Contract Management: Government Faces Challenges in Gathering
Socioeconomic Data on Purchase Card Merchants (13-DEC-02,
GAO-03-56).
Government purchase cards have streamlined the process of
acquiring goods and services by allowing employees to purchase
directly from merchants rather than going through the regular
procurement process. The government spent $13.8 billion using
purchase cards in fiscal year 2001. However, the government does
not know how purchase card spending impacts small businesses and
other socioeconomic categories, such as woman-owned small
businesses, and small disadvantaged businesses. Because of these
uncertainties, the General Services Administration (GSA), which
administers the purchase card program, has begun to collect
socioeconomic data on merchants doing business with the federal
government through purchase cards. This report assesses GSA's
efforts and identifies the challenges to collecting and reporting
this data.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-56
ACCNO: A05387
TITLE: Contract Management: Government Faces Challenges in
Gathering Socioeconomic Data on Purchase Card Merchants
DATE: 12/13/2002
SUBJECT: Best practices
Credit
Data collection
Data integrity
Federal procurement
Information resources management
Small business
Statistical data
Strategic planning
GSA Federal Procurement Data System
******************************************************************
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GAO-03-56
Report to Congressional Committees
United States General Accounting Office
GAO
December 2002 CONTRACT MANAGEMENT
Government Faces Challenges in Gathering Socioeconomic Data on Purchase
Card Merchants
GAO- 03- 56
GSA*s effort to collect socioeconomic data in fiscal year 2001 was
ineffective because of incomplete, inconsistent, and, therefore,
unreliable data gathered by banks and payment card associations on behalf
of GSA. The data were inconsistent primarily because GSA did not precisely
define criteria for the information it was seeking from the banks.
Therefore, no meaningful conclusions can be drawn at this time about where
agencies spend purchase card dollars or the effect of purchase cards on
small businesses. Nevertheless, GSA has been working with the Small
Business Administration, the Department of Defense, and the private sector
to develop strategies to improve the data*s reliability. By building on
the lessons learned in its initial attempt to collect the data, GSA hopes
to produce more reliable socioeconomic data for future fiscal years.
We identified several challenges that prevent GSA from gathering data on
100 percent of the merchants doing business with the federal government.
These challenges stem from the nature of the purchase card transaction
processing system, which focuses on the data needed to ensure that the
merchant is paid and the cardholder*s account is charged. It is not
designed to collect socioeconomic data for the government.
Despite the challenges that prevent the collection of socioeconomic data
on all purchase card merchants, well- defined criteria and consistent use
of available data sources would provide decisionmakers with a clearer
picture of the extent to which small businesses are receiving federal
dollars through purchase cards.
Overview of the Purchase Card Transaction Data Flow
CONTRACT MANAGEMENT
Government Faces Challenges in Gathering Socioeconomic Data on Purchase
Card Merchants
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 56. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Dave Cooper at (202) 512- 4841 or cooperd@ gao. gov.
Highlights of GAO- 03- 56, a report to
Congressional Committees
December 2002
Government purchase cards have streamlined the process of acquiring goods
and services by allowing employees to purchase directly from merchants
rather than going through the regular procurement process. The government
spent $13. 8 billion using purchase cards in fiscal year 2001. However,
the government does not know how purchase card spending impacts small
businesses and other socioeconomic categories, such as woman- owned small
businesses, and small disadvantaged businesses. Because of these
uncertainties, the General Services Administration (GSA), which
administers the purchase card program, has begun to collect socioeconomic
data on merchants doing business with the federal government through
purchase cards. This report assesses GSA*s efforts and identifies the
challenges to collecting and reporting this data.
We recommend that the Administrator of GSA (1) clarify the socioeconomic
information requested from banks and payment card associations and ensure
the data is consistent, and (2) specify a disciplined approach for
identifying sources of socioeconomic data. GSA agreed with our
recommendations.
