Source: https://oig.justice.gov/reports/OBD/a0407/findings.htm
Timestamp: 2017-02-25 21:31:55
Document Index: 494391651

Matched Legal Cases: ['art 8', 'art 8', 'art 8', 'art 1', 'art 8', 'art 8', 'art 8', 'art 23']

1. ACQUISITION AND PAYMENT PROCEDURES
Overall, the procurement and payment directives issued by EOUSA and other authorities set forth a system, that if complied with, is sufficient to prevent or detect fraud, loss, or error in payments to vendors. We found an overall low error rate in our tests of the procurement and payment system, indicating that the USAOs generally complied with the directives. Nonetheless, we did find instances of noncompliance that would occur less often by implementing our recommendations.
During the audit, we reviewed 1,517 purchase transactions and examined 10,111 documents at 6 of the USAOs and EOUSA. Our audit consisted of detailed reviews of procurement documentation and approximately 150 interviews with personnel involved in the acquisition and payment process. Throughout this audit, we performed extensive audit testing including reviewing transactions for split purchases, duplicate payments, and fraudulent purchases.7 (See Appendix I for more details.) Although some of our findings of noncompliance with the procurement and payment directives may appear minor, they nonetheless suggest that there are additional steps that EOUSA and the USAOs should take to minimize the likelihood of fraud occurring.
As required by OMB Circular A-123, Management Accountability and Control (Revised), it is management's responsibility to establish internal controls to assure protection for and timely detection of unauthorized acquisition, use, or disposition of an agency's assets. The controls in place should be sufficient to ensure proper separation of duties. The Comptroller General's Standards for Internal Control in the Federal Government also contains standards for establishing and maintaining systems of internal control for federal agencies. Separation of duties, proper execution and documentation of transactions, effective internal controls, and physical control over assets are all part of an adequate system of controls. Separation of Duties
Separation of duties is one of the most important procedures available in the internal control process to reduce the risk of fraud, loss, or undetected error in any financial system. The lack of separation of duties can lead to the types of fraud that were present in the District of Oregon and the Central District of California. At 6 of the 7 sites visited, required separation of duties did not occur in 42 of 1,517 transactions tested throughout the acquisition and payment process. The 42 transactions totaled $47,640. In these transactions, one person performed two separate functions as shown in the chart below that should have been performed by different persons. The following table shows the results of our tests of separation of duties at EOUSA and the six USAOs we reviewed. Lack of Separation of Duties on Procurements
Approving officer was also the disbursing officer or the subcertifier
Purchased and approved by the same person
Approving officer was also the budget officer
Budget officer was also the purchase card user
Source: Data based on OIG analysis of purchase transactions.
Lack of Designation of Accountability
The Accountable Officer Signature Form, Form OBD-234, is described in the Financial Management Policies and Procedures Bulletin, No. 00-01, as "… a critical OBD financial management internal control documenting the individuals empowered to approve or effect financial transactions for each component."8 Further, Title 31 of the U.S. Code, Comptroller General Decisions, DOJ Order 2110.39A, and the EOUSA Financial Manual state that accountable officers are those government employees who are responsible for the obligation, custody, and payment of government funds. Accountable officers, by signing the form, acknowledge that they may be held personally liable and/or subject to disciplinary action for the loss or improper payment of funds under their authority. Each accountable officer is specifically designated as such on Form OBD-234 by their respective U.S. Attorney.
The current Form OBD-234 (revised in September 1999) includes designations for approving officers, subcertifiers of invoices or vouchers, third-party payment disbursing officers, and those with specific delegated procurement authority. However, the instructions for the Form OBD-234 do not explain that all employees with a delegated procurement authority, e.g., purchase cardholders and Assistant U.S. Attorneys authorizing the purchase of litigative services, should sign the form. Further, the authority to certify the availability and obligation of funds was not included as one of the designations on the form. Certification and obligation of available funds is a budget officer role and is necessary prior to the acquisition of goods and services. The signing of an obligating document, specifically the certification that funds are available to pay for goods and services, is an accountable officer function by definition. We believe that EOUSA should discuss with JMD the need to add budget officers or staff certifying the availability and obligation of funds to the current Form OBD-234. At EOUSA, we found at least four older versions of the Form OBD-234 in use in the sampled transactions. This occurred because instructions issuing the Form OBD-234 did not require updating old forms unless there were changes to specific delegations or relocations of applicable staff.
