[Senate Hearing 108-556]
[From the U.S. Government Publishing Office]
S. Hrg. 108-556
GOVERNMENT PURCHASE CARDS: SMARTER USE
CAN SAVE TAXPAYERS HUNDREDS OF
MILLIONS OF DOLLARS
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
APRIL 28, 2004
__________
Printed for the use of the Committee on Governmental Affairs
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94-483 WASHINGTON : 2004
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Deleware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Michael L. Stern, Deputy Staff Director for Investigations
Don Bumgardner, Detailee, U.S. General Accounting Office
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Pat Hart, Minority Professional Staff Member
Amy B. Newhouse, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Collins.............................................. 1
WITNESSES
Wednesday, April 28, 2004
Gregory D. Kutz, Director, Financial Management and Assurance,
U.S. General Accounting Office................................. 4
Colonel William Kelley, Program Director, Data Mining Division,
Office of the Inspector General, U.S. Department of Defense,
accompanied by David Steensma, Assistant Inspector General,
Contract Management Directorate................................ 6
Neal Fox, Assistant Commissioner for Commercial Acquisition, U.S.
General Services Administration................................ 9
Alphabetical List of Witnesses
Fox, Neal:
Testimony.................................................... 9
Prepared statement........................................... 70
Kelley, Colonel William:
Testimony.................................................... 6
Prepared statement written jointly with David K. Steensma.... 52
Kutz, Gregory D.:
Testimony.................................................... 4
Prepared statement written jointly with David E. Cooper, and
John J. Ryan............................................... 23
APPENDIX
Chart entitled ``Fiscal Year 2002 Purchases From Frequently Used
Vendors (in millions)''........................................ 49
Chart entitled ``Abusive Purchase Card Acquisitions''............ 50
Chart entitled ``Amount Spent in Fiscal Year 2002 with 5
Frequently Used Vendors (in millions)''........................ 51
Senator Russ Feingold, a U.S. Senator from the State of
Wisconsin, prepared statement.................................. 75
Richard J. Griffin, Inspector General, Office of Inspector
General (OIG), prepared statement.............................. 77
Hon. Linda M. Springer, Controller, Office of Federal Financial
Management, Office of Management and Budget, prepared statement 82
``Acquisition, Summary Report on the Joint Review of Selected DoD
Purchase Card Transactions'' (D-2003-109), Department of
Defense, Office of the Inspector General, June 27, 2003........ 85
``Contract Management, Agencies Can Achieve Significant Savings
on Purchase Card Buys,'' GAO-04-430, March 2004................ 109
GOVERNMENT PURCHASE CARDS: SMARTER USE CAN SAVE TAXPAYERS HUNDREDS OF
MILLIONS OF DOLLARS
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WEDNESDAY, APRIL 28, 2004
U.S. Senate,
Committee on Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:02 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Committee, presiding.
Present: Senator Collins.
OPENING STATEMENT OF CHAIRMAN COLLINS
Chairman Collins. The Committee will come to order.
Good morning. Today the Committee on Governmental Affairs
will explore the Federal Government's use of purchase cards,
which are commercial charge cards used by Federal agencies to
buy billions of dollars worth of goods and services each year.
We will hear the results of the General Accounting Office's
investigation into waste, fraud, and abuse in the purchase card
program.
The American people have the right to expect the Federal
Government to spend their tax dollars carefully and wisely.
While this is true at all times, it is never more so than today
when the government faces enormous fiscal pressures and a
growing budget deficit. This Committee has an important mandate
to help safeguard those tax dollars from waste, fraud, and
abuse. To meet this mandate, the Committee has launched an
initiative to root out government waste. Today's hearing is
part of that overall effort and will focus on wasteful,
inefficient, and in some cases, fraudulent transactions using
purchase cards.
Purchase cards were first introduced by the General
Services Administration on a governmentwide basis in 1989.
These cards are primarily used for making routine purchases
such as office supplies, computers and copying machines.
Purchase cards are similar to the personal credit cards that we
all carry, but with one important difference. The taxpayer pays
the bill.
Although the card is only supposed to be used for official
purposes, the Federal Government is responsible for paying all
charges by authorized cardholders regardless of what is
purchased. While legitimate purchases are usually quite small,
they nevertheless add up to big money. Purchase card use has
soared during the past decade, from less than $1 billion in
fiscal year 1994 to more than $16 billion in fiscal year 2003.
There are more than 134,000 purchase cardholders in the
Department of Defense alone.
This explosive growth presents both challenges and
opportunities. While there are many benefits to the purchase
cards such as expediting purchases, cutting down on red tape
and paperwork, and saving administrative costs, the General
Accounting Office and the Inspectors General have reported that
inadequate controls over purchase cards leave agencies
vulnerable to waste, fraud, and abuse.
We will hear testimony this morning describing how smarter
use of purchase cards could save taxpayers hundreds of millions
of dollars. A GAO report that I requested, along with Senator
Russ Feingold and Congresswoman Shakowsky, which is being
released at this hearing, highlights several wasteful
purchasing practices.
The GAO concludes that many agency cardholders fail to
obtain readily available discounts on purchase card buys. In
too many cases, purchase cardholders are buying goods and
services from vendors that have already agreed to provide
government discounts through the GSA schedule, yet cardholders
often lack the information and the training needed to obtain
these discounted prices. As a result, the GAO found numerous
instances of cardholders paying significantly more for items
for which discounts had already been negotiated.
In light of the fact that conscientious shoppers often can
obtain savings beyond the scheduled discounts, these findings
indicate that some Federal agencies are substantially
overpaying for routine supplies.
Let me give you an example. An analysis of the Department
of Interior's purchase card buys of ink cartridges found that
most of the time the cardholder paid more than the government
schedule price to which the vendors had already agreed. One
vendor, for example, had agreed to a schedule price of $24.99
for a particular ink cartridge. Yet of the 791 separate
purchases of this cartridge, only two were at or below that
price. Some purchasers paid $34.99, or about 40 percent more
for the same item. That may sound like a small item and a small
amount, but when you start multiplying that across Federal
agencies it quickly translates into significant money.
In conducting its investigation, the General Accounting
Office examined six agencies that together account for more
than 85 percent of all government purchase card transactions.
If the six agencies reviewed in the study negotiated discounts
of just 10 percent from major vendors, and if the agency
employees had used those discounts, the GAO estimates annual
savings of approximately $300 million. Over 10 years, that is
$3 billion. Since we are in the Dirksen Senate Office Building
I will remind everyone of Senator Dirksen's famous statement
that when you're talking about a billion here, a billion there,
pretty soon you are talking about real money.
