VHA Purchase Cards: Internal Controls Over the Purchase Card Program Need Improvement
Published: 2004-06-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Veterans Affairs Office of Inspector General (OIG) has identified significant vulnerabilities in Veterans Affairs' (VA) use of government purchase cards. In its April 26, 2004 report, the OIG reported instances of fraudulent activity totaling $435,900, and numerous improper and questionable uses of the purchase cards totaling $1.1 million. Given that VHA comprised at least 90 percent of VA's dollar and transaction volume for fiscal year 2002, GAO was asked to determine whether existing controls at VHA were designed to provide reasonable assurance that in the future, improper purchases would be prevented or detected in the normal course of business, purchase card and convenience check expenditures were made in compliance with applicable laws and regulations, and purchases were made for a reasonable cost and a valid government need.
section_title: What GAO Found
paragraphs: Weaknesses in the Veterans Health Administration's (VHA) controls over use of purchase cards and convenience checks resulted in instances of improper, wasteful, and questionable purchases. These internal control weaknesses included inadequate segregation of duties; lack of key supporting documents; lack of timely recording, reconciling, and reviewing of transactions; and insufficient program monitoring activities. This lack of adequate internal controls resulted in numerous violations of applicable laws and regulations and VA/VHA purchase card policies that GAO identified as improper purchases. These included purchases intended for personal use, purchases made from an improper source, purchases split into two or more transactions to circumvent single purchase limits, noncompliance with simplified acquisition procedures, incorrect procurement procedures, and improper use of convenience checks. GAO's work also identified over $300,000 in purchases that were considered wasteful--that is, excessive in cost or for questionable government need--or were considered questionable because there was insufficient or no documentation to determine the propriety of the transaction. Examples of wasteful and questionable purchases included two purchases for 3,348 movie gift certificates totaling over $30,000 for employee awards that were not supported by award letters or justifications; a purchase for a digital camera totaling $999 when there were other less costly digital cameras widely available; and a purchase of 3 cases of beer totaling $38.

section_title: Letter
paragraphs: The use of purchase cards in the federal government has dramatically  increased in past years as agencies have sought to eliminate the  bureaucracy and paperwork long associated with making small purchases.   The benefits of using purchase cards are lower administrative costs and  less red tape for both the government and the vendor community.   However, given the nature, scale, and increasing use of purchase cards, it is  important for agencies to have adequate internal controls in place to help  ensure proper use of purchase cards and thus to protect the government  from waste, fraud, and abuse.
The Department of Veterans Affairs Office of Inspector General (OIG) has  continued to identify significant vulnerabilities in the Veterans Affairs’ (VA)  use of government purchase cards. On April 26, 2004, the OIG issued a  report on its evaluation of internal controls over VA’s purchase card  program.  This report summarizes the results of 83 reports issued during  the period March 1999 through September 2003, that stem from various  OIG investigations, hotline calls, and combined assessment program  reviews performed at VA medical facilities and regional offices. In its 2004  report, the OIG identified internal control weaknesses such as inadequate  segregation of duties and purchases that lacked supporting documentation.   The OIG also reported instances of fraudulent activity totaling $435,900,  and numerous improper and questionable uses of the purchase cards  totaling $1.1 million.  The OIG made a number of recommendations for  corrective action.
Given that VA is the second largest user of the governmentwide purchase  card program with reported purchases totaling $1.5 billion for fiscal year  2002, and because of known program weaknesses previously reported by  the OIG, you requested that we review the Veterans Health Administration’s  (VHA) purchase card program for fiscal year 2002, which comprised at  least 90 percent of VA’s dollar and transaction volume, to determine if  control problems still existed.
In response to your request, we initiated a body of work designed to  determine whether (1) existing controls at VHA were designed to provide  reasonable assurance that improper purchases would be prevented or  detected in the normal course of business, (2) the VA’s purchase card and  convenience check expenditures were made in compliance with applicable  laws and regulations, and (3) purchases were made for a reasonable cost  and a valid government need.  Our review focused on the approximately  $1.4 billion of disbursements that the VHA made during fiscal year 2002, the  most recent fiscal year for which complete data were available when we  began our review.
subsections: section_title: Background
paragraphs: The General Services Administration (GSA) administers the federal  government’s contracts in support of agencies’ purchase card programs.   GSA contracts with commercial banks to issue purchase cards to federal  employees to make official government purchases.  Citibank issues  purchase cards to VA operating administrations, including VHA.  Use of the  purchase card is intended to streamline federal agency acquisition  processes by providing a low-cost, efficient vehicle for obtaining goods and  services directly from vendors.  VA’s purchase card program, including  VHA, also includes the use of convenience checks to pay vendors that do  not accept purchase cards as payment.
VA is subject to the Federal Acquisition Regulation (FAR), which governs  the acquisition of goods and services by all executive agencies.  To  implement and supplement these regulations, VA issues the Department of  Veterans Affairs Acquisition Regulations (VAAR), which prescribes VA  procurement policies and procedures.
To implement and supplement the VAAR, VA issues directives that set forth  policy, and handbooks, that prescribe procedures for implementing the  applicable policy.  For the purchase card program, VA issued  departmentwide guidance, VA Directive 4080, Government Purchase Card  Policy, and VA Handbook 4080, Government Purchase Card Procedures,  both dated April 4, 2003.  VA has separate policies and procedures for the  use of convenience checks related to the purchase card program: VA  Directive 4010, Agent Cashier Policy, and VA Handbook 4010, Agent  Cashier Procedures, both dated October 17, 1994; and VA Directive 4070,  Cash Management, and VA Handbook 4070.2, Disbursement Mechanisms,  both dated April 21, 1997.
VHA Directive 1730.1 Use of the Government Purchase Card in VHA, (May  19, 2003) and VHA Handbook 1730.1, Use and Management of the  Government Purchase Card Program (June 14, 2000) provide policies and  procedures that VHA facilities and program offices must follow when using  the government purchase card.  VHA uses this guidance, in conjunction  with VA’s departmentwide guidance, to operate its VHA purchase card  program.  VA and VHA mandate the use of the purchase card for all micro- purchases – acquisitions of supplies and services generally at or below  $2,500 and provides that the purchase card must be used to the maximum  extent practical for all purchases up to the simplified acquisition threshold,  currently $100,000.
In fiscal year 2002, VHA used purchase cards and convenience checks to  make 2.8 million purchases totaling $1.4 billion.   During this time frame,  about 14,000 of the approximately 188,000 VHA employees, or 7 percent of  the VHA workforce, had purchase cards or convenience check accounts.   For the purchase cards, a majority of the cardholders had single purchase  limits between $2,500 and $25,000.  For the convenience checks, the single  purchase limits were either set at $2,500 or $10,000.
The VHA Chief Financial Officer (CFO) has overall responsibility for the  implementation and oversight of the purchase card program within VHA.  A  facility director and/or regional office director at each of VHA’s 21 Veterans  Integrated Service Network (VISN) is responsible for implementing the  purchase card program at the local level.  These officials are also  responsible for designating an agency or organization program  coordinator (A/OPC) to oversee the purchase card program at each facility  within the director’s geographic area.  There are approximately 162 VHA  medical centers and about 148 local A/OPCs responsible for the primary  management of the purchase card activity at their facilities.
Generally, at each facility, personnel in three positions – A/OPC,  cardholder, and approving official – are collectively responsible for  providing reasonable assurance that purchase card transactions are  appropriate and meet a valid government need.  The A/OPC is responsible  for the day-to-day management, administration, and oversight of the  program such as ensuring appropriate training has been provided, setting  up cardholder and approving official accounts, retrieving and canceling all  unneeded cards, and performing reviews of purchase card activity to  ensure compliance with applicable laws, regulations, policies and  procedures.  VHA’s purchase card guidance states that the A/OPC cannot be  a cardholder or an approving official.
The cardholders are responsible for making purchases, inputting purchase  information in the local purchasing system, maintaining supporting  documentation, and electronically reconciling their purchases by matching  the payment charges from the purchase card program contractor to the  local purchasing system.  The approving officials, who typically are  responsible for more than one cardholder, are charged with monitoring  purchase card usage to ensure compliance with applicable laws and  regulations and VA/VHA policies and procedures, are to ensure applicable  documentation is maintained, and according to VHA guidance, certify,  through an electronic signature, that all procurements are legal and proper  and that the items have been received.  VA’s guidance also provides that in  most cases, the approving official should not be a cardholder.  However,  where staffing levels necessitate, the approving official may be a  cardholder, but cannot approve his or her own transactions.
VHA’s purchase card program also allows the use of convenience checks to  pay vendors that do not accept credit cards.  VA’s disbursement mechanism  policy provides that convenience checks be used in lieu of cash but only  when the government purchase card cannot be used.  Agent cashiers are  responsible for making payments to the payee upon receiving authorization  and supporting purchase documentation from the office requesting  payment, reconciling the check payments as they clear VA’s purchase card  account, and maintaining a copy or carbon copy of the check for a period  of one year.
On February 12, 1999, the OIG issued a report of VA’s purchase card  program.  The OIG reported that management controls were not  effectively implemented to ensure the integrity of the purchase card  program and that maximum benefits were not being realized.  Among other  things, the OIG found weaknesses related to account reconciliation and  certification, documentation, split purchases, and safeguarding of purchase  cards.  The OIG made several recommendations for corrective action.
During the period March 1999 through September 2003, the OIG issued an  additional 83 reports that continued to identify internal control weaknesses  in the VA’s purchase card program.  A summarization of these results, was  reported in the OIG’s April 26, 2004 report on its evaluation of VA’s  purchase card program.  Specifically, during this time frame, the OIG  reported 5 fraud cases totaling $435,900.  The fraud cases involved former  and current employees and in one instance, a non-VA employee.  Items  purchased included computers, televisions, stereos, DVD and CD players, a  diamond ring, and other merchandise.  The OIG reported that generally,  cardholders were able to commit purchase card fraud because approving  officials did not ensure that purchases were legal and proper and that items  had been received and were for official government use.
