Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable
to Fraud, Waste, and Abuse (20-DEC-02, GAO-03-292).
In July 2001 and March 2002, GAO testified on significant
breakdowns in internal controls over purchase card transactions
at two Navy sites that resulted in fraud, waste, and abuse. As a
result, the Congress asked GAO to audit purchase card controls at
DOD. This report focuses on Air Force purchase card controls and
addresses whether the overall management control environment and
key internal controls were effective in preventing potentially
fraudulent, improper, and abusive purchase card transactions.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-292
ACCNO: A05757
TITLE: Purchase Cards: Control Weaknesses Leave the Air Force
Vulnerable to Fraud, Waste, and Abuse
DATE: 12/20/2002
SUBJECT: Defense audits
Financial management
Fraud
Fringe benefits
Internal controls
Smart cards
Strategic planning
Wastes
Commercial Purchase Card Program
DOD Purchase Card Program
******************************************************************
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GAO-03-292
A
Report to Congressional Requesters
December 2002 PURCHASE CARDS Control Weaknesses Leave the Air Force
Vulnerable to Fraud, Waste, and Abuse
GAO- 03- 292
Letter 1 Results in Brief 3 Weaknesses in Overall Control Environment 11
Tests of Key Control Activities 27 Potentially Fraudulent, Improper, and
Abusive or Questionable
Transactions 35 Management Improvements 53 Conclusions 54 Recommendations
for Executive Action 54 Agency Comments and Our Evaluation 59
Appendixes
Appendix I: Objectives, Scope, and Methodology 63
Appendix II: Overview of the Air Force Purchase Card Process 73
Appendix III: Examples of Air Force Purchase Card Fraud Cases 79
Appendix IV: GAO Contacts and Staff Acknowledgments 82 Tables Table 1:
Ratio of Cardholder Accounts to Approving Officials,
August 2002 14 Table 2: Fiscal Year 2001 Historical Purchases vs. Credit
Limits for
Selected Air Force Case Study Locations 16 Table 3: Lack of Documented
Appointment Letters Delegation of
Purchasing Authority, and Training for Cardholders and Approving Officials
18 Table 4: Installation Program Coordinator Span of Control as of
September 30, 2002 27 Table 5: Internal Control Activity Statistical
Testing Results 28 Table 6: Property Items Not Recorded in Property
Records 34 Table 7: Potentially Fraudulent Air Force Purchase Card
Transactions 37 Table 8: Improper Air Force Purchase Card Transactions 42
Table 9: Purchases from Other Than Required Sources of Supply 46
Table 10: Improper Uses of the Purchase Card and Convenience Checks 47
Table 11: Abusive or Questionable Air Force Purchase Card
Transactions 50 Table 12: Installations Audited and Associated Major
Commands 63
Table 13: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official
Appointments 65 Table 14: Estimated Results of Statistical Tests of Fiscal
Year 2001 Purchase Card Transactions for Cardholder and Approving
Official Initial Training 66 Table 15: Estimated Results of Statistical
Tests of Fiscal Year 2001 Purchase Card Transactions for Cardholder
Delegations of
Purchasing Authority 67 Table 16: Estimated Results of Statistical Tests
of Fiscal Year 2001 Purchase Card Transactions for Advance Purchase
Authorization 68 Table 17: Estimated Results of Statistical Tests of
Fiscal Year 2001 Purchase Card Transactions for Independent Receipt and
Acceptance 69 Table 18: Estimated Results of Statistical Tests of Fiscal
Year 2001 Purchase Card Transactions for Cardholder
Reconciliations 69 Table 19: Estimated Results of Statistical Tests of
Fiscal Year 2001 Purchase Card Transactions for Approving Official Review
70
Table 20: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Supporting Invoice or Receipt 71 Table 21:
Number and Value of Air Force Fiscal Year 2001 Purchase
Card Transactions 73 Figures Figure 1: Air Force Purchase Card Program
Management Structure 10
Figure 2: Air Force Purchase Card Process 76
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Letter
December 20, 2002 The Honorable Charles E. Grassley Ranking Minority
Member Committee on Finance United States Senate The Honorable Stephen
Horn Chairman The Honorable Janice D. Schakowsky Ranking Minority Member
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations Committee on Government Reform House of
Representatives
The Department of Defense (DOD) is promoting departmentwide use of
government purchase cards for obtaining goods and services. DOD reported
that during fiscal year 2001, about 230,000 cardholders used purchase
cards to make about 10.7 million transactions for goods and services
costing over $6.1 billion. Within these amounts, the Air Force reported
that it used about 80,000 cardholder accounts to make about 3 million
purchase card transactions for goods and services costing about
$1.4 billion. Purchase card transactions include acquisitions at or below
the $2, 500 micropurchase threshold and payments on contracts. The use of
purchase cards has increased dramatically as agencies have sought to
eliminate the lengthy process and paperwork associated with making small
purchases. The benefits of using purchase cards versus traditional
contracting and payment processes are lower transaction processing costs
and less red tape for both the government and the vendor community. We
support the use of a well- controlled purchase card program to streamline
the government*s acquisition processes. However, it is important that
agencies have adequate internal control procedures to protect the
government from fraud, waste, and abuse.
In July 2001 and March 2002, we testified on significant breakdowns in
internal control over purchase card transactions at two Navy sites in San
Diego, California. 1 As a result of our initial audit of purchase card
controls at the two Navy sites and continuing concern about fraud, waste,
and abuse in DOD*s purchase card program, you requested that we expand our
audits of purchase card controls. Our audit of Army 2 purchase card
controls identified a weak internal control environment; ineffective
implementation of key control activities; and potentially fraudulent,
improper, and abusive purchases. Our broader audit of Navy 3 purchase card
controls identified continuing control weaknesses and discussed actions
underway by the Navy to resolve these weaknesses. This report focuses on
Air Force purchase card controls. The objective of our audit of the Air
Force purchase card program was to
assess the effectiveness of internal control over purchase card use and
payment of purchase card transactions during fiscal year 2001.
Specifically, we addressed whether (1) the Air Force*s overall control
environment and management of the purchase card program were effective,
(2) the Air Force*s key internal control activities operated effectively
and provided reasonable assurance that purchase cards were
used appropriately, and (3) indications existed of potentially fraudulent,
4 improper, and abusive or questionable transactions. We also identified
management actions taken by DOD and the Air Force during fiscal year 2002
to improve purchase card controls. 1 U. S. General Accounting Office,
Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to
Fraud and Abuse, GAO- 01- 995T (Washington, D. C.: July 30, 2001) and
Purchase Cards: Continued Control Weaknesses Leave Two Navy Units
Vulnerable to Fraud and Abuse, GAO- 02- 506T (Washington, D. C.: Mar. 13,
2002).
2 U. S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO- 02- 732
(Washington, D. C.: June 27, 2002) and
Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste,
and Abuse,
GAO- 02- 844T (Washington, D. C.: July 17, 2002). 3 U. S. General
Accounting Office, Purchase Cards: Navy is Vulnerable to Fraud and Abuse,
but Is Taking Action to Resolve Control Weaknesses, GAO- 03- 154T
(Washington, D. C.: Oct. 8, 2002) and Purchase Cards: Navy is Vulnerable
to Fraud and Abuse, but Is
Taking Action to Resolve Control Weaknesses, GAO- 02- 1041, Washington D.
C.: Sept. 27, 2002).
4 For this report, we limit the use of the term *fraudulent* to describe
those instances in which someone has been convicted, or punished, for
fraudulent activity under the Uniform Code of Military Justice. In all
other instances, we use the phrase *potentially fraudulent.*
We identified four major Air Force commands that accounted for about 69
percent of total purchase card charges and 65 percent of total
transactions for fiscal year 2001 and selected one location from each of
the four commands based on the magnitude of purchase card transactions and
payments for case study analysis. For each of the case study locations, we
tested a statistical sample of fiscal year 2001 purchase card transactions
and conducted other audit work to evaluate the design and implementation
of key internal control procedures and activities. The results of our
audit of the transactions constituting the statistical samples can only be
projected to the individual installations where we performed the testing
and cannot be used to project the adequacy of control activities at the
command level or the Air Force as a whole. However, the cumulative results
of our work offer significant perspective on the adequacy of the
design and implementation of purchase card controls across the Air Force.
We also looked for indications of potentially fraudulent, improper, and
abusive or questionable purchases as part of our tests of statistical
samples of transactions and through analysis of non- representative
selections of
transactions using data mining. Our data mining focused on identifying
transactions with vendors that were likely to sell unauthorized or
personal use items for both our case study locations and Air Force- wide.
Because of the large number of transactions that met these criteria, we
did not look at all potential abuses of the purchase card. Our work was
not designed to identify, and we cannot determine, the extent of
potentially fraudulent,
improper, and abusive or questionable purchases. See appendix I for
details on our scope and methodology.
We performed our audit work from January through mid- November 2002 in
accordance with U. S. generally accepted government auditing standards,
and we performed our investigative work in accordance with standards
prescribed by the President*s Council on Integrity and Efficiency. We
received oral comments on a draft of this report from DOD and Air Force
purchase card officials on December 13, 2002. We addressed the comments in
the *Agency Comments and Our Evaluation* section. Results in Brief Our
audit of Air Force controls over fiscal year 2001 purchase card activity
identified control environment weaknesses and breakdowns in key controls
that leave the Air Force vulnerable to fraud, waste, and abuse. However,
we found that the Air Force was aware of many of these problems and had,
in several cases, initiated actions to resolve them. Major contributors to
the weak control environment included excessive numbers
of purchase cards and approving official span of control, and credit
limits that were 12 to 20 times higher than actual spending. As of
September 2002, the Air Force had about 77,000 purchase cards* about 1
purchase card for every 7 employees compared to the Navy*s ratio of 1
purchase card for every 31 employees.
We also found that although the Air Force had issued standard, Air
Forcewide purchase card operating procedures, 5 employees responsible for
carrying out purchase card program activities frequently did not follow
them. For example, many of the problems we identified related to failure
to follow purchase card guidelines in the Federal Acquisition Regulation
and DOD and Air Force policies and procedures, including guidelines on
micropurchases and mandated sources of supply. Further, we found that
misuse of the purchase card was not always subject to strong disciplinary
action or consequences, even though Air Force operating procedures require
installation purchase card program coordinators to take appropriate action
to document violations and preclude their reoccurrence.
Of the five key control activities we tested, we found that all four Air
Force locations had significant control breakdowns in at least three of
them* (1) receiving of goods and services by someone other than the
cardholder, (2) cardholder reconciliation, and (3) approving official
review of cardholders* monthly reconciled statements. Our statistical test
results at
the four case study locations showed that failure rates for these controls
ranged from 21 to 87 percent, with the highest failure rates* 69 to 87
percent* relating to approving official review of reconciled cardholder
statements. The high failure rate for approving official review is of
particular concern because the Air Force uses a *pay and confirm* policy,
which is inconsistent with governmentwide 6 and DOD guidelines, 7 on
5 Air Force Instruction, 64- 117, Air Force- wide Purchase Card Program,
issued December 6, 2000. 6 Section 4535 of volume 1 of the Treasury
Financial Manual.
7 In a letter dated April 30, 2002, DOD informed us that its reengineering
memorandums and other pronouncements comply with 10 U. S. C. 2784, which
requires the Secretary of Defense to issue regulations that require, among
other things, reconciliation of purchase card statements to receipts
before the statements are forwarded to the disbursing office.
reconciliation and payment of purchase card bills. Both Treasury
guidelines and DOD*s Purchase Card Reengineering Implementation Memorandum
#3 require that purchase card statements be reconciled and forwarded for
payment in a timely manner and allow pay and confirm only in instances
where purchased items have not been received before payment is due on the
monthly purchase card bills. In contrast, Air Force
purchase card policy permits cardholder statements to be reconciled and
approved after payment has been made. While conscientious post payment
reconciliation and approval processes may provide adequate control, the
lack of documented evidence of post payment reconciliation and approval
and the undetected, potentially fraudulent transactions identified in our
work underscore concerns about noncompliance with DOD and Treasury
guidelines. In July 2002, Air Force management asked its purchase card
contractor, U. S. Bank, to *shut down* (suspend from use 8 ) over 4, 000
unreconciled cardholder accounts until the reconciliations were completed
and the approving officials had reviewed and approved them. Accounts that
had not been reconciled as of the end of August 2002 were canceled.
Further, our audit identified potentially fraudulent, improper, and
abusive or questionable purchase card transactions. Some of the
potentially fraudulent transactions we identified appear to be due to
compromised accounts related to nationwide credit card fraud. 9 While Air
Force cardholders identified some of these potentially fraudulent
transactions and took steps to dispute them with U. S. Bank, other
potentially fraudulent purchases were not disputed, even though the
cardholders, approving
officials, or program coordinators were aware of them. Potentially
fraudulent transactions that were not disputed included a $2,443 down
payment at a pawn shop on a $10, 000 sapphire ring and several purchases
totaling $3,232 at San Diego area stores, such as Old Navy, Target, K-
Mart, and a Ross Store. We also identified potentially fraudulent
transactions for which no supporting documentation was available to show
the quantity and type of items purchased. Air Force officials could not
recall the purpose of these transactions.
8 Suspended purchase card accounts are placed in inactive status pending
further decisions about their use, such as returning them to active status
after a required action has occurred or canceling the accounts. 9 U. S.
Bank officials told us that in July 2001, they became aware of fraudulent
Air Force
purchase card transactions due to compromised accounts. The compromised
accounts were caused by a fraud ring that used computers to randomly
generate purchase card accounts and/ or make counterfeit credit cards that
resulted in fraudulent charges to credit cards issued nationwide by
several banks.
In addition, we identified numerous examples of improper and abusive
purchase card transactions. Improper transactions included purchases of
food, clothing, luggage, briefcases, and personal items, such as
sunglasses. We also identified improper transactions related to weaknesses
in controls
relied on to prevent splitting purchases into multiple transactions to
circumvent micropurchase and cardholder transaction limits and the failure
to use mandated sources of supply. One such purchase we identified
involved a fiscal 2001 year- end purchase of about $100,000 in helmets
from an installation supply store. The purchase was split into four
separate transactions to stay within the cardholder*s $25,000 transaction
limit. We also determined that although the purchase was made to prevent
unused funds from expiring, all the helmets were not actually needed, and
the cardholder left the items in the store until requirements could be
better identified. On October 1 and 2, 2001, the cardholder obtained
credits for the unneeded items and used the credits to purchase other
items. The subsequent credits and reuse of the funds in early October
2001, in effect, converted fiscal year 2001 appropriations to fiscal year
2002 budget
authority* a violation of appropriation law. In addition to improper
transactions, we found numerous examples of purchase card transactions
that involved waste and abuse. One of the abusive transactions we
identified related to a Nellis Air Force Base (AFB) dinner party to
entertain a visiting Joint Forces General. Air Force policy permits
installation commanders to use representation funds to conduct
entertainment on a modest basis. However, we determined that the cost of
the dinner party, which totaled $2, 141* over $100 per person* was
excessive. Further, the total cost of the dinner included about $800 for
alcohol* over $40 per person. We also found instances of questionable
purchases and wasteful spending related to computer equipment. For
example, we found that a Travis AFB unit purchased computer equipment
costing $14, 128 at the beginning of fiscal year 2001, and, shortly
thereafter, decided to convert to Dell computers. As a result, within 1
year of their purchase, these items, as well as a number of other
computers, were sent to the Defense Reutilization Marketing Service as
excess property. We also found that an Edwards AFB unit purchased several
computers at the end of fiscal year 2001 in anticipation of hiring during
the first quarter of fiscal year 2002. Hiring was delayed and we found
that about half the computer equipment was still stored in boxes 8 months
later, raising questions about whether fiscal year 2001 funds should have
been used to purchase these items. Appropriated
funds are available only to meet legitimate needs of the agency during the
fiscal year for which the funds were appropriated.
The Air Force has taken a number of steps to improve controls over the
purchase card program, particularly with respect to the overall purchase
card program management control environment. For example, the Air Force
worked with its contractor, U. S. Bank, to implement automated controls
during fiscal year 2002 to help monitor approving official span of
control, credit limits, and cardholder reconciliation and approving
official review of monthly purchase card statements. The U. S. Bank
controls permit purchase card accounts to be automatically suspended when
specified control requirements, such as cardholder reconciliations and
approving official span of control, are not followed. If effectively
implemented, these controls should help strengthen the overall Air Force
purchase card control environment as well as controls over purchase card
statement reconciliation and approval. In addition, in response to our DOD
purchase card audits, the Congress recently enacted the DOD fiscal year
2003 appropriation and authorization acts, which contain requirements for
DOD to develop guidelines on disciplinary actions for employees who abuse
or fraudulently use the purchase card. The DOD authorization act also
includes a number of provisions for purchase card management improvements.
This report contains recommendations to the Air Force to further improve
the overall control environment for its purchase card program; to
strengthen key internal control activities; and to increase attention to
preventing potentially fraudulent, improper, and abusive and questionable
transactions. We also recommend that the DOD task force assess the DODwide
applicability of both the recommendations addressed to the Air Force and
the strengths in the Air Force purchase card program that we identified,
such as the use of automated controls. In oral comments on a draft of this
report, DOD*s Purchase Card Joint Program Management Office and Air Force
purchase card officials concurred on 29 of our 39 recommendations and
partially concurred with 9 recommendations. At the time we finalized our
work, DOD had not provided a response to our remaining recommendation that
the Charge Card Task Force assess the recommendations in this report and
incorporate them to the extent applicable into its future recommendations
to improve purchase card policies and procedures throughout DOD.
For the nine recommendations involving partial concurrences, the issues
raised by DOD and Air Force officials generally related to details such as
the terminology or responsible party included in our recommendations.
However, in each case, the officials suggested actions that, if
effectively implemented, would address the intent of our recommendations.
A detailed discussion of the DOD and Air Force comments is presented in
the *Agency Comments and our Evaluation* section of this report.
Background The Air Force purchase card program is part of the
governmentwide Commercial Purchase Card Program established to streamline
federal
agency acquisition processes by providing a low- cost, efficient vehicle
for obtaining goods and services directly from vendors. DOD has mandated
the use of the purchase card for all purchases at or below $2,500 and has
authorized the use of the card to pay for specified larger purchases.
Purchases over the $2,500 micropurchase threshold must be in accordance
with simplified acquisition guidelines in the Federal Acquisition
Regulation. The purchase card should normally not be used for cash
advances; travel- related purchases; rentals or leases of land or
buildings; utility services; or hazardous/ dangerous items, such as
explosives, munitions, toxins, and firearms.
The Air Force purchase card program operates under a task order associated
with the General Services Administration*s governmentwide purchase card
contract, as do the purchase card programs of all federal agencies.
Government acquisition laws and regulations, such as Federal Acquisition
Regulation, Part 13, *Simplified Acquisition Procedures,* establish the
criteria for using purchase cards to place orders and make payments. The
Air Force issued Instruction 64- 117, Governmentwide Purchase Card
Program, dated December 6, 2000, to establish responsibilities and
procedures and provide administrative guidance for its government purchase
card operations. The Air Force Instruction contains standardized Air Force
guidance that has been implemented Air Forcewide.
