Forest Service Purchase Cards: Internal Control Weaknesses Resulted in Instances of Improper, Wasteful, and Questionable Purchases
Published: 2003-08-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since 1999, GAO has designated Forest Service's financial management as a high-risk area because of internal control and accounting weaknesses that have been identified by the Inspector General and GAO. Given these known risks and the hundreds of millions of dollars in credit card purchases made by the agency each year, GAO was asked to review the Forest Service's fiscal year 2001 purchase card transactions to determine whether (1) existing internal controls were designed to provide reasonable assurance that improper purchases would be prevented or detected, (2) purchases were made in accordance with established policies and procedures, and (3) purchases were made for a reasonable cost and reflected a legitimate government need.
section_title: What GAO Found
paragraphs: Internal control weaknesses in the Forest Service's purchase card program leave the agency vulnerable to, and in some cases, resulted in, improper, wasteful, and questionable purchases. These weaknesses included inadequate segregation of duties over purchases, supervisory review and approval of purchases, monitoring activities, and control over property used in Forest Service activities. For example, GAO found instances where items highly susceptible to theft, such as all terrain vehicles, digital cameras, and snowmobiles, were purchased and retained by cardholders, but no records of the items were created in Forest Service systems. These weaknesses likely contributed to approximately $2.7 million in improper, wasteful, and questionable purchases identified in our review. GAO identified purchases that totaled over $1.6 million that were improper because they violated law, regulation, or agency policy. These included purchases that had been split into two or more segments to avoid the cardholder's single purchase limit, purchases that had been paid for twice, purchases that exceeded single transaction limits, purchases for which required approvals were not obtained, purchases of unauthorized items, transactions on accounts of former employees, and instances where cardholders wrote convenience checks to themselves. GAO also found purchases totaling $212,104 that it considered wasteful because they were excessive in cost relative to available alternatives or were for a questionable government need. Further, GAO found purchases totaling $869,825 that it considered to be questionable because the Forest Service either could not provide supporting documentation for them, or supporting documentation was incomplete or incorrect and GAO was unable to determine whether the purchases were proper.

section_title: Letter
paragraphs: The use of purchase cards in the federal government has dramatically  increased in past years as agencies have sought to streamline the  administrative procedures long associated with making small purchases.   The benefits of using purchase cards can be lower costs and less  paperwork 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 their proper use and thus help protect the government from fraud,  waste, and abuse.
The Forest Service has a history of financial management problems,  including serious accounting and financial reporting weaknesses and an  organizational structure that has hampered efforts to correct these  weaknesses.   The Department of Agriculture’s (USDA) Office of Inspector  General (IG) and GAO have issued many reports over the last several years  on the financial challenges facing the agency and the need to correct  internal control weaknesses.  In fiscal year 2002, the Forest Service made  significant progress toward achieving financial accountability, receiving its  first unqualified or “clean” audit opinion on its financial statements.    However, the Forest Service continues to face several major challenges for  which it has corrective actions underway or planned.  Since 1999, we have  designated Forest Service’s financial management as a high-risk area on the  basis of serious financial and accounting weaknesses that we and the IG have identified.  In August 2001, the IG issued a report on USDA’s  purchase card program that identified several internal control weaknesses.  That review examined 400 fiscal year 1999 and 2000 purchase card and  convenience check transactions made by four of USDA’s agencies,  including the Forest Service.  Based on its review of this limited sample, the  IG reported that purchases generally were valid and reasonable.  However  the report also noted the (1) lack of supervisory review and approval of  cardholder transactions, (2) delays by cardholders in validating purchase  transactions that have been paid, and (3) inadequate monitoring by agency  management.
Given the hundreds of millions of dollars in purchase card purchases made  by the Forest Service each year, these known financial management  deficiencies raise the risk that fraudulent or improper purchases could be  made by its employees and not detected.  Because of these risks, you  requested that we review the Forest Service’s fiscal year 2001 purchase  card and convenience check transactions to determine their validity.
In response to your request, we initiated a body of work designed to  determine whether (1) existing internal controls at the Forest Service were  designed to provide reasonable assurance that improper purchases would  be prevented or detected in the normal course of business, (2) the Forest  Service’s fiscal year 2001 purchase card transactions were made in  accordance with established policies and procedures, and (3) purchases  were made for a reasonable cost and reflected a legitimate government  need.  Our review focused on the $320 million of disbursements that the  Forest Service made for purchase card transactions during fiscal year 2001,  the most recent fiscal year for which complete data were available when  we conducted 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.  The Bank of America  issues purchase cards to USDA agencies, including the Forest Service.   The purchase card, unless otherwise directed by regulation, is intended to  be the primary purchasing method for purchases from vendors that accept  purchase cards for payment.  This payment method is intended to  streamline procurement and payment procedures by reducing the number  of procurement requests, purchase orders, and vendor payments issued.   USDA’s purchase card program, including the Forest Service, also includes  the use of convenience checks to pay vendors that do not accept purchase  cards as payment.  In fiscal year 2001, the Forest Service used purchase  cards and convenience checks to make 1.1 million purchases totaling   $320 million.
The USDA procurement process is subject to the Federal Acquisition  Regulation (FAR), the primary set of regulations governing acquisition of  supplies and services by federal executive agencies with appropriated  funds.  The FAR also incorporates U. S. Department of Treasury’s Treasury  Financial Manual (TFM) requirements for the governmentwide purchase  card program.  To implement and supplement these regulations, USDA  issues the Agriculture Acquisition Regulations (AGAR), which prescribe  USDA procurement policies and procedures.
To implement and supplement the AGAR, the Forest Service issues  directives, which contain Forest Service procurement policies and  procedures.  The Forest Service Handbook, FSH 6309.32 Part 4G13  Simplified Acquisition Procedures, provides specific guidance on  procurement for the Forest Service, including the use of the government  purchase card.  The handbook contains policies and procedures that define  the responsibilities of regional and local program coordinators for  managing the purchase card program, including establishing cardholder  data in the Purchase Card Management System (PCMS) and monitoring  activities for the purchase card program.
GSA and Bank of America also provide purchase card guidance, and GSA  provides training to cardholders and program coordinators.  For example,  GSA’s Blueprint for Success: Purchase Card Oversight was prepared by a  working group of agency program coordinators (APC) and provides  general program guidance to APCs in performing their responsibilities.   Beginning in fiscal year 2003, GSA made available to APCs a Web-based on- line training course covering such topics as APC responsibilities, reporting  tools, and preventive measures to use in monitoring the purchase card  program.
According to USDA policy, APCs and local area program coordinators  (LAPC) are appointed by the head of the agency contracting office.  APCs  are primarily responsible for managing the purchase card program in their  agency.  In addition, they establish agency-unique purchase card policies  and procedures, provide training and guidance to LAPCs, and conduct  agencywide oversight of the purchase card program.   LAPCs are  responsible for the day-to-day operations of the purchase card program  within their respective location.  In addition, LAPCs are responsible for  updating cardholder information in PCMS; providing training to  cardholders; and monitoring purchases and reporting fraud, waste, and  abuse in accordance with agency procedures.  Currently, there are 137  Forest Service LAPCs.
In the Forest Service, cardholders are responsible for understanding and  complying with purchasing policies and procedures; maintaining records  and receipts of all purchases; validating their purchases against PCMS  online data; disputing unauthorized charges, and obtaining all necessary  prepurchase approvals for certain items, such as information technology  (IT) costing $1,000 or more and other purchases costing $2,501 or more.   For all other purchases costing $2,500 or less, the Forest Service  cardholder is not required to obtain pre- or post-approval.  During fiscal  year 2001, approximately 14,000 of the approximately 30,000 employees, or  over one-third of the Forest Service workforce, had purchase cards and  most of them had a single purchase limit ranging from $2,500 to $25,000.   The single transaction limit applies to both the purchase card and  convenience checks issued to the cardholder.
In 1995, the Forest Service’s use of the purchase card was limited to  procurement personnel. However, with implementation of the President’s  National Performance Review recommendations, the Forest Service  reduced its procurement staff by 27 percent by 1998.  At the same time,  USDA put together a task force to look at the procurement process and  make recommendations to improve it.  The task force recommended  increasing the use of purchase cards within USDA, including the Forest  Service, to streamline the procurement process.  USDA rapidly expanded  purchase card use, authorizing operations personnel as well as  procurement personnel to use them.
USDA’s Office of Procurement and Property Management (OPPM) and the  National Finance Center (NFC) developed PCMS in 1995 to reduce  administrative costs and to allow agencies faster procurement of goods and  services. The system allowed USDA, including the Forest Service, to track,  reconcile, and monitor purchases made using the USDA purchase cards  and convenience checks.   PCMS is used by program coordinators to  establish and manage cardholder accounts and by cardholders to reconcile  and dispute their transactions from their desktop computers.
