a

GAO

United States General Accounting Office

Testimony

Before the Subcommittee on Government Efficiency, 

Financial Management and Intergovernmental Relations, 

Committee on Government Reform, House of 

Representatives

For Release on Delivery

2:00 p.m. Tuesday,

October 8, 2002

PURCHASE CARDS 

Navy Vulnerable to Fraud 

and Abuse but Is Taking 

Action to Resolve Control 

Weaknesses

Statement of Gregory D. Kutz, Director, 

Financial Management and Assurance

John J. Ryan, Assistant Director, 

Office of Special Investigations

GAO-03-154T
Page 1 GAO-03-154T 

Mr. Chairman, Members of the Subcommittee, and Senator Grassley:

Thank you for the opportunity to discuss the internal controls over the 

Navy’s purchase card program. This Subcommittee held hearings in July 

2001 and March 2002 that identified substantial internal control 

weaknesses at two Navy units in San Diego, California.1

 As a result of 

those hearings and your continued concern about fraud, waste, and abuse 

at the Department of Defense (DOD), this Subcommittee and Senator 

Grassley requested more comprehensive audits of DOD’s purchase card 

use. In response to that requested work, this testimony and the related 

report2

 released today focus on the Navy-wide purchase card program. 

Details on our objectives, scope, and methodology are included in that 

report. On July 17, 2002, we testified3

 before this Subcommittee and issued 

a report4

 concerning purchase card control weaknesses that left the Army 

vulnerable to fraud, waste, and abuse. We will report to you separately on 

the results of our Air Force purchase card audit. 

For a number of years, DOD has been promoting departmentwide use of 

purchase cards, and their use has dramatically increased. DOD reported 

that in fiscal year 2001, more than 230,000 civilian and military cardholders 

made about 10.7 million purchase card transactions valued at over $6.1 

billion. The Navy has the second largest purchase card program in DOD 

with about 25,000 cardholders, 2.8 million transactions, and $1.8 billion in 

purchases in fiscal year 2001. Purchase card transactions include 

acquisitions at or below the $2,500 micropurchase limit as well as for 

payments on contracts. 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 

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).

2

U.S. General Accounting Office, Purchase Cards: Navy Vulnerable to Fraud and Abuse 

but Is Taking Action to Resolve Control Weaknesses, GAO-02-1041 (Washington, D.C.: 

Sept. 27, 2002). 

3

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

Vulnerable to Fraud, Waste, and Abuse, GAO-02-844T (Washington, D.C.: July 17, 2002).

4

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

Vulnerable to Fraud, Waste, and Abuse, GAO-02-732 (Washington, D.C.: July 17, 2002).
Page 2 GAO-03-154T 

program to streamline the government’s acquisition processes. However, it 

is important that agencies have adequate internal control in place to 

protect the government from fraud, waste, and abuse. 

Summary We previously reported that significant breakdowns in internal control at 

two Navy sites5

 left those units vulnerable to fraud, waste, and abuse. 

Today, I am here to report that the control weaknesses we identified at the 

two Navy units in San Diego were representative of systemic Navy-wide 

purchase card control weaknesses that have left the Navy vulnerable to 

fraudulent, wasteful, and abusive use of purchase cards. Our current audit 

work at the Atlantic Fleet, Pacific Fleet, Naval Sea Systems Command, and 

the Marine Corps showed that during fiscal year 2001, the Navy had not 

established an effective internal control environment. At the individual 

transaction level, we also identified a substantial number of purchases for 

which cardholders and approving officials at selected units assigned to 

those commands had not adhered to key internal control activities and that 

were not in accordance with valid requirements, policies, and procedures. 

The weaknesses we identified in the control environment and the 

breakdown in specific internal control activities resulted in potentially 

fraudulent, improper, and abusive transactions not being prevented or 

identified promptly.

Since we first reported on the Navy’s purchase card control weaknesses, 

the Navy has been taking actions to improve the purchase card control 

environment and improve cardholder adherence to key purchase card 

control procedures. The Navy has also taken more aggressive actions to 

identify fraudulent, improper, and abusive or questionable purchase card 

acquisitions. Many of these improvements have been implemented in the 

last few months and others have not yet been fully implemented. Thus, 

while we have not assessed the impact of the Navy actions, the Navy 

actions demonstrate that it is acting to improve the purchase card program. 