In addition, the OIG reported it had identified 457 improper or questionable  purchases totaling $1.1 million that did not comply with the FAR, VA policy,  or were not adequately supported by documentation.  The improper and  questionable purchases included (1) procurements over the $2,500 micro- purchase threshold without the use of competition, (2) purchases split into  two or more transactions to circumvent the micro-purchase limit, (3) use of  the purchase card by someone other than the cardholder, and (4) recurring  purchases from the same vendor where the cardholders did not maintain  vendor documentation to support the purchases.  The OIG made two new  recommendations in its 2004 report that (1) direct VA facility managers to  conduct quarterly audits, (2) provide for the development and  implementation of procedures and checklists for approving officials to use  in monitoring cardholder activity, (3) update VA’s purchase card policy to  include span of control criteria for approving officials, and (4) expand  internal audit procedures to include identifying questionable purchases  through data mining.  The OIG reported that the Under Secretary for  Health, the Under Secretary for Benefits, and the Assistant Secretary for  Management agreed with the findings and recommendations and provided  acceptable improvement plans.
section_title: Scope and Methodology
paragraphs: To determine whether existing controls at VHA were designed to provide  reasonable assurance that improper purchases would be prevented or  detected in a normal course of business, we obtained an understanding of  VA/VHA’s purchase card and convenience check policies and procedures,  and the related internal controls.  We then assessed the adequacy of those  controls using various GAO prescribed guidance and by performing  detailed tests of transactions.  Specifically, we   reviewed applicable laws and regulations, VA and VHA directives and  handbooks, and previous reports issued by VA’s OIG,   conducted walkthroughs and telephone interviews with VHA personnel  to identify key purchase card and convenience check policies and  procedures,     assessed the adequacy of internal controls, using our Audit Guide:  Auditing and Investigating the Internal Control of Government  Purchase Card Programs, Standards for Internal Control in the  Federal Government, Internal Control Management and Evaluation  Tool, Guide for Evaluating and Testing Controls Over Sensitive  Payments, and Executive Guide: Strategies to Manage Improper  Payments, and   performed tests of those control activities that we considered to be key  in creating a system to provide reasonable assurance that transactions  are correct and proper throughout the purchase card procurement  process and convenience check payment process.  The key internal  control activities we tested included the following.
Segregation of duties –  (1) independent receiving and acceptance of  goods and services by someone other than the cardholder, and (2)  dividing key duties and responsibilities among different people to  reduce the risk of error or fraud,  Adequate supporting documentation – (1) cardholders and agent  cashiers obtaining and maintaining invoices or other documentation  that support their purchases and provide a basis for reconciling  purchases, (2) agent cashiers obtaining written authorization to  disburse funds for payment, and (3) agent cashiers maintaining  copies of checks issued, and  Timely recording of transactions and events – prompt recording,  reconciliation, and review of transactions in VHA’s electronic  purchase card order system.
In addition, although not a primary focus of the internal control testing, we  reviewed purchase card and convenience check supporting documentation  to determine whether any vendor-offered discounts were taken for  purchased goods.  We also inquired of and reviewed VHA’s monitoring  procedures over the purchase card program to determine if ongoing  monitoring occurred in the normal course of operations.
To determine whether purchase card and convenience check expenditures  were made in compliance with applicable laws and regulations, we  reviewed the Federal Acquisition Regulation, VA’s acquisition regulation,  and VA/VHA policies and procedures, and performed tests of federal and  agency acquisition requirements related to the purchase card procurement  process and convenience check payment process.
To perform tests of internal controls and applicable laws and regulations,  we selected purchase card and convenience check transactions using two  different methods.  For each method of selection, we provided VHA with  the transactions selected and obtained and reviewed related supporting  documentation.  The two methods are as follows.
Data Mining.  We performed data mining on VA’s Financial Service  Center (FSC) database of fiscal year 2002 purchase card and  convenience check transactions for indicators of potential  noncompliance with established policies and procedures.  Specifically,  we looked for purchases that were split into two or more transactions to  circumvent single purchase limits, convenience check purchases that  exceeded established limits, purchases made against designated  blocked merchant category codes (MCCs), A/OPCs with card  accounts, cardholders who were payees on convenience checks, ratio of  cardholders assigned to approving officials, comparison of single and  monthly credit limits to actual purchase card activity, former employees  who had active purchase card accounts after their separation dates, and  purchases from vendors on the Department of Health and Human  Services Office of Inspector General (DHHS OIG) Exclusion List.  We  forwarded the results of the transactions that met the specific criteria to  the VHA Central Office in Washington, D.C. to obtain responses and  related documentation, which we used to assess whether in fact these  were violations of applicable laws and regulations or policy.
We also asked Citibank, VHA’s purchase card program contractor, to  extract from its database of VHA cardholders, all inactive VHA  purchase card accounts.  We analyzed this data and forwarded our  results to the VHA Central Office for further review and assessment of  cardholders’ ongoing need for the card.
Statistical Sampling.  We selected five stratified random statistical  samples of purchase card and convenience check transactions from five  populations of purchase card and convenience check transactions paid  from October 1, 2001 through September 30, 2002.  See table 1 below for  a description of each sample and their related populations which were  aggregated from a database of all purchase card and convenience check  transactions for fiscal year 2002 to test specific control activities and  compliance with applicable laws and regulations, and policies.  We  stratified transactions in each sample on the basis of the total dollar  values for each population.  Sample units in each sample were  subsequently weighted in the analysis to account statistically for all the  transactions in the population, including those that were not selected.   Results from these statistical samples were projected to their respective  populations of purchase card and convenience check transactions for  fiscal year 2002.
To determine whether purchases were made for a reasonable cost and a  valid government need, we selected transactions on a nonstatistical basis  to allow us to identify transactions that appeared to have a higher risk of  fraud, waste, or abuse, although the results cannot be projected to the  overall population of purchases.  To select these transactions, we first  performed data mining on fiscal year 2002 transactions to identify  purchases from certain vendors that would more likely be selling  unauthorized or personal use items; purchases made on the weekends,  during holidays, or at fiscal year-end; purchases from travel-related  vendors; and purchases of sensitive assets.  This resulted in tens of  thousands of transactions identified, from which we then selected 982  transactions totaling $1.2 million to test whether these purchases were  made at excessive cost and/or for questionable government need, and  whether they complied with select purchasing regulations, policies, and  procedures.
While we identified some improper purchases, our work was not designed  to identify all fraudulent or otherwise improper purchases made by VA.  We  conducted our review from April 2003 through April 2004 in accordance  with generally accepted government auditing standards.
section_title: Critical Internal Controls Were Ineffective
paragraphs: VHA’s internal controls were not designed to provide reasonable assurance  that improper purchase card and convenience check purchases would not  occur or would be detected in the normal course of business.  We found  that VHA lacked adequate segregation of duties between purchasing and  receiving goods; that purchase card and convenience check transactions  often did not have key supporting documents; that timeliness standards for  recording, reconciling, and reviewing transactions were not met; and that  cardholders did not consistently take advantage of vendor-offered  purchase discounts.  Generally, we found that internal controls were not  operating as intended because cardholders and approving officials were  not following VA/VHA operating guidance governing the program, and in  the case of documentation and vendor-offered discounts, lacked guidance.   We also noted instances where monitoring activities could be strengthened  through prescribed operating procedures to decrease the risk of improper  purchases.
Effective internal controls are the first line of defense in safeguarding  assets and in preventing and detecting fraud.  In addition, they help to  ensure that actions are taken to address risks, and are an integral part of an  entity’s accountability for the stewardship of government resources.  Our  Standards for Internal Control in the Federal Government requires that  (1) key duties and responsibilities be divided or segregated among different  people to reduce the risk of error or fraud, (2) all transactions and other  significant events be clearly documented and readily available for  examination, and other significant events be authorized and executed only  by persons acting within the scope of their authority, (3) transactions  should be promptly recorded to maintain their relevance and value to  management in controlling operations and decisions, and  (4) internal  control monitoring be performed to assess the quality of performance over  time and ensure that audit findings are promptly resolved.  Similarly,  internal control activities help ensure that management’s directives are  carried out.  The control activities should be effective and efficient in  accomplishing the agency’s control objectives.  Control activities occur at  all levels and functions of the entity.  They include a wide range of diverse  activities such as approvals, authorizations, verifications, reconciliations,  performance reviews, and the production of records and documentation.
subsections: section_title: Segregation of Purchasing Duties Was Inadequate
paragraphs: VHA lacked adequate segregation of duties regarding independent  receiving of goods and separation of responsibilities within the purchasing  process.  Independent receiving–receiving of goods and services by  someone other than the cardholder– provides additional assurance that  purchased items are not acquired for personal use and that the purchased  items come into the possession of the government.  Such separation of  responsibilities within the purchasing process reduces the risk of error or  fraud.  From our purchase card internal control testing, we estimate that  $75 million in transactions did not have evidence that independent  receiving of goods had occurred.  In addition, our data mining of the  purchase card and convenience check activity identified 15 A/OPCs who  were also cardholders that collectively made 9,411 purchases totaling $5.5  million during fiscal year 2002.  Because A/OPCs are responsible for  monitoring cardholders’ and approving officials’ activities for indications of  fraud, waste, and abuse, these A/OPCs were essentially monitoring their  own activities.
VA’s and VHA’s purchase card guidance varied regarding segregation of  duties within the purchasing process.  VHA’s guidance does not require  independent receiving by someone other than the cardholder; however, it  does state that cardholders are responsible for ensuring that goods and  services ordered are received.   In addition, VA’s current guidance, dated  April 4, 2003, makes no mention of the receiving function regarding  cardholder purchases.  The guidance only requires a clear separation of  duties for authorizing transactions, making purchases, and recording  transactions.