Page i GAO- 03- 56 Small Business Letter 1
Results in Brief 2 Background 4 Data Collected to Date Are Inconsistent
and Incomplete, but
Improvements Are Being Made 9 Inherent Challenges Prevent Collection of
Socioeconomic Data on
All Purchase Card Merchants 11 Conclusions 14 Recommendations for
Executive Action 14 Agency Comments 14
Appendix I Scope and Methodology 18
Appendix II Comments from the General Services Administration 20
Appendix III Comments from the Small Business Administration 22
Appendix IV Comments from the Bank of America 25
Appendix V Comments from Austin- Tetra 26
Table
Table 1: Small Business Categories 6
Figures
Figure 1: Overview of the Purchase Card Transaction Data Flow 7 Figure 2:
Overview of the Socioeconomic Data Collection Process 8 Contents
Page ii GAO- 03- 56 Small Business Abbreviations
DOD Department of Defense FPDS Federal Procurement Data System GSA General
Services Administration NAICS North American Industrial Classification
System SBA Small Business Administration
Page 1 GAO- 03- 56 Small Business
December 13, 2002 The Honorable John F. Kerry Chairman The Honorable
Christopher S. Bond Ranking Minority Member Committee on Small Business
and Entrepreneurship United States Senate
The Honorable Donald A. Manzullo Chairman The Honorable Nydia M. Velazquez
Ranking Minority Member Committee on Small Business House of
Representatives
The amount of money spent on goods and services via government purchase
cards has increased rapidly over the past decade. In fiscal year 2001, the
federal government spent $13.8 billion in transactions using government
purchase cards for individual purchases* the vast majority of which are
under $2,500* and for payment on existing contracts. Purchase cards
streamlined the process of acquiring goods and services by authorizing a
broad range of government employees to purchase directly from merchants 1
rather than going through the regular procurement process. However,
because the government does not collect detailed socioeconomic data on
purchase card expenditures and cannot accurately determine the share of
such expenditures going to small businesses, the impact of purchase cards
on small businesses is unknown. Currently, individual purchase card
transactions are not counted toward achievement of the annual
governmentwide goal of awarding 23 percent of prime contract dollars to
small businesses. 2
1 We are using the term *merchant* to refer to all suppliers of goods and
services procured by the government using the purchase card. 2 The Small
Business Reauthorization Act of 1997 directed the President to establish a
goal of not less than 23 percent of the federal government*s prime
contracting dollars to be awarded to small businesses for each fiscal
year. The federal government did not meet this goal in fiscal years 2000
or 2001.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 56 Small Business
Federal agencies, along with the congressional small business committees,
would like to capture data on purchase card merchants to track the amount
of spending that is going to small businesses. They believe that better
data would enable decisionmakers to assess the impact of purchase card
policies on small businesses. In October 2001, the General Services
Administration (GSA), which administers the purchase card program, took
steps to collect socioeconomic data on merchants doing business with the
government through purchase cards during fiscal year 2001. The Department
of Defense (DOD), payment card associations (MasterCard and Visa), and the
five banks under contract with GSA as card issuers 3 also participated in
GSA*s effort.
Because of the uncertainties about the impact of purchase cards on small
businesses, you requested that we (1) assess GSA*s governmentwide efforts
to collect data on the socioeconomic status of merchants and (2) identify
the challenges to collecting and reporting the data. You also asked us to
verify the information collected by the banks and payment card
associations by means of a survey. However, due to the lack of basic data
on many purchase card merchants, we determined that such a survey would
not be feasible. Our scope and methodology section sets forth our
rationale in greater detail (see app. I).
GSA*s effort to collect socioeconomic data on purchase card merchants for
fiscal year 2001 was ineffective due to inconsistent and incomplete* and
therefore unreliable* data. Thus, it is impossible to come to any
meaningful conclusions about the distribution of purchase card dollars
based on that effort. Due to GSA*s lack of clear definitions and guidance
for the collection of socioeconomic data, the banks and payment card
associations* MasterCard and Visa* interpreted the initial data request
differently and reported the data inconsistently. In addition, payment
card associations were unable, in many cases, to collect complete and
reliable information from the available sources of socioeconomic data.
Since May 2002, GSA has taken a number of steps to improve the data it
collects from banks and associations. For example, GSA has hosted several
working meetings with officials from the Small Business Administration
(SBA), DOD, the Office of Management and Budget*s Office of Federal
Procurement Policy, and the private sector to develop strategies to
3 Bank of America, Bank One, US Bank, Mellon Bank, and Citibank have
contracts with GSA to issue purchase cards. Results in Brief
Page 3 GAO- 03- 56 Small Business
improve the data*s reliability. GSA hopes to collect more reliable
socioeconomic data on purchase card merchants for future fiscal years.
Notwithstanding the ongoing efforts to improve the reliability of the
data, inherent challenges will limit the government*s ability to gather
data on 100 percent of the merchants. These challenges suggest that
complete socioeconomic information cannot be captured for all of the
purchase card merchants. The data captured by the transaction processing
systems focus on information needed to ensure that the merchant is paid
and the cardholder*s account is charged. Challenges to collecting data
include:
GSA*s contract with the card- issuing banks cannot ensure collection of
socioeconomic data on purchase card merchants. A purchase card
transaction between the government and a merchant
does not establish a contractual relationship that requires the merchant
to provide socioeconomic data, and, in fact, a significant number of
merchants are not reporting such data. Attempts by government agencies,
banks, and payment card associations to collect socioeconomic data
directly from merchants have produced poor results. According to banks
and payment card associations, banks do not generally
collect socioeconomic data when merchants apply to accept payment cards,
because the banks are concerned about possible discrimination complaints
as well as client privacy.