However, to fully achieve the benefits of the purchase card program, the 

Navy will need to make a sustained effort that focuses on cultural change, 

and provide the infrastructure necessary to build a purchase card program 

with a robust set of internal controls. Navy major command and unit 

management must also actively promote the importance of a strong system 

of accountability that is necessary to provide reasonable assurance that the 

5

GAO-01-995T and GAO-02-506T .
Page 3 GAO-03-154T 

program is operating as intended. As discussed in the report released 

today, DOD generally concurred with our recommendations to improve the 

control environment; to strengthen key internal control activities; and to 

increase attention to preventing potentially fraudulent, improper, and 

abusive or questionable transactions. 

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 effectively (1) evaluate whether approving officials 

had responsibility for a reasonable number of cardholders, (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 Navy cardholders by over 50 percent and 

establishing a DOD Charge 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 Program Office, and Naval Supply Systems Command 

(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 taken action or said it 

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, its 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 
Page 4 GAO-03-154T 

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 

disciplining those who abuse 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 the 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, the later of 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 cardholders. 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 1, the Navy continued to reduce the number of 

cardholders and was down to about 25,000 as of March 2002. Agency
Page 5 GAO-03-154T 

program coordinators6 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. 

Figure 1: 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 

6

NAVSUP 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. The agency program coordinator also serves as 

the communication link between the purchase card issuing bank and the unit.

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-01

Dec-01

Jan-02

Feb-02

Mar-02

Number of Navy-wide cardholders
Page 6 GAO-03-154T 

procedures for approving purchase cards and for issuing them to activity 

personnel. The Navy’s requirement of a maximum seven to one 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 last 

summer. 

At the four locations we audited, the average ratio of cardholders to 

approving officials was in line with the DOD and Navy limit of seven 

cardholders per approving official. This average, however, masks the wide 

range of ratios across units, including those that far exceeded the DOD and 

Navy prescribed ratio of cardholders to approving officials. The problem 

with a high cardholder to approving official ratio 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 a number of 

approving officials certifying monthly bills for more than 100 cardholders 

that contained thousands of transactions and regularly exceeded $1 million 

a month. 

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, it continues to substantially 

exceed historical purchase card procurement needs. 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

 

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, 

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. 
Page 7 GAO-03-154T 

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 1, the four commands that we 

audited had credit limits that clearly exceeded historical needs. 

Table 1: Historical Purchases vs. Credit Limits for Selected Navy Commands and 

Marine Corps

a

Credit limit is 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. 

The instruction also requires all cardholders and approving officials to 

receive refresher training every 2 years. 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. 

9

The maximum credit limit allowed by NAVSUP Instruction 4200.94 is $9.9 million. 

Command 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
Page 8 GAO-03-154T 

We found that from about 56 percent10 of the fiscal year 2001 transactions 

at the Marine Corps to about 87 percent10 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. 

Management 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 followup training. Without a centralized training database, it would be extremely 

difficult to track when each cardholder needed the required 2-year 

refresher training. 

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 course curriculum for the three 

positions was identical. The NAVSUP and major commands did not have 

specific guidance or training concerning the role and responsibilities of 

agency program coordinators or approving officials. 

Monitoring and Oversight 

Need Improvement

We found evidence that the four units we audited conducted reviews of the 

fiscal year 2001 purchase card program. However, we did not find that they 

used the results of those reviews to resolve identified internal control 

weaknesses. Further, an August 2001 NAVSUP-mandated review of 12 

months of purchase card transactions did not identify the extent of 

potentially fraudulent, improper, and abusive or questionable transactions 

identified in either Naval Audit Service or GAO audits. Specifically, 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, and 

abusive or questionable transactions were occurring during the period 

reviewed. 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—that 

10The numbers represent point estimates for the population based on our sampling tests. 

The estimated percentages have 95 percent confidence intervals of plus or minus 13 

percentage points or less. 
Page 9 GAO-03-154T 

were for personal use, or for prohibited items, or were not a bona fide 

mission requirement. 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 

testimony) 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. 

