Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse
Published: 2002-06-27T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The Army's purchase card program--the largest within the Defense Department--offers significant benefits, but weak internal controls have left the Army vulnerable to fraudulent, improper, and abusive purchases. The Army has yet to issue servicewide regulations or operating procedures, instead relying on ad hoc memoranda and other informal guidance. The Army also does a poor job of overseeing the purchase card program. The Army lacks the infrastructure--guidance and human capital--needed for effective program oversight. GAO identified several improper transactions involving clothing, food, and other items. GAO also identified improper purchases in which cardholders made a large number of purchases of similar items to circumvent the mandated limit of $2,500 for a single purchase.

section_title: Letter
paragraphs: The Department of Defense (DOD) is promoting departmentwide use of  purchase cards for obtaining goods and services.  It reported that for the  year ended September 30, 2001, about 230,000 cardholders used purchase  cards to make about 10.7 million transactions at a cost of over $6.1 billion.   Purchase cards are to be used exclusively for government-related  purchases.  Purchase card transactions include acquisitions at or below the  $2,500 micropurchase threshold, commercial training requests valued at or  below $25,000, and payments on contracts.  The use of purchase cards has  dramatically increased in past years as agencies have sought to eliminate  the lengthy process and paperwork long associated with making small  purchases.  The benefits of using purchase cards versus traditional  contracting and payment processes are lower transaction processing costs  and less “red tape” for both the government and the vendor community.
We support the use of a well-controlled purchase card program to  streamline the government’s acquisition processes.  However, it is  important that agencies have adequate internal control in place to protect  the government from fraud, waste, and abuse.   In July 2001 and March  2002, we testified on significant breakdowns in internal control over  purchase card transactions at two Navy sites in San Diego, California. This  work identified a weak internal control environment; ineffective internal  control; and potentially fraudulent, improper, and abusive purchases.
As a result of our work at the two Navy sites and continuing concern about  fraud, waste, and abuse in DOD’s purchase card program, you requested  that we expand our audits of purchase card controls.   As the initial part of  this requested work, this report focuses on the Army, which has the largest  purchase card program in DOD.  In fiscal year 2001, the Army had about  109,000 cardholders, 4.4 million transactions, and $2.4 billion in purchases.   We plan to report to you separately on the results of our audits of the Navy  and Air Force purchase card programs.
The objective of our audit of the Army’s purchase card program was to  assess the adequacy of internal control over the authorization, purchase,  and payment of purchase card transactions during fiscal year 2001.    Specifically, we addressed whether (1) the Army’s overall control  environment and management of the purchase card program were  effective, (2) the Army’s key internal control activities operated effectively  and provide reasonable assurance that purchase cards were used  appropriately, and (3) indications existed of potentially fraudulent,  improper, and abusive and questionable transactions.  We audited the  Army’s internal control policies, procedures, and activities at five major  commands that account for about 66 percent of total purchases and 62  percent of total transactions.  At one installation in each of the commands,  we tested a statistical sample of purchase card transactions and conducted  other audit work to evaluate the design and implementation of key internal  control procedures and activities.  The results of our review of the  transactions comprising the statistical samples can only be projected to the  individual installation at which we performed the testing and cannot be  used to project to the command level or to the Army as a whole.  The  cumulative results of all our work offer significant perspective on the  adequacy of the design and implementation of purchase card program  internal control within the Army.
We also looked for indications of potentially fraudulent, improper, and  abusive or questionable purchases as part of our statistical sampling and  through nonrepresentative selections of transactions using data mining of  fiscal year 2001 transactions.  Our data mining included identifying  transactions with certain vendors that had a more likely chance of selling  items that would be unauthorized or that would be personal items.   Because of the large number of transactions that met these criteria, we did  not look at all potential abuses of the purchase card. While we identified  some potentially fraudulent, improper, and abusive or questionable  purchases, our work was not designed to identify, and we cannot  determine, the extent of potentially fraudulent, improper, and abusive or  questionable purchases.  See appendix I for further details on our scope  and methodology.
We requested comments from the Secretary of Defense or his designee on a  draft of this report.  We received comments from the Acting Director of the  Army Contracting Agency dated June 17, 2002, and have reprinted those  comments in this report.  We conducted our audit work from June 2001  through April 2002 in accordance with generally accepted government  auditing standards, and we performed our investigative work in  accordance with standards prescribed by the President’s Council on  Integrity and Efficiency, as adapted for GAO’s work.
subsections: section_title: Background
paragraphs: The Army’s purchase card program is part of the governmentwide  Commercial Purchase Card Program established to simplify federal agency  acquisition processes by providing a low-cost, efficient vehicle for  obtaining goods and services directly from vendors.  DOD has mandated  the use of the purchase card for all purchases at or below $2,500 and has  authorized the use of the card to pay for specified larger purchases.  DOD  has had significant growth in the program since its inception and estimates  that in fiscal year 2001 about 95 percent of its transactions of $2,500 or less  were made by purchase card.
The purpose of the program was to simplify the process of making small  purchases.  It accomplished this goal by allowing cardholders to make  micropurchases of $2,500 or less—$25,000 or less for training—without  having to execute contracts.  The government purchase card can also be  used for larger transactions, but they still require contracts.  In these cases,  the Army often refers to the card as a payment card because it pays for an  acquisition made under a legally executed contract.
The Army uses a combination of governmentwide, DOD, and Army  guidance as the policy and procedural foundation for its purchase card  program.  The Army purchase card program operates under a  governmentwide General Services Administration purchase card contract,  as do the purchase card programs of all federal agencies.   In addition,  government acquisition laws and regulations, such as the Federal  Acquisition Regulation, provide overall governmentwide guidance.  DOD  and the Army have promulgated supplements to these regulations.
The Assistant Secretary of Defense for Acquisition, Technology, and  Logistics, in cooperation with the Under Secretary of Defense  (Comptroller), has overall responsibility for DOD’s purchase card program.   The DOD Joint Purchase Card Program Management Office, in the office of  the Assistant Secretary of the Army for Acquisition Logistics and  Technology, is responsible for overseeing DOD’s program.  The Army  agency program coordinator, within the joint office, has oversight over the  Army’s purchase card program.  However, primary management  responsibility for the purchase card program lies with the contracting  offices in the major commands and local installations.  Figure 1 depicts the  Army purchase card program management hierarchy as it was during our  audit work.  For the major commands, the figure shows the number of  installation program coordinators within the command.  For the five  installations we audited, the figure shows the number of approving officials  and cardholders at each installation.
On May 1, 2002, the Army created an Office of the Deputy Assistant  Secretary of the Army (Procurement) and the U.S. Army Contracting  Agency.  The responsibility for the Army purchase card program and the  DOD Purchase Card Joint Program Management Office will be moved to  the newly created office.  This new Deputy Assistant Secretary’s office will  be in a “transitional” status until October 1, 2002.
At the installation, personnel in three positions—program coordinator,  cardholder, and approving official—are collectively responsible for  providing reasonable assurance that purchase card transactions are  appropriate and meet a valid government need.  The installation program  coordinator, typically a full-time position under the direction of the director  of the contracting office, is responsible for the day-to-day management,  administration, and oversight of the program.  In our work, we noted that  program coordinators develop local standard operating procedures, issue  and cancel cards, train cardholders and approving officials, and coordinate  with other Army units and the card-issuing bank.  Cardholders—soldiers  and civilian personnel—are to make purchases, maintain supporting  documentation, and reconcile their monthly statements.  Approving  officials, who typically are responsible for more than one cardholder, are to  review cardholders’ transactions and the cardholders’ reconciled  statements and certify the official consolidated bill for payment.   Approving officials receive an official bill that consolidates their  cardholders’ purchases.  Appendix II provides additional details on the  Army purchase card program.
section_title: Weaknesses in Overall Control Environment for Army Purchase Card Program
paragraphs: Mangement and employees should establish and maintain an environment throughout the organization that sets a positive and supportive attitude toward internal control and conscientious management.  A positive control environment is the foundation for all other standards.  It provides discipline and structure as well as the climate which influences the quality of internal control.
GAO’s Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Weaknesses in the internal control environment for the Army purchase  card program at the five major commands and five installations we audited  contributed to internal control breakdowns and potentially fraudulent,  improper, and abusive purchases.  The importance of the role of  management in establishing a positive internal control environment cannot  be overstated.  GAO’s Standards for Internal Control discusses  management’s key role in demonstrating and maintaining an organization’s  integrity and ethical values, especially in setting and maintaining the  organization’s ethical tone, providing guidance for proper behavior, and  removing temptations for unethical behavior.
Army purchase card management has not encouraged a strong internal  control environment.  It has not focused on ensuring an adequate  environment for a greatly expanding program.  Instead, Army purchase  card management focused significant attention on maximizing the use of  the purchase card for small purchases and on paying bills quickly to reduce  delinquent payments, and it developed performance measures and goals  for them.  However, purchase card management has not focused equal  attention on internal control, and it has not developed performance  measures to assess the adequacy of internal control activities or set goals  for them.  As a result, our audit identified a weak internal control  environment characterized by a lack of (1) adequate operating procedures  specifying needed program management, oversight, and internal control  activities and (2) oversight by all management levels over the program’s  implementation at the installation level.  These weaknesses are  symptomatic of a purchase card infrastructure that is insufficiently robust  to build and sustain a strong internal control environment.  As discussed in  the next section, strong internal control activities are needed to effectively  manage the Army’s purchase card program and provide reasonable  assurance that the billions of dollars spent under the program adhere to  legal and regulatory requirements.  Developing performance measures and  setting performance goals are fundamental to implementing and  maintaining strong internal control activities.
subsections: section_title: Inadequate Program Operating Procedures
paragraphs: Appropriate policies, procedures, techniques, and mechanisms exist with respect to each of the agency’s activities .... Management has identified the actions and control activities needed to address the risks and directed their implementation. GAO’s Internal Control Standards:  Internal Control Management and Evaluation Tool (GAO/AIMD-01-1008G, August 2001)
The Army operates its purchase card program without a specific  servicewide regulation or standard operating procedures to govern  purchase card activities throughout the agency.  Instead, the Army relies on  memorandums issued by the DOD and Army purchase card program  offices and procedures issued by major commands and installations.  Our  assessment of the existing Army guidance is that it does not adequately  identify and direct the implementation of needed actions and control  activities.
The memorandums issued by the DOD and Army purchase card program  offices do not provide the Army purchase card program with a  comprehensive set of policies and operating procedures that identify the  actions and control activities needed to manage the program.  Instead, they  address such topics as cash management of certified purchase card  invoices or suggest best practices, including discussions of the importance  of internal control activities.  Also, the memorandums often only request  that Army commanding officers implement a suggested action; they do not  direct that specific actions be taken within specific time frames.  Such  requests might not achieve the desired results.  For example, an August 3,  2001, Office of the Assistant Secretary of the Army for Acquisition Logistics  and Technology memorandum requested Army units’ assistance and  support in implementing the DOD program office’s earlier request to assess  the adequacy of purchase card program human capital resources.   Because  they are only requests, they do not have to result in action.  For example, in  the example above, we found no evidence that the major commands or  installations had made an assessment of their overall purchase card human  capital resource needs.
Without agencywide operating procedures, the Army has relied on its major  command and local installation program coordinators to establish  purchase card policies and procedures to guide approving officials,  cardholders, and others involved in the purchase card program as they  implement the program.  The standard operating procedures for the major  commands and installations we audited varied widely, and they were not  adequate.  For example, the Army Materiel Command does not have  standard operating procedures, but uses a Web-based tutorial that is part of  required training to guide cardholders and approving officials.  A training  tutorial does not carry the force of a regulation or a standard operating  procedure.  Consequently, installation program coordinators, such as at the  Soldier, Biological and Chemical Command - Natick, developed standard  operating procedures that set program implementation standards and  requirements at the installation.
At the installation level, the contrast between three installations illustrates  the differences.  As discussed above, the Soldier, Biological and Chemical  Command – Natick had a detailed operating procedure that was revised  during our work there to add further detailed instructions.   Fort Benning,  in Columbus, Georgia, did not have installation-level operating procedures.   At Fort Hood, in Killeen, Texas, the installation-level procedures were  supplemented with detailed procedures developed by the military units, for  example, battalions and brigades, located there.  Thus, the procedures at  these three installations differed significantly and within Fort Hood  procedures were different.  Collectively, the Army policy memorandums  and the major command and installation-level operating procedures do not  adequately address key control environment issues.  Among the more  important issues not adequately addressed are   responsibilities and duties of installation-level program coordinators,   controls over the issuance and assessment of ongoing need for cards,  appropriate span of control for approving officials, and  appropriate cardholder spending limits.
