The General Services Administration (GSA) administers the federal government’s contracts in support of agencies’ purchase card programs. GSA contracts with commercial banks to issue purchase cards to federal employees to make official government purchases. The Bank of America issues purchase cards to USDA agencies, including the Forest Service. The purchase card, unless otherwise directed by regulation, is intended to be the primary purchasing method for purchases from vendors that accept purchase cards for payment. This payment method is intended to streamline procurement and payment procedures by reducing the number of procurement requests, purchase orders, and vendor payments issued. USDA’s purchase card program, including the Forest Service, also includes the use of convenience checks to pay vendors that do not accept purchase cards as payment. In fiscal year 2001, the Forest Service used purchase cards and convenience checks to make 1.1 million purchases totaling $320 million. The USDA procurement process is subject to the Federal Acquisition Regulation (FAR), the primary set of regulations governing acquisition of supplies and services by federal executive agencies with appropriated funds. The FAR also incorporates U. S. Department of Treasury’s Treasury Financial Manual (TFM) requirements for the governmentwide purchase card program. To implement and supplement these regulations, USDA issues the Agriculture Acquisition Regulations (AGAR), which prescribe USDA procurement policies and procedures. To implement and supplement the AGAR, the Forest Service issues directives, which contain Forest Service procurement policies and procedures. The Forest Service Handbook, FSH 6309.32 Part 4G13 Simplified Acquisition Procedures, provides specific guidance on procurement for the Forest Service, including the use of the government purchase card. The handbook contains policies and procedures that define the responsibilities of regional and local program coordinators for managing the purchase card program, including establishing cardholder data in the Purchase Card Management System (PCMS) and monitoring activities for the purchase card program. GSA and Bank of America also provide purchase card guidance, and GSA provides training to cardholders and program coordinators. For example, GSA’s Blueprint for Success: Purchase Card Oversight was prepared by a working group of agency program coordinators (APC) and provides general program guidance to APCs in performing their responsibilities. Beginning in fiscal year 2003, GSA made available to APCs a Web-based on- line training course covering such topics as APC responsibilities, reporting tools, and preventive measures to use in monitoring the purchase card program. According to USDA policy, APCs and local area program coordinators (LAPC) are appointed by the head of the agency contracting office. APCs are primarily responsible for managing the purchase card program in their agency. In addition, they establish agency-unique purchase card policies and procedures, provide training and guidance to LAPCs, and conduct agencywide oversight of the purchase card program. LAPCs are responsible for the day-to-day operations of the purchase card program within their respective location. In addition, LAPCs are responsible for updating cardholder information in PCMS; providing training to cardholders; and monitoring purchases and reporting fraud, waste, and abuse in accordance with agency procedures. Currently, there are 137 Forest Service LAPCs. In the Forest Service, cardholders are responsible for understanding and complying with purchasing policies and procedures; maintaining records and receipts of all purchases; validating their purchases against PCMS online data; disputing unauthorized charges, and obtaining all necessary prepurchase approvals for certain items, such as information technology (IT) costing $1,000 or more and other purchases costing $2,501 or more. For all other purchases costing $2,500 or less, the Forest Service cardholder is not required to obtain pre- or post-approval. During fiscal year 2001, approximately 14,000 of the approximately 30,000 employees, or over one-third of the Forest Service workforce, had purchase cards and most of them had a single purchase limit ranging from $2,500 to $25,000. The single transaction limit applies to both the purchase card and convenience checks issued to the cardholder. In 1995, the Forest Service’s use of the purchase card was limited to procurement personnel. However, with implementation of the President’s National Performance Review recommendations, the Forest Service reduced its procurement staff by 27 percent by 1998. At the same time, USDA put together a task force to look at the procurement process and make recommendations to improve it. The task force recommended increasing the use of purchase cards within USDA, including the Forest Service, to streamline the procurement process. USDA rapidly expanded purchase card use, authorizing operations personnel as well as procurement personnel to use them. USDA’s Office of Procurement and Property Management (OPPM) and the National Finance Center (NFC) developed PCMS in 1995 to reduce administrative costs and to allow agencies faster procurement of goods and services. The system allowed USDA, including the Forest Service, to track, reconcile, and monitor purchases made using the USDA purchase cards and convenience checks. PCMS is used by program coordinators to establish and manage cardholder accounts and by cardholders to reconcile and dispute their