In 1998, USDA switched card issuers and issued a task order under the GSA  contract to Bank of America. The Bank of America purchase card system,  developed under the GSA contract and called the Electronic Access  Government Ledger System (EAGLS), includes various tools available to  manage purchase card transactions.  EAGLS is able to generate account  activity reports, which identify trends such as purchases from merchants  that would not be expected to be traditional suppliers or unusually high  spending patterns; dispute reports, which identify cardholders with  excessive disputes that may indicate cardholder misuse or fraudulent  activity; and various other exception reports.  Bank of America  recommended that USDA also use EAGLS to manage its purchase card  program.   However, as PCMS was developed by USDA prior to its  changeover to Bank of America, USDA officials chose to continue using  PCMS because they believed that it offered functionality similar to EAGLS.   Bank of America processes purchase card transaction data received from  vendors using EAGLS, which records the data, then sends it electronically  to NFC.  NFC uploads the data into PCMS and processes payments.
In August 2001, the IG issued a report on its review of PCMS, which  identified several internal control weaknesses.  The report noted the   (1) lack of supervisory review and approval of cardholder transactions,   (2) untimely validation of purchases against PCMS data, and (3) inadequate  monitoring by agency management.  In addition, a private firm was  contracted to perform an Independent Verification and Validation (IV&V)  assessment of PCMS, an assessment which also reported weaknesses in  accounting process controls and internal controls over purchase card  transactions.   Both the IG and contractor reports noted that cardholders  were authorized to buy a majority of items they wanted at any time. The IG  made several recommendations, which included  instituting a requirement that supervisors periodically review and  approve their subordinates’ purchase card transactions to confirm they  are appropriate, for official purposes, and validated against PCMS data  in a timely manner;   developing and implementing appropriate internal control procedures  over the custody, control, accountability, and issuance operations for  convenience checks to ensure they are not misused; and  instructing USDA agencies to review their controls for ensuring they  always properly record property purchases valued at $5,000 or more  (called accountable purchases) in the Office of the Chief Financial  Officer (OCFO)/NFC Property Management Information System.
section_title: Scope and Methodology
paragraphs: To obtain an understanding of the Forest Service’s purchase card and  convenience check policies and procedures, and the related internal  controls, we  reviewed USDA and Forest Service procurement policy, USDA PCMS  guidance, Forest Service regional purchase card program policy, U.S.  Department of the Treasury purchase card program policy, and previous  GAO reports, as well as reports issued by USDA’s IG and an independent  contractor; and  observed and documented purchase card procedures and conducted  telephone interviews with USDA and Forest Service management and  staff to identify key purchase card, convenience check, and accountable  property policies, procedures, and initiatives.
Because of known weaknesses in the design of internal controls at the  Forest Service, we did not perform detailed tests to assess the  effectiveness of these controls.  However, we reviewed the internal control  findings reported by the IG and the contractor in reports issued on the  purchase card program and PCMS.  In addition, we assessed the adequacy  of the internal controls as designed, using our 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.
To determine whether the Forest Service’s fiscal year 2001 purchase card  transactions were made in accordance with established policies and  procedures, were reasonable, and reflected a legitimate government need,  we selected transactions using three different methods.  For each method  of selection, we provided the Forest Service with the transactions selected  and obtained and reviewed related supporting documentation.  The three  methods are as follows:   Data mining.  We performed data mining on Bank of America’s  database of the Forest Service’s fiscal year 2001 purchase card and  convenience check transactions for indicators of potential  noncompliance with established policies and procedures.  Specifically,  we looked for transactions that exceeded cardholder or convenience  check spending limits, split purchases or duplicate transactions,  cardholders with multiple cards, transactions on purchase card  accounts after the separation dates of the employees, and cardholders  who wrote convenience checks to themselves or for cash.  Except for  potential split and duplicate transactions, we forwarded all selected  transactions to the Forest Service APC to request supporting  documentation from cardholders, which we used to assess whether in  fact these were violations of policy.  For split and duplicate transactions,  we selected a statistical sample of transactions as discussed below.
Statistical sampling.  To test for split transactions, we first performed  data mining to identify possible split transactions from the population of  purchase card transactions paid from October 1, 2000, through  September 30, 2001.  We then selected a stratified random (statistical)  sample of 213 of 1,854 potential split transactions totaling $3.5 million.   Similarly, to test for duplicate transactions, we first performed data  mining to identify possible duplicate transactions from the population of  purchase card transactions paid from October 1, 2000, through  September 30, 2001.  We then selected a stratified random (statistical)  sample of 230 of the 8,659 possible duplicate transactions totaling   $1.6 million.  We requested supporting documentation for these  transactions from the APC.  Actual findings from both statistical  samples were projected separately to total fiscal year 2001 Forest  Service purchase card and convenience check transactions.
Nonstatistical sampling.  We selected transactions nonstatistically to  allow us to identify those that appeared to have a higher risk of fraud,  waste, or abuse, although the results cannot be projected to the overall  population of purchases.  We identified merchant category codes  (MCC) or vendor names that appeared more likely to represent  unauthorized or personal use items.  We chose a nonstatistical sample of  high-risk transactions from the total population of transactions  identified for each vendor or MCC selected.  We then requested  supporting documentation from the APC for over 5,000 transactions  totaling $8.7 million that we identified as meeting the criteria mentioned  above to test for improper purchases.  In addition, we requested the  records for more than 1,000 transactions totaling over $690,000, which  were disputed by cardholders during fiscal year 2001.  We reviewed  these transactions to determine whether the cardholders properly  complied with applicable purchasing policies and procedures for  disputed transactions.
To determine if controls over purchase card and convenience check  equipment acquisitions were adequate to properly record and safeguard  assets, we  reviewed policies and procedures over the management and control of  accountable property and sensitive items; and  tested accountable property selected in the nonstatistical sample  discussed above to determine whether these assets had been recorded  in the Forest Service’s property management system prior to our review.
While we identified some improper purchases, our work was not designed  to identify all fraudulent or otherwise improper purchases made by the  Forest Service.  We conducted our review from April 2002 through March  2003 at the Forest Service Washington Office in Rosslyn, Virginia, and  USDA headquarters in Washington, D.C., in accordance with generally  accepted government auditing standards.  We requested written comments  on a draft of this report from the Chief of the Forest Service.  Written  comments were received from the Chief of the Forest Service and are  reprinted in appendix I.
section_title: Critical Internal Control Activities Were Lacking or Inadequate
paragraphs: The Forest Service’s internal controls did not provide reasonable assurance  that improper purchase card and convenience check purchases would not  occur or would be detected in the normal course of business.  Effective  internal controls are the first line of defense in safeguarding assets and  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 stewardship of government resources.  Our Standards  for Internal Control in the Federal Government contains the specific  internal control standards to be followed. Specifically, these standards  require, among other things, that (1) key duties and responsibilities be  divided or segregated among different people to reduce the risk of error or  fraud, (2) transactions and other significant events be authorized and  executed only by persons acting within the scope of their authority,   (3) internal control monitoring be performed to assess the quality of  performance over time and ensure that audit findings are promptly  resolved, and (4) physical control must be established to secure and  safeguard assets vulnerable to risk of loss or unauthorized use.
The IG report, issued in August 2001, covered purchases made during fiscal  years 1999 and 2000.  The report noted several internal control weaknesses  in USDA’s purchase card program, including that of the Forest Service.   These included (1) lack of supervisory review of purchase card  transactions, (2) untimely reconciliation of purchases, and (3) inadequate  monitoring by agency management.   Because the IG report addressed  significant internal control weaknesses and made several  recommendations to address them, we did not conduct detailed tests of  internal controls.  However, through discussions with USDA and Forest  Service officials and our reviews of purchase card policies and procedures,  we confirmed that the Forest Service still did not have an adequate  supervisory review process or sufficient program monitoring activities.   Most importantly, we determined that the Forest Service continued not to  have adequate segregation of duties, and property susceptible to theft or  misuse was not adequately safeguarded. Our data mining of specific  purchase card and convenience check transactions revealed numerous  improper and wasteful purchases that could have been prevented or  detected if these basic internal controls were in place.  Without effective  internal controls, the Forest Service does not have reasonable assurance  that purchases are proper or that items purchased are safeguarded against  loss or theft.
subsections: section_title: The Forest Service Did Not Adequately Segregate Purchasing Duties
paragraphs: Our Standards for Internal Control in the Federal Government requires  that key duties and responsibilities, including authorizing, processing,  recording, and reviewing transactions and handling related assets, be  divided or segregated among different people in order to reduce the risk of  error or fraud.  Simply put, no one individual should control all the key  aspects of a transaction or event.  The processing and recording duties for  purchase card and convenience check transactions were automated and  not performed by the cardholder.  However, under Forest Service  regulations, the majority of purchase card transactions do not require a  segregation of duties.  Cardholders are allowed to perform the key duties of  authorizing purchases, receiving related assets, and validating the  purchases subsequent to payment.
Although Forest Service guidance required that a requisition be prepared  for all procurements as a method to determine that the requestor had the  authority for the purchase, a procurement request was not required for  acquisitions below $2,500 when using a purchase card or convenience  check.  In fiscal year 2001, 96 percent of purchase card transactions were  for amounts less than $2,500.  Further, as purchase card purchases usually  involved face-to-face transactions between the cardholder and the vendor,  the cardholder received the assets.