The Assistant Secretary of the Army for Acquisition, Logistics, and
Technology in coordination with the Under Secretary of Defense
(Comptroller), has overall responsibility for DOD*s purchase card program.
The DOD Purchase Card Joint Program Management Office, in the office of
the Assistant Secretary of the Army for Acquisition, Logistics, and
Technology 10 is responsible for overseeing DOD*s program. The Air Force
agency program coordinator, within the headquarters acquisition office has
oversight over the Air Force purchase card program. However, the primary
management responsibility for the purchase card program lies with the
Assistant Secretary of the Air Force for Acquisition, the Deputy Assistant
Secretary for Contracting, and the contracting offices in the major Air
Force commands and local installations. Figure 1 shows the Air Force
purchase card program management hierarchy as it was during our audit. For
the major commands, the figure shows the number of installation program
coordinators within the command. For the four installations we audited,
the figure shows the number of approving officials and cardholders at each
installation.
10 DOD has assigned agencywide purchase card program management
responsibility to the Assistant Secretary of the Army (Acquisition,
Logistics, and Technology).
Figure 1: Air Force Purchase Card Program Management Structure
Assistant Secretary of the DOD Purchase Card Air Force for Acquisition,
Program Management Office Logistics, and Technology
Air Force Agency Program Coordinator
Air Combat Air Mobility
Air Force Air Force Education
Command Command
Materiel Command and Training
Command Command Program
Command Program Command Program
Command Program Coordinator
Coordinator Coordinator
Coordinator Nellis AFB, NV
Travis AFB, CA Edwards AFB, CA
Lackland AFB, TX Approving officials - 99
Approving officials - 131 Approving officials - 122
Approving officials - 113 Cardholders - 542
Cardholders - 486 Cardholders - 405
Cardholders - 569 Source: GAO analysis of Air Force purchase card program
organization.
At each Air Force installation, a certifying officer in the installation
Financial Services Office is responsible for certifying the monthly
purchase card statements for payment. This is done within a few days of
receipt of the monthly statement. Accuracy of the monthly statements is
confirmed after payment has been made. Personnel in three positions*
program coordinator, approving official, 11 and cardholder* are
collectively responsible for providing reasonable assurance that purchase
card transactions are appropriate and meet a valid government need. The
installation program coordinator, typically a full- time position under
the director of the contracting squadron, is responsible for the day- to-
day management, administration, and oversight of the program. Installation
program coordinators issue and cancel purchase cards, train cardholders
and approving officials, and coordinate with other Air Force units and U.
S. Bank* the Air Force*s purchase card- issuing bank. Approving officials,
who are typically responsible for more than one cardholder, are to review
cardholders* transactions and the cardholders* monthly, reconciled 11
Approving officials are also referred to as billing officials or
accountable officials. These terms are used interchangeably by the Air
Force.
purchase card statements and approve the statements as already paid or
ensure that any invalid transactions are disputed and credited, either by
the merchant or the bank. In accordance with Air Force Instruction 64-
117, cardholders are required to reconcile their monthly purchase card
statements and approving officials are required to review and approve the
reconciled statements within 15 days after receipt of the statements at
the installation but not later than the 15 th day of the month following
the
statement date. Approving officials receive a monthly, consolidated
statement that covers their cardholders* monthly purchase card statements.
Appendix II provides additional details on the Air Force purchase card
program.
Weaknesses in Overall Control Environment
Management and employees should establish and maintain an environment
throughout the organization that sets a positive and supportive attitude
toward internal control and conscientious management. A positive control
environment is the foundation for all other
standards. It provides discipline and structure as well as the climate
which influences the quality of internal control. GAO*s Standards for
Internal Control in the Federal Government (GAO/ AIMD- 00- 21. 3.1,
November 1999)
We found overall control environment weaknesses at the four case study
locations we audited as well as indications of similar weaknesses in our
Air Force- wide analysis that contributed to breakdowns in key control
activities and potentially fraudulent, improper, and abusive purchase card
transactions. For example, we encountered numerous instances where
supporting documentation was not available because installations destroyed
purchase card records on a rolling 1- year basis due to faulty records
retention guidance in the Air Force purchase card Instruction that did not
comply with federal guidelines. We also found weaknesses in the areas of
(1) the number of cardholders and accounts, (2) approving official span of
control, (3) credit limits compared to historical spending, (4)
documentation of cardholder and approving official training, (5)
implementation of audit and internal review recommendations, and (6)
accountability and disciplinary action. Further, given the magnitude of
the purchase card program at the installations we audited, we found the
human capital infrastructure for program monitoring and oversight to be
inadequate. As discussed in a later section of this report, these control
environment weaknesses have contributed to fraudulent, improper, and
abusive purchase card activity.
We also found some positive aspects of the Air Force purchase card
program, such as Air Force- wide purchase card operating procedures and
aggressive Air Force Audit Agency reviews of installation purchase card
programs since 1996. The importance of the role of management in
establishing a positive internal control environment cannot be overstated.
GAO*s Standards for Internal Control in the Federal Government, 12
discusses management*s key role in demonstrating and maintaining an
organization*s integrity and ethical values, especially in setting and
maintaining the organization*s ethical tone, providing guidance for proper
behavior, and removing temptations for unethical behavior. Failure to
Comply with
During our audit of Air Force fiscal year 2001 purchase card activity, we
Federal Records Retention
encountered numerous instances where supporting documentation was
Requirements
not available because installations destroyed purchase card records on a
rolling 1- year basis due to faulty records retention guidance in the Air
Force purchase card Instruction. Federal records retention requirements in
the Federal Acquisition Regulation, 13 the General Records Schedule 14
established by the National Archives and Records Administration (NARA),
and DOD*s Financial Management Regulation 15 require records supporting
program and contracting activity to be retained for 3 years and records
supporting financial transactions to be retained for 6 years and 3 months.
However, the records retention guidance in Air Force Instruction 64- 117
called for documentation received and generated by the cardholder, such as
vendor invoices, sales receipts, and shipping reports, and cardholder logs
to be maintained for only 1 year after the final payment. In
addition, 36 C. F. R. 1228.30, which covers disposition of federal
records, requires agencies to establish a schedule for disposing of their
records and obtain approval of their records disposition schedules from
the NARA. We saw no evidence that the Air Force developed a records
disposition
schedule related for purchase card records. 12 U. S. General Accounting
Office, Standards for Internal Control in the Federal Government, GAO/
AIMD- 00- 21. 3.1 (Washington D. C.: November 1999). 13 Federal
Acquisition Regulation, Part 4, Section 4.805 states that contracts and
related documents at or below the simplified acquisition threshold of
$100,000 must be retained for 3 years. 14 General Records Schedule No. 6,
*Accountable Officer*s Accounts Records.*
15 DOD Financial Management Regulation, Volume 1, Chapter 9, "Financial
Records Retention."
While missing records affected all aspects of purchase card controls, the
greatest impact was on cardholder and approving official appointments and
training and cardholder delegations of purchasing authority. Further, we
found that cardholders at Wilford Hall Medical Center, located at
Lackland Air Force Base (AFB), did not adhere to the Air Force requirement
to retain purchase card transaction records for even the 1- year period.
As discussed in the next section of this report on tests of key
controls, 52 of the 152 transactions in our Lackland AFB sample were for
Wilford Hall purchase card activity, and required supporting documentation
was not available for 23 of these 52 transactions. The Air Force
Instruction also called for documentation generated by the
installation program coordinator and approving officials, such as records
of training, delegations of authority, and surveillances, to be retained
only as long as the cardholder and approving official are performing that
function. Air Force headquarters officials told us that the Air Force
Instruction, which is currently being revised, would include corrections
to the records retention guidelines.
Proliferation of Cardholders While the number of Air Force purchase
cardholders peaked at about
and Accounts Result in 80,000 cardholder accounts in September 2001, the
overall number of
Unreasonable Span of cardholders from October 2000 through September 2002
has remained Control
about the same. As of September 2002, the Air Force reported that it had
about 77,000 purchase card accounts* translating to about 1 purchase card
for every 7 employees. In contrast, the Navy had reduced the number of its
purchase cardholders from about 52,000 to about 23,000 and only about 1 of
every 31 employees was a purchase cardholder. We determined that the Air
Force did not have specific policies governing
the number of cards to be issued or criteria for identifying employees
eligible for the privilege of cardholder status. Purchase cards were given
out on the basis of a request from an individual employee*s unit
commander. The request was then forwarded to the installation*s purchase
card Agency program coordinator, who approved the request and began the
process for obtaining a new card from U. S. Bank.
In addition to an excessive number of cardholders, we found that some Air
Force cardholders had as many as 10 government purchase cards. The Air
Force permits cardholders to have numerous purchase card accounts to
facilitate accounting for purchase card expenditures related to different
funding sources* appropriated and nonappropriated funds* as well as
different accounting lines within the same fund source. Assigning multiple
purchase cards is not an appropriate method of accounting for purchase
card transactions. Further, this practice places substantial credit risk
in the hands of one individual. Some Approving Officials*
In response to concerns about approving official span of control raised
Span of Control over
during our initial Navy purchase card work, the Director of DOD*s Purchase
Card Accounts Purchase Card Joint Program Management Office issued a
memorandum on July 5, 2001, that called for no more than five to seven
cardholders per Exceeds DOD Guidelines
approving official. 16 During fiscal year 2002, the Air Force established
goals for reducing the number of cardholder accounts assigned to approving
officials. Our analysis of span of control ratios at the four
installations we audited disclosed that when looking at average ratios,
the Air Force has adhered to the DOD span of control guidelines. However,
as shown in table 1, these averages have masked the wide range of ratios
across each Air Force installation* some of which exceeded the DOD
guidelines. As of August 2002, we found that the four installations we
audited had from 22 to 32 approving officials that were responsible for
more than 7 cardholder accounts, including four approving officials at two
installations* Travis AFB and Edwards AFB* that were responsible for more
than 20 cardholder accounts.
Table 1: Ratio of Cardholder Accounts to Approving Officials, August 2002
Average ratio of
Highest ratio of cardholder Percentage and number of
cardholder accounts to
Number of Number of approving officials with over accounts to Air Force
approving
approving cardholder open seven cardholder monthly approving
location officials
officials accounts a
account statements to review officials
Edwards 4.3 to 1 122 530 18% (22) 29 Lackland 5.9 to 1 113 662 27% (30) 20
Nellis 6.4 to 1 99 638 32% (32) 19 Travis 5.4 to 1 131 702 20% (26) 31
Source: GAO analysis of U. S. Bank data provided by the Air Force. a
Includes multiple accounts for individual cardholders.
16 Memorandum from Director, Purchase Card Joint Program Management Office
to assistant secretaries of defense agencies. Subject: Internal and
Management Controls * DOD Purchase Card Program (July 5, 2001).
As shown in table 1, the percentage of approving officials whose span of
control exceeded DOD guidelines ranged from 18 percent to 32 percent at
the four Air Force locations we audited.
Credit Limits Exceed Our analysis of purchase card spending compared with
credit limits
Procurement Needs showed that monthly credit limits for the four case
study locations far
exceeded their actual monthly spending. Limiting credit available to
cardholders is a key factor in managing the purchase card program and in
minimizing the government*s financial exposure. On August 13, 2001,
DOD*s Director of Defense Procurement sent a memorandum to the directors
of all defense agencies stating that supervisors should set reasonable
limits based on what each person needs to buy as part of his or her job
and that every cardholder does not need to have the maximum transaction or
monthly credit limit.
Air Force officials told us that their credit limits appear excessive
because these limits include credit limits of primary and alternate, or
backup, approving officials and cardholders. The officials explained that
they assign primary and alternate approving officials and cardholders to
local units to ensure that purchases can continue when primary approving
officials or cardholders are on leave, assigned to temporary duty
locations, or deployed. The officials also told us that alternate
approving officials and cardholders are given the same credit limits as
the primary approving officials and cardholders. The Director of DOD*s
Purchase Card Joint Program Management Office told us that DOD guidelines
suggest that credit limits for inactive accounts, including alternate
accounts, should be
reduced to $1. However, Air Force officials told us that they do not
deactivate alternate accounts or reduce credit limits during periods when
alternate purchasing authority is not needed due to frequent schedule
changes and the administrative burden associated with turning accounts on
and off. As shown in table 2, total financial exposure as measured in
terms of purchase card credit limits substantially exceeded historical
purchase card spending.
Tabl e 2: Fiscal Year 2001 Historical Purchases vs. Credit Limits for
Selected Air Force Case Study Locations
Dollars in millions
Historical measures Edwards Lackland Nellis Travi s
Total fiscal year 2001 purchases $23.8 $36.2 $27.7 $24.7 Average monthly
purchases 2.0 3.0 2.3 2.7 Average monthly credit limit a 24.1 36. 7 42.3
55.4 b Ratio of credit limit to average fiscal year 2001 monthly purchases
12 to 1 12.2 to 1 18. 4 to 1 20. 5 to 1
Source: GAO analysis of U. S. Bank data provided by the Air Force. a We
used approving officials* credit limits to calculate average monthly
credit limits.
b Travis AFB did not retain monthly reports for fiscal year 2001;
therefore, we used the Travis AFB October 2001 monthly report as an
indication of the average credit limit.
Air Force officials told us that to better control cardholder spending
limits, they worked with U. S. Bank to develop an automated control that
will tie quarterly authorizations of budget authority to cardholder credit
limits. According to Air Force officials, this control was implemented
during fiscal year 2002.
Lack of Documentation of Cardholder and Approving
Effective management of an organization*s workforce* its human capital* is
essential to
Official Training and
achieving results and an important part of internal control. Training
should be aimed at developing employee skill levels to meet changing
organizational needs. GAO*s
Authority
Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
21. 3.1, November 1999)
Documentation of cardholder and approving official training and authority
varied widely across the four locations we audited. For example, we found
that two of our four case study locations had maintained documentation on
cardholder and approving official appointments, cardholder delegations of
purchasing authority, and cardholder and approving official training.
However, at Edwards AFB and Travis AFB, our test results indicated that
12 percent 17 and 51 percent, 18 respectively, of their fiscal year 2001
purchase card transactions were made by cardholders and/ or approving
officials who had no documentation showing they had received initial
training. Further, none of the four case study locations we audited had
adequate documentation to show that both cardholder and approving official
training was current for the transactions in our sample.
Air Force Instruction 64- 117 requires commanders or chiefs to prepare a
Letter of Appointment designating the proposed cardholder and approving
official and identifying their name, rank, duty title, telephone number,
and e- mail address; the types of purchases to be made; and funds to be
used to pay for the purchase card purchases. The installation program
coordinator
is to coordinate single and monthly purchase limits with the designated
billing official and forward documentation to the bank to set up the
purchase card account. While the Instruction provides for denial of
appointments, it does not provide criteria or qualifications for who may
be a cardholder or approving official. The Instruction also requires that
prior to establishing a purchase card
account and issuing a purchase card, all prospective cardholders and
approving officials must receive training on requirements in the Federal
Acquisition Regulation and Air Force purchase card and acquisition
policies and procedures. Once initial training is received, the
Instruction
requires all cardholders to receive supplemental training in the form of
annual refresher training and it implies that approving officials should
have refresher training. 19 The Air Force Instruction requires
installation
17 The range of our confidence interval, at a 95- percent confidence
level, was between 5 percent and 23 percent. 18 The range of our
confidence interval, at a 95- percent confidence level, was between 39
percent and 64 percent. 19 While the Air Force Instruction does not
require that approving officials have refresher training, the surveillance
checklist, which is included in the Instruction, includes a question on
whether approving officials have received refresher training, thus
implying that this training is required.
program coordinators to maintain documentation of approving official and
cardholder purchase card appointments and training and cardholder
delegations of purchasing authority as long as these individuals are
serving in those capacities.
Contracting officials at Travis AFB explained that in accordance with Air
Force Instruction 64- 117, they did not retain records of appointments,
training, and delegations of authority for approving officials and
purchase cardholders who were no longer performing those duties or were no
longer at Travis AFB. We also found that Travis AFB did not maintain
central files to document cardholder and approving official appointments
and cardholder delegations of purchasing authority, and documentation of
training was incomplete or could not be located by individual units at
that installation. In addition, Edwards AFB contracting officials told us
that they did not retain cardholder and approving official appointment
letters. Table 3 shows the results of our statistical tests for
documentation of appointments, delegations of purchasing authority, and
training for cardholders and approving officials associated with the
transactions in our sample.
Tabl e 3: Lack of Documented Appointment Letters, Delegation of Purchasing
Authority, and Training for Cardholders and Approving Officials Percentage
of breakdowns in key purchase card controls a Key control Edwards Lackland
Nellis Travi s Cardholder and approving
official appointment letters 82 0 0 97 Initial training 12 0 0 51
Cardholder delegations of purchasing authority 13 0 1 84 a The projections
represent point estimates for the populations based on our statistical
samples rounded to the nearest percentage point. The intervals are two-
sided 95- percent confidence intervals. Source: GAO testing and
statistical analysis of Air Force purchase card transaction files.
Although Edwards AFB and Travis AFB officials asserted that their
cardholders and approving officials had received required purchase card
training, we found numerous improper purchase card transactions related to
failure to follow federal guidelines on micropurchases and mandated
sources of supply that indicate that cardholders and approving officials
either had not been trained, training was inadequate, or cardholders were
not following guidelines addressed in the training classes. For example,
we found that cardholders at Edwards AFB were unaware that they are
required to obtain competitive price quotes from three different vendors
when their purchases exceed the $2,500 micropurchase threshold. We also
found that Travis AFB cardholders frequently were not following these
guidelines. Further, we found that the Edwards AFB installation program
coordinator routinely waived micropurchase and cardholder transaction
limits to permit cardholders to purchase goods and services at higher
amounts. We also found that Edwards AFB cardholders frequently did not
follow federal guidelines on mandated sources of supply and Travis AFB
cardholders did not notify property book officers when they used the
purchase card to buy computer equipment and other pilferable property. In
addition, we were unable to determine whether cardholder and
approving official training was current due to missing documentation and
the use of E- mail notices, bulletins, and newsletters used to update
purchase card training at three case study locations. Travis AFB lacked
documented evidence that most of its cardholders and approving officials
had received annual refresher training and the other three case study
locations could not document informal training that was provided outside
of classrooms. During fiscal year 2002, due to concerns about whether
approving officials and cardholders had received adequate refresher
training, Edwards AFB and Nellis AFB began using classroom training and
sign- in sheets to document annual purchase card refresher training for
both approving officials and cardholders.
Significant Audit Activity, but Corrective Actions Not
Monitoring of internal control should include policies and procedures for
ensuring that the
Always Taken
findings of audits and other reviews are promptly resolved. GAO*s
Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
21. 3. 1 November 1999)
We found that the four case study locations conducted annual purchase card
internal reviews, called surveillances, and the Air Force Audit Agency
performed aggressive reviews; 20 however, we also identified significant
repeat findings indicating a lack of commitment to adhere to purchase card
regulations and DOD and Air Force policies and procedures. In addition, at
one of the four case study locations we audited* Edwards AFB* internal
reviewers did not disclose all identified problems in the reports on
surveillance results. The Air Force Audit Agency reported 21 similar
findings in its reviews of fiscal year 2000 installation- level purchase
card activity. The Air Force auditors concluded that without enforcement
of purchase card requirements, such as administratively disciplining the
offenders or revoking purchase card privileges, purchase card
discrepancies will likely continue. The Air Force Audit Agency reported
that inaction by contracting officials reduced the effectiveness of other
purchase controls, increased transaction errors, and undermined the Air
Force purchase card goals.
