a

GAO

United States General Accounting Office

Report to Congressional Requesters

September 2002 PURCHASE CARDS

Navy Is Vulnerable to 

Fraud and Abuse but 

Is Taking Action to 

Resolve Control 

Weaknesses

GAO-02-1041
Page i GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Contents

Letter 1

Results in Brief 4

Background 6

Weak Purchase Card Control Environment Contributed to Ineffective 

Controls, but Management has Taken Positive Steps 9

Critical Internal Controls Were Ineffective 23

Potentially Fraudulent, Improper, and Abusive or Questionable 

Transactions 33

Conclusions 49

Recommendations for Executive Action 49

Agency Comments and Our Evaluation 52

Appendixes

Appendix I: Background 55

Appendix II: Scope and Methodology 61

Appendix III: Status of GAO Recommendations to Improve Navy

Purchase Card Operations 66

Appendix IV: Status of Previously Identified Fraud Cases 80

Appendix V: Status of the Former Commander, Space and Naval 

Warfare Systems Command, Systems Center San Diego 82

Appendix VI: Comments From the Department of Defense Purchase 

Card Joint Program Management Office 83

Appendix VII: Comments from the Under Secretary of Defense 

(Comptroller) 91

Appendix VIII: GAO Contacts and Staff Acknowledgments 93

Tables Table 1: Ratio of Cardholders to Approving Officials, September 2000 

through March 2002 13

Table 2: Historical Purchases vs. Credit Limits for Selected Navy 

Commands and Marine Corps 16

Table 3: Lack of Documented Current Training for Cardholders and 

Approving Officials 17

Table 4: Reported Results of NAVSUP Mandated Self Assessment

of 12 Months of Purchase Card Transactions 21

Table 5: Program Coordinators’ Span of Control, September 2001 22

Table 6: Estimate of Fiscal Year 2001 Transactions That Failed 

Control Tests 24
Contents

Page ii GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Table 7: Purchase Card Transactions with Five Vendors That Sell 

Products Also Sold by Required Suppliers 25

Table 8: Accountable Property Items Not Recorded in Property

Books 31

Table 9: Examples of Fraudulent and Potentially Fraudulent Navy 

Purchase Card Transactions 34

Table 10: Examples of Improper Purchases 39

Table 11: Examples of Abusive and Questionable Purchases 45

Table 12: Number and Value of Transactions in Fiscal Year 2001 55

Table 13: Estimate of 11 Months of Fiscal Year 2001 Transactions 

That Failed Control Tests 64

Table 14: Status of Previous GAO Recommendations 67

Figures Figure 1: Navy Purchase Card Program Management Structure, 

September 2001 8

Figure 2: Change in Number of Navy-wide Cardholders, 

October 2000 to March 2002 12

Figure 3: Available Credit Limits for the Four Major Commands We 

Audited as of September 2000, September 2001, and 

March 2002 vs. Average FY 2001 Monthly Purchases 14

Figure 4: Computers Purchased by the Atlantic Fleet in April 2001 

That Remained Unused as of June 21, 2002 46

Figure 5: Navy Purchase Card Process Approving Officials 58

Abbreviations

APC Agency Program Coordinator

DOD Department of Defense

DON Department of the Navy 

GAO General Accounting Office 

JWOW Javits-Wagner-O'Day Act

NAS Naval Audit Service

NAVSEA Naval Sea Systems Command

NAVSUP Naval Supply Systems Command

NCIS Naval Criminal Investigative Service

PCPMO Purchase Card Program Management Office

PDA Personal Digital Assistant

SECNAV Secretary of the Navy

SPAWAR Space and Naval Warfare Systems Command

USMC United States Marine Corps
Page 1 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

United States General Accounting Office

Washington, D.C. 20548

A

September 27, 2002 Letr

The Honorable Charles E. Grassley

Ranking Minority Member

Committee on Finance

United States Senate 

The Honorable Stephen Horn

Chairman 

The Honorable Janice D. Schakowsky

Ranking Minority Member

Subcommittee on Government Efficiency, Financial Management

and Intergovernmental Relations

Committee on Government Reform

House of Representatives

The Department of Defense (DOD) is promoting departmentwide use of 

purchase cards for obtaining goods and services. It reported that for the 

year ended September 30, 2001, purchase cards were used by about 230,000 

cardholders to make about 10.7 million transactions valued at over $6.1 

billion. Purchase card transactions include acquisitions at or below the 

$2,500 micropurchase threshold, payment for commercial training requests 

valued at or below $25,000, and for payment on contracts. The use of 

purchase cards has dramatically increased in past years as agencies have 

sought to eliminate the lengthy process and paperwork long associated 

with making small purchases. The benefits of using purchase cards versus 

traditional contracting and payment processes are lower transaction 

processing costs and less red tape for both the government and the vendor 

community. We support the use of a well-controlled purchase card 

program to streamline the government’s acquisition processes. 

While we support the purchase card program concept, it is important that 

agencies have adequate internal controls in place to protect the 

government from fraud, waste, and abuse. In July 2001 and March 2002, 

we testified on significant breakdowns in internal control over purchase 

card transactions at two Navy sites in San Diego, California.1

1

U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Two Navy 

Units Vulnerable to Fraud and Abuse, GAO-01-995T (Washington, D.C.: July 30, 2001) and 

Purchase Cards: Continued Control Weaknesses Leave Two Navy Units Vulnerable to 

Fraud and Abuse, GAO-02-506T (Washington, D.C.: Mar. 13, 2002).
Page 2 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

As a result of our work at the two Navy sites and continuing concern about 

fraud, waste, and abuse in DOD’s purchase card program, you requested 

that we expand our audits of purchase card controls. On June 27, 2002, we 

reported2

 on control weaknesses in the Army’s purchase card program. 

This report focuses on purchase card activities at the Navy. The Navy is the 

second largest purchase card program in DOD. During fiscal year 2001, the 

Navy had about 2.8 million transactions and $1.8 billion in purchases, and 

as of September 2001 it had about 28,000 cardholders. We plan to report to 

you separately on the results of our audit of the Air Force purchase card 

program.

The objective of our audit of the Navy’s purchase card program was to 

assess the adequacy of internal control over the authorization, purchase, 

and payment of purchase card transactions during fiscal year 2001, and 

determine whether the purchase card control weaknesses identified at two 

Navy units in San Diego were isolated examples or were indicative of Navywide weaknesses with the purchase card program. Specifically, we 

addressed whether (1) the Navy’s overall control environment and 

management of the purchase card program were effective, (2) the Navy’s 

key internal control activities operated effectively and provided reasonable 

assurance that purchase cards were used appropriately, and (3) indications 

existed of potentially fraudulent, improper, and abusive or questionable 

transactions. We supplemented our previous fiscal year 2001 audit work at 

the Space and Naval Warfare Systems Command Systems Center in San 

Diego, and the Naval Facilities Engineering Command’s Navy Public Works 

Center in San Diego by auditing the Navy’s internal control policies, 

procedures, and key activities at three major warfighting commands 

(Atlantic Fleet, Pacific Fleet, and the Marine Corps3

), and one other major 

support command (Naval Sea Systems Command). These six major 

commands account for about 56 percent of the Navy’s total fiscal year 2001 

purchases and 56 percent of the Navy’s total fiscal year 2001 transactions. 

For each major command audited, we selected a geographic location (e.g., 

for the Pacific Fleet we selected cardholders based in or near San Diego) 

where we conducted a case study analysis by testing a statistical sample of 

purchase card transactions and performing other audit work to evaluate 

the design and implementation of key internal control procedures and 

2

U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Army 

Vulnerable to Fraud, Waste, and Abuse, GAO-02-732 (Washington, D.C.: June 27, 2002).

3

The Navy treats the entire Marine Corps as a major command in managing the purchase 

card program.
Page 3 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

activities. The results of our audit for transactions that comprised the 

statistical samples can only be projected to the units where we performed 

testing and cannot be used for projections to the entire command or to the 

Navy as a whole. However, the cumulative results of all our work offer 

significant perspective on the adequacy of the design and implementation 

of purchase card program internal controls across the Navy. 

We also looked for indications of potentially fraudulent, improper, and 

abusive or questionable purchases as part of our statistical sampling and 

through nonrepresentative selections of transactions using data mining of 

Navy-wide fiscal year 2001 transactions. Our data mining4

 included 

identifying transactions with certain vendors that were more likely to sell 

items that would be unauthorized or that would be personal items (e.g., 

department and jewelry stores). Because of the large number of 

transactions that met these criteria, we did not look at all potential abuses 

of the purchase card. While we identified some potentially fraudulent, 

improper, and abusive or questionable purchases, our work was not 

designed to identify, and we cannot determine, the extent of these 

purchases. See appendix I for background on the purchase card program 

and see appendix II for details on our scope and methodology.

Finally, per your request, this report also provides the status of (1) the 

Navy’s progress in implementing the November 30, 2001, 

recommendations5

 to improve purchase card internal controls (see app. 

III), (2) two potential fraud cases referred to in our March 13, 2002, 

testimony (see app. IV), and (3) the former commanding officer at the 

Space and Naval Warfare Systems Command, Systems Center San Diego 

(see app. V). 

We requested comments from the Secretary of Defense or his designee on a 

draft of this report. We received comments from the Director, DOD 

Purchase Card Joint Program Management Office dated September 16, 

2002, and from the Under Secretary of Defense (Comptroller) dated 

September 23, 2002. We reprinted those comments in appendix VI and 

appendix VII of this report. We conducted our audit work from November 

4

In our work, data mining involved the manual or electronic sorting of purchase card data to 

identify and select transactions with unusual or questionable characteristics for further 

follow-up and analysis.

5

U.S. General Accounting Office, Purchase Cards: Card Control Weaknesses Leave Two 

Navy Units Vulnerable to Fraud and Abuse, GAO-02-32 (Washington, D.C.: Nov. 30, 2001).
Page 4 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

2001 through July 2002 in accordance with U.S. generally accepted 

government auditing standards, and we performed our investigative work 

in accordance with standards prescribed by the President’s Council on 

Integrity and Efficiency. 

Results in Brief A weak overall control environment and breakdowns in key internal 

controls leave the Navy vulnerable to potentially fraudulent, improper, and 

abusive purchases. Based on our audit work at four Navy major commands 

and selected units assigned to those major commands, and our previous 

audit work at two San Diego units assigned to two other major commands, 

we found that purchase card internal controls were ineffective. The 

problems we found across the Navy resulted from a weak overall internal 

control environment, inadequate guidance, flawed policies and procedures, 

and a lack of adherence to valid policies and procedures. 

In response to our previous findings, DOD and the Navy have begun 

improving the control environment over the purchase card program. For 

example, subsequent to the congressional hearing on July 30, 2001, which 

highlighted purchase card control weaknesses at the two San Diego units, 

DOD directed all military units to reassess the number of cardholders and 

to ensure that purchase cards are limited to those who need them. At the 

Navy, this resulted in the reduction in the number of cardholders by more 

than half—from about 59,000 in June 2001 to about 25,000 in March 2002. 

DOD also directed all military units to reevaluate cardholder credit limits. 

This resulted in the four commands that we audited reducing their 

combined credit limits by about $140 million. The Navy also directed that 

all cardholders and approving officials take refresher purchase card 

training. In addition, the Navy reported that it either implemented or is 

planning to implement all 29 recommendations made in our November 30, 

2001, report.

However, further improvements are needed to achieve an effective control 

environment. For example, as of March 2002, the four Navy commands we 

reviewed continued to have approving officials with spans of control that 

exceeded DOD and Navy requirements, and cardholder credit limits 

exceeded demonstrated needs. We also question the effectiveness of 

transaction monitoring conducted by the four commands that we audited. 

In November 2001, these four commands completed an analysis of 

1,225,000 fiscal year 2001 transactions and found about 0.1 percent of their 

transactions were for personal use, or prohibited items, or did not fulfill a 

bona fide mission requirement. In contrast, our analysis of a statistically 
Page 5 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

selected sample of 624 fiscal year 2001 transactions found that about 15 

percent of the transactions we reviewed were potentially fraudulent, 

improper, abusive, or questionable. In addition, we determined that the 

Navy did not provide cardholders, approving officials, and agency program 

coordinators with sufficient human capital resources—e.g., time and 

training—to effectively perform oversight and manage the program. 

The weaknesses in the Navy’s purchase card control environment at the 

units audited led to a significant breakdown in key control activities in 

fiscal year 2001. Specifically, we determined that (1) cardholders did not 

screen for the availability of goods from required sources, (2) cardholders 

did not document that someone independent of the cardholder received 

and accepted the goods and services, (3) many Navy units did not maintain 

accountability over pilferable property acquired with the purchase card, 

and (4) cardholders did not reconcile monthly purchase card statements to 

supporting documentation and approving officials did not review the 

cardholders’ reconciled bills prior to payment certification. These controls 

are intended to provide the Navy with reasonable assurance that purchase 

card transactions are for valid and necessary government expenditures. 

The high failure rate—80 percent to 98 percent—of cardholder 

reconciliation and approving official review is of particular concern 

because it is perhaps the most important control by providing reasonable 

assurance that purchases are appropriate and for a legitimate government 

need. 

The weak control environment and breakdown in key internal controls 

contributed to potentially fraudulent, improper, and abusive or 

questionable transactions that went undetected at units in all three Navy 

commands and the Marine Corps base we audited. For example, two 

cardholders selected in our Atlantic Fleet statistical sample were part of a 

fraud investigation conducted by the Naval Criminal Investigative Service 

(NCIS). Both of these cardholders were part of an overall plot by these 

cardholders and up to seven vendors to defraud the Navy of nearly $89,000. 

Our site-specific and Navy-wide data mining transaction reviews identified 

other potentially fraudulent transactions including the purchase of 

computers, cell phones, food, cameras, power tools, televisions, personal 

digital assistants, clothing, and stereos. We also identified numerous 

examples of improper transactions, which are transactions for goods or 

services that are intended for government use but are not permitted by law, 

Navy regulation, or DOD policy. Improper purchases were made for food, 

clothing, printing services, office supplies, rental cars, and hotel lodging 

and services. 
Page 6 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

We also identified abusive and questionable transactions at all three Navy 

commands and the Marine Corps base we audited and in our Navy-wide 

data mining. Abusive transactions are those where the goods or services 

are authorized, but are purchased at an excessive cost or for a questionable 

government need. Questionable transactions are those that could be 

considered improper or abusive, but the support is insufficient for a 

determination. The purchase card transactions that we considered to be 

questionable generally did not include an explanation or advance 

authorization that would justify these purchases or permit a determination 

of whether the purchases were improper or abusive. Examples of abusive 

or questionable purchases include designer leather products such as Coach 

and Dooney and Bourke merchandise; fine china; athletic equipment; beer; 

$2,200 flat-panel computer monitors; excessive and uneconomical cell 

phone use; and transactions for which the Navy does not have any 

documentation indicating what was purchased. 

This report includes 19 additional recommendations to (1) improve the 

overall control environment for the Navy’s purchase card program, 

(2) strengthen key internal control activities, and (3) increase attention to 

preventing potentially fraudulent, improper, and abusive or questionable 

transactions. In written comments on a draft of this report, DOD 

concurred with 16 and partially concurred with the remaining 3 

recommendations and described actions completed, underway, or planned 

to implement them. While DOD partially concurred with our 

recommendations dealing with linking the performance appraisals of 

purchase card officials to achieving performance standards, and 

maintaining accountability over pilferable property, the actions DOD has 

agreed to take will implement the most significant aspects of those 

recommendations. DOD also partially concurred with our 

recommendation concerning establishing a schedule of disciplinary actions 

that may be taken against cardholders who make improper or abusive 

acquisitions and stated that Navy will examine whether actions the 

department has already taken will appropriately deal with the improper or 

abusive uses of purchase cards. 

Background The Navy’s purchase card program is part of the governmentwide 

Commercial Purchase Card Program established to simplify federal agency 

acquisition processes by providing a low-cost, efficient vehicle for 

obtaining goods and services directly from vendors. DOD has mandated 

the use of the purchase card for all purchases at or below $2,500 and has 

authorized the use of the card to pay for specified larger purchases. DOD 
Page 7 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

has seen significant growth in the program since its inception and 

estimated that in fiscal year 2001 about 95 percent of its transactions of 

$2,500 or less were made by purchase card. 

The purpose of the program is to simplify the process of making small 

purchases. It allows cardholders to make micropurchases of $2,500 or less 

and pay for training of $25,000 or less without having to execute a contract. 

The government purchase card can also be used for larger transactions, but 

only under a contract. For larger transactions, the card is referred to as a 

“payment card” because it pays for an acquisition made under a legally 

executed contract. 

The Navy uses a combination of governmentwide, DOD, and Navy guidance 

as the policy and procedural foundation for its purchase card program. 

The Navy purchase card program operates under a governmentwide 

General Services Administration purchase card contract, as do the 

purchase card programs of all federal agencies. In addition, government 

acquisition laws and regulations such as the Federal Acquisition 

Regulation provide overall governmentwide guidance. DOD and the Navy 

have issued clarifying guidance to these regulations. 

The Under Secretary of Defense for Acquisition, Technology, and 

Logistics—in cooperation with the Under Secretary of Defense 

(Comptroller)—has overall responsibility for DOD’s purchase card 

program. The DOD Purchase Card Joint Program Management Office, in 

the office of the Assistant Secretary of the Army for Acquisitions Logistics 

and Technology, is responsible for overseeing DOD’s program. The 

Commander of the Naval Supply Systems Command (NAVSUP) has been 

designated the Navy’s chief contracting officer, and under his command is 

the Navy purchase card program manager. However, primary day-to-day 

management responsibility for the program lies with the agency program 

coordinators in the Navy’s major commands and local units. Figure 1 

depicts the management hierarchy of the Navy purchase card program for 

the units at the four major commands that we audited. The figure shows 

each major command where we conducted audit work; for each location 

we selected for a case study analysis, the figure also shows the total 

number of subordinate level agency program coordinators, approving 

officials, and cardholders. It is important to note that at the major 

commands and the subordinate level units that we audited, most agency 

program coordinators, approving officials, and cardholders were not 

dedicated to the purchase card program on a full-time basis. Rather, most 
Page 8 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

individuals had additional job responsibilities and performed purchase 

card duties when needed. 

Figure 1: Navy Purchase Card Program Management Structure, September 2001

Source: GAO analysis of Navy purchase card program organization.

