[Senate Report 111-76]
[From the U.S. Government Publishing Office]
Calendar No. 163
_______________________________________________________________________
111th Congress Report
1st Session SENATE 111-76
_______________________________________________________________________
GOVERNMENT CHARGE CARD ABUSE PREVENTION ACT OF 2009
__________
R E P O R T
of the
COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 942
TO PREVENT ABUSE OF GOVERNMENT CHARGE CARDS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
September 21, 2009.--Ordered to be printed
-------
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2009
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri LINDSEY GRAHAM, South Carolina
JON TESTER, Montana ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado
Michael L. Alexander, Staff Director
Kevin J. Landy, Chief Counsel
Troy H. Cribb, Counsel
Paula J. Haurilesko,GAO Detailee
Brandon L. Milhorn, Minority Staff Director and Chief Counsel
Molly A. Wilkinson, Minority Deputy General Counsel
Eric B. Cho, Minority GSA Detailee
Trina Driessnack Tyrer, Chief Clerk
Calendar No. 163
111th Congress Report
1st Session SENATE 111-76
=======================================================================
GOVERNMENT CHARGE CARD ABUSE PREVENTION ACT OF 2009
_______
September 21, 2009.--Ordered to be printed
_______
Mr. Lieberman, from the Committee on Homeland Security and Governmental
Affairs, submitted the following
R E P O R T
[To accompany S. 942]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 942) to prevent
abuse of Government cards, having considered the same, reports
favorably thereon without amendment and recommends that the
bill do pass.
CONTENTS
Page
I. Purpose and Summary..............................................1
II. Background and Need for the Legislation..........................2
III. Legislative History..............................................3
IV. Section-by-Section Analysis......................................4
V. Evaluation of Regulatory Impact..................................6
VI. Congressional Budget Office Cost Estimate........................6
VII. Changes to Existing Law Made by the Bill, as Reported............7
I. Purpose and Summary
S. 942 requires specific internal controls at the agency
level to ensure that purchase and travel cards are used only
for approved spending and that agencies take appropriate
personnel actions for misuse of cards. The bill also makes
permanent language that has appeared in appropriations bills
for the last several years requiring agencies to conduct a
creditworthiness check before issuing travel cards to
individual employees.
The bill also requires the Director of the Office of
Management and Budget (OMB) to review and update, as
appropriate, guidance for management of purchase cards and
travel cards, and it also requires agencies and their
Inspectors General to report to OMB on card abuses and the
personnel actions taken by agencies in response to such abuses.
II. Background and Need for the Legislation
Since 1998, federal departments and agencies have utilized
government charge cards through the General Service
Administration's SmartPay program. The charge cards available
through this program include purchase cards and travel cards.
Agency employees use purchase cards to buy commercial goods and
services; agencies pay the bills for those cards directly to
their contractor bank. Employees use government travel cards to
pay for official travel expenses. Either the employee is billed
and pays for the expenses and the agency reimburses the
employee for the official expenses, or the government is billed
directly by their contractor bank.
Agencies use government charge cards as a low cost method
to streamline government acquisition and travel processes. For
example, according to GSA, charge card services are provided at
no cost to the agencies, generated more than $1 billion in
gross agency refunds over the past 10 years and avoid an
estimated $1.8 billion in agency administrative processing
costs annually compared to paper-based procurement processes.
Although the program has been highly successful, improvements
in the consistent application of internal controls to prevent
waste, fraud, and abuse are needed. Numerous Government
Accountability Office (GAO) reports over the last decade have
identified inadequate and inconsistent controls across federal
agencies with respect to both purchase and travel cards.\1\ The
lack of adequate management has led to the waste of millions of
dollars in taxpayers' money on fraudulent purchases, or on
purchases that were of questionable need or were unnecessarily
expensive. While travel cards are not paid directly with
taxpayers' money like purchase cards, failure by employees to
timely pay their bills can result in the loss of millions of
dollars in refunds to the Federal Government from travel card
issuers. Additionally, non-payment of travel card bills
diminishes the credibility of the Federal Government as a
business partner.