In addition to the above control environment issues, we identified  weaknesses in the individual control activities we tested, which we discuss  in the next section of this report.
subsections: section_title: Responsibilities and Duties of Installation-Level Program Coordinators
paragraphs: Army guidance has not addressed the scope of responsibilities and specific  duties of installation-level program coordinators, although they are the  primary focal point for managing the purchase card program and generally  spend all their time on the purchase card program.  The importance of  these program coordinators to the purchase card program cannot be  overstated.  During our work we noted that program coordinators develop  and enforce operating procedures, establish and cancel cardholder and  approving official accounts, train cardholders and approving officials,  interact with the bank, and field myriad questions about the program from  both cardholders and approving officials.  Yet, the Army does not have  guidance on how to do these activities, and it does not provide program  coordinators with guidance or assistance in developing oversight activities  to monitor how well their programs are functioning.  Program coordinators  told us that they did not get formal training in what their duties are and  how they should be done.  They said they had to do a lot of on-the-job  learning and they called other program coordinators for advice.
section_title: Controls over the Issuance and Assessment of Ongoing Need for Cards
paragraphs: Little guidance exists to assist program coordinators and unit managers in  selecting who should be issued a purchase card.  Carefully controlling the  issuance of cards and continually reassessing the need and justification for  outstanding cards are important issues in controlling the government’s risk  in the purchase card program.  At the installations we audited, the  operating procedures usually specified that unit managers, after deciding  who should be a cardholder and who should be an approving official,  request the installation program coordinator to process the appointments.   Yet, we found little guidance at any level that provided criteria to these  officials for determining how many cards a unit should have or who should  have them.  The November 2001 operating procedure at the Soldier,  Biological and Chemical Command - Natick requires unit directors to  provide written justification for the selection of a cardholder or approving  official.  However, without guidance from the Army, the command did not  establish criteria to guide the directors’ decisions.  In no case did we  identify guidance that required cardholders to have a continuing need to  make procurements for an office or organization, and none of the guidance  discussed the need to reassess the ongoing need for outstanding cards.
section_title: Span of Control for Approving Officials
paragraphs: Standard operating procedures at the major commands and installations  we audited do not adequately discuss the span of control that is  appropriate for approving officials that could provide a reasonable  assurance that they can effectively perform their responsibilities.  The  training program for Army Materiel Command and the standard procedures  at the Soldier, Biological and Chemical Command – Natick discuss that an  approving official should have only as many cardholders for whom he/she  can review all monthly transactions.  Approving officials who have more  cardholders than they can effectively supervise is symptomatic of a weak  control environment.  The Army did not provide criteria for approving  officials’ span of control until July 2001, just prior to our testimony on the  purchase card program at two Navy installations.  The July guidance  suggested a span of control of five to seven cardholders.  However, this  guidance had not been promulgated in major command or installation  guidance as of the end of our fieldwork.
section_title: Cardholder Spending Limits
paragraphs: Policies and procedures that addressed controlling cardholders’ spending  limits were inadequate.  Unit managers and approving officials coordinate  with the program coordinator to set both transaction and monthly spending  limits for cardholders.  However, we found no policy guidance or  procedures that provided criteria to guide them in making these decisions,  except a recitation of the micropurchase spending limits, until an August  13, 2001, memorandum from the Director of Defense Procurement.  This  memorandum, which was in response to congressional hearings on our  Navy testimony, noted that not every cardholder needs to have the  maximum transaction or monthly limit and that reasonable limits based on  what the person needs to buy should be set.  We found that individual  transaction limits were generally set at the micropurchase maximum of  $2,500.  Installations generally set monthly limits at a generic level, such as  $10,000, $25,000, or $100,000, for most of their cardholders.  We saw little  evidence that limits were set based on an analysis of individual  cardholders’ needs or past spending patterns.  In some cases, we were told  that the monthly limits were based on the anticipated peak spending to  avoid possible limit changes.  We also saw infrequently used cards that,  nevertheless, had spending limits set at the maximum.   Limits that are  higher than justified by the cardholder’s authorized and expected usage  unnecessarily increase the government’s exposure to potentially  fraudulent, improper, and abusive purchases.
section_title: Army Addressing Control Issues
paragraphs: As we were performing our review of the Army purchase card program and  in response to our July testimony on Navy purchase card activities, DOD  and Army officials have issued a number of memorandums that address  some of the weaknesses that we have discussed.  For example, a  memorandum from the Director of Defense Procurement, issued in August  2001, said that only those personnel with a continuing need to purchase  goods or services as part of their jobs should be cardholders.  In another  example, DOD’s Joint Program Office, after we requested data on inactive  cards, sent a February 2002 memorandum to agency program coordinators  asking that they consider canceling cards with little activity or imposing  other controls, such as reducing the monthly limit to 1 dollar.  However, at  the locations we audited, the guidance in these and other memorandums  had not been incorporated into operating procedures as of the end of our  fieldwork.
DOD and Army purchase card officials told us that they recognized the  need for the Army to issue standard operating procedures for the purchase  card program.  They said that work had been ongoing on developing such  procedures, which could be issued in this fiscal year.  In addition, on March  19, 2002, the Secretary of Defense directed the Under Secretary of Defense  (Comptroller) to establish a Charge Card Task Force to review the  operations of both purchase and travel cards and to develop  recommendations to improve procedures.
section_title: Ineffective Program Monitoring and Oversight
paragraphs: Agency internal control monitoring assesses the quality of performance over time.  It does this by putting procedures in place to monitor internal control on an ongoing basis as a part of the process of carrying out its regular activities.  It includes ensuring that managers and supervisors know their responsibilities for internal control and the need to make internal control monitoring part of their regular operating processes.  Ongoing monitoring occurs during normal operations and includes regular management and supervisory activities, comparisons, reconciliations, and other actions people take in performing their duties. GAO's Internal Control Standards: Internal Control Management and Evaluation Tool (GAO-01-1008G, August 2001)
Ineffective oversight of the purchase card program also contributes to  weaknesses in the overall control environment.  In general, effective  oversight activities would include management reviews and evaluations of  how well the purchase card program is operating, including the internal  control activities.  We identified little monitoring or oversight activity  directed at assessing program results, evaluating internal control, or  identifying the extent of potentially fraudulent, improper, and abusive or  questionable purchases.   At no management level, Army headquarters,  major command, or local installation, is the infrastructure provided for  such activities.  At the installation level, where the most responsibility for  oversight appears to reside, guidance or training on what oversight  activities should be undertaken does not exist, and the needed human  capital resources to perform those activities are not in place.
subsections: section_title: Army-Wide and Major Command Oversight Limited
paragraphs: At the Army-wide level, the purchase card agency program coordinator— the position involving direct oversight of the Army program—does not  conduct internal control oversight activities.  The agency program  coordinator, who is in the DOD Joint Purchase Card Program Office, has no  human capital resources to conduct oversight activities.   The coordinator’s  activities are mainly directed at answering program operation questions  from and transmitting reports to major command and installation-level  program coordinators.
The major commands have direct authority over the installations that  report to them and have responsibility for the purchase card programs of  their installations.  While the major commands that we audited had  procedures to guide the installations’ activities, we found little evidence of  oversight activities by the commands to monitor the installations’  implementation of the procedures.  The major commands’ purchase card  program office personnel do participate in contract management reviews  conducted at their installations every 2 years.  These reviews, which  generally are completed in 1 week, are focused on the installation’s  contracting operations and have a small purchase card component.  The  program coordinators at the major commands we audited confirmed that  they conduct little oversight of internal control activities at the local  installation programs.
section_title: Installation-Level Oversight Activities Inadequate
paragraphs: The only significant oversight activities we identified were at the local  installation level where the primary purchase card activities are taking  place.  However, none of the installations we audited had a comprehensive  or effective program of oversight and monitoring.  The oversight and  monitoring activities consisted primarily of isolated inspections of  approving official’s compliance with monthly statement certification  requirements and monitoring resolution of disputed transactions.
Audits and inspections of the purchase card program by internal auditors  can provide additional oversight of the installation level purchase card  program.  For example, at the Soldier, Biological and Chemical Command –  Natick, where the command has recognized that the program coordinator  did not have the infrastructure to perform oversight reviews, the internal  auditor provided assistance.  According to the auditor, the audits are  designed to ensure continued command attention and to assist the program  coordinator with developing policies, procedures, and controls.  However,  at the installations we visited, audits and inspections were generally limited  in both scope and number.  For example, at Fort Hood, the internal  auditors conducted occasional purchase card reviews as part of the  command inspection program.  Although these inspections occasionally  surfaced control problems, the results were not communicated to the  purchase card program coordinator so that systemic problems could be  identified and addressed.
The DOD Financial Management Regulation assigns installation program  coordinators the responsibility for the implementation and execution of the  purchase card program in accordance with established Office of the  Secretary of Defense and applicable DOD component regulations, policies,  and procedures.  Thus, installation program coordinators, who act under  the direction of the installation’s director of contracting, are the pivotal  officials in managing and overseeing the purchase card program.
A comprehensive and robust management and oversight program could  include a number of activities.  At the installations that we audited, the  program coordinators were devoting significant time and attention to some  basic activities such as establishing cardholders and approving officials  and providing required training to these individuals. In most cases,  cardholders and billing officials were being appropriately established and  were receiving the required initial training.   However, we found that  refresher training, required by DOD guidance for cardholders and  approving officials every 2 years, was seldom provided at the five  installations we audited.  Program coordinators at every location except  the Texas Army National Guard in Austin, Texas, told us that this training  seldom, if ever, occurred because of inadequate time and human capital  resources.
While devoting time and resources to establishing cardholders and  approving officials, other important activities were not receiving attention.   For example, the key oversight activity identified in Army regulations is an  annual review of the records of approving officials.  This key activity was  not effectively carried out at any of the five installations.  In addition,  program coordinators were not monitoring potential abusive and  questionable transactions, and taking prompt and appropriate action to  cancel accounts for departed and unneeded cardholders.
Inspecting approving official activities.  Army guidance, reiterated in an  August 2001 memorandum, provides for the installation’s program  coordinator to annually inspect the records of approving officials.  Our  work showed that none of the program coordinators at the five  installations had a comprehensive inspection program, although three  program coordinators had conducted some inspections.  Our work also  showed that the few that had been conducted were focused on only a  limited number of cardholders and did not include remediation plans.   Without inspecting cardholders’ and approving officials’ activities and  developing remediation plans, program coordinators had no structured  way to determine either currently or over the long run how well their  approving officials were functioning or to follow up their inspections and  determine whether cardholders and approving officials had improved their  performance.
The following summarizes the ineffective and limited information on  inspections of approving officials’ records at the audited installations.
At Eisenhower Army Medical Center, the program coordinator  performed a few targeted inspections in fiscal year 2001, rather than  undertake a comprehensive audit of approving officials’ activities.   These inspections covered eight approving officials and 15 cardholders.
At Fort Benning, the program coordinator told us that records of a few  approving officials are inspected each year but there is no specific  timetable for the inspections and the results are not documented.  An  internal audit of the purchase card program at Fort Benning prepared  for the commanding general in 2001 concluded that the program  coordinator had not placed enough emphasis on oversight  responsibilities.
At Fort Hood, the program coordinator conducted few inspections of  approving officials’ activities due to a heavy workload in establishing  cardholders and approving officials and limited human capital  resources.
At the Soldier, Biological and Chemical Command - Natick, the program  coordinator did not conduct inspections of approving officials’  activities.  However, internal review performed audits focused on  various purchase card areas to assist the program coordinator.
An April 2001 internal review audit report of the Texas Army National  Guard program stated that there was no evidence reviews were  conducted to test management controls over the purchase card  program.  Subsequent to the audit report, the program coordinator and  the director of contracting said that they had begun to occasionally  conduct a small number of reviews.
Monitoring potentially abusive and questionable transactions.  Program  coordinators at the five installations have not routinely monitored  potentially abusive transactions.  Their activities in this area were generally  confined to answering cardholder questions about potentially questionable  aspects of proposed purchases and occasionally scanning bank data for  questionable transactions.  The program coordinators told us that the Army  and major command purchase card offices do not require them to analyze  purchase card transactions and have not provided guidance on data to be  analyzed or on analysis techniques.  Our own data mining efforts, including  our analysis of Army-wide data, shows the usefulness of these techniques  and their potential for identifying transactions that contain indicators of  potentially fraudulent, improper, and abusive and questionable  transactions, as we discuss in a later section of this report.
While cardholders and approving officials are the first line of defense in  preventing purchase card abuse, program coordinator activities become  especially critical if the approving official is not carrying out required  duties.  For example, after noting that we were requesting additional details  on purchases from some questionable vendors, the Fort Benning program  coordinator noticed that a cardholder had purchases from such vendors.   Subsequent investigation of the cardholder revealed potentially fraudulent  purchases totaling $10,748.  The cardholder’s potentially fraudulent  activities were not detected promptly because the approving official had  not been monitoring the cardholder’s purchases or reviewing the monthly  statement.