transactions from their desktop computers. In 1998, USDA switched card issuers and issued a task order under the GSA contract to Bank of America. The Bank of America purchase card system, developed under the GSA contract and called the Electronic Access Government Ledger System (EAGLS), includes various tools available to manage purchase card transactions. EAGLS is able to generate account activity reports, which identify trends such as purchases from merchants that would not be expected to be traditional suppliers or unusually high spending patterns; dispute reports, which identify cardholders with excessive disputes that may indicate cardholder misuse or fraudulent activity; and various other exception reports. Bank of America recommended that USDA also use EAGLS to manage its purchase card program. However, as PCMS was developed by USDA prior to its changeover to Bank of America, USDA officials chose to continue using PCMS because they believed that it offered functionality similar to EAGLS. Bank of America processes purchase card transaction data received from vendors using EAGLS, which records the data, then sends it electronically to NFC. NFC uploads the data into PCMS and processes payments. In August 2001, the IG issued a report on its review of PCMS, which identified several internal control weaknesses. The report noted the (1) lack of supervisory review and approval of cardholder transactions, (2) untimely validation of purchases against PCMS data, and (3) inadequate monitoring by agency management. In addition, a private firm was contracted to perform an Independent Verification and Validation (IV&V) assessment of PCMS, an assessment which also reported weaknesses in accounting process controls and internal controls over purchase card transactions. Both the IG and contractor reports noted that cardholders were authorized to buy a majority of items they wanted at any time. The IG made several recommendations, which included instituting a requirement that supervisors periodically review and approve their subordinates’ purchase card transactions to confirm they are appropriate, for official purposes, and validated against PCMS data in a timely manner; developing and implementing appropriate internal control procedures over the custody, control, accountability, and issuance operations for convenience checks to ensure they are not misused; and instructing USDA agencies to review their controls for ensuring they always properly record property purchases valued at $5,000 or more (called accountable purchases) in the Office of the Chief Financial Officer (OCFO)/NFC Property Management Information System. To obtain an understanding of the Forest Service’s purchase card and convenience check policies and procedures, and the related internal controls, we reviewed USDA and Forest Service procurement policy, USDA PCMS guidance, Forest Service regional purchase card program policy, U.S. Department of the Treasury purchase card program policy, and previous GAO reports, as well as reports issued by USDA’s IG and an independent contractor; and observed and documented purchase card procedures and conducted telephone interviews with USDA and Forest Service management and staff to identify key purchase card, convenience check, and accountable property policies, procedures, and initiatives. Because of known weaknesses in the design of internal controls at the Forest Service, we did not perform detailed tests to assess the effectiveness of these controls. However, we reviewed the internal control findings reported by the IG and the contractor in reports issued on the purchase card program and PCMS. In addition, we assessed the adequacy of the internal controls as designed, using our Standards for Internal Control in the Federal Government, Internal Control Management and Evaluation Tool, Guide for Evaluating and Testing Controls Over Sensitive Payments, and Executive Guide: Strategies to Manage Improper Payments. To determine whether the Forest Service’s fiscal year 2001 purchase card transactions were made in accordance with established policies and procedures, were reasonable, and reflected a legitimate government need, we selected transactions using three different methods. For each method of selection, we provided the Forest Service with the transactions selected and obtained and reviewed related supporting documentation. The three methods are as follows: Data mining. We performed data mining on Bank of America’s database of the Forest Service’s fiscal year 2001 purchase card and convenience check transactions for indicators of potential noncompliance with established policies and procedures. Specifically, we looked for transactions that exceeded cardholder or convenience check spending limits, split purchases or duplicate transactions, cardholders with multiple cards, transactions on purchase card accounts after the separation dates of the employees, and cardholders who wrote convenience checks to themselves or for cash. Except for potential split and duplicate transactions, we forwarded all selected transactions to the Forest Service APC to request supporting documentation from cardholders, which we used to assess whether in fact these were violations of policy. For split and duplicate transactions, we selected a statistical sample of transactions as discussed below. Statistical sampling. To test for split transactions, we first performed data mining to identify possible split transactions from the population of purchase card transactions paid from October 1, 2000, through September 30, 2001.