While these challenges suggest that the government cannot capture complete
socioeconomic data on all purchase card merchants, our recommendations to
GSA focus on steps that can provide more consistent and complete data on
those merchants whose information is retrievable. In comments on a draft
of this report, GSA concurred with our recommendations. We also received
comments from SBA, the Office of Federal Procurement Policy, Visa,
Mastercard, the three largest cardissuing banks, and Austin- Tetra, a
private sector firm, none of which disagreed with our findings.
Page 4 GAO- 03- 56 Small Business
The Federal Acquisition Streamlining Act of 1994 established a
micropurchase threshold of $2,500. Purchases that do not exceed the
threshold are not subject to the Small Business Act reservation
requirement, 4 may be made without obtaining competitive quotations (if
the price is reasonable), and may be made by authorized government
employees* such as those who will be using the supplies or services* not
just by contracting officers. Under the Federal Acquisition Regulation,
the governmentwide commercial purchase card is now the preferred method of
paying for micropurchases. Further, the purchase card is also authorized
to be used in greater dollar amounts to place a task or delivery order
under an existing contract (if authorized in the basic contract, basic
ordering agreement, or blanket purchase agreement) and to make payments
under existing contracts when the contractor agrees to accept payment by
the card.
GSA administers the purchase card program governmentwide. This program has
issued more than 2 million purchase cards to federal employees at
government agencies, organizations, and Native American tribes. Purchase
card volume increased by almost $1.5 billion, to $13.8 billion, between
fiscal years 2000 and 2001. GSA*s master contract for the purchase card
program defines the agreement between GSA and the five banks that issue
purchase cards to government agencies. The government may exercise the
option to renew the contract for up to five 1- year periods beginning in
December 2003.
4 Prior to the Federal Acquisition Streamlining Act, each contract for the
procurement of goods or services that had an anticipated dollar value of
less than $25, 000 and that was subject to small purchase procedures was
reserved exclusively for small businesses unless the contracting officer
was unable to obtain offers from two or more small businesses competitive
with market prices and in terms of quality and delivery. The Federal
Acquisition Streamlining Act amended this reservation so that purchases
with an anticipated value greater than $2, 500 but not greater than $100,
000 are reserved for small businesses. Background
Page 5 GAO- 03- 56 Small Business
In October 2001, GSA requested that the five banks provide data on the
socioeconomic status of merchants who did business with the government via
purchase cards in fiscal year 2001. An estimated 4 million U. S. merchants
accept MasterCard, Visa, or both, and at least 2.1 million of these
merchants did business with the government in fiscal year 2001. 5 Because
the banks that issue purchase cards do not have access to data on all of
the merchants accepting the cards, MasterCard and Visa collected this
information on the banks* behalf, contracting in one case with
AustinTetra, a private firm, to assist in the task. 6 GSA compiled the
information provided by banks and associations in a March 2002 preliminary
report.
In their efforts to improve the collection of socioeconomic information on
purchase card merchants and to track governmentwide small business goals,
SBA and GSA are interested in targeting the categories of businesses
outlined in table 1.
5 The 2.1 million figure is based on Visa*s estimate. 6 During the fiscal
year 2001 effort, MasterCard contracted with Austin- Tetra to assist with
gathering socioeconomic data. Visa has now also contracted with this firm
to assist with further data gathering.
Page 6 GAO- 03- 56 Small Business
Table 1: Small Business Categories Category Definition
Small business A business entity organized for profit, including
affiliates, that is independently owned and operated, not dominant in the
field of operations in which it is bidding, and qualifies under SBA*s
criteria for determining the size of the business. The definition varies
by industry and is based on the number of employees or the gross revenues.
Woman- owned small business A small business that is at least 51 percent
woman- owned, and whose management and
daily business operations are controlled by one or more women. 8( a)
business A small business that is at least 51 percent owned by and whose
management and daily
business operations are controlled by socially and economically
disadvantaged individuals who are eligible to receive federal contracts
under the SBA*s 8( a) Business Development Program. Under this program,
SBA enters into contracts with federal agencies and lets subcontracts for
performing those contracts to eligible firms. To qualify for the program,
a firm must be certified by SBA. Small disadvantaged businesses A small
business that is at least 51 percent owned by, and (with certain
exceptions)
whose management and daily business operations are controlled by, one or
more socially and economically disadvantaged individuals. SBA certifies
small disadvantaged businesses to make them eligible for certain
procurement benefits. Certification strictly pertains to benefits in
federal procurement. Firms certified as 8( a) automatically qualify for
certification as a small disadvantaged business. HUBZone small business
The HUBZone (Historically Underutilized Business Zone) Empowerment
Contracting
Program a provides Federal contracting assistance to small businesses that
are located in designated rural and urban areas and that hire employees
who live in such areas. SBA certifies firms for eligibility to receive
HUBZone contracts and maintains a listing of qualified HUBZone small
businesses that federal agencies can use to locate prospective vendors.