While reviewing payments for purchases, we found various examples of accountable officers without a signed Form OBD-234. At EOUSA, 14 accountable officers were approving transactions that did not have a signed Form OBD-234 authorizing that authority. Another 128 transactions were found at three sites where the signature certifying the availability and obligation of funds was that of budget personnel who had not been designated on a Form OBD-234. EOUSA and the District of Utah accounted for 125 of the 128 transactions; the Southern District of Florida accounted for the remaining three transactions. At the District of Utah, two disbursing officers had not been designated as third-party payment disbursing officers on the Form OBD-234.9 The two disbursing officers had signed 116 third-party drafts totaling $41,548. The absence of a signed Form OBD-234 increases the risk of purchasing unnecessary and unallowable goods or services. We believe that the EARS reviewers should increase their scrutiny of the Form OBD-234 in their triennial audits.
According to the Government Purchase Card Program for Simplified Acquisition, paragraph 8.D, and the Third Party Payment Policies and Procedures Handbook, Sections 3.O and 6.E, all purchases must be approved in advance by an approving officer. For each purchase, the approving officer must sign a procurement authorization form, in effect certifying that the requested purchase was legal and necessary. Authority to Procure. At EOUSA, we found 5 purchases out of 222 totaling $6,830 where approval was given by a person who had no authority to approve the purchases. Reasonable Procurements. One audit test was to review all 1,517 sampled transactions for purchases that appeared unreasonable or for purposes other than the USAOs' official use. After initial tests and discussions with the applicable administrative staff, we found that the number of procurements appearing unreasonable was very small, and we considered this a good record for the USAOs considering the large number of transactions sampled. However, we found 1 procurement out of 222 at EOUSA where the requisition described the purchase of services as "$20,000 for overtime, miscellaneous and etc." This ambiguous wording on the purchase documents could allow non-specified goods or services to be purchased. We believe that approving officers and budget officers should be on the alert for procurements with ambiguous wording and should not authorize those transactions without obtaining further detailed explanations.
We found that the documentation for 32 of 1,517 transactions totaling $145,681 did not include the signature of a budget officer or budget staff certifying the availability of funding. Seventeen of the 32 transactions were found at EOUSA; the remainder was at the District of Oregon, the District of Utah, the Eastern District of New York, and the Southern District of Florida. For those transactions, the purchaser should have refused to proceed with acquisition because there was no signature certifying the availability of funds.
We found a variety of deficiencies in the acquisition process, which we describe below. Missing Procurement Forms and Supporting Documents. The procurement authorization form is used to document the acquisition process. It requires the signatures of both an approving officer and a budget officer. Of the 1,517 transactions tested, we identified 23 procurements totaling $2,511 that did not have a procurement form to support each purchase - 14 forms were missing in the District of New Mexico, 4 in the District of Oregon, 1 at EOUSA, 2 at the Eastern District of New York, and 2 at the Eastern District of Tennessee. The absence of this authorization could lead to unauthorized procurements or the concealment of fraud. We also identified two additional transactions at the Eastern District of New York, one at the District of Utah, and four in the District of Oregon that had no supporting documentation at all. These seven transactions totaled $2,741. The administrative staff at those offices could not provide any documents supporting these seven purchases. We expected to find, at a minimum, a procurement form and a vendor invoice or a purchase card slip. Missing procurement forms and supporting documents were evident in the two previous OIG investigations of fraud in the District of Oregon and the Central District of California. Procurement Without Written Approval. Twenty-two out of 1,517 procurements, totaling $9,619, did not have the signature of an approving officer on the procurement documents. The procurement forms without approval were found at EOUSA, the District of New Mexico, the District of Oregon, the Southern District of Florida, and the Eastern District of New York. The approving officer's signature certifies that the goods or services to be purchased were legal and necessary. EARS reviewers considered it a "red flag" when approval by the approving officer is not found on the procurement documents. Further, the procurement staff responsible for the purchases could be held personally liable if the items procured did not have management's approval. These 22 purchase requests should have been cancelled. Procurements without approval were also present in the two OIG fraud investigations in the District of Oregon and the Central District of California. We believe that the EARS reviewers should intensify their review of this area.
Procured Prior to Approval. We found 95 purchases ($43,788) in the sample of 1,517 transactions at all 7 offices in which the procurement staff had bypassed the requirement for approval of the transaction prior to the purchase. In the District of Utah, for example, the procurement staff was ordering supplies, attaching copies of the order confirmations to the procurement documents, and then obtaining the approval of the approving officer. The error rate at the Eastern District of New York was 6 percent, 12 percent at the Eastern District of Tennessee, and 16 percent at the District of Utah.