---------------------------------------------------------------------------
\1\GAO, Purchase Cards: Increased Management Oversight and Control
Could Save Hundreds of Millions of Dollars. GAO-04-717T, Washington,
D.C.: April 28, 2004; GAO, Purchase Cards: Steps Taken to Improve DOD
Program Management, but Actions Needed to Address Misuse. GAO-03-156,
Washington D.C.: December 2, 2003; GAO, Purchase Cards: Control
Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse. GAO-02-
844T, Washington, D.C.: July 17, 2002; and GAO, Purchase Cards: Control
Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse. GAO-02-
32, Washington, D.C.: November 30, 2001.
---------------------------------------------------------------------------
GAO issued a report in March 2008 entitled Governmentwide
Purchase Cards: Actions Needed to Strengthen Internal Controls
to Reduce Fraudulent, Improper, and Abusive Purchases.\2\ This
report found that, despite previous GAO reports on this issue
and new regulations, various government agencies still lacked
adequate internal controls over government purchase cards,
leading to waste, fraud, and abuse. Using a statistical sample
of purchase card transactions, GAO estimated that nearly 41% of
the transactions failed to meet basic internal control
standards, and GAO found numerous instances of fraud. For
example, one cardholder used the purchase card program to
embezzle over $642,000 over a period of six years from the
Department of Agriculture. A postmaster at the U.S. Postal
Service used his government purchase card to fraudulently
subscribe to two internet dating services from April 2004 to
October 2006. At the time GAO issued its report, the cardholder
had paid over $1,100 in restitution to the government but had
faced no disciplinary action for this fraud.
---------------------------------------------------------------------------
\2\GAO, Governmentwide Purchase Cards: Actions Needed to Strengthen
Internal Controls to Reduce Fraudulent, Improper, and Abusive
Purchases. GAO-08-333, Washington D.C.: March 14, 2008.
---------------------------------------------------------------------------
The Government Charge Card Abuse Prevention Act is based
largely on GAO's recommendations regarding necessary controls
to prevent the waste, fraud, and abuse that GAO and agency
Inspectors General have uncovered. The bill mandates a
consistent set of core internal controls that every agency
should utilize to prevent and detect improper use of government
charge cards. For example, it mandates the use of systems,
techniques, and technologies to prevent or identify improper
purchases. These measures could include use of controlling
merchant codes to prevent a card from being used at a vendor
that does not provide goods and services that are appropriate
to the function for which the card is issued. They also could
include utilizing statistical machine learning and pattern
recognition technologies that review the risk of every
transaction. Commercial credit card issuers currently use this
technology to flag purchases that do not fit normal purchasing
patterns for cardholders.
The Government Charge Card Abuse Prevention Act also
requires each agency Inspector General to periodically conduct
risk assessments of agency purchase card and travel card
programs and perform periodic audits to identify potential
fraudulent, improper, and abusive use of government charge
cards. GAO and agency Inspectors General have successfully used
techniques like data mining to reveal instances of improper use
of government charge cards. Having this information on an
ongoing basis will help in strengthening and maintaining a
rigorous system of internal controls to prevent future
instances of waste, fraud, and abuse with government charge
cards.
In addition, GAO's investigations often have found
inconsistent or nonexistent consequences for federal employees
who misused or abused government charge cards. The Government
Charge Card Abuse Prevention Act requires that penalties be in
place so that employees who abuse government charge cards face
consistent and appropriate consequences, including dismissal
where appropriate, thus creating a deterrent effect that will
prevent future misuse.