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 

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 program coordinators are 

responsible for procurement programs involving hundreds of thousands of 

transactions and hundreds of millions of dollars, the human capital 

resources at the major command level are inadequate.

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.”

Further, we found that approving officials and most agency program 

coordinators generally had other duties of higher priority than monitoring 
Page 10 GAO-03-154T 

purchases and reviewing cardholders’ statements. This was especially true 

for approving officials, some of whom were engineers and computer 

technicians, whose annual ratings generally did not cover their approving 

official duties. One subordinate level agency program coordinator told us 

that she knew that some approving officials did 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, or 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 2, 

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 reconciling and reviewing cardholder statements prior 

to certifying them for payment. Most transactions in our statistical sample 

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. 
Page 11 GAO-03-154T 

Table 2: 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 

estimated percentages have 95 percent confidence intervals of plus or minus 13 percentage points or 

less. 

Source: GAO testing and statistical analysis of Navy purchase card transaction files.

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. 

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, VA area 88 58 98

Pacific Fleet units in the 

San Diego, CA area 70 59 80

NAVSEA units in the 

Norfolk, VA area 90 67 86

Marine Corps Base at 

Camp Lejeune, NC 89 59 94
Page 12 GAO-03-154T 

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. 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. 

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 purchase 

card transactions back to the supporting documents throughout fiscal year 

2001. 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 bill11 before it was paid, 

and the monthly bill contained any markings or notes indicating the 

amounts billed had been compared to a credit card receipt, invoice, 

packing slip, or a purchase log, and

• the approving official’s review of the cardholder’s monthly statement 

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

virtually any markings or notes on the monthly statements evidencing 

that review. 

11In pencil, ink, or electronically.
Page 13 GAO-03-154T 

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, and 

dates, or a lack of evidence of cardholder reconciliation or approving 

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

who are required to semiannually review approving official records—

cannot determine whether officials are complying with review 

requirements. We found 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. For 

example, 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. 

Major Commands Failed to 

Maintain Accountability for 

Pilferable Items

We found accountable items acquired with purchase cards were often not 

recorded in property records of the units we audited. In addition, 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 installations we audited, 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 assure accountability and financial 

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

or improper use of government property. Table 3 contains the results of 

our review of property management records and inspection of accountable 

property. 
Page 14 GAO-03-154T 

Table 3: Accountable Property Items Not Recorded in Property Books

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

transaction files.

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. However, our work was not 

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

fraudulent, improper, and abusive or otherwise questionable transactions. 

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, abusive, and 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. 

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. 

Command/Base

Transactions

with

property

items

Transactions

with items not

in property

book

Transactions

with items the

command could

not locate

Atlantic Fleet units in Norfolk, VA 35 15 12

Pacific Fleet units in San Diego, CA 42 23 15

NAVSEA units in Norfolk, VA 21 14 8

Marine Corps Base at Camp 

Lejeune, NC 16 8 0
Page 15 GAO-03-154T 

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 

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

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

assurance. The following examples illustrate the cases we described in the 

report that we released today. 

• An approving official’s failure to review a cardholder’s statement on a 

timely basis contributed to an Atlantic Fleet cardholder making over 

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

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 automobile, 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 had been 

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 

statement 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 
Page 16 GAO-03-154T 

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 Naval Criminal Investigative 

Service (NCIS) 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 the 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 confinement and a bad conduct discharge while the other 

received a 60-day restriction and reduction in rank. 

• We also found that in March 1999 the Navy inappropriately issued five 

government purchase cards to individuals who did not work for the 

government. These individuals 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 
Page 17 GAO-03-154T 

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

purchase card, the company avoided paying interest on these accounts 

that were regularly past due. Based on the results of our work, we 

referred this case to DOD 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 Navy officials 

and intended for government use, are not permitted by law, regulation, or 

DOD policy. We identified three types of improper purchases: 
Page 18 GAO-03-154T 

• 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 

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

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. The following are improper 

transactions we 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. 

• 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 
Page 19 GAO-03-154T 

official visitor. 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.

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

been made 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, 1984,12

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, are usually considered personal 

items 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.

• 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 airline flights and, therefore, should not have 

been purchased with the Navy purchase card. 