The following table shows the distribution of this deficiency by office. Procurements Prior to Approval
Purchase made prior to approval
Purchase made prior to approval; approving officer did not date procurement form
Purchasing goods and services prior to approval increases the risk that fraud could occur or that purchased items may not meet the USAO's needs. This type of activity is also evidence that internal controls are weak and the procurement staff is not carefully reviewing purchase documents. Required Sources Were Not Considered First. At EOUSA, the District of Oregon, the District of Utah, the Eastern District of New York, and the Eastern District of Tennessee, we found 41 purchases, totaling $21,719, where the reasons for not using required sources when purchasing supplies and services was not adequately documented. The documentation did not indicate that required sources were first considered before the procurement was made from commercial sources. (See Finding 2 for more information on the design of the procurement form documenting required sources.) Federal Acquisition Regulation, Subpart 8.001, lists the required sources to be first considered when purchasing supplies and services. The regulations also stipulate that required sources be considered in a prescribed sequence. In addition, the Government Purchase Card Program for Simplified Acquisition, paragraph 8.E., states that, "Required sources must be considered regardless of the dollar value (whether a $2 purchase or a $25,000 purchase)." EOUSA and the Eastern District of Tennessee used a form for purchase card procurements that minimized the opportunity for the procurement staff to record a correct answer considering required sources. Both forms required the purchaser to explain why they did not use a required source in those situations when a required source was in fact used. In order to comply with Federal Acquisition Regulation, Subpart 8.001, the form should document why a required source was not used. The sample at EOUSA contained 74 "credit card purchase request" purchases. Seventy-two of their 74 purchase request forms had no response recorded to the question concerning the use of required sources. Two forms were marked that required sources were not used. Further, we found no justification on any of the 74 forms indicating the reason for not using a required source. Of the 72 forms not marked yes or no, 29 were marked "small business," 2 were marked "small and disadvantaged," 2 were marked "woman owned," 21 were marked "other," and 18 purchases had no boxes checked on the form. In our opinion, simple changes in the procurement forms would help document the intent of Subpart 8.001 of the Federal Acquisition Regulations when a decision was made not to use a required source. Price Reasonableness. Our testing identified two procurements ($7,081) where a determination on price reasonableness was required but not performed. Neither purchase was properly documented. The Federal Acquisition Regulations indicate that when purchases above a $2,500 threshold are made, a price reasonableness determination must be made when not using a required source. The intent of the regulation is to ensure that the government gets good value in terms of a reasonable price while considering the time necessary to receive the product or service, the reliability of the product, and the quality of service. Purchasers should get the best buy available that meets the government's minimum requirements (GSA SmartPay Purchase Card Manual, Part III.(3)). The first procurement occurred at EOUSA and contained the words "sole source" in the procurement documentation without any other explanation. In our opinion, the price reasonableness determination should have been made, or the purchaser should have documented that the requirement was not applicable.
The second procurement occurred at the Eastern District of Tennessee. The purchase was not from a required source, and the dollar amount of the purchase was greater than $2,500. We examined the district office's documentation to see if any vendor names and amounts were listed to document that a price comparison was made. However, we found no specific documentation supporting that the purchaser had made a price reasonableness determination for the procurement.
Prohibited and Recurring Purchases. We found 18 transactions ($11,872) in the sample of 427 purchase card transactions for items purchased that were prohibited according to EOUSA's purchase card guidelines. The guidelines stipulate that printing and telecommunications expenses are not allowed to be paid using a government purchase card. EOUSA's Assistant Director of Telecommunications responded that the four telecommunications related purchases at EOUSA were made with the purchase card because his procurement staff can use the card as a payment mechanism for this type of transaction. Our review of the documentation concluded that the telecommunication purchases were legitimate, justified for the USAOs' needs, and could have been purchased using a different form of payment other than the purchase card. The details of the test results are shown in the following table. Prohibited and Recurring Items Purchased Using A Purchase Card Executive Office for United States Attorneys
Telecommunications purchased on purchase card
Telecom goods/services by warranted C.O. assigned to TTD
Printing on a purchase card
Reoccurring monthly charges on a purchase card
Other Documentation Issues. Blanket funding allows agencies to obligate funds for repeated small purchases. When blanket funding is issued by the budget officer, the budget officer's signature is not required for each related purchase. However, each repeated purchase using the blanket?funding procedures is required to be approved in advance using a procurement form. In testing purchases at the District of New Mexico, we found the blanket-funding form used included the date when the authorization would expire and the dollar limit for a category of purchases, such as consumable supplies. This same blanket-funding document was then photocopied and used again for future purchases, but without the purchaser obtaining a new approving officer's signature. The purchaser or the procurement staff should have kept a copy of the original blanket-funding document and used the copy to complete a new procurement form for each future purchase. Also in the District of New Mexico, one transaction where a blanket obligation of $1,000 for consumable supplies was established using a form titled "Request for Consumable Supplies." The blanket funding was intended to be in effect for the first quarter of FY 2001. However, the document was altered without being initialed by the approving officer. The change altered the effective period from the "first quarter" to "all year." The actual purchase took place on September 28, 2001, almost a full year after the date the obligation was created. The payment occurred in FY 2002 using a government purchase card. For this procurement to be proper, the procurement staff should have obtained the signature or initials of the approving officer acknowledging the changes made on the procurement form.