Program coordinators, in addition to analyzing questionable transactions,  need to analyze other purchase card data, such as bank status reports on  disputed transactions.  The Fort Hood program coordinator, who was not  effectively monitoring bank status reports on disputed transactions, did not  identify that cardholder inaction beyond the expiration date for disputes  had resulted in the loss of ability to recover funds on previously disputed  charges.  At our suggestion, the coordinator followed up on an unresolved  expired dispute and obtained credit for over $1,000 in returned unordered  merchandise.  Such a recovery demonstrates that a data analysis program  for installation program coordinators can produce savings for taxpayers.
Canceling accounts for departed cardholders.  None of the program  coordinators at the five installations had focused effective attention on  canceling accounts of departed and unneeded cardholders prior to the  completion of our fieldwork.  Program coordinators can reduce the  government’s exposure to fraud, waste, and abuse by monitoring  cardholder account activity and determining whether issued cards  continue to be required.  If cards are not active and unneeded because of  change in duties or other reassignments, timely cancellations of cards is an  important control.  At all five installations, we identified weaknesses in  their processes for canceling accounts for inactive or unneeded  cardholders, and each location had significant numbers of cards that were  inactive and should have been canceled.
The most serious problem was when some accounts had not been canceled  even though the cardholder was no longer at the installation or even with  the Army.  Each installation had a policy that the program coordinator be  notified when an account should be canceled, but they were not effective.   Even the existence of processes to identify when a cardholder’s account  should be canceled were not always effective.  For example, the Soldier,  Biological and Chemical Command - Natick had developed a process to  terminate the purchase card when the cardholder departed.  The process  involved a checkout procedure that required each departing cardholder to  obtain a release from the program coordinator prior to being allowed to  leave the installation.  Yet, even with this process in place, the installation  had 20 inactive cards that needed to be canceled.  Although the checkout  process had been developed, data had not been analyzed to evaluate if the  process was effective.
This problem of unneeded cards was especially serious at Fort Hood,  which also had a checkout process that included the purchase card.   Available data showed that 317—26 percent—of 1,242 current cardholders  at Fort Hood were no longer assigned to the units that issued their cards.   Therefore, the cards should have been terminated.  Neither the installation  nor purchase card program office had established processes to ensure that  purchase cards of departing or reassigned personnel were canceled.   As  identified later in this report, failure to terminate cards of reassigned  cardholders can result in potentially fraudulent transactions.
The problem at Fort Hood was exacerbated by the high turnover of active  duty military personnel rotating to and from the installation—Fort Hood  military personnel statistics show that about 1,600 soldiers depart the  installation monthly.  The personnel office managing the transfers of  military personnel had established checklist procedures to cancel  government travel cards held by departing employees, but did not have  similar procedures for canceling purchase cards.  They said that the  procedure was not established because the social security numbers of  cardholders are not provided for computerized matching to the social  security numbers of departing soldiers.  Fort Hood’s purchase card  program office agreed to review records and cancel cards for reassigned  personnel and to identify workaround procedures to ensure that cards of  departed personnel were terminated.  Following the completion of our  fieldwork, Fort Hood program officials notified us in mid-May that they had  canceled 258 cardholder accounts and were continuing to identify other  accounts for cancelation.  The command said it was also attempting to  improve its checkout procedures.
The above conditions illustrate that the Army as a whole may also need to  reduce its active cards.  Since our testimonies and report on the purchase  card programs at two Navy locations, there has been concern over  whether DOD has too many purchase cards and cardholders.  Since that  time, the Navy reports that it has reduced its total active cards from about  58,000 to about 26,000.  With the Army’s lack of guidance to installations on  controlling the issuance of cards and on reassessing the need for  outstanding cards, the Army should also have opportunities to reduce its  reported 109,000 active cards.  Army officials reported that as of April 30,  2002, they had reduced the number of active accounts to about 100,000 and  would continue to assess the need for cards.
section_title: Infrastructure Is Insufficient for Effective Monitoring and Oversight
paragraphs: DOD, Army, and the major commands we audited have not provided  installation-level program coordinators the infrastructure needed for  program monitoring and oversight.  The coordinators do not have guidance  or training on what they should be doing to monitor and oversee the  implementation of internal control activities, and they have not been  trained.  They do not have the human capital resources to perform  significant monitoring and oversight activities.  And finally, they do not  have grade-level positions that are commensurate with their  responsibilities and that would provide some additional authority to  achieve better purchase card internal control.
No program guidance or training.  Although installation-level program  coordinators are tasked with major program management responsibilities,  applicable DOD, Army, and major command guidance does not provide a  statement of duties, position description, or other information on the  scope, duties, or specific responsibilities for the position.  The guidance  also does not establish program coordinators’ oversight responsibilities.   The Army and major command guidance to installation-level program  coordinators is generally limited to a requirement that program  coordinators review each approving officials’ records and activities  annually.  The Army and major commands also have not developed data  analysis techniques and tools for installation-level program coordinators to  use in analyzing bank electronic data as a part of their oversight activities.
Also, the Army and major commands have not developed training courses  for program coordinators.  At the five audited installations, the  coordinators told us they had not received any specific program  coordinator training.  They said the available training was limited to  cardholders training sessions either on-line or conducted by other  coordinators and the General Services Administration’s annual  governmentwide purchase card program conference.  Thus, program  coordinators essentially have had to develop program management and  oversight activities and to decide how to conduct them.
Inadequate human capital resources.  The Army has not provided  sufficient human capital resources at the installation level to enable  monitoring of purchases and develop a robust oversight program.  The two  key positions for monitoring purchases and overseeing the program are the  program coordinator and the approving official.
While the program coordinator position is a specifically designated  responsibility, we found that the coordinator has very limited assistance in  administering, managing, and overseeing the program.   At the five  installations that we audited, the assistance available to the program  coordinator ranged from no staff at two locations to one full- time assistant  at two locations.  Considering that the coordinators are responsible for  procurement programs involving thousands of transactions and millions of  dollars, as shown in table 1, the inadequacy of human capital resources is  apparent.
The Army does not have guidance on the appropriate human capital  resources for the program coordinator’s office.  However, the program  coordinators told us, and our observations confirmed, that with current  resources, time was not available to conduct systematic reviews of  approving officials’ activities, much less undertake other management  analyses and oversight activities.  They each said that their time was  generally consumed with administrative duties such as training new  cardholders, issuing appointment letters, setting up accounts for new  cardholders, monitoring delinquencies, interacting with the bank to resolve  problems, and interacting with cardholders to answer questions about the  purchase card program.  These administrative activities are necessary to  operate the purchase card program, but do not achieve routine oversight of  activities.
As previously discussed, the Director, Purchase Card Joint Program  Management Office, recognized in his July 5, 2001, memorandum, the need  to assess the adequacy of resources and asked that the services conduct an  assessment of the policies and guidelines that are in effect to assist  commanders and directors in the proper allocation of resources to the  purchase card program.  He asked that the assessment be conducted in the  coming weeks (emphasis added).  However, the Army program office could  not identify any such assessments.  By the end of our fieldwork, the five  installations and five major commands included in our work had not  conducted any studies or assessments to address the question of  appropriate resources.
As opposed to the specifically designated role of the program coordinator,  approving official responsibilities generally fall into the category of “other  duties as assigned,” without any specific time allocated for their  performance.   We found that approving officials generally had many other  duties of a higher priority than monitoring purchases and reviewing their  cardholders’ purchase card statements.
Also, many approving officials are responsible for a large number of  cardholders.  A large workload, especially one in an “other duties as  assigned” category can inevitably lead to less attention than expected or  desired.  We found that a number of approving officials at the installations  we visited had numerous cardholders reporting to them.  For example, at  Fort Hood, 29 billing officials had 10 or more cardholders.  Two of the 29  had over 20 cardholders.  At Eisenhower Army Medical Center, one  approving official had 18 cardholders, one of whom was spending about  $100,000 per month for surgical supplies and equipment.  The approving  official said he simply did not have time to review each cardholder’s  monthly bills and transactions each month.  At the Texas Army National  Guard, 16 of the 26 approving officials had 10 or more cardholders, and 8 of  them had 25 or more.  The number of cardholders that these approving  officials were responsible for far exceeded the Army’s suggested maximum  of 7 cardholders per approving official, as discussed earlier.
The DOD Inspector General also reported a problem with approving  officials having too many cardholders.  In a March 2002 report on the  purchase card program, the Inspector General reported that 1,816  approving officials, or 8.8 percent off the Army’s 20,709 officials, were  assigned more than 7 cardholders and that 21 of them were assigned more  than 100 cardholders.
A large span of control for approving officials is not conducive to thorough  review of each cardholder’s monthly statement.  The August 3, 2001,  memorandum from the Acting Deputy Assistant Secretary of the Army  (Procurement) to the contracting community cited earlier stated that  “ officials are the first line of defense against fraud, waste, and  abuse, as they are required to review each of their cardholder statements.   If they have too many cardholders under their purview there is no way  these officials can perform the required reviews and attendant  certifications of cardholder purchases.”  In the February 1, 2002,  memorandum cited earlier from the Director of the Purchase Card Joint  Program Management Office to agency program coordinators, the director  requested program coordinators’ help in ensuring that approving officials’  span of control is commensurate with their ability to adequately perform  their responsibilities.  The memorandum said that approving officials  should have a reasonable span of control over the cardholders they  supervise and approving officials must be given adequate time for a  complete monthly review to determine that each charge is legal and proper.   Following completion of our fieldwork, the installations we audited  reported that they had begun to bring their approving officials’ span of  control into line with the criteria.
Insufficient authority to encourage compliance.  The program  coordinators at the five installations we audited generally did not have the  grade level or organizational authority—“clout”—to enforce compliance  with purchase card procedures.  At the five installations we audited, the  program coordinators were part of the installation’s contracting operation  and reported to the director of contracting, from whom they derived their  authority.  However, we believe that the program coordinators’ grade levels  were not commensurate with their responsibilities or sufficient to provide  the authority needed to enforce purchase card program rules.  Only one of  the five was a GS-12, two were GS-9s, and two were GS-7s.  Program  coordinators have the primary responsibility for purchase card program  management and significant control over procurement activities carried  out by a large number of individuals.  For example, table 1 shows that the  Fort Hood program coordinator has responsibility for overseeing a  program of over 110,000 purchase card transactions totaling about  $58 million and carried out by 321 approving officials and 1,242  cardholders.
In addition to the relatively low grades, the Army has not made the program  coordinator position career enhancing by making it part of a contracting  career path.  At three of the five installations, program coordinator position  descriptions were for traditional contracting positions, although their  coordinator duties are unique.  Two coordinators had locally developed  position descriptions that included their coordinator responsibilities, but  these descriptions still carried traditional contracting titles.  At the Soldier,  Biological and Chemical Command – Natick, the program coordinator’s  position description, which was written to justify a GS-12 grade, was for a  procurement analyst and specifically included program coordinator duties.   However, the director of contracting said that obtaining approval for the  position took much discussion and persuasion because of its uniqueness.   At Fort Benning, the program coordinator’s position description was  developed specifically for the local position.
section_title: Critical Internal Control Activities and Techniques Not Effectively Implemented
paragraphs: Internal control activities help ensure that management’s directives are carried out.  The control activities should be effective and efficient in accomplishing the agency’s control objectives. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Our work shows that critical internal control activities and techniques over  the purchase card program were ineffective at the five installations we  audited.  Based on our tests of statistical samples of transactions, we  determined that the transaction-level control activities and techniques we  tested were not effective, rendering purchase card transactions at the five  installations vulnerable to potentially fraudulent and abusive purchases  and theft and misuse of government property.
Control activities occur at all levels and functions of an agency.  They  include a wide range of diverse activities such as approvals, authorizations,  verifications, reconciliations, performance reviews, and the production of  records and documentation.  For the Army purchase card program, we  opted to test those control activities that we considered to be key in  creating a system to provide reasonable assurance that transactions are  correct and proper throughout the procurement process.  The key control  activities and techniques we tested include   advance approval of purchases,  independent receiving—receiving and acceptance of goods and services  by someone other than the cardholder,    independent review by an approving official of the cardholder’s monthly  statements and supporting documentation, and   cardholders obtaining and providing invoices that support their  purchases and provide the basis for reconciling cardholder statements.
Table 2 summarizes the results of our statistical testing.  Our work showed  internal control activity failures in both purchase and payment cards,  although the percent of failure—the failure rate—was generally higher for  purchase card transactions.
In addition to the internal control activities we tested statistically, we noted  two other internal control-related problems during our work.  First, the  purchase card exacerbates the long-standing difficulties of maintaining  property records over accountable property.  Second, cardholders did not  always maintain purchase card transaction records as required by  regulations.
subsections: section_title: Advance Approval of Purchases
paragraphs: Key duties and responsibilities need to be divided or segregated among different people to reduce the risk of error or fraud. This should include separating the responsibilities for authorizing transactions, processing and recording them, reviewing the transactions, and handling any related assets. Simply put, no one individual should control all the key aspects of a transaction or event. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Without Army-wide operating procedures, requirements for advance  approval are not consistent but do exist, to some extent, at each of the five  audited installations.  Two major commands and three installations  specifically require advance approval.  Others required written descriptions  of purchases and appropriate coordination and review prior to the  purchases.  Advance approval requirements also varied within individual  units at the installations and by individual approving officials.   The  requirements were generally for informal approval directed toward  ensuring budget and funds control as well as establishing a valid need for a  purchase so that cardholders are not acting totally independently.
