The General Services Administration (GSA) manages the federal government's charge card program, known as SmartPay. Through SmartPay, agencies are able to select charge card products and services from contracts that GSA has negotiated with major banks. The contracts allow agencies to select different types of charge cards, depending on their needs. SmartPay charge card options include purchase cards (for supplies and services), travel cards (for airline, hotel, and related expenses), and fleet cards (for fuel and supplies of government vehicles.) This report focuses on purchase cards. The use of purchase cards has expanded at a rapid rate since the mid-1990s. Spurred by legislative and regulatory reforms designed to increase purchase card use for small acquisitions, the dollar volume of federal government purchase card transactions grew from $527 million in FY1993, to $19.3 billion in FY2009. While the use of purchase cards has been credited with reducing administrative costs, audits of agency purchase card programs have found varying degrees of waste, fraud, and abuse. One of the most common risk factors cited by auditors is a weak internal control environment: many agencies have failed to implement adequate safeguards against card misuse, even as their purchase card programs grew. In response to these findings, Congress has held hearings and introduced legislation that would enhance the management and oversight of agency purchase card programs. In addition, the Office of Management and Budget (OMB) has issued guidance that requires agencies to implement internal controls that are designed to minimize the risk of purchase card abuse. This report begins by providing background on agency purchase card programs. It then discusses identified weaknesses in agency purchase card controls that have contributed to card misuse, and examines legislation introduced in the 111 th Congress that would address these weaknesses. The government's purchase card program has its origins in Executive Order 12352, issued by President Reagan in 1982. E.O. 12352 directed agencies to develop programs that simplified procedures and reduced the administrative costs of procurement, particularly with regard to "small" purchases ($25,000 or less). Several agencies subsequently participated in a pilot program that evaluated the use of a commercial credit card, called a purchase card, as an acquisition tool. At the time, even a routine order for widely available items, such as office supplies, typically required agency program staff to submit a written procurement request to a contracting officer, who reviewed it, obtained the necessary authorizing signatures, made the actual purchase, and processed the associated paperwork. To critics, this process was inefficient, especially for small purchases. Not only was it time-consuming for both program and procurement personnel, but it also prevented program offices from quickly filling immediate needs. Under the pilot program, non-procurement staff used purchase cards to conduct small-dollar transactions directly with local suppliers, thus bypassing procurement officers entirely. A report on the pilot program concluded that purchase cards could reduce administrative costs and improve delivery time, and in 1989 the Office of Management and Budget (OMB) tasked GSA with making purchase cards available government-wide. Participation in GSA's purchase card program was not mandatory, and card use did not initially grow as rapidly as some had expected. In 1993, however, a report issued by the National Performance Review (NPR) sparked a number of legislative and regulatory reforms intended to increase purchase card use. The NPR was a Clinton Administration initiative, headed by Vice President Al Gore, that sought to "reinvent" the federal government by making government operations both less expensive and more effective. One of the NPR's objectives was to identify opportunities to streamline a number of government-wide processes, including procurement. Drawing on input from experts in the public and private sectors, the initial report of the NPR recommended expanding the use of purchase cards across the government, a step it said would "lower costs and reduce bureaucracy in small purchases." In a separate report that focused solely on procurement, the NPR estimated that if half of all small acquisitions were made using purchase cards, the government would realize $180 million in savings annually. The report further recommended amending the Federal Acquisition Regulation (FAR)—the government's primary source of procurement guidance—to promote the use of purchase cards for small purchases. Building on the NPR's recommendations, Congress passed the Federal Acquisition Streamlining Act (FASA; P.L. 103-355 ) in 1994. FASA introduced several reforms that increased the use of purchase cards. Among these, Title IV of FASA established a simplified acquisition threshold of $100,000. Purchases at or below the threshold were exempted from the provisions of a number of procurement laws. This reform significantly reduced the administrative burden and procurement expertise needed to make small purchases. To further streamline procedures for the smallest acquisitions, Title IV also established a "micro-purchase" threshold of $2,500 (which was increased to $3,000 in 2006). FASA further exempted micro-purchases from sections