The GAO also found that agencies should be making greater
efforts to collect and analyze data on purchase card
transactions. This would help agencies to eliminate waste and
to expose fraud and abuse. In addition to testimony from the
GAO, we will hear today from an official from the Department of
Defense's Inspector General's Office who will report on his
very interesting efforts to use data mining to identify
inappropriate purchase card transactions including outright
fraud.
In one case, an employee used a purchase card to charge
$1.7 million in fraudulent purchases from a fictitious company
set up by her brother. These fraudulent charges took place over
a 3-year period and they were not detected by the officials
responsible for reviewing the bills. It was the data mining
technique that identified these fraudulent charges.
Examples like this one demonstrate the need for better
controls over the purchase card program and further demonstrate
why it is vital to give agencies the tools that they need to
control fraud and abuse. The testimony from the Inspector
General's Office will illustrate how data can be used as a
management tool to detect fraudulent and improper transactions
as well as to ensure that agencies get the very best prices on
their many purchases.
We will also hear from Neal Fox of the General Services
Administration which has overall responsibility for the
purchase card program. We must assure taxpayers that the
Federal Government is shopping carefully, wisely, and honestly.
That is why Senator Feingold and I today will introduce the
Purchase Card Waste Elimination Act of 2004. Our legislation
requires the Office of Management and Budget to direct agencies
to better train cardholders and to more effectively scrutinize
their purchases.
This legislation also instructs the GSA to increase its
efforts to secure discounts from vendors and to provide better
tools to agencies to control wasteful spending. For example,
one common sense reform that could be implemented is to make
sure that those discounts come up at the point-of-sale. That
way even if the individual cardholder were not aware of the
discount, the discount would apply anyway. That is the kind of
practical approach that literally could save hundreds of
millions of dollars.
I welcome our witnesses today and I look forward to hearing
their testimony.
First let me introduce our first witness today, Greg Kutz,
who is the Director of Financial Management and Assurance in
the General Accounting Office. He is responsible for financial
management issues related to the Department of Defense, NASA,
State and USAID. I believe that he is accompanied by other GAO
officials, including David Cooper and Special Agent John Ryan.
We have worked with this GAO team before on numerous
investigations and they do a great job and I am very pleased to
have them with us today.
Our second witness will be Colonel William Kelley. Colonel
Kelley returned to active duty in January 2002 to support
Operation Noble Eagle. He is serving both as the senior
military officer in the Office of the Inspector General at the
Department of Defense as well as the program director for the
data mining division. He is accompanied by David Steensma, who
is the Assistant Inspector General of the Contract Management
Directorate. Mr. Steensma is responsible for directing audits
and managing operations for issues that cover acquisition,
logistics, contracts, charge cards, military construction and
environmental policies. I do not think you have nearly enough
to do. I think we could add just a few more things to that
list. [Laughter.]
Our final witness today will be Neal Fox, who is the
Assistant Commissioner for Commercial Acquisition of the U.S.
General Services Administration. Mr. Fox is responsible for
managing commercial service and product initiatives under the
$16 billion purchase card program.
I very much appreciate all of you being here today and I
look forward to your opening statements. Mr. Kutz, we are going
to start with you. Thank you.
TESTIMONY OF GREGORY D. KUTZ,\1\ DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE
Mr. Kutz. Chairman Collins, thank you for the opportunity
to discuss the purchase card. We support the use of a well-
managed purchase card in the Federal Government. However,
improved management oversight and control is necessary for the
Federal Government to fully realize the benefits of the card.
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\1\ The joint prepared statement of Gregory D. Kutz, David E.
Cooper, and John J. Ryan appears in the Appendix on page 23.
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My testimony has three parts. First, use of the purchase
card in the Federal Government. Second, leveraging the
government's purchasing power. And third, the status of fraud,
waste, and abuse.
First, I have a Navy purchase card in my hand that is also
shown on the poster board here. As you can see, it looks just
like a normal credit card. The Navy card can generally be used
wherever Mastercard is accepted. Usage of purchase card such as
this one in the government grew, as you mentioned, from $1
billion in 1994 to over $16 billion in 2003. Use of the
purchase card has fundamentally changed the way that agencies
make small, routine purchases. In fiscal year 2003 agencies
used the purchase card for over 26 million transactions.
Agencies estimate that hundreds of millions of dollars can be
saved when using the purchase card through reduced transaction
processing costs.
Second, as noted in our report that is released today,
increased focus on negotiating discounts could result in
hundreds of millions of dollars in annual savings. The six
agencies that we studied, as you mentioned, account for over 85
percent of the Federal Government's purchase card activity. As
shown on this poster board, these six agencies do substantial
business with major vendors, those with over $1 million of
annual purchase card activity. We found that agencies generally
have not taken effective action to obtain favorable prices from
major vendors such as these.
In fact our work has shown that cardholders often pay
retail prices when using the purchase card. For example, we
found that cardholders paid 12 to 20 percent more than GSA
schedule prices for office supplies, cell phones, and computer
equipment. Our work indicates that if these six agencies
obtained discounts of only 10 percent from the major vendors
that up to $300 million a year could be saved.
The following examples of annual savings through discounts
clearly demonstrate the potential for these savings including--
Veterans Affairs estimated $8.5 million for medical and
surgical supplies, USDA's $1.8 million for office supplies, and
the Air Mobility Command's estimated $13 million through
schedule prices and discounts from local merchants.
Chairman Collins, we believe that your legislation is
consistent with our recommendations and has the potential to
save the government hundreds of millions of dollars annually.
Third, although there has been significant focus on
fraudulent and abusive usage of the purchase card challenges
remain. In the early years of the purchase card program
management focused on expanding the use of the card. However,
similar attention was not paid to putting internal controls in
place. As a result, at DOD and four civilian agencies we found
significant breakdowns in internal controls and fraudulent,
improper, and abusive usage of the purchase card.
We used data mining, forensic auditing, and investigative
follow up to identify these purchases. We identified cardholder
fraud, vendor fraud, and the fraudulent usage of compromised
purchase card accounts. Purchase cards were used for items such
as adult entertainment, jewelry, cruises, and designer leather
goods.\1\ The poster board shows several other specific
examples of improper and abusive purchases including Bose wave
radios and headphones to listen to music, leather bomber
jackets purchased at the sky mall, personal luggage for
frequent travelers, and taxidermy services for the mounting of
a road kill mule deer.
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\1\ The chart entitled ``Abusive Purchase Card Acquisitions''
appears in the Appendix on page 50.
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We also found ineffective inventory control over the
purchases of sensitive and pilferable property. Examples of
lost, missing, or stolen property include digital cameras,
laptop computers, Palm Pilots, and cell phones. The key causes
of the problems we identified were lack of management oversight
and accountability, a proliferation of the number of purchase
cards, and the ineffective design and implementation of
internal controls.