In the sample at EOUSA, we found 6 procurements out of a sample of 222, totaling $3,569, not documented with a separate procurement authorization form. We observed the payment of invoices for purchases with no more support than the budget officer's initials on the invoice. In addition, there was no separate documentation of an approving officer's authorization. For these procurements, a blanket-funding document was created for minor repairs and alterations to occupied leased space. In addition, the invoices reviewed had been signed and dated; however, the approval, certification of available funds, and receiving of the individual requests for repairs or modifications were not obvious. A standard procurement form, such as the one recommended in Finding 2, should be used as support documentation for the acquisition of minor repairs and alterations to leased space even if there was a blanket obligation document for that category of expense.
At the District of Utah, we identified three instances where items were added to previously approved procurement forms. The added items were not approved and available funding was not certified. The procurement staff explained that the reason for adding items to an approved order was to restock office supplies. On one of the procurement forms, for example, in a different handwriting, "miscellaneous supplies for office use" was added to the procurement form without providing the description, quantity, or total price. The total amount of the added items was $491.98. This purchase did not adhere to procurement regulations requiring purchasing goods with prior written approval. Also in the District of Utah, we observed 13 of the 208 purchases where the procurement authorization form was not completed properly. The quantity, description, unit price, and total amount were not completed for any of the items purchased. These 13 purchases totaled $15,039. For these purchases, it appeared that the approving officer and budget officer had signed the purchase request without knowledge of the specific details of the goods and services to be purchased. Each of the forms had some form of a description such as "multiple supplies for all four floors" or "miscellaneous supplies needed for office use." To comply with established internal controls, approving officers and budget officers should not approve requests that have incomplete data for the description, quantity, and dollar amount of the items to be purchased. This situation creates a higher risk that fraud could occur, especially if no subsequent review is performed. A purchaser could use these approved purchase requests by adding personal items or increasing the quantity of items ordered and converting them for personal use. Receiving
Each of the sampled purchases in this audit was reviewed to determine if the documentation was marked as received, signed, and dated by someone in the office. Some offices used a rubber stamp to indicate the physical receipt of purchases. One office, the Southern District of Florida, designed its procurement form to contain a specific section for evidence of receipt of goods and services.10 Of the 1,517 total sampled purchases, we found 90 receiving errors, an overall error rate of 6 percent. We believe that a standard comprehensive procurement form with a signature line for documenting the receipt of goods and services, such as the one used in the Southern District of Florida, should be developed and used by USAOs.
The scope of our audit involved sampling payments to vendors from four data sources containing purchase card transactions, electronic fund transfers, third-party drafts, and Treasury checks. The four data sources contained a total of $155,048,146 in purchases for FY 2002. The seven offices in our sample paid $31,726,084 for purchases of goods and services. From that amount, we sampled 1,517 payments totaling $2,755,123.