Lastly, Forest Service guidance required that cardholders reconcile their  transactions in PCMS at least once a month using the documentation  retained from each transaction.  After reconciling a transaction,  cardholders validate the transaction by marking an “approved” cell in  PCMS.   Therefore, for the majority of Forest Service purchase card  transactions made by individual cardholders, there is no separate  authorization of the purchases, possession of the items, or independent  validation of the transactions.
In discussions with USDA OPPM management and our review of purchase  card policies and procedures, we noted that generally, segregation of duties  was not adequately considered in the implementation of the purchase card  program.   When USDA, including the Forest Service, adopted PCMS, the  revised procurement process allowed a much larger population of Forest  Service employees to authorize purchasing decisions to buy goods and  services as well as the responsibility for validating these purchases, up to  their single transaction limit.  This new process did away with the need for  procurement requests and approving officials for the majority of purchase  transactions below $2,500 initiated by Forest Service employees.
As noted above, Forest Service purchase card program policies and  procedures were written to support the increased authority given  cardholders in purchase decisions.  The lack of proper segregation of  duties increased the Forest Service’s vulnerability to theft or misuse since  there was limited oversight or control to ensure that purchased items or  services were for a legitimate government need and were being used for  those purposes.
section_title: Supervisory Review and Approval Process Was Inadequate
paragraphs: Supervisory approval of transactions is a principal means of assuring that  only valid transactions are initiated or entered into by persons acting  within the scope of their authority.  A supervisory review of purchase  transactions is particularly important where there is a lack of segregation  of duties, because a supervisor or approving official may be the only  person other than the purchaser who would be in a position to identify an  inappropriate purchase.  Therefore, the supervisor or approving official’s  review is a critical internal control for ensuring that purchases are  appropriate and comply with agency regulations.
The August 2001 IG report recommended that USDA institute a  requirement that supervisors periodically review and approve their  subordinates’ purchase card transactions to confirm they are appropriate  and revise departmental regulations and purchase card program  instructions accordingly.  USDA did not concur with this recommendation  because the IG audit did not find any material problems with the purchase  card transactions that they tested.  Further, in commenting on the report,  USDA management stated that they believe the existing management  structure is effective in ensuring that purchase card transactions are  appropriate.
During our review of the Forest Service purchase card program for fiscal  year 2001, we also noted that supervisory review and approval of purchase  card transactions was inadequate.  The Forest Service did not require  approval of purchase transactions under $2,500, except for certain IT items  such as computer hardware, software, and cellular phones.  The Forest  Service trusts cardholders to make appropriate purchasing decisions for  transactions under this amount.  During fiscal year 2001, purchases less  than $2,500 totaled $226 million and accounted for 96 percent of all  purchase card transactions in the Forest Service.
While Forest Service guidance requires prior approval for all purchase  transactions exceeding $2,500 and for specific IT items, we noted that this  requirement was not consistently followed.  We identified 11 transactions  totaling $25,452 that required prior approval, but were initiated and  completed by cardholders without obtaining such approval.  For example,  we identified a $1,260 purchase for a printer from ComputerLand Center.   Prior approval for the purchase was not obtained as required by Forest  Service policy.   The cardholder stated that she did not obtain the proper  approval because she was unaware of the requirement.
USDA issued its revised procurement regulation, Use of the Purchase Card  and Convenience Check (DR-5013-6), in February 2003.  The revised  regulation added the cardholder supervisor to the list of responsible  persons in the purchase card program.  Supervisors are described as the  first line of control over the purchasing activity of cardholders in their  units.  In addition, it states that supervisors will require cardholders to  generate periodic reports of purchase card and convenience check  transactions, and that supervisors review these reports at least quarterly, or  more often if agency procedures require.  However, OPPM officials told us  that this new regulation does not require supervisors to review each and  every transaction nor does it require them to review supporting  documentation.  Rather, these reviews are completed using data that has  been entered into PCMS and do not require the cardholders to submit the  original documentation for their purchases.  Both USDA and Forest Service  officials told us that supervisory review of all transactions is not practical  because of the Forest Service’s decentralized organization.  However, this  very decentralization makes it even more imperative that a supervisor or  other approving official validate purchases.
Without an independent validation of transactions via supervisory review  of supporting documentation, the Forest Service is at significant risk of  misappropriation of funds due to fraudulent or improper charges. For  example, as mentioned earlier, cardholders are required to “reconcile” or  validate their transactions at least once a month.  During this process the  cardholders view each individual transaction for their account in PCMS  and agree the vendor name, the date of the transaction, and the amount of  the transaction to the original documentation maintained by the  cardholder.  In addition, the cardholders enter the description of the items  purchased because this information is not initially included in PCMS.   While following up on questionable purchases that we identified, our  investigators learned that three of these purchases, for $1,031 in jewelry  and china from Meier & Frank, had been made by a Forest Service  employee who had been under investigation by the IG since January 2002.   In reviewing the IG Report on Investigation we noted that the cardholder,  when reconciling her purchases, had entered fictitious items into the item  description field in PCMS.  For example, the purchases from Meier & Frank  were described as nonmonetary awards and length-of-service awards.  In  addition, purchases of CD players, computers, computer games, and other  miscellaneous items at one vendor were entered into the PCMS description  field as cartridges, chair mats, folders, binders, paper, pencils, and other  supplies.  A comparison of the receipt to information in the PCMS database  would have detected these purchases as potentially fraudulent.
section_title: Program Monitoring Was Inadequate
paragraphs: The Forest Service did not adequately monitor its purchase card program  during fiscal year 2001 to ensure that Forest Service employees were  following established policies and procedures.  Program oversight through  monitoring activities is important even when strong preventive controls are  in place, and is especially critical in the Forest Service case where there is a  lack of supervisory review and segregation of duties.  USDA regulations in  place during fiscal year 2001 required that APCs and LAPCs monitor  purchase card transactions through PCMS’s alert subsystem, statistical  sampling, and query tool software.  In August 2001, the IG reported  deficiencies in USDA’s (including Forest Service) use of oversight tools for  monitoring purchase card usage during fiscal years 1999 and 2000.    Specifically, the IG reported that the department had not effectively  implemented the alert subsystem of PCMS or implemented reviews of  statistically sampled transactions, as required by USDA regulations.   During our review of the Forest Service program for fiscal year 2001, we  noted that it was still not using these tools for monitoring transactions for  compliance with program requirements or for improper purchases.
In our discussions with OPPM officials in May 2002, they stated that they  were not using the alert subsystem because it was generating too many  alerts that did not represent true errors or abuse.  They expect to correct  the alert process by June 30, 2003, 6 months ahead of the original  implementation date included in their corrective action plan to address the  IG’s findings.  In addition, they informed us that they had not begun  performing reviews of statistically selected samples during fiscal year 2001  but that they had begun performing these reviews during fiscal year 2002,  distributing the results to the specific agencies, including the Forest  Service, for follow-up on the identified transactions.   The Forest Service  APC confirmed that she received the transactions from OPPM and had  distributed them to the specific field offices for investigation.
Lack of timely and consistent monitoring activities increases the risk that  inappropriate purchase card transactions and improper cardholder  activities will go undetected.  In addition, without adequate monitoring  activities, systematic problems will not be identified and addressed.  In our  review of support for transactions identified using data mining techniques,  we found that local coordinators were not always (1) canceling accounts of  permanent and temporary employees when they left the Forest Service,   (2) informed by cardholders that cards had been lost or stolen, or   (3) monitoring disputed transactions to ensure they were completely  resolved and to identify unauthorized activity.
Canceling purchase card accounts.   Purchase card accounts were not  consistently being canceled when cards were reported as lost or stolen, or  when a cardholder left the Forest Service.  Forest Service guidance  requires, in the case of a lost or stolen card, that the cardholder contact  Bank of America to have a block placed on the account and a new card  issued.  The guidance also requires that cardholders, prior to leaving the  Forest Service, surrender their cards and, if issued, unused convenience  checks, to the LAPC who will destroy them and close the account.
We reviewed employee separation procedures at 16 Forest Service regional  and field offices and noted that the written procedures at 3 offices did not  include steps to physically collect the purchase card from the employee.   Further, Forest Service program officials told us that the personnel forms  used in this process are out of date at one office, they differ from region to  region, and are inconsistently filled out.
In addition, we noted that purchase cards were issued to temporary  employees hired during fire season when there is an increased need for  manpower.   According to the Forest Service APC, these cards are collected  when the temporary employees leave the Forest Service.  However, one of  the officials we spoke with stated that the cards are not always retrieved.    Instead the purchase limits are reduced to $1 at that time.  Our internal  control standards require that an agency must establish physical control to  secure and safeguard assets that might be vulnerable to risk of loss or  unauthorized use.   Failure to collect purchase cards due to outdated and  inconsistently applied policies and procedures creates a significant risk of  unauthorized use of purchase cards.