of the Buy American Act and the Small Business Act, and they could be made without obtaining a competitive bid, if the cost was deemed reasonable by the cardholder. At the same time, the Clinton Administration took steps to increase the use of purchase cards. Citing the need to make agency procurement procedures "more consistent with recommendations of the National Performance Review," President Clinton issued Executive Order 12931 on October 13, 1994. E.O. 12931 directed agency heads to (1) expand purchase card use; and (2) delegate the micro-purchasing authority provided in FASA to program offices, which would enable them to make such purchases directly. E.O. 12931 also directed agency heads to streamline procurement policies and practices that were not mandated by statute, and to ensure that their agencies were maximizing their use of the new simplified acquisition procedures. In addition, the FAR was amended in 1994 to designate the purchase card as the "preferred method" for making micro-purchases, and to encourage agencies to use the card for purchases of greater dollar amounts. Card use increased sharply as agencies implemented these reforms. The dollar value of goods and services acquired with purchase cards increased from $527 million in FY1993 to $19.3 billion in FY2009. During that same time span, the number of cardholders nearly tripled to 270,000, and the number of purchase card transactions increased from 1.5 million to just under 21.8 million in FY2009. The flexibility of the purchase card may have contributed to its growth: it could be used for in-store purchases, which allowed the cardholder to take immediate possession of needed goods, or it could be used to place orders by phone or over the internet and have goods delivered. According to GSA, the use of purchase cards now saves the government $1.7 billion a year in administrative costs. The federal purchase card program is implemented by individual agencies, with the involvement of GSA and OMB. In broad terms, agencies establish and maintain their own programs, but they select purchase card services from contracts that GSA negotiates with selected banks, and their programs must conform to the government-wide guidance issued by OMB. Each agency is responsible for establishing its own purchase card program. The agency, within the framework of OMB guidance, establishes internal rules and regulations for purchase card use and management, decides which of its employees are to receive purchase cards, and handles billing and payment issues for agency purchase card accounts. Two levels of supervision generally exist within an agency's purchase card program. Individual cardholders are assigned to an Approving Official (AO). The AO is considered the "first line of defense" against card misuse, and agency policies often require the AO to ensure that all purchases comply with statutes, regulations, and agency policies. To that end, the AO may be responsible for authorizing cardholder purchases, either by approving purchases before they are made or by verifying their legitimacy through reviews of cardholder statements and supporting documentation, such as receipts. The AO may also be required to ensure that statements are reconciled and submitted to the billing office in a timely manner. Each agency also appoints an Agency Program Coordinator (APC) to serve as the agency's liaison to the bank and to GSA. At some agencies, each major component has an APC, one of whom is chosen to serve as the agency's liaison. The APCs are also usually responsible for agency-wide activities, such as developing internal program guidelines and procedures, sampling cardholder transactions to identify fraudulent or abusive purchases, setting up and deactivating accounts, and ensuring that officials and cardholders receive proper training. GSA's primary responsibility is to negotiate and administer contracts with card vendors on behalf of the government. In June 1998, agency purchase card programs began operating under GSA's SmartPay initiative. SmartPay permitted agencies to select a range of credit card products from five banks with which GSA had negotiated contracts. The SmartPay contracts established prices, terms, and conditions for credit card products and services from five banks. Purchase cards were established as centrally billed accounts under the contracts, which meant that agencies, and not individual cardholders, were billed for purchases. The contracts required agencies to make payment in full at the end of each billing cycle. New purchase card contracts—known collectively as SmartPay2—were negotiated between GSA and four banks in June 2007. Most agencies completed the transition to the new contracts by November 2008. SmartPay2 operates in largely the same manner as SmartPay, although some new products and services are available under the SmartPay2 contracts. OMB issues charge card management guidance that all agencies must follow. This guidance, located in Appendix B of OMB Circular A-123, establishes agencies' responsibilities for implementing their purchase, travel, and fleet card programs. Chapter 4 of Appendix B identifies the responsibilities of charge card managers in developing and implementing risk management controls, policies, and practices (often referred to collectively as "internal controls") that mitigate the potential for charge card misuse.