For example, like most Americans, cardholders are expected
to reconcile their receipts to the monthly credit card bill.
However, oftentimes purchase cards were simply rubber stamped
for approval with no review of the cardholder or the approving
official.
Significant steps have been taken at agencies such as DOD
to improve the management, oversight, and internal controls
over the purchase card. For example, agencies recognized that
the proliferation of purchase cards was a key cause of the
problems. As a result, the number of government purchase cards
has been reduced from a peak of 500,000 to about 315,000 today.
DOD alone eliminated 100,000 purchase cards.
DOD has also taken actions to address 109 recommendations
that we made to improve their program.
Members of Congress and taxpayers may wonder what happened
to cardholders that misused the government purchase cards.
Unfortunately, the answer is not much. The items on the poster
board and other items such as food, clothing, toys and alcohol
were paid for by taxpayers. We believe that the use of Federal
funds for personal items is not appropriate. The lack of
consequences for misuse of government money does not create an
effective control environment.
In conclusion, the purchase card has improved the
efficiency of the Federal Government's operations. Positive
actions have also been taken to improve internal controls.
However, continued management focus and congressional oversight
is needed to ensure that fraud and abuse are minimized.
Finally, to achieve the full benefits of the purchase card more
attention is needed to the prices paid.
With the serious fiscal challenges facing our Nation, it is
critical that the government realize the hundreds of millions
of dollars of potential savings discussed today.
Chairman Collins, this ends my testimony. Special Agent
Ryan and Mr. Cooper and I would be happy to answer your
questions.
Chairman Collins. Thank you. Colonel Kelley.
TESTIMONY OF COLONEL WILLIAM KELLEY,\1\ PROGRAM DIRECTOR, DATA
MINING DIVISION, OFFICE OF THE INSPECTOR GENERAL, U.S.
DEPARTMENT OF DEFENSE
Colonel Kelley. Thank you very much for giving us the
opportunity, for myself and Dave Steensma, to talk to you today
about the purchase cards.
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\1\ The joint prepared statement of Colonel Kelley and David K.
Steensma with attachments appears in the Appendix on page 52.
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Although the Department has taken aggressive action like
Greg Kutz has talked about, we have some additional problems in
better implementation and oversight and management controls at
the activity level. Every dollar we spend that is not prudently
used could result in us not having dollars available in our
global war on terrorism efforts. In fiscal year 2003, we in DOD
did almost 11 million transactions at a value of $7.2 billion.
Every working day, DOD employees make about 41,000 purchases
valued at about $27 million. A day's worth of purchase receipts
for these transactions could make a pile that stands over 13
feet tall.
We need to build processes that pick the most important
receipts from that pile to review because we cannot review them
all. We do not have the resources. Management oversight we
think could include processes such as restacking those receipts
in an automated concept so that we could array them based on
risk, for example. That risk could be identifying receipts that
are for services or items that are potentially inappropriate,
or trying to decide if we are making the best buys.
Today we will present the results very briefly on three of
the audit reports that we have issued recently, and we will
discuss further action to promote our data mining and to
partner with other activities within the government to prevent
fraud, waste and abuse. Finally, we will present information
that shows improvements in management of the purchase card
program.
The Office of Inspector General and auditors led a joint
review. You have seen the report I believe, ma'am. We reviewed
1,357 cardholders that we identified using business rules and
fraud indicators. Based on that review we determined that 182
of those cardholders either inappropriately used the card or
fraudulently spent about $5 million of our scarce resources.
Further, 41 of those cardholders were referred for criminal
investigations.
One example was a cardholder used the purchase card to make
59 fraudulent purchases totaling more than $130,000. The
purchases included two automobiles, a motorcycle, cosmetic
surgical enhancements. Currently, that cardholder is in prison.
In a review of Washington headquarters services, as was
discussed, the lack of management controls and oversight led to
$1.7 million in fraudulent purchases and at least $201,000 of
additional purchases that were abusive or inappropriate. The
director, a GS-15, and her deputy and her brother, who was the
vendor, were convicted of the theft. We actually were buying
paper for the bills. That is all we were getting from that
vendor was the bills and that is what we were paying for. The
director and the vendor are in prison. They received 3 and 4
years' worth of incarceration respectively and were required to
make restitution.
Cardholders also circumvented required contracting
procedures and did not receive the best value for supplies and
services. For example, we paid $36,000 for 9,000 American flag
decals. They could have been bought for $3,000. The director of
the headquarters services agreed to implement any corrective
actions and improve management controls.
Controls over purchase cards were also ignored by senior
management at the information technology center in New Orleans,
Louisiana. Approximately $1 million of purchases were
questionable because there was no obvious or documented mission
need for the items purchased. For example, they bought 10 pairs
of binoculars, six bicycles and three global positioning
systems without a need. Further, cardholders acquired computer
equipment and office supplies and did not use available
discounts and reduced prices.
In this case, the former director, his former deputy did
not set the tone of accountability. The Navy agreed to the
implementation of many of the recommended corrective actions
and the four senior officials involved in this case have all
retired.
In all of these examples the first line of oversight
official either did not perform their duties or were involved
in the inappropriate acts themselves. After this statement we
can discuss ways management could use data mining to identify
these kinds of activities at higher risk.
The Department is actively working to maintain a culture
that promotes a positive and supportive attitude towards active
management controls of purchase cards and accountability.
Positive trends include, as was previously mentioned, the
reductions in the number of purchase cards. We have been able
in the Department to reduce them by 47 percent.
The Department has developed new training for all
cardholders and billing officials to improve their
understanding of the purchase card program management
responsibilities and needed management controls. In addition,
government charge card disciplinary guidelines for both
military and civilians have been issued.
Further, the General Accounting Office noted the Department
has made strong improvements over controls in the purchase card
program, and we have initiated actions on almost all of the 109
recommendations they have made.
In January 2003, Mr. Steensma established the data mining
division that I am currently the program director for after we
ran the initial testing. We took 12 personnel from our other
audit activities to pioneer the data mining techniques in the
Department to identify previously unknown relationships or
patterns among charge card data. Our intent is to pass these
techniques on to DOD managers, the Department's managers, to
assist them in their oversight of the charge card program.
The Office of the Inspector General has been the focal
point in the Department for charge card data mining, audits and
investigations. Additionally, we have provided a forum for
management to identify issues for audits and investigations.
This increasing communications resulted in a positive approach
to improve the purchase card program and is also to enhance our
management relations with them. Additionally, the data mining
division provided assistance and lessons learned to 12 other
governmental agencies that are not part of the Department.