USDA purchase card policy states that cardholders are required to inform  their LAPC immediately of lost or stolen purchase cards or convenience  checks and contact the card issuer in order to have the accounts blocked.   However, we found instances where LAPCs had not been notified that  cards had been lost by cardholders or stolen and the cards had not been  canceled.  For example, we identified three instances where cardholders  lost their cards but did not inform their LAPCs.  Instead, in each case, the  cardholder canceled the lost card and ordered a new card through Bank of  America without the LAPC’s knowledge.
Monitoring disputed transactions.  We found that cardholders were not  always disputing transactions within 60 days of the transaction dates as  required by Forest Service policy and the GSA contract, and disputes were  not being monitored to ensure they were completely investigated and  resolved.   Forest Service policy requires that cardholders reconcile their  purchase card transactions in PCMS every 30 days to ensure the recorded  charges are appropriate and correct, and that they dispute any charges  identified as inappropriate or erroneous.  GSA’s Blueprint for Success:  Purchase Card Oversight, states that agency officials should consistently  monitor disputes filed by cardholders and watch for unusual trends, such  as a high number of disputes for specific merchants. In addition, the GSA  master contract with card issuers of government purchase cards states that  charges disputed within 60 days of the transaction date will be investigated by the card issuer and appropriate credits issued.  After 60 days the  cardholder is responsible for investigating the disputed charge.  In fiscal  year 2001, Forest Service cardholders disputed over 1,000 transactions  totaling $690,157.   Of these, we noted 62 transactions totaling over $51,000  that had not been disputed by cardholders within 60 days of the transaction  date.
Forest Service regulations do not require that cardholders inform their  LAPC  of transactions to be disputed before they are submitted to Bank of  America.  As a result, LAPCs and other management officials may be  unaware of disputed transactions that may indicate potentially fraudulent  or improper purchase card use, and therefore are not ensuring that  unauthorized activity is identified, compromised accounts are canceled,  and appropriate credits are issued.  We noted that 76 transactions had been  identified by 51 cardholders as potentially fraudulent, but the transactions  still had not been resolved (i.e., credits issued) and the accounts were still  open as of the end of our fieldwork.  For example, a cardholder disputed a  $600 charge at Dillards department store stating that this was one of  several charges against his account for this vendor and that none of the  charges were legitimate.  In addition, cardholders disputed a total of 22  charges totaling $2,791 for a vendor named Productivity Plus.  In all but 2 of  these 22 transactions the cardholders state that they had attempted to  reach the vendor but were unable to.  However, there was no explanation  given as to why the cardholder accounts had not been closed.
The Forest Service issued revised policies and procedures for monitoring  purchase card usage in June 2001. The revised guidance required that for  each Forest Service region, field office, and the Washington office, the  Chief of Contracting Office (COCO) and LAPC perform monthly, quarterly,  and annual reviews of cardholder purchases.  The guidance also gave the  COCOs the authority to revoke cardholder purchase card and convenience  check privileges for inappropriate use. However, the revised regulations do  not address the need for monitoring disputed transactions to help ensure  that the purchase cards that have been lost, stolen, or otherwise  compromised are canceled and that disputed transactions are resolved.   Inadequate monitoring is yet another gap in internal controls that leaves  the Forest Service purchase card program open to waste, fraud, and abuse.
section_title: Property Was Not Properly Tracked
paragraphs: Since 1999, we have designated financial management at the Forest Service  as high risk on the basis of serious financial and accounting weaknesses.   An area of particular concern has been the Forest Service’s internal  controls related to property.  Internal controls are essential to safeguarding  assets vulnerable to risk of loss or unauthorized use.  However, we found  that the Forest Service did not adequately track property bought with  purchase cards.
Forest Service policy requires that property costing more than $5,000 be  entered into its personal property management system.  Such property is  also referred to as accountable property.  USDA’s property management  regulations state that all accountable property acquired by purchase,  transfer, construction, manufacture, or donation will be recorded in the  property records at the time it is accepted by the receiving agency.   We  reviewed supporting documentation for 108 accountable property items  purchased in 64 separate transactions during fiscal year 2001, selected on a  nonstatistical basis.
In our review, we noted that 54 of these transactions were entered in the  property system more than 60 days after the purchase transaction or not at  all.  Specifically, 34 of these items, totaling $266,074, or approximately 31  percent, had been recorded in the USDA property system more than 60  days after the purchase transaction.  In many of those cases, it was several  months before the property was recorded.  For example, 8 of the items  were not entered into the system for more than a year.  In addition, we  noted 20 property items, totaling $166,803, which the Forest Service could  not determine had ever been entered into the property system.  These items  included 10 all-terrain vehicles, 3 copiers, 2 projectors, 2 generators, and 3  plasma monitors.  This lack of accountability makes these assets  particularly susceptible to loss or theft without detection.
The Forest Service does not require that property costing under $5,000 be  tracked unless the items are designated as “sensitive.”   Each USDA  agency defines its own list of sensitive property and is responsible for  providing this list to the cardholders.  The Forest Service designates all  firearms, frequency modulated land-mobile radios, precise positioning  service Global Positioning Satellite (GPS) receivers, IT equipment, and  radiological equipment having a radioactive source as sensitive property,  agencywide. Further, Forest Service guidance allows each of its regions  and field offices to designate other items as sensitive.  While the Forest  Service allows field offices to categorize items under $5,000 as sensitive  and thereby track them in inventory, there is no consistent definition of  sensitive property across regions.   For example, one Forest Service region  considers VCRs, TVs, and CD players costing more than $500 to be  sensitive property.  Another regional office designates video and audio  equipment costing more than $100 as sensitive.  That particular region also  considers survival equipment and clothing sensitive while other regions do  not.
USDA regulations state that agencies shall be responsible for maintaining  reasonable controls over their nonaccountable property to safeguard it  against improper use, theft, and undue deterioration.  In our review, we  identified transactions totaling $439,789 for purchases of items that were  not recorded in the Forest Service’s inventory that, while not specifically  designated as sensitive, appear to meet both USDA and Forest Service’s  overall definition of sensitive property.  The cost of many of these items fell  just under the $5,000 accountable property threshold.  As shown in table 1,  these items included all-terrain vehicles, cameras, GPS units, snowmobiles,  and night-vision goggles.
Without proper recording and accounting for these vulnerable assets, there  is an increased risk of misappropriation of these items.  For example,  without tracking of these items a supervisor may be unaware that a  cardholder leaving the Forest Service purchased one of these items, and  therefore could not ensure that the item remained in the possession of the  Forest Service.  In some Forest Service regions, employee checkout  procedures attempt to mitigate this by requiring that an official certify that  the employee has accounted for all property.  An inventory listing of these  items would enable the supervisor to ensure that all vulnerable assets are  properly accounted for when employees leave.
USDA’s revised regulations, issued in June 2001, prohibit the purchase of  accountable and sensitive property except by warranted cardholders.    However, the revised regulations did not mitigate the issues we identified  regarding proper accounting for vulnerable assets. Therefore, these items  continue to be at an increased risk of misappropriation.
Table 2 summarizes the actions USDA and the Forest Service have taken to  address many of the internal control weaknesses identified by the IG  and/or us.  We did not test the effectiveness of these actions because they  were implemented subsequent to our review time frame.  On reviewing the  proposed actions, however, we found that in certain cases, even if properly  implemented, they will still not fully remedy known vulnerabilities in  internal controls.  These cases are noted in the table.
section_title: Noncompliance with Purchasing Requirements Resulted in Instances of Improper Purchases
paragraphs: The lack of adequate internal controls resulted in violations of numerous  federal acquisition requirements and USDA/Forest Service purchase card  policies that we classified as improper purchases.  These included   (1) purchases that were split into two or more transactions to circumvent  single transaction limits, (2) purchase transactions that were paid for  twice, (3) purchases of unauthorized items, (4) purchases that exceeded  single purchase limits, (5) unapproved information technology (IT)  purchases, (6) transactions charged to purchase card accounts of former  employees, and (7) convenience checks written by cardholders to  reimburse themselves.  Table 3 shows the total dollar amounts for  exceptions we identified for each category.
While the total amount of improper purchases we identified is relatively  small compared to the more than $320 million in annual purchase card and  convenience check transactions, it demonstrates vulnerabilities from weak  controls that could easily be exploited to a greater extent.   The above  policy violations are discussed in more detail below.
Split purchases.  Using data mining techniques, we identified purchases  that appeared to have been split into two or more transactions by  cardholders to circumvent their single transaction limit.  We requested  supporting documentation for a statistically determined sample of 213 out  of 1,854 potentially split purchases we identified.  Of these 213, we  identified 29 actual split purchases for which we received and examined  documentation that confirmed that the purchases were split into two or  more transactions.  Based on these results, we estimate that almost $1.3 million of the total fiscal year 2001 purchase card transactions were  split transactions.   For example, a cardholder with a single purchase limit  of $2,500 purchased 13 toner cartridges totaling $3,918.  The cardholder  had the vendor split the purchase between two invoices to avoid exceeding  her single purchase limit.  In another example, the cardholder purchased  $36,984 of safety equipment for rescue workers.  The cardholder had the  vendor  separate the total charge into three charges to circumvent her  single transaction limit of $25,000.  The projected amount of split  transactions may have been higher had we received all documentation  requested.  However, for 59 of the 213 sampled transactions, we could not  determine whether they were split transactions because cardholders did  not provide documentation through the APC to enable us to assess them.   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  failing to monitor transactions, these limits may be circumvented and the  Forest Service will have less control over the expenditure of its resources.