Veteran- owned small business A small business that is at least 51 percent
owned by, and whose management and daily
business operations are controlled by, one or more veterans. Service-
disabled veteran- owned small business A small business concern that is at
least 51 percent owned by, and whose management
and daily operations are controlled by, one or more service- disabled
veterans, or, in the case of a veteran with a permanent and severe
service- connected disability, by the spouse or permanent caregiver. a
Established by the Small Business Reauthorization Act of 1997.
Source: GAO analysis.
Page 7 GAO- 03- 56 Small Business
The purchase card transaction process involves the agency cardholder, the
merchant and its bank, the payment card associations, and the banks that
issue purchase cards to government agencies. When an agency cardholder
purchases goods or services from a merchant that accepts MasterCard or
Visa, the merchant transmits the transaction to its bank, through the
MasterCard or Visa computer systems, to the issuing bank for payment.
Figure 1 shows how transaction data are shared between the key players.
Figure 1: Overview of the Purchase Card Transaction Data Flow
Page 8 GAO- 03- 56 Small Business
Socioeconomic data are generally collected after a transaction takes
place. The payment card association or its contractor collects
socioeconomic information from a variety of sources. This information is
appended to transaction data to create reports to GSA and the agencies.
Figure 2 shows the key players involved in collecting socioeconomic
information on the purchase card merchants.
Figure 2: Overview of the Socioeconomic Data Collection Process
Note: Pro- Net is the SBA*s internet- based database of information on
more than 91,000 small businesses. Central Contractor Registration is the
primary vendor database for DOD, the National Aeronautics and Space
Administration, and the Departments of Transportation and Treasury.
Current and potential government vendors are required to register in order
to be awarded contracts by these agencies. The Federal Procurement Data
System is the central repository of statistical information on federal
contracting. The system contains detailed information on contract actions
over $25,000 and summary data on procurements that do not exceed $25,000.
Page 9 GAO- 03- 56 Small Business
In response to GSA*s request for fiscal year 2001 socioeconomic data on
purchase card merchants, banks and payment card associations reported that
they could obtain size or socioeconomic information on about 40 percent of
the merchants. They reported that about 50 percent of the purchase card
dollars spent with these merchants went to small businesses. However, this
information is not useful because the data collected were inconsistent and
incomplete, making them unreliable. The lack of clear definitions and
guidelines from GSA for the collection of socioeconomic data resulted in
inconsistent reporting by the banks and payment card associations. In
addition, some available sources of socioeconomic data are incomplete and
unreliable. Therefore, at this time, no meaningful conclusions can be
drawn about where purchase card dollars are spent or the effect on small
businesses of the government use of purchase cards. Drawing on lessons
learned in its first attempt at a governmentwide socioeconomic data
report, GSA is continuing to work with SBA, DOD, and the private sector to
improve the reliability of the data for subsequent reports.
To verify and identify the characteristics of those merchants doing
business with the government through purchase cards, a match had to be
made between transactional data and the socioeconomic data from government
and private databases. 7 However, in its initial data collection effort,
GSA did not precisely define the information it was requesting or clearly
specify the criteria to be used by the banks and associations as they
categorized merchants. Therefore, the data reported to GSA contained
widely varying information on the socioeconomic status of merchants. The
following are examples of the inconsistencies we found:
A payment card association, reporting on behalf of some of the
cardissuing banks, reported that it had socioeconomic information for 89
percent of the merchants, while another bank reported that it had this
information for 23 percent of the merchants. These differences do not
reflect relative success or failure in collecting the information; rather,
they were due to varying interpretations of GSA*s guidance. Neither the
associations nor the banks reported the number of merchants
whose socioeconomic status was unknown. As a result, the information 7 As
the transaction information does not always contain unique identifying
numbers, such as a Taxpayer Identification Number, banks and associations
said that they used business names and addresses found in transaction data
to match to other databases. Data Collected to
Date Are Inconsistent and Incomplete, but Improvements Are Being Made
Inconsistent Data Due to Lack of Clear Definitions and Guidelines
Page 10 GAO- 03- 56 Small Business
presents an incomplete and misleading picture of the socioeconomic status
of purchase card merchants. MasterCard, Visa, and the banks used
different methods to classify
merchants. One method placed businesses that were corporations but where
no socioeconomic data were available in the same category with large
businesses. Another method followed SBA standards more closely in
categorizing the size of businesses.