The approvals that we saw included e-mails from a cardholder’s supervisor  as well as a request for a purchase initiated by someone other than the  cardholder.  For example, the Soldier, Biological and Chemical Command –  Natick used an electronic system to manage its purchase card activity,  making it easy for Natick employees to request a cardholder to make a  purchase and for supervisors, unit heads, resource managers, and logistics  personnel to have knowledge of and approve the request with a few  computer keystrokes.  Approval of a purchase can range from a blanket  approval for routine small dollar purchases of items such as office supplies  to a one-time written approval for specific large dollar items.  For example,  at Fort Hood, some units have a blanket approval for routine, small dollar  purchases, such as office supplies under $300.
For our testing of advance approval, we accepted reasonable documented  evidence that a cardholder’s supervisor or other responsible person had  requested and/or approved the purchase.  This included a request for  purchase from a responsible official, and it also included specific blanket  approval for routine purchases within set dollar limits.  As table 3 shows,  we estimated that the failure rate at the five installations ranged from 25  percent at Soldier, Biological Chemical Command – Natick to 69 percent at  the Texas Army National Guard.
Although the failure rate was unacceptably high overall, the failure rate  was particularly high for micropurchases, even though some of those  purchases were for computers, electronic devices, and other items for  which advance approval would appear warranted because the procurement  was not routine.
We believe that leaving cardholders solely responsible for a procurement  without some type of documented approval puts the cardholders at risk  and makes the government inappropriately vulnerable.  A segregation of  duties so that someone other than the cardholder is involved in the  purchase improves the likelihood that both the cardholders and the  government are protected from fraud, waste, and abuse.   We believe that  advance approval is an appropriate internal control activity, especially  considering that many cardholders in our audit were administrative  personnel and not supervisors or managers.
Our testing of advance approval as a control activity is not advocating a  return to the formal advance approval that DOD has de-emphasized in the  purchase card program.  A February 1997 study of the purchase card  program identified DOD’s requirement for formal prepurchase approval  documentation through the administrative chain of command for each  purchase card transaction as an impediment to expanded use of the  purchase card.  The formal prepurchase documentation that previously  existed could impede purchases and increase costs.  The more informal  practices that exist at the installations we audited eliminate much of the  previous formal documentation, but still can serve to protect the  cardholders and the government.   For example, blanket approval for  routine purchases within set dollar limits involves minimal cost, but  reasonable control.  For nonroutine purchases involving significant  expenditures, advance approval, even through informal processes, appears  to be an important control activity.
section_title: Documentation of Independent Receiving by Other Than Cardholder
paragraphs: Key duties and responsibilities need to be divided or segregated among different people to reduce the risk of error or fraud. This should include separating the responsibilities for ... handling any related assets. Simply put, no one individual should control all the key aspects of a transaction or event. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Independent receiving—receiving of goods and services by someone other  than the cardholder—provides additional assurance that purchased items  are not acquired for personal use and that the purchased items come into  the possession of the government.  The requirement for documentation of  independent receiving by someone other than the cardholder was not  generally addressed in the procedures of the commands and installations  we audited.  However, installations and units within the installations often  required some documentation of independent receiving of at least some  portion of their purchases.  At Fort Benning, instructions in various units  required documentation of independent receiving.  At Fort Hood, the  Department of Public Works had established the same type of requirement.   The Fort Hood official in the department told us he established the  requirement for independent receipt because, while in a prior job at  another installation, he had observed potentially fraudulent purchases that  would have been prevented if the independent receipt requirement had  existed.
Because Army guidance does not address the issue of evidence of  independent receiving, and the requirements varied at the five installations,  we accepted as evidence of independent receiving for this test, any  signature or initials of someone other than the cardholder on the sales  invoice, packing slip, bill of lading, or other shipping or receiving  document.  Table 4 shows the results of our testing.
As shown above, the five installations we audited generally did not have  independent, documented evidence that the items ordered and paid for  with the purchase card had been received.  This lack of documented,  independent receiving extended to all types of purchases, including  computers and other expensive or highly pilferable items.  We believe that  documented independent receiving is a basic internal control activity that  provides additional assurance to the government that purchased items  come into the possession of the government.
section_title: Approving Official Review
paragraphs: Transactions and other significant events should be authorized and executed only by persons acting within the scope of their authority.  This is the principal means of assuring that only valid transactions to exchange, transfer, use, or commit resources and other events are initiated or entered into. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Control activities ensure that only valid transactions … are initiated or entered into …. Control activities are established to ensure that all transactions … that are entered into are authorized and executed only by employees acting within the scope of their authority.
GAO’s Internal Control Standards: Internal Control Management and Evaluation Tool (GAO-01-1008G, August 2001)
Approving official review is a recognized control activity at all levels of the  purchase card program.  DOD’s purchase card joint program office, major  command procedures, and the installations’ operating procedures  recognize that the approving official review is central to ensuring that  purchase card transactions are appropriate.  Army guidance requires  approving officials to review and certify each cardholder’s monthly  transactions.   The August 3, 2001, memorandum discussed earlier  described the approving official review process as the “first line of defense”  against misuse of the card.
The responsibilities of the approving official involve two overlapping  functions:   reviewing the cardholder’s transactions to provide reasonable assurance  that, among other things, (1) the transactions are legal, proper, and  correct in that appropriate procurement procedures were followed and  (2) supporting documentation and records, including supporting  invoices, are adequate and  certifying the cardholder’s transactions for payment.
An appropriate approving official review, at a minimum, would facilitate  certification; however, certification by itself does not ensure that the  desired review occurred.  Certification is likely to occur even if the  required reviews are not made because certification is necessary for  payment.
Section 2784 of title 10, United States Code, requires the Secretary of  Defense to issue regulations controlling the use of government credit cards  within the department.  The statute requires that these regulations be  consistent with “regulations that apply government-wide regarding use of  credit cards by government personnel for official purposes.”
The regulations that apply governmentwide are in the Treasury Financial  Manual.  Section 4535 of Volume I of the manual provides that the  cardholder and approving official will review the cardholder statement of  account received at the end of each monthly billing cycle.  The cardholder  statement must be submitted to the billing office early enough to permit the  billing office to process and pay the consolidated monthly invoice within  the Prompt Payment Act deadline.  The provision directs the billing office  to pay the consolidated invoice on time, “even if all cardholder statements  are not received….”
As part of our work, we asked the DOD Under Secretary of Defense  (Comptroller) for his views on DOD’s compliance with these statutory  requirements.  In a letter dated April 30, 2002, the Principal Deputy and  Deputy Under Secretary of Defense for Management Reform stated that  DOD's Financial Management Regulation, various purchase card  reengineering memorandums, and other pronouncements together  complied with section 2784.
DOD’s regulations are consistent with the governmentwide regulations  regarding the responsibilities of cardholders and approving officials.   Therefore, if cardholders and approving officials are not reviewing and  reconciling their statements of account in time for disbursing offices to  process payments on time, they are not complying with Treasury and DOD  requirements.
We noted numerous cases during our audit where the approving official  certified the billing statement for payment but had not examined the  transactions or the documentation supporting them to determine whether  the transactions were correct and for a valid government purpose.  In one  case, a note on one approving official’s certified billing statement said that  the approving official had not reviewed the transactions.  Accordingly,  certification for payment is made without the required reconciliation.  In  that instance, certification was clearly nothing more than a “rubber stamp.”
Consequently, we tested for other evidence that the billing official had  reviewed the cardholders’ transactions.  Without such evidence, neither  we, nor internal auditors, nor program coordinators who are required to  annually review approving official’s records, can determine whether  approving officials are complying with review requirements or simply  certifying the statement without the required review.   For this test, we  accepted virtually any markings, notes, or dates, other than the  certification signature, on the transactions listed on the cardholder’s or  approving official’s bill as documentation that a review had occurred.   In  instances of appropriately documented reviews, we found evidence of the  approving official checking off on each transaction in the cardholder’s  statement and the supporting documentation for each, and signing the  cardholder’s statement as having reviewed it.  Instances in which the  documentation was not available included missing statements, missing  invoices, and statements without any marks by either the cardholder or the  approving official to indicate that a reconciled statement had been  prepared or submitted to the approving official.
Our testing revealed that documented evidence of approving officials’  review of cardholders’ transactions and their reconciled statements did not  exist for most of our sample transactions.  The failure rate at each of the  five installations we audited was high, as table 5 shows.  The high failure  rate is of particular concern for this control activity because it is perhaps  the most important to providing reasonable assurance that purchases are  appropriate and for a legitimate government need.
Although of concern, the high failure rates are not unexpected because  major command and local standard operating procedures, while  recognizing the importance of approving official review, do not specify the  required extent, content, or documentation of approving officials’ reviews.   In addition, the high failure rate may be attributable to approving official  responsibilities falling into the category of “other duties as assigned” and to  approving officials being responsible for a large number of cardholders, as  previously discussed.  A large workload, especially one in an “other duties  as assigned” category, can inevitably lead to less attention than expected or  desired.
For example, the previously mentioned cardholder at Eisenhower Medical  Center, who was the approving official for 18 cardholders, one of whom  spends about $100,000 monthly for surgical supplies and medical  equipment, told us that he had not reviewed the cardholders’ records  because he did not have time.  We examined that cardholder’s records as  part of our control activity testing and found that the records were in  disarray.  Numerous transactions did not have invoices.  Other transactions  had invoices with prices that differed from the cardholder’s log but were  not reconciled.  Subsequent to our audit, the program coordinator worked  with the approving official’s manager to reduce the workload by appointing  additional approving officials.
Our discussions with approving officials indicated that some reviews had  been made, but we could not determine the frequency or extent of the  reviews because they were not documented.  Without documentation, the  lack of a review can go unnoticed.  For example, at the Texas Army  National Guard, approving officials’ subordinates frequently performed  cardholder statement reviews because of the large number of cardholders  for whom each approving official was responsible.  When one of these  subordinates was absent due to an extended illness, no one performed  reviews of the transactions, but the approving official did not notice  because reviewers were not required to document their work.  According  to guard officials, this problem was addressed after our inquiries by  appointing more approving officials and directing approving officials to  personally review their cardholder transactions.
We identified numerous instances of purchases that clearly had not been  adequately reviewed and reconciled to the statement, but the statements  were, nonetheless, certified for payment.  Such activities allow potentially  fraudulent, improper, abusive, and questionable purchases, which are  discussed in more detail in the following section of this report, to go  undetected.  The following are two example of such unauthorized charges  that we identified.
A Fort Hood cardholder purchased 15 wire storage containers in April  2001.  The vendor incorrectly included $808 of shipping and handling  charges in the $2,748 bill.  The approving official certified the statement  for payment including the erroneous shipping and handling charges.   Apparently, neither the cardholder nor the approving official reviewed  the transaction in sufficient detail.  After we detected the erroneous  charges in November 2001, about 7 months after the original charge, a  refund was obtained.
Another approving official at Fort Hood certified for payment a $539  charge on a May 2001 statement for a purchase from a catering  company.  After our inquiry about an invoice for the purchase, the  approving official determined that the charge was inappropriate and a  refund was made.  Approving official review of a reconciled statement  should have detected this inappropriate charge.
We believe that the approving official’s review of the cardholders’  purchases is a vital internal control activity.  Without documentation of  such review, neither we, internal auditors, nor program coordinators can  determine the extent that the approving official is carrying out review  responsibilities.
section_title: Obtaining and Retaining Invoices
paragraphs: Internal control and all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination.  All documentation and records should be properly managed and maintained. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Essentially, the Army requires that an invoice support purchase card  transactions.  Thus, the invoice is a key document in purchase card internal  control activities.  Throughout the major commands’ and installations’  procedures, the need for obtaining and retaining an invoice is recognized.   Without an invoice, independent evidence of the description and quantity  of what was purchased and the price paid is not available.  In addition, the  invoice is the basic document that is required to be attached to the  cardholder’s monthly statement during a cardholder’s reconciliation and  prior to approving official review.
In testing for evidence of an invoice, we accepted either the original or a  copy of the invoice, sales slip, or other store receipt.  Table 6 shows the  results of our testing.