Differences Between Amounts Owed and Amounts Paid. At EOUSA, three Treasury checks were issued by JMD for EOUSA for dollar amounts in excess of the amounts EOUSA requested. In response to our inquiry in June 2003, EOUSA staff reviewed the transactions, determined the cause, and obtained a prompt refund of $6,332.51. In five other transactions in the sample, a difference was observed between the amount paid and the amount billed by the vendor. The dollar amounts of the errors found were small, but they show the need for careful review of the documents before making the payments. Delegated Payment Limits Exceeded. When reviewing electronic fund transfers at EOUSA, we discovered one payment for $124,176 that exceeded the subcertifier's $50,000 delegated payment limit.11 For transactions where the amounts are in excess of the subcertifier's delegated payment limit, the transaction should have been rejected by the FMIS2+ accounting system and subsequently paid by JMD. Our review of the file for this purchase confirmed that the transaction was for a legitimate government use and had been properly approved by an approving officer. At the exit conference on September 11, 2003, the Lead Budget Analyst, Resource Management and Planning Staff, EOUSA, confirmed that a subcertifier's delegated payment had been exceeded and that the FMIS2+ system had been fixed and tested to reject the processing of payments for amounts exceeding delegated limits. We performed another audit test to determine if the dollar limits of the contracting officers' authority, which was stated on their Certificates of Appointment (SF-1402), had been exceeded on the sampled procurements. We found no procurements where the contracting officer's delegated authority was exceeded. However, we found unreasonable and unquantifiable language on those certificates. The language on each of the Certificates of Appointment stated that the dollar limits of their authority were "$2,000 for acquiring construction/alteration or renovation services, open market purchases up to $25,000, up to $100,000 for litigative consultants and expert witnesses only, and up to $500,000 for purchases on Federal Supply Schedules and DOJ contracts." In addition, the certificates stated, "There is no dollar limitation on purchases made from UNICOR, NIB/NISH OR FEDSTRIP."12 To inquire further about the unquantifiable language on the certificates, we spoke with an Assistant Director at EOUSA and asked what the terminology of "no dollar limitation" meant. The Assistant Director replied that JMD had a database containing all contracting officers in the DOJ's Offices, Boards, and Divisions and that the dollar limitations in that database for "no dollar limitation" was recorded as $9,999,999,999 for each purchase made from UNICOR, NIB/NISH, or FEDSTRIP. The large figure was used because the database would not accept alphabetical characters ("no dollar limitation") in a numeric field.
From a listing of contracting officers provided by JMD, we identified 276 USAOs' contracting officers in the database, each with a $9,999,999,999 dollar limit on procurements. As stated in Federal Acquisition Regulation, Chapter 1, Subpart 1.602-1, "Contracting officers may bind the Government only to the extent of the authority delegated to them." Because of this excessive procurement authority, we believe that the wording on the Certificates of Appointment needs to be restated, establishing a reasonable dollar limitation for purchases from UNICOR, NIB/NISH, and FEDSTRIP. Missing Invoices. Of the purchase card transactions sampled, we found 50 purchases ($36,664) out of a total of 427, or 12 percent, that were not supported by an invoice. One contracting officer explained that if orders with a government agency are placed over the Internet, the vendor would not transmit an invoice. Even in those cases, the purchaser should try to obtain an invoice. When no invoice supported the purchase, there was no documentation of what was actually ordered and received and the risk of fraud or misuse of government funds increases. This issue is a "red flag" when discovered by the EARS reviewers. The following table shows the distribution of offices sampled where purchases were made without a supporting invoice. Procurements Without an Invoice
Taxes Paid on Goods and Services. At 4 of the 7 sites sampled, we identified 20 purchases where the vendor charged some form of a state or local tax. As stipulated by the Federal Acquisition Regulations, the government should not pay state and local taxes. While the number of transactions with taxes paid was small in comparison to the overall sample, purchasers are responsible for ensuring that the tax-exempt status is honored by the vendor. The following table describes the results of our tests for taxes paid. Taxes Paid on Purchases
Tax included (all litigative services)
Sales tax included	2
Gross receipts tax included
Incorrect Draft Number or Draft Date On Supporting Documents. According to the Third Party Payment Policies and Procedures Handbook, Section 6.e(3)(b), the payment clerk should record the draft number and draft date on the invoice or supporting documentation and mark the documentation "PAID" when purchases are paid by a third-party draft. This procedure eliminates duplicate payments and provides an audit trail to the third-party draft when questions arise about payments. This audit identified six purchases at the District of Utah, the District of Oregon, the Eastern District of New York, and the Eastern District of Tennessee where the draft number was not included on the supporting documents. We also found 11 transactions at three sites where the date of the draft or the correct date of the draft was not shown on the supporting documents. These 17 errors occurred in 14 transactions. This is a low error rate (1.9 percent) and indicates a good record for the USAOs considering the 730 drafts ($336,236) occurring in the sample.