The data mining division continues to mine data for
purchase, travel, and aviation cards. Since March the division
has been working with the Navy to develop a pilot program for
purchase card transaction oversight. In the pilot program the
data mining division identifies high-risk transactions that are
sent to the Navy pilot program via management who sends them
via E-mail to the official who is responsible in the
cardholder's chain of command requesting additional information
for assessing the appropriateness of the purchase card
transaction. The management official's response to the
questions regarding the transactions populates a database and
it gives us a way to better manage the program by using that
additional data that we have requested.
The DOD program management office plans to implement some
of these procedures and techniques used by the Navy pilot on a
DOD-wide basis.
The concept of using data mining as a continuous monitoring
system is depicted graphically to my right.\1\ The biggest
issue with that chart, and we can discuss it later, is the
Department will have to resolve the issue of how bank data will
be obtained and stored within the Department. That is probably
one of the more difficult tasks.
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\1\ The graph referred to appears in the Appendix on page 67.
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We support the conclusions of the General Accounting Office
report that was released today. We look forward to using data
mining techniques and working with the Department's acquisition
community to creatively reduce cost related to prices on
purchase card buys. We support the GAO recommendations in
obtaining more point-of-sales discounts.
Other areas to improve that you might want to explore
include the following: There needs to be better training
developed and provided to all cardholders on how to be more
efficient and effective buyers, and obtain best price and value
for the government. There should be a central repository for
all charge card type data received from the banks. This will
reduce the cost of the banks and to each of the agencies for
developing their own solution set for storage and access to the
data. All transactions should flow through the same process.
All data elements would be standardized and business rules for
data mining could be shared.
The data in the central repository could be mined to
identify spending trends and utilization of vendors. This will
help identify which vendors that we need to do a point-of-sale
or some type of a discount with. There should also be
continuous research on data mining tools and techniques, how to
best educate and create smarter purchase buyers, how to improve
and streamline management of the charge cards, and prevent
fraud, waste, and abuse, and strategic buying of goods and
services. A center of excellence for use of cards could be
established to perform these previously mentioned duties.
The digital data available from the banks on the use of
charge cards coupled with the purchasing power of the Federal
Government has created an historic opportunity for the
government to transform itself and its buying habits. We need
an organization to take the lead in this area because we do not
want vendors to have to negotiate discount agreements with
numerous Federal agencies, and numerous agencies developing
similar training to create smarter buyers. We think we ought to
couple all of this together.
In conclusion, we think the Department has made great
strides in improving the program. There is still more work to
be done and we thank you for giving us the opportunity to talk
to you.
Chairman Collins. Thank you. Mr. Steensma.
Mr. Steensma. The Colonel already spoke to my remarks.
Chairman Collins. OK. Thank you. Mr. Fox.
TESTIMONY OF NEAL I. FOX,\1\ ASSISTANT COMMISSIONER, OFFICE OF
COMMERCIAL ACQUISITION, FEDERAL SUPPLY SERVICE, U.S. GENERAL
SERVICES ADMINISTRATION
Mr. Fox. Good morning, Senator Collins. I am pleased to be
here on behalf of the Administrator of General Services to
discuss the government-wide charge card program, commonly
referred to as GSA SmartPay, which issues purchase, travel, and
fleet cards to Federal agencies, organizations, and Native
American tribes. Today, I will discuss the purchase card
program.
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\1\ The prepared statement of Mr. Fox appears in the Appendix on
page 70.
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GSA has been managing the purchase card program since 1989.
The most recent purchase card contracts were awarded in 1998 to
five banks as part of the GSA SmartPay program. The purchase
card has proven to be the most flexible purchasing tool
available to the U.S. Government. Agencies use the purchase
card to acquire mission-related goods and services. The card
has proven especially vital in enabling rapid response to and
recovering from disasters and other emergency situations.
Purchase card use has evolved from a mid-1990s best
practice to a common practice today, and the annual savings to
the Federal taxpayer are tremendous, approximately $1.4 billion
in fiscal year 2003 transaction costs saved. Purchase card
usage has reduced process cost, increased efficiency, and
reduced the time it takes to obtain goods and services. With
annual card purchases of approximately $16.3 billion, the
purchase card is the primary payment and procurement method for
purchases under $2,500, often referred to as micro purchases.
Additionally, the purchase card is now emerging as a valuable
contract payment mechanism for transactions above $2,500.
In the mid-1990s, the focus of government purchase card
usage was to cut through red tape and streamline micro
purchases. More recently, the focus of the program has shifted
to provide mechanisms for improved management and control and
oversight.
According to Professor Richard Palmer of Eastern Illinois
University, considered to be the leading academician of
purchase card studies, the percentage of misuse is lower in
Federal agencies than among any other institution, public or
private. His survey indicates that purchase card misuse
accounts for only 0.017--that is 17-one-thousandths of a
percent--of purchase card spending at State and Federal
agencies, which is equivalent to $170 of misuse for every $1
million of purchase card spending. This is lower than any other
institution, including corporations, universities, and city and
county governments.
Building on our successes to date, GSA and its customer
agencies are taking further actions to significantly reduce
program risk, such as decreasing the government's financial
exposure through closing unused or infrequently used card
accounts. Fewer cards equate to less risk. As previously
mentioned, the number of open card accounts has been cut in
half over the last 3 years.
Realigning the span of control between purchase card
holders and approving officials, which at 23 major departments
and agencies has dropped significantly, and averages one
approving official for every 3.5 card holders.
And taking appropriate action against employees whenever
fraud or misuse are detected, including training or discipline,
based upon the nature of the misuse.
At GSA, we are now turning our attention to the next round
of priorities for the purchase card program, including those
mentioned in the recent GAO draft audit report. GSA agrees with
the draft report's findings and recommendations. The report
provided an objective analysis of the savings that can be
obtained by agencies through the use of GSA schedules, combined
with the GSA SmartPay program.
I would now like to discuss the specific recommendations
GAO made to GSA and our actions supporting those
recommendations. The report concluded that agencies have just
begun to tap the potential savings of leveraging the purchase
card volume for better pricing and states that hundreds of
millions of dollars could be realized annually if agencies took
advantage of their buying power. We agree that obtaining more
detailed purchase card data and offering customers
opportunities to leverage spending through GSA schedules, our
online tools ``GSA Advantage'' and ``e-Buy,'' and other
procurement and education resources will further enhance the
government's ability to obtain more favorable pricing.