The following missing invoice example illustrates the questions that can  arise when an invoice is not available.  As part of our Army-wide data  mining, we identified several types of vendors that cardholders are  generally prohibited from using.  We identified four transactions for which  the monthly billing indicated that purchases were made at a jewelry store— one category of prohibited vendors—in Kuwait for three purchases totaling  $4,365 and a credit for returned merchandise of $1,353.  Upon inquiry into  this transaction, Army officials said that the purchase was for mattresses  for a vessel prepositioned in the area.  However, they also said that the  transaction file did not contain a detailed invoice to allow us—or the  approving official who was located in the United States—to confirm that  mattresses were, indeed, the merchandise purchased, and if so, how many  and at what unit price.  Without such an invoice, a thorough investigation is  needed to determine whether this transaction was proper, potentially  fraudulent, improper, or abusive.
The failure rates for evidence of invoice were lower than those for the  other internal control activities we tested.  However, we believe that even  these failure rates are unacceptable for such a key document.  A valid  invoice to show what was purchased and the price paid is a basic document  for the transactions and a missing invoice is an indicator of potential fraud.   Without an invoice, two key control activities—independent receiving and  approving official review—become ineffective.  Independent receiving  cannot confirm that the purchased items were received and the approving  official cannot review a cardholder statement reconciled with the  supporting invoice.  A near zero failure rate is a reasonable goal  considering that invoices are easily obtained or replaced when  inadvertently lost.
section_title: Purchase Cards Complicate Property Book Management
paragraphs: An agency must establish physical control to secure and safeguard vulnerable assets.  Examples include security for and limited access to assets such as cash, securities, inventories, and equipment which might be vulnerable to risk of loss or unauthorized use.
Such assets should be periodically counted and compared to control records. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
Consistent with GAO’s internal control standards, DOD’s Property, Plant  and Equipment Accountability Directive and Manual, which was issued  in draft for implementation on January 19, 2000, requires accountable  property to be recorded in property records as it is acquired.  In addition to  high-cost property items, accountable property also includes easily  pilferable or sensitive items, such as computers and related equipment,  cameras, cell phones, and power tools.  Recording these items in the  property records is an important step to ensure accountability and financial  control over these assets and, along with periodic inventory, to prevent  theft or improper use of government property.
At each of the five installations we visited, we found that accountable items  acquired by purchase cards were not recorded in property records.    In  addition, officials at four of the five installations could not readily locate  property items.  While some of the items were located after considerable  searching, others such as computers and printers were not.  Some or all of  the items might, in fact, be at the installation; however, without positive  assurance, there is substantial risk that items were converted to personal  use or sold.  Property items not recorded in the property books and not  found demonstrate a weak control environment and problems with the  property management system.  Table 7 shows the results of our work.
Effectively managing accountable property has long been a problem area  and the use of the purchase card has added further difficulties.  With over  100,000 army cardholders, the number of people buying accountable  property has greatly expanded.  Cardholders are responsible for reporting  on the accountable property they buy so that it is recorded in the  installation’s accountable property, but they often do not.  For example,  property book officers at Fort Hood and the Texas Army National Guard  told us that a major problem with property bought in a purchase card  transaction is that cardholders do not properly notify property book  officers and/or provide documentation supporting the purchases.  At Fort  Hood, cardholders are required by the installation’s purchase card  procedures to obtain transaction document numbers for purchases of  equipment items prior to making the purchases, but the requirement is  frequently ignored.  Further, we noted that the installations we audited  generally did not record items such as memorabilia like pictures of famous  people and framed jerseys of sports stars.  Some of these items cost  hundreds of dollars and are pilferable and desirable items.
Because of its long-standing problems, property management has been the  subject of internal audits at the installations we audited.  At the Soldier,  Biological and Chemical Command - Natick, as a result of an internal audit  of property accountability, the logistics office had worked for over a year to  improve its management of accountable property.  We believe that the  attention focused on accountable property management was the reason  that the installation had the best result in our audit.
Others had not done so well in correcting their problems.  A Fort Benning  internal audit completed in April 2001 found that 84 percent of the  accountable items purchased with a purchase card had not been recorded  on the property book.  An ongoing internal audit by the Texas Army  National Guard was finding similar property accountability problems.  At  Eisenhower Army Medical Center, an evaluation of the center’s logistics  operations estimated that $2 million to $5 million of accountable property  acquired with the purchase card was not on the center’s property books.
Cardholders have little incentive to undertake the required coordination  and reporting on property items because of the additional work involved.   Our work showed that items received centrally by logistics officials are  more likely to be recorded on the property books.  Thus, central receiving  appears to help mitigate against cardholders not assuring accountable  property is recorded and may be worth pursuing across the board or for  certain asset types.  In addition, we believe that robust monitoring and  oversight activities of the purchase card program that include examining  how well cardholders are fulfilling their property management  responsibilities could help improve property management related to the  purchase card program.
section_title: Retaining Purchase Card Records
paragraphs: Internal control and all transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination ... All documentation and records should be properly managed and maintained. GAO's Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
During our work we noted several instances in which cardholders and  approving officials had not maintained purchase card transaction files for 3  years as required by the Federal Acquisition Regulation, Part 4, Section  4.805.  In our testing, the records most often missing were the ones for  cardholders who had left the installation.  Either the cardholders destroyed  the records prior to leaving or the replacement cardholder destroyed them  because they were not the new cardholder’s records.  At Eisenhower Army  Medical Center, a replacement cardholder destroyed the departed  cardholder’s files because the office had little room to store old files and  the new cardholders did not see the need to store someone else’s files.   In  some cases, we were told that the departed cardholders took the records  with them to their new installations.  In other cases, the records were lost  when units were deployed.  Regardless of the causes, the records were not  available for our inspection and records retention requirements were not  complied with.  In those instances, we could not document that internal  control activities had been carried out.
Although we found no concrete indications of fraud in these situations, the  lack of records raises concerns about whether the files were destroyed so  that potentially fraudulent, improper, or abusive transactions were not  documented.   For example, in one case in which the cardholder had left  the Army, we found charges during the last month of the cardholder’s  military service from the installation’s liquor store and vendors such as Wal- Mart stores that sell a multitude of potentially personal items.  The  replacement cardholder told us that the purchases were probably for a unit  party, but the timing of the purchases along with missing documentation  does not allow ruling out the possibility that items may have been bought  for personal use.  However, the unit’s purchase card records for this period  were in disarray and invoices and other documentation that could verify  items purchased or aid further assessments of the propriety of the  purchases were not available.
section_title: Potentially Fraudulent, Improper, and Abusive or Questionable Transactions
paragraphs: Buying items with purchase cards without the requisite control  environment creates unnecessary risk of excess outlays, which can range  from outright fraudulent purchases to ones that were of questionable need  for the unit’s mission or were unnecessarily expensive.  We identified  purchases at the installations we audited that were potentially fraudulent,  improper, and abusive or questionable, which can result from a weak  control environment and weak internal control activities.  As discussed in  appendix I, our work was not designed to identify, and we cannot  determine, the extent of potentially fraudulent, improper, and abusive or  otherwise questionable transactions.  However, considering the control  weaknesses identified at each installation, such transactions are likely  occurring and have not been detected.  In addition to the purchases  identified at the audited installations, our Army-wide data mining of  selected transactions identified additional cases of potentially fraudulent,  improper, and abusive or questionable transactions.
subsections: section_title: Potentially Fraudulent Purchases
paragraphs: The Army has no information as to the extent of potentially fraudulent  purchases that have been identified or are being investigated within the  purchase card program.  We identified instances of potentially fraudulent  transactions at three of the five installations we audited and in our Army- wide data mining, as table 8 shows.  Some of the potentially fraudulent  transactions were identified in response to our inquiries.  Others were  identified or being investigated independent of our audit.
We considered potentially fraudulent purchases to include those made by  cardholders that were unauthorized and intended for personal use.   Potentially fraudulent purchases can also result from compromised  accounts in which a purchase card or account number is stolen and used by  someone other than the cardholder to make a potentially fraudulent  purchase.  Potentially fraudulent transactions can also involve vendors  charging purchase cards for items that cardholders did not buy.  The  installations we audited had policies and procedures that were designed to  prevent and/or detect potentially fraudulent purchases, such as the  requirement that approving officials review the supporting documentation  for each transaction for legality and proper government use of funds.   However, as discussed earlier, our testing showed that these control  activities had not been implemented as intended.
Although collusion can circumvent what otherwise might be effective  internal control activities, a robust system of guidance, internal control  activities, and oversight can create a control environment that provides  reasonable assurance of preventing or quickly detecting fraud, including  collusion.  However, in auditing the Army’s internal control at five  installations during fiscal year 2001, we did not find the processes and  activities that provide such assurance.
The following examples of fraud illustrate the cases in table 8.
At Eisenhower Army Medical Center, an Army investigation initiated  near the end of our work has revealed an estimated $100,000 of  potentially fraudulent purchases.  The investigation began when an  alternate cardholder received an electronic game station that had been  ordered by another cardholder who was away on temporary duty.  The  alternate cardholder, noting that the purchase did not appear to be for  government use, notified the program coordinator who notified the local  Army criminal investigations division.  The ensuing investigation  revealed that the military cardholder, approving official, and several  other soldiers and civilians colluded to purchase numerous items  including computers, digital cameras, an audio surround system, a 32- inch television, a stereo system, and other items for personal use.
A Fort Benning military cardholder charged $30,000 for personal goods  and cash advances before and after retirement.  Because these 178  transactions went undetected, it appears that the approving official’s  certification was only a “rubber stamp” and was not based on a review  of the cardholder’s bill, reconciliations, and supporting documentation.   The approving official not only failed to detect these potentially  fraudulent transactions while the cardholder was on active military  duty, but also failed to notice that charges were continuing to be made  after the cardholder retired.
At Eisenhower Army Medical Center, a military cardholder defrauded  the government of $30,000 from April 25 to June 20, 2001.  The  cardholder took advantage of a situation when the cardholder’s  approving official was on temporary duty for several months.   The  cardholder believed that the alternate approving official would certify  the statement for payment without reviewing the transactions or their  documentation.  With this belief, the cardholder purchased a computer,  purses, rings, and clothing.  These fraudulent transactions were not  discovered until the resource manager who monitored the unit’s budget  noticed a large increase in spending by the cardholder.  The cardholder  had destroyed all documentation for the 3-month period during which  these transactions took place.  However, investigators found  merchandise and invoices that showed the cardholder had used the  government credit card.  The cardholder was court-marshaled in April  2002 and sentenced to 18 months incarceration.  These fraudulent  transactions might not have occurred if the cardholder had known that  the approving official would review the transactions.  At a minimum,  prompt approving official review would have detected the fraudulent  transactions.
Over a 6-month period in 2001, a civilian cardholder made 62  unauthorized transactions totaling $12,832 to pay for repairs to a car and  buy groceries, clothing, and various other items for personal use.  We  were told that the cardholder colluded with the gas station vendor who  inflated the prices paid for items and received a kickback.  The  approving official identified this case by reviewing the cardholder’s  August 2001 transactions.  The fraud went undetected for several  months because the approving official had not reviewed the  cardholder’s bills and supporting documentation for over 5 months.  The  approving official has been relieved of approving official duties and  reprimanded.  The investigation into the fraud was ongoing at the end of  our fieldwork.
In our Army-wide data mining, we identified a cardholder transaction  for $630 on June 15, 2001, that was coded as being an escort service.  In  response to our inquiry on this transaction, we were informed that no  authorization existed for the transaction and that it was with an escort  service in New Jersey.  In discussions with provost marshal officials, we  were informed that the cardholder had been investigated in February  2002 because of money missing from chapel funds.  The provost  marshal’s office, after our March 2002 inquiry about the $630  transaction, investigated it and other suspicious charges by the  cardholder.  The investigators could not get an invoice from the vendor.   Their investigations revealed no other fraudulent, improper, or abusive  and questionable transactions.  They determined that for a short period,  the cardholder was also serving as the billing official and that it was  during this period that the fraudulent transaction with the escort service  occurred.  Disciplinary actions included removing the soldier from  cardholder duties, reducing his rank, taking one-half month’s pay for 2  months, requiring 45 days extra duty, and ordering repayment of the  funds.
During June 2001 at Fort Hood, several purchases of prepaid telephone  cards and pizza totaling $524 were made and certified for payment by a  new approving official who did not realize that the cardholder had  separated from the Army in early 2001.  In attempting to respond to our  request for supporting information for one of the transactions, the  approving official recognized that the charges were potentially  fraudulent.  In the subsequent investigation, an investigator found that  the purchase card account was still active in December 2001.  This case  remained under investigation as of January 2002.