Voided Drafts. In addition to the sample of 730 paid third-party drafts, our testing included reviewing 127 voided drafts to determine if the drafts were voided in compliance with the Third Party Payment Policies and Procedures Handbook. Voided third-party drafts were written only at the USAOs. No drafts were written by EOUSA, as those were written by JMD. The audit tests revealed a total of 109 deficiencies at the District of Oregon, the District of Utah, the District of New Mexico, the Eastern District of Tennessee, and the Eastern District of New York. On 16 transactions, the original "PAID" notation was not crossed out on the voucher or procurement form. Thirty voided drafts did not have the word "VOID" written or stamped on the signature block area on the face of the draft. We identified 37 instances where the numerical log of voided drafts was not signed and dated by the disbursing officer, 20 instances where the voided draft information was not recorded in the numerical log, and 6 instances where the original voided draft and all copies of the draft were not retained in the numerical log. Review of Monthly Purchase Card Statements. As stated in the Government Purchase Card Program for Simplified Acquisition, Section 5.F, "the Purchase Cardholder and the Approving Official must review, sign, and date these monthly statements." Therefore, we reviewed FY 2002 purchase card statements issued monthly to purchase card users.
Our judgmental sample included at least one purchase cardholder from each of the seven sites and we reviewed all monthly statements issued to that cardholder. A total of 113 monthly purchase card statements were reviewed. If no purchases were made during the statement period, no statements would be issued by BankOne to the purchase cardholder. Of the statements reviewed, 95 statements were not dated as reviewed by the cardholder and 73 were not dated as reviewed by the approving official. The Government Purchase Card Program for Simplified Acquisition, Section 0.A.(3), states that the purchase cardholder must verify, sign, and date the monthly statement and forward it, along with all documentation, to the approving official within 15 days of the monthly statement date. The approving official must then verify, sign, and date the monthly statement and submit it, along with all supporting documentation, to the budget officer for reposting.13 Since most of the statements were not dated by either the cardholder or approving official, no determination could be made concerning timely reviews by approving officials and cardholders.
When questioned about the lack of dates on the monthly statements, a typical response from five cardholders interviewed at the Southern District of Florida was that there was no line on the statement to fill in the date. However, a line was printed on the monthly statement for the cardholder's and approving official's signatures. A more significant deficiency was 15 monthly purchase card statements that were not signed by the approving officials at EOUSA. This lack of review is not in compliance with the Government Purchase Card Program for Simplified Acquisition. Without a careful review of purchase card purchases and knowledge of what was intended to be purchased, the risk of fraud, loss, and undetected error increases. This is the same issue that occurred in the recent fraud at the Central District of California. Approving officials at each district office and EOUSA receive an account cycle report from BankOne on a monthly basis for their assigned purchase cardholders' activity. The account cycle report contains a listing of purchase cardholders and all transactions occurring during the previous billing cycle. According to the Government Purchase Card Program for Simplified Acquisition, the approving official must review, initial, date, and maintain the account cycle reports for audit purposes. The account cycle report is an additional check for approving officials to review purchases made by their purchase cardholders. Since monthly statements are not sent out when no purchase activity occurred and since a cardholder may not forward a monthly statement to the approving official, the account cycle reports may be the only record of purchases that an approving official sees. Our audit testing included reviewing 1 of the 12 monthly account cycle reports at each site visited. The reports at EOUSA, the Eastern District of Tennessee, and the District of Utah were not initialed or dated, the report at Southern District of Florida was not dated, and the report at the District of New Mexico had a questionable date - dated earlier than the date the office had stamped that the report was received. The reports at the District of Oregon and the Eastern District of New York were initialed and dated as required.
Comparison of Invoice to Supporting Documentation. When looking at each sampled payment, our audit procedures compared the information in the output from the four data sources to the associated invoice and supporting documentation. We looked for consistency in the vendor name and amount paid, determined if alterations were made on supporting documents, and looked for a "PAID" indication on the documents to prevent duplicate payments. We found several instances where the dollar amounts, quantities, or other details on the supporting documentation were altered on the procurement documents. In that situation, auditors could not determine if the alterations were made before or after the approving officer had signed the document because there was no signature nor date next to the changes. The following table lists details of the discrepancies found. Documentation Supporting Purchases
Vendor name differences on supporting documents, invoice, and draft
Invoice or supporting documents not marked PAID
Alteration(s) made to procurement documents
Documentation not supporting amount paid
Part of our audit tests for vendor payments involved physically locating accountable property when the transactions in the samples included accountable items. Sampling from the reverse direction, we also selected and located a maximum of 20 items from the ARGIS Property Management System that were procured in FY 2002.14 At EOUSA, five accountable property items, including computer and communications equipment, could not be located because the documentation did not contain the location of the items. The following table documents the results of the property records tests.