• 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 

1263 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 20 GAO-03-154T 

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’

assertions, 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.13 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.14 

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 two or more transactions of $2,500 or 

1372 Comp. Gen. 178, 179 (1993); 65 Comp. Gen. 508, 509 (1986).

1465 Comp. Gen. 738, 739 (1986).
Page 21 GAO-03-154T 

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

totaling about $17,000 on the same day to purchase combat boots. 

All the commands that we audited represented that the practice of splitting 

transactions 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 

vendors more than $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, the benefits of using purchase cards versus traditional 

contracting and payment processes include 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, the opportunity existed for the Navy to negotiate 

additional savings form the 48 vendors that participated in the Multiple 

Award Schedule. 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. 
Page 22 GAO-03-154T 

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 a significant amount of 

money and negotiating discounts with them. For example, during fiscal 

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

vendors (i.e. Dell, Gateway, CWD Computer Centers, Micro Warehouse, 

and GTSI), $22 million with 3 office supply companies (i.e. Corporate 

Express, Staples, and Office Depot), and $9 million with 2 national home 

improvement stores (i.e. 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.

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 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. 

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. The 

following examples illustrate our point.

• Computer and related equipment exceeding documented need—The 

Navy used the purchase card to pay for computer and computer-related 

items far in advance of its needs. Considering that computer prices 
Page 23 GAO-03-154T 

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 were 

often not put to use until more than 12 months had passed. 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 microprocessors at a cost of less than what 

the Atlantic Fleet had 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 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. 

• Flat Panel Monitors—Our statistical sample selected transactions 

containing 243 flat panel monitors purchased by the Atlantic Fleet, 

Pacific Fleet, NAVSEA, and Camp Lejeune. 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 an ineffective 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.

• 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 away as gifts to a 
Page 24 GAO-03-154T 

visiting officer in the Australian Navy, while other designer items were 

personal preferences of the cardholders and requesting individuals. 

• 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 costing about $15. 

Disciplinary Actions Seldom 

Taken Against Those Who 

Misuse the Purchase Card

Currently, the Navy has not established specific disciplinary and/or 

administrative consequences for failure to follow purchase card control 

requirements—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 or questionable 

transactions identified in our work. As part of this audit, we asked the 

agency program coordinators at each command that we audited (1) 

whether any cardholders referred to in this testimony were disciplined for 

improper, abusive, or questionable purchases, or (2) 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. 

According to the agency program coordinators, only one of the cardholders 

referred to in this testimony lost his card for improper, abusive, or 

questionable purchases, and no one has had any disciplinary actions taken 

against them for abusing the purchase card and obtaining personal 

preference items at additional expense to the government.

Conclusions We support the use of a well-controlled purchase card program as 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. 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 
Page 25 GAO-03-154T 

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. Specifically, leadership by major command 

and unit management and a strong system of accountability must be 

established and sustained for effective program control. Strengthening the 

control environment will require a commitment by the Navy to build a 

robust purchase card control infrastructure. 

Our related report on these issues released today builds on the progress the 

Navy has made and includes recommendations that address the need for 

the Navy to strengthen the overall control environment and improve 

internal control activities. Our recommendations focus on the need for the 

Navy to improve (1) overall program management and its control 

environment, (2) guidance on the requirements for the specific control 

activities, and (3) procedures to help prevent fraudulent, improper, and 

abusive or questionable purchases. 

In written comments on a draft of our related report, DOD concurred or 

partially concurred with our 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 

to be taken against cardholders who make improper or abusive 

acquisitions, but stated that the Navy will examine whether actions the 

department has already taken will appropriately address improper or 

abusive use of purchase cards.

Mr. Chairman, Members of the Subcommittee, and Senator Grassley, this 

concludes my prepared statement. I would be pleased to answer any 

questions that you may have. 
Page 26 GAO-03-154T 

Contacts and 

Acknowledgments

For future contacts regarding this testimony, please contact Gregory D. 

Kutz at (202) 512-9505, John J. Ryan at (202) 512-9587, or John V. Kelly at 

(202) 512-6926. Individuals making key contributions to this testimony 

included Eric Essig, Francine Delvecchio, John Ledford, and Steve 

Lipscomb.

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