In addition to the potentially fraudulent cases identified by our work, we  attempted to obtain other examples of potentially fraudulent activity in the  Army purchase card program from the Army’ Criminal Investigation  Command in Washington, D.C.  However, data on the command’s  investigations were not available.  Further, while Army investigators  acknowledge that they have investigated a number of fraud cases, their  database on investigations does not allow retrieval of data on  investigations involving potentially fraudulent use of purchase cards.   Purchase card program officials and Army investigation command officials  said that they had no information on the total number of fraud investigation  cases throughout the Army that had been completed or were ongoing.   Based on our identification of a number of potentially fraudulent cases at  the installations that we audited, we believe that the number of cases  involving potentially fraudulent transactions could be significant.  Without  such data, the Army does not know the significance of fraud cases that  have been or are being investigated and cannot take corrective actions, to  the extent possible, to prevent similar potentially fraudulent cases in the  future.
section_title: Improper Purchases and Transactions
paragraphs: Our work identified transactions that were improper, including split  purchases and purchases from nonmandatory sources.  Improper  transactions are those purchases that, although approved by Army  personnel and intended for government use, are not permitted by law,  regulation, or DOD policy.  We identified three types of improper  purchases.  One type was purchases that did not serve a legitimate  government purpose.  Another type was split purchases in which the  cardholder circumvents cardholder single purchase limits.  The Federal  Acquisition Regulation guidelines prohibit splitting purchase  requirements into more than one transaction to avoid the need to obtain  competitive bids on purchases over the $2,500 micropurchase threshold or  to circumvent higher single transaction limits for payments on deliverables  under requirements contracts.  The third type was purchases from an  improper source.  Various federal laws and regulations require  procurement officials to acquire certain products from designated sources  such as the Javits-Wagner-O'Day Act (JWOD) vendors.  The program  created by this act is a mandatory source of supply for all federal entities.   It generates jobs and training for Americans who are blind or have other  severe disabilities by requiring federal agencies to purchase supplies and  services from nonprofit agencies, such as the National Industries for the  Blind and the National Institute for the Severely Handicapped.
subsections: section_title: Personal Use
paragraphs: We found several instances of purchases, such as clothing, in which  cardholders purchased goods that were not authorized by law or  regulations.  The Federal Acquisition Regulation provides that the  governmentwide commercial purchase card may be used only for  purchases that are otherwise authorized by law or regulations.  Therefore,  a procurement using the purchase card is lawful only if it would be lawful  using conventional procurement methods.  Under 31 U.S.C. 1301(a),  “ppropriations shall only be applied to the objects for which the  appropriations were made….”  In the absence of specific statutory  authority, appropriated funds may only be used to purchase items for  official purposes, and may not be used to acquire items for the personal  benefit.  The improper transactions, as shown in table 9, were identified as  part of our review of fiscal year 2001 transactions and related activity.  We  identified most of them as part of our Army-wide data mining of  transactions with questionable vendors although several were identified as  part of our work at the five audited installations.
The following examples of the improper transactions illustrate of the type  of cases included in table 9.
We identified purchases of clothing by Soldier, Biological and Chemical  Command – Natick that should not have been purchased with  appropriated funds.  According to 5 U.S.C. 7903, agencies are authorized  to purchase protective clothing for employee use if the agency can show  that (1) the item is special and not part of the ordinary furnishings that  an employee is expected to supply, (2) the item is essential for the safe  and successful accomplishment of the agency’s mission, not solely for  the employee’s protection, and (3) the employee is engaged in hazardous  duty.  Further, according to a Comptroller General decision dated March 6, 1984, clothing purchased pursuant to this statute is property  of the U.S. government and may only be used for official government  business.  Thus, clothing purchases, except for rare circumstances in  which the purchase meets stringent requirements, is usually considered  a personal item for which appropriated funds should not be used.  In  one transaction, a cardholder had purchased 10 L.L. Bean Gore-Tex  parkas at a total cost of about $2,400 for employees who worked outside  in cold weather.  These parkas were not specialty items, and they were  not used solely for official use.  The employees were allowed to take the  parkas home and wear them in off-duty hours.
In another example of clothing for personal use from our Army-wide  data mining, several charges for amounts from $330 to $770 were  identified at Macy’s and Hecht’s.  We were informed that these were for  purchases of civilian clothes for enlisted personnel who are serving as  assistants to general officers.  We were informed by the Director,  Purchase Card Unit, Defense Contracting Command Washington, that  this appears to be a fairly widespread practice and that the practice is  clearly improper and is believed to violate fiscal law.
As part of our data mining of Army-wide purchase card transactions, we  identified a questionable transaction, which a subsequent investigation  determined that a cardholder purchased a Bose radio for $523 to use in  his office.  The radio was clearly for his personal use in his office;  therefore, it should not have been purchased with the Army purchase  card.  The employee was required to reimburse the U.S. Treasury for the  cost of the radio.  A broader review of the purchases made by this  cardholder’s unit revealed other problems similar to those we identified  in our work such as property accountability, not purchasing from  mandatory sources, purchases at excessive costs, and missing records.   As with our other work, these problems indicate that approving officials  were not adequately reviewing cardholder transactions.
In our Army-wide data mining we identified charges by two cardholders  under one approving official of about $7,600 at the Opryland Hotel in  Nashville, Tennessee, in November 2000.  In response to our inquiry, we  were told that these charges were unexpected and resulted from the  Chief Information Officer’s Management Conference at the hotel in  August 2000.  The charges were unexpected because registration fees  were to cover all charges.  After a large bill of over $20,000 was  eventually reduced to about $7,600, the supervisor instructed the  cardholders to pay the additional charges with their purchase cards.   However, to pay the $7,600 in charges of less than $2,500 and avoid  obvious split purchases, the bill was split into segments and divided  between two cardholders.  The amounts paid were $2,500 for long- distance phone calls, $934 for phone line hookup, $2,500 for meeting  room rental, and $1,715 for audio visual services.  However, because  separate invoices for the charges do not exist, the officials can neither  support the correct amount of any charges nor support that the charges  are for purposes permitted by law, regulation, or policy.
Fort Hood paid improper and excessive cell phone charges because no  one was monitoring them.   The information management division’s  approving official certified the installation’s consolidated monthly  charges for payment for over 1,100 cell phones and over $50,000  monthly time charges without reviewing the usage.  While local  procedures require the units using the cell phones to verify their own  monthly usage, the procedures do not address how and when this is to  be done.  We found that some units had not routinely verified the  charges.  Others, who said they usually did verify their charges, could  not for the period November 2001 through March 2002 because a change  in the phone company’s billing processes did not allow the units to have  access to their monthly charges.  Without reviewing the charges, the  Army has no assurance that charges are proper and not excessive.  We  reviewed current usage and identified excessive monthly time charges  and charges for phones that had no monthly usage.  For example, one  cell phone user, who had a $79.95 per month plan that allowed 650  minutes of airtime, used 3,400, 2,696, and 1,915 minutes during a 3- month period and incurred time charges of $1,040, $795, and $523.  Fort  Hood officials told us that improper and excessive charges occur  because units do not have the appropriate monthly plan.  In the above  example, the unit could have reduced its costs to $550, $374, and $200— a 52 percent savings—with an appropriate plan.  Fort Hood officials also  told us that excessive costs occur because of personal use.  They said  that when they identified charges for unauthorized personal use, they  require employees to reimburse the government for these improper  charges.  However, without monitoring, use of uneconomical plans and  unauthorized personal use would not be identified.
section_title: Split Purchases
paragraphs: Another category of improper transaction is a split purchase, which occurs  when a cardholder splits a transaction into more than one segment to avoid  the requirement to obtain competitive bids for purchases over the $2,500  micropurchase threshold or to avoid other established credit limits.  The  Federal Acquisition Regulation prohibits splitting a purchase into more  than one transaction to avoid the requirement to obtain competitive bids  for purchases over the $2,500 micropurchase threshold or to avoid other  established credit limits.  Once items exceed the $2,500 threshold, they are  to be purchased through a contract in accordance with simplified  acquisition procedures, which are more stringent than those for  micropurchases.
Our analysis of data on purchases at the five installations we audited and  our data mining efforts identified numerous occurrences of potential split  purchases.  In addition, internal auditors at four of the installations  identified split purchases as a continuing problem.  In some of these  instances, the cardholder’s purchases exceeded the $2,500 limit, and the  cardholder “split” the purchase into two or more transactions of $2,500 or  less.  For example, in our Army-wide data mining, we identified a series of  split purchases at Fort Stewart, Georgia.  An approving official had two  cardholders spend $16,000 over a series of days to buy numerous pieces of  executive office furniture for the official’s office that was located on the  mezzanine of a warehouse.  These purchases included elegant desks,  chairs, and a conference table.
We also identified numerous cases where the Army is making repetitive  micropurchases to meet requirements that in total greatly exceed the  micropurchase limit.  While some repetitive purchases might not clearly be  split purchases, the Army is not taking advantage of a mechanism designed  to foster lower prices for repetitive acquisitions of similar items over an  extended period.  Section 13.303-1 of the Federal Acquisition Regulation  provides for blanket purchase agreements as a “simplified method of filling  anticipated repetitive needs for supplies or services.”  Use of a blanket  purchase agreement, rather than repetitive, individual micropurchases,  could lower per unit prices for the goods or services acquired.  Below we  discuss four situations in which blanket purchase orders should have been  used.
At the Soldier, Biological and Chemical Command – Natick, the public  works department routinely used the same vendors 35 times to provide  and install carpeting, 25 times to provide heating and air conditioning  services, and 39 times to provide graphic display services.  Although  each of the transactions for these vendors was under the micropurchase  limit, the total purchases for fiscal year 2001 were about $38,000,  $44,000, $77,000, respectively.  However, the installation did not have a  blanket purchase agreement with the vendors.  In these instances the  public works department officials had not recognized they needed such  a contract, and they agreed to pursue one.  We noted that the installation  had blanket purchase agreements for other similar circumstances that  the internal auditor identified.
At the Texas Army National Guard, the Occupational Health Office used  purchase cards to pay for routine medical examinations and to buy  ergonomic chairs and safety glasses for employees.  While the individual  cost for purchases were much less than the micropurchase limit, the  total annual cost significantly exceeds the limit.  For instance, the office  paid over $80,000 for about 705 examinations at a dozen clinics and  hospitals throughout the state in the first 10 months of fiscal year 2001.   The guard also used purchase cards to pay for meals provided troops  while they attended mandatory weekend drills or training.  While the  individual cost for any single guard unit’s training meal would rarely  exceed the single-purchase $2,500 limit, the total recurring cost of the  meals is one of the guard’s largest annual expenses—over $500,000 in  the first 10 months of fiscal year 2001.
At Fort Benning, the Dismounted Battlespace Battle Lab, a combat  training unit, routinely purchased doors that were destroyed during  training exercises to instruct troops how to enter a building that may  contain an enemy.  The battle lab spent $111,721 in 84 transactions with  one vendor to buy doors during a 10-month period in fiscal year 2001,  but the unit did not have a blanket purchase agreement.  In this case,  battle lab officials had refused attempts by the Fort Benning contracting  division and purchase card program coordinator to execute an  agreement.  We found that the battle lab also needed a contract for the  numerous computer modems it purchased.  Further, in these purchases,  the battle lab cardholder’s purchasing pattern was to split purchases to  avoid the micropurchase limit of $2,500.  We saw numerous instances in  which the cardholder made more than one purchase near the limit for  the same item over a short period.
In a data-mining example, the Army Personnel Command made  repetitive buys of interment flag cases from the same vendor.  Data  show that three purchases, two for  $2,250 and one for $1,800, were  made on the same day and that in total the command purchased 438  cases for $65,700 in calendar year 2001.   The command has agreed that  purchases in the future will be on a yearly basis in a competitive  contract.
section_title: Improper Source
paragraphs: Another type of improper purchase occurs when cardholders do not buy  from a mandatory procurement source.   Various federal laws and  regulations require government cardholders to acquire certain products  from designated sources.  For example, the program created by JWOD  generates jobs and training for Americans who are blind or have other  severe disabilities by requiring federal agencies to purchase supplies and  services furnished by nonprofit agencies, such as the National Industries  for the Blind and the National Institute for the Severely Handicapped.   Under the Federal Acquisition Regulation, Part 8.7, JWOD is a mandatory  source of supply for all entities of the government.  Unlike the "Buy  American" Act and other rules that have been waived by recent  procurement reform measures, JWOD’s mandatory status remains in effect  for all purchases, including those under the micropurchase threshold.   Most JWOD items are of small value such as office supplies, cleaning  products, or medical/surgical supplies that nearly always fall into the  micropurchase category.
While procurement source was not the primary focus of our work, we  noted that cardholders frequently did not purchase from required sources  when they should have.  For example, we noted numerous purchases of  office supplies or other JWOD-supplied products from local vendors when  these or substantially similar products were available from the General  Services Administration or one of its contractors’ catalogs or Web sites.  We  also noted that some cardholders did not know their responsibilities or the  requirements, despite the fact that these requirements are a primary  emphasis during cardholder training programs.  For example, some said  that they had not heard of JWOD or either of the institutes that cardholders  should use.   As further evidence of cardholders’ noncompliance with this  mandatory source requirement, the Director of Sales for the National  Industries for the Blind told us about large decreases in sales of JWOD  products at Fort Hood and other Army installations over the past 2 years  because cardholders were purchasing from commercial firms rather than  buying the mandatory products.
The following two examples involving Franklin Covey illustrate the  situations we found.