GAO recommended that GSA work with the banks to obtain more
detailed purchase spend data, to include information such as
top merchants, total transactions, and total dollars by agency
and by industry. GSA continues to work with the banks and card
associations in pursuit of these data. The banks' electronic
access systems currently provide agencies with a record of all
purchase card transactions, similar to what private citizens
see on their personal bank card statements. This electronic
record is available to analyze spending patterns and to
highlight questionable transactions.
Obtaining Level 3 data depends upon individual merchants
upgrading their credit card reporting infrastructure, over
which we have no direct control. Individual merchants decide to
pass Level 3 data based upon individual business decisions. The
government obtains Level 3 data on approximately only ten to 15
percent of its transactions because only a small percentage of
merchants have the systems infrastructure in place to pass
Level 3 data today. This issue will require continued research
and discussion to attain the intended goal of providing more
detailed purchase data.
GSA has recently been pursuing point-of-sale discounts with
large vendors, especially those that are already on GSA's
schedule. We have recently added Office Depot and Home Depot as
walk-in stores offering discounts, and these stores are
fielding automatic purchase card recognition in their
electronic check-out systems.
It should be noted that the decision to incorporate point-
of-sale capabilities, more precisely, automated check-out
systems that will recognize a Federal Government purchase card
and apply the appropriate GSA schedule discount to the card
holder's order is largely merchant-dependent. Although several
government contractors provide point-of-sale discounts under
GSA's schedule, the vast majority of these discounts are not
triggered by electronic card recognition. Similar to the Level
3 dynamics, automated point-of-sale discount systems are a
function of the merchants' willingness to invest in systems
infrastructure upgrades.
Notwithstanding the inherent challenges, point-of-sale
discounts and Level 3 data are emerging trends and GSA desires
to encourage these trends and also utilize them for the
benefits of our customers. The GAO report notes examples of
agencies that have leveraged their buying power in innovative
ways and GSA intends to use such examples to educate our
customers on these best practices and enable other agencies to
do the same. GSA also will engage in updating its web-based
training for card holders to include methods for comparing
prices, including purchases through GSA Advantage and e-Buy.
GSA has recognized from the program's inception that card
holder training is essential to proper use of the charge cards.
GSA provides online training free to purchase card holders. The
training discusses roles and responsibilities of card holders,
proper use of the card, and ethical conduct. Many agencies
choose to supplement this training with written, oral, or
online training of card holders on agency-specific procedures.
GSA holds an annual training conference for over 3,000
agency program coordinators, auditors, and investigators on a
variety of subjects, including innovative best practices and
charge card management and use of electronic management control
and oversight tools.
GSA's mission is to help Federal agencies serve the public
by offering acquisition services at the best value. We expect
our purchase card issuers to support this mission and deliver
the best value to our purchase card customers, including
providing more robust purchase card spend data. GSA recognizes
the inherent challenges of attaining Level 3 data and point-of-
sale discounts, but we are making progress and are confident
that leveraging buying power will be one of the next great
success stories for the GSA SmartPay program.
Senator Collins, that concludes my prepared remarks for
today. I would be happy to answer any questions. Thank you.
Chairman Collins. Thank you, Mr. Fox.
Mr. Fox, in your testimony, you cited a study and suggested
to the Committee that the rate of misuse of purchase cards is
very small. Of course, the problem with that study is that it
is only looking at outright frauds, not the kinds of
inefficient and wasteful purchases that GAO has documented
could amount to something like $300 million a year. But also,
it seems to me you are underplaying the problem, because if you
take even a small percentage and apply it to $16 billion in
purchase card transactions, you are very quickly getting into
millions of dollars in outright fraud, not to mention the
hundreds of millions of dollars that are being lost when card
holders are not taking advantage of discounted prices that the
government has already negotiated.
In our investigation, for example, and in working with GAO,
the IGs, and reviewing various cases, we found many examples of
fraud, for example, the $1.7 million purchase card fraud that
occurred at the Department of Defense Washington Headquarters
Services, which I referred to in my opening statement. There
was also a Navy card holder who used her purchase card 59 times
to make $132,000 in fraudulent purchases, including two
automobiles and a motorcycle. We have heard of the kinds of
abusive transactions that the GAO uncovered. There was a case
in the VA which the Inspector General has outlined in his
statement for the record where an employee used a purchase card
to buy more than $200,000 worth of electronic equipment for
personal use, yet another case where an employee at a VA
medical center charged $170,000 in computers and other
equipment. I could go on and on and on with examples.
Do you think this is just a tiny problem. It sounds like
pretty serious cases of abuse to me that would be upsetting to
the American taxpayer.
Mr. Fox. Senator Collins, any amount of fraud in the
Federal Government by members of the Federal Government is too
much fraud. So although we do like to point out that progress
has been made, and that was the intention of the statements is
to show that progress is being made, we want to get to that
next level of progress just as everyone here at this table and
on your Committee wants to get to that next level of progress.
You mentioned the progress that can be gained through data
mining and we are fully on board at GSA with the need for more
data mining. As we can try to get more merchants using,
transmitting Level 3 data so that we can then have better data
mining capability to drill down to see those exact purchases,
what they were, where they were purchased, and who purchased
them, exact dollar amounts, that next level of data is
important to rooting out the remaining fraud.
As you mentioned, it does add up to millions of dollars,
and again, any amount of fraud inside the Federal Government to
GSA and all of us inside the Federal Government is
unacceptable.
Chairman Collins. The problem is, if GSA, as the chief
acquisition agency in the Federal Government, minimizes this
problem by quoting studies that suggest it is a very small
percentage, it doesn't exactly send the right signal to other
agencies about the importance of using time, energy, and
resources, such as DOD clearly has done, to try to crack down
and eliminate this kind of waste, fraud, and abuse.
I want to ask Mr. Kutz GAO's opinion of the scope of the
problem and of the study cited by Mr. Fox.
Mr. Kutz. Yes. I would say that it is kind of an academic
study of a real world problem. I mean, it was a survey, so it
was a voluntary thing. If you were to survey the Department of
Defense, where we did our work and where Colonel Kelley has
done his work, they would, of course, have answered, ``We have
no fraud and abuse.'' And so how valid is a survey in
identifying what is a real problem in the government?
The VA report itself, as I read it, identified 2 percent as
misuse in that report, and I will tell you this. Could you put
that posterboard back up? All the items that we identified on
that posterboard and all of the other things we identify, when
we went to the Department of Defense and at the other agencies
that we did also, they did not acknowledge, they didn't
recognize, they didn't have the controls in place to find these
items. So if they had answered a survey, none of these would
have been recognized on that survey as being fraudulent or
misuse of Federal funds. So I really think that there are some
serious flaws in doing a self-study of what this problem is.