At the major commands and units audited, personnel in three positions— 

agency program coordinator, cardholder, and approving official6

—are 

collectively responsible for providing reasonable assurance that purchase 

DOD

Purchase Card Joint 

Program Management Office

Department of Navy eBusiness Operations Office

Navy Agency Program Coordinator

Atlantic Fleet

Major Command Agency

Program Coordinator

Norfolk, VA Area

Agency program

coordinators at

subordinate units 98

Approving officials 286

Cardholders 769

 

Pacific Fleet

Major Command Agency

Program Coordinator

Naval Sea Systems

Command

Major Command Agency

Program Coordinator

U.S. Marine Corps

Major Command Agency 

Program Coordinator

San Diego, CA Area Norfolk, VA Area

Agency program

coordinators at

subordinate units 10

Approving officials 78

Cardholders 235

Camp Lejeune, NC

Agency program

coordinators at

subordinate units 15

Approving officials 173

Cardholders 496

Agency program

coordinators at

subordinate units 66

Approving officials 168

Cardholders 417

6

Approving officials are also referred to as either billing officials or certifying officials. DOD 

often uses these three terms interchangeably.
Page 9 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

card transactions are appropriate and meet a valid government need. 

Agency program coordinators work at both the major command and unit 

levels. Major command agency program coordinators operate under the 

direction of the command’s director of the contracting office, and are 

responsible for the day-to-day management, administration, and oversight 

of the program. Unit level agency program coordinators develop local 

standard operating procedures, issue and cancel cards, train cardholders 

and approving officials, and work with other Navy units and the cardissuing bank. Cardholders are to make purchases, maintain supporting 

documentation, and reconcile their monthly statements. Approving 

officials, who typically are responsible for more than one cardholder, are to 

review each cardholder’s transactions and reconciled statements, and 

certify for payment their cardholders’ purchases. Appendix I provides 

additional details on the Navy purchase card program.

Weak Purchase Card 

Control Environment 

Contributed to 

Ineffective Controls, 

but Management has 

Taken Positive Steps 

We found that the Navy and Marine Corps units we audited had not 

established an effective internal control environment in fiscal year 2001, 

and although significant improvements have been made, further action in 

several areas is necessary. Specifically, we found that in fiscal year 2001, 

these locations did not (1) effectively evaluate whether approving officials 

maintained reasonable spans of control, (2) limit purchase card credit 

limits to historical procurement needs, (3) ensure that cardholders and 

approving officials were properly trained, (4) utilize the results of purchase 

card program monitoring efforts, and (5) establish an infrastructure 

necessary to effectively monitor and oversee the purchase card program. 

As a result of our July 30, 2001, testimony, the Navy and DOD have taken 

significant actions to improve purchase card controls, including reducing 

the number of cardholders by over 50 percent and establishing a Charge 

Mangement and employees should establish and maintain an

environment throughout the organization that sets a positive and

supportive attitude toward internal control and conscientious

management. A positive control environment is the foundation for all

other standards. It provides discipline and structure as well as the

climate which influences the quality of internal control.

GAO’s Standards for Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1, November 1999)
Page 10 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Card Task Force to further improve the purchase card processes and 

controls. 

Improvement Initiatives 

Signal Proactive “Tone at 

the Top” 

Since the July 30, 2001, congressional hearing, the DOD Comptroller, the 

DOD Purchase Card Joint Program Management Office, and NAVSUP have 

issued a number of directives and policy changes citing previous audit 

findings and the need to improve both the purchase card control 

environment and adherence to control techniques. Specifically, in 

response to our November 2001 report, the Navy has acted on or plans to 

implement all 29 of our recommendations to improve controls over the 

purchase card program. While we believe that some of the Navy’s actions 

to implement our recommendations are not sufficient to achieve the 

necessary changes, planned and implemented actions to date are a 

significant step forward. 

In addition, the DOD Comptroller appointed a Charge Card Task Force, 

which issued its final report on June 27, 2002. The report identified many 

of the control weaknesses we identified in this and previous reports and 

testimonies. In the report, the DOD Comptroller stated that this “...is an 

excellent first step in an on-going process to continually seek ways to 

improve charge card programs. We must continue to identify new ways of 

reducing the government’s cost of doing business while at the same time 

ensuring that we operate in a manner that preserves the public’s trust in our 

ability to provide proper stewardship of public funds.” The task force 

report included a number of recommendations including establishing a 

purchase card concept of operations; accelerating the electronic 

certification and bill paying process; improving training materials; 

identifying best practices in areas such as span of control and purchase 

card management skill sets; and establishing more effective means of 

Management plays a key role in demonstrating and maintaining

an organization's integrity and ethical values, especially in setting

and maintaining the organization's ethical tone, providing guidance

for proper behavior, removing temptations for unethical behavior,

and providing discipline when appropriate. GAO's Standards for

Internal Control in the Federal Government (GAO/AIMD-00-21.3.1,

November 1999)
Page 11 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

disciplining those who abuse the purchase cards. These recommendations 

address many of the concerns that we previously identified and provide 

management at the Pacific Fleet, Atlantic Fleet, Naval Sea Systems 

Command (NAVSEA), and Marine Corps the opportunity to take a 

proactive role in correcting control weaknesses and ensuring that the 

purchase card remains a valuable tool. 

Number of Cardholders 

Significantly Reduced but 

Approving Official Span of 

Control Remains an Issue 

Although the Navy significantly reduced the number of purchase cards 

since our July 30, 2001, testimony, it continued to have approving officials 

who were responsible for reviewing more cardholder statements than 

allowed by either DOD or Navy guidance, which limits the number of 

cardholders that an approving official should review to seven. The 

convenience of the purchase card must be balanced against the time and 

cost involved in the training, monitoring, and oversight of cardholders. It 

must also be balanced against the exposure of the Navy to the legally 

binding obligations incurred by those transactions. The proliferation of 

purchase cards and high cardholder-to-approving-official ratios increase 

the risks associated with the purchase card program. In response to the 

July 2001 hearing, DOD’s Director of Procurement instructed the directors 

of Defense agency procurement and contracting departments on August 13, 

2001, to limit purchase cards to only those personnel who need to purchase 

goods and services as part of their jobs. As a result of this heightened 

concern, the Navy reduced the number of cardholders by more than half—

from about 59,000 in June 2001 to about 28,000 by September 2001. In 

October 2001, the Navy followed up the initial reduction in cardholders 

with an interim change to the NAVSUP existing purchase card instructions 

that established minimum criteria for prospective purchase card holders. 

As shown in figure 2, the Navy continued to reduce the number of 

cardholders and was down to about 25,000 as of March 2002. Agency 

program coordinators at the commands we audited told us that the 

reduction was a result of (1) employee attrition, and (2) cancellation of 

cards of individuals who no longer needed them. 
Page 12 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Figure 2: Change in Number of Navy-wide Cardholders, October 2000 to March 2002

Source: General Services Administration.

NAVSUP’s interim change limiting purchase cards also established a 

maximum ratio of seven cardholders to each approving official,7

 and 

required that Navy and Marine Corps units establish local policies and 

procedures for approving purchase cards and for issuing them to activity 

personnel. The Navy’s requirement of a maximum 7-to-1 ratio of 

cardholders to an approving official is consistent with guidance issued by 

the Department of Defense Purchase Card Joint Program Management 

Office on July 5, 2001, shortly before the congressional hearing. 

As shown in table 1, at the four locations we audited, the average ratio of 

cardholders to approving officials was well in line with the DOD and Navy 

limit of seven cardholders per approving official. This average, however, 

7

The approving official is responsible for reviewing and verifying the monthly purchase card 

statements of the cardholders under his or her purview. The approving official is 

responsible for verifying that all purchases were necessary and were made for official 

government purposes in accordance with applicable policies, laws, and regulations. Unless 

otherwise specified, the approving official must also be the certifying officer for his/her 

cardholders and in that capacity must certify that the monthly purchase card statement is 

appropriate and ready for payment.

0

15,000

30,000

45,000

75,000

60,000

Oct-00

Nov-00Dec-00

Jan-01

Feb-01Mar-01

Apr-01

May-01

Jun-01

Jul-01

Aug-01Sep-01

Oct-01

Nov-01Dec-01

Jan-02

Feb-02

Mar-02

Number of Navy-wide cardholders
Page 13 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

masks the wide range of ratios across units, including those that far 

exceeded the DOD and Navy prescribed ratio of cardholders to approving 

official. The problem of high cardholder-to-approving-official ratios 

remains especially acute at NAVSEA, which at some locations used one 

approving official to certify a single payment for all the unit’s cardholders. 

This resulted in approving officials certifying monthly bills that contained 

thousands of transactions and regularly exceeded $1 million a month. 

Table 1: Ratio of Cardholders to Approving Officials, September 2000 through March 2002 

Source: GAO analysis of Citibank data provided by Navy. 

Cardholder Credit Limits 

Exceed Procurement Needs

While total financial exposure as measured in terms of purchase card credit 

limits has decreased in the units we audited, as shown in figure 3, it 

continues to substantially exceed historical purchase card procurement 

needs. 

Command Date

Average ratio of

cardholders to

approving official

Number of approving

officials with more than 7

cardholders to review

Highest ratio of

cardholders to

approving official

Atlantic Fleet Sept. 2000 3.0 to 1 72 66 to1

March 2002 2.8 to 1 15 17 to1

Pacific Fleet Sept. 2000 2.7 to 1 53 36 to1

March 2002 2.5 to 1 32 15 to1

NAVSEA Sept. 2000 2.8 to 1 51 382 to 1

March 2002 2.6 to 1 20 375 to 1

Marine Corps Sept. 2000 3.3 to 1 84 410 to 1

March 2002 2.6 to 1 17 68 to 1
Page 14 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Figure 3: Available Credit Limits for the Four Major Commands We Audited as of 

September 2000, September 2001, and March 2002 vs. Average FY 2001 Monthly 

Purchases

Source: GAO analysis of Citibank data provided by Navy.

0

100

200

300

400

500

Atlantic Fleet Pacific Fleet NAVSEA Marine Corps 

Average fiscal year 2001 monthly purchases

Sept. 2000

Sept. 2001

March 2002

Dollars in millions

14 11 22 19

245

160

236

443

201

128

159 159

211

199

436

454
Page 15 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Limiting credit available to cardholders is a key factor in managing the 

purchase card program and in minimizing the government’s financial 

exposure. Therefore, to determine the maximum credit available we 

analyzed the credit limits available to both cardholders and approving 

officials.8

 In August 2001, the Under Secretary of Defense for Acquisition, 

Technology, and Logistics sent a memorandum to the directors of all 

defense agencies stating that supervisors should set reasonable limits 

based on what each person needs to buy as part of his or her job and that 

every cardholder does not need to have the maximum transaction or 

monthly credit limit. Similarly, in October 2001, NAVSUP issued an interim 

change to the purchase card program instruction which requires agency 

program coordinators to monitor cardholder credit limits and ensure that 

the credit limits are appropriate for mission requirements. We concur with 

both the Under Secretary’s statement and NAVSUP’s interim change to the 

purchase card instructions, and continue to believe that limiting cardholder 

spending authority is an effective way of minimizing the federal 

government’s financial exposure. However, we have not seen adequate 

progress in this area at the locations that we audited. 

None of the units we visited tied either the cardholder’s or the approving 

official’s credit limit to the unit’s historical spending. Rather, they often 

established arbitrary credit limits of $10,000 to $25,000. In some instances, 

we found cardholders and approving officials who had credit limits that far 

exceeded historical spending needs. For example, as of September 2001, 

we identified over 60 cardholders with $9.9 million9

 credit limits, and more 

than 2,300 approving officials with $9.9 million credit limits at the four 

commands we audited. As shown in table 2, the four commands that we 

audited had credit limits that clearly exceeded historical needs. 

8

There are two credit limits that can restrict a cardholder’s ability to use a purchase card—

the approving official’s credit limit and the cardholder’s credit limit—both of which are set 

by the unit agency program coordinator. A cardholder’s credit limit is the maximum amount 

that a cardholder can purchase in a billing cycle, normally 1 month. An approving official’s 

credit limit is the maximum amount that all the cardholders who report to an approving 

official may spend. However, the available credit limit of the approving official cannot 

exceed the sum of the credit limits available to all of the cardholders he or she authorizes 

for payment. 

9

The maximum credit limit allowed by NAVSUP Instruction 4200.94 is $9.9 million. 
Page 16 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Table 2: Historical Purchases vs. Credit Limits for Selected Navy Commands and 

Marine Corps 

a

Credit limit as of March 2002 to reflect the reduction in credit limits made by the commands.

Source: GAO analysis of Citibank data provided by Navy.

Navy Units Lacked 

Documented Evidence of 

Training 

Most of the units we audited did not have documented evidence that their 

purchase card holders had received the initial or supplemental training 

required by the Navy purchase card program guidance. Training is key to 

ensuring that the workforce has the skills necessary to achieve 

organizational goals. In accordance with NAVSUP Instruction 4200.94, all 

cardholders and approving officials must receive purchase card training. 

Specifically, NAVSUP Instruction 4200.94 requires that prior to the issuance 

of a purchase card account, the prospective cardholder and approving 

official must receive training regarding both Navy policies and procedures 

and local procedures. The instruction also requires all cardholders and 

Atlantic

Fleet

Pacific

Fleet NAVSEA

Marine

Corps

Credit limits as of

March 2002 $128 million $159 million $199 million $454 million

Fiscal year 2001 average 

monthly purchase activity $14 million $11 million $22 million $19 million

Ratio of credit limita to average 

fiscal year 2001 monthly 

expenditures 9 to 1 14 to 1 9 to 1 24 to 1

Cardholders with $9.9 million 

credit limits as of September 

2001 7 15 10 34

Approving officials with $9.9 

million credit limits as of 

September 2001 544 497 614 724

Effective management of an organization's workforce-its human

capital-is essential to achieving results and an important part of

internal control... Training should be aimed at developing and

retraining employee skill levels to meet changing organizational

needs. GAO's Standards for Internal Control in the Federal

Government (GAO/AIMD-00-21.3.1, November 1999)
Page 17 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

approving officials to receive refresher training every 2 years. In response 

to the July 30, 2001, hearing, the Assistant Secretary of the Navy for 

Research, Development and Acquisition sent a message in August 2001 to 

all Navy units directing them to train all of their cardholders on or about 

September 12, 2001, concerning the proper use of the purchase cards. 

While acknowledging this need, the Navy does not have a database that 

would enable agency program coordinators to monitor training for 

cardholders and approving officials. Therefore, the Navy does not have a 

systematic means to determine whether NAVSUP Instruction 4200.94 or its 

directives are being carried out. 

As shown in table 3, we found that from about 56 percent of the fiscal year 

2001 transactions at the Marine Corps to about 87 percent of the 

transactions at the Atlantic Fleet were made by cardholders or approved 

for payment by approving officials for whom there was no documented 

evidence of either initial training or refresher training at the time the 

transaction was made. Managers at all four locations told us that they 

require all cardholders to receive training prior to receiving their purchase 

cards. Not all managers were as confident that cardholders and approving 

officials received follow-up training. Without a centralized training 

database it would be extremely difficult to track when each cardholder 

needed the required 2-year refresher training. 

Table 3: Lack of Documented Current Training for Cardholders and Approving 

Officials

a

The numbers represent point estimates for the population based on our sampling tests. The 

confidence intervals for our sample estimates are presented in appendix II of this report.

Source: GAO analysis of Navy records.

Atlantic

Fleet units

in the

Norfolk

area

Pacific

Fleet units

in the San

Diego area

NAVSEA

units in the

Norfolk area

Marine

Corps Base,

Camp

Lejeune

Percentagea

 of transactions 

made by cardholders or 

certified for payment by 

approving officials without 

documented current training at 

the time the transactions were 

made 87% 73% 80% 56%
Page 18 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Further, for training to be effective it should be tailored to provide the 

knowledge needed for the different tasks in purchase card management. 

However, we found that, even though the functions performed by the 

agency program coordinators, approving officials, and cardholders are 

substantially different, the training curriculum for the three positions was 

identical. Neither NAVSUP nor the major commands had specific guidance 

or training concerning the role and responsibilities of agency program 

coordinators or approving officials. 

Monitoring and Oversight 

Need Improvement Agency internal control monitoring assesses the quality of performance

over time. It does this by putting procedures in place to monitor

internal control on an ongoing basis as a part of the process of carrying

out its regular activities. It includes ensuring that managers and

supervisors know their responsibilities for internal control and the

need to make internal control monitoring part of their regular

operating processes. Ongoing monitoring occurs during normal

operations and includes regular management and supervisory

activities, comparisons, reconciliations, and other actions people take

in performing their duties. GAO's Internal Control Standards:

Internal Control Management and Evaluation Tool

(GAO-01-1008G, August 2001)
Page 19 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

We found evidence that the Pacific Fleet, Atlantic Fleet, Naval Sea Systems 

Command units, and the Marines Corps base that we audited conducted 

reviews of the fiscal year 2001 purchase card program. However, we did 

not find that these commands used the results of those reviews to resolve 

identified internal control weaknesses. Further, an August 2001 NAVSUPmandated review of 12 months of purchase card transactions failed to 

identify the extent of potentially fraudulent, improper, and abusive or 

questionable transactions identified in either Naval Audit Service or GAO 

audits. NAVSUP Instruction 4200.94 calls for agency program 

coordinators10 to perform semiannual reviews of their units’ purchase card 

program, including the program’s adherence to internal operating 

procedures, applicable training requirements, micropurchase procedures, 

receipt and acceptance procedures, and statement certification and prompt 

payment procedures. These reviews are to serve as a basis for agency 

program coordinators’ to initiate appropriate action to improve the local 

program or correct problem areas. Throughout fiscal year 2001, the Navy 

purchase card instructions did not require that written reports on the 

results of internal reviews be submitted to either local management or a 

central Navy office for monitoring and oversight. As a result, the Navy did 

not have a consistent process for documenting the results of purchase card 

reviews, identifying systemic problems, or monitoring corrective actions to 

help provide assurance that the actions are effectively implemented. In 

October 2001, in response to our previous audit work, the Navy issued an 

interim change to NAVSUP Instruction 4200.94 that requires each command 

twice a year to summarize the results of monitoring in their subordinate 

commands and to forward each summary to NAVSUP. 

