack the 

roots of the problem rather than just the symptoms of the individual cases. So I told them early in the last 6 weeks that this was 

a priority for me. I asked them to give me a short list of the most 

urgent policies we need to move, even before the GAO folks had 

come to talk to me. This was on our short list, and there will be 

others as well, where I believe we need to break free enough people 

in time to move these policies into implementation so that we can 

do the training and the accountability that follows from having the 

stronger controls. 

Chairman COLLINS. I want to follow up on that. Are you saying 

that prior to your finding out about the GAO report, you had already targeted this area for review and implementation of the draft 

manual? 

Mr. NORQUIST. Absolutely. 

Chairman COLLINS. Were you aware that the Department had 

serious problems in its purchase card program prior to the GAO 

and IG’s work? 

Mr. NORQUIST. I was aware that there were a number of areas 

where our policies were either simply the legacy policy of the components we had inherited or ones that were drafted in the early 

stages. And so while I was indirectly aware of the purchase card 

being one of them, my concern was the broader topic of the internal 

controls, which is why I pointed out to my staff that we need to 

start here. Other departments have entire manuals for financial 

regulations that people can reference. We have got individual poliVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
22

cies. We need to start grouping them, finalizing them, and building 

this out because, fundamentally, that is how you stop the root 

cause of a lot of these problems rather than simply chasing the incidents of them. 

Chairman COLLINS. GAO pointed out that the Department was 

completely unaware of the missing property prior to its investigation. And I do want to point out in the interest of the record that 

there is still missing property. I mean, some of the computers have 

been found, but some have not been. Correct? 

Mr. NORQUIST. That is correct. And I do not know to what extent 

the components were aware of this before GAO came by, and I do 

not know to what extent they had done follow-up. I know when 

they got the outbriefing last Friday, my guidance to them was you 

need to investigate each of these because I am going to come by 

later on and talk about accountability. And so, whether they had 

been doing this already or whether they acted on it at that point, 

and so different components have been going through these, looking into them, and trying to give us the feedback on the underlying 

issue. 

Chairman COLLINS. But I think Senator Coleman established in 

his questions that when the IG and GAO team went into the conference room expecting to see over 100 computers, printers, other 

equipment, they instead found a room that had been set up for a 

banquet. Yet the reaction seemed to be, by the FEMA people, Gee, 

what a surprise, wonder where that is, but that is it. There did not 

seem to be follow-up. 

Does that disturb you? 

Mr. NORQUIST. Well, I would be very concerned if, when anyone 

is presented with one of these findings, they do not take action to 

investigate and follow up. I mean, that was my initial reaction to 

each of these: Well, give me as many facts as you can, give me the 

background information, and let me dive into them. 

I think in this case you have two potential issues. The first one 

was: Was there fraud? Did somebody buy them, steal them, and 

walk out the door? I am happy every time I learn when that is not 

a case, and I will be happier if I can see it verified physically with 

serial numbers. That does not address the fact that there is an inventory control issue, which is, Can you quickly identify what you 

have in inventory? And while that is not directly under the purchase card program, as GAO pointed out, it is one of those issues 

that comes up when you purchase things, put them into inventory, 

or they do not get properly logged into inventory. And that is an 

issue that needs to be addressed as well. 

Chairman COLLINS. It certainly does. Our Hurricane Katrina investigation over the past 8 months showed clearly that a major 

problem with the Department was that it did not know what assets 

or what commodities it had. 

Senator Coleman. 

Senator COLEMAN. Just following up on the Chairman’s last line 

of questioning, I would maintain, Mr. Norquist, that there are 

three issues regarding using the conference room and the absent 

equipment. One is fraud, whether it was committed, and clearly if 

you find all the material, that has not taken place. Second is inventory control. But I think what the Chairman was getting to and at 

23

least what concerned me is that there is an attitude problem here. 

The third issue is: Is there a commitment to fix something when 

you see that it is broken? And, is it a sense, well, it is not my 

money? I mean, we give cards to folks, and ultimately the responsible party is not the cardholder, but it is the government. That is 

who is responsible. The cardholder does not have responsibility. 