I do think that the controls that are in place today versus
several years ago mean that the problem is going to be less,
and the bottom line is, most card holders are honest and they
are doing the right thing and the vast majority is. But is it a
0.017 percent problem? I don't think so. I think we have seen
it is probably higher than that. And certainly when you start
getting to be like VA, 1 or 2 percent misuse of government
purchase cards, that is fairly significant.
Chairman Collins. I think your point is a very good one,
that if agencies have not yet implemented effective controls,
they could be answering the survey very honestly and yet
missing the whole extent of fraudulent transactions.
I want to follow up on a point that you made in your
testimony about the relatively few cases where disciplinary
action had been taken. Colonel Kelley mentioned some cases, and
I was glad to hear of them, where criminal prosecutions had
been brought and people had actually gone to jail. And I also
want to emphasize that you are absolutely right that the vast
majority of card holders are ethical and honest and use these
cards in appropriate ways that save money for the taxpayer. But
I am concerned, I am troubled that relatively few disciplinary
actions have been taken in cases involving really egregious
examples of fraudulent transactions for personal use.
Now, I understand that you examined 120 improper
transactions and that you found that only 20 led to
disciplinary actions, and this included improper purchases of
clothing, of Coach leather briefcases, a $600 computer bag,
Lego toy robots, day planners, and a host of other illegal or
inappropriate items. Could you give me a sense of what happened
in those 120 cases? Did the individuals end up repaying the
Federal Government for these personal items, for example?
Mr. Kutz. Well, first of all, we reported 120 misuses. It
was a very target-rich environment for data mining, I would
say. And so as Colonel Kelley said in his opening statement,
there was no way for us to follow up and investigate every
single item. So we had thousands and thousands of potentially
fraudulent and misuse-type cases, but we reported on 120 in the
reports we did.
Three of the individuals involved that were card holders
repaid the government for those, and 20 of the 120 had some
sort of disciplinary action taken, such as a verbal or written
reprimand. They had to, in some cases, turn the items back. As
I mentioned, three people paid the money back. And otherwise,
there was really nothing that was done to those individuals.
I think to this day, and you get into the culture of the
Department of Defense in some cases, some of the items that we
are talking about here, they still believe were appropriate
government purchases. They never really agreed with us on the
Coach briefcases. They said, well, they are better quality and
therefore they are worth us buying. But I think they just
missed the point completely.
Chairman Collins. Well, it is disturbing that only three
actually repaid the government. It concerns me that the lack of
consequences for the use of purchase cards makes it more likely
that these abuses will continue. Would you agree with that?
Mr. Kutz. Yes, I would agree with that. In fact, it isn't
just isolated to the purchase card. We had the same thing with
the individually billed travel card. We have seen it with
premium-class travel. Senators Coleman and Levin had a hearing
on extensive improper usage of first and business class airline
travel. We have got some draft reports with Senators Coleman
and Levin right now on potential voucher fraud and other
misuses with respect to centrally billed travel accounts. And
again, I seriously question what kind of actions are going to
be taken to individuals that misuse government funds, and that
is probably one of the areas we are most disappointed in where
the Department has gone.
As Colonel Kelley said, they have issued guidance, but they
didn't agree at the Department level to follow up that this
guidance will be consistently followed across the Department,
and so certainly it is going to be inconsistently followed,
which is what we saw before when we did our work. Some people
will reprimand individuals. Others will do nothing.
Chairman Collins. Could I ask Mr. Ryan to join you at the
table for the next question. You just mentioned that you are
looking at the issue of vendor fraud, and I know Mr. Ryan has
done a great deal of work in the whole area of looking at
vendor fraud, whether it is dealing with purchase cards or
fleet cards or other kinds of credit cards.
Could you tell us a little bit about your experience
looking at the vendor side of the purchase card program? We
tend to focus on the card holder misusing the card, but are
there cases where vendors are ripping off the Federal
Government through the purchase card program, as well?
Mr. Ryan. I think the system is set up that the vendor can
take advantage of employees that pay less attention to the
bills that come in. You can find that certain vendors are
holding the government's purchase card in a database. They can
keep submitting a transaction slip to the financial institution
for monies to be received from that particular account. They
can set it up where they will send $2,500 to the bank on a
purchase card transaction slip and constantly get paid that
$2,500, and if no one is confirming the services that the
government is getting, the government will pay that vendor.
Chairman Collins. So it could be repeated payments of the
same bill?
Mr. Ryan. That is exactly right, Senator.
Chairman Collins. Is there also a problem created by the
incentives for an employee to make sure that they are paying
bills on time? I remember years ago Congress reacting to
complaints from small business people that the Federal
Government paid in a delinquent manner that it caused a lot of
cash flow problems. So as I recall, we passed something called
the Prompt Pay Act and I am wondering if perversely that has
created an incentive to move these bills, pay them quickly, and
not necessarily review them to see if they have been paid
already.
Mr. Ryan. That is absolutely correct. If I am receiving a
bill and the money is not coming out of my pocket, it is coming
out of somebody else's pocket, and my performance rating is
based on how fast I can move paper, I am going to move it on
because I want to get a good rating.
So if you are paying, and I think you have heard me say
this before, you are making business decisions over security
decisions, in this particular case, you are paying the bill.
You have no idea if you have gotten the services. You are
relying on other people. But as the processor of that paper,
you have so many days to move it off your desk, and that is
what they do. There are no checks and balance in regards to
confirming that.
Mr. Kutz. And the metrics that are in place are, in fact,
for timeliness of payment. There are no metrics to look at the
other issues we have talked about. And what it is called,
basically--I am not sure it is--pay and confirm is what they
call it, but it is really pay and chase, and unfortunately,
oftentimes, the chase never happens. The bill gets paid and no
one ever looks to see if we got the goods or services that we
were supposed to, or whether they were in the same quality or
quantity we ordered.
Chairman Collins. Thank you. Colonel Kelley, you mentioned
in your testimony a case that I cited to Mr. Fox, or actually
it is yet another case where a card holder used his card 52
times over an 8-week period to make a total purchase of
$551,000. I understand that case is under investigation, but I
wonder if you could use that example to explain more to the
Committee how you use data mining to flag an example that
appears to be questionable at best, egregious fraud at worst.
Mr. Kelley. Yes.
Chairman Collins. Could you walk us through the process?
Mr. Kelley. Yes, ma'am. Basically, the tools we use are
your expectations from your business rules. For example, in
this instance, this vendor was not used by a number of
different card holders. An expectation would be the more card
holders you have using a vendor, the less risk you have. So
those vendors that are doing business with a small number of
card holders have a higher risk. In this instance, those
transactions were flagged for that reason.