Property Not Located or Entered into the Property Records
Property item not accurately entered into ARGIS property system
Property item not input into ARGIS property system
Items not physically located
Source: Data based on OIG analysis of property purchases.
Overall, the USAOs' system of procurement and payment controls and procedures was generally adequate to reduce the risk of fraud, loss, or undetected error. Further, the number of instances of noncompliance with established acquisition and payment procedures at the seven offices tested was relatively low. Nonetheless, noncompliance with established procedures and inadequate management oversight can lead to fraudulent activity, as demonstrated by the two recent fraud cases. We believe that EOUSA should review the EARS acquisition management audit program to ensure that tests are included that will detect and deter the same types of deficiencies identified in this audit. In addition, since EARS reviews are conducted on a 3-year cycle, the reviews should sample procurement activity in all three years to reduce the opportunities for fraudulent activity in previously non-reviewed years.
If the USAOs' administrative personnel follow the prescribed procedures, maintain separation of duties, and carefully review their procurement documents, the types and numbers of errors we found should be reduced. Implementing the following recommendations will help USAOs strengthen their system of procurement and payment controls and procedures.
We recommend that the Director of the Executive Office for United States Attorneys:
Coordinate with the JMD Finance Director to ensure that subcertifiers cannot bypass their delegated payment limits in the FMIS2+ accounting system.
Coordinate with the JMD Finance Director to determine if the monthly BankOne purchase card statements can be modified to add a line for the date of review by the cardholder and the approving official.
Coordinate with the JMD Finance Director to redesign and reissue the Form OBD-234, canceling previous versions, to designate all accountable officers including the budget officer.
Establish reasonable dollar limits for purchases from UNICOR, NIB/NISH, and FEDSTRIP and indicate those dollar limits on the Contracting Officers' Certificates of Appointment.
Require that the EARS review of the EOUSAs' acquisition management program include tests to detect the same types of deficiencies as identified by this audit.
Require that the EARS reviews include testing of a USAO's activity for all years since its prior review.
2. LOCALLY DEVELOPED PROCUREMENT FORMS
The procurement authorization forms used by the USAOs to request, approve, and document purchases are inconsistently designed, and some forms do not contain important elements as required by the procurement regulations. As a result, acquisition requirements are not being met and are not properly documented.
While reviewing 1,517 procurement transactions at the seven USAOs, we found that each office used different, locally developed procurement forms. With the exception of the Southern District of Florida, the procurement forms reviewed did not contain required elements, such as signatures, consideration of required sources, and documentation of the receipt of goods and services. When testing transactions, we analyzed whether the various procurement forms in use documented that required sources were first considered before the purchase of goods and services. As prescribed by Federal Acquisition Regulation, Subpart 8.001, required sources must be used or first considered for all purchases, regardless of the dollar amount ("whether a $2 purchase or a $25,000 purchase," as quoted from the instructions for the Government Purchase Card Program for Simplified Acquisition, paragraph 8.E.). The sequence must follow the priority given in Federal Acquisition Regulation, Subpart 8.001. If purchases cannot be made from the required sources, they can then be made from commercial sources.
Two of the seven procurement forms reviewed contained a list of the required sources, but there was no place on the form to indicate that those sources were actually considered. Forms used at the District of New Mexico and the District of Utah contained a column of check boxes listing the required sources in the specified sequence with a box checked intending to explain that the source was considered. At EOUSA and the Eastern District of Tennessee, the forms contained the statement: "GSA mandatory source (Y/N)? If yes, provide additional justification below if using a source other than GSA." However, when the purchaser answered the question with a yes, there was no indication given to document that the purchaser had actually checked availability with the required sources, and no justification or waiver was given for why the required sources were not ultimately used. Further, four forms did not specifically state that a justification or a waiver had to be given or attached if required sources were not used.
In our opinion, a comprehensive procurement form should contain several lines for the purchaser to write the required justifications or give instructions to attach a waiver when required by the regulations. There should also be a signature line or initial box for the purchaser to document that they have actually considered required sources before purchasing from commercial sources.
Another improvement that should be made to the procurement forms in use is the documenting of the receipt of goods and services. Two of the forms did not have a place to record the receipt of goods by signing and dating. We observed that some of the offices used a variety of rubber stamps containing statements similar to "I certify that goods and services were received" with a space for the receiver to record their signature and the date received. However, in our opinion, an ideal procurement form should contain a statement that the receiver verified the existence and quantity of the specific goods and/or services received for each item on the packing slip.
