The General Services Administration (GSA) administers the federal government’s credit card program. GSA contracts with commercial banks to issue credit cards to federal employees to make official government purchases. FAA’s purchase cards are issued by Bank of America. The FAA purchase card, unless otherwise prohibited, is intended to be the primary purchasing method when vendors accept purchase cards as payment. This payment method is intended to streamline procurement and payment procedures and reduce administrative burden by reducing the number of procurement requests, purchase orders, and vendor payments issued. FAA’s purchase card program also includes the use of convenience checks to pay vendors that do not accept credit cards. In fiscal year 2001, FAA made over 364,000 purchases using purchase cards and convenience checks totaling $151 million. This reflects a significant increase over the prior fiscal year, when FAA made a total of 271,000 purchase card and convenience check purchases (a 34 percent increase) totaling $126 million (a 20 percent increase). The Department of Transportation and Related Agencies Appropriations Act of 1996 exempted FAA from the Federal Acquisition Regulation and other provisions of acquisition law, and directed the FAA Administrator to develop and implement FAA’s own acquisition system. The resulting system, called the FAA Acquisition Management System (AMS), took effect April 1, 1996. AMS establishes policy for all aspects of the acquisition life cycle. It was intended to simplify acquisition management into a system providing more timely and cost-effective acquisition of equipment and materials. Although FAA is exempted from certain federal acquisition requirements, many of these requirements have been incorporated into FAA’s policies. FAA also established the FAA Acquisition System Toolset that supplements AMS by providing additional acquisition policy and guidance, such as the Commercial and Simplified Purchase Method guidance, which provides guidance on purchase cards and convenience checks. Within this guidance, FAA delegates to each acquisition office within a region or center, or within headquarters the responsibility of managing its own purchase card program and establishing its own internal processes for issuing purchase cards and monitoring the program. In addition, FAA’s internal Purchase Card/Check User Guide assists cardholders and approving officials in carrying out their responsibilities. GSA and Bank of America also provide purchase card guidance and GSA provides training that is available to cardholders, approving officials, and program coordinators. For example, GSA’s Blueprint For Success: Purchase Card Oversight was prepared by a working group of agency program coordinators (APC) and provides general program guidance to APCs in performing their responsibilities. Beginning in fiscal year 2003, GSA made available to APCs a Web-based on-line training course covering such topics as APC responsibilities, reporting tools, and preventive measures to use in monitoring the purchase card program. APCs are generally responsible for setting up and maintaining all accounts, developing internal program guidelines and procedures, ensuring that cardholders and approving officials receive proper training, and monitoring for fraud and misuse. Each agency must designate an APC to function as the agency’s primary liaison to the contract bank and to GSA. FAA’s operating guidance also requires the chief of the contracting office within each region or center and within headquarters to delegate a person or persons to act as the APC for that location. As a result, FAA has a different APC at each of its 12 major locations, with the headquarters APC designated agencywide responsibility for the program. Cardholders are responsible for understanding and complying with purchasing policies and procedures, maintaining records and receipts of all purchases, reconciling their purchases to their monthly statements, and preparing and submitting required property management forms for assets purchased. Each cardholder’s designated approving official—which is normally the next level supervisor—is responsible for reviewing the cardholder’s transactions to assure they are properly documented, comply with purchasing policies, and are necessary for accomplishing the mission of the agency. Approving officials are also responsible for reporting fraudulent or improper use of the card. As of January 2002, 8,534 out of 51,062 (17 percent) FAA employees had commercial purchase cards, most of which had a single purchase limit between $2,500 and $10,000 and a monthly purchase limit between $5,000 and $120,000. Each convenience check issued is not to exceed $2,500. Other key roles affecting purchases include the accounting certification officer (also known as the funds certification officer), and the property custodian. FAA’s procurement guidance specifies that, prior to purchase, the program office funds certification officer shall determine whether the expenditure is authorized by the appropriation and provide either a written certification that adequate funds are available or condition the purchase upon availability of funds. Property custodians are responsible for reviewing and processing source documents for the receipt, transfer, or disposal of accountable property in their assigned custodial areas, conducting physical inventories, and ensuring that property is adequately safeguarded. In September 2001, DOT’s OIG issued a report on the results of its audit of DOT’s purchase card program. The OIG examined a total of 785 purchase