Results of Periodic Reviews Although agency program coordinators and the Naval Audit Service have 

conducted periodic reviews of the purchase card program that showed 

cardholders and approving officials were not adhering to required control 

procedures, we found no evidence that the commands or units that we 

audited used the results of those reviews to improve the control 

environment or adherence to control procedures. The internal control 

weaknesses identified by agency program coordinators included (1) a lack 

of independent documentation that the Navy received items ordered,

(2) accountable items not recorded in the property records, (3) inadequate 

10NAVSUP Instruction 4200.94 authorizes agency program coordinators to administer the 

purchase card program within their designated units, establish credit limits, and authorize 

the issuance of cards to Navy employees. Agency program coordinators also serve as the 

communication link between the purchase card issuing bank and their units.
Page 20 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

documentation for transactions, and (4) split purchases. In addition, the 

Naval Audit Service issued a report dated May 29, 2002, that was critical of 

the controls that the Naval Sea Systems Command exercised over the 

purchase card transactions at eight locations. The Naval Audit Service 

report not only highlighted findings similar to those listed here, but also 

identified 265 questionable transactions for such items as gift certificates, 

clothing, watches, and rental cars. 

Results of Stand-Down Reviews In contrast to the findings of the agency program coordinators and the 

Naval Audit Service, the four major commands reported relatively few, if 

any, inappropriate purchase card transactions when they conducted a self 

assessment of transactions in response to a NAVSUP August 2001 directive. 

In that directive, NAVSUP required that each Navy unit conduct a standdown review of all purchase card transactions the unit made during the 

previous 12 months and report the results to NAVSUP by November 15, 

2001. Based on the results of the reviews conducted by the units we 

audited, we question the design and performance of the review. Its results 

do not indicate a thorough and critical analysis of the nature and magnitude 

of the control weaknesses and of the extent to which fraudulent, improper, 

or abusive transactions were occurring during the period reviewed. As 

shown in table 4, the four major commands that we audited represented 

that they reviewed about 1,225,000 transactions but reported that they 

found only 1,355 purchases—about 0.1 percent of the transactions 

reviewed—were for personal use or for prohibited items, or were not bona 

fide mission requirements. In our statistical sample of 624 fiscal year 2001 

transactions, we found 102 potentially fraudulent, improper, and abusive or 

questionable transactions—about 15 percent of the transactions audited. 

Furthermore, we found numerous examples of abusive and improper 

transactions (discussed in more detail in the following section of this 

report) as part of our data mining. In response to this issue, command level 

agency program coordinators told us that they did not have sufficient time 

to perform their transaction reviews. 
Page 21 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Table 4: Reported Results of NAVSUP Mandated Self Assessment of 12 Months of 

Purchase Card Transactions

Source: Navy records.

Human Capital Resources 

Are Insufficient for 

Effective Monitoring and 

Oversight

The Navy has not provided sufficient human capital resources to enable 

effective monitoring of purchases and to develop a robust oversight 

program. The three key positions for overseeing the program and 

monitoring purchases are the command-level agency program coordinator, 

the unit-level agency program coordinator, and the approving official. 

During the period of our review, none of the major command agency 

program coordinators we audited worked full time in that position. This is 

despite the fact that they were responsible for managing procurement 

programs that incurred between 227,000 and 380,000 transactions totaling 

from about $137 million to about $268 million annually. Further, these 

agency program coordinators were responsible for managing the 

Atlantic Fleet Pacific Fleet NAVSEA Marine Corps

Number of transactions 303,000 214,000 321,000 388,000

Activities that did not 

complete review 12 7 1 0

Purchases not required 

to fulfill bona fide 

mission requirements 0 86 30 342

Purchases for personal 

use 5 14 25 252

Purchases of prohibited 

items 57 201 68 275

Split purchases 224 163 1,241 1,145

Effective management of an organization's workforce its human

capital is essential to achieving results and an important part of

internal control. Management should view human capital as an

asset rather than a cost. Only when the right personnel for the job

are on board and are provided the right training, tools, structure,

incentives and responsibilities is operational success possible.

GAO's Standards for Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1, November 1999)
Page 22 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

procurement activities of cardholders who were located not only on the 

East and West Coasts of the United States but in some instances on other 

continents. In addition, these part-time major command coordinators 

generally had one or two staff in their immediate office—who were also 

assigned other responsibilities—that helped monitor the program. 

Considering that the major command agency coordinators are responsible 

for procurement programs involving hundreds of thousands of transactions 

and hundreds of millions of dollars, as shown in table 5, the human capital 

resources at the major command level are inadequate. 

Table 5: Program Coordinators’ Span of Control, September 2001

Source: GAO analysis of Navy purchase card program data as of September 30, 2001.

We also found that the major commands we audited did not provide the 

subordinate level agency program coordinators and approving officials 

with the time, training, tools, or incentives—also human capital 

resources—needed to perform their monitoring responsibilities necessary 

for the operational success of the program. Rather, the responsibilities of 

approving officials and many subordinate level agency program 

coordinators fell into the category of “other duties as assigned,” with 

minimal time, training, or tools to carry out these responsibilities. 

Further, we found that approving officials and most agency program 

coordinators generally had other duties of higher priority than monitoring 

purchases and reviewing cardholders’ statements. This was especially true 

for approving officials, some of whom were engineers and computer 

Command

Atlantic

Fleet

Pacific

Fleet NAVSEA

Marine

Corps

Number of people in the major 

command agency program coordinator 

office 2 2 2 3

Number of subordinate level agency 

program coordinators 400 321 46 130

Number of approving officials 1,088 926 968 1,498

Number of cardholder

accounts 3,543 2,341 2,738 4,766

Number of fiscal year 2001 

transactions (in thousands) 303 227 319 380

Value of fiscal year 2001 transactions 

(in millions) $173 $137 $268 $224
Page 23 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

technicians, whose annual ratings generally did not cover their approving 

official duties. One subordinate level agency program coordinator told us 

that she knows that some approving officials do not review the cardholder 

statements because (1) some cardholders make thousands of purchases in 

a month and (2) the approving officials have other responsibilities. 

Another agency program coordinator told us that some agency program 

coordinators and approving officials fear that questioning certain 

purchases could be career-limiting decisions. Further, neither the Navy nor 

the major commands have established a position description, an adequate 

statement of duties, or other information on the scope, duties, or specific 

responsibilities for subordinate-level agency program coordinators and 

approving officials.

Critical Internal 

Controls Were 

Ineffective

Basic internal controls over the purchase card program were ineffective at 

the units in the major commands we audited during fiscal year 2001 

primarily because they were not effectively implemented. Based on our 

tests of statistical samples of purchase card transactions, we determined 

that key transaction-level controls were ineffective, rendering the purchase 

card transactions at the units we audited vulnerable to fraudulent and 

abusive purchases and to the theft and misuse of government property. 

The problems we found primarily resulted from inadequate guidance and a 

lack of adherence to valid policies and procedures. The specific controls 

that we tested were (1) screening for required vendors, (2) documenting 

independent receipt and acceptance of goods and services, 

(3) documenting cardholder reconciliation and approving official review 

prior to certifying the monthly purchase card statement for payment, and 

(4) recording pilferable property in accountable records. As shown in 

table 6, the failure rates for the first three attributes that we tested ranged 

from 58 percent to 98 percent respectively for the Atlantic Fleet units in 

Norfolk for documenting independent receipt and acceptance obtained 

with a purchase card and reviewing cardholder statements prior to 

certifying them for payment. Most transactions in our statistical sample 

Internal control activities help ensure that management’s directives

are carried out. The control activities should be effective and

efficient in accomplishing the agency’s control objectives. GAO's

Standards for Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1, November 1999)
Page 24 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

did not contain pilferable property. Thus, we are not projecting the results 

of that test to the population of transactions that we tested at those units. 

Table 6: Estimate of Fiscal Year 2001 Transactions That Failed Control Tests

a

The numbers represent point estimates for the population based on our sampling tests. The 

confidence intervals for our sample estimates are presented in appendix II of this report.

Little Evidence Cardholders 

Screen for Required 

Vendors

Despite DOD and Navy requirements to give priority to certain required 

vendors, we found that the failure rate to document the necessary 

screening of purchases ranged from about 70 percent at the Pacific Fleet to 

about 90 percent at NAVSEA. Because of the units’ failure to document 

screening for statutory vendors, the Navy and Marine Corps do not know 

the extent to which cardholders failed to acquire items from these required 

vendors. The Navy’s purchase card instructions require that prior to using 

the purchase card, cardholders must document that they have screened all 

their intended purchase card acquisitions for availability from statutory 

sources of supply. These sources of supply include vendors qualifying 

under the Javits-Wagner-O’Day Act (JWOD), Federal Prison Industries, and 

DOD’s Document Automation and Production Service (DAPS). JWOD 

vendors are nonprofit agencies that employ people who are blind or have 

other severe disabilities. JWOD vendors primarily sell office supplies and 

calendars, which often cost less than items sold by commercial vendors. In 

a June 2001 letter to all procurement officials, DOD’s Director of 

Procurement reminded cardholders of the need to purchase listed items 

from JWOD sources unless they have a specific waiver. Federal Prison 

Industries employ and provide skills training to inmates of federal prisons. 

Percent breakdowns in key purchase card controlsa

Screening

for required

vendors

Independent,

documented

receipt of items

purchased

Proper reconciliation and

certification of purchase

card statements for

payment

Atlantic Fleet units in 

the Norfolk area 88 58 98

Pacific Fleet units in 

the San Diego area 70 59 80

NAVSEA units in the 

Norfolk area 90 67 86

Marine Corps Base at 

Camp Lejeune 89 59 94
Page 25 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

They sell a wide variety of products including textiles, electronics, 

industrial products, and office furniture. Finally, DAPS is responsible for 

document automation and printing within DOD, encompassing electronic 

conversion, retrieval, and output and distribution of digital and hardcopy 

information. 

We cannot determine the precise amount spent on purchases that were not 

made from required vendors; however, as shown in table 7, our analysis of 

fiscal year 2001 vendor activity showed that the units we audited spent 

about $235,000 with five vendors (Franklin Covey, Kinko’s, PIP Printing, 

Kwik Kopy, and Sir Speedy) that sold items or services that are also sold by 

required vendors. Further, some of the items purchased at Franklin Covey 

were personal items that are considered to be abusive purchases. We 

performed a similar vendor analysis of the fiscal year 2001 Navy-wide 

purchase card activity and found that during fiscal year 2001, the Navy 

spent about $1.6 million with those five vendors. Due to the diverse nature 

of items sold by Federal Prison Industries, we did not attempt to identify 

vendors that sell similar products. 

Table 7: Purchase Card Transactions with Five Vendors That Sell Products Also Sold 

by Required Suppliers

a

These amounts represent the total value of purchase that the Navy made directly with these vendors 

during fiscal year 2001. Some of these purchases could have been for items not sold by required 

sources of supply. 

We found that NAVSUP and some units provided cardholders with 

examples of how to document the screening process; however, cardholders 

failed to use the NAVSUP-suggested purchase log or complete local 

purchase request forms containing a section to document screening for 

required sources of supply. For example, the NAVSUP sample purchase 

card log included in NAVSUP Instruction 4200.94 contains a column for the 

Items/Servicesa

Atlantic

Fleet in

Norfolk

Pacific

Fleet

in San

Diego

NAVSEA

in Norfolk

Marine Corps

Base, Camp

Lejeune

Navywide

Time management 

products (Franklin 

Covey) $39,000 $12,000 $86,000 $10,000 $738,000

Printing (Kinko’s, 

Kwik Kopy, PIP 

Printing, Sir 

Speedy) $31,000 $20,000 $31,000 $6,000 $864,000
Page 26 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

cardholder to document whether or not he or she screened the items 

purchased for availability from statutory sources of supply. However, we 

found that the suggested purchase card log was often not used, or if used, 

many cardholders did not complete that column. 

Little Evidence of 

Independent Receipt and 

Acceptance of Items 

Purchased

The units we audited generally did not have evidence documenting that 

someone independent of the cardholder received and accepted items 

ordered and paid for with a purchase card, as required by NAVSUP 

Instruction 4200.94. That is, the units generally did not have a receipt, 

invoice, or packing slip for the acquired goods and services that was signed 

and dated by someone other than the cardholder. As a result, there is no 

documented evidence that the government received the items purchased or 

that those items were not lost, stolen, or misused. Some units have 

developed a system using ink stamps that need to be completed to 

document receipt and acceptance; however, these systems have not been 

implemented effectively. As shown in table 6, we estimated that about 58 

percent to 67 percent of the units’ fiscal year 2001 transactions did not have 

documented evidence of independent receipt and acceptance of goods and 

services acquired with the purchase card. While some of the items for 

which these units did not have independent documented receipts were 

consumable office supplies, other items that failed this key internal control 

test included laptop computers, digital cameras, and personal digital 

assistants, which could be subject to theft or misuse. 

Key duties and responsibilities need to be divided or segregated

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

should include separating the responsibilities for ... handling any

related assets. Simply put, no one individual should control all the

key aspects of a transaction or event. GAO's Standards for

Internal Control in the Federal Government

(GAO/AIMD-00-21.3.1, November 1999)
Page 27 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Little Evidence That 

Monthly Purchase Card Bills 

Were Reconciled and 

Reviewed Prior to 

Certification and Payment

We found little evidence of cardholder reconciliation or approving official 

reviews to confirm that cardholders had reconciled the monthly statement 

of purchase card transactions back to the supporting documents 

throughout fiscal year 2001. All levels of the purchase card program 

recognize effective cardholder reconciliation and approving official review 

of the monthly statement as a key control activity. DOD’s Purchase Card 

Joint Program Management Office, the Navy, command procedures, and 

the units’ operating procedures recognize that cardholder reconciliation 

and approving official review are central to ensuring that purchase card 

transactions are appropriate. Under 31 U.S.C. 3325 and DOD’s Financial 

Management Regulation,

11 disbursements are required to be made on the 

basis of a voucher certified by an authorized agency official. The certifying 

official is responsible for ensuring (1) the adequacy of supporting 

documentation, (2) the accuracy of payment calculations, and (3) the 

legality of the proposed payment under the appropriation or fund charged. 

The certification function is a preventive control that requires certifying 

officers to maintain proper controls over public funds. It also helps 

11 DOD Financial Management Regulation, Volume 5, Chapter 33, section 330305, 

“Accountable Officials and Certifying Officers.”

Transactions and other significant events should be authorized

and executed only by persons acting within the scope of their

authority. This is the principal means of assuring that only valid

transactions to exchange, transfer, use, or commit resources and

other events are initiated or entered into. GAO's Standards for

Internal Control in the Federal Government (GAO/AIMD-00-21.3.1,

November 1999)

Control activities ensure that only valid transactions ... are initiated

or entered into .... Control activities are established to ensure

that all transactions ... that are entered into are authorized and

executed only by employees acting within the scope of their authority.

GAO’s Internal Control Standards: Internal Control Management

and Evaluation Tool (GAO-01-1008G, August 2001)
Page 28 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

prevent fraudulent and improper payments, including unsupported or 

prohibited transactions, split purchases, and duplicate payments. Further, 

section 2784 of title 10, United States Code, requires the Secretary of 

Defense to prescribe regulations that ensure that each purchase card 

holder and approving official is responsible for reconciling charges on a 

billing statement with receipts and other supporting documentation before 

certification of the monthly bill. Consistent with these requirements, Navy 

purchase card guidance calls for cardholders to reconcile the monthly 

purchase card statements to supporting records. It calls for approving 

officials to ensure that all cardholder purchases were appropriate and all 

charges were accurate, and to resolve all questionable purchases with the 

cardholder. According to NAVSUP Instruction 4200.94, after the approving 

official reviews the monthly bill, the approving official will certify it for 

payment. 

Because certification is necessary for payment, it is likely to occur whether 

or not cardholders and approving officials have performed required 

reconciliations and reviews. Thus, when we tested whether the cardholder 

reconciled the monthly statement and whether the approving official 

reviewed the monthly statement, we did not simply look for a physical or 

electronic signature on a form. Rather, for this test we considered that 

proper reconciliation and review occurred if:

• the cardholder signed and dated the monthly bill12 before it was paid, 

and the monthly bill contained any markings or notes linking the 

amounts billed to a credit card receipt, invoice, packing slip, or a 

purchase log; and

• the approving official’s review of the cardholders’ monthly statements 

was signed and dated prior to certification for payment, and there were 

virtually any markings or notes on the monthly statements evidencing 

that review. 

Our testing revealed that documented evidence of adequate cardholder 

reconciliation or approving official review of cardholder transactions did 

not exist for most of our sample transactions. Examples of inadequate 

documentation included missing statements, invoices, signatures, or dates, 

or a lack of evidence of cardholder reconciliation or approving official 

review. Without such evidence, we—and the program coordinators, who 

12 In pencil, ink, or electronically.
Page 29 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

are required to semiannually review approving official records—cannot 

determine whether officials are complying with review requirements. As 

shown in table 6, the failure rate for this internal control activity at the 

units in the four commands audited was among the highest of the controls 

we tested. 

The failure rates for this attribute were similar to the failure rates that we 

reported for this attribute in our previous testimony related to two San 

Diego-based Navy units. The Navy agreed with our initial 

recommendations concerning the need to clarify the payment certification 

portion of the purchase card instruction. Based on this audit’s broader 

review of the Navy’s purchase card program, we believe that the high 

failure rate may also be attributable to the fact that approving official and 

cardholder responsibilities fall into the category of “other duties as 

assigned” without any specific time allocated for their performance, as 

discussed previously. Further, cardholders and approving officials are not 

necessarily in the same geographic location. Consequently, while an 

approving official might be able to review cardholder transactions 

electronically, the approving official will not necessarily be able to review 

the documentation supporting the transaction. Approving officials and 

cardholders told us they had many duties of a higher priority than 

reviewing the monthly purchase card statements. A large workload, 

especially in “other duties as assigned,” and geographical separation of 

cardholders and approving officials can lead to less attention than 

expected or desired. For example, one NAVSEA approving official’s ability 

to promptly and accurately review cardholders’ monthly statements was 

hampered because (1) the approving official was responsible for reviewing 

the statements of nearly 400 cardholders and regularly certified for 

payment monthly statements exceeding $1 million and (2) the approving 

official who was located in Rhode Island was responsible for reviewing the 

statements of cardholders not only located in Rhode Island but also 

cardholders located in Virginia, Washington, and Florida. 