Although there is no written agency-wide requirement for independent  receiving, agency officials informed us that the purchase card order system  includes an option that allows for independent receiving when a cardholder  creates a detailed purchase card order in the system.  Specifically, the  cardholder can select an option that requires independent receiving of  goods at the applicable VHA facility warehouse.  Once goods are physically  received and notated to that effect via an electronic signature in the  purchase card order system, the cardholder can print the receiving report  and maintain it in his or her files.  Although this option is available, we  found that cardholders did not consistently select the detailed process  option when creating a purchase card order in the system.  One of the  factors contributing to this inconsistency is the ambiguity of the criteria  that VA has instituted for determining when the detailed process option  should be selected for creating a purchase card order.  According to the  purchase card order system’s user guide, the cardholder should use the  detailed process option to keep track of specific items in the inventory  system.  However, this user guide does not identify the types of procured  goods that should be inventoried, tracked, and accounted for by this  system.
To test the independent receiving function, we requested certain system  data print screens for each transaction included in the purchase card  internal control sample to determine whether the cardholder had created a  detailed purchase card order that would allow for independent receiving.   From the documentation provided, we determined that 142 of the 283  sample transactions were detailed purchase card orders and thus, had  characteristics of independent receiving.  Of the 142, we found 16  transactions totaling $70,475 where cardholders did not provide evidence  that independent receiving had occurred.  Based on the results of our  review, we estimate that $75 million of the total sampled population of  purchase card transactions lacked evidence of independent receiving.  We  believe documented independent receiving is a basic internal control  activity that provides additional assurance to the government that  purchased items come into the possession of the government.
Another weakness we identified regarding segregation of duties included  A/OPCs who are also cardholders.  VHA’s purchase card guidance explicitly  prohibits A/OPCs from being cardholders.  When A/OPCs perform in this  dual capacity, they are essentially monitoring their own activities.  During  our data mining of the purchase card and convenience check activity, we  identified 15 of 180 A/OPCs who were also cardholders and had collectively  made 9,411 purchases totaling $5.5 million during fiscal year 2002.  When  we inquired about the dual responsibilities, we were told that certain VHA  facilities cannot adequately segregate purchasing duties because of the  small number of employees located at those sites and that management is  aware of the dual responsibilities.  Although this segregation of duties issue  was prevalent during fiscal year 2002, our period of review, it has been  largely rectified, since all but one A/OPC account had been closed as of the  end of fieldwork.  Regarding the open account, the national program  coordinator provided us a copy of a memorandum, dated December 1,  1997, from the Chief of Acquisition and Material Management to the  director of that facility requesting approval to keep the A/OPC as a  cardholder because the office has no other staff to perform these  cardholder responsibilities.  In the memorandum, the Chief also stated that  the office has a “double check audit” in place to ensure there are no  problems with any of the A/OPC’s purchases.
section_title: Purchases Lacked Key Documentation
paragraphs: We found instances where purchase card and convenience check  transactions lacked key supporting documentation such as internal written  authorization for convenience check disbursements and vendor invoices  that independently support the description and quantity of what was  purchased and the price paid.  We also found that VHA’s purchase card  guidance does not address the types of documentation that cardholders  should maintain to support purchases made.  The guidance only addresses  documentation requirements in its audit guide, which is an appendix to the  purchase card guidance that provides instructions to internal reviewers  when performing their monitoring functions.  Furthermore, we noted that  VA’s operating guidance for convenience checks has no requirement that  vendor documentation be provided before checks are issued.  The  guidance only provides that sufficient documentation, such as a VA-created  purchase order, must be evident before checks are issued.
The invoice is a key document in purchase card internal control activities.   Without an invoice, independent evidence of the description and quantity  of what was purchased and the price charged is not available.  In addition,  the invoice is the basic document that should be forwarded to the  approving official or supervisor so that he or she can perform an adequate  review of the cardholder’s purchases.
In testing for evidence of an invoice, we accepted either a copy of the  invoice, sales receipt, packing slip, in cases where the item description  could be directly traced to the cardholder’s detailed purchase card order,  and the purchase card order amount agreed to the charged amount, or  other store receipt.  Of the 283 purchase card sample transactions, 74  transactions totaling $2.1 million lacked an invoice, credit card slip, or  other adequate vendor documentation to support the purchase.  Based on  these results, we estimate that $312.8 million of the fiscal year 2002  purchase card transactions lacked key supporting documentation.  For the  convenience check sample, we found 35 of 255 transactions totaling  $43,669 lacked the same key documentation.   Based on these results, we  estimate that $3.8 million of the fiscal year 2002 convenience check  transactions lacked key supporting documentation.
We also noted missing documentation in the other three statistical samples  (purchases over $2,500, purchase card split purchases, and convenience  checks exceeding established limits) and one nonstatistical sample.  For  the three statistical samples, in instances where VHA did not provide  documentation to us to perform our test work, we reported these  purchases as exceptions for each attribute tested.  Based on our audit  work, we estimate that $45.9 million of the fiscal year 2002 purchase card  and convenience check transactions had missing documentation.  For the  nonstatistical sample, we reported all transactions with key missing  documentation as questionable transactions, as discussed later in this  report.  In some instances, cardholders or others told us that the invoice or  other file documentation had been lost, sent to storage, destroyed after a  year, or not retained when the cardholder retired or separated from VA.   However, there were instances for which no explanation was provided as  to why cardholders could not submit supporting documentation as of the  end of our fieldwork.  Without such documentation, we could not verify  what was purchased, whether it was for a legitimate government purpose,  or complied with acquisition requirements.
A valid invoice to show what was purchased and the price paid is a basic  document for the transactions, and a missing invoice could be an indicator  of potential fraud.  Without an invoice, two key internal control activities– independent receiving and approving official review–become ineffective.   Independent receiving cannot confirm that the purchased items were  received and the approving official cannot review a cardholder’s reconciled  purchase with the supporting invoice.  A near zero failure rate is a  reasonable goal considering that invoices are easily obtained or replaced  when inadvertently lost.
VA’s operating guidance over convenience checks does not provide detailed  procedures regarding appropriate written documentation or authorization  that is required to be forwarded to the authorizing employee (agent  cashier) prior to the disbursement of funds to a third party.  VA’s operating  guidance only provides that the required documentation be the same as  that for paying with cash such as a purchase order.  The guidance makes no  mention of independent vendor documentation and that this type of  documentation be required prior to issuing checks to vendors.  In addition,  VA’s guidance requires that the agent cashiers issuing convenience checks  retain copies of issued convenience checks for only one year.  This  documentation requirement is inconsistent with the Federal Acquisition  Regulation and VHA’s Records, Control Schedule 10-1, dated February 14,  2002, which requires that such records be retained for 6 years and 3 months  after final payment for procurements exceeding the simplified acquisition  threshold and for 3 years after final payment for procurements below the  simplified acquisition threshold.
In testing for evidence of written authorization, we accepted either a copy  of a purchase order, standard forms VA uses for certain types of  expenditures such as salary and travel, or signed internal memorandums.   Of the 255 convenience check transactions, 17 transactions totaling $8,890  lacked written authorization needed to issue the convenience check.   Based on these results, we estimate that $1.7 million of the fiscal year  2002 convenience check transactions lacked written authorization.  In  addition, we noted that 19 of the 255 convenience check transactions  lacked a copy of the check or carbon copy.  Based on these results, we  estimate that $2.3 million of the fiscal year 2002 convenience check  transactions lacked this supporting documentation.  Although VA only  requires copies of convenience checks to be retained for one-year,  retaining the copies and the supporting documentation for the longer  retention period mandated by the FAR and incorporated in VHA’s Records,  Control Schedule 10-1, would facilitate subsequent internal and external  reviews in assessing whether or not transaction activity was proper and in  compliance with acquisition policies and procedures.
section_title: Timeliness Standards Were Not Met for Recording, Reconciling and Reviewing Transactions
paragraphs: As part of the purchase card process, VHA has established several  timeliness standards that cardholders and approving officials must meet to  ensure prompt recording, reconciliation, and review of purchases.   Specifically, within 1 workday of making a purchase, cardholders are  required to input or record the purchase information in VA’s purchase card  order system.  Within 10 calendar days of electronically receiving the  transaction charge information from Citibank, the cardholder must  reconcile 75 percent of these Citibank charges to the purchase information  in the system.  Within 17 calendar days, 95 percent of the Citibank charges  must be reconciled.  As evidence of reconciliation, the purchase card order  system assigns the date the cardholder reconciled the purchase in the  system.  For testing the timeliness of cardholder reconciliations, we used  the 17 calendar day criteria.  In addition, VHA requires that within 14  calendar days of electronically receiving the cardholder’s reconciled  purchases, that the approving official, through an electronic signature, certify in the purchase card order system that all procurements are legal,  proper, and have been received.
Table 2 summarizes the statistical results of VHA’s timeliness standards that  cardholders and approving officials must meet to ensure prompt recording,  reconciliation, and review of purchases.  Our work shows that the internal  controls were not operating as intended to ensure prompt recording of  transactions and events.
The following examples illustrate the extent of untimely recording,  reconciliation, and review of the purchase card transactions.
Untimely recording. A cardholder made a purchase on July 9, 2002 for  $994, but did not input information into the VA’s purchase card order  system until August 29, 2002 or 51 days later.  According to VHA policy,  the cardholder was required to input information about this purchase  within one workday of making a purchase.  The purpose of this  timeliness standard is to ensure that VHA has proper control over the  obligation and expenditure of its resources. By allowing this timeliness  standard to be circumvented, VHA has less control over its financial  resources.