The other business rule we used to couple with that was the
fact that we were looking for card holders that made repetitive
buys near the dollar limit over certain periods of time, and we
can move that line in the sand anywhere you want, depending on
what you are looking to do.
In this instance, these transactions popped up for two of
those indicators, which we thought were pretty significant, and
they went out and did the work to look at them and the DSA
organization that did the work for us is smart partnering now
with our DCIS investigators and I can say that this is going to
probably end up in a referral for criminal prosecution for a
number of reasons. Of course, it is an open investigation, so
that is all I would like to say on that for right now.
Chairman Collins. But it is an example of a case that was
identified by you through data mining, correct?
Mr. Kelley. Yes, ma'am.
Chairman Collins. Mr. Steensma, as you know and as GAO has
indicated, it isn't just the purchase card program that has had
problems with waste, fraud, and abuse. There have been similar
concerns with the travel card, the fleet card, and the aviation
card programs. Do you believe that--well, first of all, is DOD
looking at extending data mining techniques that are being used
successfully in the purchase card program card to those other
cards, as well?
Mr. Steensma. Yes, we are, ma'am. We are already looking at
the travel card and data mining that. We are looking at the air
card and have done that actually in the past once and issued a
report on it. We will be looking at the fleet card. But when
you have millions of transactions like Colonel Kelley talked
about, data mining is the only way you can actually get a
handle and put the auditors or investigators in the right place
to look at something and determine if it is valid or not.
Chairman Collins. What role do you believe that GSA should
play in promoting greater use of data mining techniques, such
as you are using successfully at DOD, to identify questionable
transactions?
Mr. Steensma. Well, what we would like to see is that GSA
get all the data from all the banks, create a central
repository of all the charge card data. Then GSA would promote
the data mining and use standard business rules and techniques
across all the cards and all the data, and we would also like
them to operate or run a program such as Colonel Kelley was
going to explain. There aren't enough auditors or investigators
out there to check on everything, but the way to cut down all
these frauds and inappropriate purchases, it didn't just happen
once. It happened numerous times.
If you have data mining and a central repository, with
standard business rules for all agencies, what we would like to
see is that on a regular basis, things that look inappropriate,
E-mails or some electronic notice gets sent to the supervisor
or the approving official that said, ``hey, this looks strange.
Give us some feedback on it.'' The supervisor would then
respond and explain in the E-mail, after looking into the
transaction, whether it was valid or not. That type of
information would then be kept in a database also to be looked
at to determine patterns and techniques.
But I think GSA needs to take the lead for the whole
Federal Government, and like Colonel Kelley said, we have
helped out 13 other agencies. That really isn't our job. We
need somebody to take the lead on data mining for everything.
We also need them to do additional research on how to develop
new data mining techniques and also so they can be used to
improve the management controls and push it back out to the
agency managers so they can actually manage this program and
they can be the ones that help prevent fraud, waste, and abuse,
or at least catch it before it gets widespread like we talked
about today.
Chairman Collins. Mr. Fox, what is GSA doing to promote the
expansion of data mining techniques in other agencies? DOD has
indicated that they have had inquiries from several other
agencies. They have been providing information to the
Department of Commerce, the Postal Service, and the CIA. But
that is not really DOD's job. That is more GSA's job. Could you
inform us of what actions GSA is taking in this area?
Mr. Fox. Yes. We are working with all the agencies to look
at ways to better accomplish the data mining. We have
discussions, certainly monthly discussions with the DOD folks,
as our largest customer, on how we can help them better
accomplish this task. We are looking at building a next
generation SmartPay program that will accomplish--that will
encompass more sophisticated data mining capabilities into it.
But in the short term, we are working with the agencies to
do a better job of data mining. Again, much of it goes back to
trying to obtain more detailed data that comes out of the
merchants themselves. Many of the merchants that are
beneficiaries of the card are small businesses and have not
jumped forward to put in place the systems to pass the Level 3
data. So trying to get the card agency associations to work
with their merchants to try to pass more detailed data into the
system and then find ways to accomplish the data mining.
We often find that the data mining is best done at the
local level, as opposed to the centralized level. We are
looking at both options as to what the right way to do it is.
But if abuse is going to be found, it is most often going to be
found at the local level and to provide that data mining
available to the lowest-level folks, those folks who
immediately supervise the purchase card holders, that is where
we can have the most impact, is to provide them the tools at
the most local level.
Chairman Collins. Mr. Kutz, what does GAO see as GSA's role
in this area as far as data mining or improving the internal
controls used by other agencies?
Mr. Kutz. I would concur with Mr. Steensma and I would go
further with respect to, and I think that there are certain
agreements we have with the banks now, and the GSA
representative could probably be more specific with that, but
the banks have their own fraud detection software. If you ever
got a call from your bank with an unusual charge on your
account saying, is that really your charge, I have gotten those
before certainly.
We didn't see that happening at the Department of Defense.
So our suspicions when we have talked about this are that the
banks were running the software but not making the calls, and
so I think that is another part of the prevention of fraud and
misuse that could be utilized across the Department, because we
did see examples where people took these cards and they went
down to the mall and they hit each of the stores in the mall.
They were clearly fraudulent purchases. And if someone had made
a call, they could have shut it off before more transactions
had occurred.
Chairman Collins. That is a good point, as well.
We have spent a considerable amount of time talking about
fraudulent purchases and how data mining techniques could
identify those in the sea of bills that agencies are dealing
with. But at least as important, perhaps even more important,
is taking advantage of negotiated discounts.
Mr. Fox, why doesn't the GSA negotiate agreements with
vendors so that these discounts come up at the point of sale,
so you don't have to worry about the card holder being aware of
what the price should be on a particular item?
Mr. Fox. We are aggressively pursuing that. We are up to 19
stores that our customers can walk into and get point-of-sale
discounts. They include, as I mentioned, Home Depot, Office
Depot, and others. We are adding others. We are working with
Staples right now. We have talked to folks like Wal-Mart,
talked to other large vendors who do not have schedule
contracts to try to bring them onboard. Some of them resist.
Wal-Mart has consistently resisted a GSA schedule contract for
their own business reasons.
But we are aggressively working at it. Again, we are up to
19 walk-in stores and 32 catalogs. We have catalogs that
customers can use to get--with discount companies and they
provide the GSA discounts. So we do promote--we are up to a
total of over 14,500 total GSA schedule contracts with vendors
of all sizes around the country, 75 percent of which are small
businesses, which tend to use the purchase card sometimes
almost exclusively.
So we are trying to expand our programs all the time. We
are adding new vendors at the rate of 20 percent per year right
now and trying to expand those opportunities for our customers,
and also the automatic credit card recognition is a big item
for us as we add these walk-in, walk-out stores where customers
can go in and present their card and not even mention they are
with the Federal Government but get that automatic discount
from places like Home Depot and Office Depot, as they are now.