The Committee urges federal agencies, in implementing the
requirements of the Government Charge Card Abuse Prevention
Act, to review and utilize best practices for conducting
purchase card and travel card programs. In this respect, GAO's
Audit Guide: Auditing and Investigating the Internal Control of
Government Purchase Card Programs is a useful summary of the
best practices for establishing and monitoring internal
controls for government purchase card programs.\3\
---------------------------------------------------------------------------
\3\GAO, Audit Guide: Auditing and Investigating the Internal
Control of Government Purchase Card Programs. GAO-04-87G, Washington,
D.C.: Nov. 1, 2003.
---------------------------------------------------------------------------
III. Legislative History
On April 30, 2009, S. 942 was introduced by Senator Chuck
Grassley and referred to the Senate Committee on Homeland
Security and Governmental Affairs. The bill is co-sponsored by
Chairman Lieberman, Ranking Minority Member Collins, Senator
Carper, and Senator Begich. On May 20, 2009, the Committee
favorably reported S. 942 by voice vote. Members present for
the vote on the bill were Senators Lieberman, Akaka, Carper,
Pryor, McCaskill, Burris, Bennet, Collins, and Voinovich.
IV. Section-by-Section Analysis
Section 1. Short title
Section 1 designates the name of the act as the
``Government Charge Card Abuse Prevention Act of 2009.''
Section 2. Management of purchase cards
Subsection (a) requires the head of each executive agency
that issues and uses purchase cards and convenience checks--
checks written against a purchase card account--to establish
and maintain safeguards and internal controls to ensure
effective management, such as: keeping a record in each
executive agency of each holder of a purchase card issued by
the agency for official use; assigning each cardholder an
approving official; requiring reconciliation of the charges by
the purchase cardholder and approving official with supporting
documentation; ensuring payments are made promptly for valid
purchases; retaining records of each purchase card transaction
in accordance with government policies on disposition of
records; invalidating purchase cards for employees who cease to
be employed by the agency or transfer to another unit; and
providing appropriate training to cardholders.
Subsection (b) provides that no later than 180 days after
the date of the enactment of this Act, the Director of OMB
shall review the existing guidance and, as necessary, prescribe
additional guidance governing the implementation of the
safeguards and internal controls required by subsection (a) by
executive agencies.
Subsection (c) requires that the head of each executive
agency shall provide for appropriate adverse personnel actions
or other punishment, including dismissal of the employee as
appropriate, in cases in which employees of the agency violate
agency policies implementing the guidance required by
subsection (b) or make improper, erroneous, or illegal
purchases with purchase cards or convenience checks. This
subsection also requires that the guidance required by
subsection (b) mandate that each head of an executive agency
with more than $10,000,000 in purchase card spending annually,
and each Inspector General of such an executive agency, on a
semi-annual basis, submit to the Director of OMB a joint report
on violations of the guidance required by subsection (b) by
employees of such executive agency.
Subsection (d) requires the Inspector General of each
executive agency to conduct periodic assessments of the agency
purchase card or convenience check programs to identify and
analyze weaknesses; perform analyses or audits, as necessary,
of purchase card transactions designed to identify potentially
illegal, improper, erroneous, and abusive uses of purchase
cards, patterns of such uses, and categories of purchases that
could be made by means other than purchase cards; report to the
Director of OMB on the implementation of recommendations made
to the head of the executive agency to address findings of any
analysis or audit of purchase card and convenience check
transactions or programs for compilation and transmission by
the Director to Congress and the Comptroller General.
Subsection (e) provides that the term ``executive agency''
has the meaning given such term in section 4(1) of the Office
of Federal Procurement Policy Act (41 U.S.C. 403(1)), except as
provided under subsection (f).
Subsection (f) clarifies that subsections (a) through (d)
do not apply to the Department of Defense, which is subject to
similar requirements under 10 U.S.C. 2784. This subsection
makes further conforming amendments to 10 U.S.C. 2784 in order
to harmonize military and civilian regulations. The subsection
also requires the Inspector General of the Department of
Defense to conduct periodic assessments similar to those
required in subsection (d) and to submit, jointly with the
Secretary of Defense, a semi-annual report to the Director of
OMB.