In our data mining work, we identified a cardholder at Tooele Army  Depot who made 10 purchases for a total of about $11,900 from Franklin  Covey, with most of the purchases in August 2001.  These purchases  were primarily for inserts to day planners, an item that is available from  the JWOD catalog.  In response to our questions as to why the  mandatory source was not used, we were advised that (1) in the past  JWOD planners were not used by the self-service store’s customers  because they did not include pages with dates for each day and (2) under an interpretation that is now recognized to be in error, the  purchases were made from another source under the premise that  planners from JWOD did not meet customer needs.  We were informed  that future purchases of planners would be in one purchase through  JWOD.
In another case, a unit spent $3,100 over an 18-month period to purchase  day planners from Franklin Covey.  One item cost $199 and another  $250.  In contrast, cardholders can buy JWOD day planners for about  $40.
In fiscal year 2001, the Army made more than 4,700 purchases costing  about $792,000 dollars from Franklin Covey.  A review of individual  purchases, which we did not make, would be required to determine which  purchases were for items that should have been from a mandatory source.  However, we believe it is likely that many of these purchases could have  been for JWOD products.
section_title: Abusive or Questionable Purchases
paragraphs: We identified numerous examples of abusive or questionable transactions  at each of the five installations we audited.  We defined abusive  transactions as those that were authorized, but the items purchased were  at an excessive cost (e.g., “gold plated”) or for a questionable government  need, or both.  When abuse occurs, no law or regulation is violated.  Rather,  abuse occurs when the conduct of a government organization, program,  activity, or function falls short of societal expectations of prudent behavior.   Often, improper purchases such as those discussed in the previous section  are also abusive.  Transactions that are both improper and abusive were  discussed previously.  For example, the executive furniture purchased at  Fort Stewart discussed earlier as improper split purchases were also  abusive purchases.  We believe that this type furniture was not in keeping  with the office environment and not justified by the official’s position or  grade level.  Another example is the excessive cell phone charges at Fort  Hood.
Questionable transactions are those that appear to be improper or abusive  but for which there is insufficient documentation to conclude either.  For  questionable items, we concluded that cardholders purchased items for  which there was not a reasonable and/or documented justification.
Questionable purchases often do not easily fit within generic  governmentwide guidelines on purchases that are acceptable for the  purchase card program.  They tend to raise questions about their  reasonableness.  Many, such as gym quality exercise equipment, are  common Army—and DOD—purchases because the Army must provide  more than merely a work environment for its soldiers.  However, others,  like the fine china purchased for the culinary arts team competition  discussed below, clearly raise questions about whether they are  appropriate purchases.  Precisely because these types of purchases tend to  raise questions and subject the Army to criticism, they require a higher  level of prepurchase review and documentation than other purchases.   These types of purchases raise questions that go beyond the confines of the  purchase card program.
When we examined purchases that raised these types of questions, we  usually did not find evidence of prepurchase justification.  In attempting to  justify whether purchases were acceptable, improper, or abusive, program  coordinators, approving officials, and cardholders often provided an after- the-fact rationale for the purchases.  We believe that these types of  questionable purchases require scrutiny before the purchase, not after.   Table 10 identifies examples of these types of purchases.
To understand more fully the nature of potentially questionable purchases,  we selected six of the examples above to explain in more detail below.
Palm Pilots for Pentagon officials.  In February 2001, two purchases for  a total of 80 Palm Pilots at a total cost of $30,000 were made for the  Office of the Under Secretary of Defense for Acquisition, Technology,  and Logistics.   Two questions about this purchase are whether a valid  need had been identified for the purchase and whether the urgency of  the purchase justified the purchase from a vendor that could deliver  immediately but was charging $1,540 more than the lowest competitor.   No documentation was available to show how the office had determined  that 80 Palm Pilots were a valid government requirement.  An e-mail  related to the purchase suggested that there was a need “to get enough  goodies for everyone.”  The documentation also suggested that the items  were being ordered for inventory and would be issued to personnel  when requested.  This does not indicate a predetermined requirement  and does not appear to support that the requirement was urgent, as the  office determined.  Based on the determination of urgency, the price  paid was $1,540 more than the lowest competitor’s price so that delivery  could be immediate.
Culinary arts.  At Fort Hood and during our Army-wide data mining  effort, we noted several purchases for various culinary arts events.   Among the purchases were fine china and crystal from Royal Doulton  and Lenox.  Other purchases were for accessories such as a rotating  lighted ice-carving pedestal.  Although participation in culinary arts  team events is an approved Army activity, the transactions we examined  and inquired about did not have a documentation of the need for the  specific items purchased.  Although the transactions we examined  totaled about $3,800, we believe that the total cost of such purchases  Army-wide is far more.  We were told that purchases of culinary arts  accessories are common throughout the Army.  One reason, we were  told, is because most installations have culinary arts teams that attend  competitions involving the use of expensive accessories and fine crystal  and china.
Sunglasses for the Golden Nights parachute team.  In February 2001, a  cardholder purchased 30 pair of sunglasses from Sunglass Hut at about  $100 each for a net cost of $2,450—some glasses were returned for  credit from a prior purchase—for the Golden Knights.  In response to  our inquiry about this purchase, we were told that it was not  preapproved and that sunglasses were authorized in the common table  of allowances when they are needed for training.  However, because  goggles are worn during parachute jumps, not sunglasses, we believe  these purchases were personal use items and thus of questionable  government need.  The approving official for the transaction believed  that the purchase was appropriate.  According to the official, the  parachute team has 85 members and the purchase was for new  members.
Tree for Earth Day.  The Environmental, Safety and Health Office at the  Soldier, Biological and Chemical Command – Natick bought a $2,250  tree to plant in celebration of Earth Day.  Although this transaction did  not have documented approval prior to purchase or a documented  justification for its need, we were told that the tree was purchased for  the commanding general to plant among a grove of other trees between  two installation buildings during an Earth Day celebration.  While  planting a tree for Earth Day may be an acceptable expenditure of  government funds, we believe the expenditure of over $2,200 for a tree  is an excessive cost.
Cigars.  In April 2001 a cardholder at Schofield Barracks in Hawaii  purchased three boxes of Hula Girl Cigars for $300.  According to  information provided in response to our inquiry about the purchase, the  cardholder bought the cigars for gifts to VIPs to be presented by the  Commanding General, 25th Infantry Division, Schofield Barracks,  during deployment on an exercise in Thailand.  The purchaser was an  acting protocol officer during a changeover in officers and did not have  an approving official reviewing the purchases.  No documentation was  available from the Army to demonstrate that this purchase was a valid  government need.  The current Chief of Protocol said that no other  cigars had been purchased.
Wine.  A cardholder purchased two cases of wine on September 20,  2001, from the Naked Mountain Vineyard.  After we questioned this  purchase, the Army concluded that the cardholder had used the wrong  card to purchase the wine, but it had corrected the error to put the  purchase in the correct accounting classification.  An Army official  assured us that the purchase was appropriately authorized by  “competent authority in the course of execution of a highly classified,  compartmented program.”  We were provided no evidence that this  purchase was a valid government need.
section_title: Conclusions
paragraphs: We support the use of a well-controlled purchase card program.  It is a  valuable tool for streamlining the government’s acquisition processes.   However, the Army program is not well controlled.  The Army’s weak  control environment was the root cause of the problems we saw with  purchase card transactions, including the potentially fraudulent, improper,  and abusive or questionable purchases.  The Army has not provided the  aggressive leadership needed to build and maintain an internal control  infrastructure that encourages a strong control environment that provides  accountability.  Such an environment is an important counterbalance to the  increased risk of potentially fraudulent and wasteful spending that results  from the rapidly expanding use of the purchase card.  The Army now  spends billions of dollars through a purchase card program for which  internal control is not adequate and for which appropriate management  oversight does not exist.  The Army needs to ensure that installation-level  program coordinators, the primary program management officials, have the  tools to develop local control systems and oversight activities.   Strengthening the control environment will require a renewed focus on,  and commitment to, building a robust purchase card infrastructure.  The  installations and major commands we audited have been responsive to our  findings, and they have begun to make changes at their levels.  However,  the major changes to the Army purchase card program infrastructure that  are essential to encouraging and enabling improvements in the overall  control environment await action at the Army and DOD management  levels.
section_title: Recommendations for Executive Action
paragraphs: To strengthen the overall control environment and improve internal control  for the Army’s purchase card program, we recommend that the Secretary of  the Army direct the Deputy Assistant Secretary of the Army (Procurement)  and other Army officials as appropriate to improve the overall Army  purchase card infrastructure by taking the following actions.
subsections: section_title: Overall Program Management and Environment
paragraphs: Address key control environment issues in Army-wide standard  operating procedures.  At a minimum, the following key issues should  be included in the procedure:  controls over the issuance and assessment of ongoing need for cards;  cancellation of cards when a cardholder leaves the Army, is  reassigned, or no longer has a valid need for the card;    span of control of the approving official; and   appropriate cardholder spending limits.
Help ensure that program coordinators and approving officials have the  needed authority, including grade level, to serve as the first line of  defense against purchase card fraud, waste, and abuse by issuing a  policy directive that specifically addresses their positions, roles, and job  descriptions.  Policies should also be established that hold these  officials accountable for their purchase card program duties through  performance expectations and evaluations.
Assess the adequacy of human capital resources devoted to the  purchase card program, especially for oversight activities, at each  management level, and provide needed resources.
Develop and implement a program oversight system for program  coordinators that includes standard activities and analytical tools to be  used in evaluating program results.
Develop performance measures and goals to assess the adequacy of  internal control activities and the oversight program.
Require reviews of existing cardholders and their monthly spending  limits to help ensure that only those individuals with valid continuing  purchasing requirements possess cards and that the monthly spending  limits are appropriate for the expected purchasing activity.  These  reviews should result in canceling unneeded cards Army-wide and  especially at Fort Hood where we found a significant problem.
section_title: Specific Internal Control Activities
paragraphs: Direct the implementation of specific internal control activities for the  purchase card program in an Army-wide standard operating procedure.   While a wide range of diverse activities can contribute to a system that  provides reasonable assurances that purchases are correct and proper,  at a minimum, the following activities should be included in the  promulgated procedure:  advance approval of purchases, including blanket approval for  routine, low dollar purchases;  independent receiving and acceptance of goods and services;   independent review by an approving official of the cardholder’s  monthly statements and supporting documentation;   approving official reconciling the charges on the monthly statement  with invoices and other supporting documentation and forwarding  the reconciled statement to the designated disbursing office for  payment as required by governmentwide and DOD regulations; and     cardholders obtaining and retaining invoices that support their  purchases and provide the basis for reconciling cardholder  statements.
Develop and implement procedures and checklists for approving  officials to use in the monthly review of cardholders’ transactions.    These procedures and checklists should specify the type and extent of  review that is expected and the required review documentation.
Reiterate records retention policy for purchase card transaction files  and require that compliance with record retention policy be assessed  during the program coordinator’s annual review of each approving  official.
Require the development and implementation of coordination and  reporting procedures to help ensure that accountable property bought  with the purchase card is brought under appropriate control.
section_title: Potentially Fraudulent, Improper, and Abusive and Questionable Purchases
paragraphs: Require additional prior documented justification and approval of those  planned purchases that are “questionable”—that fall outside the normal  procurements of the cardholder in terms of either dollar amount or type  of purchase.
Analyze the procurements of continuing requirements through  micropurchases and require the use of appropriate contracting  processes to help ensure that such purchases are acquired at best  prices.
Develop an Army-wide database on known fraud cases that can be used  to identify potential deficiencies in existing internal control and to  develop and implement additional control activities, if warranted or  justified.
Develop and implement an Army-wide data mining, analysis, and  investigation function to supplement other oversight activities.  This  function should include providing oversight results and alerts to major  command and installations when warranted.
We also recommend that the Under Secretary of Defense (Comptroller)  direct the Charge Card Task Force to assess the above recommendations,  and to the extent applicable, incorporate them into its recommendations to  improve purchase card policies and procedures throughout DOD.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, which are reprinted in  appendix III, DOD concurred with our recommendations.  Although  concurring with our recommendation for an Army-wide standard operating  procedure directing the implementation of specific internal control  activities, DOD took exception to broad application of advance approval of  purchases and independent receiving and acceptance of goods and services  in an Army-wide standard operating procedure.  DOD said that broad  application of those activities would add costs to the process without a  comparable reduction in risk. However, DOD recognized the applicability  of these activities in some circumstances and commented that the Army  standard operating procedure will (1) include a list of items requiring  advance approval and (2) require advance approval for a category of items  that fall outside the “common sense” rule.
We continue to believe that both advance approval and independent  receiving are important internal control activities and have applicability to  the Army purchase card program, including many micropurchases.  We  recognize that not all purchases require specific advance approval and  some small dollar and other purchases may not lend themselves to  documented independent receiving.  Therefore, the Army-wide standard  operating procedure should (1) discuss the criteria for determining when  these control activities are applicable and (2) articulate guidelines for  implementing them.