What is it that has to be done to have an attitude that says when 

we identify that something is wrong, that something is out of place, 

that we are going to fix it, that we care about it? 

Mr. NORQUIST. That is certainly something that people need to 

have. If you go into this profession, you should have the commitment to get the mission done and to protect the taxpayers’ dollars. 

I do not know about this particular FEMA case, but on a cardholder, they are personally accountable. If your purchase card is 

used to make a purchase, you are accountable for reviewing those 

transactions to make sure it is not misused. If you bought it and 

brought it home, we are going after that individual for that misuse. 

So I can force that level of accountability and focus that attention 

with the individual. The challenge becomes, as you pointed out, 

when it is inventory. And, at this point, I sort of defer to the procurement officers and others as to what they do there. But, in any 

case, someone who is presented with that challenge, their reaction 

should be to find the items. 

Senator COLEMAN. In cases of improper use—because you talked 

about cardholders being accountable, including criminal prosecution, in regard to Hurricane Katrina, can you tell me about the actions that have been taken against individuals who improperly 

used cards, perhaps criminally used cards? What kind of disciplinary actions have been taken? 

Mr. NORQUIST. Well, I do not have too many specifics, but in the 

first 6 months of this year, for example, the purchase card program, we used approximately 70 administrative and disciplinary 

actions. The No. 1 one there was suspending cards of people who 

are failing to maintain adequate documentation and do their review. That is one of the problems. If people do not do that, it complicates everything else. 

I did not have a chance to gather the specifics below that, but 

certainly, as you pointed out, the purchase card is valuable because 

it is efficient. What we do not want to do is bog it down with layers 

of bureaucracy. I would rather focus on the accountability of the 

people involved because in the end some of these are just about 

good judgment on the individual with the card. And to the extent 

that you can address the problem there, it is a more efficient way 

of doing it. 

Senator COLEMAN. Your testimony today is that the manual still 

has not been adopted. I was not clear about that. So we have a 

manual, but it has not yet been adopted. 

Mr. NORQUIST. The manual is in use by the headquarters because the headquarters did not have a pre-existing manual. It 

adopted it. Components that had a pre-existing manual when they 

were merged with DHS had the choice to stay on the old manual 

or to go to the new. We are going to make it mandatory for everyone to switch to the new after we adjust it to incorporate GAO’s 

recommendations. 

24

Senator COLEMAN. Do you agree with the GAO that there is a 

lack of adequate resources managing the program? 

Mr. NORQUIST. There are challenges in terms of managing it, and 

I have raised that with some of the components whose ratio of 

management to staff was not to the standard. For example, in this 

request that is before the Congress on the President’s budget, there 

are additional personnel requested for my office, some of which are 

related to internal control improvement, including folks for this. So 

I think there are resource challenges. There are plans in place to 

address those. But, again, this is one of those things where you 

cannot always wait on the additional resources. You have to keep 

moving with improving the fixes and then bring those additional 

resources on board when they come. 

Senator COLEMAN. In your testimony, I think you used the figure 

of seven cardholders, each approving official would approve seven 

cardholders, 300 transactions a month. Would this require DHS to 

hire more approving officials? 

Mr. NORQUIST. No. I would think that this would be a matter of 

designating others in—what you are trying to do is get a segregation of responsibility. You want somebody else in the office who has 

the time to look over those transactions and can say, yes, those 

were legitimate, those are the ones the government needed. Part of 

this is complicating fraud. If somebody does something odd, the fact 

that somebody else is going to look at that document and review 

it discourages, deters, and helps you detect. What you need to do 

is ensure the volume of transactions is not so high that the reviewing official’s review is cursory and not thorough. And so this is designed to focus that. I do not know if that would necessarily require 

additional people. It might at the program coordinator level where 

the person oversees the entire department’s or in this case the 

Coast Guard or the FEMA program, and they are wanting to do individual investigations and random sampling. In that office you 

would want dedicated staff just to this mission, not doing it as a 

secondary duty. 

Senator COLEMAN. And just finally, as you sit here today, are you 

satisfied that DHS is today sending a clear message about improper use of purchase cards will not be tolerated, violating DHS 

policy will be dealt with? Do you believe that the message today, 

as we sit here, has clearly been delivered to folks in DHS? 