In order to meet acquisition requirements, a single comprehensive procurement form should be designed and used throughout the USAOs, with space to record required elements. The elements listed below are applicable to most purchases, regardless of payment method used or the goods or services purchased:
Vendor name, address, phone number, and contact person.
List of required purchase sources in priority order per Federal Acquisition Regulation, Subpart 8.001.
Justification and/or waivers when a required source was not used.
Justification for not using a small business when a commercial source was used and the purchase amount was over $2,500.
Statement that a notice was placed in a public place when a commercial source purchase was made and the cost was over $10,000.
Price quotes were obtained from three vendors and a price reasonableness determination was made.
Description of goods and services to be purchased, including quantity.
Total dollar amount of goods and services to be purchased.
Purchase cardholder name.
Approving officer signature and date.
Statement signed by the budget officer that "funds are, or are not, available" or the statement "I certify that funds are available."
Budget officer signature and date.
Receipt of goods signature and date and verification of counts of items.
Southern District of Florida's Procurement Form
From our review of the various procurement forms in use at our seven test sites, the Southern District of Florida's procurement form was the best because it contained virtually all of the required elements.15 The Southern District of Florida uses one form, entitled "Litigation and/or Procurement Request," for all purchases and attaches another one-page form, entitled "Credit Card Purchase Request," for purchases that are made using a government purchase card. The Litigation/Procurement Request form is completed for every purchase, even when blanket funding; a blanket purchase agreement; a purchase order; or a Requisition for Equipment, Supplies or Services (Form OBD-186) was being used.
Pages 2-4 (Procurement Checklist and Competition/Sole Source Worksheet) are attached to the Litigation/Purchase Request form for each transaction. Page 2, the Procurement Checklist, is used to document contractor information, open market information, justification for not using a small business, and accessibility standards. Page 3 is a continuation of page 2 and documents undue burden; energy efficiency; Greening the Government (Federal Acquisition Regulation, Subpart 23.404); and price reasonableness, including the price reasonableness basis. Page 4, the Competition/Sole Source Worksheet, documents price quotes from three vendors and documents the sole source justification, when required.
In our view, the advantages of using the Southern District of Florida's procurement form are:
The form thoroughly documents the required data elements for a purchase transaction.
The form has the approving officer's name typed or printed in a box - since some signatures are hard to read/interpret.
We recognize that some of the USAOs' purchases are made using blanket purchase agreements, blanket funding, and purchase orders that are documented on specific forms, such as the Form OBD-186 (Requisition for Equipment, Supplies or Services). However, we believe that a single standardized procurement form should be used in conjunction with the other ordering forms.
If only one accurately structured and comprehensive procurement form was used, such as the one used by the Southern District of Florida, there would be less opportunity for the purchaser to inadvertently skip a procurement requirement. Also, there would be fewer opportunities for noncompliance with the federal government's acquisition requirements if each of the USAOs were to use one standard procurement form with all the required procurement elements that apply to most purchases. Recommendation
Design and use one standard procurement form that addresses all procurement requirements, specifically the items listed above from the Federal Acquisition Regulations and documents the process from the authorization to the actual receipt of the goods and services purchased.
A split purchase is dividing a procurement into multiple parts and paying each part at a different time to avoid exceeding the purchaser's delegated procurement limit.
OBD stands for Offices, Boards, and Divisions in the DOJ.
Subsequent to our fieldwork, EOUSA provided documents demonstrating that the required certifications had been updated and were now maintained at the District of Utah as required.
In our judgment, the procurement form used by the Southern District of Florida is in many respects superior to the forms used by other USAOs. The form is discussed in more detail in Finding 2 and is provided in Appendix II.
A subcertifier is an accountable officer designated by a U.S. Attorney to make electronic fund transfers to vendors from the Financial Management Information System (FMIS2+) accounting system.
UNICOR is the name of the Federal Prison Industries within the Bureau of Prisons.
NIB is the National Industries of the Blind, and NISH stands for the National Industries for the Severely Handicapped. FEDSTRIP stands for federal standard requisitioning and issuing procedures used at the General Services Administration with federal supply schedules.
Reposting is an accounting process where purchase card transactions that were initially charged to a common account are reposted to a more specific appropriation account.
ARGIS (not an acronym) is the name of the JMD developed property management system used by the USAOs to track property.
See Appendix II for a copy of the Southern District of Florida's form.