Untimely reconciliation.  A cardholder made a purchase of $100 on  August 24, 2002. Citibank electronically sent charge information to VHA  for this purchase on October 8, 2002. According to the VHA policy, the  cardholder should have reconciled this charge within 17 days, or by  October 25, 2002, of receiving the Citibank charge information to meet  the 95 percent reconciliation timeliness standard.  However, the  cardholder did not reconcile this charge until September 8, 2003, or 335  days later after receiving the Citibank charge information.  The purpose  of cardholder reconciliation is to detect invalid transactions, including  billing errors and unauthorized purchases.  If cardholders do not  promptly reconcile their purchase card charges, the risk increases that  fraudulent, improper, and wasteful purchase card expenditures could  occur and go undetected.
Also, during our review of cardholder reconciliations, we found 17  instances of cardholders who had electronically notated that the  reconciliation had been completed, but the invoice amount and the  charged amount did not agree and there was no documentation to  explain the difference.  VHA’s purchase card guidance requires that  cardholders match Citibank payment charges to VA’s purchase card  order system within VHA’s prescribed tolerance level, currently $100 or  10 percent, whichever is less.  However, VHA’s guidance only requires  that cardholders provide a written explanation when differences, at the  prescribed tolerance level, occur between the vendor invoice amount  and Citibank payment charged amount.  Cardholders are not required  to document any differences below the prescribed tolerance level.  We  believe cardholder reconciliation is a key control activity for detecting  invalid transactions, including billings and unauthorized purchases.   Documenting any difference between the invoice amount and payment  charged amount provides additional assurances that transactions are  properly reconciled and charged amounts are correct.  We brought this  issue to the attention of several VHA officials.  VHA officials agreed that  cardholders should explain any difference in the purchase card order  system and said they would proceed to have VHA’s purchase card  guidance revised to clarify this cardholder responsibility.
Approving Official Review.  A cardholder reconciled his purchase card  transaction totaling $3,149 on December 21, 2002.  According to the VHA  policy, the approving official should review the reconciled purchase and  certify within 14 calendar days that the purchase was legal, proper, and  has been received.  We noted that for this transaction, there was no  evidence that the approving official reviewed this cardholder’s  reconciliation until August 6, 2003 or 227 days later from the receipt of  cardholder reconciliation. The purpose of an independent approving  official review of reconciled cardholder purchase card transactions is to  ensure that key responsibilities in the purchase card program are  segregated and that no one individual has control over all aspects of a  purchase card transaction.  If approving officials do not promptly review  cardholder purchase card transactions, VHA has no assurance that  purchase card activity did not involve fraudulent, improper, or wasteful  transactions.
It is critical that cardholders and approving officials promptly record,  reconcile, and review purchase card transactions so that erroneous  charges can be quickly disputed with the vendor and any fraudulent,  improper, or wasteful purchases can be quickly detected and acted upon.
section_title: Vendor Discounts Not Consistently Taken
paragraphs: From our detailed tests of transactions, we found instances where  cardholders did not consistently take advantage of vendor-offered  purchase discounts.  Specifically, we identified 69 invoices containing  vendor-offered discounts totaling $15,785 that were available to the  cardholder, but not taken at the time of purchase or subsequently credited  for the discount amount, as evident by the amount charged to the  cardholders’ account.  When purchases are made, vendors may offer  purchase discounts if buyers make early payments of their invoices.   Typically, the vendor specifies a period of time during which the discount is  offered, but expects the full invoice amount for payments made after that  period.  When cardholders use the purchase card, payment to vendors, via  Citibank, generally occurs at the time of purchase.  In turn, Citibank bills  VA for the purchases through a daily electronic file.  VA makes daily  payments to Citibank to pay charges made from the previous day.   Therefore, it is critical that cardholders inquire of any vendor-offered  discounts at the time of purchase and make efforts to obtain a credit upon  receipt and review of the invoice.  Our detailed testing indicated that VHA  did not always take advantage of vendor-offered discounts and that VHA  lacked purchase card guidance to ensure cardholders inquired of or  reviewed vendor payment terms to determine whether discounts were  being offered for the applicable goods and services rendered.
For example, one vendor offered VHA a discount of 2.9 percent, or $896, for  an invoice amount of $30,888, if paid within 15 days.  Citibank, on behalf of  VA, made payment to the vendor within the 15-day timeframe, yet the  vendor charged the cardholder’s account for the full invoice amount.  We  found no evidence that the cardholder attempted to obtain a credit for the  available discount offered.  In another example, we found that a cardholder  had taken advantage of the vendor-offered discount.  The vendor offered  VHA a discount of 3 percent, or $180, for an invoice amount of $6,000, if  paid within 30 days.  We noted that the vendor charged the cardholder’s  account for the discount amount of $5,820.
A factor that may contribute to cardholder inconsistencies for taking  advantage of vendor discounts is the lack of established policies and  procedures that address this issue.  Specifically, we found that VHA’s  purchase card guidance did not include established procedures to ensure  cardholders take advantage of available vendor discounts prior to making  payments, or require that approving officials identify instances when  cardholders did not take advantage of vendor discounts in order to  determine the frequency of these occurrences. Without such guidance,  VHA will not be able to determine the extent of this type of occurrence and  actual dollars lost to the government.
section_title: Program Monitoring Improvements Could Be Made
paragraphs: Our review found that VHA’s monitoring requirements lacked procedures to  ensure that cardholder accounts were cancelled promptly when an  employee left service and that cardholder credit limits were based on  actual spending patterns.  In addition, we found that VHA management has  not provided sufficient human capital resources at the A/OPC level, to  enable adequate monitoring of the purchase card program.  Our Standards  of Internal Control state that internal control monitoring assess the quality  of performance over time and that ongoing monitoring should occur in the  course of normal operations.  It includes regular management and  supervisory activities, comparisons, reconciliations, and other actions  people take in performing their duties.
VHA’s purchase card guidance includes prescribed monitoring procedures  over its purchase card program to help ensure purchases are legal and  proper.  For example, the purchase card guidance requires that on a  monthly basis, the Head of the Contracting Activity office at each VHA  facility, the A/OPC and billing officer, perform joint reviews to include  various aspects of the purchase process, such as proper accounting of  purchases; proper oversight to ensure purchases were for a legitimate  government need; and timely recording, reconciliation, and review of  purchases.  Although VHA’s guidance requires these reviews, we found no  monitoring procedures to identify active accounts of cardholders who had  separated from VA nor provisions for ongoing assessment of cardholders’  credit limits.  We also noted insufficient human capital resources at the  A/OPC level, for executing the prescribed monitoring activities over its  purchase card program.
Prompt cancellation of departing cardholder accounts. We identified 18  instances of purchase card accounts that remained active after the  cardholder separated from VA and all related outstanding purchase  orders had been reconciled.  Specifically, we found that the cancellation  of these accounts varied from the date that the last purchase had been  reconciled, ranging from 1 day to 339 days.  Of the 18 purchase card  accounts that remained active after the cardholder had left VA, we  determined that 14 accounts remained active 6 or more days after the  cardholders’ outstanding purchase orders had been reconciled, which  we deemed too long.  For example, one cardholder separated from VA  on April 3, 2002 with 5 outstanding purchase card orders that were made  against the cardholder’s account prior to separation.  The last purchase  transaction was reconciled on May 21, 2002, but the account was not  canceled until April 25, 2003, or 339 days after reconciliation.
According to VHA’s purchase card guidance, departed cardholders are  responsible for turning in their purchase card to the A/OPC in  accordance with facility procedures, and providing the approving  official with records of outstanding orders and unreconciled charges  prior to leaving service.  The approving official is responsible for  ensuring a designated alternate approving official takes appropriate  action necessary to complete the pending orders of departed  cardholders and notifies the A/OPC when the last purchase has been  reconciled so that the card account will be canceled promptly.   However, VHA has no specific procedures for determining the time  period for prompt cancellation of card accounts once all outstanding  orders have been reconciled.  As a result, for analysis purposes, we  determined that untimely cancellation of cardholder accounts occurred  when accounts were not canceled within 5 days of the reconciliation  date for the last purchase charged against that account, as shown in  table 3 below.
In addition to the above analysis, we also identified 3 card accounts from  two VHA facilities where the applicable A/OPC did not provide us the  necessary documentation as of the end of our audit fieldwork to determine  the time period when the departed cardholders’ accounts had been  canceled once the transactions against their accounts had been reconciled.   Therefore, we were unable to determine if these departed cardholder  accounts had been promptly canceled once all outstanding purchase orders  had been reconciled.  Requiring monitoring procedures to identify active  accounts of departed cardholders and ensure prompt closure once  outstanding purchase orders have been reconciled would assist in reducing  the risk of fraud, waste, and abuse that could occur when accounts remain  open beyond the necessary time frame.
Reasonableness of cardholder credit limits. Our analysis of purchases  VHA cardholders made in fiscal year 2002 showed that, on average per  month, cardholders cumulatively purchased $112 million of goods and  services, but they had credit limits of $1.2 billion or 11 times their actual  spending. The difference between the cumulative credit limits of $1.2  billion and actual spending of $112 million per month on average  represents a monthly financial exposure of $1.1 billion to VHA.  For  example, we identified 5 cardholders with monthly credit limits of about  $10 million each, yet each cardholder’s average purchases for one month  only totaled $111,310.
According to VHA’s purchase card guidance, the approving official, in  conjunction with the A/OPC, billing officer, and head of contracting  activity, recommends cardholder single purchase and monthly credit  limits.  However, we found no guidance on what factors to consider  when recommending the dollar amounts to be assigned to each  cardholder, such as existing and continuing needs of program  operations and cardholders.  Further, we found no monitoring  procedures that require the A/OPC or approving official to determine,  on an ongoing basis, whether or not cardholder limits should be  changed based on existing and expected future use.  Although 29 of the  111 A/OPCs who responded to a GAO data collection instrument  question regarding monitoring cardholder’s single and monthly credit  limits, reported that such monitoring occurs and that cardholders’  limits were increased or decreased to reflect actual spending patterns,  we found no consistent application VHA-wide.