We identified numerous instances of purchases that had not been 

adequately reviewed and reconciled to the monthly statements, but in 

which the statements were, nonetheless, certified for payment. Such 

activities allow potentially fraudulent, improper, and abusive or 

questionable purchases (discussed in more detail in the following section 

of this report) to go undetected. Also, mistaken or other improper charges 

by vendors might not be detected. The following are examples of such 

charges that we identified:
Page 30 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• At Camp Lejeune, we found 29 transactions totaling over $50,000 for 

which the Marine Corps was unable to provide any supporting 

documentation concerning what was purchased or whether the items 

purchased had a legitimate government use. The vendors that the 

Marine Corps paid without adequate supporting documentation 

included Internet vendors, rental car companies, gift stores, and a stereo 

store. Considering that Camp Lejeune did not have documentation that 

cardholders and approving officials routinely reconciled or reviewed the 

monthly statements prior to payment, neither the Marine Corps nor we 

can determine whether these accounts had been compromised and 

someone was using them to fraudulently obtain goods or services at the 

government’s expense. Navy purchase card instructions require 

cardholders to retain documentation received from the vendor, such as 

a sales slip or cash register receipt to verify the accuracy of the charges 

made. The purpose of maintaining this documentation is to provide an 

audit trail that supports each decision to use the card and any required 

special approvals. 

• In December 2000, NAVSEA paid a hotel $12,200 despite the fact that 

neither the cardholder nor the approving official had any evidence 

concerning how the hotel arrived at the $12,200 amount. When we 

questioned the cardholder concerning the charge, he gave us a written 

statement that the transaction was for the rental of a conference room 

and audiovisual equipment. The statement also said that he did not 

authorize the purchase of any food. However, a copy of the bill we 

obtained from the hotel showed that the Navy paid $8,260 for food. 

Major Commands Failed to 

Maintain Accountability for 

Pilferable Items

We found accountable items acquired with purchase cards that were often 

not recorded in property records of the units we audited. In addition, 

An agency must establish physical control to secure and safeguard

vulnerable assets. Examples include security for and limited

access to assets such as cash, securities, inventories, and equipment

which might be vulnerable to risk of loss or unauthorized use.

Such assets should be periodically counted and compared to control

records. GAO's Standards for Internal Control in the Federal

Government (GAO/AIMD-00-21.3.1, November 1999)
Page 31 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

officials at three of the four major commands could not locate some of the 

property items included in our statistical samples. While some or all of the 

items might, in fact, be at the installation, officials could not provide 

conclusive evidence that they were in the possession of the government. 

Unrecorded property and items that cannot be located indicate a weak 

control environment and problems in the property management system. 

Consistent with GAO’s internal control standards, DOD’s Property, Plant 

and Equipment Accountability Directive and Manual, which was issued 

in draft for implementation on January 19, 2000, requires accountable 

property to be recorded in property records as it is acquired. Accountable 

property includes items that can be easily pilfered, such as computers and 

related equipment, and cameras. Entering such items in the property 

records is an important step to help ensure accountability and financial 

control over these assets and, along with periodic inventory, to deter theft 

or improper use of government property. Table 8 contains the results of 

our review of property management records and inspection of accountable 

property. 

Table 8: Accountable Property Items Not Recorded in Property Books 

Source: GAO analysis of stratified random samples from Navy and Marine Corps purchase card 

transaction files.

One example of the Navy’s failure to record pilferable property in property 

management records involved Atlantic Fleet transactions with a computer 

vendor, GTSI. On September 30, 2000, the Navy contracted with GTSI to 

purchase 430 computers, 213 flat panel monitors, and other computer 

hardware and software using the GSA Multiple Award Schedule pricing. 

GTSI shipped the computers, monitors, and equipment to the Atlantic Fleet 

Command/Base

Transactions

with

property

items

Transactions

with items not

in property

book

Transactions with items

the command could not

demonstrate were in

government possession

Atlantic Fleet units located 

in Norfolk 35 15 12

Pacific Fleet units located in 

San Diego 42 23 15

NAVSEA units located in 

Norfolk 21 14 8

Marine Corps Base at 

Camp Lejeune 16 8 0
Page 32 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

warehouse in November and December 2000, and the Atlantic Fleet paid 

GTSI about $757,000 for those items in January 2001. While the Atlantic 

Fleet’s documents concerning these two transactions show that an 

employee at the warehouse signed as receiving the computers, the Atlantic 

Fleet did not record the serial numbers of the computers or the monitors, 

and did not record the computers or monitors in any type of property 

accountability system. 

After we contacted GTSI and obtained the serial numbers, we were able to 

determine that between January 2001 and January 2002, the Atlantic Fleet 

shipped 243 of the computers and 126 flat panel monitors to land- and seabased Atlantic Fleet users. However, the Atlantic Fleet could not provide 

us adequate evidence confirming the location of the 187 remaining 

computers and 87 flat panel monitors. 

Effectively managing accountable property has long been a problem area, 

and the use of the purchase card has added further difficulties. With about 

25,000 Navy cardholders, the number of people buying accountable 

property has greatly expanded as the purchase card program has grown. 

Cardholders are responsible for reporting on the accountable property they 

buy—so that it can be recorded in the unit’s accountable property books—

but they often do not. 

Change in Navy Property 

Accountability Policy

As we previously reported,13 on August 1, 2001, the Navy modified its policy 

concerning pilferable property by changing the definition of what it 

considered pilferable property. This change in the definition has 

contributed to the lack of accountability over such property. Unlike the 

previous policy, which specifically defined pilferable items, the new policy 

provides commanding officers with latitude in determining what is and 

what is not pilferable. The new policy defines pilferable to be an item—

regardless of cost—that is portable, can be easily converted to personal 

use, is critical to the activity’s business/mission, and is hard to repair or 

replace. Citing the “hard to repair or replace” criterion in the new policy, 

some unit commanders told us they have determined that only desktop and 

laptop computers would be considered pilferable items. Thus, these units 

do not maintain accountability over numerous pilferable items, such as 

digital cameras and personal digital assistants (PDAs), leaving them 

13 U.S. General Accounting Office, Purchase Cards: Continued Control Weaknesses Leave 

Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-506T (Washington, D.C.: Mar. 13, 

2002).
Page 33 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

vulnerable to possible theft, misuse, or transfer to personal use. However, 

not all unit commanders made this assertion and continued to maintain 

accountability over items that were considered pilferable under the 

previous policy. 

Potentially Fraudulent, 

Improper, and Abusive 

or Questionable 

Transactions

We identified numerous purchases at the installations we audited and 

through our Navy-wide data mining that were potentially fraudulent, 

improper, and abusive or questionable. As discussed in appendix II, our 

work was not designed to identify, and we cannot determine, the extent of 

potentially fraudulent, improper, and abusive or otherwise questionable 

transactions. However, considering the control weaknesses identified at 

each unit audited, it is not surprising that these transactions were not 

detected or prevented. In addition, the existence of similar improper, and 

abusive or questionable transactions in our Navy-wide data mining of 

selected transactions provides additional indications that a weak control 

environment and ineffective specific controls exist throughout the Navy. In 

addition, appendix IV contains an update on two fraud investigations 

involving Navy units based in San Diego that we discussed in our March 

2002 testimony.

Potentially Fraudulent 

Purchases

We considered potentially fraudulent purchases to include those made by 

cardholders that were unauthorized and intended for personal use. 

Potentially fraudulent purchases can also result from compromised 

accounts in which a purchase card or account number is stolen and used to 

make a potentially fraudulent purchase. Potentially fraudulent 

transactions can also involve vendors charging purchase cards for items 

that cardholders did not buy. The Navy and the major commands we 

audited had policies and procedures that were designed to prevent and 

detect potentially fraudulent purchases. For example, as discussed 

previously, approving officials are required to review the supporting 

documentation for each transaction for legality and proper government use 

of funds. However, our testing showed that these control activities had not 

been implemented as intended. 

Although collusion can circumvent what otherwise might be effective 

internal control activities, a robust system of guidance, internal control 

activities, and oversight can create a control environment that provides 

reasonable assurance of preventing or quickly detecting fraud, including 

collusion. However, in auditing the Navy’s internal control at units 
Page 34 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

assigned to four major commands during fiscal year 2001, we did not find 

that the processes and activities were operating in a manner that provided 

such assurance. 

The Navy does not have an automated system that identifies, captures, and 

reports key information on potentially fraudulent purchases that have been 

identified or are being investigated within the purchase card program. In 

table 9, we identified instances of fraudulent and potentially fraudulent 

transactions at the commands we audited and by making inquiries with 

Naval Criminal Investigative Service. All of the purchases that we discuss 

in this section were included in monthly cardholder statements that were 

certified and paid by the Navy. 

Table 9: Examples of Fraudulent and Potentially Fraudulent Navy Purchase Card Transactions

Source: GAO analysis of Naval Criminal Investigative Service files and Navy records. 

The following examples of fraud are illustrative of the cases in table 9: 

• An approving official’s failure to review a cardholder’s statements 

promptly contributed to an Atlantic Fleet cardholder making over 

$250,000 in unauthorized purchases between September 2000 and July 

Type of items purchased Command Total Individuals involved

Personal items: remote control helicopter items, 

Internet purchases, highway toll tags, and a dog

Atlantic Fleet $250,000 Cardholder

Televisions, car batteries, tires, air conditioner parts, 

and other auto supplies

Atlantic Fleet $150,000 Cardholder

Electrical and other spare part items Atlantic Fleet $89,000 Cardholders and vendors

Personal items purchased at department store Atlantic Fleet $40,000 Cardholder

Unidentified Internet purchases Marine Corps $15,000 Compromised account 

Personal items from Wal-Mart, Sun Coast Videos, New 

Monde Junior Clothing Store, and Journey’s Shore 

Store 

Marine Corps $12,200 Cardholder

Power tools Atlantic Fleet Between $3,000

and $5,000

Cardholder

Six months worth of long-distance phone calls Marine Corps $4,800 Unauthorized use of card by military 

serviceman other than cardholder

Palm Pilots, color television, camera, and other 

unauthorized items 

Pacific Fleet $2,500 Cardholder 

Cell phone charges and pizza Atlantic Fleet $2,000 Compromised account

Internet pornography Navy-wide $40 Compromised accounts
Page 35 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

2001. In July 2001, when a command supply official began reviewing the 

cardholder’s monthly statements, he noticed that over $80,000 of those 

charges were unsupported. Included in those unsupported charges 

were numerous transactions with suspicious vendors. After command 

supply officials asked the cardholder about the unsupported purchases, 

the cardholder admitted to making thousands of dollars of illegal 

Internet purchases and illegally purchasing EZ Pass prepaid toll tags, 

expensive remote control helicopters, and a dog. The Navy decided to 

prosecute the cardholder, and a court martial is pending.

• An approving official’s failure to review a cardholder’s statements and 

the cardholder’s failure to keep evidence of what was purchased 

contributed to an Atlantic Fleet cardholder fraudulently using his 

purchase card from January 2000 through October 2000 to purchase an 

estimated $150,000 in automotive, building, and home improvement 

supplies. The cardholder sold some of the items to generate cash. 

According to Navy investigators, the cardholder destroyed many of the 

requisitions, receipts, and purchase logs for the stolen items in an 

attempt to cover up his actions. In addition, according to Navy criminal 

investigators, if the monthly purchase card billing statements were 

properly reviewed, the cardholder’s fraudulent activities would have 

been exposed. In exchange for pleading guilty to multiple counts of 

larceny and other criminal violations, the cardholder’s jail time was 

reduced to 24 months. 

• An approving official’s failure to adequately review a cardholder’s 

statements contributed to two Atlantic Fleet cardholders conspiring 

with at least seven vendors to submit about $89,000 in fictitious and 

inflated invoices. The cardholders had the vendors ship supply items to 

an Atlantic Fleet warehouse and the personal items directly to their 

residences. The cardholders also had vendors inflate the price and/or 

quantity of items purchased. According to Navy investigators, the 

cardholders would sell, use, and barter the illegally obtained items, 

while the vendor sales representatives received inflated sales 

commissions and an estimated $3,000 to $5,000 in Navy property that 

was given to them as bribes. One vendor sales representative who 

admitted to conspiring to supply false invoices said that he could not get 

sufficient business until he altered the invoices like the other vendors. 

According to the caller who informed NCIS of the illegal activity, it was 

common knowledge that the cardholders were getting kickbacks 

because of their positions as Navy buyers. Based on the results of the 

NCIS investigations, one of the cardholders received 24-months 
Page 36 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

confinement and a bad conduct discharge while the other received a 60-

day restriction and reduction in rank. 

In another case of potential fraud, we found that in March 1999 the Navy 

inappropriately issued five government purchase cards to individuals who 

did not work for the government. The individuals who received the Navy 

purchase cards worked for a consulting company that occasionally 

provided services to the Navy. NAVSUP Instruction 4200.94 limits the Navy 

purchase card to authorized government personnel in support of official 

government purchases. Between March 1999 and November 2001 these 

individuals used the Navy purchase cards to make purchases totaling about 

$230,000 with vendors including airlines, hotels, rental car companies, gas 

stations, restaurants, a florist, and golf courses. We discovered these 

charges in November 2001 as part of our data mining for suspicious 

transactions at the Pacific Fleet. Within a week of our inquiries to the 

Pacific Fleet concerning the charges on these accounts, the Pacific Fleet 

agency program coordinator instructed Citibank to (1) immediately 

deactivate the accounts and (2) close the accounts once the balances were 

paid. 

While the consulting company ultimately paid Citibank for all charges 

made with those cards, the consulting company was 30 days past due on 

the account 28 times during the 38 months that the accounts were open. 

Further, the Navy was contractually liable for all purchases made with the 

cards and would have been responsible for payment if the consulting 

company had failed to pay. The risk to the Navy was real because, when 

the Navy had Citibank deactivate the accounts in November, the company, 

which still owed $8,600, threatened to withhold payment unless the Navy 

reopened the accounts. In addition, the consulting company contacted 

Citibank directly and tried to assume control of the accounts by claiming 

the company had “spun off from the Navy.” While the consulting company 

did eventually pay Citibank, it was not until March 2002—4 months after 

the accounts were deactivated. 

Our Office of Special Investigations researched some of the charges and 

found that, by using a Navy purchase card, the consulting company avoided 

paying state sales taxes and obtained discounts at airlines and hotels that 

are typically offered only to the federal government. The airline discounts 

are particularly advantageous because airlines offer the federal 

government significantly discounted tickets that are not encumbered with 

the penalties and limitations that are imposed upon private sector 

companies and the general public. Finally, Citibank does not post an 
Page 37 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

interest charge on past due accounts. Thus, by using the Navy purchase 

card, the company avoided paying interest on the past due accounts. Based 

on the results of our work, we referred this case to the Naval Criminal 

Investigative Service for further investigation.

Navy’s Fraud Database Does Not 

Include Key Data 

We attempted to obtain examples of other potentially fraudulent activity in 

the Navy purchase card program from NCIS in Washington, D.C. NCIS 

investigators acknowledged that they have investigated a number of 

purchase card fraud cases; however, their investigation database does not 

permit a breakdown of fraud cases by type, such as purchase cards. 

Purchase card program officials and NCIS officials said that they had no 

information on the total number of purchase card fraud investigation cases 

throughout the Navy that had been completed or were ongoing. Based on 

our identification of a number of fraudulent and potentially fraudulent 

cases at the installations that we audited, we believe that the number of 

cases involving fraudulent and potentially fraudulent transactions could be 

significant. Without such data, the Navy does not know the significance, in 

numbers or dollar amounts, of fraud cases that have been or are being 

investigated and is hampered in taking corrective actions to prevent such 

cases in the future.

Improper Purchases and 

Transactions

Our audit work at the four commands and our Navy-wide data mining 

identified numerous examples of improper transactions. Improper 

transactions are those purchases that, although approved by the Navy 

officials and intended for government use, are not permitted by law, 

regulation, or DOD policy. We identified the following three types of 

improper purchases. 

• Purchases that do not serve an authorized government purpose. 

• Split purchases, in which the cardholder circumvents cardholder singlepurchase limits. The Federal Acquisition Regulation guidelines 

prohibit splitting purchase requirements into more than one transaction 

to avoid the need to obtain competition on purchases over the $2,500 

micropurchase threshold. Cardholders also split purchases to 

circumvent higher single-transaction limits for payments on contracts 

exceeding the micropurchase threshold. 

• Purchases from improper sources as previously discussed. Various 

federal laws and regulations require procurement officials to acquire 

certain products from designated sources such as JWOD vendors. The 
Page 38 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

JWOD program is a mandatory source of supply for all federal entities. 

It generates jobs and training for Americans who are blind or have other 

severe disabilities, requiring federal agencies to purchase supplies and 

services furnished by nonprofit agencies—such as the National 

Industries for the Blind and the National Industries for the Severely 

Handicapped—who employ such individuals. The improper 

transactions that resulted from purchasing items from nonstatutory 

sources were previously discussed in the section on adherence with 

control procedures.

We believe that if the Navy better monitored the vendors with which its 

cardholders conducted business, the Navy could minimize its number of 

improper purchases. Such monitoring could also provide the Navy the 

opportunity to leverage its purchase volume and negotiate discounts with 

frequently used vendors. 

Purchases That Do Not Serve an 

Authorized Government Purpose

We found several instances in which cardholders purchased goods, such as 

clothing, that were not authorized by law or regulation. The Federal 

Acquisition Regulation, 48 C.F.R. 13.301(a), provides that the 

governmentwide commercial purchase card may be used only for 

purchases that are otherwise authorized by law or regulations. Therefore, 

a procurement using the purchase card is lawful only if it would be lawful 

using conventional procurement methods. Under 31 U.S.C. 1301(a), 

“[a]ppropriations shall be applied only to the objects for which the 

appropriations were made...” In the absence of specific statutory 

authority, appropriated funds may only be used to purchase items for 

official purposes, and may not be used to acquire items for the personal 

benefit of a government employee. Improper transactions, as shown in 

table 10, were identified as part of our review of fiscal year 2001 

transactions and related activity at the four commands and as part of our 

Navy-wide data mining of transactions with questionable vendors. 
Page 39 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Table 10: Examples of Improper Purchases 

Source: GAO analysis of Navy purchase card transactions.

The following examples of improper transactions are illustrative of the type 

of cases included in table 10.

• We identified a Pacific Fleet cardholder who used the purchase card in 

January 2001 to buy a $199 leather flight jacket as a personal gift for an 

official visitor. Secretary of the Navy (SECNAV) Instruction 7042.7J 

specifically identifies flight jackets as a prohibited personal gift to a 

visitor. In November 2001, when we questioned the deputy commander 

concerning the flight jacket, he told us that the purpose of the gift was to 

recognize the individual’s contributions to the Navy’s San Diego 

installations. The deputy commander subsequently told us that the 

personnel involved with the gift were counseled, and that he, the deputy 

commander, had reimbursed the Navy for the jacket in January 2002.