Duplicate transactions.   Using data mining techniques, we identified  individual purchases that appeared to have been charged twice to  cardholder’s accounts.  We requested supporting documentation for a  statistically determined sample of 230 of the 8,659 potentially duplicate  transactions we identified.  Of these 230, we identified 6 actual duplicate  transactions.  Based on these results, we estimate that  $177,187 of the  total fiscal year 2001 purchase card transactions were duplicate  transactions.  The projected amount of duplicate transactions may have  been higher had we received all documentation requested.  However, for   30 of the 230 sampled transactions, we could not determine whether they  were duplicate transactions because cardholders did not provide  documentation through the APC to enable us to assess them.  Supervisory  review of the documentation supporting the cardholder’s transactions  reduces the risk that duplicate charges would go undetected and result in  financial losses to the government.  In addition, an effective monitoring  program at the APC/LAPC level would help flag these types of improper  transactions.
Purchases of unauthorized items.  USDA purchase card policy states that  the purchase card and convenience checks will not be used for the  purchase of hazardous items such as firearms, ammunition, explosives, or  hazardous biological and radioactive substances.  However, we identified  10 transactions totaling $53,324 for the purchase of ammunition, rifles, and  explosives.  For example, we identified two transactions for the purchase  of rifles, which are used for animal control and other Forest Service  activities.   When we informed the cardholders that these transactions were  improper, one cardholder stated that he was unaware that purchase card  policy prohibited this purchase.  The other cardholder stated that as a  warranted cardholder, she was allowed to purchase the rifle.   This is not  the case under Forest Service policy, and when we brought this to the  attention of the Forest Service APC, she contacted the employee to inform  her that the purchase was improper.  Further, we identified a $500 purchase  of ammunition, which was given to the local sheriff's department under a  cooperative agreement.  Under the agreement, the sheriff's department  would patrol campgrounds because of manpower shortages within the  Forest Service.  The cardholder told our investigator that it is a common  occurrence in his region to have cooperative agreements with local law  enforcement agencies.  When we discussed this transaction with the Forest  Service APC she expressed some concern as to whether the intent of the  cooperative agreement program was being properly administered in the  cardholder’s region.
Purchases that exceeded single transaction limits established by USDA  policy.  Through our data mining efforts, we identified 12 purchases  totaling $41,445 that exceeded the cardholder’s single transaction limit by  10 percent or more.   Of the purchases we identified, we noted that none of  them were made using the purchase card; instead they were made using  convenience checks that had been issued to the cardholder.   According to  the Forest Service APC, when an individual cardholder uses a purchase  card and the amount of the purchase is in excess of the limit, electronic  controls established by Bank of America deny the transaction and it cannot  be completed.   However, these controls do not exist for convenience  checks.  The cardholder’s single transaction limit is printed on the face of  his/her convenience checks.  Yet when a cardholder writes a check in  excess of their transaction limit, only scrutiny by the vendor would identify  this.  According to the Forest Service APC, the Bank of America honors all  convenience checks.  Therefore, when vendors submit checks written for  amounts in excess of the cardholder’s limit to Bank of America, the checks  are accepted and processed for payment.  This lack of control allows a  cardholder to circumvent the single transaction limit, even in the case  where the Forest Service has reduced a cardholder’s single transaction  limit to $0 or $1 for abusing the purchase card program or due to separation  from the agency, increasing the risk of unauthorized or improper purchases  by cardholders.
No preapproval of IT purchases.  While the Forest Service generally does  not require preapproval of purchases under $2,500, there are some specific  categories of items for which prior independent approval must be obtained.   According to Forest Service policy, cell phones, fax machines, scanners,  and other IT equipment are not to be purchased without first obtaining  approval from the appropriate IT personnel.    However, we found 11  transactions totaling $25,452 for equipment, including cell phones,  scanners, printers, and fax machines, that did not have this required  preapproval.
Transactions by cardholders separated from the Forest Service.  Using  data mining techniques, we identified purchase card accounts that had  transactions totaling approximately $43,625 charged to them with  transaction dates that appeared to be after the cardholders left the Forest  Service.  In discussions with the Forest Service APC, she agreed that,  based on the available data, $4,385 of these transactions could be  confirmed to be improper, having been made after the employees had left  the Forest Service.  For example, one former employee left the Forest  Service on November 4, 2000, but PCMS records indicated that six  purchases, totaling $1,632, were charged to the employee’s purchase card  account over the next 2 months at Ames and Kmart department stores.  The  Forest Service was unable to provide documentation to support the  appropriateness of the remaining transactions totaling $39,240.
Cardholders wrote convenience checks to themselves.  We found 26  instances, totaling $2,014 where cardholders wrote checks to themselves,  contrary to Forest Service policies that prohibit this practice.  Writing  checks for cash is also an unauthorized transaction, according to USDA’s  micropurchase guide.  In addition, the guide states that cardholders may  issue checks to reimburse other employees for local travel expenses, such  as mileage, parking, and taxis, authorized by their agency while on official  business, or miscellaneous expenditures (e.g., supplies, services,  registration fees, and telephone use for official business) that were cleared  with the cardholder before the purchase was made.  However, the proper  documentation must be completed and the expenditures must be approved  by an authorized official other than the cardholder.  In most of the cases we  identified, the cardholders stated that they were unaware of the prohibition  against writing checks to themselves for cash.  The remaining cardholders  stated that they were aware of the restriction, but did it anyway to expedite  their reimbursement as no other cardholders with checks were available at  the time, or in one case, the employee who reimbursed himself was the  only one with checks at that location.
The above examples not only illustrate a lack of adequate oversight, but  also the need for better training.  According to USDA and Forest Service  regulations, each cardholder is required to obtain some type of training  before being issued a card.  Each agency within USDA is responsible for  training participants in accordance with USDA or agency-specific  regulations and is allowed to determine the method of certification.
section_title: Poor Controls over Purchasing Practices Resulted in Certain Wasteful and Questionable Transactions
paragraphs: The inadequacies and ineffectiveness of internal controls were also evident  in the 779 wasteful and questionable transactions we identified that totaled  over $1 million.  Transactions we classified as wasteful were for items or  services that were (1) excessive in cost compared to other available  alternatives, (2) for a questionable government need, or both.  We also  identified other transactions that we classified as questionable because  there was insufficient documentation to determine what was purchased.   Lacking key purchase documentation, 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 indicates the number of transactions and dollar amounts that we  determined to be wasteful or questionable. These transactions are  indicative of what can occur when purchase card use is not properly  controlled.  We tested only a portion of the transactions that we identified  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 135 purchases totaling $212,104 that we determined to be  wasteful because they were excessive in cost relative to available  alternatives, of questionable government need, or both. We considered  items to be excessive in cost when less expensive alternatives would meet  the same basic needs.  We defined items as being of questionable  government need when they appeared to be a matter of personal  preference or personal 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 93 purchases totaling $127,319 that  we considered excessive in cost, including purchases for digital cameras,  premium satellite and cable TV packages, awards and gifts, and  cancellation fees.  In addition, we identified 42 purchases totaling $84,785  for which we questioned the government need.  Such purchases included  specialty costumes, PDAs, and PDA accessories.
Forest Service policy requires that purchasers buy equipment, supplies, or  materials that economically meet the needs of the government, avoid  deluxe items when the requirements are satisfactorily met by less costly  standard articles, and take into account the perspective of the user of the  product.  When we reviewed the supporting documentation for many of the  purchases we identified, we noted that the cardholders frequently did not  document their determination that the item purchased economically met  the needs of the government based on an evaluation of price and other  factors, thus avoiding deluxe items as required by Forest Service  purchasing policy.  When we requested additional information from  cardholders, they either did not provide the requested information or the  documentation provided was inadequate to support that the specific  purchase was in compliance with this policy.
Items purchased at a price higher than that of available alternatives that  would have met the same basic needs included:   Digital cameras.   During our detailed testing, we identified 66 digital  cameras and accessories purchased in 37 separate transactions totaling  $61,243 that appeared to have been purchased based on the personal  preference of the cardholder, not on the minimum specifications to  support the anticipated use.  Digital cameras are available at many price  levels, with the price usually reflecting the technical specifications of  the cameras and the options included.   The Forest Service uses digital  cameras for various purposes in its operations, such as taking digital  images of nursery and reforestation activities throughout the nation.   These images are used for publications, presentations, workshops, and  placed on the RNGR web site as part of the technology transfer and  technical assistance missions of certain teams.   Depending on the  intended use of the images, cameras must have certain capabilities of  which the users should be knowledgeable or at a minimum have readily  available guidance on.  This helps to ensure that cameras purchased  meet and not exceed the needs of the user.  In our review of the  supporting documentation and cardholder statements we noted that  some of the cardholders knew how the cameras were going to be used.  However, they did not know what minimum technical capabilities the  cameras had to have.  Cardholders purchased cameras ranging from 1  megapixel to 4 megapixels of data resolution, ranging in price from  around $350 to over $1,900, that appeared to be based on personal  preference, not Forest Service need.  Forest Service policy states that  the requirements of an item must be taken into account in its purchase  to ensure that it economically meets the needs of the government and to  prevent the purchase of deluxe items when the requirements are  satisfactorily met by less costly standard articles.  However, the Forest  Service had not developed guidelines on the purchase of high-tech items  such as digital cameras.    In addition, the individual transactions by  cardholders at various vendors involved the purchase of usually only  one or two cameras at a time.  This does not allow the Forest Service to  achieve possible economies of scale by purchasing them from a single  vendor at a discount.