A determination of cardholders’ spending limits requires an objective  effort by operational supervisors and management, with assistance  from purchase card program management, to evaluate the existing and  continuing needs of operations and cardholders.  Periodic monitoring  and analysis of cardholders’ actual monthly and average charges, in  conjunction with existing credit limits would aid VHA management in  making reasonable determinations of cardholder spending limits.   Without adequate monitoring, the financial exposure in VHA’s purchase  card program can become excessive when its management does not  exercise judgment in determining single purchase and monthly credit  limits.  Limiting credit available to cardholders is a key factor in  managing the VHA purchase card program, minimizing the  government’s financial exposure, and enhancing operational efficiency.
Inadequate human capital resources.  VHA has not provided sufficient  human capital resources to enable monitoring of the purchase card  program.  One key position for monitoring purchases and overseeing the  program is the A/OPC.  While the A/OPC position is a specifically  designated responsibility, we found in many instances that the A/OPC  also functioned in another capacity and/or performed other assigned  duties such as a systems analyst, budget analyst, and contract specialist.  Of the 90 A/OPCs that responded to a GAO data collection instrument  question regarding other duties assigned, including a percentage  breakdown of time spent on the various duties,55 A/OPCs, or 61  percent, reported that they spend 50 percent or less of their time  performing A/OPC duties.  The bar graph below provides further  information on the allocation of resources directed at monitoring the  VHA purchase card programs at the local level.
The bar graph above depicts the percentage of time that A/OPCs reported  they spend to carry out their duties related to the purchase card program.   Of the 90 A/OPCs who provided a percentage breakdown of performing  their assigned duties, we found that 31 A/OPCs spend up to 25 percent of  their time performing A/OPC assigned tasks, 24 A/OPCs spend between 26  and 50 percent, 11 A/OPCs spend between 51 and 75 percent, and the  remaining 24 A/OPCs spend between 76 and 100 percent.  For example, at  the extreme low end of the scale, one A/OPC responded that he was also  the budget analyst and that he spends 100 percent of his time on budget  analyst duties, leaving no time for A/OPC duties on an ongoing basis.  In  another example, an A/OPC responded that she was also the director of the  finance center and that she spends 99.5 percent of her time on these  director duties, leaving less than 15 minutes per 40-hour week for A/OPC  duties on an ongoing basis.  Given that VHA makes millions of purchase  card and convenience check transactions annually, which in fiscal year  2002, exceeded $1.4 billion, it is essential that VHA management devote  adequate attention to monitoring its purchase card program to ensure that  it is properly managed to reduce the risk of fraud, waste, and abuse.
Although VHA has prescribed some monitoring procedures to ensure  purchases are made in compliance with laws, regulations, policies, and  procedures, these procedures do not adequately address other aspects of  the program as described previously, that, if not frequently monitored,  could increase the program’s risk of fraud, waste, and abuse.  In addition,  these types of monitoring activities become more critical when existing  internal controls are not operating as intended and result in improper,  wasteful, and questionable purchases as we identify in the remainder of  this report.
section_title: Noncompliance With Purchasing Requirements Resulted in Instances of Improper Purchases
paragraphs: The lack of adequate internal controls resulted in numerous purchases  made in violation of either applicable laws and regulations or VA/VHA  purchase card policies that we classified as improper purchases.  Improper  purchases we found due to violations of applicable laws and regulations  included (1) purchases of items for personal use, such as food for internal  meetings and clothing, (2) purchases made from an improper source,   (3) purchases split into two or more transactions to circumvent single  purchase limits, (4) purchases, over the $2,500 micro-purchase threshold  that exceeded the cardholders’ delegated purchasing authority, and (5) no  evidence of competition for purchases exceeding the $2,500 micro- purchase threshold.  Improper purchases we found due to violations of  VA/VHA policy included (1) obtaining conference rooms and other items  without following applicable procurement procedures, (2) convenience  check payments that exceeded established limits, and (3) using  convenience checks to pay purchases even though the vendor accepted the  government purchase card.
While the total amount of improper purchases we identified is relatively  small compared to the over $1.4 billion in annual purchase card and  convenience check transactions, it demonstrates vulnerabilities from weak  controls that could easily be exploited to a greater extent.
The just-cited violations are discussed in more detail here.
Purchases of items for personal use.  From the nonstatistical sample,  we identified 17 purchases totaling $14,054 for clothing, food, and other  items in which cardholders purchased goods that were for personal use.   Items that are classified as personal expenses may not be purchased  with appropriated funds without specific statutory authority.  The  Federal Acquisition Regulation emphasizes that the governmentwide  commercial purchase card may be used only for purchases that are  otherwise authorized by law or regulation.  We identified 6 purchases  of clothing totaling $2,377 that were for personal use and not authorized  by law.  One transaction was a purchase of 4 winter jackets totaling $286  for warehouse employees exposed to inclement weather.  Absent  specific statutory authority, cold weather clothing is an employee’s  personal responsibility for which appropriated funds are not available.   In another example, we found a purchase of 18 pairs of Wrangler and  Levi’s jeans totaling $405 that VHA indicated were to be used as  “employee uniforms” for the engineering office.  Under 5 U.S.C. § 5901,  appropriated funds are available to furnish employees with either  uniforms or a uniform allowance.  Because the statute does not define  “uniform,” the Comptroller General has relied on the common meaning  of the term “uniform” in determining what wearing apparel may be  purchased with appropriated funds.  Merriam-Webster’s Tenth  Collegiate Dictionary (2001) defines a “uniform” as “dress of a  distinctive design or fashion worn by members of a particular group and  serving as a means of identification” and broadly regarded as  “distinctive or characteristic clothing.”  Jeans would not qualify as a  uniform under that definition as jeans are common everyday attire and  would not distinguish or set a group apart.
We also found 11 transactions that included purchases of food totaling  $11,677 that were for personal use and not authorized by law.  We  identified 5 transactions that included the purchase of food for  government meetings totaling $3,142 and 6 transactions where a  significant portion of the purchases were for food related to  refreshments or meals for training sessions or conferences in the  medical center’s immediate geographic area totaling $11,309.  For  example, one transaction totaling $575 included lunch and beverages  purchased from the Pacific Athletic Club in the amount of $277 in  addition to a room rental fee.  According to documentation provided,  this purchase was for seven VA employees to discuss the Compensated  Work Therapy program.  In another example, breakfast and lunch  meals totaling $2,430 were purchased during a weeklong training  conference for new supervisors at a local inn.  All attendees were on  staff at the nearby medical facility and the documentation provided  indicates that networking was scheduled to take place during breakfast  and lunch.  This and other purchases of refreshments identified during  our testing were improper to the extent that employees were not in a  travel status or the agency did not justify providing meals to  employees.
Improper Source. We identified 8 purchases totaling $7,510 in the non- statistical sample that were subject to procurement from a mandatory  source of supply but were obtained from other sources.  Various federal  laws and regulations such as the Javits-Wagner-O’Day Act (JWOD)  require government cardholders to acquire certain products from  designated sources.  The JWOD program is a mandatory source of  supply for all federal entities.  It generates job and training for  Americans who are blind or have severe disabilities by requiring that  federal agencies purchase supplies and services furnished by nonprofit  agencies, such as the National Industries for the Blind and the National  Institute for the Severely Handicapped.  Most JWOD program supplies  are small value items such as office supplies, cleaning products, or  medical/surgical supplies that nearly always fall into the micro-purchase  category.
Based on our nonstatistical testing, we noted that cardholders did not  consistently purchase items from JWOD when they should have.  For  example, a cardholder purchased planner starter kits and refills for  employees totaling $1,591 from Franklin Covey, a high-end office  supply store. These items provide essentially the same features as the  JWOD items, and would have cost $1,126, or $465 less, if they had been  procured through JWOD or a JWOD supplier.  During our data mining,  we noted that VHA made 652 purchases totaling $76,350 from Franklin  Covey during 2002.  While we did not review all of these individual  purchases, based on our detailed testing of similar transactions, it is  likely that many of them should have been procured from a mandatory  source at a much lower cost.
Split purchases.  Using data mining techniques, we identified card  purchases that appeared to have been split into two or more  transactions by cardholders to circumvent their single purchase limit.   We requested documentation for a statistically determined sample of  280 potential split transactions totaling $4 million.  Of these 280  transactions, we determined that 49 transactions were actual splits.   Based on these results, we estimate that $17.1 million of the total fiscal  year 2002 purchase card transactions were split transactions.  For  example, a cardholder with a single purchase limit of $2,500 purchased  accommodations at 110 hotel rooms totaling $4,950.  When performing  follow-up, the cardholder stated that VA provides lodging  accommodations for veterans receiving medical services such as  radiation therapy, chemotherapy, and day surgery who live at least 150  miles from the medical facility.  The cardholder created two separate  purchase orders and had the vendor create two separate charges, one  for $2,500 and the other for $2,450, so that the purchase could be made.   On the documentation provided, the cardholder stated the “purchase  was split per the direction of the previous purchase card program  administrator.”  The cardholder also stated that currently, her purchase  card at that facility is no longer used to pay hotel lodging for veterans.   Hotel payments are now disbursed electronically via VA’s Financial  Service Center.  The purpose of the single purchase limit is to require  that purchases above established limits be subject to additional controls  to ensure that they are properly reviewed and approved before the  agency obligates funds.  By allowing these limits to be circumvented, VA  had less control over the obligation and expenditure of its resources.