Description of items Vendor

Clothing

 Gore-tex jackets, and other clothing 

 Civilian clothes for military personnel

 Flight jacket

 Polo shirts

Cabellas

Nordstrom and Hecht’s

San Diego Leather

Islander Hardware and Sporting Goods

Meals/Food

 Meals and light refreshments for training 

 events

 Personal meals

 Coffeemakers

Hotels, catering services

Local restaurants

Service Merchandise

Other

 Cell phone time charges

 Sales taxes

 Radio/stereos 

 Personal travel luggage 

 Lodging

 Rental cars

Various vendors

Various vendors

Bose 

California Luggage 

Various hotels

Various rental car companies
Page 40 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• We identified purchases of clothing by NAVSEA that should not have 

been purchased with appropriated funds. Generally, agencies may not 

use appropriated funds to purchase clothing for civilian employees. One 

exception is 5 U.S.C. 7903, which authorizes agencies to purchase 

protective clothing for employee use if the agency can show that 

(1) the item is special and not part of the ordinary furnishings that an 

employee is expected to supply, (2) the item is essential for the safe and 

successful accomplishment of the agency’s mission, not solely for the 

employee’s protection, and (3) the employee is engaged in hazardous 

duty. Further, according to a Comptroller General decision dated March 

6, 1984,14 clothing purchased pursuant to this statute is property of the 

U.S. government and must only be used for official government 

business. Thus, clothing purchases, except for rare circumstances in 

which the purchase meets stringent requirements, is usually considered 

a personal item for which appropriated funds should not be used. In 

one transaction, a NAVSEA cardholder purchased polo shirts and other 

gifts for a “Bring-Your-Child-to-Work Day” at a total cost of about $1,600.

• In another example of clothing for personal use from our Navy-wide 

data mining, several charges for amounts from $70 to $230 were 

identified at Hecht’s and Nordstrom. We were informed that these were 

for purchases of civilian clothes—slacks, shirts, and suits—for enlisted 

personnel who were serving in an official capacity as assistants to 

admirals and general officers, and to wear when playing in a jazz band. 

The Director, Purchase Card Unit, Defense Contracting Command 

Washington, informed us that this appears to be a fairly widespread 

practice. Clothing needs of military personnel are covered by the 

clothing allowances that they receive. 

• As part of our data mining of Navy-wide purchase card transactions, we 

identified two purchases in which cardholders purchased Bose headsets 

at $300 each. The headsets were for personal use—listening to music—

while taking commercial flights and, therefore, should not have been 

purchased with the Navy purchase card. 

1463 Comptroller General Decisions 245, 247 (1984). In requesting the Comptroller General’s 

approval of the purchases, the agency represented that “the parkas would be labeled as 

[agency] property, centrally controlled, and issued and reissued to employees only for job 

requirements.” 
Page 41 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• At NAVSEA, we identified charges to hotels in Newport News and 

Portsmouth, Virginia, totaling about $8,000 for locally based NAVSEA 

employees to attend meetings at which they were inappropriately 

provided meals and refreshments at the government’s expense. The 

cardholders told us that they authorized the hotels to bill for audiovisual 

equipment and conference room rental. The cardholders said the hotel 

was not authorized to bill for food. However, despite the cardholders’ 

assertion, the detailed bills showed that the hotels charged NAVSEA 

about $7,000 for meals including breakfasts, lunches, and snacks. 

Pursuant to 31 U.S.C. 1301(a), "[a]ppropriations shall be applied only to 

the objects for which the appropriations were made . . . ." In the absence 

of specific statutory authority, appropriated funds may only be used to 

purchase items for official purposes, and may not be used to acquire 

items for the personal benefit of a government employee. For example, 

without statutory authority, appropriated funds may not be used to 

furnish meals or refreshments to employees within their normal duty 

stations.15 Free food and other refreshments normally cannot be 

justified as a necessary expense of an agency's appropriation because 

these items are considered personal expenses that federal employees 

should pay for from their own salaries.16 

• Three of the four commands audited paid improper and abusive phone 

charges. For example in June 2001, the Atlantic Fleet paid $1,175 for 

monthly service charges for 22 phones. We determined that some cell 

phone calls were long distance toll calls that were not for legitimate 

government business. The Navy’s and Atlantic Fleet’s command level 

procedures prohibit the use of cell phones for other than officially 

approved uses. In addition, even though Atlantic Fleet guidance 

requires subordinate units to verify monthly cell phone usage, the units 

were not reviewing the monthly bills as required. Our audit of the calls 

made using the cell phones determined that some were to personal 

residences—not military facilities or merchants supplying goods and 

services to the Navy. In addition, we found wasteful charges for cell 

phones. For example, the Navy paid for 13 months of service at $15 per 

month for a cell phone that had been returned to the vendor. It was not 

until we inquired about the lack of use on the phone that the Navy 

15 72 Comp. Gen. 178, 179 (1993); 65 Comp. Gen. 508, 509 (1986).

16 65 Comp. Gen. 738, 739 (1986).
Page 42 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

realized it was paying for a phone that had been returned over 1 year 

earlier. 

Split Purchases Another category of improper transaction is a split purchase, which occurs 

when a cardholder splits a transaction into segments to avoid the 

requirement to obtain competition for purchases over the $2,500 

micropurchase threshold or to avoid other established credit limits. The 

Federal Acquisition Regulation prohibits splitting a purchase into more 

than one transaction to avoid the requirement to obtain competition for 

purchases over the $2,500 micropurchase threshold. Navy purchase card 

instructions also prohibit splitting purchases to avoid other established 

credit limits. Once items exceed the $2,500 threshold, they are to be 

purchased through a contract in accordance with simplified acquisition 

procedures that are more stringent than those for micropurchases. 

Our analysis of data on purchases at the four major commands we audited 

and our data mining efforts identified numerous occurrences of potential 

split purchases. In addition, internal auditors at all four commands that we 

audited identified split purchases as a continuing problem. In some of 

these instances, the cardholder’s purchases exceeded the $2,500 limit, and 

the cardholder split the purchase into 2 or more transactions of $2,500 or 

less. For example, a Camp Lejeune cardholder made 8 transactions 

totaling about $17,000 on 1 day to purchase combat boots. In addition, a 

NAVSEA cardholder made 14 purchases totaling over $30,000 in 1 day from 

an electronic supply store. 

All the commands that we audited said that cardholders splitting purchases 

to circumvent the micropurchase threshold was a problem. As we 

previously reported, by circumventing the competitive requirements of the 

simplified acquisition procedures, the commands may not be getting the 

best prices possible for the government. For the Navy to reduce split 

transactions, it will need to monitor the vendors with whom cardholders 

are conducting business. 

Better Management of 

Transactions with Frequently 

Used Vendors Could Result in 

Additional Savings

The Navy has not proactively managed the purchase card program to 

identify opportunities for savings. Purchase card sales volume has grown 

significantly over the last few years with the Navy now using the purchase 

card to procure nearly $2 billion a year in goods and services. We believe 

that the Navy could better leverage its volume of purchases and negotiate 

discounts with frequently used vendors. For example, during fiscal year 

2001, the Navy paid over $1 million each to 122 different vendors using the 

purchase card. In total during fiscal year 2001, the Navy paid those 122 
Page 43 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

vendors about $330 million. However, the Deputy Director of the Navy 

eBusiness Operations Office told us that, despite this heavy sales volume, 

the Navy had not negotiated reduced-price contracts with any of the 

vendors. 

As previously stated, one of the benefits of using purchase cards versus 

traditional contracting and payment processes is lower transaction 

processing costs and less red tape for both the government and the vendor. 

Through increased analysis of purchase card procurement patterns, the 

Navy has the opportunity to leverage its high volume of purchases and 

achieve additional savings from vendors by negotiating volume discounts 

similar to those the General Service Administration (GSA) has negotiated 

in its Multiple Award Schedule program. Under GSA’s Multiple Award 

Schedule, participating vendors agree to sell their products at preferred 

customer prices to all government purchasing agents. According to the 

Deputy Director of the Navy’s eBusiness Operations Office, 74 of the 122 

vendors with which the Navy spent more than $1 million using the 

purchase card during fiscal year 2001 did not participate in the Multiple 

Award Schedule program. In addition, for 48 of the vendors with which 

Navy spent more than $1 million and that did participate in the Multiple 

Award Schedule, the opportunity existed for the Navy to negotiate 

additional savings. GSA encourages agencies to enter into blanket 

purchase agreements (BPAs) and negotiate additional discounts with 

Multiple Award Schedule vendors from which they make recurring 

purchases. 

By analyzing Navy-wide cardholder buying patterns, the Navy should be 

able to achieve additional savings by identifying vendors and vendor 

categories for which it uses the purchase card for significant amounts of 

money and negotiate discounts with them. For example, during fiscal year 

2001, the Navy spent about $65 million with 5 national computer vendors 

(Dell, Gateway, CDW Computer Centers, Micro Warehouse, and GTSI), 

$22 million with 3 office supply companies (Corporate Express, Staples, 

and Office Depot), and $9 million with 2 national home improvement stores 

(Home Depot and Lowe’s). While 8 of these 10 vendors participate in GSA’s 

Multiple Award Schedule program, the Navy could not tell us whether its 

purchases from these vendors were made using that program’s preferred 

price schedules. Further, considering the Navy’s volume of purchases, it is 

reasonable to assume that it could negotiate additional savings with these 

and other vendors if it used historical purchase card sales data as a 

bargaining tool.
Page 44 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Abusive and Questionable 

Purchases 

We identified numerous examples of abusive and questionable transactions 

at each of the four installations we audited. We defined abusive 

transactions as those that were authorized, but in which the items were 

purchased at an excessive cost (e.g., “gold plated”) or for a questionable 

government need, or both. Abuse can be viewed when the conduct of a 

government organization, program, activity, or function falls short of 

societal expectations of prudent behavior. Often, improper purchases such 

as those discussed in the previous section are also abusive. Transactions 

that are both improper and abusive were discussed previously, such as the 

excessive cell phone charges at the Atlantic Fleet. 

Questionable transactions are those that appear to be improper or abusive 

but for which there is insufficient documentation to conclude either. We 

consider transactions to be questionable when they do not fit within the 

Navy guidelines on purchases that are acceptable for the purchase card 

program, and when there is not a reasonable or documented justification to 

acquire the item purchased. When we examined the support for 

questionable transactions, we usually did not find evidence of why the 

Navy or Marine Corps needed the item purchased. Consequently, the 

cardholder provided an after-the-fact rationale that the item purchased was 

not improper or abusive. To prevent unnecessary costs, these types of 

questionable purchases require scrutiny before the purchase, not after. 

Table 11 identifies examples of both abusive and questionable purchases.
Page 45 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Table 11: Examples of Abusive and Questionable Purchases

Source: GAO analysis of Navy purchase card transactions.

The following include details of some of the abusive and questionable 

purchases in table 11. 

• Computer and related equipment exceeding documented need—The 

Navy used the purchase card to acquire computer and computer-related 

items far in advance of its needs. Considering that computer prices 

decrease over time while their capabilities improve, warehousing 

computers and related items is an especially ineffective use of 

government funds. Despite this time, price, and capability relationship, 

we found in our statistical sample that the Atlantic Fleet, Pacific Fleet, 

and NAVSEA purchased computers, monitors, and printers that often 

remained unused for more than 12 months. For example, the computers 

purchased by the Atlantic Fleet in September 2000 that were discussed 

in the section on pilferable property had Pentium III microprocessors. 

By the time the Atlantic Fleet issued some of those computers in 

January 2002, the manufacturer was selling computers with Pentium IV 

Description of purchase Where identified

Total

amount

Questionable purchases of computer 

equipment

Atlantic Fleet, Pacific Fleet

$613,000

High-cost flat panel computer monitors Atlantic Fleet, Pacific Fleet, and 

NAVSEA $185,000

Designer leather products from the 

Coach Store, Dooney and Bourke, and 

Franklin Covey, and others

Atlantic Fleet, Pacific Fleet, 

NAVSEA, Marine Corps, and 

Navy-wide data mining $163,000

Unknown goods from electronic 

retailers, Internet sites, gift stores, 

department stores, and home 

improvement stores

Pacific Fleet, NAVSEA, Marine 

Corps

$111,000

Meals, beer, and refreshments Atlantic Fleet, Pacific Fleet, 

NAVSEA, Navy-wide data mining $43,000

Palm Pilots without documented need Atlantic Fleet, Pacific Fleet $41,000

Audiovisual equipment from Bose, Bang 

and Olufsen, and others

Atlantic Fleet, Pacific Fleet, 

Navy-wide data mining $28,000

Expenses at casinos Navy-wide data mining $4,200

China, and accessories for commanding 

officers

Pacific Fleet, Navy-wide data 

mining $3,900

Bose clock radios Navy-wide data mining $2,400

Oakley sunglasses Marine Corps $220
Page 46 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

microprocessors at a cost of less than what the Atlantic Fleet paid for 

the Pentium IIIs. Further, our statistical sample at the Atlantic Fleet 

identified 22 other computers that the Navy purchased in April 2001 

that, as shown in figure 4, were unused and still in their original boxes in 

June 2002. Similarly, we found two $3,500 laser printers purchased in 

September 2000 that were selected in our statistical sample of Pacific 

Fleet transactions still in their original boxes at a Pacific Fleet 

warehouse in January 2002. 

Figure 4: Computers Purchased by the Atlantic Fleet in April 2001 That Remained 

Unused as of June 21, 2002

We have previously identified DOD’s inventory management as an area 

at high risk for fraud, waste, and abuse. In our report on DOD major 

management challenges and program risk17 we stated that because of 

its unreliable inventory management systems managers may request 

funds to obtain additional items that were on hand. Our review of fiscal 

17 U.S. General Accounting Office, Performance and Accountability Series: Major 

Management Challenges and Program Risks, Department of Defense, GAO-01-244

(Washington, D.C.: January 2001).
Page 47 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

year 2001 Atlantic Fleet transactions found that despite having these 

unopened items, the unit had in fact purchased additional computers 

after September 2000 and the Pacific Fleet purchased laser printers 

after June 2001.

• Designer leather goods—In September and October 2000, NAVSEA 

made two separate transactions totaling nearly $1,800 to obtain designer 

leather folios and PDA holders costing up to $300 each made by Coach 

and Dooney and Bourke. Two of the folios were given as gifts to a 

visiting officer in the Australian Navy, while other designer items were 

personal preferences of the cardholders and requesting individuals. 

• Flat panel monitors—Our statistical sample selected transactions 

containing 243 flat panel monitors purchased by the Atlantic Fleet, 

Pacific Fleet, and NAVSEA. The cost of the monitors selected in our 

sample ranged from $550 to $2,200. Conversely, the 17-inch standard 

monitors selected in the sample cost about $200. As we have reported in 

the past, we believe the purchase of flat panel monitors—particularly 

those that cost far in excess of standard monitors—to be abusive and 

not an effective use of government funds in the absence of a 

documented need based on technical, space, or other considerations. 

Further, in our statistical sample, we found that some of the flat panel 

monitors that the Atlantic Fleet purchased were placed in a warehouse 

and not issued for more than a year after the Navy took possession. 

Warehousing flat panel monitors is especially inefficient because, like 

computers, as time passes the price of flat panel monitors decreases and 

technology increases. The flat panel monitors that we found still in the 

box cost the Navy $709 each. As of June 2002, the GSA price for the 

same flat panel monitors was about $480.

• Personal digital assistants—We found that the Atlantic Fleet and 

Pacific Fleet purchased PDAs for staff without documenting why the 

staff needed them to perform their official duties. In one instance, the 

Atlantic Fleet purchased 90 PDAs for $32,500 in October 2000 without 

any documented justification of need. As of June 1, 2002, 14 of the 90 

PDAs had not been issued and were still in inventory. Further, the 

competitive bid price worksheet showed that the Navy did not accept 

the lowest bid for the PDAs. According to the competitive bid 

worksheet, the Atlantic Fleet received three bids for the PDAs that 

ranged from a low of $30,400 to a high of $32,850. The Atlantic Fleet 

accepted the middle bid of $32,500. Federal Acquisition Regulation

allows purchasing agents to reject lower bids if the purchasing agent 
Page 48 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

determines that the items being delivered do not conform to the 

applicable specifications, or if the vendors cannot deliver the goods or 

services within the specified time requirements. We saw no evidence 

that quality or timeliness were a factor in selecting the higher priced bid. 

• Clock radios—As part of our Navy-wide data mining we inquired about a 

$2,443 transaction with Bose Corporation on September 30, 2000. In 

response to that inquiry, the Navy command that made the purchase told 

us that it purchased seven Bose “Wave Radios” costing $349 each. The 

command justified the purchase by stating that Navy regulations require 

all visiting office quarters to be supplied with a clock radio. While we do 

not question the need to supply visiting officer quarters with clock 

radios, we do question the judgment of purchasing $349 clock radios 

when there are numerous models of clock radios made by GE, Sony, and 

Panasonic costing about $15 from GSA. 

Disciplinary Actions Seldom 

Taken Against Those Who 

Misuse Purchase Cards

In our November 30, 2001, report18 and March 13, 2002, testimony 19 on the 

purchase card controls at the Space and Naval Warfare Systems Command 

(SPAWAR) Systems Center and NPWC, we recommended that action be 

taken to help provide assurance that cardholders adhere to applicable 

purchase card laws, regulations, internal control and accounting standards, 

and policies and procedures. Specifically, we recommended that the 

Commander, Naval Supply Systems Command, revise NAVSUP Instruction 

4200.94 to include specific consequences for noncompliance with purchase 

card policies and procedures. In response to the November 2001 report, 

DOD did not concur with that recommendation and stated that existing 

Navy policy clearly identifies consequences for fraud, abuse, and misuse. 

On May 29, 2002, the Navy told us that in response to our recommendation, 

the Assistant Secretary of the Navy for Research, Development and 

Acquisition issued a Naval Message reiterating compliance; accountability; 

and consequences of fraud, abuse, and misuse. 

While we would agree that the issuance of such a message has benefits, we 

continue to believe that the Navy needs to establish specific consequences 

for these purchase card problems because existing Navy policy does not 

identify any specific consequences for failure to follow control 

18GAO-02-32.

19GAO-02-506T.
Page 49 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

requirements. Currently, the Navy has not established specific disciplinary 

and/or administrative consequences—such as withdrawal of cardholder 

status, reprimand, suspension from employment for several days, and, if 

necessary, firing. Unless cardholders and approving officials are held 

accountable for following key internals controls, the Navy is likely to 

continue to experience the types of fraudulent, improper, and abusive and 

questionable transactions identified in our work. As part of this audit, we 

asked the agency program coordinators at each command that we audited 

whether any cardholders referred to in this report were disciplined for 

improper, abusive, or questionable purchases; or if the reduction in the 

number of cardholders could be attributed to individuals who lost the card 

because they made improper, abusive, or questionable purchases. 