In one case, GSA*s guidance compounded the problem. GSA instructed banks
to use the criterion of 500 employees or fewer to identify small
businesses, if no other verification was available, rather than directing
them to follow SBA*s guidance that ties size to specific industry
classifications. SBA officials, who had not been involved in GSA*s initial
data collection effort, raised concerns about this definition and are now
providing GSA with assistance in determining appropriate guidelines to
categorize the data. An SBA official explained that, in certain industry
categories such as construction, using 500 employees or fewer as a
criterion would encompass virtually all businesses.
No meaningful conclusions can be drawn using the data compiled by GSA for
fiscal year 2001, as the reported data are incomplete. The banks and
payment card associations were only able to establish merchants* size or
socioeconomic status for about 40 percent of total purchase card dollars
because, in some cases, available data sources did not provide complete
and reliable information. For example, Pro- Net yielded information on
size status for only 9.5 percent of merchants. While some categories of
small businesses are required to register in SBA*s Pro- Net in order to be
certified, other categories of small business are not required to
register. Therefore, businesses requiring certification, such as HUBZone
and small disadvantaged businesses, are easier to categorize than
businesses for which registration is voluntary, such as woman- owned small
businesses.
Further, according to industry officials, it is not uncommon for the data
in some merchant transaction data fields to contain incorrect information.
For example, merchants sometimes place their customer service telephone
numbers in the field designated for city so that their telephone number is
included on the customer*s credit card statement. In our review of
MasterCard and Visa reports and merchant data files, we found obvious
errors such as this, as well as duplicate files for the same merchant, the
same telephone number for multiple businesses, and missing zip codes. Data
Are Incomplete and
Unreliable
Page 11 GAO- 03- 56 Small Business
Since the spring of 2002, GSA has been working with SBA and other agencies
to create more specific guidance for banks and payment card associations.
GSA has also included banks and payment card associations in these
discussions. GSA*s efforts include defining small business categories,
establishing quality standards for data sources, and standardizing
reporting. After some initial data have been collected, SBA officials
agreed to develop policies for the use of the data in tracking progress
towards agencies* small business goals. According to officials from
Austin- Tetra, if definitions and guidelines are agreed upon and adhered
to, information about size status may be available for an estimated 65 to
80 percent of merchants.
Some officials expressed concern about the potential for double- counting
small business dollars if, in the future, purchase card data are
automatically transferred to the Federal Procurement Data System (FPDS)
and socioeconomic data are applied toward agencies* small business
achievements. If purchase cards are used for payments on contracts or
orders that have already been reported to FPDS, double- counting could
occur. However, it is not clear that this problem would materialize on a
widespread basis. For example, the Director of DOD*s Purchase Card Joint
Program Management Office told us that there is little likelihood that
DOD*s dollars would be double- counted. Currently, DOD generates automatic
reports to FPDS for contracts or orders that are placed through
traditional procurement methods such as purchase orders. The official said
that it is extremely rare for a purchase card to be used for payments that
have already been reported to FPDS.
While GSA*s efforts eventually may enable the government to obtain
socioeconomic information on a large percentage of purchase card
merchants, inherent challenges suggest that it is not possible to gather
complete data on all merchants. Payment card associations* transaction
systems were designed to clear transactions, not to meet the socioeconomic
reporting needs of the federal government. The data exchanged during
transactions generally focus on information needed to ensure that the
merchant is paid and the cardholder*s account is charged. As a result, the
infrastructure and processes of the purchase card systems and the legal
relationships between the merchants, banks, payment card associations, and
the government were not designed to accommodate the collection of
socioeconomic data. GSA, Agencies, and Private
Sector Working to Improve Data
Inherent Challenges Prevent Collection of Socioeconomic Data on All
Purchase Card Merchants
Page 12 GAO- 03- 56 Small Business
The master contract between GSA and the five banks that issue purchase
cards cannot ensure the collection of socioeconomic information. Although
the contract requires the contracting banks to provide transaction data to
the government, which might include limited socioeconomic data, banks are
only required to provide this information if the merchant provides it and
the contracting banks obtain it. The contract clauses referring to reports
containing socioeconomic data are vague, both in specifying the data
required and in establishing the level of obligation involved. While the
contract mentions a report that includes *summary merchant demographic
information,* and *size standard,* which *is generally used by the agency/
organization in fulfilling its small business and small disadvantaged
business goals,* it does not require that the actual size status of the
merchant be provided, nor does it expressly require that the reports be
provided at all. Rather, in describing the reporting requirements, the
contract states that *the Government prefers that the data . . . be
provided,* and that *agencies/ organizations may choose to receive some or
all of [these] reports.*
Moreover, there is no contractual relationship between GSA and the
merchants* banks or the payment card associations, the parties most likely
to have access to the information. While GSA is currently considering
modifications to the master contract with the card- issuing banks to
include more specific guidance on reporting socioeconomic data* such as
decision rules for data sources and business status* these changes will
not alter the fact that the contract can only establish obligations
between the parties to the contract. The master contract is only binding
on the five issuing banks, which do not have access to information on
other banks* customers and cannot compel the merchants* banks to provide
information on the socioeconomic status of their customers. While payment
card associations do have relationships with both the issuing and
acquiring banks, and might be better positioned to collect socioeconomic
data on behalf of the issuing banks, they are under no contractual or
other legal obligation to collect the information, and there are
significant practical impediments to doing so.