Mr. NORQUIST. It is being delivered. It is something I foot-stomp 

in these forums. This is a matter of our credibility and our use of 

taxpayer dollars, and that is what we are here to protect. And so 

I will continue to make that message clear. 

Senator COLEMAN. My only comment would be I hope that—we 

need you to do that. The testimony of the folks from GAO at least 

leaves me with the sense that, even as we sit here up until recently, that is not the case. So I hope you take that into consideration as you move forward. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. 

Mr. Norquist, I want to be very precise on the implementation 

of the manual, which both Senator Coleman and I have asked you 

about. You have stated that the manual now is in effect at headVerDate 0ct 09 2002 09:33 Aug 01, 2007 Jkt 032722 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 C:\DOCS\32722.TXT SAFFAIRS PsN: PAT
25

quarters. But headquarters is a relatively small part of the Department’s operations, is it not? 

Mr. NORQUIST. It is a relatively small part. Basically it is in effect to any organization that did not exist prior to DHS being 

formed. The others have the choice to switch over. 

Chairman COLLINS. Right. But then what you are saying is the 

Coast Guard, Customs and Border Protection, ICE, other agencies 

within the Department, with thousands of employees making thousands of transactions with purchase cards are not yet under the 

uniform stronger new manual. Is that correct? 

Mr. NORQUIST. That is correct. They are under the standard that 

they brought with them, which includes some——

Chairman COLLINS. Right, but that standard has been shown to 

be flawed and to not protect the taxpayers. 

Mr. NORQUIST. That is correct. That is why I want to make sure 

that this manual becomes the standard across the Department. 

That is absolutely right. 

Chairman COLLINS. But as of today, those agencies, which comprise the majority of DHS’ employees, assets, and budget, are not 

covered by the new manual. Is that correct? 

Mr. NORQUIST. That is correct. 

Chairman COLLINS. OK. Again, I am going to repeat my request 

for a timeline for having implemented the manual across the Department. And I have to conclude with just one final statement. I 

am convinced that had the GAO not done its investigation and had 

this Committee not held this hearing, the manual would still be 

floating around unresolved, property would still be missing, duplicative payments still would not have been caught, and excessive 

payments would still be going on, and that really disturbs me. It 

should not take an audit by the GAO nor a congressional hearing 

to prompt the Department, which has such a vital mission, to have 

strong financial controls. And I am seeking from you today a strong 

commitment to be a better steward of the taxpayers’ purse. 

This Department has a budget of some $38 billion. It is vital to 

our security. And people in this country are rapidly losing confidence in the ability of the Department to carry out its mission 

and to do so in a way that safeguards the taxpayers’ dollars. 

The American people are generous. They want to help victims of 

natural disasters. They want to provide the money necessary to 

guard against future terrorist attacks. They are willing to pay 

those taxes. But they are not willing to pay that money to have it 

frittered away, and that appears to have happened in this case. 

Mr. NORQUIST. As I have said before, I am committed to 

strengthen the internal controls, not just of this program but of 

others as well. As you pointed out, it should not take a hearing to 

get these things addressed, and it is not my intent to wait for you 

to call them on the other programs. My intent is to get those manuals done and then let you know about them in advance. 

Chairman COLLINS. Thank you. We look forward to working very 

closely with you. 

Senator Coleman, any final comments? 

Senator COLEMAN. My only final comment, Madam Chairman, is 

to fully associate myself with your last statement. Thank you. 

26

Chairman COLLINS. Thank you, and thank you so much for your 

participation today. I know you have done a great deal of work in 

this area as well. 

Thank you, Mr. Norquist, for appearing. We look forward to following up with you on these issues, and I can assure you we will 

follow up with you on these issues. 

I want to thank all of our witnesses for their testimony today. 

I think we have exposed serious flaws in the safeguards that are 

needed to ensure wise use of taxpayer dollars. 

Chairman COLLINS. The hearing record will remain open for 15 

days for the submission of any additional questions or materials. 

This hearing is now adjourned. 

[Whereupon, at 11:24 a.m., the Committee was adjourned.] 

(27)

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