However, according to the agency program coordinators, only one of the 

cardholders referred to in this report lost a card for improper, abusive, or 

questionable purchases, and no one has received any disciplinary actions 

for abusing the purchase card.

Conclusions We support the use of a well-controlled purchase card program. It is a 

valuable tool for streamlining the government’s acquisition processes. 

However, the Navy program is not well controlled and as a result is 

vulnerable to fraud, waste, and abuse. The primary cause of the control 

breakdowns is the lack of adherence to valid policies and procedures. 

Nonetheless, the control environment at the Navy has improved over the 

last year. For example, the Navy has reduced the number of cardholders by 

over 50 percent, from 59,000 to 25,000, thus improving the prospects for 

effective program management. However, further actions are needed to 

achieve an effective control environment. For example, leadership by 

major command and unit management and a strong system of 

accountability must be established for effective program control. 

Strengthening the control environment will require a commitment by the 

Navy to build a robust purchase card control infrastructure. 

Recommendations for 

Executive Action 

In our November 30, 2001, report on control weaknesses at two units in San 

Diego, we made 29 recommendations to improve management of the 

purchase card program primarily at the two locations audited. Based on 

the broader scope of our current work we are making the following 

additional recommendations to strengthen the overall control environment 

and improve internal controls for the Navy’s purchase card program. 
Page 50 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Overall Program 

Management and 

Environment

We recommend that the Director of the Department of the Navy eBusiness 

Operations Office take the following actions. 

• Direct all agency program coordinators to review the number of 

cardholders who report to an approving official and make the changes 

necessary to prevent approving officials from having the responsibility 

of reviewing more cardholders than allowed by Navy and DOD policies. 

• Establish a database that maintains information on all purchase card 

training taken by cardholders, approving officials, and agency program 

coordinators. Require that agency program coordinators update that 

database whenever these purchase card program officials take training. 

• Establish specific training courses for cardholders, approving officials, 

and agency program coordinators tailored to the specific 

responsibilities associated with each of those roles.

• Direct agency program coordinators to review an approving official’s 

overall workload and determine whether the approving official has the 

time necessary to perform the required review functions.

• Establish job descriptions that identify responsibility and performance 

standards for cardholders, approving officials, and agency program 

coordinators. 

• Link the cardholders’, approving officials’, and agency program 

coordinators’ performance appraisals to achieving their performance 

standards.

• Work with the Naval Audit Service and Command Evaluation staff to 

begin periodic audits of the purchase card program to provide Navy 

management—at the command and unit level—an independent 

assessment of the control environment and whether the agency program 

coordinators, approving officials, and cardholders are adhering to 

control procedures. 

• Identify vendors with which the Navy or Marine Corps uses purchase 

cards to make frequent purchases, evaluate Navy purchasing practices 

with those vendors, and forward the results of that evaluation to the 

Assistant Secretary of the Navy for Research, Development and 

Acquisition to contract with them, when applicable, to optimize Navy 

purchasing power. 
Page 51 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

We recommend that the Secretary of the Navy modify the definition of 

“Pilferable Personal Property” in SECNAV Instruction 7320.10 dated August 

1, 2001, by eliminating the requirement that a portable item easily 

converted to personal use also be difficult to repair or replace, and 

specifically identify items such as computers, cameras, personal digital 

assistants, and audiovisual equipment as meeting the definition of being 

pilferable and thus accountable. 

Specific Internal Control 

Activities

We recommend that the Director of the Department of the Navy eBusiness 

Operations Office modify NAVSUP Instruction 4200.94 to provide 

cardholders, approving officials, and agency program coordinators detailed 

instructions on the following specific control activities:

• timely and independent receiving and acceptance of items obtained with 

a purchase card and documenting the results of that process,

• screening purchases for their availability from required vendors and 

documenting the results of the screening,

• promptly reconciling of the monthly purchase card statements to 

supporting documentation and documenting the results of that 

reconciliation, 

• promptly reviewing of a cardholder purchase card statement by the 

approving official prior to certifying the statement for payment and 

documenting the results of that review, and 

• prompt cardholder notification to property accountability officer of the 

pilferable property obtained with the purchase card, and approving 

official responsibility for monitoring that the pilferable property has 

been recorded in the accountability records.

Potentially Fraudulent, 

Improper, and Abusive or 

Questionable Purchases

We recommend that the Director, Department of Navy eBusiness 

Operations Office take the following actions. 

• Modify NAVSUP Instruction 4200.94 to require cardholders to maintain 

documented justification and advanced approval of purchases that fall 

outside the normal procurements of the cardholder in terms of either 

dollar amount or type of purchase.
Page 52 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• Establish a Navy-wide database of known purchase card fraud cases by 

type of fraud that can be used to identify deficiencies in existing internal 

control and to develop and implement additional control activities, if 

warranted or justified.

• Establish a Navy-wide data mining, analysis, and investigation function 

to supplement other oversight activities. This function should include 

providing oversight results and alerts to major commands and 

installations when warranted. 

• Modify NAVSUP Instruction 4200.94 to include a schedule of 

disciplinary actions as a guide for taking actions against cardholders 

who make improper or abusive acquisitions with the purchase card.

We also recommend that the Under Secretary of Defense (Comptroller) 

direct the Charge Card Task Force to assess the above recommendations 

and to the extent applicable, incorporate them into its future 

recommendations to improve purchase card policies and procedures 

throughout DOD. 

Agency Comments and 

Our Evaluation 

In written comments on a draft of this report, which are reprinted in 

appendixes VI and VII, DOD concurred with 16 of our 19 recommendations. 

DOD partially concurred with the remaining 3 recommendations dealing 

with (1) linking the performance appraisals of purchase card officials to 

achieving performance standards, (2) maintaining accountability over 

pilferable property, and (3) establishing a schedule of disciplinary actions 

that will be taken against cardholders who make improper or abusive 

acquisitions. However, the actions that DOD plans to take on these 3 

recommendations appear to address their most significant aspects. 

Concerning linking staff performance to purchase card performance 

standards, DOD responded that the Department of Navy eBusiness 

Operations Office will work with the Navy Human Resources Office to 

determine the need, legality, and feasibility of adding cardholder, approving 

official, and agency program coordinator performance standards to 

performance appraisals. Such measures are an important aspect of the 

purchase card program and are responsive to our recommendation. We 

encourage the Navy eBusiness Operations Office to work expeditiously 

with the Navy Human Resources Office to develop performance standards 

that make carrying out this fiduciary responsibility a matter to be 

considered in assessing staff.
Page 53 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Regarding property more susceptible to theft, DOD stated that Navy would 

modify its definition of pilferable property to be the same as the DOD 

definition of pilferable property. By adopting the DOD definition, the Navy 

will remove the requirement that the item be “hard to repair or replace” 

from its definition of pilferable property. DOD did not, however, agree with 

the aspect of our recommendation that it provide commanders examples of 

items considered pilferable. DOD stated that a listing of specific pilferable 

items would require continual update and vigilance, and prove ultimately to 

be subjective and unscientific. We agree that a listing of specific pilferable 

items would require periodic updating. That was not the intent of our 

recommendation. Instead, we believe that providing commanders 

examples of types of pilferable property that can be easily removed from 

Navy facilities and have immediate use outside the Navy, would help ensure 

that items such as camera equipment and laptop computers are 

consistently included in accountable records. 

Concerning our recommendation to establish a schedule of disciplinary 

actions that will be taken against cardholders who abuse their purchase 

card privileges, DOD stated that the department has already taken actions 

to deal with improper and abusive uses of purchase cards, and that the 

Navy’s eBusiness Operations Office will examine whether actions that have 

already been taken are appropriate. However, DOD also stated that to the 

extent the recommendation contemplates the prescription of mandatory 

disciplinary or other actions, it is objectionable. DOD stated that 

disciplinary and other actions in response to improper and abusive 

purchase card use are properly addressed as matters of command and 

supervisory discretion. 

We never contemplated that the schedule would prescribe mandatory 

actions. Rather, we intended the schedule to be a guide of disciplinary 

actions to be taken against cardholders. It would also serve as an 

important internal control feature that clearly identified the consequences 

associated with improper and abusive purchase card use and would serve 

as a deterrent to such abuse. Further, the schedule of disciplinary actions 

could include a range of actions that would be appropriate for various 

types of purchase card misuse. Commanders and supervisors would still 

maintain their discretion to select the specific disciplinary action, if any, 

depending on the circumstances of individual cases. To eliminate any 

confusion concerning the intent of our recommendation, we made a slight 

modification to the text of the recommendation. 
Page 54 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

As agreed with your offices, unless you announce the contents of this 

report earlier, we will not distribute this report until 30 days from its date. 

At that time, we will send copies to interested congressional committees; 

the Secretary of Defense; the Under Secretary of Defense for Acquisition, 

Technology, and Logistics; the Under Secretary of Defense, Comptroller; 

the Secretary of the Navy; the Assistant Secretary of the Navy for Research, 

Development and Acquisition; the Director of the Defense Finance and 

Accounting Service; and the Director of the Office of Management and 

Budget. We will make copies available to others upon request. In addition, 

the report will be available at no charge on the GAO web site at 

http://www.gao.gov.

Please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov, John 

Ryan at (202) 512-9587 or ryanj@gao.gov, or John Kelly at (202) 512-6926 or 

kellyj@gao.gov if you or your staffs have any questions concerning this 

report. Major contributors to this report are acknowledged in appendix 

VIII. 

Gregory D. Kutz

Director

Financial Management and Assurance

Ronald D. Malfi 

Director

Office of Special Investigations 
Page 55 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix I

Background AAppenednxidexiIs

The Navy’s purchase card program is part of the Governmentwide 

Commercial Purchase Card Program, which was established to streamline 

federal agency acquisition processes by providing a low-cost, efficient 

vehicle for obtaining goods and services directly from vendors. According 

to the General Services Administration (GSA), the Department of Defense 

(DOD) reported that during fiscal year 2001 it used purchase cards for 

more than 10.7 million transactions, valued at $6.1 billion. The Navy’s 

reported purchase card activity—MasterCards issued to civilian and 

military personnel—totaled about 2.8 million transactions, valued at

$1.8 billion, during fiscal year 2001. This represented nearly 30 percent of 

DOD’s purchase card activity for fiscal year 2001. According to unaudited 

fiscal year 2001 purchase card data, four commands included in our current 

audit—Atlantic Fleet, Pacific Fleet, Naval Sea Systems Command, and the 

Marine Corps—made about $173 million, $137 million, $268 million, and 

$224 million, respectively, in purchase card acquisitions. In addition, 

according to unaudited fiscal year 2001 purchase card data for the two 

commands included in our March 2002 testimony, the Naval Facilities 

Engineering Command (Public Works Center) and Space and Naval 

Warfare Systems Command made about $117 million and $85 million in 

purchase card acquisitions respectively. See table 12 for further detail on 

fiscal year 2001 purchase card spending.

Table 12: Number and Value of Transactions in Fiscal Year 2001

Source : GAO analysis of Navy purchase card program data.

Navy major command

Number of

transactions

(in thousands)

Cost of

transactions

(in millions)

Percent of

Navy purchase

card costs

Atlantic Fleet 307 $173 10

Pacific Fleet 227 $137 8

Naval Sea Systems Command 319 $268 15

Marine Corps 380 $224 12

Naval Facilities Engineering 

Command 224 $117 6

Space and Naval Warfare Systems 

Command 114 $85 5

Other major commands 1,255 $804 44

Total 2,826 $1,808 100
Appendix I

Background

Page 56 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Because the four commands have cardholders located throughout the 

world, we limited our testing of the transactions made by the units of those 

commands to cardholders located in specific geographical areas, and used 

a case study approach to evaluate each command’s local purchase card 

program. According to unaudited fiscal year 2001 purchase card data, 

Pacific Fleet cardholders in San Diego made about $35 million in purchase 

card acquisitions; Atlantic Fleet cardholders located in the Norfolk area 

made about $48 million in purchase card acquisitions; Naval Sea Systems 

Command cardholders in the Norfolk area made about $49 million in 

purchase card acquisitions; and Marine Corps cardholders at Camp 

Lejeune made about $36 million in purchase card acquisitions.

The Pacific Fleet, Atlantic Fleet, and the Marine Corps are warfighting 

units, while the Naval Sea Systems Command is a support command. The 

Pacific Fleet is responsible for providing trained and combat-ready naval 

forces to the Commander-in-Chief U.S. Pacific Command. Its headquarters 

is in Honolulu, and its lower echelon commands are located in Honolulu 

and San Diego. The Atlantic Fleet provides trained, combat-ready forces to 

support the United States and the North Atlantic Treaty Organization 

(NATO) commanders in regions of conflict. Its headquarters and lower 

echelon commands are located in Norfolk. The Naval Sea Systems 

Command is responsible for providing the Navy operationally superior and 

affordable ships, systems, and ordnance. NAVSEA is headquartered in 

Washington, D.C., and has major shipbuilding and repair facilities on both 

the East and West Coasts including Norfolk. The Marine Corps is 

responsible for providing a highly flexible, combat-ready force in a high 

state of readiness, prepared to support the military’s strategy. The Marine 

Corps has bases located throughout the United States, including Camp 

Lejeune. 

Governmentwide Purchase 

Card Program Guidelines

The purchase card can be used for both micropurchases and payment of 

other purchases. Although most cardholders have limits of $2,500, some 

have limits of $25,000 or higher. The Federal Acquisition Regulation, Part 

13, “Simplified Acquisition Procedures,” establishes criteria for using 

purchase cards to place orders and make payments. DOD and the Navy 

have supplements to this regulation that contain sections on simplified 

acquisition procedures. U.S. Treasury regulations govern purchase card 

payment certification processing and disbursements. DOD’s Purchase 

Card Joint Program Management Office, which is in the Office of the 

Assistant Secretary of the Army for Acquisition Logistics and Technology, 

has issued departmentwide guidance related to the use of purchase cards. 
Appendix I

Background

Page 57 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

However, each service has its own policies and procedures governing the 

purchase card program. 

Navy Purchase Card 

Acquisition and Payment 

Processes

The Naval Supply Systems Command (NAVSUP) is responsible for the 

overall management of the Navy’s purchase card program, and has 

published NAVSUP Instruction 4200.94, Department of the Navy Policies 

and Procedures for Implementing the Governmentwide Purchase Card 

Program. Under the NAVSUP instruction, each Navy command’s head 

contracting officer authorizes agency purchase card program coordinators 

in local Navy units to obtain purchase cards and establish credit limits. The 

program coordinators are responsible for administering the purchase card 

program within their designated span of control and serve as the 

communication link between Navy units and the purchase card issuing 

bank. The other key personnel in the purchase card program are the 

approving officials and the cardholders. Figure 5 illustrates the standard 

process in which the Navy purchase card is used to acquire goods and 

services and certify the monthly bill for payment.
Appendix I

Background

Page 58 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Figure 5: Navy Purchase Card Process Approving Officials 

If operating effectively, the approving official is responsible for ensuring 

that all purchases made by the cardholders within his or her cognizance are 

appropriate and that the charges are accurate. The approving official is 

supposed to resolve all questionable purchases with the cardholder before 

certifying the bill for payment. In the event an unauthorized purchase is 

detected, the approving official is supposed to notify the agency program 

coordinator and other appropriate personnel within the command in 

accordance with the command procedures. After reviewing the monthly 

Items shipped

Items picked up

Pilferable items 

are recorded in 

accountable 

property records 

Vendor

Cardholder reconciles

underlying receipts/sales slips 

to monthly purchase 

card statements, identifies 

any invalid charges, and 

prepares dispute forms

Cardholder logs items not 

received and follows up to 

(1) confirm receipt or 

(2) dispute the charge

DFAS processes

purchase card 

payments to Citibank

Cardholder or approving 

official logs disputed 

charges and sends forms 

to Citibank for credit

Approving official reviews 

cardholder support, and 

certifies monthly statements 

for payment

Citibank reverses disputed 

charges and credits 

monthly statement

Monthly purchase card

statements are received 

from bank

Independent documentation 

that items have been 

received and accepted

Purchase cardholder 

orders/charges goods

and services
Appendix I

Background

Page 59 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

statement, the approving official is to certify the monthly invoice and send 

it to the Defense Finance and Accounting Service (DFAS) for payment. 

Cardholders A purchase cardholder is a Navy employee who has been issued a purchase 

card. The purchase card bears the cardholder’s name and the account 

number that has been assigned to the individual. The cardholder is 

expected to safeguard the purchase card as if it were cash. 

Designation of Cardholders When a supervisor requests that a staff member receive a purchase card, 

the agency program coordinator is to first provide training on purchase 

card policies and procedures and then establish a credit limit and issue a 

purchase card to the staff member. 

Ordering Goods and Services Purchase cardholders are delegated limited contracting officer ordering 

responsibilities. As limited contracting officers, purchase cardholders do 

not negotiate or manage contracts. Rather, cardholders use purchase cards 

to order goods and services for their units and their customers as well. 

Cardholders may pick up items ordered directly from the vendor or request 

that items be shipped directly to an end user (requesters). Upon receipt of 

purchased items, the cardholder is to record the transaction in his or her 

purchase log and obtain documented independent confirmation from the 

end user, the supervisor, or another individual that the items have been 

received and accepted by the government. The cardholder is also to notify 

the property book-officer of accountable items received so that these items 

can be recorded in the accountable property records.

Payment Processing The purchase card payment process begins with receipt of the monthly 

purchase card billing statements. Section 2784 of title 10, United States 

Code, requires DOD to issue regulations that ensure that purchase 

cardholders and each official with authority to authorize expenditures 

charged to the purchase card reconcile charges with receipts and other 

supporting documentation before paying the monthly purchase card 

statement. NAVSUP Instruction 4200.94 states that upon receipt of the 

individual cardholder statement, the cardholder has 5 days to reconcile the 

transactions appearing on the statement by verifying their accuracy 

documentation supporting the transaction and to notify the approving 

official in writing of any discrepancies in the statement. 

In addition, under NAVSUP Instruction 4200.94, before the credit card bill 

is paid, the approving official is responsible for (1) ensuring that all 

purchases made by the cardholders within his or her cognizance are 
Appendix I

Background

Page 60 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

appropriate and that the charges are accurate and (2) the timely 

certification of the monthly summary statement for payment by the DFAS. 