A purchase card transaction between the government and a merchant does not
establish a contractual relationship that requires the merchant to provide
socioeconomic data. Further, merchants that are not government contractors
have no incentive to report this data if they do not anticipate
contracting with the government. Attempts by government agencies and
payment card associations to gather missing data through surveys and
mailings have been largely unsuccessful. Visa has been involved in two
Purchase Card Master
Contract Cannot Ensure the Collection of Socioeconomic Data
Many Merchants Do Not Provide Socioeconomic Data
Page 13 GAO- 03- 56 Small Business
campaigns to collect and update merchant data. According to Visa
officials, as recently as last year, Visa mailed half a million letters to
merchants requesting socioeconomic information, but less than 2 percent of
merchants responded. In January 2000, MasterCard sent out 30,000 letters
on behalf of DOD to current DOD suppliers accepting the government
MasterCard from DOD buyers. The letter encouraged merchants to update
their socioeconomic information with their banks. 8 However, information
on only 16 percent of merchants was subsequently updated.
Attempts to use government databases are also ineffective due to the
relatively small proportion of merchants who have registered in
governmentwide databases, such as Pro- Net, or other government databases
that are limited to certain agencies (such as the Central Contractor
Registration, used for merchants contracting with DOD, the National
Aeronautics and Space Administration, and the Departments of Treasury and
Transportation). Of the roughly 360,000 vendors with whom DOD uses the
purchase card, very few were included in government databases. According
to agency officials, merchants may be inclined to register in these
databases only if they are trying to win government contracts.
Furthermore, Pro- Net relies on merchants to update their own profiles. Of
the 173, 374 firms registered in Pro- Net as of August 1, 2002, records
for only 87,257, or 50 percent, had been updated within the prior 18
months. According to SBA officials, Pro- Net merged with the Central
Contractor Registration in October 2002, and SBA purged its system of
inactive firms. As of November 1, 2002, there were 91, 656 firms in Pro-
Net.
Because the purchase card program only establishes a contractual
relationship between the government and the five card- issuing banks, the
merchants* banks are not contractually or otherwise legally required to
obtain socioeconomic information about their merchant customers for the
purchase card program. Further, according to bank and payment card
representatives, banks usually avoid requesting certain customer
socioeconomic information because of concerns about client privacy and the
prospect of discrimination complaints (should the bank, for example, fail
to approve a merchant account). In addition, the bank officials say
8 The letter specifically asked merchants to verify their business
ownership classification using a merchant type code worksheet (which
indicates socioeconomic status), verify the accuracy of their Merchant
Category Code, and request a software or terminal upgrade, so that DOD
could receive accurate data with merchants* purchase card transactions.
Merchants* Banks
Do Not Always Collect Socioeconomic Information on Merchants
Page 14 GAO- 03- 56 Small Business
they do not need socioeconomic data to make a business decision on whether
to approve a merchant account. However, both payment card associations
have attempted to increase the availability of socioeconomic information
on merchants by providing financial incentives, such as lower fees, to
merchant banks for collecting this data.
Although the government likely will never be able to capture complete
socioeconomic information on 100 percent of purchase card merchants, the
available data can be strengthened to provide more accurate and consistent
information that would provide decisionmakers a clearer picture of the
extent to which small businesses are receiving federal money through the
purchase card program. GSA has made a first step toward understanding the
complexities of collecting socioeconomic data on merchants accepting
government purchase cards. With the lessons learned from that effort, GSA,
with the assistance of other federal agencies and the private sector, can
take additional steps toward improving the reliability of the data.
While the government faces a number of challenges in collecting
socioeconomic data on all purchase card merchants, there is an opportunity
to improve the available data. Therefore, in order to strengthen the
ongoing efforts, we recommend that the Administrator of GSA (1) clarify
the socioeconomic information that banks and payment card associations are
asked to report and conduct periodic assessments to verify that they are
interpreting and reporting the data consistently, and (2) specify a
rigorous, disciplined approach to identifying and using appropriate
information sources for the socioeconomic data and ensure the participants
agree to it.
We received written comments on a draft of this report from GSA, SBA, Bank
of America, and Austin- Tetra. The Office of Federal Procurement Policy,
MasterCard, Visa, Citibank, and US Bank offered oral or e- mail comments.
DOD did not provide comments.