Noncompliance with simplified acquisition procedures.  The Federal  Acquisition Regulation provides that the purchase card may be used by  contracting officers or individuals who have been delegated micro- purchase authority in accordance with agency procedures.  Purchases  above the micro-purchase threshold using the purchase card are  permissible only by warranted contracting officers who must promote  competition to the maximum extent practicable when making such  purchases.  Contracting officers must consider solicitation of  quotations from at least three sources, and they must minimally  document the use of competition or provide a written justification for  the use of other than competitive procedures.  When cardholders  circumvent these laws and regulations, VHA has no assurance that  purchases comply with certain simplified acquisition procedures and  that cardholders are making contractual commitments on behalf of VHA  within the limits of their delegated purchasing authority.
From the statistical sample of purchases over $2,500, we found that for  19 of the 76 transactions, cardholders lacked warrant authority needed  to make these types of purchases.  Based on these results, we estimate  that cardholders with only micro-purchase authority, made $111.9  million of the total fiscal year 2002 purchases that exceeded $2,500.  In  addition, we found that 12 of the 76 transactions lacked evidence of  competition.  Based on these results, we estimate that $60 million of  the total fiscal year 2002 purchases totaling more than $2,500 lacked  evidence of competition.
For example, one cardholder made a purchase of 2,000 washcloths  totaling $3,100, but could provide no evidence that competition was  used.  According to the cardholder, at the time of purchase, he was  under the impression that VA had a contract with the vendor to procure  the goods and therefore, did not seek competition.  We also found one  cardholder who purchased flu vaccine syringes for a VA pharmacy  totaling $19,943, but was not a warranted contracting officer.  In  addition, we found instances where cardholders were warranted  contracting officers, but not at the time of purchase for specific  transactions we selected.  Specifically, we found seven cardholders  who made purchases over the micro-purchase threshold, with a  combined total of $27,473, where the warrants provided were dated  after the purchase of goods.  These cardholders could not provide  documentation to show that they were warranted contracting officers  at the time these purchases were made.
Incorrect procurement procedures used to obtain conference room  rentals and other items. We identified 23 purchase card transactions  totaling $112,924 in the nonstatistical sample related to the rental of  conference room facilities used for internal VA meetings, conferences,  and training.  For these purchases, the cardholders could not provide  documentation to show that efforts had been made to secure free  conference space.  VA’s acquisition regulations state that rental  conference space will be obtained (paid for) only in the event that free  space is not available and that complete documentation of efforts to  secure free conference space will be maintained in the purchase order  file.   For one purchase, VHA paid $31,610 for conference room  facilities and related services for 3 days at the Flamingo Hilton Hotel in  Las Vegas.  The cardholder provided no evidence that attempts to secure  free facilities had been made.  In addition, of the 23 purchase card  transactions cited, 12 purchases totaling $103,662 occurred at one VHA  facility.  This included one transaction totaling $12,000 for a 3-day  Training Course on Prevention and Management of Disruptive Behavior  at the MGM Grand Hotel in Las Vegas.  Again, we were not provided  evidence that efforts had been made to secure free conference space.
Two additional transactions totaling $755 were for different types of  purchases where VA’s acquisition regulation was not followed.  One  purchase was a recruitment advertisement totaling $690.  VA requires  that approval be obtained prior to making this type of purchase and  that evidence of this approval be maintained in the file.  We found no  evidence that approval had been obtained prior to making the  purchase.  For the second transaction, the cardholder paid annual  membership dues associated with an international honor society of  nursing in an employee's name totaling $65.  VA used its general post  funds to pay this charge despite the fact that VA policy prohibits the use  of general post funds for membership fees.  Additionally, as  appropriated funds are not available to pay employees' membership  fees in societies or associations, VA policy requires that membership  in organizations be in the agency's name, not the employee's name.
Improper use of the convenience checks.  We identified improper use of  convenience checks related to purchases that exceeded VA’s established  limits of $2,500 and $10,000 and payments to vendors who accept the  purchase card payments.  VA’s convenience check guidance requires  that a single draft transaction be limited to $2,500 or in some cases  $10,000 unless a waiver has been obtained from Department of the  Treasury, and restricts convenience check use to instances where  vendors do not accept purchase cards.  From our statistical testing of  convenience check limits, we found that 91 of 105 convenience check  purchases were paid using multiple checks because the total purchase  amount exceeded the established convenience check limit.  Based on  these results, we estimate that $13.8 million of the total fiscal year 2002  convenience check transactions were improperly used to pay purchases  exceeding the established limits.
For example, we found 29 different purchases for metered postage  from the United States Postal Service (USPS) where the purchase  amount exceeded the convenience check limit.  One purchase for  postage totaled $50,000, but the single transaction limit on convenience  checks for that facility is $2,500.  In order to make payment, the agent  cashier issued 20 different checks at $2,500 each.  Regarding an  explanation of the purchase, the agent cashier stated that separate  checks were written because the convenience checks cannot be  written over $2,500.  The agent cashier also stated that since this  purchase, the VHA facility has implemented new procedures that allow  for electronic funds transfers (EFT) to USPS.   During our review, we  also found another VHA facility that is currently using EFTs as an  alternate payment mechanism to USPS.  Based on the explanations  obtained for the various improper check purchases we identified, it  appears to be routine practice for agent cashiers to issue numerous  checks when the purchase amount exceeds the established check limit  of $2,500 or $10,000.  For example, at one VHA facility, the agent cashier  provided a written explanation that it is their policy to issue numerous  checks instead of increasing the check limit.
We also found instances where convenience checks were used to pay  vendors who accept the purchase card as payments.  VA’s disbursement  mechanism guidance provides that third party drafts (convenience  checks) should be used in lieu of cash but only when the government  purchase card cannot be used.  From a statistical sample of 255  convenience checks transactions, we found 23 instances where  vendors accepted the purchase card as payment, yet convenience  checks were issued instead to make payments.  In these instances, we  were provided no documentation as to why the convenience check was  used in lieu of the purchase card.  Based on these results, we estimate  that $2.6 million of the total fiscal year 2002 convenience check  payments made to vendors in lieu of the purchase card lacked this type  of documentation.  For example, an agent cashier made a convenience  check payment of $8,327.32 to a party rental vendor for the purchase of  various stage equipment, chairs and tents used for an outside cemetery  dedication.  We contacted the vendor and found that it accepts credit  cards as a form of payment.  The agent cashier provided no  documentation showing why the convenience check was used in lieu of  the purchase card.
In April 2003, VA issued new purchase card guidance that attempted to  clarify the use of convenience checks.  Specifically, this guidance  provides that for micro-purchases, convenience checks may be used in  lieu of the purchase card only when it is advantageous to the  government and it has been documented as the most cost-effective and  practical procurement and disbursement method.  However, we found  no established criteria for determining the “most cost-effective and  practical procurement and disbursement method.”
section_title: Poor Controls Resulted in Some Wasteful and Questionable Purchases
paragraphs: The inadequacies and ineffectiveness of internal controls were also evident  in the number of transactions identified that we classified as wasteful— that is, excessive in cost compared to other available alternatives or for  questionable government need.  We also identified other transactions that  we classified as questionable because there was insufficient or no  documentation to determine what was purchased.  Specifically, of the 982  nonstatistical sample transactions we reviewed, 250 transactions totaling  $209,496 lacked key purchase documentation.  As a result, we could not  determine what was actually purchased, how many items were purchased,  the cost of each of the items purchased, and, whether there was a  legitimate government need for such items.
Table 4 summarizes the number of transactions and dollar amounts that we  determined to be wasteful or questionable.  While not significant to the  overall purchase card program, these transactions are indicative of what  can occur when the use of the cards is not properly controlled.  Because we  tested only a small portion of the transactions that appeared to have a  higher risk of fraud, waste, or abuse, there may be other improper,  wasteful, and questionable purchases in the remaining untested  transactions.
subsections: section_title: Wasteful Purchases
paragraphs: We identified 20 purchases totaling $56,655 that we determined to be  wasteful because they were excessive in cost relative to available  alternatives or were of questionable government need. The limited number  of wasteful purchases found in the nonstatistical sample demonstrates that  cardholders are generally prudent in determining that prices of goods and  services are reasonable prior to making credit card purchases.  For items  labeled as wasteful, we considered them excessive in cost when compared  to available alternatives that would meet the same basic needs or  questionable as government expenditures because they appeared to be  items that were a matter of personal preference or convenience, were not  reasonably required as part of the usual and necessary equipment for the  work the employees were engaged in, or did not appear to be for the  principal benefit of the government.  Specifically, we identified 18  purchases totaling $55,156 for which we questioned the government need  and 2 purchases totaling $1,499 that we considered excessive in cost.  A  majority of the purchases were related to office-wide and organizational  awards.
We noted several purchases for items to be presented as awards.  Many of  these types of purchases were for gift certificate and gift card awards.   Although VA policy gives managers great latitude in determining the nature  and extent of awards, we identified 10 purchases totaling $51,117 for award  gifts for which VHA was unable to provide information on the recipients of  the award or the purposes for which the recipients were being recognized.   Therefore, we categorized these purchases as questionable government  need.  For example, we identified two transactions for 3,348 movie gift  certificates totaling over $30,000.  For these purchases, the cardholders and  A/OPCs could not provide the award letters or justification for the awards.   Consequently, it could provide no evidence that these purchases were truly  used for awards.  We also identified one purchase for an award event  totaling $2,500 for which the cardholder was unable to provide a  justification for the ceremony or detail what awards were presented.  Also,  based on VHA purchase order documentation provided, we noted one  additional purchase of items to be used as awards totaling $250 for which  no vendor documentation was provided to support the purchase.   Therefore, we classified and reported this transaction under our missing  invoice category.