The instruction further states that within 5 days of receipt, the approving 

official must review and certify for payment the monthly billing statement, 

which is a summary invoice of all transactions of the cardholders under the 

approving official’s purview. The approving official is instructed to 

presume that all transactions on the monthly statements are proper unless 

notified in writing by the purchase cardholder to the contrary. However, 

the presumption does not relieve the approving official from reviewing the 

statements for blatantly improper purchase card transactions and taking 

the appropriate action prior to certifying the invoice for payment. In 

addition, the approving official is responsible for forwarding disputed 

charge forms for submission to Citibank for credit. Under the Navy’s task 

order, Citibank allows the Navy up to 60 days after the statement date to 

dispute invalid transactions and request a credit. 

Upon receipt of the certified monthly purchase card summary statement, a 

DFAS vendor payment clerk is to (1) review the statement and supporting 

documents to confirm that the prompt-payment certification form has been 

properly completed and (2) subject it to automated and manual validations. 

DFAS effectively serves as a payment processing service and relies on the 

approving-official certification of the monthly bill as support to make the 

payment. The DFAS vendor payment system then batches all of the 

certified purchase card payments for that day and generates a tape for a 

single payment to Citibank by electronic funds transfer. Figure 5 illustrates 

the current design of the purchase card payment process for the Navy 

command units we reviewed.
Page 61 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix II

Scope and Methodology ApendxiI

We reviewed key purchase card controls for units of four Navy commands. 

In addition, as you requested, we followed up on (1) the status of the 

recommendations we made in our November 30, 2001, report, (2) the status 

of the former commanding officer of SPAWAR Systems Center San Diego, 

(3) the status of two potential fraud cases that we reported on in the March 

2002 testimony, and (4) any other fraud cases we identified as part of this 

audit. Our review of key purchase card controls for the Atlantic Fleet, 

Pacific Fleet, NAVSEA, and the Marine Corps covered

• the overall management control environment, including 

(1) management’s attitude in establishing the needed controls, (2) the 

numbers of cardholder and approving officials, (3) cardholder and 

approving official credit limits, (4) training for cardholders and 

approving officials,20 (5) monitoring and audit of purchase card activity, 

and (6) effectiveness of purchase card infrastructure; 

• tests of statistical samples of key controls over purchase card 

transactions made during the first 11 months of fiscal year 2001 

including (1) screening for required vendors, (2) documentation of 

independent confirmation that items or services paid for with the 

purchase card were received, (3) proper certification of the monthly 

purchase card statement for payment, and (4) substantive tests of 

pilferable property items included in our sample transactions to verify 

whether they were recorded in an accountable record; 

• analytical reviews of transactions entered into during the last month of 

fiscal year 2001; 

20We also tested the statistical samples of transactions to determine whether the units had 

documented evidence that cardholders had received required purchase card training.
Appendix II

Scope and Methodology

Page 62 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• data mining of the population of fiscal year 2001 transactions to identify 

potentially fraudulent, improper, and abusive or questionable 

transactions;21

• analysis and audit work related to invoices and other information 

obtained from Franklin Covey, from which, based on interviews with 

cardholders and our review of other transactions, we had reason to 

believe that the units at the four commands had made improper and 

abusive or questionable purchases during fiscal year 2001; 

• analysis of the population of fiscal year 2001 purchase card transactions, 

for the four command units, to identify purchases that were split into 

two or more transactions to avoid the micropurchase threshold or other 

spending limits; and 

• analysis of the population of Navy-wide fiscal year 2001 purchase card 

transactions to determine whether the Navy was effectively managing 

its purchases with frequently used vendors. 

In addition, our Office of Special Investigations worked with DOD’s 

criminal investigative agencies, Citibank, and credit card industry 

representatives to identify known and potentially fraudulent purchase card 

cases. Our Office of Special Investigations also investigated potentially 

fraudulent or abusive purchase card transactions that we identified while 

analyzing fiscal year 2001 purchase card transactions at the units in the 

four commands. Because the Navy does not have a database of purchase 

card fraud cases, we were unable to determine the extent of known fraud 

cases at either the case study locations or Navy-wide. 

21We considered potentially fraudulent purchases to include those made by cardholders that 

were unauthorized and intended for personal use. The transactions we determined to be 

improper are those purchases intended for government use, but not for a purpose that is 

permitted by law, regulation, or DOD policy. We also identified as improper numerous 

purchases made on the same day from the same vendor that appeared to circumvent 

cardholder single-transaction limits. Many of the purchases we found to be abusive or 

questionable fall into categories described in GAO’s Guide for Evaluating and Testing 

Controls Over Sensitive Payments (GAO/AFMD-8.1.2, May 1993). The guide states, “Abuse 

is distinct from illegal acts (noncompliance). When abuse occurs, no law or regulation is 

violated. Rather, abuse occurs when the conduct of a government organization, program, 

activity, or function falls short of societal expectations of prudent behavior.” 
Appendix II

Scope and Methodology

Page 63 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

We used as our primary criteria applicable laws and regulations; our 

Standards for Internal Control in the Federal Government;22 and our 

Guide for Evaluating and Testing Controls Over Sensitive Payments.23 

To assess the management control environment, we applied the 

fundamental concepts and standards in the GAO internal control standards 

to the practices followed by management in the areas reviewed. 

Statistical Samples of 

Internal Control Procedures

To test controls, we selected stratified random probability samples from 

the population of purchase card transactions by cardholders who had 

mailing addresses at the four locations we visited. All purchase card 

transactions subjected to sampling occurred during the first 11 months of 

fiscal year 2001. We performed analytical reviews on the transactions that 

occurred during the last month of fiscal year 2001. Specifically, we selected 

150 transactions of Atlantic Fleet cardholders based in Norfolk from a 

population of 72,000 transactions totaling $43 million; 166 transactions of 

Pacific Fleet cardholders based in San Diego from a population of 46,000 

transactions totaling $30 million; 158 transactions from Naval Sea Systems 

Command cardholders based in Norfolk from a population of 46,000 

transactions totaling $41 million; and 150 Marine Corps cardholders based 

in Camp Lejeune from a population of 52,000 transactions totaling 

$32 million.

Within each command we stratified the population of transactions by the 

dollar value of the transaction and by whether the transaction was likely to 

be for a purchase of computer-related equipment. With this statistically 

valid probability sample, each transaction in the population had a nonzero 

probability of being included, and that probability could be computed for 

any transaction. Each sample element was subsequently weighted in the 

analysis to account statistically for all the transactions in the population, 

including those that were not selected. Table 13 presents our test results 

on cardholder and approving official training and three key transaction22Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1) was 

prepared to fulfill our statutory requirement under the Federal Managers’ Financial Integrity 

Act to issue standards that provide the overall framework for establishing and maintaining 

internal control and for identifying and addressing major performance and management 

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

23Guide for Evaluating and Testing Controls Over Sensitive Payments (GAO/AFMD-8.1.2) 

provides a framework for evaluating and testing the effectiveness of internal controls that 

have been established in various sensitive payment areas. 
Appendix II

Scope and Methodology

Page 64 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

level controls, and shows the confidence intervals for the estimates for the 

population of purchase card transactions made by units at the four 

commands during the first 11 months of fiscal year 2001. Although we 

projected the results of those samples to the populations of transactions at 

the respective commands, the results cannot be projected to the population 

of Navy-wide transactions or commands. Because most of the sampled 

transactions did not contain pilferable property, we did not project the 

results of that attribute test to the populations of transactions tested. 

Table 13: Estimate of 11 Months of Fiscal Year 2001 Transactions That Failed Control Tests

a The projections represent point estimates for the populations based on our statistical samples. The 

intervals are two-sided 95 percent confidence intervals. 

Data Mining In addition to selecting statistical samples of Pacific Fleet, Atlantic Fleet, 

Naval Sea Systems Command, and Marine Corps transactions to test 

specific internal controls, we also made nonrepresentative selections of 

fiscal year 2001 transactions from these commands and the Navy as a 

whole. We conducted separate analysis of acquisitions that were 

potentially fraudulent, improper, and abusive or otherwise questionable. 

Our data mining for potentially fraudulent, improper, and abusive or 

questionable transactions was limited in scope. For this review, we 

scanned the population of transactions at the four commands visited and 

the overall Navy database for vendors that are likely to sell goods or 

services (1) on NAVSUP’s list of prohibited items, (2) that are personal 

items, and (3) that are otherwise questionable. Our expectation was that 

Atlantic Fleet, Norfolk

Pacific Fleet, 

San Diego

Naval Sea Systems 

Command, Norfolk

Marine Corps, Camp 

Lejeune

Key purchase card 

control

Point

estimate Intervala

Point

estimate Intervala

Point

estimate Intervala

Point

estimate Intervala

Training

87%

77% to

94% 73%

61% to

83% 80%

67% to

89% 56%

43% to

68%

Independent, 

documented receipt of 

items purchased 58%

46% to

70% 59%

48% to

70% 67%

54% to

78% 59%

47% to

71%

Screening for required 

vendors 88%

78% to

95% 70%

58% to

80% 90%

 79% to

97% 89%

78% to

96%

Proper certification of 

purchase card 

statements for payment 98%

89% to

99% 80%

70% to

88% 86%

75% to

94% 94%

86% to

98%
Appendix II

Scope and Methodology

Page 65 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

transactions with certain vendors had a more likely chance of being 

fraudulent, improper, and abusive or questionable. Because of the large 

number of transactions that met these criteria we did not look at all 

potential abuses of the purchase card. Rather, we made nonrepresentative 

selections of transactions with the vendors that fit these criteria. For 

example, we reviewed, and in some cases made inquiries, concerning 443 

transactions and other related transactions on the same monthly purchase 

card statement with vendors that sold such items as sporting goods, 

groceries, luggage, flowers, and clothing. While we identified some 

potentially fraudulent, improper, and abusive or questionable transactions, 

our work was not designed to identify, and we cannot determine, the extent 

of fraudulent, improper, and abusive or questionable transactions. 

Our data mining also included nonrepresentative selections of acquisitions 

that these units made during fiscal year 2001 that may have been split into 

multiple transactions to circumvent either the micropurchase competition 

requirements or cardholder single-transaction thresholds. 

We briefed DOD managers (including officials in DOD’s Purchase Card 

Joint Program Management Office) and Navy managers (including 

NAVSUP, Pacific Fleet, Atlantic Fleet, Naval Sea Systems Command, and 

the Marine Corps officials) on the details of our review, including our 

objectives, scope, and methodology and our findings and conclusions. We 

received comments from the Director, DOD Purchase Card Joint Program 

Management Office dated September 16, 2002, and have reprinted those 

comments in appendix VI. We also received comments from the Under 

Secretary of Defense (Comptroller) dated September 23, 2002, and have 

reprinted those comments in appendix VII. We conducted our audit work 

from November 2001 through July 2002 in accordance with U.S. generally 

accepted government auditing standards, and we performed our 

investigative work in accordance with standards prescribed by the 

President’s Council on Integrity and Efficiency. 
Page 66 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations ApendxiI

In our November 30, 2001, report24 we made 29 recommendations to the 

Navy to address key findings related to the weak management control 

environment and internal control discussed in our July 30, 2001, 

testimony.25 In response to our November 2001 report, DOD concurred with 

19 recommendations, partially concurred with 7 recommendations, and 

disagreed with 3 recommendations. On May 29, 2002, the Navy provided us 

with its assessment of its corrective actions to implement all 29 

recommendations. The following chart summarizes (1) those 

recommendations, (2) the Navy’s representations as to actions taken, and 

(3) our observations on the status of the recommendations. We noted in 

many instances the Navy had taken positive steps to improve the purchase 

card controls; however, given the significant control problems that exist, 

the Navy will need to diligently monitor the purchase card program to 

attain and maintain a high level of adherence to the policies and directives.

24GAO-02-32.

25GAO-01-995T.
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 67 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Table 14: Status of Previous GAO Recommendations

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation

Proliferation of Cardholders

The Commanding Officers of the SPAWAR 

and the Navy Public Works Center San 

Diego work with the NAVSUP and DOD’s 

Purchase Card Joint Program Management 

Office to do the following:

• Establish specific policies and strategies 

governing the number of purchase cards to 

be issued with a focus on minimizing the 

number of cardholders.

The Navy Purchase Card Program 

Management Office (PCPMO) issued policy 

as an interim change to NAVSUP Instruction 

4200.94 – Navy purchase card Internal 

Management Controls, establishing 

guidance for span of control and criteria for 

issuing card accounts as well as minimum 

requirements for regular account 

maintenance by the agency program 

coordinator. Navy PCPMO issued letters to 

all activities with accounts outside the 

recommended span of control directing 

immediate corrective action be taken. Span 

of control is being monitored on a continual 

basis.

Implemented. However, our current audit 

work found that operating units are not 

adhering to the interim policy. 

• Develop criteria for identifying employees 

eligible for the privilege of cardholder 

status. As part of the effort to develop 

these criteria, assess the feasibility and 

cost-benefit of performing credit checks on 

employees prior to assigning them 

cardholder responsibilities to ensure that 

employees authorized to use government 

purchase cards have demonstrated credit 

worthiness and financial integrity.

The Navy PCPMO issued policy as an 

interim change to NAVSUP Instruction 

4200.94 – Navy purchase card Internal 

Management Controls establishing eligibility 

criteria for issuing card accounts. The issue 

of credit checks was deferred to DOD.

Partially implemented. The criterion on 

eligibility for cardholder’s duties has been 

developed. However our current audit work 

found that operating units are not adhering 

to the interim policy. 

The issue of credit checks has not been 

addressed.

• Develop policies and strategies on credit 

limits provided to cardholders with a focus 

on minimizing specific cardholder 

spending authority and minimizing the 

federal government’s financial exposure.

The Navy PCPMO issued policy as an 

interim change to NAVSUP Instruction 

4200.94 – Navy purchase card Program 

Internal Management Controls, establishing 

guidance on creating and maintaining credit 

limits and reporting guidelines for 

cardholders and billing officials. Credit limits 

are being assessed across the Navy and will 

be addressed through letters to the activities 

where it appears existing credit limits 

exceed mission requirements. Credit limits 

are now a critical element in the revised 

semiannual review procedures.

Implemented. However, our current audit 

work identified operating units that have not 

successfully implemented the reduction in 

credit limits to a reasonable amount. 
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 68 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Training

The Commander of NAVSUP 

• confirm that required training has been 

completed and documented and

The Navy conducted a departmentwide 

purchase card stand-down that required all 

program participants to complete the Navy 

Purchase Card Training Tutorial CD-ROM 

and provide documentation to the activity 

program coordinator as well the Navy 

PCPMO. The account of any program 

participant (with the exception of deployed 

personnel) who did not complete the training 

was canceled and will not be reinstated until 

documentation is presented to show 

successful completion of the training. 

Annual and semiannual reporting 

requirements now include the status of 

training for all program participants.

Partially implemented. Our current audit 

work identified operating units that have not 

complied with the requirement. 

• incorporate into purchase card training 

programs any relevant changes in policies 

and procedures made as a result of the 

recommendations in this report.

In progress. The NAVSUP Instruction 

4200.94 is in the final stages of being 

revised to incorporate all interim changes 

issued by policy letter as a result of the GAO 

report. The expected release date is 

summer 2002. Navy PCPMO training 

materials are being updated to incorporate 

relevant changes. Department of Navy 

(DON) PCPMO conducted the Semi Annual 

Agency Program Coordinator (APC) 

Conference on May 7, 2002, in Norfolk 

covering a broad range of topical material, 

including changes in policies and 

procedures. Attendance was mandatory for 

all command level APCs and encouraged for 

subordinate level APCs. The second 

semiannual conference is scheduled for 

November 2002 in San Diego.

In progress, not implemented. The Navy 

has not completed the necessary changes 

in its policy. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 69 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Rebates

The Commander of the NAVSUP work with 

the Navy Comptroller and the Defense 

Finance and Accounting Service to

• investigate ways to maximize potential 

rebates, such as (1) working with Citibank 

to facilitate timely receipt of monthly 

purchase card statements and (2) 

reducing the time associated with mailing 

and receipt of hard copy billing statements,

In progress. Fielding of on-line statement 

distribution, review, approval and 

certification process is ongoing. Currently 

54 percent of DON activities are 

implemented with the remainder expected to 

be implemented within the next 12 months. 

In progress, not implemented. However, 

Navy has taken steps to address this 

recommendation.

• establish effective policies and procedures 

for routinely calculating and verifying 

Citibank rebates, and 

The Navy requested independent 

verification of the Citibank rebate process by 

Naval Audit Service. Navy PCPMO also 

requested the Defense Contract Audit 

Agency to conduct an audit of the banks’ 

rebate calculation.

In progress, not implemented. The Naval 

Audit Service has not responded to 

NAVSUP request for periodic audits. 

• develop guidance for routine distribution of 

rebate earnings to Navy units and 

activities.

The Navy made a determination to retain 

the rebates at the department level in lieu of 

disbursing them to lower echelons.

Implemented. The Navy’s actions appear to 

meet the intent of our recommendation. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 70 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Monitoring and Review

The Commander of the Naval Supply 

Systems Command

• establish in NAVASUP Instruction 4200.94, 

further guidelines for an effective internal 

review program, such as having reviewers 

analyze monthly summary statements to 

identify (1) potentially fraudulent, improper, 

and abusive purchases and (2) any 

patterns of improper cardholder 

transactions, such as purchases of food or 

other prohibited items,

The Navy PCPMO issued policy as an 

interim change to NAVSUP Instruction 

4200.94 – Semiannual Major Claimant 

Reporting Requirement that establishes 

more comprehensive reviews, elevates 

reporting requirements and provides 

uniformity of evaluation and rating criteria. 

The Assistant Secretary of the Navy for 

Research, Development and Acquisition 

now requires purchase card reviews be 

made part of procurement management 

reviews, and ordered a one-time expanded 

semiannual review by all Navy activities to 

be completed and results reported to the 

Navy PCPMO by the summer of 2002. Navy 

PCPMO is conducting routine transaction 

screening to identify potentially fraudulent, 

improper, and abusive purchases.

Implemented. However, our current audit 

work found that operating units are not 

effectively conducting and or utilizing the 

results of the program monitoring process. 

Continued diligent monitoring by the Navy 

purchase card program officials will be 

necessary to attain and maintain a high level 

of adherence to the policy.

• revise NAVSUP Instruction 4200.94 to 

require that (1) written reports on the 

results of internal reviews along with any 

recommendations for corrective actions be 

prepared and submitted to local 

management and cognizant commands 

and (2) commands identify and report 

systemic weaknesses and corrective 

action plans to the Naval Supply Systems 

Command for monitoring and oversight,

The Navy PCPMO issued policy as an 

interim change to NAVSUP Instruction 

4200.94 – Semiannual Major Claimant 

Reporting Requirement that establishes 

more comprehensive reviews, elevates 

reporting requirements, and provides 

uniformity of evaluation and rating criteria. 