GSA concurred with our findings and recommendations. GSA indicated that it
has begun taking steps to identify and solve problems related to the
capture of consistent, accurate, and reliable socioeconomic data, toward a
goal of modifying the GSA*s purchase card contract and reporting
socioeconomic data to one centralized source, FPDS. GSA reports that it
has made significant progress in these areas and states that Conclusions
Recommendations for Executive Action
Agency Comments
Page 15 GAO- 03- 56 Small Business
its progress ultimately implements the recommendations in our report.
However, we do not believe that our recommendations have been fully
implemented. An October 2002 meeting with industry officials left many
issues open* including whether transactions over $2,500 would be reported,
how the socioeconomic information would be used, and who would be
responsible for reporting to whom. GSA should continue to work with the
agencies, banks, and payment card associations to ensure that
socioeconomic information on purchase card merchants is accurately and
consistently collected and reported. GSA*s letter appears in appendix II.
SBA provided technical comments, which we incorporated as appropriate. SBA
suggested that we include GSA*s role in figure 1 to show that GSA does not
directly influence data collection; however, this graphic was not meant to
illustrate the data collection process. Figure 1 depicts the flow of
information during a purchase card transaction, a process in which GSA is
not involved. Figure 2 illustrates GSA*s role in the data collection
process. SBA*s letter appears in appendix III.
Bank of America offered written comments to assist in clarifying sections
of the report. We incorporated these comments where appropriate. Bank of
America expressed concern that there is an expectation of a fully revised
report on purchase card merchants* socioeconomic data for fiscal year
2002, despite the fact that decisions on definitions and data elements
have not been finalized. We agree with this assessment. The letter further
notes that double counting of payments on existing contracts could be a
problem if GSA requires banks to include transactions over $2,500. As we
discuss on page 11 of this report, according to a DOD official, this issue
is not a concern; however, the working group, led by GSA, may want to
clarify this issue in subsequent meetings. Bank of America*s comments
appear in appendix IV.
Austin- Tetra provided written comments, concurring with our findings and
providing additional recommendations to GSA for obtaining socioeconomic
data, such as providing incentives for merchants to submit socioeconomic
data to their banks. The letter notes that these steps would come at an
additional cost to the government. Austin- Tetra*s comments appear in
appendix V.
In oral comments, Office of Federal Procurement Policy officials concurred
with our findings, stating that the report is balanced and accurately
portrays the difficulties the government faces in collecting socioeconomic
data on purchase card merchants. They suggested that
Page 16 GAO- 03- 56 Small Business
we add more background information on the impetus for GSA's data
collection effort.
A Visa official provided oral comments. He concurred with our report,
stating that it was enlightening, "on the mark," and helped to clarify
some misconceptions. The official noted that there is a tradeoff between
the desired level of accuracy and the cost of obtaining socioeconomic
information on purchase card merchants. He said that, because the purchase
card makes up a relatively small proportion of total procurement dollars,
the level of granularity the government is requesting might not be worth
the dollars needed to obtain this information on each merchant. Further,
the official pointed out that there is little known about how the purchase
card affects small businesses. Therefore, Visa's position is that care
must be taken not to assume that the effects are negative. Visa also
provided technical comments, which we incorporated as appropriate.
In e- mail comments, a US Bank official generally concurred with our
findings. However, he stated that our recommendations failed to account
for the inherent challenges the government faces in its efforts to collect
socioeconomic data on purchase card merchants. The official stated that
the government contracted with the banks for a *commercially standard*
purchase card program, but then sought to require a number of nonstandard
features from the contractors. He stressed that the issuing banks and
payment card associations have very limited leverage to elicit this
information from merchants. He suggested that GSA ask the banks to report
only that information that is in their purview and expertise* namely,
transaction data* and that GSA could then use governmentowned or private
sector services to match the transaction data against socioeconomic
databases. Technical comments were incorporated as appropriate.
Representatives from MasterCard and Citibank provided technical comments,
which we incorporated as appropriate.
As requested by your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this letter. We will then send copies of this report to
other interested congressional committees and the Secretary of Defense;
the Director, Office of Management and Budget; the Administrator, GSA; the
Administrator, SBA; and the Administrator, Office of Federal Procurement
Policy. We are also sending copies to MasterCard, Visa, Citibank, Bank of
America, US Bank, and Austin- Tetra. We will make copies available to
Page 17 GAO- 03- 56 Small Business
others upon request. In addition, the report will be available at no
charge on the GAO Web site at http:// www. gao. gov.
If you have any questions regarding this report, please contact me at
(202) 512- 4841 or Michele Mackin, Assistant Director, at (202) 512- 4309.
Other major contributors to this report were Heather L. Barker, Lara L.
Carreon, and Barbara A. Johnson.