card and convenience check transactions totaling $1.2 million made by FAA, the U.S. Coast Guard, and seven other DOT operating administrations. Based on this limited sample, the OIG reported that generally, purchases were reasonable, valid, and received. However, it also reported that (1) approving officials were not verifying that purchases were authorized, (2) cardholders were splitting single purchases into multiple transactions to avoid purchase card limits, and (3) FAA was not conducting periodic follow-up reviews of purchase card usage. The OIG also found instances of purchase card fraud and violations of DOT policies and internal control procedures. These results were similar to those found during the OIG’s previous review of DOT’s purchase card program. In November 1997, the OIG reported that approving officials were not performing required reviews of documentation, cardholders were splitting purchases, and periodic follow-up reviews were not being conducted. It recommended at that time that DOT reemphasize the requirement for approving officials to review supporting documentation for cardholder purchases and provide guidance for conducting periodic follow-up reviews. The OIG indicated in these reports that DOT and FAA actions taken and planned to address the recommendations sufficiently addressed the recommendations made. However, based on our findings the corrective actions taken were not fully effective. In May 2002, we issued a report on the results of our review of purchasing controls and activities within the Airway Facilities Division at FAA’s Alaskan Region. This was the only unit in FAA to implement a pilot program, called the Corporate Maintenance Philosophy, from 1997 to 2001. Due to controversy surrounding this program, including allegations of inappropriate spending, we reviewed this unit’s internal controls and selected expenditures. With respect to its purchase card program, we found inadequacies in the segregation of purchasing duties, the supervisory review and approval process, and the tracking of accountable property and award inventories; improper purchases, such as purchases that were split to circumvent purchase limits, restricted items that were purchased without required approvals, and items that were not bought from required vendors and lacked the necessary waivers to do so; purchases of expensive items such as flat panel computer monitors costing over $3,000 each and PDAs ranging from $300 to over $500 each; and a decentralized operating environment and a lack of training that contributed to these weaknesses. Our report resulted in 18 recommendations to FAA to address these issues. In its response to this report, FAA agreed with the recommendations and indicated it had initiated action to address all of the issues. The scope of our review included FAA headquarters, FAA’s two centers, and eight of its nine regional offices. We conducted site visits to six of these locations. To obtain an understanding of FAA’s purchase card and convenience check policies and procedures, the related internal controls, and policies and controls over assets purchased, we reviewed FAA’s AMS policy, procurement guidance, purchase card/check user guide, property management policies, and local operating procedures over the purchase card program, and conducted walkthroughs and structured telephone interviews with FAA management and staff to identify key purchase card, convenience check, and accountable property policies, procedures, and initiatives. To assess the adequacy of internal controls, we used our Standards for Internal Control in the Federal Government, Internal Control Management and Evaluation Tool, Guide for Evaluating and Testing Controls Over Sensitive Payments, and Strategies to Manage Improper Payments. To test internal controls over transactions and determine whether expenditures were made in compliance with policies and procedures, were reasonable, and had a valid government need, we selected transactions using three different methods. For each method of selection, we provided FAA with the transactions selected and obtained and reviewed related supporting documentation. The three methods are as follows. Data mining. We performed data mining on Bank of America’s database of FAA’s fiscal year 2001 purchase card and convenience check transactions for indicators of potential noncompliance with established policies and procedures. Specifically, we looked for purchases that exceeded cardholder or convenience check spending limits, split purchases, cardholders with multiple purchase cards, former employees who had active purchase card accounts after their separation dates, cardholders who were payees on convenience checks, and cash advances. We forwarded the results of all transactions that met specific criteria to the cognizant APCs for their responses and related documentation, which we used to assess whether in fact these were violations of policy. Statistical sampling. We selected a stratified random (statistical) sample of 333 transactions totaling $4.2 million from the population of transactions paid from October 1, 2000, through September 30, 2001, to test specific control activities, such as segregation of duties, evidence of approving official review and approval, and adequacy of supporting documentation; whether the purchases complied with purchasing policies; and whether the purchases appeared reasonable and had a valid government need. Results from the statistical sample were projected to the population of FAA purchase card and convenience check transactions for fiscal year 2001. Nonstatistical sampling.