Premium satellite and cable TV packages. We identified 21 transactions  totaling $4,843 for monthly satellite television programming.   The  Forest Service is authorized to provide minimum recreation facilities  and opportunities for its employees consistent with the degree of  isolation and permanence of the individual work centers.   However, in  each television entertainment purchase we identified, the cardholder  had not contracted for the basic service offered by the vendor but  instead for a premium package, such as HBO, Cinemax, NFL or NBA  games, or for pay-per-view movies.  In one instance the invoice included  charges for pornographic movies.  In addition, we noted one $833  transaction for Direct TV service that the cardholder stated was needed  in order to allow the office to track weather conditions in that part of  the country.  We questioned the need for this capability given that  detailed weather tracking is accessible on the Internet, which, according  to a Forest Service telecommunications manager, is available in all  offices.  In addition, we reviewed the invoice supporting this transaction  noting that the cardholder had also subscribed to 2001 NFL Sunday  Ticket ($199), a subscription to view NFL games on Sunday during the  NFL season, through the vendor.
Awards and gifts.  We noted several purchases for awards and  retirement and farewell gifts for which adequate supporting  documentation was not provided or the award items purchased were  not in compliance with USDA policy.  USDA policy provides for a  number of performance award categories and criteria for each, and  requires that the purpose and type of award given should be  documented.  Nonmonetary awards, according to USDA policy, are time  off awards, keepsakes, letters of appreciation, and honorary awards.    We identified purchases for which the Forest Service was unable to  identify the purpose of the award or provide supporting documentation.   For example, we identified eight transactions, totaling $13,694 in award  purchases, which included hats, mugs, backpacks, and blankets  purchased from vendors such as Warner Bros., Eddie Bauer, and Mori  Luggage and Gifts, in which the cardholder either gave no or inadequate  justification for the purchase of these items.  In addition, USDA’s  regulation on career service recognition states that awards are intended  to recognize employees for their special efforts, and motivate others  who witness the presentation. According to the regulation, employees  should not be recognized monetarily when they leave USDA either  through retirement or separation. However, USDA agencies may  consider providing some form of honorary or nonmonetary recognition  of an employee’s efforts in support of USDA’s mission.  Items such as  plaques or pins are considered appropriate and may be presented.   However, we identified one transaction for the purchase of a golf bag as  a farewell gift and another for the purchase of a rifle as a retirement gift  for an employee.
Cancellation fees.  We found two transactions totaling $34,950 for  cancellation fees for rooms not used by Forest Service employees for a  conference and housing for a seasonal work crew.  Specifically, the  Forest Service paid a $30,000 cancelation fee to Doubletree Hotel in  Denver, Colo..  The Contracting Officer did not recall the specific facts  related to this transaction except that the program office rescheduled  this conference several times with the hotel and then finally canceled,  but not in time to avoid the fee.  The Forest Service also paid a $4,950  cancellation fee to the Rain Country Bed and Breakfast for late  cancellation of its reservation to house seasonal workers.
We also found government expenditures that appeared to be for 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, which included the following.
Specialty costumes and decorative tent.   Forest Service policy provides  for purchases to promote programs related to Smokey the Bear and  Woodsy the Owl.   We noted three transactions totaling $8,750 for  costumes not related to these two programs.  For example, the Forest  Service purchased two fish costumes, Frank and Franny Fish, from the  Carol Flemming Costume Design Studio at $2,500 each, used for aquatic  education in the Pacific forest regions.  The cardholder explained that  these personalities are to the fisheries program what Smokey Bear is to  the fire program.  We also identified a transaction totaling $3,750 for 39  “web of life” costumes, including animals and nature themes, to be used  in education programs.  However, Forest Service policy does not  support the purchase of these costumes and the cardholder’s statement  does not establish sufficient government need for the costumes to  support regional programs.  In addition, we identified a $7,500 purchase  of a hand-stitched “salmon tent” from Evelyn Roth Festival Arts.  The  supporting documentation did not provide a purpose for the purchase of  the tent, only a note that the Forest Service has purchased several of  these tents over the last 5 years or so.
Personal Digital Assistants (PDA).  During our review, we identified 11  transactions for the purchase of 14 PDAs and accessories totaling $8,768  from vendors such as Palm Computing, Casio, Amazon.com, and Best  Buy.  The Forest Service does not have a policy on the purchase of  PDAs, handheld electronic devices that function as calendars, address  books, and other personal administrative aids.   Calendars and daily  planners cost from $6 to $56 with refills for the daily planner costing  about $20.   We noted that some cardholders had purchased high-end  items such as the Palm VTM and Palm M505TM with costs ranging from  $350 to $450.  By comparison, alternatives such as Palm’s M105TM model  retailed for approximately $200 at the time of these transactions.   In our  review of the supporting documentation for these purchases, we found  nothing to show how the cardholders determined that the PDAs were  necessary to fulfill a valid government need, rather than the personal  preference of the cardholders.  For example, one cardholder purchased  a single IBM workpad with hotsync cradle for $829 to use as a calendar,  address book, and to check e-mail messages.  Another cardholder  purchased six new PDAs from Casio Electronics by trading in six Forest  Service PDAs plus $199 each.  When asked to explain the need for the  newer PDAs, his response was that the newer ones were faster and had  more memory to support e-mail.  Lastly, the Forest Service incurred  other expenses for items to support the PDAs, such as keyboards and  carrying cases.  In one instance we identified a purchase of PDA  keyboards, totaling $374, which, according to the cardholder, would be  used for taking notes in meetings.
Cordless phones and headsets.  We noted several purchases of cordless  phones or headsets for Forest Service employees where cardholders  were unable to provide documentation supporting the necessity for the  item in performing their duties.  Instead, the purchases have the  appearance of having been made for personal convenience.   For  example, a Forest Service cardholder purchased cordless phones and  handsets totaling $2,242.  When we asked why the phones were needed,  the cardholder responded that they were purchased for the ease of use  and to enhance the workplace for certain employees.
We also identified numerous other individual purchases that we considered  to be wasteful due to excessive cost or questionable government need.    Such purchases included $9,219 for six pairs of night vision goggles ($1,536  average), that we found available at prices ranging from $379 to $1,949;  $2,701 for sound masking equipment, which the cardholder stated was  needed to reduce the level of noise coming from the cubicles in the regional  office where she worked; $2,929 paid to Hair of the Dog for an aquarium in  an Alaska regional visitor information center; $2,295 paid to Quality  Billiards for a billiard table for a Forest Service bunk house; $2,204 paid to  Best Buy for TV/VCR combinations and their installation into Forest  Service vehicles; $589 paid to Ultimate Electronics for a DVD player to be  used by employees to watch exercise videos in the fitness room; and $200  for a leather briefcase.
Until the Forest Service provides adequate management oversight of its  purchase card program, including a more thorough, systematic review and  monitoring of expenditures with appropriate disciplinary action when  warranted, the types of wasteful and abusive purchases we identified are  likely to continue.
section_title: Questionable Purchases
paragraphs: Forest Service policy requires that cardholders maintain adequate  documentation of all purchase card and convenience check transactions.   As discussed earlier in this report, we requested supporting documentation  for a nonstatistical sample of over 5,000 transactions.  Of these, we  identified 644 transactions totaling over $869,825 that appeared to be  improper, wasteful, or potentially fraudulent, but for which the Forest  Service either provided insufficient or no documentation to determine the  propriety of the transactions.
For 104 transactions, totaling $184,682, that appeared to be either improper  or wasteful, the documentation we received was inadequate or was not the  correct supporting documentation, and we were unable to make a  determination of the propriety of the transactions.   For example, we  requested supporting documentation for a $2,315 transaction charged by  Unisys Corporation.   Supporting documentation was not provided to us.   The Forest Service explained that the employee knowledgeable about this  charge had left the Forest Service and the documentation related to the  purchase could not be located.  The remaining transactions represented  purchases made at various vendors such as $5,803 at Have Party Will  Travel; $4,940 at Spencer’s TV & Appliance; $2,400 at Grand Home  Furnishings; $2,828 at Lowder’s Home Entertainment; $1,729 at Mick’s  Scuba Inc.; and $3,430 at Samson Tours.