As stated in GAO*s Standards for Internal Control in the Federal
Government, monitoring of internal control should include policies and
procedures for ensuring that the findings of audits and other reviews are
promptly resolved. Managers are to (1) promptly evaluate findings from
audits and other reviews, including those showing deficiencies, and
recommendations reported by auditors and others who evaluate agency
operations, (2) determine proper actions in response to findings and
recommendations from audits and reviews, and (3) complete, within
established time frames, all actions that correct or otherwise resolve the
matters brought to management*s attention. 20 The Air Force Audit Agency
has performed 253 reviews of installation purchase card
controls since fiscal year 1996. 21 Air Force Audit Agency, Air Force
Purchase Card Program, Audit Report F2002- 0006- C06400 (Aug. 6, 2002).
Internal Surveillances The Air Force purchase card Instruction, which was
issued in December 2000, requires the installation purchase card program
coordinator to perform a surveillance (internal review) of each approving
official*s billing account 22 and 25 percent of the cardholders* accounts
at least every 12 months. The Air Force Instruction includes an optional
surveillance checklist that covers key purchase card requirements,
including most of the control activities covered in our audit. Our review
of the surveillances associated with the approving officials and
cardholders responsible for the transactions in our case study samples
showed that many of the problems identified by installation internal
reviewers were consistent with the problems we found in our audit. For
example, these surveillance results identified failure to adhere to Air
Force guidance on $2,500 micropurchase limits, purchases from required
sources, failure of billing officials to review their cardholders*
accounts, prohibited purchases, and failure to maintain purchase logs.
Further, we determined that Edwards AFB intentionally did not address
problems related to noncompliance with micropurchase requirements and
mandated sources of supply nor did it recommend corrective actions in its
reports on surveillance results. For example, 40 of the 44 Edwards AFB
surveillance reports that we reviewed stated *no discrepancies were
noted,* even though documentation supporting this conclusion for 11
surveillance reports indicated that problems, such as splitting purchases
to avoid obtaining competitive prices when purchases exceeded the $2, 500
micropurchase threshold and failure to use mandated vendors, were
identified. Further, while use of the surveillance checklist is optional,
we found that several of the checklists provided as documented support for
the surveillances that we reviewed were blank. As a result, we were unable
to determine whether a review had been performed, but was not documented,
or if no review had been performed as a basis for the conclusions in the
associated surveillance letters. When we discussed our concerns with the
Director of Contracting at Edwards AFB, the Director told us that internal
reviewers do not address splitting purchases to avoid micropurchase
requirements and failure to use mandated sources of supply in their
surveillance reports because they consider these requirements to be
*procedural matters.* However, the guidelines on micropurchases and
22 Approving official billing accounts (also referred to as managing
accounts) are summary accounts that include the accounts of individual
cardholders under the purview of the approving official. To approve the
monthly billing account statement, the approving official is required to
review the monthly, reconciled statements for each of the cardholder
accounts that are included in the approving official*s monthly billing
statement.
mandated sources of supply are prescribed in law and the Federal
Acquisition Regulation and are not merely procedural. It is important that
surveillance reports identify noncompliance with requirements in law and
regulations, which are designed to prevent improper purchases. Air Force
headquarters officials agreed with our position.
In addition, we found that installation program coordinators at two of our
four case study locations had issued their surveillance reports to
approving officials rather than unit commanders. In contrast, Nellis AFB
surveillance letters were addressed to unit commanders and were signed by
the Contracting Director. Further, the Nellis AFB Contracting Director
wrote personal notes on the face of the surveillance letters commending
unit commanders for good surveillance results and noting areas that must
be improved when the surveillances had identified failure to follow
purchase card guidelines. This positive *tone at the top* served to hold
unit commanders accountable for effective implementation of their purchase
card programs.
Air Force Audit Agency Audits In its August 2002 report on the results of
its audit of fiscal year 2000 purchase card transactions at 46 Air Force
installations, Air Force Audit Agency auditors concluded that overall, Air
Force guidance established adequate purchase card controls and oversight
procedures. At the same time, Air Force auditors found that installation
purchase card program coordinators and approving officials did not adhere
to this guidance in executing their surveillance responsibilities. For
example, consistent with
our audit, Air Force auditors found continuing problems with (1) advance
approval for purchases of computer equipment, (2) splitting purchases into
multiple transactions to circumvent micropurchase and cardholder single
transaction limits, (3) accountability for pilferable property items
purchased with a purchase card, and (4) purchase card statement
reconciliations and approving official review. Further, according to Air
Force auditors, of the nearly $150 million in transactions evaluated,
cardholders acquired supplies and services totaling approximately $25.4
million using purchase methods specifically disallowed under
established policy and guidance. Specifically, Air Force auditors reported
the following findings related to their audits of purchase card activity
during fiscal year 2000 at Edwards, Lackland, and Travis Air Force bases
and purchase activity during fiscal year 2001 at Nellis AFB.
At Edwards AFB, Air Force auditors had repeat findings 23 of split
purchases and lack of required advance purchase authorizations for
purchases of computer equipment. The auditors also found that cardholders
were not familiar with micropurchase requirements.
At Lackland AFB, Air Force auditors reported 24 that the issues of
improper reconciliation procedures to validate purchases and charges and
ineffective surveillance of cardholders and billing officials were repeat
conditions reported in a prior audit report.
Air Force auditors reported 25 a repeat finding that Travis AFB did not
always maintain property accountability for items costing over $500. In
addition, the auditors reported that cardholders did not always obtain
required advance authorizations for purchases of computer and
communication equipment. Air Force Audit Agency auditors reported 26
that the 99th Wing at Nellis
AFB effectively controlled purchase card purchases, noting that purchases
were properly approved, recorded in cardholder logs, and that approving
officials reviewed cardholder records monthly. However, the auditors found
that some units improperly purchased bottled water
and that opportunity existed for unit commanders to ensure greater
visibility over unit purchases by reviewing automated records in U. S.
Bank*s database.
23 Air Force Audit Agency, Installation Report of Audit: Air Force
Purchase Card Program, Air Force Flight Test Center, Edwards AFB CA, Audit
Report F2002- 0005- DD0000 (Washington, D. C.: Jan. 31, 2002).
24 Air Force Audit Agency, Installation Report of Audit: Air Force
Governmentwide Purchase Card Program, 37th Training Wing, Lackland AFB TX,
Audit Report WR002003 (Washington, D. C.: Oct. 17, 2001). 25 Air Force
Audit Agency, Installation Report of Audit: Air Force Purchase Card
Program, 60th Air Mobility Wing, Travis AFB CA, Audit Report F2002- 0019-
WM0000 (Washington, D. C.: Nov. 29, 2001).
26 Air Force Audit Agency, Commanders Audit Program, Report of Audit: Unit
Purchase Controls for the International Merchants Purchase Authorization
Card, 99th Air Base Wing, Nellis AFB NV, Audit Report WN001C02
(Washington, D. C.: Apr. 4, 2001).
Weaknesses in Accountability and Lack of
Management plays a key role in demonstrating and maintaining an
organization*s integrity
Disciplinary Actions
and ethical values, especially in setting and maintaining the
organization*s ethical tone, providing guidance for proper behavior,
removing temptations for unethical behavior, and providing discipline when
appropriate. GAO*s Standards for Internal Control in the
Federal Government (GAO/ AIMD- 00- 21. 3.1 November 1999)
During our work, we noted that misuse of the purchase card was not always
subject to strong disciplinary action or consequences, even though Air
Force Instruction 64- 117 requires installation purchase card program
coordinators to take appropriate action to document violations and
preclude their reoccurrence. The Instruction also requires approving
officials to document cardholder violations and forward the information to
the program coordinator. The Instruction states that action( s) taken
should be commensurate with the violation( s) and gives examples of
actions, such as suspending the cardholder or approving official account,
requiring remedial training, requiring restitution for any unauthorized
purchases, and permanently revoking purchase card privileges. Holding
individuals responsible for proper program execution is an integral part
of a strong control environment.
Our review of the results of annual purchase card surveillances performed
all four case study locations determined that the surveillances found
violations of Federal Acquisition Regulation guidelines on micropurchases
and requirements to use mandated sources of supply. Recommended
disciplinary actions for violations of these federal regulations were
limited to requiring the offending approving officials and cardholders to
take remedial training. For repeat offenders, the surveillance reports
generally recommended that the cardholder*s and/ or approving official*s
purchase card account( s) be suspended until remedial training was
completed. In only a few cases, had surveillance reports recommended
canceling the accounts and revoking cardholder privileges, even for repeat
offenders. As previously discussed, Edwards AFB surveillances did not
include findings on these issues and, therefore, Edwards AFB did not take
disciplinary action for failure to follow federal guidelines on
micropurchases and using mandated sources of supply.
Further, although three Edwards AFB surveillance reports identified
improper use of the purchase card to buy food for employees, pay for party
supplies, and purchase invitations for a change of command ceremony, the
reports did not recommend disciplinary action, and we saw no evidence that
the cardholder or the benefiting individuals were required to pay for
the unauthorized purchases. According to the Edwards AFB Contracting
Director, cardholders have been counseled and in some cases referrals were
made to unit commanders to take appropriate disciplinary action for
improper use of the purchase card. However, Edwards AFB officials provided
no documentation that any disciplinary actions were taken.
The Air Force Audit Agency reported that inaction by contracting officials
reduced the effectiveness of other purchase controls, increased
transaction errors, and undermined the Air Force purchase card goals. Air
Force auditors concluded that without enforcement of purchase card
requirements, such as administratively disciplining the offenders or
revoking purchase card privileges, purchase card discrepancies will likely
continue. We agree with the Air Force Audit Agency*s conclusions.
In response to our DOD purchase card audits, the Congress has recently
addressed the question of discipline for those who misuse the government
purchase card. Section 8149( c) of the Department of Defense
Appropriations Act, 2003 (fiscal year 2003 appropriations act), 27 and
section 1007( a) of the Bob Stump National Defense Authorization Act for
Fiscal Year 2003 (fiscal year 2003 authorization act) 28 provide that the
Secretary of Defense establish guidelines and procedures for disciplinary
actions to be taken against department personnel for improper, fraudulent,
or abusive use of government purchase cards.
Inadequate Infrastructure for Program Monitoring and
Management should ensure that skill needs are continually assessed and
that the
Oversight
organization is able to obtain a workforce that has the required skills
that match those necessary to achieve organizational goals*. As a part of
its human capital planning, management should also consider how best to
retain valuable employees, plan for their eventual succession, and ensure
continuity of needed skills and abilities. GAO*s
Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
21. 3.1, November 1999)
Ineffective oversight of the purchase card program also contributed to
weaknesses in the overall environment. Installation program coordinators
are established as the pivotal officials in managing and overseeing the
purchase card program. The coordinators at the installations we audited
27 Public Law 107- 248, 116 Stat. 1519, 1572. 28 Public Law 107- 314 (H.
R. Rep. No. 107- 702).
had little training on what they should be doing to oversee the program
and limited time to carry out oversight activities that are called for in
Air Force Instruction 64- 117, such as reviewing U. S. Bank exception
reports and
following up on suspicious transaction activity as well as conducting
annual surveillances. Effective oversight activities also would include
other management reviews and evaluations to assess risks associated with
the number of credit card accounts, credit limits, and approving official
span of control and to assess the effectiveness of controls, identify
systemic weaknesses, and determine the extent of potentially fraudulent,
improper, and abusive or questionable purchases. We also found that the
program coordinators did not have the grade level or
organizational authority** clout** to routinely deal with unit commanders,
approving officials, and resource managers across the installation, who
may significantly outrank them, to enforce purchase card guidelines and
controls. Program coordinators have the primary responsibility for
purchase card program management and significant control over procurement
activities carried out by a large number of individuals. For example,
during fiscal year 2001, the Nellis AFB program coordinator who was a GS-
9, similar in grade to a master sergeant, had
responsibility for over 55,000 purchase card transactions totaling over
$27 million involving 638 cardholder accounts and 99 approving officials.
Installation contracting officials told us that program coordinator
staffing had not kept pace with the growth in the purchase card program.
GSA data show that Air Force purchase card activity has grown from 2.8
million transactions totaling $1.3 billion at the beginning of fiscal year
2000 to 3.2 million transactions totaling about $1.4 billion at the end of
fiscal year 2001. During fiscal year 2002, Lackland AFB increased the
number of staff assigned to the program coordinator*s office from three
staff assigned in fiscal year 2001 to a total of six staff to provide
better oversight of Wilford Hall*s purchase card program as well as to
monitor purchase card use by units transferred to Lackland AFB when Kelly
AFB closed. The other three installations we audited had not increased
their program coordinator staffing. As of September 2002, Edwards AFB had
three staff assigned, Nellis AFB had two staff, and Travis AFB had one and
a half staff to oversee their purchase card programs. Further, at Travis
AFB, where military employees have held the program coordinator position,
there have been four different individuals assigned to the program
coordinator position since October 2000 due to high turnover associated
with military positions. As a result, Travis AFB program coordinators
spend much of their time learning versus overseeing the purchase card
process. Table 4 shows the
grade level, staffing, and span of control data for installation purchase
card program coordinators at our four case study locations as of August
2002.
Table 4: Installation Program Coordinator Span of Control as of September
30, 2002 Grade level of installation
Staff in program Number of Number of
Value of Air Force program
coordinator*s approving cardholder
Number of transactions installation
coordinator office
officials a accounts a transactions (in millions)
Edwards AFB GS- 12 3 122 530 39,600 $21.7 Lackland AFB GS- 11 6 113 662
93,446 43.9 Nellis AFB GS- 9 2 99 638 52,591 30.6 Travis AFB 1 st
lieutenant 1.5 131 702 56,682 30.3
Source: GAO analysis of U. S. Bank data. a Data presented are as of the
end of August 2002. In September 2002, the Travis AFB Contracting Director
told us that he had requested approval to hire a full- time GS- 9 staff
member to assist the
program coordinator. In early November, the Deputy Contracting Director
told us that they had received approval hire a GS- 11 civilian employee as
the installation purchase card program coordinator as well as the GS- 9
assistant, beginning in January 2003. Given the risks associated with
ineffective purchase card program management identified in our purchase
card work, it is imperative that agencies have sufficient numbers of
qualified, experienced purchase card program coordinator staff to help
oversee their purchase card programs and that their grade levels be
commensurate with their responsibilities. Tests of Key Control
Activities
Internal control activities help ensure that management*s directives are
carried out. The control activities should be effective and efficient in
accomplishing the agency*s control objectives. GAO*s Standards for
Internal Control in the Federal Government (GAO/ AIMD 00- 21. 3.1,
November 1999)
Our tests of statistical samples of transactions at four Air Force
installations found weaknesses in key purchase card control activities.
For example, of the five key control activities we tested, we found that
all four Air Force locations had significant control breakdowns in at
least three of
them. However, on a positive note, our tests of easily pilferable property
items included in our statistical sample transactions showed that two of
the four Air Force installations we audited were able to account for all
the property items that we selected for testing.
Control activities occur at all levels and functions of an agency. They
include a wide range of diverse activities such as approvals,
authorizations, verifications, reconciliations, performance reviews, and
the production of records and documentation. For the Air Force purchase
card program, we
tested those control activities that we considered to be key in creating a
system to provide reasonable assurance that transactions are correct and
proper throughout the procurement process. The key control activities and
techniques we tested include (1) advance approval of purchases, (2)
independent receiving and acceptance of goods and services, (3) cardholder
reconciliation of monthly statements, (4) independent
review by an approving official of the cardholder*s reconciled statements
and supporting documentation within the Air Force- prescribed time frame,
and (5) cardholders obtaining receipts and maintaining invoices that
support their purchases and provide the basis for reconciling cardholder
statements. Table 5 summarizes the results of our statistical testing.
Appendix I includes the specific criteria that we used to conclude on the
effectiveness of these controls.
Tabl e 5: Internal Control Activity Statistical Testing Results Percentage
of breakdowns in key purchase card controls a Air Force
Advance Independent Cardholder Approving
Supporting installation authorization receiving reconciliations official
review invoice/ receipt
Edwards 6 68 22 70 9 Lackland 12 61 26 87 30 Nellis 4 53 37 69 0 Tr av i s
2 56 21 73 8
a The numbers represent point estimates for the population based on our
sampling tests rounded to the nearest percentage point. The confidence
intervals for our sample estimates are presented in appendix I of this
report.
Source: GAO analysis.
The results in table 5 include transactions for which supporting
documentation was destroyed due to improper records retention guidance in
the Air Force Instruction. Advance Authorization of
Our test work showed that, for the most part, the four case study
locations Purchases
we tested had documentation of required advance authorization with
estimated failure rates for required advance authorization of purchases
ranging from 2 percent to 12 percent. The segregation of duties between
officials who authorize a purchase and the cardholder who makes the
purchase helps reduce the risk of fraud, waste, and abuse in the purchase
card program. The Air Force purchase card program Instruction 64- 117
requires cardholders to obtain authorization from the specified
controlling/ servicing organization on base for certain purchases,
including
purchases of computer and communication equipment, video equipment,
medical items, and hazardous materials, before making the purchase. The
Air Force installations we audited documented advance authorizations on
forms established specifically for that purpose.
Independent Receiving and The requirement for documentation of independent
receiving and
Acceptance acceptance by someone other than the cardholder is not
specifically
addressed in DOD policy or Air Force purchase card program Instruction 64-
117. We believe that independent documentation of receipt of items
purchased by a cardholder is a basic internal control activity that
provides additional assurance to the government that purchased items are
not acquired for personal use and that they come into the possession of
the government. Based on our statistical testing, we estimated that the
failure rate for independent documentation of receipt and acceptance*
receiving of goods and services by someone other than the cardholder*
ranged from 53 percent to 68 percent at the four Air Force locations we
tested. The
types of items in our sampled transactions that lacked independent
evidence of receipt and acceptance included computer software and memory
cards, a fax machine, a cassette recorder, camera film, hardware,
supplies, and tools. These items were purchased at stores such as
Homebase, Staples, and Radio Shack. Because the Air Force purchases items
for valid, government purposes from stores that are widely used by
consumers to acquire items for personal use, verification of receipt of
goods and services by an individual other than the cardholder is necessary
to reduce the risk of fraudulent transactions.