Section 3. Management of travel cards
Section 3 amends Section 2 of the Travel and Transportation
Reform Act of 1998 (Public Law 105-264; 5 U.S.C. 5701 note) by
adding a new subsection that requires the head of each
executive agency that has employees that use travel cards to
establish and maintain internal control activities over travel
charge cards, including: maintaining a record of each holder of
a travel charge card issued on behalf of the agency for
official use; monitoring rebates and refunds based on prompt
payment, sales volume, or other actions on travel charge card
accounts; conducting periodic reviews to determine whether each
travel charge cardholder has a need for the travel charge card;
and providing appropriate training to travel card holders. This
section also requires that each executive agency ensure its
contractual arrangement with travel charge card issuing
contractors contains a requirement to evaluate the
creditworthiness of an individual before issuing that
individual a travel charge card, and that no individual is
issued a travel charge card if that individual is found not
creditworthy as a result of the evaluations. An agency is not
precluded from issuing a restricted travel charge card or pre-
paid card when the individual lacks a credit history or has a
credit score below the minimum credit score established by OMB.
The section requires the Director of OMB to establish a minimum
credit score for determining the creditworthiness of an
individual based on rigorous statistical analysis of the
population of cardholders and historical behaviors.
Additionally, not later than 180 days after the date of
enactment, the Director of OMB is required to revise, as
necessary, guidance on the management of travel cards. The
section further requires that each agency shall take
appropriate adverse personnel actions, including removal where
appropriate, against employees who have failed to comply with
agency regulations or have committed fraud with respect to a
travel charge card. Additionally, the section requires the
Inspector General of each federal agency to conduct periodic
assessments of travel card programs and controls.
Section 4. Management of centrally billed accounts
Section 4 requires the head of an executive agency that has
employees who use a travel charge card that is billed directly
to the United States Government to establish and maintain
internal control activities to compare items on an employee's
travel voucher to items paid for using a centrally billed
account. This section also requires the Director of the OMB to
prescribe guidance implementing internal control requirements
for centrally billed accounts not later than 180 days after the
date of enactment of this Act.
Section 5. Construction
Section 5 provides that nothing in the Act shall be
construed to excuse the head of an executive agency from the
responsibilities established in 31 U.S.C. 3512 (relating to
executive agency accounting and other financial management and
plans), or in the Improper Payments Act of 2002 (31 U.S.C. 3321
note).
V. Evaluation of Regulatory Impact
Pursuant to the requirements of paragraph 11(b) of rule
XXVI of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of this bill. The
Congressional Budget Office states that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandate Reform Act and would not effect state, local,
and tribal governments. The enactment of this legislation will
not have significant regulatory impact.
VI. Congressional Budget Office Cost Estimate
June 2, 2009.
Hon. Joseph I. Lieberman,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 942, the Government
Charge Card Abuse Prevention Act of 2009.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Matthew
Pickford.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
S. 942--Government Charge Card Abuse Prevention Act of 2009
S. 942 would require each executive branch agency to
establish controls on the use of government credit cards. The
bill would require each agency's inspector general (IG) to
assess the risk of illegal or improper credit card use and to
conduct periodic audits to identify potentially fraudulent
activities. The bill also would allow agencies to dismiss
employees who are found guilty of misusing government credit
cards.
CBO estimates that implementing S. 942 would cost less than
$500,000 a year, subject to the availability of appropriated
funds. The bill also could affect direct spending by agencies
not funded through annual appropriations, such as the Tennessee
Valley Authority and the Bonneville Power Administration. CBO
estimates, however, that any increase in spending by those
agencies would not be significant.
Under current law, agencies must take certain actions to
manage the use of government credit cards including
establishing policies and procedures, conducting oversight, and
penalizing unauthorized use of government cards. Most of the
provisions of S. 942 would codify those practices. Based on
information from the Office of Management and Budget (which
sets procurement policy), the General Services Administration
(the contract administrator for federal credit cards), and
several agency IGs, CBO estimates that implementing the bill
would not significantly increase the costs to oversee the use
of government charge cards.
S. 942 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Matthew
Pickford. This estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
VII. Changes to Existing Law Made by the Bill, as Reported
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 942 as reported are shown as follows (existing law proposed
to be omitted is enclosed in brackets, new matter is printed in
italic, and existing law in which no change is proposed is
shown in roman):
TITLE 10--ARMED FORCES
Subtitle A--General Military Law
PART IV--SERVICE, SUPPLY, AND PROCUREMENT
CHAPTER 165--ACCOUNTABILITY AND RESPONSIBLITY
* * * * * * *
SEC. 2784. MANAGEMENT OF PURCHASE CARDS
(a) * * *
(b) Required Safeguards and Internal Controls.--Regulations
under subsection (a) shall include safeguards and internal
controls to ensure the following:
(1) * * *
(11) That each purchase cardholder and individual
issued a convenience check is assigned an approving
official other than the cardholder with the authority
to approve or disapprove transactions.
(12) That the Department of Defense utilizes
effective systems, techniques, and technologies to
prevent or identify fraudulent purchases.
(13) That the Department of Defense takes appropriate
steps to invalidate the purchase card of each employee
who--
(A) ceases to be employed by the Department
of Defense, immediately upon termination of the
employment of the employee; or
(B) transfers to another unit of the
Department of Defense immediately upon the
transfer of the employee unless the Secretary
of Defense determines that the units are
covered by the same purchase card authority.
(14) That the Department of Defense takes appropriate
steps to recover the cost of any erroneous, improper or
illegal purchase made with a purchase card or
convenience check by an employee, including, as
necessary, through salary offsets.
(15) That the Inspector General of the Department of
Defense conducts periodic assessments of purchase card
or convenience check programs to identify and analyze
risks of illegal, improper, or erroneous purchases and
payments and uses such risk assessments to develop
appropriate recommendations for corrective actions.
(c) * * *
(d) Semi-Annual Report.--The Secretary of Defense and the
Inspector General of the Department of Defense, shall submit to
the Director of the Office of Management and Budget on a
semiannual basis a joint report on illegal, improper, or
erroneous purchases and payments made with purchase cards or
convenience checks by employees of the Department of Defense.
At a minimum, the report shall include the following:
(1) A description of each violation.
(2) A description of any adverse personnel action,
punishment, or other action taken against the employee
for such violation.
(3) A description of actions taken by the Department
of Defense to address recommendations made to address
findings arising out of risk assessments and audits
conducted pursuant to this section.
TRAVEL AND TRANSPORTATION REFORM ACT OF 1998
(Public Law 105-264; 5 U.S.C. 5701, note)
* * * * * * *
(a) * * *
* * * * * * *
(h) Management of Travel Charge Cards.--
(1) Required safeguards and internal controls.--The
head of each executive agency that has employees that
use travel charge cards shall establish and maintain
the following internal control activities to ensure the
proper, efficient, and effective use of such travel
charge cards:
(A) There is a record in each executive
agency of each holder of a travel charge card
issued on behalf of the agency for official
use, annotated with the limitations on amounts
that are applicable to the use of each such
card by that travel charge cardholder.
(B) Rebates and refunds based on prompt
payment sales volume, or other actions by the
agency on travel charge card accounts are
monitored for accuracy and properly recorded as
a receipt of the agency that employs the
cardholder.
(C) Periodic reviews are performed to
determine whether each travel charge cardholder
has a need for the travel charge card.
(D) Appropriate training is provided to each
travel charge cardholder and each official with
responsibility for overseeing the use of travel
charge cards issued by an executive agency.
(E) Each executive agency has specific
policies regarding the number of travel charge
cards issued for various component
organizations and categories of component
organizations, the credit limits authorized for
various categories of cardholders, and
categories of employees eligible to be issued
travel charge cards, and designs those policies
to minimize the financial risk to the Federal
Government of the issuance of the travel charge
cards and to ensure the integrity of the travel
charge cardholders.
(F) Each executive agency ensures its
contractual arrangement with each servicing
travel charge card issuing contractor contains
a requirement to evaluate the creditworthiness
of an individual before issuing that individual
a travel charge card, and that no individual be
issued a travel charge card if that individual
is found not creditworthy as a result of the
evaluation (except that this paragraph shall
not preclude issuance of a restricted use
travel charge card or pre-paid card when the
individual lacks a credit history or has a
credit score below the minimum credit score
established by the Office of Management and
Budget). The Director of the Office of
Management and Budget shall establish a minimum
credit score for determining the
creditworthiness of an individual based on
rigorous statistical analysis of the population
of cardholders and historical behaviors.
Notwithstanding any other provision of law,
such evaluation shall include an assessment of
an individual's consumer report from a consumer
reporting agency as those terms are defined in
section 603 of the Fair Credit Reporting Act.
(G) Each executive agency utilizes effective
systems, techniques, and technologies to
prevent or identify improper purchases.
(H) Each executive agency ensures that the
travel charge card of each employee who ceases
to be employed by the agency is invalidated
immediately upon termination of the employment
of the employee.
(I) Each executive agency utilizes, where
appropriate, direct payment to the holder of
the travel card contract.
(2) Guidance on management of travel charge cards.--
Not later than 180 days after the date of the enactment
of this Act, the Director of the Office of Management
and Budget shall review the existing guidance and, as
necessary, prescribe additional guidance for executive
agencies governing the implementation of the
requirements in paragraph (1).
(3) Penalties for violations.--
(A) In general.--Consistent with the guidance
prescribed under paragraph (2), each executive
agency shall provide for appropriate adverse
personnel actions to be imposed in cases in
which employees of the executive agency fail to
comply with applicable travel charge card terms
and conditions or applicable agency regulations
or commit fraud with respect to a travel
charge, including removal in appropriate cases.
(B) Reports on violations.--The guidance
prescribed under paragraph (2) shall require
each head of an executive agency with more than
$10,000,000 in travel card spending annually,
and each inspector general of such an executive
agency, on a semi-annual basis, to submit to
the Director of the Office of Management and
Budget a joint report on violations or other
actions covered by subparagraph (A) by
employees of such executive agency. At a
minimum, the report shall set forth the
following:
(i) A description of each violation.
(ii) A description of any adverse
personnel action, punishment, or other
action taken against the employee for
such violation or other action.
(4) Risk assessments and audits.--The Inspector
General of each executive agency shall--
(A) conduct periodic assessments of the
agency travel charge card program and
associated internal controls to identify and
analyze risks of illegal, improper, or
erroneous travel charges and payments in order
to develop a plan for using such risk
assessments to determine the scope, frequency,
and number of periodic audits of travel charge
card transactions;
(B) perform periodic analysis and audits, as
appropriate, of travel charge card transactions
designed to identify potentially improper,
erroneous, and illegal uses of travel charge
cards;
(C) report to the head of the executive
agency concerned on the results of such
analysis and audits; and
(D) report to the Director of the Office of
Management and Budget on the implementation of
recommendations made to the head of the
executive agency to address findings of any
analysis or audit of travel charge card
transactions or programs for compilation and
transmission by the Director to Congress and
the Comptroller General.
(5) Definitions.--In this subsection:
(A) The term ``executive agency'' means an
agency as that term is defined in subparagraphs
(A) and (B) of section 5701(1) of title 5,
United States Code.
(B) The term ``travel charge card'' means any
Federal contractor-issued travel charge card
that is individually billed to each cardholder.