We also identified 213 transactions totaling over $68,706, which appeared  to be either unauthorized and for personal use, made using compromised  accounts or unauthorized transactions by merchants, but adequate  documentation was unavailable to allow us to determine the propriety of  the purchases.  We were subsequently able to determine that several of the  transactions were in fact fraudulent.  These fraudulent and potentially  fraudulent transactions included the following.
Transactions made by cardholders that appeared to be unauthorized  and intended for personal use. For example, we identified three  transactions totaling $1,031 in jewelry and china for one cardholder that  appeared to be unauthorized or for personal use.  In the course of our  follow-up inquiries, we found that the cardholder had been under  investigation by the IG since January 2002 when an employee at a local  vendor expressed concerns to a Forest Service employee about some  purchases by another Forest Service employee. In our review of the  USDA IG Report of Investigation on this cardholder, we noted that the  fraudulent activity identified by the IG spanned from May 1999 through  January 2002.  During this period the cardholder purchased five digital  cameras totaling $2,960, six computers totaling $6,019, three palm pilots  totaling $736, jewelry totaling $1,967 and various other items including  cordless telephones, figurines, and Sony Playstations totaling $6,101. On  December 2, 2002, the employee pleaded guilty to one felony count of  theft of government money and property in the amount of $31,342.  In  addition, we identified one transaction totaling $511, at a Tribal Bingo  Casino, for another cardholder who, according to the IG, is also  currently under investigation.
Transactions made using compromised accounts in which a purchase  card or account number was stolen and used to make unauthorized  purchases.  For example, we identified unauthorized transactions for  $692 at Kmart, Circuit City, and other vendors by a person other than the  cardholder using the cardholder’s account number.  The cardholder  contacted one of the merchants about the charges and was told that the  merchant’s security personnel requested personal identification from  the individual after the purchase, but the individual left the store and did  not return.   The cardholder’s account was canceled.  In addition, we  identified a transaction that had been disputed by a cardholder and  upon investigation the cardholder determined that the charge was  incurred by an employee of a local vendor for calls made to a phone-sex  line.
Unauthorized transactions charged by merchants to cardholder  accounts.  For example, we identified 20 disputed transactions, totaling  over $2,700, for one merchant, Productivity Plus. On the basis of  cardholder explanations we reviewed in PCMS’s dispute screen, it  appeared that the merchant had obtained several cardholder account  numbers and charged amounts to them without the authorization of the  cardholders.
For the remaining 327 transactions, totaling $616,437, the cardholders  provided no documentation to the APC.  Lacking key purchase  documentation, we could not determine what was actually purchased, how  many items were purchased, the cost of individual items purchased, and  whether there was a legitimate government need for the items.  Based on  the vendor names and MCCs which identified the types of products or  services sold by these vendors, we believe at least some of these items may  have been determined to be improper or wasteful had the documentation  been provided or available.  These transactions included $2,178 in  purchases from Best Buy, $2,500 from BUY.COM, $6,840 at  HPSHOPPING.com, $4,100 from Party Time Inc. and $3,185 from USA  Tours.
The majority of these transactions represent single transactions for  individual cardholders.  However, we noted that there were several  cardholders with multiple transactions who did not provide us with  supporting documentation for their purchases.  For example, one  cardholder in the pacific southwest region did not provide documentation  for five transactions of electronic purchases totaling $3,349 that appeared  to be either improper or wasteful.  Another cardholder in the pacific  southwest region did not provide documentation for six transactions,  totaling $11,267, for on-line services, electronics, and one payment by  convenience check.
section_title: Conclusions
paragraphs: The Forest Service lacks certain basic internal controls over its purchase  card program, and thus is susceptible to waste, fraud, and abuse.  The IG in  its August 2001 report also identified many of the same control weaknesses  that we did.  The Forest Service took several steps to address these  problems when it issued revised purchase card regulations in June 2001,  December 2002, and most recently, in conjunction with USDA, in February  2003.  However, the revised regulations did not fully address the critical  issues reported by the IG and confirmed by us as continuing weaknesses  during our audit, such as supervisory review, effective monitoring of  purchase card transactions, and property accountability. Until these  weaknesses in fundamental internal controls are addressed, the types of  improper, wasteful, and potentially fraudulent purchases we identified are  likely to continue and certain assets will remain vulnerable to theft.  The  Forest Service will have to thoroughly reassess and strengthen its current  policies and procedures to address the weaknesses identified, develop a  strong commitment at all levels of the agency to carryout these policies and  procedures, and implement appropriate oversight to continually assess  their effectiveness.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Chief of the Forest Service take the following  actions to strengthen internal controls and compliance in its purchase card  program, decrease improper and wasteful purchases, and improve the  accountability over assets.
subsections: section_title: Internal Controls
paragraphs: With regard to improving the Forest Service’s internal controls over  purchasing, we recommend that the Chief of the Forest Service do the  following.
subsections: section_title: Segregation of Duties
paragraphs: Establish policies and procedures that segregate duties for at least some  phases of the purchasing process when using the purchase card. The  Forest Service program should ensure that no one individual is able to  take all the steps needed to request, purchase, receive, maintain, and  validate goods and services.
section_title: Supervisory Review
paragraphs: Establish policies and procedures requiring that supervisors review and  validate all of their subordinates’ purchase card transactions, including  review of original supporting documentation to confirm they are  appropriate, for official purposes, and reconciled in a timely manner.
section_title: Monitoring
paragraphs: Strengthen policies and procedures to ensure that the appropriate LAPC  is notified and the LAPC cancels cardholder accounts immediately when  a purchase card is lost or stolen or a cardholder leaves Forest Service  employment.
Establish a systematic process that the APC can use to track and  monitor training for cardholders and program coordinators to help  ensure that they receive (1) training before being granted purchase  cards or approval authority and (2) timely, periodic refresher training in  areas such as proper segregation of duties, purchasing policies and  procedures, supervisor and program coordinator responsibilities for  reviewing and approving individual purchases, and reporting potential  purchase card fraud and abuse.
Revise and strengthen policies and procedures for cardholders who  have had their purchase card use suspended or limited to ensure that  similar action is taken on the use of convenience checks.
Revise and strengthen policies and procedures over disputed  transactions to ensure that all disputed transactions are identified in a  timely manner and completely resolved.
Establish policies and procedures to ensure that original documentation  is maintained in central locations, such as regional offices, so that it is  readily available for periodic monitoring reviews by supervisors, LAPCs,  and COCOs.
section_title: Property
paragraphs: Revise and strengthen policies and procedures for designating property  costing under $5,000 as “sensitive” to include all equipment susceptible  to theft.  Also, ensure that the revised policies and procedures are  applied consistently across all Forest Service regions.
Establish policies and procedures to ensure that all sensitive and  accountable personal property used in Forest Service operations is  promptly entered into the PROP system or other comparable system  and that a periodic inventory of the items is taken.
section_title: Compliance with Purchasing Requirements
paragraphs: With regard to improving and enforcing compliance with purchasing  requirements at the Forest Service, we recommend that the Chief of the  Forest Service do the following.
Implement monitoring techniques to identify improper transactions  such as cardholders making split purchases, cardholders writing checks  payable to themselves, purchases exceeding established dollar  thresholds, or purchasing unauthorized items.
Revoke or suspend purchasing authority of cardholders who are found  to be frequently or flagrantly noncompliant with policies and  procedures.
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 Chief of the Forest  Service do the following.
Require purchases of certain assets, such as computer equipment,  PDAs, and other electronics to be coordinated centrally to take  advantage of economies of scale, standardize types of equipment  purchased, and better ensure bona fide government need for each  purchase.
Develop and implement purchasing guidelines, based on specific Forest  Service uses, for equipment such as digital cameras and projectors.
Require that cardholders document their determination that purchased  items economically met the needs of the government based on an  evaluation of price, consideration of the item’s expected use, and other  factors.
Follow up on transactions we identified for which no supporting  documentation was provided to determine that the items purchased  were for a legitimate government need, and take appropriate  disciplinary or corrective action as warranted.
section_title: Agency Comments and Our Evaluation
paragraphs: The Forest Service provided written comments on a draft of this report.   In  its response, the Forest Service did not specifically comment on our  recommendations.  However, the response acknowledged that some of the  internal control weaknesses identified in our report existed both prior to  and during our review.  The response further outlined actions taken or  planned since June 2001 to strengthen the overall management of the  purchase card program, which the Forest Service described as having been  taken, not withstanding our report.  We acknowledged many of these actual  and planned actions in our report and believe that these actions, if fully  implemented, will help to address some of the vulnerabilities that the IG  and we identified.  However, as shown in Table 2 on page 30 of our report,  many weaknesses will still remain that continue to expose the Forest  Service to improper, wasteful, and fraudulent purchase card activity.  Our  15 recommendations address remaining weaknesses identified in the table  and elsewhere in our report.
Specific actions taken as outlined in the Forest Service’s response  included, among other things, requiring definitive levels of auditing of  purchase card transactions, performing data mining queries of transaction  data to identify potential questionable purchases, and conducting training  for regional and local agency program coordinators.