That is high on our agenda.
Chairman Collins. Mr. Steensma, based on your experience--
actually, I am not sure whether this should go to Colonel
Kelley or to you, so either of you can respond. Based on your
experience, do you think that purchase card holders usually get
the discounted price?
Mr. Steensma. No, I don't, especially on many of the
activities we went to. Colonel Kelly talked about we were down
there at Louisiana and they spent over $800,000 buying normal
computers and office equipment and supplies. They didn't get
one discount off any contract, GSA schedule, or anything. We
found the same problem at Washington Headquarters Service.
Part of this comes from an education standpoint. Well,
those two activities, it was a lack of controls, but we have in
DOD well over a hundred-and-some-thousand buyers right now. If
you go look at the training that they are provided, it is
pretty good training on what they are required to do, the
controls they should follow, and so on, but there really is no
training in there on how to become a smarter buyer.
When we are talking about $16 million in purchases, we need
somebody that is going to do research and teach people, come up
with web-based training, how to create better buyers for DOD,
not just DOD but the whole Federal Government, and we need
somebody to do that and that should be a role of GSA, how to
make smarter buyers. We can save a lot more money than we have
even talked about today once we can educate people not to just
what is out there, but what the trends are and where people are
going to buy and maybe we can negotiate lower discounts than we
have already.
Chairman Collins. I think this is an area where there is a
possibility of tremendous savings and we could make a real
difference by instituting point-of-sale discounts and also by
better training buyers, as you have suggested, and by being
more aggressive in seeking these discounts from vendors with
large volumes.
The final issue I want to touch on today is the
proliferation of purchase cards. We obviously want to make sure
that everyone who needs a purchase card has one, uses it
appropriately, and that should save money for the Federal
Government and make the process more efficient.
On the other hand, Colonel Kelley, I was struck by your
statement--I think I got it correctly--that you have reduced
the number of purchase cards at DOD by 47 percent. Is that
correct?
Mr. Kelley. Yes, ma'am. We didn't do it. The DOD--the
Department did it.
Chairman Collins. I didn't mean you personally.
Mr. Kelley. OK. Thank you. [Laughter.]
Chairman Collins. You took away each one of those, right?
[Laughter.]
Mr. Kelley. I have been accused of that, ma'am. [Laughter.]
Chairman Collins. But a 47 percent reduction is really
significant, and I guess what I would ask you and Mr. Steensma
is did reducing the number of card holders by that
extraordinary number have a negative impact on the efficiency
of the Department or the ability of individuals to get the
items they needed quickly? Mr. Steensma.
Mr. Steensma. No, I would say not in the least. They
eliminated cards from people who didn't need them, shouldn't
have had them, don't use them. But the volume of purchases
actually went up. I haven't heard one complaint about people
couldn't get things that they needed on time because there
wasn't a buyer there. We just had way too many cards, not just
DOD but all the agencies out there. It was a good move to
eliminate the thousands of cards that are already gone.
Chairman Collins. Mr. Fox, does the GSA put out guidelines
for agencies to follow on how to decide whether employees
should have purchase cards?
Mr. Fox. We do put out guidelines and they are available
through our training programs. We have our annual training
conference where, again, last year, we had 3,000 folks come to
our training, annual training conference for SmartPay. We put
out guidance to them.
We think that we have pushed the reduction of number of
card holders out of GSA and the agencies have certainly done a
great job of picking up on that, because we believe that
reducing the numbers has a positive impact in two ways. It
eliminates--it makes the agencies make tough choices about who
will get the card and, therefore, they give them to those who
need them the most. And also, it decreases the number of card
holders managed per supervisory card manager and that is down,
on average, to about three-and-a-half card holders per
supervisory manager, which we believe is a great statistic.
Now, the agencies where you see them going up to 10, 15, or
20 card holders per supervisory manager, it is very difficult
for those managers to keep track of those and reconcile the
accounts and reduce fraud. We think accurate card
reconciliation at the local level is an extremely important
part of fighting fraud.
Chairman Collins. Mr. Kutz, is part of the problem here the
proliferation of cards?
Mr. Kutz. That was a major problem. Some of the initial
looks we did at the Navy, for example, we found one out of
every three employees would have a purchase card and they did
not have enough approving officials, as I think the GSA
representative mentioned here, and so you had instances where
approving officials had 100 or more people that were making
transactions that they were responsible for reviewing the
statement, and it wasn't their full-time job. It was an ``other
duty as assigned,'' which meant it was a rubber stamp. There
was no review of the bills being paid and that was where a lot
of the cases, we found that was one of the symptoms or causes
of the problem.
Chairman Collins. Thank you. It seems to me if you have so
many card holders, that means you have way more transactions
and that lessens the chance they are going to be reviewed and
it increases the chances that they are going to be misused. It
would be good if other agencies took the kind of aggressive
approach that DOD did in really evaluating who needs a card.
It is highly significant to me, as Mr. Steensma testified,
that you could reduce the number of card holders by 47 percent
and yet the purchases have gone up. So that does suggest that
the proliferation of cards is another area that we need to
examine.
I want to thank each of you for being here today. I want to
thank the GAO for doing a terrific job in taking a look at this
issue and DOD also for the aggressive work you are doing.
Data mining has been a very touchy issue, as you know, in
Congress, but this seems to me to be an ideal use of data
mining that would allow us to identify questionable or outright
fraudulent transactions without raising some of the privacy and
personal information issues that are so controversial when data
mining is applied in other arenas.
Mr. Fox, I would like to see GSA work more closely with the
agencies to promote best practices, to learn from the
experience at DOD and to implement fully the recommendations
made by the General Accounting Office. It is my understanding
GSA has endorsed those recommendations and is working to expand
point-of-sale discounts and to implement the other reforms.
We look forward to working with you. I will be pursuing the
legislation with Russ Feingold, as well, which I also think
will be helpful. But thank you all very much for your
assistance today.
I am convinced that if we focus on issues like this one
that we can make a real difference in saving literally hundreds
of millions of dollars across our government each year, and
Colonel Kelley put it well, because each of those dollars are
dollars that could be put to the war against terrorism or used
to reduce the deficit or for other important programs. We have
an obligation to the taxpayers to make sure that their money is
wisely spent, and I think that the discussion today will help
advance that goal.
The hearing record will remain open for 14 days for the
submission of any additional materials. I want to thank my
staff also for their hard work on this hearing.
This hearing is now adjourned.
[Whereupon, at 11:17 a.m., the Committee was adjourned.]
A P P E N D I X
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