Cardholder Reconciliation Cardholder reconciliation is a key control
activity for detecting invalid
and Approving Official transactions, including billing errors and
unauthorized purchases. Review
However, based on our statistical testing, we estimated that cardholders
at the four case study locations lacked documented evidence of timely
reconciliations of monthly purchase card statements from 21 percent to 37
percent of the time. As evidence that purchase card statements were
reconciled, we accepted check marks, notes, sequential numbering, and
numbering systems that tied transactions on the statement to items on the
cardholders* purchase card logs. Independent approving official review of
monthly, reconciled cardholder statements is a key control activity for
segregation of duties, whereby no one individual has control over all
aspects of a transaction. Based on our statistical testing, we estimated
that approving officials at the four case study locations lacked
documented evidence that they had reviewed monthly, reconciled purchase
card statements, or had reviewed them within required time frames, from 69
percent to 87 percent of the time. Our statistical tests of approving
official review considered only documented review of statements with
evidence of reconciliation. The high failure rates are due, in part, to
approving officials* failure to date the reconciled monthly statements
when they reviewed them. The failure rate also may be attributable to
approving official duties falling into the category of *other duties as
assigned* and the span of control issues discussed earlier.
The high failure rate for approving official review is of particular
concern because the Air Force uses a *pay and confirm* policy, which is
inconsistent with governmentwide and DOD guidelines on reconciliation and
payment of purchase card bills. In a letter dated April 30, 2002, DOD
informed us that its reengineering memorandums and other pronouncements
are in compliance with 10 U. S. C. 2784, which requires the Secretary of
Defense to issue regulations that require, among other things,
reconciliation of purchase card statements to receipts before the
statements are forwarded to the disbursing office. Both section 4535 of
volume 1 of the Treasury Financial Manual and DOD*s Purchase Card
Reengineering Implementation Memorandum #3 (change 1, June 30, 1998)
require that purchase card statements be reconciled and forwarded for
payment in a timely manner and allow *pay and confirm* only with respect
to verification of government receipt of the purchased items or services.
In contrast, Air Force purchase card policy permits cardholder statements
to be reconciled and approved after payment has been made. While a
conscientious postpayment reconciliation and approval process may provide
reasonable control, the lack of documented evidence of postpayment
reconciliation and approval and the undisputed, potentially fraudulent
transactions identified in our work underscore concerns about
noncompliance with the law. In July 2002, Air Force management asked its
contractor, U. S. Bank, to *shut down* (suspend from use 29 ) over 4, 000
unreconciled, unapproved cardholder accounts until the reconciliations
were completed and the approving officials had reviewed them. Accounts
that had not been reconciled as of the end of August 2002 were canceled.
According to an Air Force headquarters official, these accounts would need
to be manually reconciled because they are no longer active in U. S.
Bank*s system.
Under Air Force *pay and confirm* procedures, the installation Financial
Services Office designates a certifying officer to verify availability of
funding and certify the monthly installation purchase card invoices for
payment prior to receipt of the confirmation of reconciled statements from
the approving official. Monthly invoices are to be paid in full and are
not to be adjusted for disputed items. Instead, cardholders and approving
officials are to resolve any irregularities through a separate dispute
process. The Air Force Instruction requires that approving officials
review and approve reconciled cardholder statements and submit the
confirmed statements to the Financial Services Office within 15 days of
receipt of the monthly statement, but no later than the 15 th day of the
following month* commonly referred to as the 15- day rule. The Financial
Services Office files the confirmed statements with a copy of the
previously certified statement.
The pay and confirm process has yielded benefits, such as increased rebate
earnings, and has almost eliminated late payment interest. However,
without effective controls over cardholder reconciliation and approving
official review, the pay and confirm process increases the risk that
fraudulent, improper, and wasteful purchase card expenditures could occur
and go undetected. DOD and Air Force officials told us that they
29 Suspended purchase card accounts are placed in inactive status pending
further decisions about their use, such as returning them to active status
after a required action has occurred or canceling the accounts.
were concerned about the lack of compliance with requirements for purchase
card statement reconciliation and approval. DOD and U. S. Bank officials
told us that this control was implemented upon receipt of the April 25,
2002, monthly purchase card statements. The
officials told us that on July 1, 2002, approximately 4,000 cardholder
accounts were suspended and no further charges could be made to these
accounts until they were reconciled, and reviewed and approved by the
approving officials. The officials also told us that reconciliation of
these accounts resulted in a high volume of disputed transactions as
cardholders began to reconcile their statements and approving officials
had to review and approve them, indicating that fraudulent or erroneous
transactions may have occurred and had not been previously detected. On
August 22, 2002, DOD*s Purchase Card Joint Program Management
Office Director told us that 149 of the purchase card accounts that were
suspended on July 1, 2002, had not been reviewed and confirmed by the
approving officials and, as a result, the accounts had not been
reactivated. The DOD Director said that he planned to cancel these
accounts because
they apparently are not needed. However, the failure to reconcile these
accounts raises questions about whether cardholders and/ or approving
officials may have made fraudulent or improper transactions for which they
want to avoid scrutiny. Without reconciliation and independent review, DOD
and the Air Force have no assurance that such purchase card activity did
not involve fraudulent or improper transactions.
Supporting Invoice or As shown in table 5, three of the Air Force case
study locations we
Receipt audited* Edwards, Nellis, and Travis Air Force bases* maintained
the vast
majority of the receipts for items purchased with the government purchase
card. For example, our statistical test results showed the estimated
failure rates for this control activity ranged from 0 to about 9 percent
across these
three locations. Our statistical test results for Lackland AFB showed that
this location had an estimated 30 percent failure rate for this control
activity. Of the 37 Lackland AFB transactions that were missing receipts,
23 related to Wilford Hall Medical Center transactions. Another three of
the transactions in our Lackland AFB sample related to a security forces
unit that transferred to another Air Force installation and did not retain
purchase card documentation. In testing for evidence of a receipt, we
accepted either the original or a copy of the invoice, sales slip, or
other
store receipt.
GAO*s Internal Control Standards state, *all transactions and other
significant events need to be clearly documented, and the documentation
should be readily available for examination. All documentation and records
should be properly managed and maintained.* Without supporting sales
receipts or invoices, it is not possible to tell the quantity and type of
items purchased or whether those items were for government business or of
a personal nature. In such cases, a thorough investigation would be
needed to determine whether a transaction was proper, or if it represented
a potentially fraudulent, improper, or abusive transaction needing
corrective action. Further, without a receipt, two other key control
activities* independent receipt and acceptance and approving official
review* become ineffective. Independent receiving cannot confirm that the
purchased items were received and the approving official cannot review a
cardholder statement reconciled with the supporting receipt. A near zero
failure rate is a reasonable goal considering that receipts are easily
obtained or replaced when inadvertently lost. Controls Over Accountable
As shown in table 6, three of the four installations we audited recorded
Property
most of the items we selected for testing in their accountable property
records. In addition, the Air Force was able to locate and we confirmed
that all of the items that were not recorded at two installations were in
the possession of the government. However, Air Force officials were unable
to locate 4 of the 114 accountable property items we tested at Edwards AFB
and 14 of the 70 accountable items we tested at Travis AFB, indicating
that these items may have been lost or stolen. The property book officer
at Travis AFB told us that cardholders do not always notify the property
office and provide documentation of accountable items purchased with the
government credit card* even though many of them are easily pilferable and
desirable items. As previously discussed, Travis AFB*s failure to record
in the installation*s property records, accountable property purchased
using a government purchase card was also an Air Force Audit Agency repeat
audit finding.
Tabl e 6: Property Items Not Recorded in Property Records Air Force
Property items Items not on Items that could installation selected for
testing property books not be located Edwards 114 12 4
Lackland 35 1 0 Nellis 68 10 0 Tr av i s 70 49 14 Source: GAO
nonrepresentative selection of property items included in statistical
samples of Air Force purchase card transactions.
Items such as a digital camera, a laser printer, and computers and
monitors were not included in base property records. The Edwards AFB
property items that could not be located included two computer servers and
two monitors costing a total of $11,258 that were ordered for other
installations. The Travis AFB property items that could not be located
included a digital camera costing $812 that, according to investigative
records, was previously reported stolen from an employee*s office and
eight computers costing $14, 128 that were allegedly sent to the Defense
Reutilization Marketing Service (DRMS) as excess items during the year
they were purchased. Because serial numbers for the computers had not been
recorded, we could not confirm that the eight computers we selected for
testing were items that were sent to DRMS. A Travis AFB contracting
official told us that these new computers should not have been sent to
DRMS as excess property. The official told us that unneeded computer
equipment is required to be turned in to the information technology unit
for assignment to other installation units. Other missing items included a
laptop computer and four computer monitors costing under $500.
GAO*s internal control standards and DOD Instruction 5000.64, Defense
Property Accountability, require that accountable property be recorded in
property records as it is acquired. The DOD Instruction refers to
accountable property as *controlled inventory items* and defines these
items as those designated as having characteristics that require them to
be identified, accounted for, secured, segregated, or handled in a special
manner to ensure their safekeeping and integrity. The Instruction defines
pilferable items as those that have a ready resale value or application to
personal possession and that are, therefore, especially subject to theft.
However, the DOD Instruction does not include a list of items that fall
into
these categories. Accountable property generally includes high- cost
property items and easily pilferable or sensitive items, such as computers
and related equipment, cameras, cell phones, and power tools. Air Force
Instruction 33- 112, Computer Systems Management, requires mandatory
inclusion of computer items costing $500 or more in inventory
records. However, the Air Force does not have a policy for recording other
types of easily pilferable or sensitive items in its property records.
According to an Air Force headquarters acquisition official, decisions on
how to control items, such as computers and related equipment, cameras,
cell phones, and power tools, are left to the discretion of the
installation commanders. As a result, there is no assurance that Air Force
installations are following DOD policy. At the four installations we
audited, we found that most computers were recorded in either central or
unit- level property systems. However, cardholders at the installations we
audited were not always aware that items such as digital cameras, fax
machines, or computer items costing less than $500 meet the definition of
controlled inventory items and/ or pilferable items and thus should be
recorded in their property records.
One factor that may explain the positive Air Force test results at three
of the four installations we audited is that these installations made
greater use of centralized purchasing and receiving for computer
equipment. As a
result, contracting and information technology units controlled purchasing
and receiving for these items and assured that the items were recorded in
the property records when they were received. In contrast, at Travis AFB,
nearly half of the property items tested were not recorded in property
records and management could not locate many of these items. The use of
central purchasing and receiving helps to mitigate against control
breakdowns where cardholders do not take action to ensure that accountable
items are recorded in property records. Potentially Fraudulent,
We identified numerous purchase card transactions at the four
installations Improper, and Abusive
we audited and in our Air Force- wide data mining that were potentially
fraudulent, improper, and abusive or questionable. Buying items with or
Questionable
purchase cards without the requisite control environment and key control
Transactions
activities in place creates unnecessary risk of fraud and abusive and
wasteful spending. Also, the lack of records previously discussed raises
concerns about whether files could have been destroyed so that potentially
fraudulent, improper, or abusive transactions were not documented and
subjected to review. In addition, we saw a number of potentially
fraudulent transactions at the case study locations we audited and in our
Air Force-
wide analysis that related to compromised accounts. We did not review all
potentially fraudulent, improper, and abusive transactions identified in
our work. As discussed in appendix I, our work was not designed to
identify, and we cannot determine, the extent of potentially fraudulent,
improper, and abusive or otherwise questionable transactions.
Potentially Fraudulent We identified transactions that Air Force officials
acknowledged to be
Purchase Card Transactions fraudulent, as well as potentially fraudulent
transactions for which no
supporting documentation was available, at all four installations we
audited, as well as in our Air Force- wide analysis. Some transactions
identified as potentially fraudulent resulted from compromised accounts in
which a purchase card or account number was stolen and used by someone
other than the cardholder to make unauthorized purchases. We found five
potentially fraudulent transactions involving two purchase card accounts
that were not disputed with the bank. Further, none of these transactions
were referred to Air Force investigators until we questioned them. We
considered potentially fraudulent purchases to include those made by
cardholders that were unauthorized and intended for personal use. We also
considered transactions for which there was no supporting documentation to
be potentially fraudulent because, in the absence of supporting
documentation, it is not possible to determine whether these transactions
represented valid government purchases, fraudulent transactions that went
undetected, or fraudulent transactions for which documentation was
intentionally destroyed to cover up the fraud. In these instances,
cardholders and approving officials were unable to tell us the types of
items purchased or the purpose of the transactions. However, we determined
that they had not disputed any of these transactions. Potentially
fraudulent transactions can also involve vendors charging purchase cards
for items that cardholders did not buy. Although collusion can circumvent
what otherwise might be effective internal control activities, a robust
system of guidance, internal control activities, and oversight can create
a control environment that provides reasonable assurance of preventing or
quickly detecting fraud, including collusion.
Air Force and U. S. Bank officials told us that in July 2001, U. S. Bank
identified numerous fraudulent transactions due to compromised accounts.
According to U. S. Bank officials, this was a widespread fraud involving
many credit card banks that was apparently related to a fraud ring that
used a computer to randomly generate credit card account numbers and/ or
counterfeit credit cards, which they then used. U. S. Bank officials told
us that the compromised accounts initially were believed to
be associated with transactions in a few states, including California and
Georgia. However, the fraud was subsequently determined to be a nationwide
problem. According to Air Force and U. S. Bank officials, numerous Air
Force purchase card accounts were canceled due to this fraud. Given the
risk associated with such fraud, it is extremely important that
cardholders reconcile their monthly statements in order to detect and
dispute potentially fraudulent transactions. Table 7 illustrates the types
of potentially fraudulent transactions that we identified.
Tabl e 7: Potentially Fraudulent Air Force Purchase Card Transactions Air
Force locations Vendor Total amount
Andrews E- Z Pawn $2, 443 Edwards BEF Corporation 19, 000 Tr av i s
Flowers Sent Today, Inc., Flowers Anytime 432 Scott Ocean Drive Fashions,
Inc., Rendezvous on the Beach, Donald Pliner Concept Store, Sunglass Hut,
Watch World 2,401
Patrick Citgo 7- Eleven, Publix, Chevron, Kash N Karry, Speed SM 249
McConnell Ross Stores, Old Navy, K- Mart, Target 3,232 Luke Nationwide
Gourmet of AZ 100 Lackland Oakley, Cabela*s, Rebel Hobbies, LACAF
Golf Course, Franklin Covey, Handspring, Inc., That Fish Place, and
Gargoyles 8,707 Nellis Eb*s Stuff 185 Source: GAO analysis of selected Air
Force fiscal year 2001 purchase card transactions.
Our Air Force- wide data mining and analysis of purchase card
documentation identified potentially fraudulent purchase card transactions
at Andrews and McConnell Air Force bases that were never disputed with the
bank or credited to the government. Our analysis of documentation related
to the potentially fraudulent transactions that were not disputed
disclosed the following facts.
The E- Z Pawn transaction was for a $2, 443 down payment on a $10,000
sapphire ring. An October 4, 2001, agency program coordinator purchase
card surveillance report indicated that the reviewer had questioned the
lack of receipt for the E- Z Pawn transaction; however, the surveillance
did not question the propriety of this transaction. No
further action was taken, even though pawnshops are coded to a merchant
category that is required to be blocked as a means of preventing
fraudulent transactions from being processed. In response to our inquiry,
the program coordinator told us that there is no evidence that either the
cardholder or the approving official disputed the transaction. Also, we
found no credit for this transaction in the Air Force purchase card
database from U. S. Bank. According to the cardholder, at the time the
potentially fraudulent transaction occurred, he did not have possession of
the purchase card. The cardholder told us that his purchase card account
was being closed due to outsourcing of
his unit*s function, and he had turned over his purchase card to another
individual. The cardholder stated that, as a result, he never received his
monthly statement and thus did not perform a reconciliation or identify
the potentially fraudulent transaction. We determined that the program
coordinator took no further action to ensure that the potentially
fraudulent transaction was disputed.
The Air Force headquarters acquisition official who obtained the
supporting documentation on these transactions for our review and analysis
told us that she referred these transactions to the Air Force Office of
Special Investigations and our investigators confirmed that Air Force
investigators had opened a case to investigate these frauds. The four
potentially fraudulent McConnell AFB transactions totaling
$3,232 were made on July 31, 2001. These potentially fraudulent
transactions included charges made at San Diego area stores, including
$690 at a Ross Store, $873 at Old Navy, $689 at K- Mart, and $980 at
Target. These charges were all made when the purchase card was in the
possession of the approving official while the cardholder was assigned to
Biloxi, Mississippi, for over 2 months for noncommissioned officer
training. Although the approving official stated that his review of the
cardholder*s August 2001 statement detected the potentially fraudulent
transactions, he did not dispute these transactions. The program
coordinator told us that disputing erroneous charges is covered repeatedly
in cardholder and approving official training. The program
coordinator also told us that she counseled the approving official
extensively on cardholder and approving official responsibilities. The
program coordinator told us that she informed the approving official that
she had reduced the credit limit on the account to $1 to avoid further
charges. She also said that she instructed the approving official that he
should dispute these transactions in the absence of the cardholder*s
dispute. However, instead of disputing these transactions,
the approving official waited for the cardholder to return from training
in mid- September and asked the cardholder to seek guidance from the
program coordinator. A circular discussion ensued about who would take
action to dispute the potentially fraudulent transactions, with the
approving official stating that the cardholder was to dispute these
transactions and the cardholder stating that he thought the program
coordinator would dispute the transactions. As a result, the
transactions were never disputed and the program coordinator took no
further action.
The Air Force headquarters acquisition official who obtained the
supporting documentation on these transactions for our review and analysis
told us that she referred these transactions to the Air Force Office of
Special Investigation. However, Air Force investigators told us they did
not initiate an investigation because they believed that the transactions
had been credited. Our review of the Air Force purchase card database and
discussions with the installation program coordinator determined that the
transaction had not been credited and the potential fraud is unresolved.
Therefore, we have referred this
matter to our investigators for further investigation. In contrast to the
failure to dispute the potentially fraudulent transactions discussed
above, the following are examples of potentially fraudulent transactions
that Air Force cardholders detected and disputed.
A $19,000 charge for a duplicator from BEF Corporation* an imaging
technology vendor in Allentown, Pennsylvania* related to a compromised
purchase card account. Our investigators confirmed that the Edwards AFB
cardholder called the bank and disputed the transaction before the item
was delivered. As a result, neither the government nor the bank incurred a
loss related to this compromised account. Our investigators confirmed that
the cardholder had referred the transaction to Air Force investigators.
Three unauthorized Travis AFB purchases, including one transaction at
Flowers Sent Today, Inc., and two transactions at Flowers Anytime,
totaling $432 were made by an inmate at a local county jail. Travis AFB
officials told us that they disputed these transactions because they were
unauthorized and they believed that the account had been compromised.
These potentially fraudulent transactions were subsequently investigated
by U. S. Bank and the purchase card account was canceled.
Five potentially fraudulent charges were made to a Scott AFB, Illinois,
cardholder*s account on August 21 and August 22, 2001, totaling about
$2,400. The charges were made at vendors in the Miami area, including
charges at Ocean Drive Fashions, Inc., for $426, Rendezvous on the Beach
for $224, Donald Pliner Concept Store for $520, Sunglass Hut for $586, and
Watch World for $645. Our review of Air Force records showed that the
cardholder disputed these transactions and a U. S. Bank investigation of
the potentially fraudulent transactions was initiated on November 9, 2001.