In its response, the Forest Service also stated that in fiscal year 2003 USDA  issued an Internal Control Blue Print to decrease risks and improve  internal controls over the purchase card program.  In response, the Forest  Service developed a Plan for Improving Internal Controls (Plan) that  included improvements such as significantly decreasing the use of  convenience checks beginning in fiscal year 2003 with the goal of totally  eliminating them in the future, reducing the number of cardholders by 10  percent, developing additional data mining queries including PCMS alerts  and statistical sampling, ensuring that the ratio of LAPCs to cardholders is  appropriate, and requiring supervisors to review cardholder purchases  including backup documentation.
If fully institutionalized and enforced, the actions included in the Forest  Service’s Plan, along with those actions previously taken, will go a long way  in identifying improper purchases.  However, it will be important that these  actions be carried out in a systematic manner.  Further, even if these  actions are implemented systematically, they still fall short in mitigating  certain internal control weaknesses that are addressed by the 15  recommendations in our report.
Specifically, the Forest Service letter outlined actions to strengthen  monitoring such as the monthly, quarterly, and annual transaction reviews  by LAPCs and COCOs, data mining queries developed and furnished to  coordinators, and reviews by regional offices of audits performed by local  offices.  While these revised policies will provide much needed oversight at  a macro level, these actions do not specifically address our  recommendations regarding controls over cancellation of stolen cards,  disputed transactions, training, and the maintenance of documentation in a  central location.
The Forest Service letter stated that its Plan requires supervisors to review  cardholder purchases, including backup documentation.  Upon review of  the Forest Service’s Plan, we noted that it does not require supervisors to  review backup documentation, as stated in the response letter.   The Plan  only states that the Forest Service will communicate, by July 15, 2003, the  requirement for cardholder’s supervisors to review transactions quarterly  in accordance with DR 5013-6, which also does not require that supervisors  review backup documentation.  We confirmed our understanding of this in  discussions with USDA OPPM officials.  We continue to believe that limited  post-reviews are not sufficient, given the lack of segregation of duties, the  decentralization of the organization, and the ratio of cardholders to LAPCs  in the organization to detect or prevent inappropriate transactions. As  recommended in our report, we believe that the Forest Service should  establish policies and procedures requiring a front-line review by  supervisors to validate all of their subordinates’ purchase card  transactions, including review of original supporting documentation to  confirm that they are appropriate, for official purposes, and reconciled in a  timely manner.
The Forest Service response also did not discuss any actions taken to  reduce purchases that are of excessive cost or for questionable government  need.  In our report, we recommended that the Forest Service purchase  certain assets centrally, develop purchasing guidelines, and require that  cardholders document that items meet the needs of the government.  We  believe that our recommendations, if implemented, will assist in reducing  waste in the purchase card program.
In the area of property accountability, the Forest Service responded that  unwarranted cardholders are no longer permitted to acquire accountable  property with purchase cards.  Further, the letter stated that the Forest  Service plans to issue guidance requiring that all property be labeled as  Forest Service property and prohibiting regions from individually  determining what property is considered sensitive.  However, these new  policies will not require the tracking of items costing under $5,000, such as  PDAs, cameras, ATVs, and snowmobiles that we consider to be at high risk  for theft or misuse.  USDA has determined that the $5,000 accountability  threshold is the level of acceptable risk for tracking property in the  property system.  USDA has further determined that items such as PDAs  and digital cameras rapidly lose their value and usefulness and therefore,  the cost of tracking and maintaining property records for these types of  items exceeds their value. We disagree with this position.  None of the  documentation we have reviewed or individuals we have spoken to  indicated that uses for which these items were purchased will change  dramatically or cease altogether in the near term, thus these items will  continue to be useful for some time to come.  We are not suggesting that  items costing less than $5,000 be capitalized for financial reporting  purposes, however, we continue to believe that the Forest Service should  track these items to help ensure accountability over them to mitigate the  risk of misappropriation.
The Forest Service response also characterized the $2.7 million of alleged  improper, wasteful, and questionable purchases that we identified as  relatively small compared to the $320 million in purchases during fiscal  year 2001.  While we acknowledge this in the report, we also note that these  improper transactions demonstrate vulnerabilities from weak controls that  could be exploited to a greater extent.  Further, in performing our review,  we identified approximately 68,000 transactions that appeared to be at a  higher risk of being improper or wasteful.  However, we selected only 5,000  of these transactions for detailed review, therefore the actual amount of  improper payments at the Forest Service is likely higher that what we  identified.
The Forest Service response further stated that it appears that “GAO’s goal  is a risk free micro-purchase program that would include approval and/or  review of each and every micro-purchase transaction.”  While no purchase  card program can be risk free, the goal of our recommendations is to  reduce the level of risk in the Forest Service program to an acceptable  level.  Currently, we believe that the risk of waste, fraud, and abuse in the  program is unacceptably high. A micro-purchase program should and can  be designed with certain basic internal controls that need not be costly or  onerous to implement to help ensure that improper transactions are  detected or prevented in the normal course of business and therefore that  taxpayer funds are effectively used toward the achievement of agency  goals and objectives.
The Forest Service’s written comments and our evaluation of certain of  those 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 30 days from its date.  Then we  will send copies of this report to the Ranking Minority Member of the  Senate Committee on Finance, congressional committees with jurisdiction  over the Forest Service and its activities, the Secretary of Agriculture, the  Chief of the Forest Service, and the Director of the Office of Management  and Budget.  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) 512-8341 or  calboml@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 Forest Service
paragraphs: The following are GAO’s comments on the Forest Service’s letter dated   July 7, 2003.
subsections: section_title: GAO Comments
paragraphs: 1. We received summary documentation for the number of cardholders  from USDA’s Office of Procurement and Property Management and the  Forest Service that supported approximately 14,000 and 11,000  cardholders respectively.  Since USDA’s Office of Procurement and  Property Management is responsible for the oversight of the purchase  card program for all of USDA’s agencies, we used the number of  cardholders that they provided for fiscal year 2001 in our report.  2. Discussed in the “Agency Comments and Our Evaluation” section of the  report. 3. Of the 29 split purchases identified in the draft report provided to  Forest Service for comment, 4 were made by cardholders who were  also warranted employees, employees who can enter into, administer,  or terminate contracts to the extent of the authority delegated to them.   The contracting authority limit for a warranted Forest Service  employee is separate and distinct from the single transaction limit for  purchase card transactions.  The Forest Service response stated that  USDA regulations allowed a single purchase limit of $2 million or the  cardholder’s warrant level.  According to USDA purchase card  regulations, warranted cardholders may conduct transactions up to the  lesser of their purchase card single transaction limit or warrant  authority.  For all 4 purchases mentioned above, the total invoice  amounts exceeded the single transaction limits of the cardholders.   Therefore, the cardholders violated USDA regulations by splitting the  invoice amount into separate purchase card transactions to circumvent  their single transaction limits.  Further, the Forest Service requires that  cardholders submit requisition forms for all purchases exceeding  $2,500, to ensure that they are properly reviewed and approved.   However, requisition forms were not submitted by the cardholders for  these 4 purchases, violating policies and procedures.   In addition, none  of the 29 split purchases identified in our report reflected transactions  with GSA Advantage. 4. As stated in our report, the Forest Service was unable to provide us  with documentation to support the appropriateness of $39,240 of the  $43,625 in transactions that appeared to have occurred after the  cardholders left the Forest Service.  The Forest Service confirmed the  remaining $4,385 as having been charged after the cardholder left the  agency. 5. As part of our review, we tested compliance with existing Forest  Service policies and procedures that were meant to prevent or detect  improper payments, including the policy that cardholders are  prohibited from writing checks to themselves.  We identified 23  transactions that were in clear violation of this policy, indicating that  this control was not functioning effectively.  Although the purchases  related to these particular transactions were not determined to be  improper, this control weakness leaves the Forest Service vulnerable to  improper purchases.  The Forest Service’s internal control plan  supports eliminating the use of convenience checks for non-emergency  purchases, as well as other measures that should reduce the risk of  improper use of convenience checks.  However, as these steps have not  yet been fully implemented, we are unable to assess their effectiveness. 6. The original requests for supporting documentation were made  between June 20 and July 26, 2002.  We asked the Forest Service to  provide documentation on the last request by August 16, 2002.   Subsequently, we extended the deadline until November 30, 2002, more  than four months after our last request for information.  In a status  meeting held December 4, 2002, we informed OPPM and Forest Service  officials that we had not received any supporting documentation for  327 transactions included in our requests and that these transactions  would be categorized as questionable transactions in our report.  We  explained that continuing to accept this documentation would require  us to significantly delay issuance of our report due to the time required  to adequately review and assess any new documentation.  OPPM and  Forest Service officials both concurred with our position. Subsequently,  the Forest Service offered to provide us with supporting  documentation for 200 of the 327 transactions and we declined per the  agreement reached during the December meeting.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, the following individuals made  important contributions to this report:  William Brown, Sharon Byrd, Cary  Chappell, Lisa Crye, Francis Dymond, Jeffrey Jacobson, Jason Strange, and  Ed Tanaka.
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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