The NAVSUP Instruction is being revised to 

incorporate interim policy to include 

reporting of systemic weaknesses. Navywide purchase card stand-down required a 

top-to-bottom review and notice to the Navy 

PCPMO of compliance with purchase card 

policies and procedures by all activities. 

Results of all annual and semiannual 

reviews, along with any systemic 

weaknesses, will be reported to the activity 

commander/commanding officer and to the 

Navy PCPMO through command level 

agency program coordinators.

Implemented. However, our current audit 

work found that even though Navy has made 

changes in its policy, not all operating units 

are adhering to the interim policy. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 71 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• require purchase card Agency Program 

Coordinators to report in writing to the unit 

commander and the Commander of Naval 

Supply Systems Command any internal 

control weakness identified during the 

semiannual program reviews, and

Navy-wide purchase card stand-down 

required a top-to-bottom review and notice 

of compliance to purchase card policies and 

procedures by all activities. Results of all 

annual and semiannual reviews, along with 

any systemic weaknesses, will be reported 

to the activity commander/commanding 

officer and to the Navy PCPMO through 

command level agency program 

coordinators.

Implemented. However, our current audit 

work found that, although Navy has made 

changes in policy, not all operating units 

have successfully implemented the standdown. 

• disclose systemic purchase card control 

weaknesses along with corrective action 

plans in the Secretary of the Navy’s Annual 

Statement of Assurance.

Navy included systemic purchase card 

weaknesses identified from the semiannual 

report in the Secretary of the Navy’s Annual 

Statement of Assurance.

Implemented. The Navy included purchase 

card control weaknesses in the SECNAV 

fiscal year 2001 Annual Statement of 

Assurance. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 72 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Receipt of Goods and Services

• The Commander of the Naval Supply 

Systems Command revise NAVSUP 

Instruction 4200.94 to eliminate 

ambiguous language suggesting that 

advance independent authorization of a 

purchase can be substituted for 

independent confirmation that goods and 

services ordered and paid for with a 

purchase card have been received and 

accepted by the government, and

In progress. The NAVSUP Instruction 

4200.94 is in the final stages of being 

revised to incorporate all interim changes 

issued by policy letter as a result of the GAO 

report. 

In progress, not implemented. Navy has not 

completed the necessary changes in its 

policy. 

• The Commanding Officer of the SPAWAR 

Systems Center San Diego and the 

Commanding Officer of the Navy Public 

Works Center San Diego implement 

procedures to require and document 

independent confirmation of receipt of 

goods and services acquired with a 

purchase card.

The Navy PCPMO issued policy as an 

interim change to NAVSUP Instruction 

4200.94 – Separation Of Functions. It 

provides detailed guidance on proper 

receipt, inspection, and acceptance 

procedures. Public Works Center San 

Diego and SPAWAR Systems Center San 

Diego both incorporated specific guidelines 

into their local internal operating 

procedures. Navy-wide purchase card 

stand-down also reiterated the requirement 

for independent receipt and acceptance.

Reported implemented. However, because 

we did not conduct additional tests at 

SPAWAR or the Navy Public Works Center, 

we cannot verify the extent to which this 

recommendation has been implemented. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 73 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Proper Payment Certification

To provide assurance that certifications of 

monthly purchase card statements for 

payment reflect certifying officer 

responsibilities in 31 U.S.C. 3325, 3528, and 

the approving official’s informed judgment 

that purchases are proper:

• the Commander of the Naval Supply 

Systems Command revise NAVSUP 

Instruction 4200.94 to require that (1) 

cardholders notify approving officials prior 

to payment that purchase card statements 

have been reconciled to supporting 

documentation, (2) approving officials 

certify monthly statements only after 

reviewing them for potentially fraudulent, 

improper, and abusive transactions, and 

(3) approving officials verify, on a sample 

basis, supporting documentation for 

various cardholders’ transactions prior to 

certifying monthly statements for payment, 

and

In progress. The NAVSUP Instruction 

4200.94 is being revised to incorporate all 

interim changes issued by policy letter as a 

result of the GAO report. The expected 

completion date is summer 2002.

In progress, not implemented. The Navy 

has not completed the necessary changes 

in its policy. 

• the Navy Comptroller withdraw the June 3, 

1999, policy memorandum or revise the 

policy guidance to be consistent with the 

preceding recommendation for revising 

payment certification guidance in NAVSUP 

Instruction 4200.94.

The Navy Comptroller policy letter dated 

June 3, 1999, was rescinded effective March 

12, 2002.

Implemented.

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 74 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Proper and Timely Accounting

• The Commanding Officers of the SPAWAR 

and Navy Public Works Center San Diego 

monitor and confirm that purchase card 

transactions are recorded to projects that 

benefited from the goods and services or 

to relevant overhead accounts promptly, in 

accordance with internal control standards 

and federal accounting standards.

Both Public Works Center San Diego and 

SPAWAR Systems Center San Diego 

concurred and are complying. Internal 

operating procedures at both sites include 

guidance on the issue.

Reported Implemented. However, because 

we did not conduct additional tests at 

SPAWAR or the Navy Public Works Center, 

we cannot verify the extent to which this 

recommendation has been implemented. 

• The Commander of the Naval Supply 

Systems Command revise NAVSUP 

Instruction 4200.94 to require that 

purchase card expenses be properly 

classified in the Navy’s detailed accounting 

records.

The Navy PCPMO issued policy as an 

interim change to NAVSUP Instruction 

4200.94 – Standards of Compliance for 

Timely Recording and Classifying of Navy 

Purchase Card Commitments and 

Obligations, which reiterated existing Navy 

and DOD Financial Management Regulation 

policy regarding the issue.

Implemented. 

• The Commanding Officers of SPAWAR 

and Navy Public Works Center San Diego 

verify that their detail purchase card 

transaction records reflected the proper 

object classification of expense.

Both Public Works Center San Diego and 

SPAWAR Systems Center San Diego 

concurred and are complying. The Navy 

issued policy as an interim change to 

NAVSUP Instruction 4200.94 – Standards of 

Compliance for Timely Recording and 

Classifying of Navy Purchase Card 

Commitments and Obligations, which 

reiterated existing Navy and DOD Financial 

Management Regulation policy regarding 

the issue.

Reported Implemented. However, because 

we did not conduct additional tests at 

SPAWAR or the Navy Public Works Center, 

we cannot verify the extent to which this 

recommendation has been implemented. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 75 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Accountable Property

• We recommend that the Commanding 

Officers of SPAWAR and the Navy Public 

Works Center San Diego require and verify 

that accountable property obtained using a 

purchase card is promptly recorded in 

property records as it is acquired, in 

accordance with DOD and Navy policies 

and procedures. 

Both the Navy Public Works Center San 

Diego and SPAWAR Systems Center San 

Diego concurred and are complying.

Implemented. However, the Navy changed 

its policy addressing accountable and 

pilferable property in August 2001, and has 

represented that the Navy Public Works 

Center San Diego and SPAWAR Systems 

Center San Diego are complying with a 

policy that we believe needs to be changed. 

This report contains additional 

recommendations concerning maintaining 

accountability over pilferable property. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 76 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

The following were our recommendations to identify and address potentially fraudulent, improper, and abusive purchase card 

transactions prior to payment.

Fraudulent, Improper, and Abusive Transactions

The Commander of the NAVSUP:

• Immediately cancel all known active 

compromised purchase card accounts.

All compromised accounts are closed. Implemented.

• Determine whether purchases of 

excessive cost, questionable government 

need, or both, such as items for personal 

use, including personal digital assistants 

(such as Palm Pilots), and flat screen 

computer monitors, that were identified by 

GAO are proper government purchases. If 

not, the Commander should prohibit their 

purchase.

At the direction of the Navy PCPMO, a 

100% transactional review was conducted at 

all activities, with one of the review elements 

being purchases made at excessive cost 

and/or of questionable need. Where 

activities identified items of excessive cost 

or questionable need, they certified to the 

Navy PCPMO that appropriate action was 

taken.

Partially implemented. Current audit work 

indicates that not all units performed the 

100% transaction review, and that the 

transaction reviews performed were not 

thorough enough to identify items of 

excessive cost or questionable need. 

• Establish written policies and criteria 

requiring documented justifications and 

procurement management approval for 

types of items that can be acquired with a 

government purchase card.

Revised Navy Instruction and updated 

training materials will reference and clarify 

existing acquisition policy addressing this 

issue.

In progress, not implemented. Navy has not 

completed the necessary changes in its 

policy. 

• Examine purchase card acquisition 

guidance to determine whether the 

purchase card is the right vehicle for 

acquiring certain goods and services, such 

as vehicle and equipment maintenance, 

installation of upgraded computer 

software, and other recurring or 

installationwide services, or whether these 

items should be subject to negotiated 

contracts.

Navy instruction and purchase card training 

is being revised to provide expanded 

guidance on the use of mandatory sources 

of supply and the requirement to utilize 

existing contractual vehicles to the 

maximum practical extent.

In progress, not implemented. Navy has not 

completed the necessary changes in its 

policy. 

• Work with the Under Secretary for 

Acquisition, Technology, and Logistics and 

DOD’s Purchase Card Joint Program 

Office to determine whether the purchase 

card should be used to acquire computers 

and other equipment or property items 

individually that could be more 

economically and efficiently procured 

through bulk purchases.

Navy instruction and purchase card training 

is being revised to provide expanded 

guidance on the use of mandatory sources 

of supply and the requirement to utilize 

existing contractual vehicles to the 

maximum practical extent.

In progress, not implemented. Navy has not 

completed the necessary changes in its 

policy. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 77 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

• Revise NAVSUP Instruction 4200.94 to 

make it consistent with the Federal 

Acquisition Regulation, 48 C.F.R. 

13.301(a), which states that the “card may 

be used only for purchases that are 

otherwise authorized by law or regulation.” 

The clarifying guidance should specifically 

state that in the absence of specific 

statutory authority, purchases of items for 

the personal benefit of government 

employees, such as flowers or food, are 

not permitted and are therefore improper 

transactions.

Revised instruction will specifically state that 

in absence of specific statutory authority, 

purchase of items for the personal benefit of 

government employees, such as flowers or 

food, are not permitted and are therefore 

improper transactions.

In progress, not implemented. Navy has not 

completed the necessary changes in its 

policy. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 78 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Split Purchases

The Commanding Officers of the SPAWAR 

and Navy Public Works Center San Diego

• prohibit splitting purchases into multiple 

transactions as required by the Federal 

Acquisition Regulation and emphasize this 

prohibition in purchase card training 

provided to cardholders and approving 

officials, and

The language in the NAVSUP Instruction 

4200.94, both in the existing and upcoming 

revised versions, prohibits split purchases. 

Training emphasizes the prohibition on split 

purchases, as will all future annual and 

semiannual program reviews. Agency 

program coordinators have an on-line tool to 

proactively monitor split purchases.

Reported implemented. However, because 

we did not conduct additional tests at 

SPAWAR or the Navy Public Works Center, 

we cannot verify the extent to which this 

recommendation has been implemented. 

• require approving officials to monitor 

monthly purchase card statements and 

identify and report to them regarding any 

split purchases and the names of 

cardholders who made the transactions.

Agency program coordinators have been 

given the necessary tools to proactively 

monitor split purchases and are required to 

report such purchases to the appropriate 

local management.

Reported partially implemented. Because 

we did not conduct additional tests at 

SPAWAR or the Navy Public Works Center, 

we cannot verify the extent to which this 

recommendation has been implemented. 

Further, the Navy’s response addresses 

actions that the agency program 

coordinators can take. Our 

recommendation was to have the approving 

officials monitor for splitting and report the 

names of cardholders who made split 

purchases. 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Appendix III

Status of GAO Recommendations to Improve 

Navy Purchase Card Operations

Page 79 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Overall Accountability

• To help ensure that cardholders adhere to 

applicable purchase card laws, 

regulations, internal control and 

accounting standards, and policies and 

procedures, we recommend that the 

Commander of the Naval Supply Systems 

Command revise NAVSUP Instruction 

4200.94 to include specific consequences 

for noncompliance with these guidelines 

and enforce the guidelines.

NAVSUP Instruction 4200.94 refers 

commanders to applicable existing 

regulations that they should use to guide an 

appropriate course of action taking into 

account the specific circumstances of the 

event. Assistant Secretary of the Navy for 

Research Development and Acquisition 

issued a Naval message dated August 31, 

2001, reiterating compliance, accountability, 

and consequences of fraud, abuse, and 

misuse. 

Not implemented. The Navy has not made 

the necessary changes in its policies to 

establish specific consequences for 

noncompliance with the provisions of 

NAVSUP Instruction 4200.94, which 

address internal control policies and 

procedures (e.g., required training, 

independent receipting, statutory vendor 

screening, splitting purchases, cardholder 

account reconciliation, disputing improper 

charges, approving official review and 

certification). 

(Continued From Previous Page)

GAO recommendation

Status of GAO recommendation, as 

reported by Navy

GAO observation on the status of 

recommendation
Page 80 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix IV

Status of Previously Identified Fraud Cases ApendxiIV

In our March 13, 2002, testimony, we identified a number of cases of 

potentially fraudulent purchase card use that we referred to our Office of 

Special Investigations for further investigation. One case involved 

transactions totaling about $164,000 with a communication contractor. A 

second case involved payment for food and refreshments at a local hotel. 

The information provided below summarizes the status of those cases. 

Communications 

Contractor

In the March testimony, we reported that during fiscal year 2001, SPAWAR 

made 75 transactions totaling about $164,000 for what appeared to be 

advance payments for services to a telecommunications contractor. Our 

Office of Special Investigations subsequently learned that the transactions 

were payments made by SPAWAR based on cost estimates provided by the 

contractor. In almost all 75 transactions, the amount paid by SPAWAR was 

more than the actual cost incurred by the contractor—even after the actual 

expenses were adjusted for estimated overhead and standard profit 

margin. Further, the work paid for by the purchase card was work that 

should have been paid for under an existing delivery order contract. 

According to contractor and SPAWAR personnel, the purchase card was 

used because it was a faster vehicle to get work done. The SPAWAR official 

also told us that when there was no funding remaining on a particular 

delivery order contract line item, SPAWAR used the purchase card rather 

than modifying the contract. Our Office of Special Investigations 

determined that SPAWAR overpaid the contractor about $34,000 for the 75 

transactions identified in the March testimony. 

A SPAWAR official told us that on September 10, 2002, it received a check 

from the contractor in the amount of $9,862. The payment represented a 

refund for work the contractor did not perform on 4 transactions. The 

SPAWAR official also told us that the contractor disagrees with our Office 

of Special Investigations assessment that the contractor over charged 

SPAWAR about $24,000 on the 71 other transactions we reviewed. 
Appendix IV

Status of Previously Identified Fraud Cases

Page 81 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Food and Refreshments at a 

Local Hotel

The SPAWAR Inspector General and Staff Judge Advocate investigated the 

use of a Navy purchase card at a San Diego hotel for an off-site meeting in 

which SPAWAR used appropriated funds to pay for meals provided to Navy 

personnel. As we have previously reported, without statutory authority, 

appropriated funds may not be used to furnish meals or refreshments to 

employees within their normal duty stations.26 The SPAWAR Inspector 

General told us the investigation determined that a SPAWAR Deputy 

Program Manager, Assistant Program Manager, and cardholder used the 

purchase card to improperly purchase food. Further, the SPAWAR 

Inspector General found that both the Assistant Program Manager and the 

cardholder made false statements to GAO when asked about purchasing 

food. However, the investigation has not been completed and we are not 

aware of any actions—administrative or disciplinary—that have been taken 

against the SPAWAR Deputy Program Manager, the Assistant Program 

Manager, or the cardholder for improper use of the purchase card.

26 72 Comp. Gen. 178,179 (1993); 65 Comp. Gen. 508, 509 (1986).
Page 82 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix V

Status of the Former Commander, Space and 

Naval Warfare Systems Command, Systems 

Center San Diego ApendxiV

In our March 13, 2002,27 testimony on the purchase card controls at 

SPAWAR Systems Center and NPWC, we reported that the commanding 

officer of the Space and Naval Warfare Command, Systems Center San 

Diego, was relieved of his command in December 2001 for matters 

unrelated to the purchase card program. According to the SPAWAR 

Inspector General, on December 8, 2001, the admiral in charge of SPAWAR 

held a nonjudicial punishment hearing and found that the SPAWAR System 

Center commanding officer had violated two articles of the Uniform Code 

of Military Justice, including dereliction of duty and conduct unbecoming 

an officer. The admiral issued the commanding officer a punitive Letter of 

Reprimand, relieved him of his command at SPAWAR Systems Center San 

Diego, and endorsed the captain’s request for retirement from the Navy. 

Subsequently, information came to our attention that the former 

commanding officer of SPAWAR System Center San Diego was still 

employed by SPAWAR at the same rank he held—captain—when the 

admiral determined he was derelict in his duties and acted in a manner 

unbecoming an officer. In June 2002, our Office of Special Investigations 

contacted a DOD official and inquired if the former commanding officer 

was still on the Navy payroll as a captain. On July 31, 2002, a senior Navy 

official informed us that the former commanding officer was still on the 

Navy payroll and employed by SPAWAR as a Navy captain, but his 

retirement would become effective August 1, 2002. 

27 GAO-02-506T.
Page 83 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office ApendxiVI
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 84 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 85 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 86 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 87 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 88 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 89 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Appendix VI

Comments From the Department of Defense 

Purchase Card Joint Program Management 

Office

Page 90 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Page 91 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix VII

Comments from the Under Secretary of 

Defense (Comptroller) ApendxiVI
Appendix VII

Comments from the Under Secretary of 

Defense (Comptroller)

Page 92 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse
Page 93 GAO-02-1041 Navy Is Vulnerable to Fraud and Abuse

Appendix VIII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts John Kelly, (202) 512-6926

John Ryan, (202) 512-9587

Acknowledgments Individuals who made key contributions to this testimony include Fannie 

Bivins, Bertram Berlin, Kriti Bhandari, Francine DelVecchio, K. Eric Essig, 

Michael Hansen, Kenneth Hill, Jeffrey Jacobson, Tram Le, John Ledford, 

Latrealle Lee, Stephen Lipscomb, Susan Mason, Melissa McDowell, Sidney 

Schwartz, Carolyn Voltz, and Robert Wagner.

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