David E. Cooper Director, Acquisition
and Sourcing Management
Appendix I: Scope and Methodology Page 18 GAO- 03- 56 Small Business
You requested that we include at least the following elements in our
report:
Determine the steps that federal agencies have taken to require that
socioeconomic data be collected on purchase card use, including the
standards and requirements established for such collection. Identify the
information that federal agencies, especially the General
Services Administration (GSA) and the Department of Defense (DOD), have
collected for fiscal year 2001 on the socioeconomic status of purchase
card merchants and the sources of such information. Identify and compile
the information that credit card companies issuing
purchase cards for use by federal agencies have collected for fiscal year
2001 on socioeconomic status of purchase card merchants and the sources of
such information. Determine the standards and criteria under which the
credit card
companies collect socioeconomic information* including the definitions of
*small business* that are used and the extent to which such definitions
deviate from those promulgated by the Small Business Administration (SBA).
Identify, to the extent possible, whether in each transaction purchase
cards are being used to make payment on existing contracts or are distinct
purchase card transactions.
Each of these questions has been addressed in the report. You also asked
us to verify the information collected by the banks and payment card
associations by means of a survey. However, due to the lack of basic data
on many purchase card merchants, we determined that such a survey would
not be feasible. The challenges at each stage of the survey process create
significant potential for error. For example, defining a universe of
merchants from which to draw a sample would be difficult, as the amount of
information available for each merchant varies widely. Because so little
basic information on merchants exists, a representative sample cannot be
ensured. The lack of contact information due to missing or inaccurate data
would make it impossible to reach some of the merchants. Because of short
life cycles, small businesses are generally more difficult to track. Given
that response rates to surveys of small businesses have historically been
low, high error rates can also be expected. Without basic information to
describe the universe, it would be impossible to determine whether
response bias exists. Further, the impact of the use of the purchase card
on small businesses cannot be determined without prior years* data.
Finally, because merchant data is separate from transaction data, and
there is no unique identifier that is consistent for all Appendix I: Scope
and Methodology
Appendix I: Scope and Methodology Page 19 GAO- 03- 56 Small Business
merchants, any analysis would involve development of new data management
and analysis techniques* including extremely complex programs* to match
merchant and transaction data.
To assess GSA*s governmentwide efforts to collect data on the
socioeconomic status of merchants, we reviewed (1) data reported to GSA by
the banks and payment card associations for fiscal year 2001, (2) data
provided to GSA for their internal purchase card program from Visa, and
(3) MasterCard*s merchant file. Our analysis of electronic data files
included statistical information on missing data, obvious errors, and
duplication. We also reviewed relevant documents and legislation. We
interviewed officials at GSA, SBA, DOD, Visa, MasterCard, the three
largest banks contracting with GSA (Citibank, Bank of America, and US
Bank), and a third party data source, Austin- Tetra.
Because of the associations* reliance on Austin- Tetra as a third party
data source, we also assessed the reliability of its database and
processes. We reviewed documentation, observed, and discussed Austin-
Tetra*s business strategy and customers, the extensiveness of its
database, the matching methodology (including both electronic and manual
matching), the methodology for assigning socioeconomic characteristics to
businesses, the procedures for source attribution, and their data
assurance practices, including use of a data assurance group.
To identify the challenges to the collection and reporting of
socioeconomic data on merchants, we interviewed government officials from
GSA*s purchase card program, SBA, DOD, and the Office of Federal
Procurement Policy. We also interviewed industry officials from the three
largest banks providing purchase card services; MasterCard, Visa and
American Express; Austin Tetra; and a third party data processor, First
Data Merchant Services. We also gathered information on small business and
socioeconomic definitions from relevant guidance and legislation and
discussions with SBA. We gathered information on sources of socioeconomic
information and database matching processes from payment card associations
and third party data sources.
We conducted our review between March and September 2002 in accordance
with generally accepted government auditing standards.
Appendix II: Comments from the General Services Administration
Page 20 GAO- 03- 56 Small Business
Appendix II: Comments from the General Services Administration
Appendix II: Comments from the General Services Administration
Page 21 GAO- 03- 56 Small Business
Appendix III: Comments from the Small Business Administration Page 22 GAO-
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Appendix III: Comments from the Small Business Administration
Appendix III: Comments from the Small Business Administration Page 23 GAO-
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Appendix III: Comments from the Small Business Administration Page 24 GAO-
03- 56 Small Business
Appendix IV: Comments from the Bank of America Page 25 GAO- 03- 56 Small
Business
Appendix IV: Comments from the Bank of America
Appendix V: Comments from Austin- Tetra Page 26 GAO- 03- 56 Small Business
Appendix V: Comments from Austin- Tetra
Appendix V: Comments from Austin- Tetra Page 27 GAO- 03- 56 Small Business
(120136)
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