We also identified two purchases that we considered wasteful because of  excessive cost.  We identified a cardholder who purchased a $999 digital  camera when there were other less costly digital cameras widely available.   For example, during the same six-month period from February 2002  through July 2002, two other cardholders purchased digital cameras for  $526 and $550.  No documentation was available to show why that  particular model camera was necessary.   In the second example, we  identified a purchase for a 20-minute magic show totaling $500 that was  performed during a VA volunteer luncheon.  Although VA policies allow for  funds for volunteer events, this expenditure as roughly $25 per minute,  seemed excessive.
section_title: Questionable Purchases
paragraphs: As discussed earlier in this report, we identified numerous transactions  from the statistical samples that were missing adequate supporting  documentation to identify what was actually purchased, how many items  were purchased, and the cost of the items purchased.  In these instances,  we reported those sample transactions as exceptions for each attribute we  tested.  In addition, we requested supporting documentation for a  nonstatistical sample of 982 transactions totaling $1.2 million.  Of these, we  identified 315 transactions totaling $246,596 that appeared to be improper  or wasteful, but for which VHA either provided insufficient or no  documentation to support the propriety of the transactions.
We classified 250 of these 315 transactions, totaling $209,496, as missing  invoices because the cardholders provided either VHA internal  documentation, but no vendor documentation to support the purchase, or  provided no documentation at all to support the purchase.  VHA internal  documentation includes purchase orders, reconciliation documents, and  receiving reports.  Vendor documentation includes invoices, sales receipts,  and packing slips.  Specifically, internal documentation was available for  184 of these transactions totaling $155,429 but no vendor documentation  was available.  No documentation was available at all for the remaining 66  transactions totaling $54,068.
An example of a transaction with internal documentation, but no vendor  documentation included a purchase from Circuit City where the cardholder  stated that the purchase was for three $650 television sets and three $100  television stands, totaling $2,300 (including $50 shipping), that were  needed to replace the existing ones in the VA facility’s waiting area.  In  another transaction, no vendor documentation was available for a  transaction from Black & Gold Beer where the cardholder stated that the  purchase of beer was for a patient.  The purchase order shows that three  cases were purchased at $12.50 each, totaling $38.  The cardholder stated  that the purchase was at the request of the pharmacy for a specific patient;  however, no documentation was provided to support this claim.  Table 5  illustrates some transactions in the nonstatistical sample for which  cardholders provided no documentation to support what was purchased.
Based on these examples and other transactions identified in the  nonstatistical sample, we believe that at least some of these items may  have been determined to be potentially fraudulent, improper, or wasteful  had the documentation been provided or available.  In addition, we noted  that of the 66 transactions where VHA cardholders provided no  documentation to support the purchase, 32 transactions (48 percent)  represented 2 or more transactions to the same cardholder.  For example,  one cardholder did not provide documentation for 5 transactions totaling  $5,799 from various types of merchants, including two restaurants, a movie  theater, a country club, and an airport café.
For 65 transactions totaling $37,100 that appeared to be either improper or  wasteful, the documentation we received was not the correct supporting  documentation or was inadequate, and we were unable to determine the  propriety of the transactions.  For example, one transaction was for $1,350  to Hollywood Entertainment; however, the purchase order and invoice  listed Hear, Inc. as the vendor for closed captioning services.  The  cardholder stated that she believed Hollywood Entertainment is an  associate company name for Hear, Inc.; however, they could not provide  any documentation to support this statement.  Additionally, from our  Internet searches of both Hollywood Entertainment and Hear, Inc. we  found no information to indicate that these two companies were associated  in any way.
In another example, the transaction was for $1,400 to Fabulous  Pewterware, a company that sells handcrafted items made of pewter;  however, the purchase order and invoice listed Ball Med & Associates Inc.,  a company that provides medical services, as the vendor and described the  purchase as repairs.  The A/OPC stated that Fabulous Pewterware is   synonymous with Ball Med & Associates Inc.; however, he could not  provide documentation supporting this claim.  From our Internet search of  Fabulous Pewterware, we found no information to indicate that these two  companies were one and the same.
We also identified 68 transactions totaling $31,772 involving the purchase  of tickets for sporting events, plays, movies, amusement/theme parks, and  other recreation activities for veterans and VA volunteers.  The  documentation provided for these transactions was inadequate or missing  a vendor invoice; therefore, we could not determine whether these tickets  were used in support of the volunteers or veterans.  As a result, these  purchases were also categorized as questionable.  Various programs under  VHA, such as Recreation Therapy, Voluntary Services, and Blind  Rehabilitation Service, sponsor assorted activities for the benefit of  veterans and for VA volunteers.  From our review of these types of  purchases, we found that VHA does not have procedures in place to ensure  that the purchased items were used by the intended recipients and are  properly accounted for.  In most cases, there was inadequate or no  documentation to account for how the tickets were distributed and who  participated in the events.
For example, we found one purchase of 62 theme park tickets to Six Flags  totaling $997 for veterans. Upon request, we received a list of veterans to  whom tickets were distributed and we noted that the list only accounted  for 28 tickets. When we contacted the cardholder to obtain clarification for  the discrepancy, we were told that the difference was due to veterans  receiving additional tickets for their family members; however, there was  no evidence to support this claim.  As a result, we were unable to determine  whether the remaining 34 tickets were provided to veterans for the  intended purpose.  In another example, we found a purchase of 46 tickets  totaling $812 for veterans to attend a Pittsburgh Pirates baseball game.   However, we were provided no documentation that identified who received  the tickets or who attended the baseball game.  Proper accountability over  the distribution and receipt of tickets for such events is needed to help  ensure that tickets are not improperly used for personal use.
section_title: Conclusions
paragraphs: Overall, VHA’s internal controls were not designed to ensure improper  purchases would be detected or prevented in the normal course of  business.  While VHA has some internal controls, they are often not  operating as intended because cardholders and approving officials are not  adhering to internal control requirements guidance, resulting in violations  of federal acquisition regulations as well as VA/VHA’s own policies.  In  other instances, internal controls are lacking, as in the case of  documentation requirements, in which there is not adequate guidance.  The  lack of compliance with established internal control requirements coupled  with a lack of internal control guidance in some areas such as  documentation, resulted in improper, wasteful, and questionable  purchases.  Although the total amount of these purchases is small in  comparison with the size of the purchase card and convenience check  program, it reveals a vulnerability from weak controls that could be  exploited.  Until controls are strengthened and guidance is expanded and  clarified, VHA will continue to be at risk of improper payments through  purchase card and convenience check transactions.
section_title: Recommendations for Executive Action
paragraphs: We are making the following 36 recommendations to the Acting Under  Secretary for Health and, in some instances, the Secretary of Veterans  Affairs to strengthen internal controls and compliance in its purchase card  program in order to reduce VHA’s vulnerability to improper, wasteful, and  questionable purchases.
subsections: section_title: Internal Controls
paragraphs: With regard to improving internal controls over purchasing, we recommend  that the Acting Under Secretary for Health do the following.
Establish appropriate criteria, including types of items and dollar  thresholds for requiring and documenting independent receiving and  acceptance of items obtained with a purchase card.
Establish specific procedures for documenting independent receiving,  such as requiring the cardholder to maintain a signed copy of the  receiving report showing the purchase was received in the warehouse,  or requiring the approving official or supervisor to sign and date the  vendor invoice, packing slip, sales or credit card receipt to verify that  the items purchased were actually received.
Require that VHA senior management at the VA headquarters in  Washington, D.C. document its approval that the one VHA  Agency/Organization Program Coordinator (A/OPC) can continue to  function as a cardholder since this is inconsistent with VA/VHA policy.
Establish procedures that require an independent person to periodically  review this A/OPCs’ purchasing activities.
Establish guidance dictating vendor documentation needed to support  the purchase transactions (in description, quantity, and price) that  provides the basis for reconciling electronically received charges from  Citibank.
Require cardholders to maintain documentation of timely and  independent receiving and acceptance of items obtained with a  purchase card.
Incorporate into VHA’s existing purchase card guidance, file retention  requirements as mandated by FAR Subpart 4.805 Storage, Handling,  and Disposal of Contract Files.
Identify cardholders who repeatedly fall outside the required  timeframes for recording purchase card order information into the VA’s  purchase card order system and for performing reconciliations of  purchases.
Identify approving officials who continually fail to meet the required  timeframes for reviewing and certifying that cardholder purchases are  legal and proper.
Provide adequate retraining for these cardholders and approving  officials and consider whether to suspend their responsibilities if the  established timeframes continue not to be met.
Establish procedures that require cardholders, at the time of purchase,  to determine whether vendors offer purchase discounts when early  payments are made for goods and services rendered.
Establish procedures requiring internal management review auditors to   identify loss of vendor-offered discounts,   determine frequency of occurrences and actual dollars lost to the   periodically report to VHA management for consolidation and further  review so that appropriate actions can be taken.
Establish timeframes for the prompt cancellation of purchase card  accounts when the cardholder has left the agency and all outstanding  purchase orders have been reconciled.
Establish procedures to ensure prompt cancellation of purchase cards  when cardholders leave VA, are reassigned, or no longer have valid  needs for the cards.
Establish procedures to periodically assess whether each cardholder  continues to have a valid need for a purchase card.
Review existing credit limits and monthly spending and develop policies  and strategies on credit limits provided to cardholders with a focus on  minimizing specific cardholder spending authority and minimizing the  federal government’s financial exposure.
Assess the adequacy of human capital resources devoted to the  purchase card program, especially for oversight activities, at the A/OPC  level, and provide needed resources.
section_title: Compliance with Purchasing Requirements
paragraphs: With regard to improving and enforcing compliance with purchasing  requirements, we recommend that VHA develop written detailed  procedures and guidelines to aid cardholders in complying with the Federal  Acquisition Regulation, Veterans Affairs Acquisition Regulations and other  internal policies and procedures when using the purchase cards and  convenience checks as procurement and payment mechanisms for goods  and services rendered.  Such procedures could be either incorporated in  VHA’s existing guidance over the purchase card program or presented  separately.  Specifically, we recommend that the Acting Under Secretary  for Health do the following.
Establish steps to be followed when circumstances permit the purchase  of generally prohibited items such as clothing, food, and gifts.