As agreed with your offices, unless you announce its contents earlier, we  will not distribute this report until 30 days from its date.  At that time, we  will send copies to interested congressional committees; the Secretary of  Defense; the Under Secretary of Defense for Acquisition, Technology, and  Logistics; the Under Secretary of Defense (Comptroller); the Secretary of  the Army; the Assistant Secretary of the Army for Acquisition Logistics and  Technology; the Deputy Assistant Secretary of the Army (Policy and  Procurement); the Director of the Army Contracting Agency; the Director  of the Defense Finance and Accounting Service; and the Director of the  Office of Management and Budget.  We will make copies available to others  upon request.
Please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov, Ronald D. Malfi at (202) 512-7420 or malfir@gao.gov, or David Childress at  childressj@gao.gov if you or your staffs have any questions concerning this  report.  Major contributors to this report are acknowledged in appendix IV.
section_title: Scope and Methodology
paragraphs: We audited the adequacy of the Army’s internal control over authorization,  purchasing, and payment of fiscal year 2001 purchase card transactions.   The Army’s purchase card program is the largest of the services, with the  most cardholders, transactions, and dollars spent.  We are also performing  audits of the other services and will report the results of those audits  separately.  For the Army, we performed work in the major commands that  have the largest purchase card programs, accounting in fiscal year 2001 for  about 66 percent of total Army purchases and about 62 percent of total  Army transactions.  We conducted detailed work at the following major  commands and installations.
At the Army and major command levels we evaluated the policies and  procedures used to guide the purchase card program, and we evaluated the  activities they engage in to oversee the program.  At the installation level,  we used a case study approach to evaluate the local purchase card  program, and our work there consisted of three major segments.  We  evaluated the overall control environment, including the adequacy of the  Army’s policies and procedures.  We evaluated the implementation of key  internal control activities at the installations.  Finally, we identified  evidence of potentially fraudulent, improper, or abusive or questionable  transactions at each audited installation and conducted limited follow-up.
To assess the control environment, we examined the installations’ policies  and procedures and oversight activities.  To assess their adequacy, we used  as our primary criteria applicable laws and regulations; our Standards for  Internal Control in the Federal Government (GAO/AIMD-00-21.3.1,  November 1999); and our Internal Control Standards:  Internal Control  Management and Evaluation Tool (GAO-01-1008G, August 2001).  To  assess the management control environment, we applied the fundamental  concepts and standards in our internal control standards to the practices  followed by management.
To test the implementation of specific control activities at the five  installations we audited, we selected a stratified random sample  probability of 150 purchase card transactions from the population of  transactions paid from October 1, 2000, through July 31, 2001, for each of  the installations.  With these statistically valid probability samples, each  transaction in the five installations’ populations had a nonzero probability  of being included, and that probability could be computed for any  transaction.  Within each installation we stratified the population of  transactions by the dollar value of the transaction and by whether the  transaction was likely to be for a purchase of computer-related equipment.   Each sample transaction in an installation was subsequently weighted in  the analysis to account statistically for all the transactions in the  population of that installation, including those that were not selected.
For each transaction sampled, we tested whether key internal control  activities had been performed.  For each control activity tested, we  projected an estimate of the percent of transactions for which the control  activity was not performed, for each installation.  Because we followed a  probability procedure based on random selections of transactions, our  sample for each installation is only one of a large number of samples that  we might have drawn.  Since each sample could have produced different  estimates, we express our confidence in the precision of our particular  samples’ results (that is, the sampling error) as 95 percent confidence  intervals.  These are intervals that would contain the actual population  value for 95 percent of the samples we could have drawn.  As a result, we  are 95 percent confident that each of the confidence intervals in this report  will include the true (unknown) values in the study populations.
Although we projected the results of our samples to the populations of  transactions at the respective installations, the results cannot be projected  to the population of Army transactions or installations.
For the sampled transactions that were for accountable items, we tested  whether they had been recorded in the installation’s property book records  and whether the installation could demonstrate the item’s existence.  We  did not project the results of this test because some transactions contained  so many accountable items—as many as 500—that we elected to perform a  nonstatistical analysis of the degree to which these items were recorded in  property books.
In addition to our review of a statistical sample of transactions at the five  audited installations, we also identified other selected transactions at the  five locations and throughout the Army’s fiscal year 2001 purchase card  transactions to determine if indications exist of potentially fraudulent,  improper, and abusive or questionable transactions.  Our data mining  included identifying transactions with certain vendors that had a more  likely chance of selling items that would be unauthorized or that would be  personal items.  For a small number of these transactions at each of the five  installations and from the Army-wide database, we requested limited  documentation, usually the supporting invoice, that could provide  additional indications as to whether the transactions were potentially  fraudulent, improper, and abusive or questionable.   If the additional  documentation indicated that the transactions were proper and valid, we  did not further pursue documentation on those transactions.  If the  additional documentation was not provided or if it indicated further issues  related to the transactions, we obtained and reviewed additional  documentation or information about these transactions.  While we  identified some potentially fraudulent, improper, and abusive or  questionable transactions, our work was not designed to identify, and we  cannot determine, the extent of potentially fraudulent, improper, or  abusive transactions.  Because of the large number of transactions that met  these criteria, we did not look at all potential abuses of the purchase card.
For those potentially fraudulent transactions that had been or were being  investigated at the five audited installations, we discussed the cases with  the investigators and/or obtained records and reports on the investigations.    We also interviewed purchase card officials and Army criminal  investigators to identify other Army purchase card fraud cases that had  been or were being investigated.
We did not audit the Defense Finance and Accounting Service’s purchase  card payment process.  We also did not audit electronic data processing  controls used in processing purchase card transactions.  The installations  received paper monthly bills containing the charges for their purchases and  used manual processes for much of the period we audited, which reduced  the importance of electronic data processing controls.
We briefed DOD managers, including officials in DOD’s Purchase Card  Joint Program Management Office, major command purchase card  program coordinators, and purchase card program officials at the  installations we audited on the details of our review, including our  objectives, scope, and methodology and our findings.  Written comments  on a draft of this report were received from the Acting Director of the Army  Contracting Agency and have been reprinted in appendix III.  We  conducted our audit work from June 2001 through April 2002 in accordance  with generally accepted government auditing standards, and we performed  our investigative work in accordance with standards prescribed by the  President’s Council on Integrity and Efficiency, as adapted for GAO’s work.
section_title: Overview of Army Purchase Card Program
paragraphs: The Army’s purchase card program is part of the Governmentwide  Commercial Purchase Card Program, which was established to streamline  federal agency acquisition processes by providing a low-cost, efficient  vehicle for obtaining goods and services directly from vendors.  It was  intended to shorten the time between need and acquisition while providing  management with monthly reports and a thorough audit trail of all  purchases.  Under a General Services Administration blanket contract, the  Army has contracted with U.S. Bank for its purchase card services.  DOD  reported that it used purchase cards for about 10.7 million transactions, at  a cost of over $6.1 billion, during fiscal year 2001.  The Army’s reported  purchase card activity totaled about 4.4 million transactions, valued at  $2.4 billion, during fiscal year 2001.  This represented about 40 percent of  DOD’s activity for fiscal year 2001.  The Army’s purchase card transactions  were made with Visa cards issued to over 109,000 civilian and military  personnel.
DOD has mandated the use of the purchase card for all purchases at or  below $2,500, and it has authorized the use of the card to pay for larger  purchases.  DOD has experienced significant growth in the program since  its inception and now estimates that approximately 95 percent of its  micropurchase transactions in fiscal year 2001 were made by purchase  card.
subsections: section_title: Governmentwide Purchase Card Program Guidelines
paragraphs: The purchase card can be used for both micropurchases and payment of  other purchases.  Although most cardholders have limits of $2,500, some  have limits of $25,000 or higher.  The Federal Acquisition Regulation, Part  13, “Simplified Acquisition Procedures,” establishes criteria for using  purchase cards to place orders and make payments.  DOD and the Army  have supplements to this regulation that contain sections on simplified  acquisition procedures.  U.S. Treasury regulations govern purchase card  payment certification, processing, and disbursement.   DOD’s Purchase  Card Joint Program Management Office, which is in the Office of the  Assistant Secretary of the Army for Acquisition Logistics and Technology,  has issued departmentwide guidance related to the use of purchase cards.   However, each service has its own policies and procedures governing the  purchase card program.
section_title: Army Purchase Card Acquisition and Payment Processes
paragraphs: Within the Army, the overall management responsibility for the purchase  card program is under the cognizance of the agency program coordinator  within the Purchase Card Joint Program Management Office.  However, the  function of this agency program coordinator and the office is limited and  most of the major management responsibility lies with the contracting  offices in the major commands and contracting offices at the installations.   At the installation, the program coordinator is responsible for  administering and overseeing the purchase card program within his or her  designated span of control and serving as the communication link between  the Army unit and the purchase card-issuing bank.  The other key  personnel in the purchase card program are the approving officials and the  cardholders.  They are responsible for implementing internal controls to  ensure that transactions are appropriate.
section_title: Purchase Card Process
paragraphs: Figure 2 illustrates the general design of the purchase card processes for  the Army.  The overall process begins with the cardholder ordering or  purchasing a good or service.  It ends with payment of the bill by the  Defense Finance and Accounting System.
A purchase cardholder is the Army military service member or civilian  employee who has been issued a purchase card that bears the cardholder’s  name and the assigned account number.   Before the card is issued, the  cardholder is to receive training on purchase card policies and activities.
Each cardholder has an established daily and monthly credit limit and is  designated to make purchases at selected types of vendors.  The  cardholder is expected to safeguard the purchase card as if it were cash.
Purchase cardholders are delegated limited contracting officer-ordering  responsibilities, but they do not negotiate or manage contracts.   Cardholders use purchase cards to order goods and services for their units  as well as their customers.  Cardholders may pick up items ordered directly  from the vendor or request that items be shipped directly to receiving  locations or end users.
The approving official is responsible for providing reasonable assurance  that all purchases made by the cardholders within his or her cognizance  were appropriate and that the charges are accurate.  The approving official  is supposed to resolve all questionable purchases with the cardholder  before certifying the bill for payment. In the event an unauthorized  purchase is detected, the approving official is supposed to notify the  program coordinator and other appropriate personnel within the command  in accordance with the command procedures. After reviewing the monthly  statement, the approving official is to certify the monthly invoice and send  it to the Defense Finance and Accounting Service for payment.
The purchase card payment process begins with receipt of the monthly  purchase card billing statements from the bank.  Section 933 of the  National Defense Authorization Act for Fiscal Year 2000, Public Law 106-65,  requires DOD to issue regulations that ensure that purchase cardholders  and each official with authority to authorize expenditures charged to the  purchase card reconcile charges with receipts and other supporting  documentation.  Army memos and regulations provide that upon receipt of  the individual cardholder statement, the cardholder is to reconcile the  transactions appearing on the statement by verifying their accuracy to the  transactions appearing on the statement and notify the approving official in  writing of any discrepancies in the statement.
Before the credit card bill is paid the approving official is responsible for  (1) providing reasonable assurance that all purchases made by the  cardholders within his or her cognizance are appropriate and that the  charges are accurate and (2) the timely certification of the monthly billing  statement for payment by the Defense Finance and Accounting Service.   The approving official must review and certify for payment the monthly  billing statement, which is a summary invoice of all transactions of the  cardholders under the approving official’s purview.
Upon receipt of the certified monthly purchase card summary statement, a  Defense Finance and Accounting Service vendor payment clerk is to (1) review the statement and supporting documents to confirm that the  prompt-payment certification form has been properly completed and  (2) subject it to automated and manual validations.  The Defense Finance  and Accounting Service effectively serves as a payment processing service  and relies on the approving official certification of the monthly payment as  support to make the payment. The Defense Finance and Accounting  Service vendor payment system then batches all of the certified purchase  card payments for that day and generates a tape for a single payment to  U.S. Bank by electronic funds transfer.
section_title: Comments from the Department of Defense
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Staff making key contributions to this report were Wendy Ahmed,  William B. Bates, Bertram J. Berlin, James D. Berry, Jr., Johnny R. Bowen,  Francine M. DelVecchio, Ronald M. Haun, James P. Haynes,  Kenneth M. Hill, Fred Jimenez, Mitchell B. Karpman, Richard A. Larsen,  Christie M. Mackie, Judy K. Pagano, John J. Ryan, and Sidney H. Schwartz.
section_title: GAO’s Mission
paragraphs: The General Accounting Office, the investigative arm of Congress, exists to  support Congress in meeting its constitutional responsibilities and to help improve  the performance and accountability of the federal government for the American  people. GAO examines the use of public funds; evaluates federal programs and  policies; and provides analyses, recommendations, and other assistance to help  Congress make informed oversight, policy, and funding decisions. GAO’s  commitment to good government is reflected in its core values of accountability,  integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
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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