Our review of U. S. Bank records showed that the
purchase card account was credited for the fraudulent transactions on June
6, 2002* nearly a year after the transactions were made. A Patrick AFB
cardholder identified unauthorized purchase card
transactions totaling $249 that were made at Citgo 7- Eleven, Publix,
Chevron, Kash N Karry, and Speed SM by his wife between April 1 and 6,
2001. According to the unit commander, the cardholder*s purchase card
privileges were revoked, and the cardholder agreed to pay for his wife*s
unauthorized charges. However, as of the end of October 2002, we
determined that the cardholder had not reimbursed the government for his
wife*s unauthorized use of the purchase card. We suggested that the
employee should submit a check to the installation*s Financial Services
Office along with an explanation for the payment.
We also contacted the Air Force Office of Special Investigations to
inquire about their purchase card fraud cases. Investigators told us that
their investigative database did not contain codes that permit them to
identify purchase card fraud cases. As a result, the investigators had to
manually review all procurement- related cases to attempt to identify
cases involving purchase card fraud. Appendix III summarizes some of the
purchase card fraud cases that were investigated by the Air Force Office
of Special Investigations.
Improper Purchases and Besides potentially fraudulent activity, our work
also identified numerous
Improper Use of the examples of transactions related to improper
purchases, as well as
Purchase Card improper use of the purchase card. Improper purchases are
those
purchases that, although approved by Air Force officials and justified as
intended for government use, are not permitted by law or regulation or DOD
or Air Force policy. Improper use of the purchase card related to use of
the card as an acquisition tool without a negotiated contract, use of the
card by a nongovernment activity, and improper use of convenience checks
30 associated with purchase card accounts.
Improper Purchases We identified the following three types of improper
purchases. Purchases that did not serve a legitimate government purpose.
Split purchases in which the cardholder circumvents the micropurchase
limit 31 or other transaction limits. Purchases from improper sources.
Various federal laws and regulations
require procurement officials to acquire certain products from designated
sources, such as Javits- Wagner- O*Day Act (JWOD) vendors. 32 In addition,
agencies are required to purchase furniture, if available, from Federal
Prison Industries, Inc. (UNICOR), and DOD policy requires
that printing services be obtained in- house through the Defense Automated
Printing Service.
We found several instances of purchases, such as clothing, luggage, and
food, in which cardholders improperly used their purchase cards, or they
purchased goods that were not authorized by law or regulation. The
Federal Acquisition Regulation, 48 C. F. R. 13.301( a), provides that the
30 Convenience checks are courtesy checks provided by the purchase card-
issuing bank, which are charged to a related purchase card account. DOD
and Air Force policy permit use of convenience checks within specified
purposes and amounts.
31 Federal Acquisition Regulation guidelines prohibit splitting purchase
requirements into more than one transaction to avoid the need to obtain
competitive bids on purchases over the $2,500 micropurchase threshold. 32
The JWOD program is a mandatory source of supply for all federal entities.
It generates
jobs and training for Americans who are blind or have other severe
disabilities by requiring federal agencies to purchase supplies and
services furnished by nonprofit agencies, such as the National Industries
for the Blind and the National Institute for the Severely Handicapped.
governmentwide commercial purchase card may be used only for purchases
that are otherwise authorized by law or regulation. We identified the
improper Air Force transactions as part of our analysis of
questionable vendor transactions at the four installations we audited and
in our Air Force- wide data mining. Table 8 summarizes examples of the
improper transactions we identified that do not serve a legitimate
government purpose.
Tabl e 8: Improper Air Force Purchase Card Transactions Types of items
purchased Vendors Amount Clothing:
Physical fitness clothing and fleece LL Bean, Oakley jackets for drill
instructors $1, 696
Blazer and dresses for participants in Filene*s Sports Coats, Dress Barn
Eubank Service Award Ceremony 828
Wool coats for a flight attendant Hecht*s 380 Clothes for parachutists,
pilots, and
REI others 20, 698
Luggage:
Samsonite pullman suitcases El Portal Luggage Garment bags SM Discount
Luggage, 1- 800
5,500 Pathfinder pullmans for recruiters
Luggage 2,291
Duffel bags Foley*s
620 Patagonia
685
Food/ Water:
Meals provided during planning Marriott Hotel, Rusty Pelican, Where
meeting and unit luncheons Pigs Fly 2,692
Bottled water Wishing Well Florist 796
Other:
Personal exercise equipment Tar g et 100 Sunglasses Oakley 540 Briefcases
and flight bags Franklin Covey 14, 664 Source: GAO analysis of Air Force
fiscal year 2001 transactions and related documentation.
The following examples illustrate the types of purchases included in table
8.
Clothing and sunglasses. We identified numerous purchases of clothing for
military personnel that appeared to be personal preference items. We
determined that these purchases were improper based on our review of
DOD directives, 33 Air Force policies, 34 and discussions with Air Force
headquarters officials. For example, at Lackland AFB, one of our test
locations, we identified purchases of clothing for drill instructors,
including physical fitness clothing items from LL Bean costing $816 and 16
fleece jackets from Oakley costing $880. We also identified numerous
purchases
of military clothing items from REI totaling $20,698, including
paratrooper jumpsuits and cold weather pilot jackets. These clothing items
are covered under the military pay clothing allowance funded in the
Military Personnel,
Air Force, appropriation and should not have been purchased with Operation
and Maintenance appropriations using the purchase card.
In addition, we found purchases of what we consider to be personal
clothing and accessory items that were authorized by installation
officials. For example, Hanscom AFB, Massachusetts, authorized the
purchase of a
blue blazer from Filene*s costing $180 and eight dresses from Dress Barn
costing $648 for civilian employees who participated in the Eubank Service
Award Competition. 35 Hickam AFB, in Hawaii, purchased two wool coats from
Hecht*s in Waldorf, Maryland, costing $380 for a flight attendant assigned
to the 65th Airlift Squadron. In addition, the Lackland AFB
pararescue team purchased 12 pairs of sunglasses from Oakley costing $540
and improperly justified them as meeting the requirement for free- fall
paratrooper goggles. Oakley sunglasses do not qualify as paratrooper
goggles. None of these items are authorized by Air Force policy.
Therefore, we concluded that all of these purchases involved personal
items, which employees should pay for from their own salaries.
Luggage and briefcases. We identified numerous purchases of luggage deemed
necessary for employees who travel frequently, including 50 Samsonite
suitcases costing $5,500 for members of the Thunderbirds team
33 DOD Directive, Armed Forces Clothing Monetary Allowance Policy, (Number
1338.5, Mar. 9, 1998), and DOD Instruction, Armed Forces Clothing Monetary
Allowance Procedures, (Number 1338.18, Jan. 7, 1998). 34 Air Force
Instruction 36- 2903, Dress and Personal Appearance of Air Force Personnel
(June 8, 1998) and AFI 36- 3014, Clothing Allowances for Air Force
Personnel (Sept. 1, 1998).
35 The Eubank Service Award was established in 1990 to recognize the best
Air Force Services Program at small bases with 5, 000 or fewer civilian
and military employees.
and garment bags costing $2,250 for the Bolling AFB band, and purchases of
two Pathfinder Pullman suitcases costing $620 for recruiters. In addition,
our review of a limited selection of Franklin Covey transactions
identified six purchases of leather briefcases costing $212 each (after a
20 percent discount) and purchases of 203 flight bags (similar to a
briefcase) costing from about $50 to $86 each. Luggage and briefcases are
considered personal items that should be paid for from employees*
salaries. Food and water for employees. We identified purchases of meals,
bottled
water, and payment for a unit luncheon. Without statutory authority,
appropriated funds may not be used to furnish meals to employees within
their normal duty stations. 36 We identified improper charges for food
provided to employees during an internal government meeting and unit
luncheons. For example, Lackland AFB scheduled a strategic planning
meeting for local employees of the Tri- Care organization at a Marriott
Hotel
in San Antonio, Texas. The total cost of the meeting was $1,052, including
$538 for breakfast and lunch for 18 individuals* 3 consultants and 15
employees who were not on travel. In addition, appropriated funds may not
be used to purchase bottled water for employees unless they are assigned
to a duty station without potable water. Food and bottled water are
considered personal items that employees should pay for from their own
salaries.
Split Purchases Another category of improper transactions is a split
purchase, which occurs when a cardholder splits a transaction into more
than one segment to circumvent the requirement to obtain competitive
prices for purchases over the $2, 500 micropurchase threshold or to avoid
the other established credit limits. The Federal Acquisition Regulation
and Air Force
Instruction 64- 117 prohibit these practices. Once items exceed the $2,
500 threshold, they are to be purchased in accordance with simplified
acquisition procedures, which are more stringent than those for
micropurchases. Our analysis of purchases made at the four case study
locations and our Air Force- wide data mining identified numerous split
purchases. In addition, Air Force Audit Agency auditors identified split
purchases as a continuing Air Force- wide problem.
One split purchase we identified involved a violation of appropriations
law. The purchase was made to avoid the expiration of unused fiscal year
2001 operation and maintenance appropriations. Our inquiries disclosed the
36 72 Comp. Gen. 178, 179 (1993); 65 Comp. Gen. 508, 509 (1986).
following events surrounding this transaction. On September 30, 2001, at
approximately 9: 00 p. m. Eastern Standard Time, Air Combat Command
headquarters at Langley AFB, Virginia, determined that $100, 000 in fiscal
year 2001 operation and maintenance appropriations would expire in 3
hours* at midnight* unless the funds could be obligated and spent quickly.
At 6: 00 p. m. Pacific Standard Time, the command contacted the USAF
Weapons School, 57th Operations Support Squadron at Nellis AFB, Las Vegas,
Nevada, with the direction to use the funds before they expired. At
approximately 7: 00 p. m., the Nellis AFB cardholder purchased 120 helmets
at more than $800 each and several other items totaling just under $100,
000 from the base supply store. The purchase was split into four separate
transactions to stay within the cardholder*s single transaction limit of
$25,000 per transaction. The items purchased were placed *on hold* and
were not taken from the store. Over the next few days* October 1 and
October 2* the cardholder *returned* the items, exchanging them for other
items totaling the same amounts. In an explanatory memorandum, the
cardholder wrote that the unit had not previously identified its unfilled
requirements and, therefore, did not have a list of items for purchase if
*end- of- year* money was available. The subsequent credits and reuse of
the funds in early October 2001, in effect, converted fiscal year 2001
appropriations to fiscal year 2002 budget authority. Improper Sources
Another type of improper purchase occurs when cardholders do not buy
from a mandatory procurement source. Various federal laws and regulations,
such as the Javits- Wagner- O*Day Act (JWOD), require government
cardholders to acquire certain products from designated sources. The JWOD
program is a mandatory source of supply for all federal entities. It
generates jobs and training for Americans who are blind or have other
severe disabilities by requiring federal agencies to purchase supplies and
services furnished by nonprofit agencies, such as the National Industries
for the Blind and the National Institute for the Severely Handicapped.
Most JWOD program supplies are small- value items such as office supplies,
cleaning products, or medical/ surgical supplies that nearly always fall
into the micropurchase category. We noted that most cardholders at the
four installations we audited made purchases from required sources and
three of the four installations had JWOD stores on base. However, we found
numerous Air Force- wide purchases from
Franklin Covey for office supplies, such as calendars and day planners,
which could have been purchased from JWOD vendors. We also found that Air
Force cardholders charged $2,220 for 82 high- quality pens from Franklin
Covey costing from $16 to $60 each. Table 9 summarizes
transactions we identified that were made from other than required sources
of supply.
Tabl e 9: Purchases from Other Than Required Sources of Supply Type of
item purchased Vendor Total amount
Office supplies Franklin Covey $188, 834 Printing Kinkos, Mayes Printing
336, 680 Source: GAO Analysis of Air Force fiscal year 2001 transactions
and related documentation.
The failure to purchase designated items from JWOD vendors who support the
handicapped undermines public policy objectives to support programs for
the handicapped. For example, as discussed in our Army purchase card
report, 37 the Director of Sales for the National Industries for the Blind
told us that this program has experienced large decreases in sales over
the past 2 years because cardholders were purchasing from commercial firms
rather than buying the mandated products. Further, operating revenues of
government service organizations, such as the Defense Automated Printing
Service (DAPS), which is a required source of printing services for DOD
agencies, and Federal Prison Industries, Inc. (UNICOR), which is a
required source for furniture, are significantly reduced to the extent
that cardholders do not use these sources for mandated printing and
related services.
Improper Use of Purchase Cards In addition to the improper transactions
discussed above, our analysis of
and Convenience Checks Air Force- wide purchase card transactions
identified the following three types of improper use of the purchase card.
Use of the purchase card as acquisition tool where a negotiated contract
is required,
Purchase card use by a religious fund activity without authority in law,
regulation, or DOD or Air Force policy, and Improper use of convenience
checks billed to the purchase card
account. 37 U. S. General Accounting Office, Purchase Cards: Control
Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO- 02- 732
(Washington, D. C.: June 27, 2002).
Tabl e 10: Improper Uses of the Purchase Card and Convenience Checks
Improper use Vendors Amount
Multiyear tractor rentals Crown Ford $52, 500 Expenses of Chaplain*s Cheap
Tickets, United Air Lines, Marriott Office volunteer Hotels, J. C. Penney,
K- Mart, Wal- Mart, Sav- On
Drugs, JoAnn Fabric and Crafts, Hobby Lobby 6,609 Convenience checks
Payments over $2, 500 and reimbursement of
tuition expense to employees 212, 898 Source: GAO analysis of Air Force
fiscal year 2001 purchase card transactions.
The following examples illustrate the types of purchases included in table
10.
Month- to- Month Equipment Rental. We found that a cardholder at Whiteman
AFB, Missouri, improperly used the purchase card as an acquisition vehicle
without a negotiated contract. Specifically, the cardholder used the
purchase card to rent tractors for use by the
installation*s waste treatment facility at a cost of about $10,000 during
fiscal year 2001. Our analysis of records related to this lease showed
that an initial month- to- month rental of a tractor covered 3 years
beginning in November 1997. In November 2000, the cardholder initiated
monthly rental of a new tractor for 2 years. According to the installation
program coordinator, the current cost to purchase the type of tractor that
was rented during fiscal years 2000 and 2001 would be in the $35,000 to
$45, 000 range; however, a lease versus purchase cost- benefit analysis
was never performed. We determined that the cost of the two rentals, which
together covered a 5- year period, totaled over $50,000.
Unauthorized Use of the Card by Chaplain*s Religious Fund. Our analysis of
fiscal year 2001 FE Warren AFB, Wyoming, purchase card transactions
totaling over $6, 600 by a Chaplain Office volunteer, who later became a
contractor, raised a number of questions about the proper use of the
purchase card. Air Force purchase card policies state that commercial
purchase cards are provided to military members and federal civilian
employees to pay for official government purchases, and that only
employees may be cardholders. According to the Chaplain Office officials,
these transactions were for authorized purchases. They said they often use
parishioners and volunteers to assist them in carrying out religious
activities. However, Air Force purchase card policies state that
commercial purchase cards are provided to military members and federal
civilian employees to pay for official government purchases. Chaplain
Office officials told us that because the Chaplain Religious Fund did not
fall under Air Force purchase card authority as either an appropriated
fund or a nonappropriated fund activity, they believed they could set up
the government purchase card program for their office by working
independently with the bank. We discussed our concerns about Chaplain
Office authority to use the
government purchase card with Air Force attorneys and acquisition and
Chaplain Office officials. After reviewing Air Force policy, Air Force
attorneys advised us that the Chaplain*s Office did not have authority to
use the government purchase card for Chaplain Religious Fund activities.
Convenience Checks. We identified improper use of convenience checks
related to payments in amounts over $2,500, payments for recurring
services, and payments to vendors who accept purchase card payments. Air
Force Instruction 64- 117 limits the use of convenience checks to
amounts of no more than $2,500 per check, prohibits the use of convenience
checks for recurring services, and restricts convenience check use to
instances where vendors do not accept purchase cards. Splitting amounts
across more than one check to keep below the $2,500 limit also is
prohibited. Another area of improper use of convenience checks related to
reimbursement of employees for tuition assistance. We determined that
reimbursement to employees is not a permitted use of
convenience checks. Further, because there is a 1.7 percent fee for using
a convenience check, cost- benefit considerations are required when using
convenience checks. Our analysis of fiscal year 2001 convenience check use
determined that Air
Force purchase cardholders who had convenience check authority had issued
45 convenience checks totaling over $200,000 for amounts over $2,500. We
also found that a cardholder at Luke AFB, Arizona, improperly used
convenience checks for recurring monthly payments on a 2- year automobile
lease for authorized use by a military officer. It is common knowledge
that car dealerships accept credit cards. At one of our case study
locations* Travis AFB* we found that a cardholder had reimbursed employees
for $12,214 in tuition expenses. The cardholder wrote two convenience
checks* one check for $2, 090 and another for $500* to reimburse an
employee for a total of $2,590 in tuition expenses. The
cardholder wrote two additional convenience checks* one check for $6, 125
and another for $3, 500* to reimburse two other employees for $9, 614 in
tuition expenses. The 1. 7 percent fee on the first two checks was
$44 and the fee on the second two checks was about $163* significantly
more that the Defense Finance and Accounting Service fee of approximately
$7 to process electronic payments.
In its August 2002 purchase card report, the Air Force Audit Agency stated
that its review found that cardholders issued convenience checks to pay
salaries and wages totaling $512,378 for dieticians, nurses, and
administrative personnel, and to acquire recurring services, such as
aircraft washing totaling $84,830, local area network support costing
$110, 495, equipment rentals costing $20,700, and lawn- care services
costing $43,505. Air Force auditors determined that cardholders expended
$2.6 million for
recurring services and incurred unnecessary bank fees of $15,228
associated with the 1.7 percent service fee. Abusive or Questionable We
also identified abusive and questionable transactions at installations we
Use of the Purchase Card
audited and in our Air Force- wide data mining. We defined abusive
transactions as those that were authorized, but the items purchased were
at an excessive cost (e. g., *gold plated*) or for a questionable
government need, or both. Abuse occurs when the conduct of a government
organization, program, activity, or function falls short of societal
expectations of prudent behavior. Often, improper purchases, such as those
discussed in the previous section, are also abusive. For example, the
purchases of personal clothing and luggage for employees were also abusive
purchases because they were for a questionable government need.
Questionable transactions are those that appear to be improper or abusive
but for which there is insufficient documentation to conclude either. We
deemed questionable those purchases for which there was not a reasonable
and/ or documented justification. Questionable purchases often do not
easily fit within generic governmentwide guidelines on purchases that are
acceptable for the purchase card program. They tend to raise questions
about their reasonableness. Many, such as gym- quality exercise equipment
for fitness centers, are common Air Force* and DOD* purchases because the
Air Force must provide more than merely a work environment for its
soldiers. However, others involving excessive purchases of alcohol,
payment for taxidermy services, and purchases of expensive leather
computer cases discussed in this section, raise questions about whether
they are appropriate purchases. Precisely because these types of purchases
tend to raise questions and subject the Air Force to criticism, they
require a higher level of advance purchase review and documentation
than other purchases.
When we examined these types of purchases, we usually did not find
evidence of advance purchase justification. In attempting to justify
whether purchases were acceptable, improper, or abusive, program
coordinators, approving officials, and cardholders often provided after-
thefact rationales for the purchases. We believe that these types of
questionable purchases require scrutiny before the purchase, not after.
The examples in table 11 illustrate our point.
Table 11: Abusive or Questionable Air Force Purchase Card Transactions
Location Type of item purchased Vendor Total amount
Nellis AFB Entertainment - dinner party and Treasure Island Hotel and
Casino show for visiting general, including excessive purchases of alcohol
totaling $800 $2, 141
Tyndall AFB 2 reclining rocking chairs with LA- Z- Boy vibrator massage
feature 1,935
Air Force Academy, Colorado Mounted mule deer head Timberline Taxidermy
Springs 375
Wright- Patterson AFB Leather laptop case for Brigadier Bentley*s Luggage
General 595
Edwards AFB Pictures for legal office SkyMall Airline Catalog 1,459
Edwards AFB Leather backpack for Dell laptop The Complement
computer 224 Edwards, Kelly, Travis and Civilian clothes for military
assistants Old Navy, Eddie Bauer, The Men*s Peterson AFBs Warehouse,
Macy*s 2,016
Elmendorf, Lackland, Costumes for Air Force regional band
Nordstrom*s, Macy*s, Purple Pansy, Peterson, and Travis AFBs members
Gentlemen*s Choice, Foley*s, Men*s Warehouse, Dorothy Keck Dance 2,948
Source: GAO Analysis of Air Force fiscal year 2001 transactions and
related documentation.
The following examples illustrate the problems associated with some of the
transactions we identified as abusive or questionable.
At Nellis AFB, the purchase card was used to pay for dinner and a show
for 18 people costing $2,141 at Treasure Island* a Las Vegas hotel and
casino. The purpose of the event was to entertain the General of U. S.
Joint Forces Command, who was visiting the base. Air Force Instruction 65-
603, Official Representation Funds * Guidance and Procedures, permits the
use of government funds for official entertainment. However, we determined
that the nature of this entertainment did not meet certain Force
guidelines related to
requirements to conduct entertainment on a modest basis that is in the
interest of the taxpayer. For example, we determined that the cost of the
dinner party, which totaled $2,141, included about $800 for alcohol for
the 18 people who attended the event* over $40 per person. We believe the
excessive cost of alcohol purchased at this event falls short
of societal expectations of prudent behavior and modest cost. An Air
Force Academy Natural Resource office in Colorado Springs,
Colorado, used the purchase card to pay Timberline Taxidermy $375 to
prepare a shoulder mount of a mule deer head. According to the approving
official, the deer was *road kill* that he found on the roadside and
brought to the Natural Resources Office. The approving official
then approved the purchase of the taxidermy service to prepare a stuffed
shoulder mount of the deer. The deer head was hung on the wall in the
Natural Resources Office. The justification of the purchase of taxidermy
services provided to our auditors stated, "The mule deer (Odocoileus
hemionus) is the most common large mammal present on US Air Force Academy
grounds. The mount was created as an educational/ interpretive tool and is
on display in the USAFA Natural Resources office. The mount can be removed
from the office wall for use in educational presentations to the base
population (e. g., that only males have antlers which are shed and re-
grown each year.) The deer died after being struck by a vehicle and was
salvaged by USAFA Natural Resources personnel." When our auditor asked the
cardholder how often the deer head was removed from the office wall and
used for educational purposes, the cardholder stated, "not much." The
cardholder, the approving official, and two other Natural Resource
employees occupy the office where the deer head currently hangs.
The Edwards AFB, 412th Test Wing/ Electronic Warfare used fiscal 2001
year- end funds to purchase 21 computers and monitors at a total cost of
$47,372. An e- mail message dated September 13, 2001, within the 412th
Test Wing had subject lines stating *Last Minute Purchasing* and included
one message line that stated, ** I gather they have quite a bit
of unspent credit card money and want to move out on it this week.* The 21
computers and monitors were received on October 23, 2001. At the time of
our inspection of these items in June 2002, 11 of the computers and 9 of
the monitors were located in a storage area and many of the items were
still in the original shipping boxes. According to
the Contracting Director, the computers were purchased to support hiring
of engineers and engineering contractors. However, recruiting efforts were
delayed because some applicants did not accept offered
positions and further recruiting efforts were suspended during
implementation of a new personnel system in the fall of 2001. The
Contracting Director told us that the unit commander directed that the
computers be stored in their original boxes for safekeeping until
recruiting was completed and the equipment could be assigned to
engineering staff, which was accomplished in July or August 2002. The fact
that the computers were still in their original boxes at least 9 months
after they were ordered raises questions about whether there was a
legitimate need for these items to be purchased with fiscal year 2001
appropriations. Appropriated funds are available only to meet legitimate
needs of the agency during the fiscal year for which the funds were
appropriated.
Our testing of property items identified two Travis AFB transactions
dated October 4, 2000, for purchases of computer equipment totaling
$14,128 that involved wasteful spending. For example, when we attempted to
observe the items to confirm their existence, we were told that the unit
had decided to convert to Dell computers. As a result, within 1 year of
their purchase, these items, as well as a number of other computers, were
sent to the Defense Reutilization Marketing Service as excess property.
In addition, we questioned purchases of civilian clothing for military
assistants and costumes for regional band members. While DOD and the Air
Force have issued policy 38 that permits the purchase of these types of
clothing and designates them as *uniforms,* we believe this clothing
represents personal preference attire and should be paid for by the
employees. For example, in addition to standard issue uniform clothing
items, military assistants are permitted to purchase slacks or skirts,
shirts,
and blazers to wear while serving as aides to general officers. In
addition, we noted purchases including two tuxedos, six dresses, and
earrings as costumes for members of regional Air Force bands. Under Air
Force policy, regional bands are permitted to purchase tuxedos and evening
gowns to be worn as costumes during performances. While the civilian
clothing for military assistants and band costumes are considered
government property, which may be reused as appropriate, they are not
38 DOD Directive, Armed Forces Clothing Monetary Allowance Policy, (Number
1338.5, March 9, 1998); DOD Instruction, Armed Forces Clothing Monetary
Allowance Procedures,
(Number 1338.18, January 7, 1998); Air Force Instruction 36- 2123,
Management of Enlisted Aides; Air Force Enlisted Aide Handbook; and AFI
35- 101, Public Affairs Policies and Procedures, Chapter 8, *Community
Relations.*
likely to be reissued to others. Therefore, we question whether taxpayer
funds should be used to pay for these items.
Management DOD and Air Force managers told us that they initiated a number
of actions
Improvements during fiscal year 2002 to improve purchase card controls.
These initiatives
include use of automated U. S. Bank controls to (1) tie cardholder credit
limits to allocations of budget authority, (2) automatically deactivate
purchase card accounts where monthly statements have not been reconciled
and reviewed by the approving officials within prescribed time
frames, and (3) cancel purchase card accounts for approving officials with
responsibility for excessive numbers of cardholders. According to Air
Force officials, they plan to periodically lower the threshold for
suspending purchase card accounts until the approving official*s span of
control complies with DOD span of control guidelines.
In addition, the DOD Comptroller appointed a Charge Card Task Force, which
issued its final report on June 27, 2002. The Task Force report included a
number of recommendations, including establishing a purchase card concept
of operations, accelerating the electronic certification and bill paying
process, improving training materials, identifying best practices in areas
such as span of control and purchase card management skill sets, and
establishing more effective means of disciplining those who abuse the
purchase cards. The recommendations address many of the concerns we
identified in our Air Force work.
In response to our DOD audits, the Congress has recently enacted
amendments in section 1007( a) of DOD*s fiscal year 2003 authorization act
that address requirements for (1) periodic reviews to be performed to
determine whether each purchase card holder has a need for the purchase
card, (2) periodic inspector general audits to identify potentially
fraudulent, improper, and abusive uses of purchase cards, (3) appropriate
training for cardholders and oversight officials, and (4) specific
policies
regarding the number of purchase cards issued by various organizations,
authorized credit limits, and categories of employees eligible to be
issued purchase cards. Further, DOD*s fiscal year 2003 appropriation and
authorization acts each include requirements that the regulations issued
by the Secretary of Defense provide for appropriate disciplinary actions
or other punishment to be imposed in cases in which DOD employees violate
purchase card regulations or are negligent or engage in misuse, abuse, or
fraud with respect to a purchase card, including removal in appropriate
cases.
Conclusions A well- controlled purchase card program is a valuable tool
for streamlining the government*s acquisition processes. However, the
problems we identified with missing receipts, lack of cardholder
reconciliations and
approving official review, and failure to follow requirements in laws,
regulations, and DOD and Air Force policies and procedures resulted in
control environment weaknesses that leave the Air Force vulnerable to
fraud and improper use of the purchase card, as well as abuse and wasteful
spending. Also, although Air Force management has been proactive in
establishing improved controls, it has not ensured that installation-
level program coordinators* the primary program management officials* have
the tools to develop local control systems and adequate oversight
activities.
Further, installation contract officials have not consistently
demonstrated the commitment to enforce established controls. Strengthening
the control environment will require a renewed focus and attention and
commitment to building a robust purchase card infrastructure.
Recommendations for To strengthen the overall control environment and
improve internal control Executive Action
over the Air Force purchase card program, we recommend that the following
actions be taken.
Overall Program We recommend that the Secretary of the Air Force direct
the Assistant
Management and Secretary of the Air Force for Acquisition and the Deputy
Assistant
Environment Secretary for Contracting to take the following actions.
Establish specific policies and strategies governing the number of
purchase cards to be issued with a focus on minimizing the number of
cardholders.
Direct all command and installation- level agency program coordinators
to review purchase card use with a view toward eliminating unneeded
purchase card accounts. Eliminate purchase cards used to facilitate line
item accounting.
Direct all agency program coordinators to review the number of
cardholders who report to an approving official and make the changes
necessary so that approving officials do not have responsibility for
reviewing more cardholder accounts than allowed by Air Force and DOD
policies.
Review existing credit limits and monthly spending and develop policies
and strategies on credit limits provided to cardholders with a focus on
minimizing specific cardholder spending authority and minimizing the
federal government*s financial exposure. Deactivate purchase card
accounts of alternate cardholders and
approving officials when primary cardholders and approving officials are
available.
Establish specific training courses for cardholders, approving
officials, and agency program coordinators tailored to the specific
responsibilities associated with each of those roles.
Require installation program coordinators to track and monitor
corrective actions on purchase card audit and annual surveillance findings
and provide periodic status reports to their installation contracting
directors.
Develop and implement a program oversight system for program
coordinators that includes standard activities and analytical tools to be
used in evaluating program results.
Require reports on annual surveillance results to include an assessment
of control environment issues, including the ratio of cardholders to
employees, ratio of approving officials to cardholder accounts, ratio of
monthly credit limits to actual spending, and number of cardholders and
approving officials requiring training. Assess the adequacy of human
capital resources devoted to the
purchase card program, especially for oversight activities, at each
management level, and provide needed resources where appropriate.
We also recommend that the Secretary of the Air Force direct the Assistant
Secretary of the Air Force for Acquisition and the Deputy Assistant
Secretary for Contracting to make to following revisions to Air Force
Instruction 64- 117, Air Force Government- wide Purchase Card Program.
Correct faulty records retention guidance by referring to specific
guidelines in the Federal Acquisition Regulation, National Archives and
Records Administration federal records retention guidelines, DOD*
Financial Management Regulation, and other federal guidelines as
appropriate.
Require purchase card program management and administrative records
generated by installation program coordinators and approving officials,
such as records of cardholder and approving official appointments and
training, cardholder delegations of authority, and purchase card
surveillances, to be retained for 3 years.
Stipulate, in the body of the Instruction, that approving officials are
required to have annual purchase card refresher training.
Require that the surveillance checklist, which is included in an
appendix to the Air Force Instruction, be used to guide and document
surveillance results.
Require reports on the results of annual surveillances to be signed by
installation contracting directors to demonstrate management oversight and
*tone at the top.*
Require reports on surveillance results to be addressed to unit
commanders.
Require reports on surveillance results to include recommendations for
unit commander action, where approving officials and cardholders have
failed to follow Air Force policy* particularly policy related to federal
regulations, such as micropurchase requirements and mandated sources of
supply.
Key Control Activities To resolve noncompliance with requirements in law
for proper certification of purchase card payments, we recommend that the
Secretary of the Air Force take the following actions. Direct the
Assistant Secretary of the Air Force for Acquisition and the Deputy
Assistant Secretary for Contracting to work with the Under
Secretary of Defense (Comptroller) to resolve inconsistencies between DOD
and Air Force policies and procedures for reconciling purchase card
statements prior to payment.
Develop a strategy for achieving Air Force compliance with requirements
in the law that DOD purchase card policies and procedures require
reconciliation of purchase card statements prior to payment.
We recommend that the Secretary of the Air Force direct the Assistant
Secretary of the Air Force for Acquisition and the Deputy Assistant
Secretary for Contracting to revise Air Force Instruction 64- 117 to
provide cardholders, approving officials, and installation program
coordinators with detailed instructions on the following specific control
activities.
Establish appropriate criteria, including types of items and dollar
thresholds for documenting independent receiving and acceptance of items
obtained with a purchase card.
Establish specific procedures for documenting independent receiving,
such as requiring the approving official or supervisor to sign and date
the vendor invoice, sales receipt, or credit card receipt, or requiring
the approving official to sign the cardholder*s monthly purchase log to
verify that items noted as having been received were actually received.
Require cardholders to maintain documentation of timely and independent
receiving and acceptance of items obtained with a purchase card.
Require reconciliation of monthly purchase card statements associated
with accounts that were *shut down* (suspended) in July 2002 due to lack
of cardholder reconciliation and approving official review.
Verify that all potentially fraudulent and erroneous transactions that
have been detected are disputed and properly resolved. Require timely
cardholder notification to the property accountability
officer of pilferable property, such as fax machines, digital cameras, and
palm pilots obtained with the purchase card.
Encourage installation contracting officers to consider the benefits of
central purchasing and receiving and acceptance of computer equipment by
installation information technology units to facilitate recording computer
equipment in accountable property records at the time it is received.
We also recommend that the Deputy Assistant Secretary for Contracting
revise Air Force Instruction 64- 117 to define and list examples of
sensitive and pilferable property purchased with a government purchase
card, including cell phones, digital cameras, fax machines, palm pilots,
and
copiers and printers, and require prompt recording of these items in
installation property systems. In addition, we recommend that the
Assistant Secretary of the Air Force for Logistics establish policies and
procedures for recording all pilferable and sensitive property, including
digital cameras, palm pilots, and cell phones, in installation accountable
property records. At a minimum, require installations to follow DOD
policies and procedures on accountable property.
Potentially Fraudulent, We recommend that the Assistant Secretary of the
Air Force for Financial
Improper, and Abusive and Management (Comptroller) direct the Air Force
Audit Agency and Air
Questionable Purchase Card Force Office of Special Investigations to
establish an Air Force- wide
Activity database of known fraud cases by type of fraud, including
purchase card
fraud, that can be used to identify systemic weaknesses and deficiencies
in existing internal control and to develop and implement additional
control activities, if warranted or justified.
We recommend that the Assistant Secretary of the Air Force for Acquisition
and the Deputy Assistant Secretary for Contracting take the following
actions.
Establish an Air Force- wide database of known purchase card fraud cases
by type of fraud, including vendor fraud and compromised accounts, that
can be used to identify deficiencies in existing internal control and
implement additional control activities, if warranted.
Identify vendors with which the Air Force used purchase cards to make
frequent, recurring purchases, evaluate Air Force purchasing practices
with those vendors, and where appropriate, develop contracts with those
vendors to optimize Air Force purchasing power.
Review organizational use of the purchase card and revoke purchase cards
issued to organizations that do not have authority to participate in the
governmentwide purchase card program.
Cancel convenience check privileges of cardholders who have continued to
improperly use convenience checks.
Require accounting adjustments to be made to correct transactions that
were charged to the wrong appropriation account with respect to fiscal
year and purpose of the expenditures.
Establish appropriate, consistent Air Force- wide policy as a guide for
taking disciplinary actions with respect to cardholders and approving
officials who make or approve fraudulent, improper, or abusive purchase
card transactions.
Require cardholders and/ or approving officials to reimburse the
government for any unauthorized or erroneous purchase card transactions
that were not disputed.
Require benefiting individuals to reimburse the government for the cost
of any personal items that they requested or directed a cardholder to
purchase for them.
We also recommend that the Under Secretary of Defense (Comptroller) direct
the Charge Card Task Force to assess the above recommendations, as well as
the strengths in the Air Force purchase card program that we identified,
and to the extent applicable, incorporate them into its future
recommendations to improve purchase card policies and procedures
throughout DOD.
Agency Comments and On December 13, 2002, DOD*s Purchase Card Joint
Program Management
Our Evaluation Office and the Air Force provided oral comments on a draft
of this report.
DOD and Air Force purchase card officials concurred on 29 of our 39
recommendations and partially concurred with the remaining 9
recommendations. At the time we finalized our work, DOD had not provided a
response to our remaining recommendation that the Charge Card Task Force
assess the recommendations in this report and
incorporate them to the extent applicable, into its future recommendations
to improve purchase card policies and procedures throughout DOD. Of the 9
recommendations involving partial concurrences, the DOD and Air Force
officials (1) agreed in substance with 5 of our recommendations, (2) noted
that the Air Force Office of Special Investigations and DOD Inspector
General have responsibility for actions on two of our recommendations
related to establishing a database of fraud cases by type of fraud that
can be used to identify systemic weaknesses and deficiencies in controls,
and (3) indicated alternative actions have been initiated on the remaining
2
recommendations.
With regard to agreement on the substance of our recommendations, Air
Force officials stated that they would (1) suspend alternate accounts when
primary cardholders and billing officials are available, (2) revise the
Air Force purchase card Instruction to require reports on purchase card
surveillance results to be signed by contracting squadron commander or
chief of the contracting office, (3) require reconciliation of monthly
purchase card statements associated with accounts that were *shut down*
(suspended) in July 2002, (4) issue a policy letter to encourage
installation Contracting Officers to consider the benefits of central
purchasing and receiving and acceptance of computer equipment by
installation Information Technology units, and (5) revise the Air Force
purchase card Instruction to define and list examples of sensitive and
pilferable property and establish clear accountability and/ or visibility
criteria.
With regard to two recommendations related to establishing an Air
Forcewide database of known fraud cases by type of fraud to identify and
correct systemic weaknesses and deficiencies in existing internal control,
Air Force officials stated that the Air Force Office of Special
Investigations in conjunction with the other Defense Criminal
Investigative Organizations
now reports quarterly information on purchase card investigations to the
DOD Inspector General. The officials told us that the DOD Inspector
General has been directed to develop a centralized purchase card database
on known fraud cases and audit results that can be used to identify
potential deficiencies in existing internal controls. They said that the
Air Force will evaluate the Air Force cases and audits to determine the
effectiveness of existing internal controls and implement additional
control activities, if warranted.
Alternative Air Force actions relate to our recommendations that the
Deputy Assistant Secretary for Contracting (1) review organizational use
of the purchase card and revoke purchase cards issued to organizations
that do not have authority to participate in the governmentwide purchase
card program and (2) establish appropriate, consistent Air Force- wide
policy as a guide for taking disciplinary actions with respect to
cardholders and approving officials who make or approve fraudulent,
improper, or abusive
purchase card transactions. With regard to action on the first
recommendation, Air Force officials stated that the Chaplain Service has
authority to issue its own policies and procedures, including purchase
card authority. However, they stated that the Head of the Air Force
Chaplain
Office will recommend reinstatement of the Chaplain Funds in DOD Directive
1015. 1, Establishment, Management, and Control of Nonappropriated Fund
Instrumentalities, which is in the process of being
updated to reflect current DOD and Air Force policies regarding the
government purchase card. The Air Force also agreed to review
organizational use of the purchase card and revoke purchase cards issued
to organizations that do not have authority to participate in the
governmentwide purchase card program. With regard to action on our
recommendation to establish Air Force- wide
policy as a guide for taking disciplinary actions, Air Force officials
noted the existing guidance in the Air Force purchase card Instruction,
which is discussed earlier in this report. They also stated that the
Deputy Assistant Secretary of the Air Force (Contracting) has issued a
memorandum requiring that a summary of each purchase card fraud and each
instance of repeated misuse of the purchase card be briefed quarterly by
the contracting squadron commander to the installation commander along
with the disciplinary action taken. The Congress recently enacted
provisions in DOD*s appropriation and authorization acts that require the
Secretary of Defense to establish guidelines and procedures for
disciplinary actions to be taken against department personnel for
improper, fraudulent, or abusive use of government purchase cards.
In addition, the Air Force provided technical comments on our draft report
stating that it disagreed with our position that civilian clothing for
enlisted aides and costumes for military band members represented abusive
or questionable transactions. The Air Force referred to its Enlisted Aide
Handbook and Air Force Instruction 36- 2123 as authority for purchasing
civilian attire, which is designated as a *uniform* for enlisted aides.
Air Force officials pointed out that their handbook specifically states,
*operation and maintenance funds are used when purchasing uniform
items* and *local purchase is authorized and encouraged.* Air Force
officials also stated that band costumes are authorized purchases in
accordance with Air Force Instruction 35- 101 and that band costumes may
be reused, as appropriate. The Air Force*s position appears to be that any
item defined in its policy as a uniform or band costume can be purchased
using a purchase card and paid for with appropriated funds. We continue to
believe that these clothing purchases are questionable because the Air
Force did not adequately explain the circumstances of the purchases, such
as the purpose of clothing and the vendor. The Air Force*s policy opens
the door for abuse and its implementation merits close scrutiny.
As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute this report until 30 days from its
date.
At that time, we will send copies to interested congressional committees;
the Secretary of Defense; the Under Secretary of Defense for Acquisition,
Technology, and Logistics; the Under Secretary of Defense (Comptroller);
the Secretary of the Air Force; the Assistant Secretary of the Air Force
for Acquisition; the Deputy Assistant Secretary of the Air Force for
Contracting; the Assistant Secretary of the Air Force for Logistics; the
Director of the Defense Finance and Accounting Service; and the Director
of the Office of Management and Budget. We will make copies available to
others upon request. The report also will be available free of charge on
GAO*s Web page at http:// www. gao. gov.
Please contact Gregory D. Kutz at (202) 512- 9505 or kutzg@ gao. gov, John
Ryan at (202) 512- 9587 or ryanj@ gao. gov, or Gayle L. Fischer at (202)
512- 9577 or fischerg@ gao. gov, if you or your staff have any questions
concerning this report. Major contributors to this report are acknowledged
in appendix IV. Gregory D. Kutz Director Financial Management and
Assurance Robert J. Cramer Office of Special Investigations Managing
Director
Appendi Appendi xes x I
Objectives, Scope, and Methodology We audited the effectiveness of the Air
Force*s internal controls and payment of its fiscal year 2001 purchase
card transactions. The Air Force*s purchase card program is the smallest
of the three services, with fewer transactions and dollars spent than the
Army or the Navy. We selected our four case study locations by identifying
major commands with the largest purchase card sales volume and number of
transactions. We selected major Air Force commands that accounted for
about 69 percent of total purchase card charges and 65 percent of total
transactions for fiscal year 2001. We then selected one installation
within each of the four commands based on the magnitude of purchase card
activity (sales volume and
number of transactions). We also considered the results of prior Air Force
Audit Agency work. We selected the following Air Force installations for
our case study work.
Tabl e 12: Installations Audited and Associated Major Commands
Installation and location Major command
Edwards AFB, California Air Force Materiel Command Lackland AFB, Texas Air
Education and Training Command Nellis AFB, Nevada Air Combat Command
Travis AFB, California Air Mobility Command
At the four Air Force installations, we evaluated the policies and
procedures used to guide the purchase card program, and we evaluated the
activities they engage in to oversee the program. We used a case study
approach to evaluate the local purchase card program, and our work
consisted of three major segments*( 1) an assessment of the overall
control environment, including the adequacy of the Air Force*s policies
and procedures, (2) an evaluation of the effectiveness of key internal
control activities, and (3) a determination of whether evidence existed of
potentially fraudulent, improper, and abusive or questionable
transactions. Finally, we assessed management actions taken in fiscal year
2002 to
improve purchase card controls. To assess the overall control environment,
we used as our primary criteria applicable laws and regulations; our
Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
21. 3.1, November 1999); and our
Internal Control Standards: Internal Control Management and Evaluation
Tool (GAO- 01- 1008G, August 2001). To assess the management control
environment, we applied the fundamental concepts and standards
in GAO*s Internal Control Standards to the practices followed by
management.
To test the implementation of key control activities during fiscal year
2001 at the four installations we audited, we obtained from DOD, U. S.
Bank*s database of Air Force purchase card transactions from October 1,
2000, through September 30, 2001. We did not verify the accuracy of U. S.
Bank*s database. We selected stratified random probability samples of 150
to 152 purchase card transactions from the population of Air Force
transactions 39 for each case study location. With these statistically
valid samples, each transaction in the four locations* populations had a
nonzero probability of being included, and that probability could be
computed for any transaction. Within each installation we stratified the
population of transactions by the dollar value of the transaction and by
whether the transaction was likely to be for a purchase of computers and
related equipment. Each sample
transaction for an installation was subsequently weighted in the analysis
to account statistically for all the transactions in the population of
that installation, including those that were not selected.
For each transaction sampled, we tested whether key internal control
activities had been performed. For each control activity tested, we
projected an estimate of the percent of transactions for which the control
activity was not performed, for each installation. Because we followed a
probability procedure based on random selections of transactions, our
sample for each installation is only one of a large number of samples that
we might have drawn. Since each sample could have produced different
estimates, we express our confidence in the precision of our particular
samples* results (that is, the sampling error) as 95 percent confidence
intervals. These are intervals that would contain the actual population
value for 95 percent of the samples we could have drawn. As a result, we
are 95 percent confident that each of the confidence intervals in this
report will include the true (unknown) values in the study populations.
Although we projected the results of our samples to the populations of
transactions at the respective case study locations, the results cannot be
projected to the population of Air Force transactions or installations as
a whole. Tables 13 through 20 present (1) the results of our tests for one
or more control attributes, (2) the point estimates of the failure rate
for the attributes, (3) the two- sided 95 percent confidence intervals for
the failure
39 We only included positive transaction amounts in the population.
rates for each attribute, (4) our assessments of the effectiveness of the
controls, and (5) the relevant lower and upper bounds of a one- sided 95
percent confidence interval for the failure rate. All numbers in these
tables are rounded to the nearest percentage point.
We use one- sided confidence bounds to classify the effectiveness of a
control activity. If the one- sided upper bound does not exceed 5 percent,
then the control activity is effective. If the one- sided lower bound
exceeds
10 percent, then the control is ineffective. Otherwise, we say that the
control is partially effective. Partially effective controls may include
those for which there is not enough evidence to assert either
effectiveness or ineffectiveness. For example, if we were 95 percent
confident that the failure rate for a particular control is less than 3
percent, we would categorize that control activity as *effective* because
3 percent is less than the 5 percent standard. Similarly, if we were 95
percent confident that the
failure rate for a particular control is greater than 72 percent, we would
categorize that control as *ineffective* because 72 percent is greater
than the 10 percent standard.
Table 13 shows the results of our tests of controls for documenting
cardholder and approving official appointments. Local commanders appoint
cardholders and approving officials for their units and notify the
installation program coordinator who then schedules these individuals for
purchase card training.
Table 13: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official
Appointments Percentage of breakdowns Assessment of effectiveness
in key purchase card of controls (and relevant Air Force controls a (and
2- sided bounds of 1- sided 95% installation
95% confidence intervals) confidence intervals)
Edwards 82% Ineffective (71% to 90%) lower bound = 73%
Lackland 0% Effective (0% to 4%) upper bound = 3%
Nellis 0% Effective (0% to 4%) upper bound = 3%
Travis 97% Ineffective (89% to 100%) lower bound =90%
Source: GAO analysis. a The numbers represent point estimates for the
population based on our sampling tests.
Table 14 shows the results of our tests of controls for documenting
initial training of cardholders and approving officials. Air Force
Instruction 64- 117 requires cardholders and approving officials to
receive purchase card training before they can be assigned a purchase card
account.
Table 14: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder and Approving Official Initial
Training Percentage of breakdowns in key
Assessment of effectiveness of purchase card controls a (and
controls (and relevant bounds of Air Force 2- sided 95% confidence 1-
sided 95% confidence installation
intervals) intervals)
Edwards Partially effective 12%
lower bound = 6%, or (5% to 23%)
upper bound = 21% Lackland 0%
Effective (0% to 4%) upper bound = 3%
Nellis 0% Effective (0% to 4%) upper bound = 3%
Travis 51% Ineffective (39% to 64%) lower bound = 41%
Source: GAO analysis. a The numbers represent point estimates for the
population based on our sampling tests.
Table 15 shows the results of our tests of controls for documenting
cardholder delegations of purchasing authority. After cardholders complete
purchase card training, installation program coordinators are to prepare a
letter of delegation of purchasing authority indicating the cardholder*s
transaction level spending limit and monthly credit limit.
Table 15: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Cardholder Delegations of Purchasing
Authority Percentage of breakdowns in key
Assessment of effectiveness of purchase card controls a (and
controls (and relevant bounds Air Force 2- sided 95% confidence
of 1- sided 95% confidence installation
intervals) intervals)
Edwards Partially effective 13%
lower bound = 7%, or (6% to 23%) upper bound = 21%
Lackland 0% Effective (0% to 2%) upper bound = 2%
Nellis 1% Effective (0 % to 5%) upper bound = 4%
Travis 84% Ineffective (73% to 93%) lower bound = 75%
Source: GAO analysis a The numbers represent point estimates for the
population based on our sampling tests. Table 16 presents the results of
our tests for documentation of advance
purchase authorization. Air Force Instruction 64- 117 requires advance
authorization for purchases of certain items, including computer and
communication equipment, video equipment, medical items, and hazardous
materials. Estimates for this table are based only on the sample
transactions for which advance authorization of purchases was required.
Table 16: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Advance Purchase Authorization Percentage
of breakdowns in key
Assessment of effectiveness of purchase card controls a (and
controls (and relevant bounds Air Force 2- sided 95% confidence
of 1- sided 95% confidence installation
intervals) intervals)
Edwards Partially effective 6%
lower bound = 2%, or (1% to 16%)
upper bound = 15% Lackland
Partially effective 12%
lower bound = 3%, or (2% to 32%) upper bound = 29%
Nellis Partially effective 4%
lower bound = 1%, or (1% to 11%) upper bound = 10%
Travis Partially effective 2%
lower bound = 0%, or (0% to 8%) upper bound = 7%
Source: GAO analysis a The numbers represent point estimates for the
population based on our sampling tests.
Table 17 presents the results of our tests for documentation of
independent receiving and acceptance, by someone other than the
cardholder, of goods and services purchased with a government purchase
card. This requirement is not specifically addressed in DOD policy or Air
Force purchase card program Instruction 64- 117. We believe that
independent documentation of receipt of items purchased by a cardholder is
a basic internal control activity that provides additional assurance to
the government that purchased items are not acquired for personal use and
that they come into the possession of the government.
Table 17: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Independent Receipt and Acceptance
Assessment of effectiveness of Percentage of breakdowns in key
controls (and relevant bounds of Air Force purchase card controls a (and
1- sided 95% confidence installation
2- sided 95% confidence intervals) intervals)
Edwards 68% Ineffective (56% to 79%) lower bound = 58%
Lackland 61% Ineffective (48% to 73%) lower bound = 50%
Nellis 53 Ineffective (41% to 65%) lower bound = 43%
Travis 56% Ineffective (44% to 68%) lower bound = 46%
Source: GAO analysis a The numbers represent point estimates for the
population based on our sampling tests.
Table 18 presents the results of our tests for documentation of cardholder
reconciliations. Cardholder reconciliations are key to identifying
potentially fraudulent transactions resulting from compromised accounts,
duplicate or improper vendor charges, and errors. As evidence that
purchase card statements were reconciled, we accepted check marks, notes,
sequential numbering, and numbering systems that tied transactions on the
statement to items on the cardholders* purchase card logs. Table 18:
Estimated Results of Statistical Tests of Fiscal Year 2001 Purchase Card
Transactions for Cardholder Reconciliations
Assessment of effectiveness of Percentage of breakdowns in key
controls (and relevant bounds Air Force purchase card controls a (and
of 1- sided 95% confidence installation
2- sided 95% confidence intervals) intervals)
Edwards 22% Ineffective (13% to 34%) lower bound = 14%
Lackland 26% Ineffective (15% to 39%) lower bound = 17%
Nellis 37% Ineffective (25% to 51%) lower bound = 27%
Travis 21% Ineffective (12% to 33%) lower bound = 13%
Source: GAO analysis a The numbers represent point estimates for the
population based on our sampling tests.
Table 19 presents the results of our tests of timely approving official
review of cardholders* monthly, reconciled statements. Approving official
review is a recognized control activity at all levels of the purchase card
program, and the approving official review process has been described as
the first
line of defense against misuse of the card. DOD*s Purchase Card Joint
Program Management Office and Air Force Instruction 64- 117 recognize that
approving official review of monthly purchase card statements is
central to ensuring that purchase card transactions are appropriate. The
Air Force Instruction requires that approving officials review and approve
reconciled cardholder statements within 15 days of receipt of the monthly
statement, but no later than the 15 th day of the following month. Table
19: Estimated Results of Statistical Tests of Fiscal Year 2001 Purchase
Card Transactions for Approving Official Review
Assessment of effectiveness of Percentage of breakdowns in key
controls (and relevant bounds Air Force purchase card controls a (and
of 1- sided 95% confidence installation
2- sided 95% confidence intervals) intervals)
Edwards 70% Ineffective (58% to 81%) lower bound = 60%
Lackland 87% Ineffective (78% to 94%) lower bound = 80%
Nellis 69% Ineffective (56% to 80%) lower bound = 58%
Travis 73% Ineffective (60% to 84%) lower bound = 62%
Source: GAO analysis a The numbers represent point estimates for the
population based on our sampling tests.
Table 20 shows the results of our tests for documentation of supporting
invoices or receipts. GAO*s Internal Control Standards state, *all
transactions and other significant events need to be clearly documented,
and the documentation should be readily available for examination. All
documentation and records should be properly managed and maintained.*
Without a receipt, independent evidence of the description and quantity of
what was purchased and the price paid is not available. In testing for
evidence of a receipt, we accepted either the original or a copy of the
invoice, sales slip, or other store receipt.
Table 20: Estimated Results of Statistical Tests of Fiscal Year 2001
Purchase Card Transactions for Supporting Invoice or Receipt Percentage of
breakdowns in key
Assessment of effectiveness of purchase card controls a (and
controls (and relevant bounds Air Force 2- sided 95% confidence
of 1- sided 95% confidence installation
intervals) intervals)
Edwards Partially effective 9%
lower bound = 4% , or (3% to 19%) upper bound = 18%
Lackland 30% Ineffective (19% to 44%) lower bound = 21%
Nellis 0% Effective (0 % to 4%) upper bound = 3%
Travis Partially effective 8%
lower bound = 3%, or (3% to 19%) upper bound = 17%
Source: GAO analysis a The numbers represent point estimates for the
population based on our sampling tests. We also tested nonrepresentative
selections of accountable property items
that were included in our sampled transactions. Because some transactions
were for property items that were physically located off base, we elected
to perform our test work on property items that were assigned to the base.
We tested whether these items had been recorded in the
installation*s accountable property records, including unit- level
records, in a timely manner and whether the installation could demonstrate
the item*s existence. We confirmed existence of the items we tested
through physical
observation. In addition to our audit of statistical samples of
transactions at the four case study installations, we also used data
mining techniques to identify other selected transactions at the four
locations and throughout the Air Force*s fiscal year 2001 purchase card
transactions to determine if indications exist of potentially fraudulent,
improper, and abusive or questionable purchase card activity. Our data
mining included identifying transactions with certain vendors were more
likely to sell items that would be unauthorized or that would be personal
items. We also based our selection on the nature, dollar amount, date, and
other identifying characteristics of the transactions. Because of the
large number of transactions that met these criteria, we did not look at
all potential abuses of the purchase card. For a small number of these
transactions at each of the four installations and from the Air Force-
wide database, we requested
limited documentation, usually the supporting invoice, that could provide
additional indications as to whether the transactions were potentially
fraudulent, improper, or abusive or questionable. If the additional
documentation indicated that the transactions were likely proper and
valid, we did not pursue further documentation. If the additional
documentation was not provided, or if it indicated further issues related
to the transactions, we obtained and analyzed additional documentation or
information about these transactions. While we identified some potentially
fraudulent, improper, and abusive or questionable transactions, our work
was not designed to identify, and we cannot determine, the extent of
potentially fraudulent, improper, or abusive transactions. For those
potentially fraudulent transactions that had been or were being
investigated at the four audited installations, we discussed the cases
with the investigators and/ or obtained records and reports on the
investigations. We also interviewed purchase card officials and Air Force
criminal
investigators to identify other Air Force purchase card fraud cases that
had been or were being investigated. We did not audit the Defense Finance
and Accounting Service*s purchase
card payment process. We also did not audit electronic data processing
controls used in processing purchase card transactions. The installations
received hard copy paper monthly bills containing the charges for their
purchases and used manual processes for much of the period we audited,
which reduced the relevance of auditing electronic data processing
controls.
We briefed DOD managers, including officials in DOD*s Purchase Card Joint
Program Management Office, major command purchase card program
coordinators, and purchase card program officials at the installations we
audited on the details of our audit, including our objectives, scope, and
methodology and our findings. On November 20, we requested comments on a
draft of this report. We obtained oral comments from DOD and Air Force
purchase card officials on December 13, 2002, and have summarized those
comments in the *Agency Comments and Our
Evaluation* section of this report. We conducted our audit work from
January through mid- November 2002 in accordance with U. S. generally
accepted government auditing standards, and we performed our investigative
work in accordance with standards prescribed by the President*s Council on
Integrity and Efficiency.
Overview of the Air Force Purchase Card
Appendi x II
Process The Air Force purchase card program is part of the governmentwide
Commercial Purchase Card Program established to streamline federal agency
acquisition processes by providing a low- cost, efficient vehicle for
obtaining goods and services directly from vendors. Under the General
Services Administration*s blanket contract, the Air Force has contracted
with U. S. Bank for its purchase card services. DOD reported that it used
purchase cards to make about 10.7 million transactions for goods and
services at a cost of over $6.1 billion. During this same period, the Air
Force reported that it used government purchase cards to make about 3
million transactions at a cost of about $1.4 billion. This represents
about 23 percent of DOD*s activity for fiscal year 2001. Air Force
purchase card transactions were made using about 80,000 VISA cards issued
to civilian and military employees.
Tabl e 21: Number and Value of Air Force Fiscal Year 2001 Purchase Card
Transactions Cost of
Percent of Number of transactions total Air Force Major Air Force command
transactions
(in millions) cost
Air Education and Training Command 410,564 $173.1 12.4 Air Force Materiel
Command 597,212 305.2 21.9 Air Force Reserve Command 89, 423 28. 1 2.0 Air
Force Space Command 158,799 75. 0 5.4 Air Force Special Operations Command
52, 822 20. 8 1.5
Air Force Services Agency a 266,916 61. 5 4.4 Air Combat Command 607,402
282.3 20.2 Air Mobility Command 452,927 197.8 14.2 Pacific Air Forces
188,722 90. 1 6.4 Other major commands 336,186 162.7 11.6
Total, all major commands 3, 160,973 $1, 396. 6 100.0
Source: GAO analysis of Air Force purchase card program data. a The Air
Force Services Agency is funded by nonappropriated sources.
DOD has mandated the use of the purchase card for all purchases at or
below $2,500 and has authorized the use of the card to pay for specified
larger purchases. For example, the purchase card may be used to purchase
authorized supplies, equipment, and nonpersonal services up to the $2,500
micropurchase threshold. If authorized to make purchases above $2,500,
cardholders not in contracting organizations are to use the government
purchase card only to obtain items from prepriced contracts and other
pricing agreements, such as the Federal Supply Schedule, blanket purchase
agreements, and Indefinite Delivery/ Indefinite Quantity contracts.
Purchases over the $2,500 micropurchase threshold and up to the
simplified acquisition threshold of $25,000 must be in accordance with
streamlined acquisition guidelines in the Federal Acquisition Regulation
(FAR). The purchase card should normally not be used for cash advances;
travel- related purchases; rentals or leases of land or buildings; utility
services; or hazardous/ dangerous items, such as explosives, munitions,
toxins, and firearms.
Government Purchase Card The purchase card can be used for both
micropurchases and payment of Program Guidelines
other purchases. Although most cardholders have limits of $2,500, some
have limits of $25,000 or higher. The Federal Acquisition Regulation, Part
13, *Simplified Acquisition Procedures,* establishes criteria for using
purchase cards to place orders and make payments. DOD has a supplement to
this regulation that contains sections on simplified acquisition
procedures. U. S. Treasury regulations govern purchase card payment
certification processing and disbursements. DOD*s Purchase Card Joint
Program Management Office, which is in the Office of the Assistant
Secretary of the Army for Acquisition Logistics and Technology, has issued
departmentwide guidance related to the use of purchase cards.
However, each service has its own policies and procedures governing the
purchase card program.
Air Force Purchase Card The Air Force purchase card program operates under
federal Air Force
Acquisition and Payment guidance as the policy and procedural foundation
for its purchase card
Processes program. The Air Force headquarters Acquisition Office is
responsible for
the overall management of the Air Force*s purchase card program. The
Acquisition Office has published servicewide guidelines in Air Force
Instruction 64- 117, Governmentwide Purchase Card Program, dated December
6, 2000, to establish responsibilities and procedures and provide
administrative guidance for its government purchase card operations. Under
the Air Force instruction, each Air Force command*s head contracting
officer authorizes agency purchase card program coordinators in local Air
Force units to obtain purchase cards and establish credit limits. The
program coordinators are responsible for administering the purchase card
program within their designated span of control and serve as the
communication link between Air Force units and the purchase card- issuing
bank. The other key personnel in the purchase card program are the
approving officials and the cardholders. They are responsible for
implementing internal controls to ensure that transactions are
appropriate.
Purchase Card Process Figure 2 illustrates the general design of the
purchase card processes for the Air Force. The overall process begins with
the cardholder ordering or purchasing goods or services. Each Air Force
installation*s Financial
Services Office certifies monthly bills for payment upon receipt. After
certification, the Financial Services Offices notify the Defense Finance
and Accounting Service that monthly purchase card statements are ready for
payment. The process ends with cardholder reconciliation and approving
official review and approval of monthly purchase card statements after the
bills have been paid. Any invalid transactions identified during the
reconciliation and review process are to be disputed first with the
vendor, and if not resolved, a *Disputed Item* form is to be submitted to
U. S. Bank for credit.
Figure 2: Air Force Purchase Card Process
Purchase cardholder orders/ charges
Items Vendor
goods and services picked
up Goods and services
Pilferable items to be received with or without
recorded in accountable documentation of
property records independent receiving
Installation Financial U. S. Bank reviews
Services Office establishes disputed charges
Monthly purchase card obligation, certifies
and credits monthly statements are received
consolidated monthly statement or rejects
from bank purchase card statement
the dispute and forwards to DFAS for
payment to U. S. Bank within 3 to 5 days
DFAS processes purchase card payments to U. S. Bank
Cardholders are to reconcile underlying
Cardholders are to log items receipts/ sales slips to
not received and follow up to monthly purchase card
(1) confirm receipt or statements, identify any
(2) dispute the charge invalid charges, and
prepare dispute forms Cardholder or
Approving official reviews approving official are
cardholder support and to log disputed
approves reconciled charges and send
cardholder statement forms to U. S. Bank
within 15 days, or no later for credit
than 15th day of the following month
Source: GAO analysis of Air Force purchase card program organization.
Purchase cardholders are delegated limited contracting officer- ordering
responsibilities, but they do not negotiate or manage contracts. When a
supervisor requests that a staff member receive a purchase card, the
agency program coordinator is to first provide training on purchase card
policies and procedures and then establish a credit limit and issue a
purchase card to the staff member. After receiving training, cardholders
are issued a purchase card, which bears their name and the account number
that has been assigned to them. The cardholder is expected to safeguard
the purchase card as if it were cash. Each cardholder has an established
daily and monthly credit limit and is designated to make
purchases at selected types of vendors. Cardholders use purchase cards to
order goods and services for their units as well as their customers.
Cardholders may pick up items ordered directly form the vendor or request
that items be shipped directly to receiving locations or end users.
The approving official is responsible for providing assurance that all
purchases made by the cardholders within his or her cognizance were
appropriate and that the charges are accurate. The approving official is
supposed to resolve all questionable purchases with the cardholder. In the
event an unauthorized purchase is detected, the approving official is
supposed to notify the agency program coordinator and other appropriate
personnel within the command in accordance with the command procedures.
Under governmentwide guidelines, agencies are required to first attempt to
resolve invalid transactions with the vendors. Transactions that are not
resolved with the vendors may be disputed with the U. S. Bank. The
purchase card payment process begins with receipt of the monthly
purchase card billing statements from the bank. The Air Force uses a pay
and confirm process whereby the monthly purchase card statements received
from U. S. Bank are certified as proper for payment by each installation*s
Financial Services Office within 3 to 5 business days and
forwarded to the Defense Finance and Accounting Service (DFAS) for
payment. Under guidelines in the Air Force purchase card Instruction,
cardholders are required to review and reconcile their monthly purchase
card statements within 5 days of receipt, and approving officials are
required to review cardholders* monthly statements as reconciled and
dispute any invalid charges within 15 days of receipt, but no later than
the 15 th day of the following month. DFAS effectively serves as a payment
processing service and relies on the
Air Force Financial Services Office certification of the consolidated
monthly bill for each installation as support to make the payment. The
DFAS vendor payment system then makes a single payment to U. S. Bank by
electronic funds transfer for each Air Force installation*s monthly
purchase card expenditures.
During the summer of 2001, the Air Force began implementing U. S. Bank*s
Customer Automation and Reporting Environment (CARE) system. CARE provides
several automated purchase card management features, including on- line
cardholder purchase logs, transaction histories, and management reporting
and inquiry functions. CARE management reports identify managing accounts,
approving officials and cardholders* accounts, transaction history,
rejected transactions, and the reasons for the rejections, such as
transactions in excess of the cardholder*s credit limit, potential split
purchases, inactive accounts, and blocked merchant
category codes. During fiscal year 2002, the Air Force implemented
additional purchase card management controls using U. S. Bank*s CARE
system. These enhanced controls include an automated link of cardholder
credit limits to budgetary funding authorizations to help ensure that
purchase card activity will not exceed available funds. Another control
feature monitors approving official span of control over cardholder
accounts to help ensure that installations are meeting DOD and Air Force
goals for reducing and eliminating excessive approving official span of
control. The enhanced controls also include automated tracking of
cardholder review of individual
transactions on their monthly purchase card statements and billing
officials* approval of those statements. Statements cannot be approved
until the cardholders have physically *touched* (clicked on) each
transaction on the computer screen to indicate that they have reviewed the
transactions. CARE automatically shuts down the accounts of billing
officials who have not approved their consolidated statements within 60
days. No charges can be processed against these accounts until they are
reviewed/ reconciled and approved. U. S. Bank has also shut down accounts
that indicate potential fraud. For example, the bank has shut down Air
Force purchase card accounts due to out of state transactions on weekends
and other suspicious patterns of activity that indicate potentially
compromised accounts.
Examples of Air Force Purchase Card Fraud
Appendi x III
Cases The following examples illustrate the types of cases investigated by
the Air Force Office of Special Investigations. Case #1 During May 2000,
after a Nellis AFB approving official retired, the new
approving official*s review of a cardholder*s monthly statements detected
questionable transactions for which no receipts were available. The new
official notified contracting officials who contacted Air Force
investigators. The cardholder, an E- 4, senior airman, used her government
purchase card to obtain between $5,000 and $20,000 in merchandise, which
she then stole and sold, pawned, or left at her residence. When questioned
by her supervisor, who was the approving official, the airman admitted
that she stole the items she had purchased with the government purchase
card. When confronted by investigators, the airman refused to identify
specific
items of equipment that she stole. For example, the airman only stated
that she purchased items from Home Depot and a local hardware store.
Nellis AFB contracting officials told us that the cardholder used the
purchase card to buy fax machines, calling cards, cordless telephones,
digital cameras, chairs, and laser jet printers and sold them to pawnshops
and at swap meets for personal gain. The day before being court-
martialed, the airman paid back approximately
$7, 100 to the government. The airman waived her Article 31 rights 40 and
pleaded guilty to purchasing and pawning over $7,100 worth of personal
items on her purchase card between May 1, 1999, and May 1, 2000. The
airman was convicted of larceny in a General Court- Martial and sentenced
on March 17, 2001, resulting in a reduction in grade to E- 1, $14,768 in
military pay forfeiture, 7 month*s confinement, and a Bad Conduct
Discharge. This fraud was able to occur and continue because the first
approving official apparently had not reviewed the cardholder*s monthly
purchase card statements and, therefore, had not detected or questioned
the fraudulent transactions.
Case #2 On September 27, 2000, the purchase card program coordinator at
Misawa Air Base, Japan, notified Air Force investigators about possible
government purchase card fraud. The program coordinator*s audit of a
cardholder*s
40 Article 31 of the Uniform Code of Military Justice prohibits compulsory
self- incrimination. Thus, the individual waived her right to refuse to
answer questions, which may have tended to incriminate her.
account had revealed numerous undocumented charges/ purchases. Air Force
investigators determined that the fraud was committed by an E- 4, senior
airman, in the Civil Engineering Squadron whose own purchase card had been
revoked for misuse. The airman took advantage of a co- worker*s
inexperience and limited English language capability to obtain and
improperly use her purchase card. The cardholder was a Japanese citizen
employed by the Air Force.
In early October 2000, the cardholder gave investigators a signed, sworn
statement, in which she related that from approximately March through
September 2000, an E- 4, senior airman in the Civil Engineering Squadron
had repeatedly used the cardholder*s government purchase card to pay bills
and make purchases, often without the cardholder*s knowledge. While the
cardholder was aware that some of the purchases were made at the
squadron*s Self Help Store, she told Air Force investigators that she had
no knowledge of the types of items purchased. The cardholder also stated
that when she inquired as to the nature of the purchases, the senior
airman told her that he would take care of purchases using the card
because of her limited English language capabilities. No attempt was made
to correct this misuse of the purchase card until the bank declined a
large purchase of approximately $50,000 due to the high dollar amount. The
declined transaction flagged the account, and the contracting squadron
initiated an inquiry.
Contracting squadron records showed that the senior airman had purchased
approximately $10,000 of merchandise using the Japanese cardholder*s
account. Air Force investigators* review of Self Help Store records failed
to identify what was purchased and/ or if the items had ever been received
at the store. As a result, investigators were unable to determine whether
criminal abuse had occurred. However, because the investigation did
identify procedural violations, investigators referred this matter to the
command for action. The airman subsequently was reassigned from the civil
engineering squadron. The airman was able to use the purchase card for
unauthorized transactions because the cardholder failed to maintain
custody of the purchase card.
Case #3 On August 14, 2001, investigators assigned to the 325 th Security
Forces Squadron at Tyndall AFB, Florida, received an allegation that a WG-
5 41 maintenance employee was using his government purchase card to buy
personal use items. According to a witness, the cardholder had bragged
about using his government purchase card to purchase tools, a television
set, and a computer for his personal use. The witness told the
investigators that he had accompanied the cardholder to a local hardware
and auto parts stores in Panama City, Florida, and had observed the
cardholder using his government purchase card to buy tools and other items
for his son*s vehicle. The cardholder subsequently gave one of the tools
to the witness and told him to keep it for his personal use. Squadron
investigators coordinated with a local hardware store and obtained
security videotape as evidence. The video depicted the cardholder, who was
present with the
witness, purchasing a drill bit, which the cardholder subsequently gave to
the witness. The cardholder also allegedly used his government purchase
card to pay for major engine repairs to his son*s vehicle.
The investigators* preliminary review of the cardholder*s account
disclosed several unauthorized charges for dental work totaling
approximately $1, 800 and charges for an automotive engine repair for $1,
181. Numerous additional suspect charges were identified on the
cardholder*s purchase
card account. The investigation, which is ongoing, has identified an
estimated $5,000 in fraudulent purchases. Coordination with the
cardholder*s command disclosed indications of an almost total lack of
oversight on the part of the approving official.
41 Wage Grade (WG) positions are paid at hourly rates and generally
pertain to blue collar government positions, such as maintenance,
printing, and landscaping.
Appendi x IV
GAO Contacts and Staff Acknowledgments GAO Contacts Gayle L. Fischer,
(202) 512- 9577 Harold D. Reich, (213) 830- 1078 Acknowledgments Staff
making key contributions to this report include Bertram J. Berlin,
James D. Berry, Jr., Cindy Barnes- Brown, Francine DelVecchio, Carlos M.
Garcia, Kenneth M. Hill, Jeffrey A. Jacobson, Noel J. Lance, Richard A.
Larsen, James D. Moses, Jerrod J. O*Nelio, Mark F. Ramage, Kenneth H.
Roberts, Sidney H. Schwartz, and Gary R. Wiggins.
(192047)
a
GAO United States General Accounting Office
Weaknesses in the overall control environment and breakdowns in key
controls relied on to manage the purchase card program leave the Air Force
vulnerable to fraud, waste, and abuse. Major contributors to the weak
control environment included excessive numbers of purchase cards, with
about one purchase card for every seven employees, approving official span
of control that far exceeded DOD guidelines, and credit limits that were
12 to 20 times higher than actual spending.
Of the five key control activities tested, the Air Force had significant
control breakdowns in at least three of them*( 1) receiving of goods and
services by someone other than the card holder, (2) cardholder
reconciliation, and (3) approving official review of the cardholder*s
reconciled statements. The highest failure rates* 69 to 87 percent* at the
four locations tested related to approving official review* viewed by DOD
as the first line of defense against misuse of the purchase card.
As shown in the table, the control breakdowns resulted in purchases that
were potentially fraudulent, improper, and abusive or questionable. GAO
also identified potentially fraudulent transactions for which supporting
documentation was not available to show the quantity and type of items
purchased. Air Force officials could not recall the purpose of these
transactions.
Examples of Potentially Fraudulent, Improper, and Abusive or Questionable
Transactions Types of items purchased Examples of vendors Amount
Down payment on a $10,000 sapphire ring E- Z Pawn $ 2,443 Suitcases,
garment and flight bags, briefcases
El Portal, 1- 800 Luggage, Patagonia, Franklin Covey 23,760
Clothes for parachutists, pilots, and others REI, LL Bean, Old Navy,
Nordstrom 23,602 2 reclining rocking chairs with full lumbar support and
vibrator- massage features LA- Z- Boy Furniture 1,935
Tractor rentals Crown Ford; Ford Motor 52,500 Dinner party and show for
visiting general, including $800 for alcohol
Treasure Island Hotel and Casino 2,141
In addition, GAO identified (1) improper transactions related to
weaknesses in controls relied on to prevent splitting purchases into
multiple transactions to circumvent micropurchase and cardholder
transaction limits and (2) the failure to use mandated sources of supply.
Finally, GAO found that cardholders who abused or improperly used the
purchase card were not subject to strong disciplinary action or
consequences.
The Air Force has taken a number of steps to improve control over the
purchase card program. For example, it implemented automated controls
during fiscal year 2002 to help monitor approving official span of
control, credit limits, and cardholder reconciliation and approving
official review of monthly statements. If effectively implemented, these
controls should help strengthen the overall Air Force purchase card
control environment as well as controls over statement reconciliation and
approval.
PURCHASE CARDS
Control Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, and
Abuse
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 292 To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Gregory Kutz, (202) 512- 9505. Highlights of GAO- 03-
292, a report to
Congressional requesters
December 2002
In July 2001 and March 2002, GAO testified on significant breakdowns in
internal controls over purchase card transactions at two Navy sites that
resulted in fraud, waste, and abuse. As a result, the Congress asked GAO
to audit purchase card controls at DOD. This report focuses on Air Force
purchase card controls and addresses whether the overall management
control environment and key internal controls were effective in preventing
potentially fraudulent, improper, and abusive purchase card transactions.
GAO makes several recommendations to DOD and the Air Force, including the
following.
Reduce the number of purchase card accounts. Minimize credit limits.
Reduce approving official span
of control consistent with DOD guidelines. Establish specific training
courses for cardholders, approving officials, and agency program
coordinators tailored to the specific responsibilities associated with
their roles. Hold cardholders and
approving officials accountable for misuse of the purchase card.
DOD and Air Force officials concurred or partially concurred on our
recommendations and indicated that some actions have been already been
initiated.
Page i GAO- 03- 292 Air Force Purchase Card Controls
Contents
Contents
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Appendix I
Appendix I Objectives, Scope, and Methodology
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Appendix II
Appendix II Overview of the Air Force Purchase Card Process
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Appendix III
Appendix III Examples of Air Force Purchase Card Fraud Cases
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Appendix III Examples of Air Force Purchase Card Fraud Cases
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Appendix IV
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