Establish steps to be followed when the purchase amount will exceed  the $2,500 micro-purchase limit or the cardholders’ single purchase limit  to prevent splitting the purchase.
Establish steps to be followed if the cardholders, with only micro- purchase authority, need to make a purchase over the $2,500 micro- purchase threshold.
Establish steps to be followed when cardholders request to make  purchases of office supplies and other goods from other than a  mandatory source supplier for items that are “essentially the same.”
Establish steps on how to document the use of competition and  circumstances under which it can be justified not to use competitive  procedures.
Establish steps on how to document efforts to secure free conference  space before purchasing rental of conference room facilities.
Reiterate in VHA’s refresher training to cardholders and approving  officials areas discussed in this report, such as segregation of duties,  documentation requirements and retention of supporting  documentation, taking advantage of available vendor-offered discounts,  canceling of departed cardholders’ accounts, applicable laws and  regulations, and agency policies and procedures.
Provide refresher training to agent cashiers on the areas discussed in  this report, such as purchases that exceeded established check limits  and payments to vendors who accept the purchase card as a form of  payment.
Consider whether to revoke or suspend purchasing authority of  cardholders who are found to be frequently or flagrantly noncompliant  with policies and procedures, such as cardholders making split  purchases, procuring goods and services beyond their purchasing  authority, or making purchases exceeding established dollar thresholds.
section_title: Wasteful and Questionable Purchases
paragraphs: With regard to purchases that may be at an excessive cost or for  questionable government need, we recommend that the Acting Under  Secretary for Health do the following.
Require that cardholders or others track and document award  purchases to the end user, including who received the award and the  purposes for which the recipient is being recognized.  Copies should  also be maintained in the purchase card order file.
Require that cardholders or others track and document ticket purchases  for recreational activities to the end user, including who received the  ticket, date received, and signature by the recipient as evidence of  receipt.  Copies should also be maintained in the purchase card order  file.
Follow up on transactions we identified for which no supporting  documentation was provided to determine whether the items purchased  were for a legitimate government need.
Take appropriate disciplinary or corrective action for purchases  determined to be not for a legitimate government need.
section_title: Convenience Checks
paragraphs: Policies and procedures over convenience checks are established at the  department level only.  Therefore, we are making four recommendations to  the Secretary of Veterans Affairs to strengthen and improve controls over  convenience check usage in its purchase card program.  Specifically, to  improve internal controls over convenience check purchasing, we  recommend that the Secretary of the Veterans Affairs, in conjunction with  the Acting Under Secretary for Health, do the following.
Require agent cashiers to maintain written documentation that  authorizes the disbursement of funds to third parties.
Establish detailed procedures that specify the types of documentation  that agent cashiers must obtain from the requesting office that support  the disbursement of funds to third parties via convenience checks.
Establish detailed criteria in VA’s purchase card guidance for  determining under what situations convenience checks provide the  “most cost-effective and practical procurement and disbursement  method” when using in lieu of the purchase card.  Incorporate this  criteria in VA’s convenience check guidance as well.
Incorporate into VA’s existing convenience check guidance, file  retention requirements as mandated by FAR Subpart 4.805 Storage,  Handling, and Disposal of Contract Files.
section_title: Agency Comments and Our Evaluation
paragraphs: The Department of Veterans Affairs (VA) provided written comments on a  draft of this report.  In its response, VA generally agreed with our  conclusions and expressly concurred with 32 of the 36 recommendations.   For these recommendations, VA reported that it has actions either already  in place or planned that meet the intent of the recommendations.  For the  remaining four recommendations, VA, in principle, concurred with three of  these recommendations and presented reasons and/or alternative action  steps to address the weaknesses identified in our report.
Regarding these four recommendations, two recommendations addressed  segregation of duties weaknesses related to an A/OPC that also functioned  as a cardholder.  We recommended that VHA senior management in  Washington, D.C. approve this dual responsibility since this is inconsistent  with VA/VHA policy and that procedures be established to require an  independent person to periodically review this A/OPC’s purchasing  activities.  In essence, VA agreed that the dual responsibility of the A/OPC  constituted a violation of department policy and stated that VHA  headquarters never granted approval for the A/OPC to function in this dual  capacity and would not do so.  VA also reported that it has instructed the  director of the facility in question that the dual responsibilities of the  A/OPC is a violation of department policy and may not continue.  We  believe that VA’s planned action is an acceptable approach to solving the  problem we identified, and if implemented will address the intent of our  recommendations and resolve this segregation of duties issue and policy  violation.
We also recommended that VHA establish steps to be followed if  cardholders, with only micro-purchase authority, need to make a purchase  over the $2,500 micro-purchase threshold.  VA responded that purchases  greater than $2,500 should require a warrant and that any exception could  complicate and thereby weaken existing policy.  We agree that cardholders  must have the applicable purchasing authority to make purchases over the  $2,500 micro-purchase threshold and did not intend for VHA to establish  procedures that were contrary to this FAR purchasing requirement.  We  believe VA has misinterpreted the intent of our recommendation.  Our  intent was to address the need for additional written purchase card  guidance for cardholders who need to procure specific goods and services,  yet the purchase amount exceeds their micro-purchase threshold.  Such  guidance could include instructing cardholders to contact their local  procurement office so that a contracting officer can make the purchase  instead.  We believe additional written guidance to cardholders is needed  as evidenced by our findings and similar findings reported by the OIG as far  back as 1999.
Lastly, we recommended that VHA require cardholders or others to track  and document ticket purchases for recreational activities to the end user.   VA reported that the burden of having each patient sign for each ticket  would be onerous.  As an alternative, VA stated that the cardholder should  ensure that an accurate patient count is kept on file in the purchase card  order file.  We believe this proposed alternative method does not  sufficiently address the accountability issue over these types of purchases.   By only maintaining an accurate patient count, internal and external  reviewers still will not have enough information available to determine who  received the ticket or attended the event.  A “patient count” provides only  limited assurances over the accountability of tickets.  Independent  evidence from the recipient is needed to support that he/she received or  attended such events and would increase the accountability over these  types of purchases to help ensure that tickets are not improperly used for  personal use.  In a few instances, we found that VHA local offices had  implemented, at varying degrees, tracking procedures of ticket purchases  similar to those envisioned by our recommendation.  For example, one  field office, maintained an attendance sheet that identified the recreational  activity, date and time of the activity, the particpants’ names and check  marks as to whether or not participants attended the event.  At another  field office, we were provided a similar attendance sheet, including each  recipient’s signature and last four digits of his/her social security number.   Employing these types or similar procedures agencywide appears  reasonable since some of the VHA field offices already have existing  procedures in place.
Also, in its response letter, VA included some technical comments that we  have addressed in finalizing our report where appropriate.  VA’s written  comments and our evaluation of certain comments not addressed above  are presented in appendix I.
As arranged with your offices, unless you announce the contents of this  report earlier, we will not distribute it until 2 days from its issuance date.   We will then send copies of this report to the Secretary of the Department  of Veterans Affairs, the Acting Under Secretary for Health, appropriate  congressional committees, and other interested parties. We will also make  copies available to others upon request.  In addition, this report will be  available at no charge on GAO’s Web site at http://www.gao.gov.
Should you or your staff have any questions on matters discussed in this  report, please contact me at (202) 512-6906 or williamsm1@gao.gov; or  Alana Stanfield, Assistant Director, at (202) 512-3197 or stanfielda@gao.gov.   Major contributors to this report are acknowledged in appendix II.
section_title: Comments from the Department of Veterans Affairs
paragraphs: The following are GAO’s comments on VA’s letter dated May 24, 2004.
subsections: section_title: GAO Comments
paragraphs: 1. We did not indicate that the VHA purchase card program operations  were effective overall.  During the exit conference meeting on April 26,  2004, we communicated that the weaknesses identified at VHA were  similar to the internal control weaknesses we reported at other federal  agencies, although the extent of fraud, waste, and abuse that we  identified at some of those agencies were not as prevalent at VHA.  We  also communicated that our findings stemmed from weak internal  controls over the purchase card program and that strengthening  controls would reduce the program’s vulnerability to improper,  wasteful, and questionable purchases.  We further stated that we would  be making a number of recommendations for each of the identified  areas that were discussed at the meeting.
Regarding the $435,900 cited as fraudulent activity, we reported that  this amount was identified from the OIG’s work and not GAO’s work.   However, VA should not be deriving unjustified levels of assurances  that its program is “effectively managed” based on the OIG’s findings  and our findings identified in this report from data mining and   nonstatistical testing of transactions.  As we indicated in our report,  while the total amount of improper purchases we identified, based on  limited scale audit work, is relatively small compared to the more than  $1.4 billion in annual purchase card and convenience check  transactions, we believe our results demonstrate vulnerabilities from  weak controls that may have been exploited to a much greater extent.   In addition, our internal control findings and noncompliance with  federal and agency purchasing requirements identified from the  statistical testing further illustrate that controls were ineffective and  improved management is needed over program operations.
2.
In our opinion, the approving official’s certification of the purchase  card order for most micro-purchases does not provide sufficient  assurance that purchased items are not acquired for personal use and  that they come into the possession of the government.  Various types of  sensitive items such as personal digital assistants, cell phones, digital  cameras, laptops, and computers can be purchased below the $2,500  micro-purchase threshold.  These and other items that can be easily  pilfered should go through a central receiving point to reduce the risk  of error or fraud.   3. We recently provided VHA a schedule of purchase card transactions in  which no documentation was provided during our fieldwork to support  the purchases selected for review.
section_title: Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: Staff members who made key contributions to this report include: Sharon Byrd, Polly Cheung, Lisa Crye, Danielle Free, Carla Lewis, Julia  Matta, Gloria Medina, Tarunkant Mithani, Donell Ries, and Stacey Smith.
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subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs