Purchase Cards: Steps Taken to Improve DOD Program Management,	 
but Actions Needed to Address Misuse (02-DEC-03, GAO-04-156).	 
                                                                 
This study responds to a legislative mandate, which directs the  
Comptroller General to review the actions taken by the Department
of Defense (DOD) to implement provisions included in the Bob	 
Stump National Defense Authorization Act for fiscal year 2003	 
(Public Law 107-314) concerning management of the purchase card  
program. This study also discusses DOD efforts to implement	 
provisions in the DOD Appropriations Act for fiscal year 2003	 
(Public Law 107-248) as well as recommendations and the status of
disciplinary actions taken against individuals identified in	 
prior GAO reports as having used the government purchase card for
potentially fraudulent, improper, and abusive or questionable	 
purposes.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-156 					        
    ACCNO:   A08942						        
  TITLE:     Purchase Cards: Steps Taken to Improve DOD Program       
Management, but Actions Needed to Address Misuse		 
     DATE:   12/02/2003 
  SUBJECT:   Credit sales					 
	     Defense procurement				 
	     Fraud						 
	     Internal controls					 
	     Program abuses					 
	     Program management 				 
	     DOD Purchase Card Program				 

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GAO-04-156

United States General Accounting Office

                     GAO Report to Congressional Committees

December 2003

PURCHASE CARDS

  Steps Taken to Improve DOD Program Management, but Actions Needed to Address
                                     Misuse

                                       a

GAO-04-156

Highlights of GAO-04-156, a report to congressional committees

This study responds to a legislative mandate, which directs the
Comptroller General to review the actions taken by the Department of
Defense (DOD) to implement provisions included in the Bob Stump National
Defense Authorization Act for fiscal year 2003 (Public Law 107-314)
concerning management of the purchase card program. This study also
discusses DOD efforts to implement provisions in the DOD Appropriations
Act for fiscal year 2003 (Public Law 107-248) as well as recommendations
and the status of disciplinary actions taken against individuals
identified in prior GAO reports as having used the government purchase
card for potentially fraudulent, improper, and abusive or questionable
purposes.

This report provides the Congress with status of actions taken, and
recommends that the military services monitor whether the disciplinary
guidelines established in response to the fiscal year 2003 Bob Stump
National Defense Authorization Act are properly implemented. DOD was
pleased

December 2003

PURCHASE CARDS

Steps Taken to Improve DOD Program Management, but Actions Needed to Address
Misuse

DOD has initiated actions to implement all of the requirements in the
National Defense Authorization Act for fiscal year 2003 and the DOD
Appropriations Act for fiscal year 2003. While it has largely completed
revamping its policies and other requirements, it still had considerable
work to complete in order to implement managerial and oversight
mechanisms, such as strategic sourcing, monitoring, and auditing. However,
to implement the legislative requirement that DOD evaluate credit
worthiness prior to issuing a purchase card, DOD is allowing cardholders
to self-certify their credit worthiness rather than conducting credit
checks on cardholders, as is typically done in the private sector.

DOD started actions to implement nearly all of the 109 GAO
recommendations, some of which may closely relate to the legislative
provisions. DOD and the military services have taken disciplinary actions
against cardholders whom a court of law determined had fraudulently used
their purchase cards. They have also started to educate cardholders and
approving officials on the proper use of the purchase card.

The military services have not taken strong disciplinary actions against
cardholders GAO identified as making improper and abusive or questionable
purchase card acquisitions. The military services determined that many of
these purchases did not directly violate existing policies. Consequently,
the services modified these policies to provide a basis for disciplinary
actions for similar purchases in the future.

Disciplinary Actions Taken for Improper and Abusive or Questionable
Purchases Improper and abusive or questionable Air transactions Army Navy
Force Total

       Number of transactions GAO identified     34      59    27     120 
        Value of transactions (in thousands)   $999 $1,103   $961  $3,062 
                       Fired                      0       0     0       0 
                Suspended from work               0       0     0       0 

that the report recognized                                                 
    the department's efforts  Repay for cost of improper                      
     to address previously       charge Give item to      1 0 0 0 0 2 6 0 3 6
      cited managerial and        government Written      2 1   1     1   2 3
        internal control      reprimand Verbal reprimand                  
deficiencies. DOD did not                                              
        comment on GAO's                                                  
        recommendations.        Credit card revocation      1   4     2     7 
                                Credit card suspension      1   0     0     1 
                              Required to take training     8  20    11    39 
                                   Questionable but                           
                                authorized by service       0   0     3     3
                                        policy                            
                                     Still under            0   3     0     3 
                                 investigation/review                     

No action taken 27 36 5 68 www.gao.gov/cgi-bin/getrpt?GAO-04-156. Source:
Responses provided by the Army, Navy, and Air Force.

To view the full product, including the scope Note: Total actions taken
exceed transactions identified because multiple actions were taken forand
methodology, click on the link above. some transactions.

For more information, contact Gregory Kutz, (202) 512-9505, or
[email protected].

Contents

  Letter

Results in Brief
Background of the Purchase Card Program
DOD Has Taken Actions to Implement the Requirements of Public

Laws 107-314 and 107-248 Status of Our Recommendations to Improve Purchase
Card

Operations Conclusions Recommendations for Executive Action Agency
Comments and Our Evaluation

1 2 4

9

12 16 16 16

Appendixes

Appendix I:

Appendix II:

Appendix III:

Appendix IV:

Appendix V: Appendix VI: Objectives, Scope, and Methodology

Status of Army Actions to Implement GAO Recommendations

Status of Navy Actions to Implement GAO Recommendations

Status of Air Force Actions to Implement GAO Recommendations

Comments from the Department of Defense

GAO Contacts and Staff Acknowledgments

GAO Contacts Acknowledgments 19

21

25

37

47

49 49 49

Tables	Table 1: Table 2: Table 3: Table 4:

Table 5: Number and Value of Fiscal Year 2002 Purchase Card Transactions 4
Legislative Mandates in the Fiscal Year 2003 National Defense
Authorization and DOD Appropriations Acts 8 Sample Schedule of Potential
Charge Card Offenses and Remedies/Penalties 11 Status of Recommendations
Made to the Military Services to Improve the Management of the Purchase
Card Program 12 Disciplinary Actions Taken Against Cardholders 14

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

A

United States General Accounting Office Washington, D.C. 20548

December 2, 2003

Congressional Committees

In the past few years, the use of purchase cards has dramatically
increased as federal agencies have sought to eliminate the lengthy process
and paperwork long associated with making small purchases. The Department
of Defense (DOD), in particular, accounts for a large percentage of the
federal government's purchase card use. For fiscal year 2002, DOD reported
that an average of about 207,000 cardholders used purchase cards to make
about 11 million transactions at a cost of nearly $7 billion. In prior
years, the DOD purchase card program at DOD has not been well managed. As
we stated in various testimonies1 and reports2 issued between July 2001
and December 2002, significant breakdowns in internal controls over the
Army, Navy, and Air Force management of the purchase card program left the
services vulnerable to fraud, waste, and abuse. To address the issues
identified, we made over 100 recommendations targeted at improving the
design and implementation of controls over card use and establishing
guidelines for disciplining those who misused their government purchase
cards.

In response to these concerns, the Bob Stump National Defense
Authorization Act for Fiscal Year 2003 (National Defense Authorization
Act), Section 1007, required DOD to improve the management of the purchase
card program. As directed by the conference report3

1U.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); Purchase Cards, Continued Control Weaknesses Leave
Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-506T (Washington,
D.C.: Mar. 13, 2002); Purchase Cards: Control Weaknesses Leave Army
Vulnerable to Fraud, Waste, and Abuse, GAO-02-844T (Washington, D.C.: July
17, 2002); Purchase Cards: Navy Vulnerable to Fraud and Abuse but Is
Taking Action to Resolve Control Weaknesses, GAO-03-154T (Washington,
D.C.: Oct. 8, 2002).

2U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave
Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-32 (Washington D.C.:
Nov. 30, 2001); Purchase Cards: Control Weaknesses Leave Army Vulnerable
to Fraud, Waste, and Abuse, GAO-02-732 (Washington, D.C.: Jun. 27, 2002);
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); Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable
to Fraud, Waste, and Abuse, GAO-03-292 (Washington, D.C.: Dec. 20, 2002).

3H.R. Conf. Rep. No. 107-772, at 686 (2002).

accompanying the act, this report provides a status of DOD actions to
comply with the requirements of Section 1007. Additionally, this report
summarizes the actions taken by the Army, Navy, and Air Force to respond
to the legislative mandates in the DOD Appropriations Act, 2003. The
report also provides the status of DOD efforts to implement the
recommendations we made in the reports issued during fiscal years 2002 and
2003 aimed at improving the military service's management of the purchase
card program. Finally, we list any action the military services took
against individuals we identified in our testimonies and reports as having
made or authorized potentially fraudulent, improper, abusive, or
questionable purchase card transactions.

To meet the objectives of this assignment, we requested that DOD and the
military services provide us with the (1) status of DOD and the military
services' efforts in implementing the provisions of the National Defense
Authorization Act for fiscal year 2003 and the DOD Appropriations Act,
2003, (2) status of actions taken to implement the recommendations
included in the four GAO reports, and (3) administrative or disciplinary
actions taken against individuals we identified as having made potentially
fraudulent, improper, and abusive or questionable transactions. While DOD
and the military services provided evidence documenting actions taken to
improve the purchase card program and to prevent individuals and companies
from further obtaining fraudulent, improper, and abusive or questionable
items with a DOD purchase card, we did not make any field visits to
independently validate whether DOD had effectively implemented the
reported changes.

We conducted our review from June through September 2003 in accordance
with U.S. generally accepted government auditing standards. We requested
comments on a draft of this report from the Secretary of Defense or his
designee. We received written comments from the Director of DOD's Purchase
Card Joint Program Management Office, which are reprinted in appendix V.
We have incorporated suggested changes as appropriate.

Results in Brief	DOD and the military services have taken positive steps
to improve the controls over the purchase card program in response to
requirements in the fiscal year 2003 National Defense Authorization and
DOD Appropriations acts. In general, DOD has made the most progress in
establishing or modifying policies and procedures and has comparatively
more to do in the managerial or oversight-related areas. The only area in
which actions do

not seem to embrace the intent of the laws is that DOD is allowing
cardholders to self certify their credit worthiness rather than obtaining
credit reports, as is typical practice in private sector companies.

As for implementing our recommendations, the military services have
implemented or initiated actions to implement nearly all 109 of the
recommendations we made, some of which are overall legislative
requirements. The military services have issued revised purchase card
policies and procedures, retrained cardholders and approving officials,
and reduced the number of purchase card accounts and the credit limits on
those accounts. These actions better articulate what the purchase card can
and cannot be used for, and reduce the risks and financial exposure of the
program. Understandably, some of the management-intensive efforts are not
yet mature. The recommendations they have not yet implemented include
obtaining discounts from frequently used vendors; establishing servicewide
databases for data mining; investigating suspected and known fraud cases;
and linking cardholders', approving officials, and agency program
coordinators' performance appraisals to performance standards. The
military services told us they plan on having most of the legislative
provisions and our recommendations fully implemented by June 2004.

Our reports and testimonies also raised concerns about the disciplinary
actions against those who misused purchase cards. In general, the efforts
to date could be characterized as an all or nothing approach. We found
that the military services generally took strong disciplinary actions,
such as jail time for military personnel or dismissal of civilian
employees, if a court of law determined fraudulent use of the purchase
cards. There was little indication, however, that the military services
took disciplinary actions against those who made or authorized
transactions that we characterized as being improper, abusive, or
questionable. According to the military services, they did not take
disciplinary actions because many of the improper and abusive or
questionable purchases that we identified in the reports and testimonies
were not in direct violation of then existing policies and procedures.
Therefore, the military services told us that rather than disciplining
cardholders and approving officials, the military services modified their
purchase card policies and procedures to prohibit similar purchases in the
future.

This report contains three recommendations for DOD to monitor whether the
disciplinary guidelines established in response to the fiscal year 2003
National Defense Authorization Act are properly implemented. In response
to this report, DOD was pleased that the report recognized the

department's efforts to address previously cited managerial and internal
control deficiencies. DOD did not comment on our recommendations.

Background of the Purchase Card Program

The DOD purchase card program is part of the Governmentwide Commercial
Purchase Card Program, which was established to streamline federal agency
acquisition processes by providing a low-cost, efficient vehicle for
obtaining goods and services directly from vendors. The purchase card can
be used for both micropurchases and payment of other purchases. Although
most cardholders have single purchase transaction 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 issued
supplemental guidance to the Federal Acquisition Regulation that contain
sections on simplified acquisition procedures.

General Services Administration (GSA) reports show that DOD used purchase
cards for nearly 11 million transactions, valued at almost $6.8 billion
and representing nearly 45 percent of the federal government's fiscal year
2002 purchase card activity. According to unaudited GSA data, the Army,
Navy, and Air Force made about $2.7 billion, $1.9 billion, and $1.6
billion, respectively, in purchase card acquisitions during fiscal year
2002. Other DOD agencies, such as the Defense Logistics Agency and the
Defense Finance and Account Service, made the remaining $564 million in
purchase card acquisitions.

Table 1: Number and Value of Fiscal Year 2002 Purchase Card Transactions

                                 DOD component

     Number of transactions (in thousands) Cost of transactions (in millions)
                                        Percentage of DOD purchase card costs

                            Army        4,553                      $2,717 40% 
                            Navy        2,764                      $1,875 28% 
                       Air Force        3,016                      $1,601 24% 
              Other DOD agencies          647                         $564 8% 
                           Total       10,980                     $6,757 100% 
                    Source: GSA.              
                          Page 4                    GAO-04-156 Purchase Cards 

The overall management of DOD's purchase card program has been delegated
to the DOD Purchase Card Joint Program Management Office, which is in the
Office of the Assistant Secretary of the Army for Acquisition Logistics
and Technology. At each service installation, personnel in three
positions-program coordinator, cardholder, and approving official-are
collectively responsible for providing reasonable assurance that purchase
card transactions are appropriate and meet a valid government need. The
installation program coordinator is responsible for the day-to-day
management, administration, and oversight of the program, including
developing local operating procedures, issuing and canceling cards, and
providing training to cardholders and approving officials. Cardholders-
members and civilian personnel-use purchase cards to order goods and
services for their units and their customers, to be picked up or delivered
to themselves or to an end user. The cardholders are responsible for
recording the transactions in their purchase log, obtaining documented
independent confirmation that the items have been received and accepted by
the government, and notifying the property book-officer of accountable
items received so that these items can be recorded in the accountable
property records. Approving officials, who typically are responsible for
more than one cardholder, are to review cardholders' transactions and the
cardholders' reconciled statements and certify the official consolidated
bill for payment. Approving officials are to ensure that (1) all purchases
made by the cardholders within his or her cognizance are appropriate and
that the charges are accurate and (2) the monthly summary statement is
certified for payment on time by the Defense Finance and Accounting
Service (DFAS). DFAS relies on the approving official's certification of
the monthly bill as support to make the payment.

Our Previous Findings on DOD's Purchase Card Program

Between July 2001 and December 2002, we testified four times and issued
four reports highlighting a weak control environment and breakdowns in
specific internal controls over the purchase card program at the Army,
Navy, and Air Force. Based on statistical sampling and selected reviews of
at-risk transactions we identified through data mining, we reported that
these weaknesses left the purchase card program at the three services
vulnerable to fraudulent, improper, and abusive purchases. The testimonies
and reports we issued pointed to common weaknesses. We identified (1) a
proliferation of cardholders, (2) lack of documented evidence of training
of cardholders and approving officials, (3) inadequate program monitoring,
and (4) lack of disciplinary actions against cardholders who abused the
purchase cards. We made recommendations to each of the services for
improving the purchase card program.

Proliferation of Cardholders 	We reported that the proliferation of
cardholders resulted in an unmanageable approving official span of control
and excessive credit limits compared to historical spending. This problem
originated from the fact that the services 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. Consequently,
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. By contrast, the Navy, which in 2000 had 1 cardholder for every
3 employees in some of its units, had taken positive steps to reduce the
number of its purchase cardholders to only about 1 cardholder for every 31
employees by September 2002. The proliferation of cardholders also
resulted in a span of control problem for some approving officials. For
example, at the end of fiscal year 2002, some officials at two Air Force
installations had multiple job responsibilities in addition to being
approving officials for more than 20 cardholders, making it difficult for
them to systemically scrutinize each purchase card statement they had to
certify for payment.

We also found that the credit limits on the purchase cards exceeded
procurement needs. We saw little evidence that limits were set based on an
analysis of individual cardholders' needs or past spending patterns. For
example, at the Marine Corps, the credit limit as of March 2002 exceeded
average fiscal year 2001 monthly expenditures by a ratio of 34 to 1, while
at an Air Force location, the credit limit exceeded fiscal year 2001
monthly purchases by a ratio of 20 to 1. At the Army, we saw infrequently
used cards that, nevertheless, had spending limits set at the maximum. In
some cases, we were told that the monthly limits were based on anticipated
peak spending to avoid possible limit changes. Limits that are higher than
justified by the cardholder's authorized and expected use unnecessarily
increase the government's exposure to fraudulent, improper, and abusive
purchases. Limiting credit available to cardholders is a key factor in
managing the purchase card program and in minimizing the government's
financial exposure.

Inadequate Training of We reported that cardholders, approving officials,
and/or agency program

Cardholders and Approving coordinators did not receive adequate training
necessary to carry out their

Officials 	responsibilities. Specifically, we found that 51 percent of the
fiscal year 2001 transactions at one Air Force location, 56 percent of the
transactions at the Marine Corps, and as high as 87 percent of the
transactions at one Navy command, were made by cardholders or approved for
payment by approving officials for whom there was no documented evidence
of either initial training or refresher training at the time the
transactions were made.

At the Army, cardholders received initial training, but were seldom
provided refresher training as required by DOD guidance. Further, we noted
that, even though the functions performed by the agency program
coordinators, approving officials, and cardholders were substantially
different, the training curriculum for the three positions was identical.
The services did not have specific guidance or training concerning the
role and responsibilities of agency program coordinators or approving
officials.

Inadequate Purchase Card We reported that all of the military services
needed to improve the quality

Program Monitoring	of their monitoring and oversight of the purchase card
program. At the time of our audits, the purchase card program offices of
the military services did not systematically monitor the purchase card
program. We also reported that when a military services' purchase card
program office or audit agency did uncover control weaknesses or improper
and abusive or questionable activity, the results of those efforts were
not always used to improve program management.

Lack of Disciplinary Actions	We also noted in our reports and testimonies
that individuals who misused the purchase card were not always subject to
strong disciplinary action or consequences. For example, we found that
cardholders who purchased and officials who authorized items with
excessive cost or without documented government need, including designer
brief cases, folios, and palm pilot carrying cases from Coach, Dooney and
Bourke, and Louis Vuitton; personal clothing including golf shirts and ski
clothing; food including beer, wine, and cigars; and Bose stereo headset
and clock radios, were not disciplined for their actions. We reported that
without disciplinary actions, improper, abusive, and questionable
purchases like those mentioned above will likely continue.

Legislative Requirements for Improvements in the DOD Purchase Card Program

In response to the concerns we expressed about DOD's management of the
purchase card program, the Congress included Section 1007 in the National
Defense Authorization Act for fiscal year 2003 (Public Law 107-314) and
Section 8149 in the fiscal year 2003 DOD Appropriations Act (Public Law
107-248) to require DOD to take specific actions to improve the management
of the purchase card program, and in particular the weaknesses we
identified. As shown in table 2, these laws limit the number of purchase
cards and require DOD to train purchase card officials, monitor purchase
card activity, discipline cardholders who misuse the purchase card, and
assess the credit worthiness of cardholders.

     Table 2: Legislative Mandates in the Fiscal Year 2003 National Defense
                   Authorization and DOD Appropriations Acts

Defense Authorization Act DOD Appropriation Act

Limit the number of purchase cards

o  Conduct periodic reviews to determine whether each purchase Limit the
total number of DOD credit cards (purchase cards and cardholder has a need
for the purchase card. travel cards) in fiscal year 2003 to not exceed
1,500,000.

o  Establish specific policies on the number of purchase cards issued by
various organizations and categories of organizations, the credit limits
authorized for various categories of cardholders, and categories of
employees eligible to be issued purchase cards, and that those policies
are designed to minimize the financial risk to the federal government of
the issuance of the purchase cards and to ensure the integrity of purchase
card holders.

                   Train cardholders and approving officials

Provide appropriate training to each purchase cardholder and each official
with responsibility for overseeing the use of purchase cards issued by
DOD.

                         Monitor purchase card program

The Inspector General of DOD, the Inspector General of the Army, the Naval
Inspector General, and the Inspector General of the Air Force perform
periodic audits to identify-

o  potentially fraudulent, improper, and abusive uses of purchase cards;

o  any patterns of improper card holder transactions, such as purchases of
prohibited items; and

o  categories of purchases that should be made by means other than
purchase cards in order to better aggregate purchases and obtain lower
prices.

                            Disciplining cardholders

o  Establish regulations that provide for appropriate adverse personnel
actions or other punishment to be imposed in cases in which military and
civilian employees of the DOD violate purchase card regulation or are
negligent or engage in misuse, abuse, or fraud with respect to a purchase
card, including removal in appropriate cases.

o  Provide that a violation of such regulations by a person subject to the
Uniform Code of Military Justice be punishable as a violation of Article
92 of this code.

Establish guidelines and procedures for disciplinary actions to be taken
against department personnel for improper, fraudulent, or abusive use of
government purchase charge cards.

o  Guidelines shall include appropriate disciplinary actions for use of
charge cards for purposes, and at establishments, that are inconsistent
with the official business of the department or with applicable standards
of conduct.

o  The disciplinary actions may include-

o  review of the security clearance of the individual involved and

o  modification or revocation of such security clearance in light of the
review.

                               Credit Worthiness

o  Evaluate the creditworthiness of an individual before issuing the
individual a government purchase charge card.

o  Do not issue a government purchase charge card if the individual is
found not creditworthy as a result of the evaluation.

Source: GAO analysis of the Fiscal Year 2003 National Defense
Authorization Act and DOD Appropriation Act.

DOD Has Taken During fiscal year 2003, DOD and the military services took
actions to

implement all of the requirements mandated by the fiscal year 2003Actions
to Implement National Defense Authorization and DOD Appropriations acts.
In several the Requirements of cases, although DOD and the services have
issued policies and guidelines Public Laws 107-314 that implement the
legislative mandates, sufficient time has not passed for and 107-248 the
objective of the legislative mandate to be achieved.

Limit the Number of Purchase Cards Issued

DOD has substantially reduced the number of purchase cards issued.
According to GSA records, DOD had reduced the total number of purchase
cards from about 239,000 in March 2001 to about 145,000 in March 2003. DOD
also informed us that it manages the gross number of purchase and travel
cards in accordance with the DOD Appropriations Act, 2003. To that end,
DOD had reduced the total number of purchase and travel cards to about
1.23 million, about .27 million less than the 1.5 million statutory limit.
DOD also issued policy guidance on April 25, 2002, to field activities to
(1) perform periodic reviews of all purchase card accounts to reestablish
a continuing bona fide need for each card account, (2) cancel accounts
that were no longer needed, and (3) devise additional controls over
infrequently used accounts to protect the government from potential
cardholder or outside fraudulent use. The policy cited as an acceptable
control for infrequently used cards the reduction of the spending limit to
$1 until such time as the card is needed.

Train Cardholders and Approving Officials

To implement the requirement to train each purchase cardholder and each
official with responsibility for overseeing the use of purchase cards,
DOD's Defense Acquisition University has made available several on-line,
selfpaced purchase card courses on its Web site. The on-line curriculum
included a GSA module targeted to cardholders on how to use the card
responsibly, a DOD course for cardholders and billing officials on the
mandatory requirements and other guidelines of the purchase card program,
and a GSA module aimed at providing advanced training to agency program
coordinators who have completed basic training on the purchase card
program. Further, on September 27, 2002, DOD issued a memorandum requiring
all cardholders, approving officials, and certifying officials to complete
the training module.

Monitor Purchase Card Program

To address the requirement that the Inspectors General of DOD and the
military services periodically audit the program to identify potentially
fraudulent, improper, and abusive uses of the purchase cards, as well as
any patterns of improper cardholder transactions, DOD indicated that its
Office of Inspector General and the Navy have prototyped and are now
expanding a data-mining capability to screen for and identify high-risk
card transactions (such as potentially fraudulent, improper, and abusive
use of purchase cards including prohibited purchases) for subsequent
investigation. According to DOD, this capability will eventually be
implemented across the department. In addition, on June 27, 2003, the DOD
Inspector General issued a report4 summarizing the results of indepth
review of purchase card transactions made by 1,357 purchase cardholders.
The report identified 182 cardholders who potentially used their purchase
cards inappropriately or fraudulently.

With respect to the National Defense Authorization Act's requirement to
use strategic sourcing (i.e., that the Inspectors General identify
categories of purchases that should be made by means other than purchase
cards in order to better aggregate purchases and obtain lower prices), DOD
issued a memorandum on June 5, 2003, reiterating a prior decision
requiring all DOD components to review fiscal year 2002 purchase card
transaction files and stratify the volume of purchases by vendors.
According to the memorandum, these data will be used to determine if any
componentwide contracts should be established to optimize purchasing
power. DOD also indicated that each of the military departments have
initiated a strategic sourcing plan, contract, or Blanket Purchase
Agreement (BPA) to take advantage of purchase card demand (sales volume)
data. As an example, DOD said that the Army had awarded a BPA for office
supplies in 2002 to address long-standing concerns over cardholder
compliance with mandatory sourcing requirements. Likewise, the Air Force
entered into a BPA with a large provider of office supplies and
anticipates others. The Navy is expected to make similar BPA arrangements
when its sales volume analysis is completed. According to DOD, the
strategic sourcing initiative is still in the infancy stage, but the
department is committed to expanding opportunities to leverage its
purchase card purchasing power. The issue of strategic sourcing of
purchase card transactions is also the subject of an audit that we
initiated at the request of the Chairman and Ranking Minority

4Department of Defense, Office of the Inspector General, Summary Report on
Joint Review of Selected DOD Purchase Card Transactions, D2003-109
(Washington, D.C.: June 27, 2003).

Member of the House Committee on Government Reform, Subcommittee on
Government Efficiency, Financial Management and Intergovernmental
Relations.

Disciplining Cardholders	With respect to establishing regulations that
provide for appropriate adverse personnel actions or other punishment for
misuse, abuse, or fraud with respect to purchase cards, DOD has issued
disciplinary guidelines, separately, for civilian and military employees.
In both updated guidelines, DOD continues to emphasize its policy that
improper, fraudulent, abusive, or negligent use of a government charge
card is prohibited. This includes any use of government charge cards at
establishments or for purposes that are inconsistent with the official DOD
business or with applicable regulations. The intent of the guide is to
ensure that management emphasis is given to the important issue of
personal accountability. The civilian guide has a sample range of
potential charge card offenses and remedies or penalties for such offenses
as shown in table 3.

Table 3: Sample Schedule of Potential Charge Card Offenses and
Remedies/Penalties

Offenses First offense Second offense Third offense

Unauthorized use of or failure to appropriately control use of Letter of
14-day suspension to 30-day suspension

Government Purchase Card as a cardholder, approving official responsible
for use or oversight of the card.

Counseling to removal

                               removal to removal

Source: DOD memorandum.

According to the disciplinary guidelines, there is no single response for
all cases. Instead, a progression of increasingly severe disciplinary
measures is often appropriate in the case of minor instances of misuse,
but more serious cases may warrant the most severe sanctions in the first
instance. The disciplinary guide for military employees indicates that
actions available when military personnel misuse a purchase or travel card
include counseling, admonishment, reprimand, nonjudicial punishment
(Article 15, Uniform Code of Military Justice - UCMJ), court-martial, and
administrative separation. In addition to corrective disciplinary actions,
military personnel who misuse their government charge cards may have their
access to classified information modified or revoked if warranted in the
interests of national security. These guidelines emphasized that while the
merits of each case may be different, timeliness, proportionality, and the
exercise of good judgment and common sense are always important.

Credit Worthiness	Finally, with regard to the requirement that DOD
evaluate the credit worthiness of cardholders, DOD told us that a senior
focus group consisting of acquisition, financial management, and general
counsel executives had concluded that there are conflicts between this
legislation and the Fair Credit Reporting Act. The department is pursuing
an alternative solution that would rely on a self-certification process by
prospective cardholders. The legality and practicality of this alternative
are being staffed and coordinated. This process, however, is in stark
contrast to the standard industry practice of conducting credit checks on
credit card applicants.

Status of Our Recommendations to Improve Purchase Card Operations

According to information provided by representatives of the Army, Navy,
and Air Force, the three services have either completed or initiated
actions to implement nearly all of the 109 recommendations we made to
improve the management of the purchase card program. As shown in table 4,
we made 22 recommendations to the Army to improve its purchase card
program and the Army provided us with information that it had implemented
18 of those recommendations and initiated actions to implement the
remaining 4 recommendations. In addition, the Navy told us that it had
implemented 38 of our 48 recommendations, and initiated actions to
implement the 10 other recommendations. Similarly, the Air Force reported
that it had implemented 24 of our 39 recommendations and initiated actions
to implement the 15 other recommendations.

Table 4: Status of Recommendations Made to the Military Services to
Improve the Management of the Purchase Card Program

                   Recommendations   Army      Navy     Air Force       Total 
                              Made        22    48               39 
                 Fully implemented        18    38               24        80 
             Partially implemented         4    10               15        29 

Source: GAO analysis of military services responses.

The recommendations that the Army, Navy, and Air Force told us they have
implemented related to issuing new purchase card policies and procedures,
retraining cardholders and approving officials, and reducing the number of
purchase card accounts to improve management of the purchase card program.
The recommendations they have not fully implemented generally

were those dealing with leveraging purchase card buying power,
establishing servicewide databases for data mining, investigating
suspected and known fraud cases, and linking the cardholders', approving
officials, and agency program coordinators' performance appraisals to
performance standards.

The Air Force and Navy reported to us that they planned to complete
implementation of most of the remaining GAO recommendations by June 2004.
The Air Force planned to complete implementation of all of the partially
completed recommendations by January 4, 2004. The Navy indicated that some
of the recommendations would be implemented by June 2004. The Army and the
Navy did not provide a date for when some of the partially completed
recommendations would be implemented, but indicated that there was an
ongoing effort to identify opportunities to leverage purchasing power,
develop data mining, analysis, and investigation functions, and develop
databases of known fraud cases to improve internal controls.

Appendixes II, III, and IV summarize GAO recommendations and the military
services' representations of actions taken. We have not verified whether
the military services are effectively implementing the policies and
procedures that we recommended they establish and/or modify.

Limited Disciplinary Actions Taken

In our purchase card reports and testimonies, we identified 51 cases where
cardholders had used the government purchase card to make fraudulent or
potentially fraudulent purchases and 120 cases where cardholders had made
improper and abusive or questionable purchases. In general, when a court
of law determined that a cardholder fraudulently used the purchase card,
all the military services took strong disciplinary actions (i.e., assessed
fines, and in the case of uniformed personnel, sentenced the individual to
jail/confinement). We also found that the military services either took
strong disciplinary actions or were actively investigating the cases we
reported as potentially fraudulent. For example, our two Navy reports
identified 26 fraudulent and potentially fraudulent transactions totaling
more than $1,342,000. The Navy reported that in response, it fired six
cardholders, reduced the grade of others, confined several uniformed
serviceman to from 14 months to 60 months, and required repayment to the
government of over $460,000. Other actions taken on fraudulent or
potentially fraudulent transactions included suspending or revoking
purchase card privileges, requiring repayment to the government for the
cost of the items obtained, giving the items obtained back to the

government, and written reprimands. In eight instances where no action was
taken against cardholders we categorized as having used the purchase card
in a fraudulent or potentially fraudulent manner, the military services
and the credit card company determined that the fraud was committed by a
third party, and the government had no responsibility for the charge. The
military services were still investigating 15 cases for fraud.

However, as shown in table 5, the military services often did not
discipline the 120 individuals that we identified as having made improper,
abusive, or questionable transactions. Further, the discipline, if it was
imposed at all, was usually retraining. The responses the military
services provided to our inquiries concerning disciplinary actions
indicated that in three instances the cardholder had to repay the
government for the cost of the improper, abusive, or questionable item(s)
we identified. Of the remaining cardholders, 7 had their purchase card
privileges revoked, 5 received verbal or written reprimands, and 6 had to
return items that we deemed improper, abusive, or questionable to the
government.

            Table 5: Disciplinary Actions Taken Against Cardholders

Dollars in thousands

          Type of disciplinary action taken Army Navy Air Force Total

Potentially fraudulent transactions

    Number of potentially fraudulent         13         26         12         
     transactions identified by GAO                        
     Value of potentially fraudulent   $209,561 $1,342,257 $71,749 $1,623,567 
     transactions identified by GAO                        
     No action taken because it was           2          3         3          
            third party fraud                              
                  Fired                       5          6         0          
           Suspended from work                0          0         0          
       Court-martial, confinement,                         
probation, reduction in grade, and                      
               restitution                    3          7         1          
    Repay the cost of the fraudulent          2          0         1          
                  items                                    
         Give item to government              0          0                0 0 
            Written reprimand                 3          1                0 4 
            Verbal reprimand                  0          0                0 0 
         Credit card revocation               9          1               1 11 
         Credit card suspension               6          0                1 7 
        Required to take training             0          2                1 3 
    Still under review/investigation          7          6               2 15 
             No action taken                  0          5                4 9 
                                                                   GAO-04-156 
                               Page 14                         Purchase Cards 

(Continued From Previous Page)

Dollars in thousands

          Type of disciplinary action taken Army Navy Air Force Total

Improper, abusive, or questionable transactions

Number of transactions identified        34         59       27 
                 by GAO                                            
    Value of transactions identified  $999,094 $1,102,647 $960,704 $3,062,445 
                 by GAO                                            
                 Fired                       0          0        0 
          Suspended from work                0          0        0 
      Repay for cost of improper,            1          0        2 
    abusive, or questionable charge                                
        Give item to government              0          0        6 
           Written reprimand                 2          0        0 
            Verbal reprimand                 1          1        1 
         Credit card revocation              1          4        2 
         Credit card suspension              1          0        0 
Required to take training/guidance        8         20       11 
    Still under review/investigation         0          3        0 
Written policy authorized purchase        0          0        3 
     - no disciplinary action taken                                
            No action taken                 27         36        5 

Source: Responses provided by the Army, Navy, and Air Force.

Note: Total actions taken exceed transactions identified because multiple
actions were taken for some transactions.

Further, in their response to our inquiries concerning the disciplinary
actions taken against cardholders who we identified as making improper,
abusive, or questionable purchases, the military services stated that they
did not take any action in over half of the transactions we identified. We
believe that these items were imprudent use of tax dollars, but the
military services claimed that policies existing at the time the purchases
were made permitted the acquisitions. Therefore, the military services did
not think that they had the authority to discipline the cardholders or
approving officials. Rather, the military services told us they modified
their policies and procedures to prohibit similar acquisitions in the
future. The Navy, for example, told us that it had issued numerous e-mails
and updated its policies to indicate that some products purchased in the
past were now prohibited, and that it planned to better monitor purchases
so that none of these purchases would occur in the future. While
clarifying purchase card policies and procedures is appropriate, failure
to take any disciplinary actions against individuals who purchased or
authorized the purchase of items that clearly exceed the needs of the
government (designer briefcases) or were excessive in cost ($350 clock
radios) does not serve as a deterrent to future abuse or the waste of tax
dollars.

Conclusions	DOD and the military services have taken strong actions to
improve the controls over the purchase card program. DOD has initiated
actions to implement all of the requirements that were mandated in the
fiscal year 2003 National Defense Authorization and DOD Appropriations
acts. In addition, DOD and the military services have taken actions on
nearly all of 109 recommendations that GAO made in its four reports on the
purchase card program, and DOD has plans to have most of the
recommendations implemented by June 2004. While the military services have
generally taken strong disciplinary actions against cardholders who we
identified as having made fraudulent or potentially fraudulent purchases,
the military services generally have done little or nothing to discipline
cardholders who have made improper, abusive, or questionable purchases.

Recommendations for Executive Action

To help provide reasonable assurance that DOD holds cardholders and
approving officials accountable for improper and abusive purchase card
acquisitions, we recommend that the Secretary of Defense direct the
service secretaries and the heads of DOD agencies to establish procedures
to:

o 	monitor the results of purchase card reviews conducted by the military
services and the DOD agencies,

o 	track whether the major commands and units are consistently applying
DOD's disciplinary guidelines to those who made and/or authorized improper
or abusive acquisitions, and

o 	notify the appropriate officials at the major commands or units if
DOD's disciplinary guidelines are not being consistently applied.

Agency Comments and Our Evaluation

In comments on a draft of this report, reprinted in appendix V, DOD stated
that while more needs to be done, it appreciated our recognition of the
department's efforts to address previously cited managerial and internal
control deficiencies. In its response, DOD requested that we add some
perspective to table 5 that shows the extent to which DOD had not taken
disciplinary actions on purchases that we had characterized as improper,
abusive, or questionable because the military services belief that they
had documented policies that specifically authorized the purchases we
questioned. To provide this additional perspective, we modified table 5 to
separately identify the three transactions that we considered abusive or

questionable that the military services believe were specifically
authorized by existing Air Force regulations. While we believe that this
differentiation is useful, we continue to question whether the purchase
card was the appropriate vehicle to make the purchases we identified as
abusive or questionable in our prior report. We also modified the report's
title to be focused on future program improvements. DOD did not comment on
our recommendations to monitor implementation of the disciplinary
guidance.

We will send copies to interested congressional committees; the Secretary
of Defense; the Under Secretary of Defense, Comptroller; the Under
Secretary of Defense for Acquisition Technology and Logistics; the
Secretary of the Army; the Secretary of the Navy; the Secretary of the Air
Force; the Director of the Defense Finance and Accounting Service; and the
Director of Management and Budget. We will make copies available to
others upon request. In addition, the report will be available at no
charge
on the GAO Web site at http://www.gao.gov.

Please contact Gregory D. Kutz at (202) 512-9505 or [email protected], or
John V. Kelly at (202) 512-6926 or [email protected] if you or your staffs
have
any questions concerning this report. Major contributors to this report
are
acknowledged in appendix VI.

Gregory D. Kutz
Director
Financial Management and Assurance

Robert J. Cramer
Managing Director
Office of Special Investigations

List of Committees

The Honorable John Warner Chairman The Honorable Carl Levin Ranking
Minority Member Committee on Armed Services United States Senate

The Honorable Ted Stevens Chairman The Honorable Daniel Inouye Ranking
Minority Member Subcommittee on Defense Committee on Appropriations United
States Senate

The Honorable Duncan Hunter Chairman The Honorable Ike Skelton Ranking
Minority Member Committee on Armed Services House of Representative

The Honorable Jerry Lewis Chairman The Honorable John Murtha Ranking
Minority Member Subcommittee on Defense Committee on Appropriations House
of Representative

Appendix I

                       Objectives, Scope, and Methodology

This study responded to the legislative mandate in the conference report
to the Bob Stump National Defense Authorization Act of 2003, that directs
the Comptroller General to review the actions taken by the Department of
Defense (DOD) to comply with the requirements of Section 1007 of the act
and submit a report on those actions to the congressional defense
committees no later than December 2, 2003. At the request of the
committee, this report also summarizes the actions taken by the Army,
Navy, and Air Force to respond to the legislative mandates in Section 8149
of fiscal year 2003 DOD Appropriations Act, and actions taken by the
military services to implement the recommendations we made in four reports
issued during fiscal years 2002 and 2003 aimed at improving the military
services' management of the purchase card program. Finally, the report
also discusses the actions taken by the military services against
individuals we identified in our testimonies and reports as having made
potentially fraudulent, improper, abusive, or questionable purchase card
transactions.

To meet the objectives of this assignment, we requested that DOD and the
military services provide us the (1) status of DOD and the military
services' efforts in implementing certain provisions of the National
Defense Authorization Act for fiscal year 2003 and the fiscal year 2003
DOD Appropriations Act, (2) status of actions taken to implement the
recommendations included in our four reports, and (3) administrative or
disciplinary actions taken against individuals we identified as having
made potentially fraudulent, improper, and abusive or questionable
transactions. While we asked DOD and the military services to provide
evidence documenting actions taken to improve the purchase card program
and prevent individuals and companies from further obtaining fraudulent,
improper, and abusive or questionable items with a DOD purchase card, we
did not make any field visits to independently validate whether DOD had
effectively implemented the reported changes.

We briefed DOD managers, including DOD officials in the Office of the
Undersecretary of Defense (Comptroller), and the Inspector General; Army
officials in the Office of Deputy Chief of Staff for Logistics; Navy
officials in the Office of the Assistant Secretary of the Navy for
Research Development and Acquisition; and Air Force officials in the
Office of the Deputy Chief of Staff for Installation and Logistics. We
conducted our review from June through September 2003 in accordance with
U.S. generally accepted government auditing standards. We requested
comments on a draft of this report from the Secretary of Defense or his
designee. We received written comments from the Director of DOD's Purchase
Card Joint Program

Appendix I
Objectives, Scope, and Methodology

Management Office, which are reprinted in appendix V. We have incorporated
suggested changes as appropriate.

Appendix II

Status of Army Actions to Implement GAO Recommendations

Status of GAO recommendation, as reported by the GAO observation on the
GAO recommendation Army status of recommendation

Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste,
and Abuse (GAO-02-732, June 27, 2002)

                   Overall program management and environment

Address key control environment issues in Army-wide standard operating
procedures. At a minimum, the following key issues should be included in
the procedure: 1. Controls over the issuance and Identified in Army
Standard Operating Procedure (SOP) Reported implemented

assessment of ongoing need for cards. Section 15. Also reinforced by Army
in memorandum issued May 22, 2002, requesting that heads of contracting
activities ensure cards are issued only to individuals with bonafide needs
and that the limits reflect actual needs and available funding.

2.	Cancellation of cards when a cardholder Identified in Army SOP Section
15. Reported implemented leaves the Army, is reassigned, or no longer has
a valid need for the card.

3. Span of control of the approving officials. Identified in Army SOP
Section 5. Reported implemented

4. Appropriate cardholder Identified in Army SOP Sections 15      Reported 
         spending limits.               and 16. Also              implemented 
                             reinforced by Army in memorandum    
                             issued May 22,                      
                                  2002, requesting heads of      
                                  contracting activities to      
                               ensure cards are issued only to   
                                      individuals with           
                             bonafide needs and that the limits  
                             reflect actual needs                
                                   and available funding.        

5. Help ensure that program coordinators and approving officials have the
needed authority, including grade level, to serve as the first line of
defense against purchase card fraud, waste, and abuse by issuing a policy
directive that specifically addresses their positions, roles, and job
descriptions. Policies should also be established that hold these
officials accountable for their purchase card program duties through
performance expectations and evaluations Issued Memorandum endorsed by
General John Keane, Vice Chief of Staff articulating the focus on the
number of purchase card organizations for each card account (300), and the
skill sets typically require a GS-11 and also required in-depth skills in
financial and contracting policy and procedures with strong verbal
communications skills. The DOD Concept of Operations (CONOPS) report has
been updated to further identify skill sets for the billing official and
cardholders.

                              Reported implemented

6. Assess the adequacy of human capital Memorandum signed by Vice Chief of
Staff, July 8, Reported implemented resources devoted to the purchase card
2002, directed Army commanders to provide adequate program, especially for
oversight activities, resources for purchase card program coordinators to
at each management level, and provide ensure a system of strong internal
controls. This was needed resources. also reemphasized in the Army SOP.

7. Develop and implement a program Identified in Army SOP Section 9.
Reported implemented oversight system for program coordinators that
includes standard activities and analytical tools to be used in evaluating
program results.

                                  Appendix II
                    Status of Army Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported by the GAO observation on the
GAO recommendation Army status of recommendation

8. Develop performance measures and goals Identified in Army SOP Section 9
and appendixes J and Reported implemented to assess the adequacy of
internal control I. Also reinforced in Secretary of the Army activities
and the oversight program. memorandum dated January 28, 2003.

9. Require reviews of existing cardholders and their monthly spending
limits to help ensure that only those individuals with valid continuing
purchasing requirements possess cards and that the monthly spending limits
are appropriate for the expected purchasing activity. These reviews should
result in canceling unneeded cards Army-wide and especially at Fort Hood
where we found a significant problem.

September 2002 the Army had 101,398 cardholders. Reported implemented
Army canceled 35,778 since September. Additionally,
agency program coordinators are required to review this
as part of their surveillance reviews as identified in the
Army SOP.

Direct the implementation of specific internal control activities for the
purchase card program in an Army-wide standard operating procedure. While
a wide range of diverse activities can contribute to a system that
provides reasonable assurances that purchases are correct and proper, at a
minimum, the following activities should be included in the promulgated
procedure:

10. Advance approval of purchases, including Identified in SOP Sections 12
and 18. Reported implemented blanket approval for routine, low dollar
purchases.

11. Independent receiving and acceptance Identified in SOP 13. Reported
implemented of goods and services.

12. Independent review by an approving official Identified in SOP Section
11. Reported implemented of the cardholder's monthly statements and
supporting documentation.

13. Approving official reconciling the charges Identified in SOP Section
11. Reported implemented on the monthly statement with invoices and other
supporting documentation and forwarding the reconciled statement to the
designated disbursing office for payment as required by governmentwide and
DOD regulations.

14. Cardholders obtaining and retaining Identified in SOP Section 12.
Reported implemented invoices that support their purchases and provide the
basis for reconciling cardholder statements.

                                  Appendix II
                    Status of Army Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported by the GAO observation on the
GAO recommendation Army status of recommendation

        15. Develop and implement      Identified in SOP Reported implemented 
             procedures and               Appendix E.    
    checklists for approving officials                   
                             to use in                   
the monthly review of cardholders'                    
transactions. These procedures and                    
checklists should specify the type                    
and                                                   
extent of review that is expected                     
and the                                               
     required review documentation.                      

16. Reiterate records retention policy for Identified in SOP Section 19.
Reported implemented purchase card transaction files and require that
compliance with record retention policy be assessed during the program
coordinator's annual review of each approving official.

17. Require the development and Identified SOP Section 8. Reported
implemented implementation of coordination and reporting procedures to
help ensure that accountable property bought with the purchase card is
brought under appropriate control.

18. Require additional prior documented Identified in SOP Section 18 and
Appendix D. Reported implemented justification and approval of those
planned purchases that are "questionable" that fall outside the normal
procurements of the cardholder in terms of either dollar amount or type of
purchase.

19. Analyze the procurements of continuing Ongoing effort. If the Army
identifies leveraging Reported partially requirements through
micropurchases and opportunities, they will be implemented through some
implemented require the use of appropriate contracting form of contracting
process. processes to help ensure that such purchases are acquired at the
best prices. The Army issued 12 mandatory Blanket Purchase Agreements for
office products and supplies in September 2002. The army has also teamed
with the Army Comptroller's office in awarding a support contract to
assess the Army's purchasing data to determine if leveraging opportunities
exist.

20. Develop an Army-wide database on known The Army participates in the
DOD charge card special Reported partially fraud cases that can be used to
identify focus group to look at this issue DOD-wide. However, implemented
potential deficiencies in existing internal the Army has teamed with the
Army Criminal control and to develop and implement Investigative Command
and the Public Affairs office to additional control activities, if
warranted or identify, report, and publish newsworthy fraud cases and
justified. to inform Army soldiers and Department of the Army civilian
personnel, their supervisors, and the public of corrective actions taken
to resolve misuse of the Army Purchase Card.

                                  Appendix II
                    Status of Army Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported by the GAO observation on the
GAO recommendation Army status of recommendation

21. Develop and implement an Army-wide data mining, analysis, and
investigation function to supplement other oversight activities. This
function should include providing oversight results and alerts to major
commands and installations when warranted.

Ongoing. Army will continue to work with the DOD Charge Card Focus Group.

The Army participates in the DOD Charge Card Focus Group to look at this
issue DOD-wide. DOD is currently working with the DOD IG to test a Navy
prototype datamining system. A July 2003 Draft Army Audit Report Audit of
Army Government Purchase Card (using DOD IG data-mining techniques) stated
that about 6 percent (281) of the 4,537 reviewed Army purchase card
transactions were improper. Over half of those instances were instances of
compromised purchase cards used by third parties for charges and in
billing adjustments that returned about 98 percent of the improperly
charged Army funds. This left about 3 percent of purchases that were
improper, which is less than commercial industry standards of 4.2 percent
identified in the 2003 Purchase Card Benchmark survey results, a VISA
survey conducted by Palmer and Mahendra Gupta dated July 21, 2002.

Reported partially implemented

22. Incorporate GAO recommendations, to the The Army participates in the
DOD Charge Card Focus Reported partially extent applicable, into the
Charge Card Group to look at these issues DOD-wide. implemented Task
Force's future recommendations to improve purchase card policies and
procedures throughout DOD.

                     Source: GAO analysis of DOD responses.

Appendix III

Status of Navy Actions to Implement GAO Recommendations

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to
Fraud and Abuse (GAO-02-32, Nov. 30, 2001)

                          Proliferation of cardholders

1. Establish specific policies and strategies governing the number of
purchase cards to be issued with a focus on minimizing the number of
cardholders.

The revised eBusiness Operations Office Instruction (EBUSOPSOFFINST)
4200.1 incorporates the Department of Defense "Span of Control Goals"
which resulted in approving officials having a reasonable number of
cardholders. The Navy executes the DOD Purchase Card Program in a
decentralized manner consistent with DOD policy. This allows individual
commands to issue purchase cards to employees as mission requirements
warrant. No less than semiannually, Agency Program Coordinators (APC)
review the continuing need for each account under their purview.

                              Reported implemented

2. Develop criteria for identifying employees eligible The criterion on
eligibility for cardholder's duties has Reported partially for the
privilege of cardholder status. As part of been developed and is
incorporated in Department implemented the effort to develop these
criteria, assess the of Navy (DON) PC desk guides. The issue of credit
feasibility and cost-benefit of performing credit checks was deferred to
DOD. DOD is seeking checks on employees prior to assigning them additional
legislative action required to implement cardholder responsibilities to
ensure that credit checks. employees authorized to use government purchase
cards have demonstrated credit worthiness and financial integrity.

3. Develop policies and strategies on credit limits EBUSOPSOFFINST 4200.1,
chapter 2, paragraph 3, Reported implemented provided to cardholders with
a focus on defines DON policy. In addition, the EBUSOPSOFF minimizing
specific cardholder spending monitors credit limits quarterly and takes
action authority and minimizing the federal when it appears that existing
credit limits exceed government's financial exposure. mission
requirements. Credit limits are now a critical

                    element in the revised semiannual review

                                  procedures.

4. Confirm that required training has been EBUSOPSOFFINST 4200.1, chapter
3, paragraph 9, Reported implemented

completed and documented. addresses mandatory requirements for training.
In addition, chapter 4, paragraph 1b.2, mandates that program compliance
with applicable training be reported as part of the semiannual APC review.
Major claimants have been reporting status of training completion via the
semiannual review report and have reported corrective actions are
necessary.

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

5. Incorporate into purchase card training programs any relevant changes
in policies and procedures made as a result of the recommendations in this
report.

Policy changes resulting from previous GAO audit recommendations were
incorporated into revised desk guides and training modules as well as the
September 2002 revision of the DON EBUSOPSOFFINST 4200.1. Furthermore, a
second combined Purchase Card/Travel Card APC conference was held in San
Diego Nov. 5-8, 2002. A third combined conference was held in
Philadelphia, Mar 17-20, 2003. On Sept 27, 2002, the Navy commenced
distribution of training CDs that contained four training modules for
purchase cardholders and approving officials (AO). A total of 30,000 CDs
were distributed at that time. In December. 2002, the remaining three
training modules were completed and posted to the DON eBusiness Web site
for downloading of complete training modules. A second version of the Navy
training CD was released and distributed at the March 2003 APC conference.
This version contains seven training modules and a desk guide for each
module for use by APCs. Each module contains both a Citidirect (shore) and
WINSAALTS (afloat) version.

                              Reported implemented

Rebates

6. Investigate ways to maximize potential rebates, such as (1) working
with Citibank to facilitate timely receipt of monthly purchase card
statements and (2) reducing the time associated with mailing and receipt
of hard copy billing statements.

A plan for the "on-line statement process" (electronic certification) was
presented to APCs at the March 2003 APC conference in Philadelphia. All
general fund activities are expected to be performing electronic
certification by Sept. 30, 2003. All others, including outside the
continental United States (OCONUS), nonappropriated fund (NAF), and Navy
working capital fund (NWCF) activities, are expected to be performing
electronic certification by June 30, 2004. In April 2003, a Navy Working
Capital Fund users conference convened to discuss issues, explore problem
areas, and develop an implementation plan. The electronic certification
tool provides Navy purchase card customers with the ability to
significantly decrease payment timelines, thereby optimizing rebate
amounts.

Reported partially implemented

7. Establish effective policies and procedures for The Defense Contract
Audit Agency (DCAA) was Reported partially routinely calculating and
verifying Citibank assigned the task of auditing the integrity of the
implemented rebates. rebate computation process. A number of systems
issues have been discussed with the banks and DCAA has finalized its audit
recommendations. The Navy and the PC Program Management Office are
assessing the results.

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

8. Develop guidance for routine distribution of The Navy made a
determination to retain the rebates Reported implemented

rebate earnings to Navy units and activities. at the department level in
lieu of disbursing them to lower echelons.

                             Monitoring and review

9. Establish in Navy Supply Systems Command EBUSOPSOFFINST 4200.1, chapter
4, addresses Reported implemented (NAVASUP) Instruction 4200.94 further
this issue. guidelines for an effective internal review program, such as
having reviewers analyze monthly summary statements to identify (1)
potentially fraudulent, improper, and abusive purchases and (2) any
patterns of improper cardholder transactions, such as purchases of food or
other prohibited items.

10. Revise NAVSUP Instruction 4200.94 to require EBUSOPSOFFINST 4200.1,
chapter 4, addresses Reported implemented that (1) written reports on the
results of internal this issue. Semiannual program reviews have been
reviews along with any recommendations for established and reports are
being submitted to the corrective actions be prepared and submitted to DON
EBUSOPSOFF. local management and cognizant commands and (2) commands
identify and report systemic weaknesses and corrective action plans to the
Naval Supply Systems Command for monitoring and oversight.

11. Require purchase card agency program EBUSOPSOFFINST 4200.1, chapter 4,
addresses Reported implemented coordinators to report in writing to the
unit this issue. Semiannual program reviews have been commander and the
Commander of Naval established and reports are being submitted to the
Supply Systems Command any internal control DON EBUSOPSOFF. weakness
identified during the semiannual program reviews.

12. Disclose systemic purchase card control The Navy included systemic
purchase card Reported implemented weaknesses along with corrective action
plans in weaknesses identified in the semiannual report in the Secretary
of the Navy's Annual Statement of the Secretary of the Navy's Annual
Statement of Assurance, prepared under 31 U.S.C. 3512 (d). Assurance.

                         Receipt of goods and services

13. Revise NAVSUP Instruction 4200.94 to eliminate ambiguous language
suggesting that advance independent authorization of a purchase can be
substituted for independent confirmation that goods and services ordered
and paid for with a purchase card have been received and accepted by the
government.

EBUSOPSOFFINST 4200.1 is a comprehensive instruction that addresses the
roles of each participant in the purchase card process, with specific
guidance addressing the responsibilities of each program participant.
EBUSOPSOFFINST 4200.1, chapter 2, section 4d-Approving Official Duties,
states that the AO will "ensure proper receipt, acceptance, and inspection
is accomplished on all items being certified for payment." Additionally,
EBUSOPSOFF 4200.1, chapter 3, section 7- Establishing Internal Management
Controls, discusses the separation of functions between receipt and
acceptance of goods and services.

                              Reported implemented

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

14. Implement procedures to require and document EBUSOPSOFFINST 4200.1,
chapter 3, paragraph Reported implemented independent confirmation of
receipt of goods and 7c, under Establishing Internal Management services
acquired with a purchase card. Controls separation of function, addresses
this issue.

15. Revise NAVSUP Instruction 4200.94 to require that (1) cardholders
notify approving officials prior to payment that purchase card statements
have been reconciled to supporting documentation, (2) approving officials
certify monthly statements only after reviewing them for potentially
fraudulent, improper, and abusive transactions, and (3) approving
officials verify, on a sample basis, supporting documentation for various
cardholders' transactions prior to certifying monthly statements for
payment.

EBUSOPSOFFINST 4200.1 has been revised to reflect the issues noted. The
specific provisions are cited below:

(1) Chapter 2, Section 6e, Cardholders Duties- Review the monthly purchase
card statement to ensure that all charges are proper and accurate; (2)
Chapter 2, Section 6f, Cardholders Duties- Forward the monthly purchase
card statement to the AO with the appropriate supporting documentation,
(i.e., sales slips, documentation of receipt and acceptance, purchase log)
promptly to maximize rebates and minimize prompt payment penalties; (3)
Chapter 2, Section 4.c, Approving Official Duties-Notify the Commanding
Officer and APC in the event of any suspected unauthorized purchase
(purchases that would indicate noncompliance, fraud, misuse, and/or
abuse); (4) Chapter 2, Section 4.b, Authorizing Official Duties-Verify
supporting transaction documentation on all card accounts prior to
certifying the monthly invoice.

                              Reported implemented

    16. The Navy Comptroller   The Navy Comptroller policy           Reported 
      withdrew the June 3,     letter dated June 3,               implemented 
    1999, policy memorandum or   1999, was rescinded effective   
            revised the policy          March 12, 2002.          
guidance to be consistent                                     
with the preceding                                            
recommendation for revising                                   
             payment                                             
certification guidance in                                     
NAVSUP Instruction                                            
            4200.94.                                             

                          Proper and timely accounting

    17. Monitor and confirm   Both Public Works Center,  Reported implemented 
       that purchase card        San Diego, and Naval    
transactions are recorded  Space and Warfare Systems  
to projects that           Command (SPAWAR)           
benefited from the goods   Systems Center, San Diego, 
and services or to             concurred and are      
relevant overhead accounts complying. Internal        
          promptly, in        operating procedures at    
                              both                       
     accordance with internal sites include guidance on  
        control standards and         the issue.         
       federal accounting                                
           standards.                                    

18. Revise NAVSUP Instruction 4200.94 to require EBUSOPSOFFINST 4200.1,
chapter 2, paragraph 4, Reported implemented that purchase card expenses
be properly addresses this issue. classified in the Navy's detailed
accounting records.

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

19. Verify that the detailed purchase card transaction Both Public Works
Center, San Diego, and SPAWAR Reported implemented records reflect the
proper object classification of Systems Center, San Diego, concurred and
are expense. complying. The Navy issued policy as an interim change to
NAVSUP Instruction 4200.94-Standards of Compliance for Timely Recording
and Classifying of Navy Purchase Card Commitments and Obligations, which
reiterates existing Navy and DOD Financial Management Regulation policy on
the issue.

                              Accountable property

20. Require and verify that accountable property obtained using a purchase
card is promptly recorded in property records as it is acquired, in
accordance with DOD and Navy policies and procedures.

The EBUSOPSOFFINST 4200.1 definition of accountable property reads as
follows: Accountable Property: A term used to identify property recorded
in a formal property management or accounting system. Accountable Property
includes all property purchased, leased (capital leases), or otherwise
obtained, having a unit acquisition cost of $5,000 or more (land,
regardless of cost), and items that are sensitive, or classified.
Additional and/or separate records or other recordkeeping instruments
shall be established for management purposes, or when otherwise required
by law, policy, regulation, or Agency direction, including, but not
limited to pilferable items (items that have a ready resale value or
application to personal possession and which are, therefore, especially
subject to theft). Additionally, EBUSOPSOFFINST 4200.1, chapter 2,
sections 6d and f, require a detailed purchase log to identify all
purchase card transactions, including defined "Pilferable Personal
Property." Purchase log data are also forwarded to the AO as part of its
purchase review process. A similar change is included in the draft
revision to Secretary of Navy (SECNAV) Instruction 7320.10, which is
currently in the coordination phase.

                              Reported implemented

                 Fraudulent, improper, and abusive transactions

21. Immediately cancel all known active All compromised accounts are
closed. Reported implemented compromised purchase card accounts.

22. Determine whether purchases of excessive cost, EBUSOPSOFFINST 4200.1,
chapter 4, paragraphs Reported Implemented questionable government need,
or both, such as 1 and 2 require a monthly 100 percent APC review items
for personal use, including personal digital and a semiannual APC review
that addresses this assistants (such as Palm Pilots) and flat screen
issue. computer monitors, that were identified by GAO, are proper
government purchases. If not, the Commander should prohibit their
purchase.

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

23. Establish written policies and criteria requiring documented
justifications and procurement management approval for types of items that
can be acquired with a government purchase card.

EBUSOPSOFFINST 4200.1, Enclosure 2, contains a list of generally
prohibited items. Due to differing mission requirements and unique
requirements throughout the Department of the Navy and DOD, it is
difficult to develop a general list of what items can be purchased with or
without special justification. Ticket purchases to Disneyland may be an
appropriate purchase not requiring special justifications within a
Non-Appropriated Funded activity, but may require such documentation at an
Appropriated Funded activity. These decisions are best left to the local
command.

                              Reported implemented

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

24. Examine purchase card acquisition guidance to determine whether the
purchase card is the right vehicle for acquiring certain goods and
services, such as vehicle and equipment maintenance, installation of
upgraded computer software, and other recurring or installationwide
services, or whether these items should be subject to negotiated
contracts.

The cardholder training CD in use Navy-wide contains specific information
on the requirement to verify other contracting sources prior to making all
purchases. EBUSOPSOFFINST 4200.1 chapter 2, section 6.b, Purchase
Cardholder Duties, includes a requirement to "screen all requirements for
their availability from mandatory Government sources of supply."
Additionally, the Naval Facilities Engineering Command (NAVFAC) has
undertaken an initiative to facilitate client ordering of Indefinite
Delivery Indefinite Quantity (IDIQ) services from Base Operations Support
(BOS) contracts using the Department of Defense Electronic Mall (DOD
EMALL). The NAVFAC Electronic Facilities support Contracts (e-FSC)
initiative was created to facilitate direct client ordering by
governmentwide commercial purchase cards (GCPC), thereby streamlining the
BOS IDIQ ordering process and providing better compliance with DFARS
213.270 (Use of the Governmentwide Commercial Purchase Card). Each NAVFAC
contract's IDIQ schedule that is posted to the DOD EMALL is from a
competed contract that has satisfied Competition In Contracting Act (CICA)
requirements. This distinguishes NAVFAC contracts on the DOD EMALL from
blanket purchase agreements (BPA) and other contracting instruments since
orders off of the IDIQ catalogs are not considered stand-alone
(open-market) purchases. The e-FSC initiative is currently in its early
stages. NAVFAC is in the process of adding the Payment by Third Party
clause (48 C.F.R. 52.232-36) and an e-FSC requirement to all new BOS
solicitations and selected existing BOS contracts from installations and
regions across the DON. As new BOS IDIQ schedules continue to be uploaded
to the DOD EMALL, NAVFAC anticipates that within the next year many BOS
contracts at most major installations will be available for electronic
ordering by GCPC. This strategic initiative is expected to result in
significant labor-hour savings and expedite the order and delivery
process.

                              Reported implemented

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

25. Work with the Under Secretary for Acquisition, Technology, and
Logistics and DOD's Purchase Card Joint Program Office to determine
whether the purchase card should be used to acquire computers and other
equipment or property items individually that could be more economically
and efficiently procured through bulk purchases.

The DOD EMALL is now available to the Navy and its use and availability
are being articulated to Navy purchasers as a single point for commercial
purchases, including computers, using the government purchase card. Most
recently, a DOD EMALL representative spoke at the March 2003 APC
conference. The DON EBUSOPSOFF is in the process of querying all Level III
APCs to identify all strategic sourcing agreements in their respective
claimancies. This information will then be shared Navywide.

                              Reported implemented

26. Revise NAVSUP Instruction 4200.94 to make it consistent with the
Federal Acquisition Regulation, 48 C.F.R. 13.301(a), which states that the
"card may be used only for purchases that are otherwise authorized by law
or regulation." The clarifying guidance should specifically state that in
the absence of specific statutory authority, purchases of items for the
personal benefit of government employees, such as flowers or food, are not
permitted and are therefore improper transactions.

EBUSOPSOFFINST 4200.1, chapter 1, paragraph 4, Reported implemented
contains clarifying guidance.

Split purchases

27. Prohibit splitting purchases into multiple EBUSOPSOFFINST 4200.1,
chapter 1, paragraph Reported implemented transactions as required by the
Federal 5a, addresses this specific issue. In addition, Acquisition
Regulation and emphasize this training modules emphasize the prohibition
on split prohibition in purchase card training provided to purchases, as
do all monthly and semiannual cardholders and approving officials. program
reviews. Also, APCs have an on-line tool to

                            monitor split purchases.

28. Require approving officials to monitor monthly EBUSOPSOFFINST 4200.1,
chapter 2, paragraph 4, Reported partially purchase card statements and
identify and report requires the approving official to verify supporting
implemented to them regarding any split purchases and the documentation on
all card accounts prior to certifying names of cardholders who made the
the monthly accounts. Detecting potential split transactions. purchases
and notifying AOs to review these transactions will be a capability of the
data-mining tool. The tool will push the suspected split purchase down to
the AO for review. The data-mining tool will identify the cardholder(s)
who are splitting purchase requirements, along with the disciplinary
actions associated with the transaction.

       29. Incorporate GAO     Guidance for actions that may be      Reported 
     recommendations, to the               taken for                partially 
extent applicable, into the      noncompliance with the       Implemented  
Commander of the                  regulations have been       
Naval Supply Systems        incorporated as disciplinary      
Command's future            guidelines in the draft           
revisions to NAVSUP            revision of EBUSOPSOFFINST     
Instruction 4200.94, to                 4200.1A.              
        include specific                                         
        consequences for                                         
noncompliance with these                                      
guidelines and not                                            
    enforcing the guidelines.                                    

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

Purchase Cards: Navy Is Vulnerable to Fraud and Abuse but Is Taking Action
to Resolve Control Weaknesses (GAO-02-1041, Sept. 27, 2002)

                   Overall program management and environment

30. Direct all agency program coordinators to review On September 19,
2002, DON issued Reported implemented the number of cardholders who report
to an EBUSOPSOFFINST 4200.1 that mandates a approving official and make
the changes maximum span of control of card accounts to necessary to
prevent approving officials from approving officials (AO) of 7:1: this
metric (span of having the responsibility of reviewing more control ratio
of 7:1) is monitored by the Navy on a cardholders than allowed by Navy and
DOD monthly basis and corrective action is taken as policies. required.

31. Establish a database that maintains information DON EBUSOPSOFF is
building and will maintain an Reported partially on all purchase card
training taken by automated centralized training database using an
e-implemented cardholders, approving officials, and agency mail response
mechanism. Training completion program coordinators. Require that agency
responses are currently being accumulated and held program coordinators
update that database off-line until the centralized training database is
whenever these purchase card program officials completed. After
completion, e-mail responses will take training. be electronically
processed and student records will

                          be recorded in the database.

32. Establish specific training courses for Role-based training for APCs,
Aos, and cardholders Reported implemented cardholders, approving
officials, and agency have been developed and distributed to all program
coordinators tailored to the specific participants on CD ROM and are also
posted to the responsibilities associated with each of these DON
EBUSOPSOFF Web site for downloading. This roles. version contains seven
training modules and a desk guide for each module for use by APCs. Each
module contains both a Citidirect (shore) and WINSAALTS (afloat) version.

33. Direct agency program coordinators to review an approving official's
overall workload and determine whether the approving official has the time
necessary to perform the required review functions.

EBUSOPSOFFINST 4200.1 mandates a maximum 7:1 ratio (seven accounts for
each AO). Additionally, approximately 1 year ago, a one-time purge was
done to realign the hierarchies in accordance with this policy. Compliance
is monitored by EBUSOPSOFF twice a month with data from Citidirect. When
an AO is found to be operating outside the ratio, they are notified and
are required to take corrective action. Also on October 29, 2001, DON
issued a policy letter PC02-05 and PCPN #69 requiring all agency program
coordinators to review an approving official's overall workload and
determine whether the approving official has the time necessary to perform
the required review functions. If the determination is that an approving
official does not have the necessary time, the APC will address this
situation with the approving official's commander or supervisor.

                              Reported implemented

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

34. Establish job descriptions that identify Established recommended
guidelines in the DON Reported implemented responsibility and performance
standards for PC desk guides. cardholders, approving officials, and agency
program coordinators.

35. Link the cardholders', approving officials, and agency program
coordinators' performance appraisals to achieving their performance
standards.

The Office of the Secretary of Defense, Personnel and Readiness, has
advised that inclusion of purchase card duties in the performance goals is
solely a supervisory responsibility, just as the inclusion of other
performance outcomes, and should not be separately mandated. The DON
EBUSOPSOFF cannot mandate this requirement. Performance goals are
established by supervisors and employees and are a reflection of the
employee's major duties/responsibilities and the desired performance
outcomes based on those duties. The goals established and the performance
appraisals given are unique to the individual. However, roles and
responsibilities have been outlined in DON PC desk guides. Internal
management controls have been identified (e.g., span of control ratios,
credit limit determination, delinquency management, separation of
functions).

Reported partially implemented

36. Work with the Naval Audit Service and Command Evaluation staff to
begin periodic audits of the purchase card program to provide Navy
management at the command and unit levels an independent assessment of the
control environment and whether the agency program coordinators, approving
officials, and cardholders are adhering to control procedures.

The DON EBUSOPSOFF and the Assistant Secretary of the Navy (Research
Development & Acquisition) Acquisition Business Management (ABM) offices
are engaged with the Naval Audit Service (NAVAUDSVC) to finalize a
schedule of purchase card command assessments. Ongoing audits:

NAVAUDIT

Activity reviews Validate filters Rebates

GAO

Leveraging buying power

DODIG

Convenience checks OCONUS transactions

                              Reported implemented

37. Identify vendors with which the Navy or Marine The data mining of
purchase card transactions was Reported implemented Corps uses purchase
cards to make frequent completed in September 2002 and May 2003. Total
purchases, evaluate Navy purchasing practices transactions by vendor were
extracted from the bank with those vendors, and forward the results of
database and forwarded to the Office of the ASN that evaluation to the
Assistant Secretary of the (ACQ) for further review to determine whether
Navy-Navy for Research, Development, and wide contracts should be
established. Acquisition to contract with them, when applicable, to
optimize Navy purchasing power.

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

38. Modify the definition of "Pilferable Personal Property" in SECNAV
Instruction 7320.10 dated August 1, 2001, by eliminating the requirement
that a portable item easily converted to personal use also be difficult to
repair or replace, and specifically identify items such as computers,
cameras, personal digital assistants, and audiovisual equipment as meeting
the definition of being pilferable and thus accountable.

The EBUSOPSOFFINST 4200.1 definition of accountable property reads as
follows: Accountable Property: A term used to identify property recorded
in a formal property management or accounting system. Accountable Property
includes all property purchased, leased (capital leases), or otherwise
obtained, having a unit acquisition cost of $5,000 or more (land,
regardless of cost), and items that are sensitive, or classified.
Additional and/or separate records or other recordkeeping instruments
shall be established for management purposes, or when otherwise required
by law, policy, regulation, or Agency direction, including, but not
limited to pilferable items (items that have a ready resale value or
application to personal possession and which are, therefore, especially
subject to theft). Additionally, EBUSOPSOFFINST 4200.1, chapter 2,
sections 6d and f, requires a detailed purchase log to identify all
purchase card transactions, including defined "Pilferable Personal
Property." Purchase log data are also forwarded to the AO as part of the
AO purchase card review process. A similar change is included in the draft
revision of SECNAV Instruction 7320.10, which is currently in the
coordination phase.

                              Reported implemented

Specific internal control activities

Modify NAVSUP Instruction 4200.94 to provide cardholders, approving
officials, and agency program coordinators detailed instructions on the
following:

39. Timely and independent receiving and Complete - This subject was
addressed in the Reported implemented acceptance of items obtained with a
purchase DONEBUSOPSOFF Instruction 4200.1 dated card and documenting the
results of that September 19, 2002. process.

40. Screening purchases for the availability from Complete - This subject
was addressed in the Reported implemented required vendors and documenting
the results of DONEBUSOPSOFF Instruction 4200.1 dated the screening.
September 19, 2002.

41. Promptly reconciling the monthly purchase card Complete - This subject
was addressed in the Reported implemented statements to supporting
documentation and DONEBUSOPSOFF Instruction 4200.1 dated documenting the
results of that reconciliation. September 19, 2002.

    42. Promptly reviewing a    Complete - This subject  Reported implemented 
    cardholder purchase card     was addressed in the    
statement by the approving  DONEBUSOPSOFF Instruction 
official prior to                 4200.1 dated        
certifying the statement       September 19, 2002.    
for payment and                                       
documenting the results of                            
          that review.                                   

                                  Appendix III
                    Status of Navy Actions to Implement GAO
                                Recommendations

                         (Continued From Previous Page)

GAO observation on the Status of GAO recommendation, as reported by status
of GAO recommendation the Navy as of August 29, 2003 recommendation

43. Prompt cardholder notification   Complete - This subject      Reported 
               to property               was addressed in the     implemented 
accountability officer of the       DONEBUSOPSOFF Instruction 
pilferable property                       4200.1 dated        
      obtained with the purchase card,    September 19, 2002.    
                         and approving                           
official responsibility for                                   
monitoring that the                                           
pilferable property has been                                  
recorded in the                                               
         accountability records.                                 

    Potentially fraudulent, improper, and abusive or questionable purchases

44. Modify NAVSUP Instruction 4200.94 to require Complete - This subject
was addressed in the Reported implemented cardholders to maintain
documented justification DONEBUSOPSOFF Instruction 4200.1 dated and
advanced approval of purchases that fall September 19, 2002. outside the
normal procurements of the cardholder in terms of either dollar amount or
type of purchase.

45. Establish a Navy-wide database of known This is a parallel effort to
the Automated Review and Reported partially purchase card fraud cases by
type of fraud that Response Oversight Wizard (ARROW) data-mining
implemented can be used to identify deficiencies in existing tool
discussed below. ARROW is in the early stages internal control and to
develop and implement of development. Additionally, the Office of the DOD
additional control activities, if warranted or IG, Investigative Policy
and Oversight, has justified. established a Government Purchase Card Fraud

Investigations database that is already operational.

46. Establish a Navy-wide data-mining, analysis, and investigation
function to supplement other oversight activities. This function should
include providing oversight results and alerts to major commands and
installations when warranted.

The EBUSOPSOFF, in partnership with DOD IG, is conducting the ARROW
data-mining project. Phase I of the data-mining pilot was completed in
June 2003 at the Marine Corps site at Camp LeJeune, Fayetteville, N.C. The
automated process is functioning as planned and initial reaction to the
process from the participants has been positive; however, the fraud
indicators were not adequately validated in Phase I. Phase 2 development
will focus on validating the proposed fraud indicators. The Phase 2 pilot
will begin in January 2004.

Reported partially implemented

47. Modify NAVSUP Instruction 4200.94 to include a A schedule of
disciplinary actions has been Reported implemented schedule of
disciplinary actions as a guide for incorporated in the revised EBUSOPSOFF
taking action against cardholders who make instruction 4200.1A. improper
or abusive acquisitions with the purchase card.

48. Incorporate GAO recommendations, to the The Navy sent this
recommendation to OUSD for Reported partially extent applicable, into the
Charge Card Task action. implemented Force's future recommendations to
improve purchase card policies and procedures throughout DOD.

               Source: GAO analysis of military service respones.

Appendix IV

Status of Air Force Actions to Implement GAO Recommendations

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to
Fraud, Waste, and Abuse (GAO-03-292, Dec. 20, 2002)

                   Overall program management and environment

Direct the Assistant Secretary of the Air Force for Acquisition and the
Deputy Assistant Secretary for Contracting to take the following actions:

1. Establish specific policies and strategies Air Force Policy Memo
#03-C-05, issued March Reported implemented governing the number of
purchase cards 18, 2003, directed that the number of cards to be issued
with a focus on minimizing issued should be minimized. Item closed. the
number of cardholders.

2. Direct all command and installation-level Air Force Policy Memo
#03-C-05, issued March Reported implemented agency program coordinators to
review 18, 2003, directed that Installation Purchase Card purchase card
use with a view towards Managers eliminate unneeded purchase card
eliminating unneeded purchase card accounts. Item closed accounts.

3. Eliminate purchase cards used to Air Force Policy Memo #03-C-05, issued
March Reported implemented

facilitate line-item accounting. 18, 2003, directed that Installation
Purchase Card managers, in conjunction with Financial Services officers,
review all purchase cardholders with multiple accounts and eliminate those
accounts existing to facilitate line-item accounting. Item closed.

4. Direct all agency program coordinators to Air Force Policy Memo
#03-C-05, issued March Reported implemented review the number of
cardholders who 18, 2003, directed that Installation Purchase Card report
to an approving official and make managers and coordinators review the
number of the changes necessary so that approving cardholders who report
to an approving official officials do not have responsibility for and make
the changes necessary so that reviewing more cardholder accounts than
approving officials do not have responsibility for allowed by Air Force
and DOD policies. reviewing more cardholder accounts than allowed

                  by Air Force and DOD policies. Item closed.

5. Review existing credit limits and monthly Air Force Policy Memo
#03-C-05, issued March Reported implemented spending and develop policies
and 18, 2003, directed that installation purchase card strategies on
credit limits provided to program managers shall to review existing credit
cardholders with a focus on minimizing and monthly spending limits against
current specific cardholder spending authority spending patterns and
determine if cardholder and minimizing the federal government's spending
authority can be reduced in the interest financial exposure. of minimizing
the federal government's financial

                                   exposure.

6. Deactivate purchase card accounts of Air Force Policy Memo #03-C-05,
issued March Reported implemented alternate cardholders and approving 18,
2003, directed that alternate cardholders and officials when primary
cardholders and billing official accounts be suspended when approving
officials are available. primary cardholders and billing officials are

                            available. Item closed.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

7. Establish specific training courses for Air Force Policy Memo #03-C-05,
issued March Reported implemented cardholders, approving officials, and
18, 2003, directed that, in addition to already agency program
coordinators tailored to instituted mandatory training through the Defense
the specific responsibilities associated Acquisition University for
cardholders, billing with each of those roles. officials, and financial
services officers, all

                 A/OPCs are required to take the A/OPC training

                         developed by GSA. Item closed.

8. Require installation program coordinators Air Force Policy Memo
#03-C-05, issued March Reported implemented to track and monitor
corrective actions on 18, 2003, directed that Installation Purchase Card
purchase card audit and annual managers track and monitor corrective
actions on surveillance findings and provide periodic purchase cards and
annual surveillance findings status reports to their installation and
provide quarterly status reports to their contracting directors.
installation Contracting Director. Item closed.

9. Develop and implement a program Air Force Policy Memo #03-C-05, issued
March Reported implemented oversight system for program 18, 2003, directed
mandatory use of the review coordinators that includes standard checklist
in the GPC Surveillance Guide. Item activities and analytical tools to be
used in closed. evaluating program results.

10. Require reports on annual surveillance Air Force Policy Memo #03-C-05,
issued March Reported implemented results to include an assessment of 18,
2003, directed that reports on annual control environment issues,
including the surveillance results include an assessment of ratio of
cardholders to employees, ratio of control environment issues, including
the ratio of approving officials to cardholder cardholders to employees,
ratio of approving accounts, ratio of monthly credit limits to officials
to cardholder accounts, ratio of monthly actual spending, and number of
credit limits to actual spending, and number of cardholders and approving
officials cardholders and approving officials requiring requiring
training. training. Item closed.

11. Assess the adequacy of human capital Air Force Policy Memo #03-C-05,
issued March Reported implemented resources devoted to the purchase card
18, 2003, directed that the Directors of program, especially for oversight
activities Contracting address the adequacy of personnel at each
management level, and provide devoted to the purchase card program,
especially needed resources where appropriate. for oversight activities,
at each management level,

and work to increase manpower authorizations

where appropriate.

Direct the Assistant Secretary of the Air Force for Acquisition and the
Deputy Assistant Secretary for Contracting to make the following revisions
to Air Force Instruction 64117, Air Force Government-wide Purchase Card
Program:

12. Correct faulty records retention guidance Per the Air Force response
to the GAO final Reported implemented by referring to specific guidelines
in the report, correction was incorporated into the Federal Acquisition
Regulation, National December 6, 2002, revision to AFI 64-117. Item
Archives and Records Administration closed. federal records retention
guidelines, DOD's Financial Management Regulation, and other federal
guidelines as appropriate.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

13. 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.

Anticipate publication of revised AFI in March 2004.

Air Force Instruction 64-117, Air Force Government-wide Purchase Card
Program, will be revised to 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.

Reported partially implemented pending March 2004 issuance of revised Air
Force Instruction 64-117.

    14. Stipulate, in the    Anticipate publication of    Reported partially  
body of the Instruction,     revised AFI in March         implemented      
that approving officials            2004.              pending March 2004  
are required to                                           issuance of      
have annual purchase                                     revised Air Force 
card refresher                                         Instruction 64-117. 
          training.            Air Force Instruction     
                                 64-117, Air Force       
                            Government-wide Purchase     
                            Card Program, will           
                            be revised to specify that   
                            approving officials are      
                            required to have annual      
                            purchase card refresher      
                                     training.           

15. Require that the surveillance checklist, Anticipate publication of
revised AFI in March Reported partially implemented which is included in
an appendix to the Air 2004. pending March 2004 issuance of Force
Instruction, be used to guide and revised Air Force Instruction 64-117.
document surveillance results. Air Force Instruction 64-117, Air Force
Government-wide Purchase Card Program, will be revised to require that the
surveillance checklist be used to guide and document surveillance results.

    16. Require reports on   Anticipate publication of    Reported partially  
    the results of annual       revised AFI in March         implemented      
        surveillances to be            2004.             pending March 2004   
     signed by installation                              issuance of          
contracting directors to                                 revised Air Force 
demonstrate                                            Instruction 64-117. 
management oversight and    Air Force Instruction     
"tone at the                  64-117, Air Force       
            top."           Government-wide Purchase     
                            Card Program, will           
                               be revised to require     
                             reports on the results of   
                             annual surveillances to be  
                                   signed by the         
                                contracting squadron     
                               commander/chief of the    
                                contracting office.      

17. 	Require reports on surveillance results to Anticipate publication of
revised AFI in March Reported partially implemented be addressed to unit
commanders. 2004. pending March 2004 issuance of

revised Air Force Instruction 64-117. Air Force Instruction 64-117, Air
Force Government-wide Purchase Card Program, will be revised to require
reports on surveillance results to be addressed to unit commanders.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

18. Require reports on surveillance results to Anticipate publication of
revised AFI in March Reported partially implemented include
recommendations for unit 2004. pending March 2004 issuance of commander
action, where approving revised Air Force Instruction 64-117. officials
and cardholders have failed to Air Force Instruction 64-117, Air Force
follow Air Force policy-particularly policy Government-wide Purchase Card
Program, will related to federal regulations, such as be revised to
require reports on surveillance micropurchase requirements and results to
include recommendations for unit mandated sources of supply. commander
action, where approving officials and

               cardholders have failed to follow Air Force policy

                        related to federal regulations.

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:

19. 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.

The Under Secretary of Defense (Comptroller) requested an opinion from the
Deputy General Counsel (Fiscal) (DGC(F)) to determine whether "pay and
confirm" is in compliance with Title 10, United States Code (U.S.C.),
section 2784. In its response, the DGC(F) stated that the business
practice of paying a purchase card statement of account before receipt of
a reconciled statement and detailed supporting documentation is supported
by governmentwide policy, and not otherwise prohibited by statute. Counsel
did caution that the practice is contingent upon maintaining appropriate
internal controls sufficient to ensure that the benefits associated with
this practice outweigh the risk of loss. Item closed.

                              Reported implemented

20. 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.

The Under Secretary of Defense (Comptroller) requested an opinion from the
Deputy General Counsel (Fiscal) (DGC(F)) to determine whether "pay and
confirm" is in compliance with Title 10, United States Code (U.S.C.),
section 2784. In its response, the DGC(F) stated that the business
practice of paying a purchase card statement of account before receipt of
a reconciled statement and detailed supporting documentation is supported
by governmentwide policy, and not otherwise prohibited by statute. Counsel
did caution that the practice is contingent upon maintaining appropriate
internal controls sufficient to ensure that the benefits associated with
this practice outweigh the risk of loss. Item closed.

                              Reported implemented

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

21. Establish appropriate criteria, including Anticipate publication of
revised AFI in March Reported partially implemented types of items and
dollar thresholds for 2004. pending March 2004 issuance of documenting
independent receipt and revised Air Force Instruction 64-117. acceptance
of items obtained with a The Deputy Assistant Secretary of Contracting
purchase card. will revise Air Force Instruction 64-117 to provide
cardholders, approving officials, and installation program coordinators
appropriate criteria, including types of items and dollar thresholds for
documentingindependent receipt and acceptance of items obtained with a
purchase card.

22. 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.

Anticipate publication of revised AFI in March 2004.

The Deputy Assistant Secretary of Contracting will revise Air Force
Instruction 64-117 to provide cardholders, approving officials, and
installation program coordinators with detailed instructions on 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.

Reported partially implemented pending March 2004 issuance of revised Air
Force Instruction 64-117.

23. Require cardholders to maintain Anticipate publication of revised AFI
in March Reported partially implemented documentation of timely and
independent 2004. pending March 2004 issuance of receiving and acceptance
of items revised Air Force Instruction 64-117. obtained with a purchase
card. Deputy Assistant Secretary of the Air Force (Contracting) will
revise Air Force Instruction 64117 to require cardholders to maintain
documentation of independent receiving and acceptance of items obtained
with a purchase card.

24. Require reconciliation of monthly A SAF/AQC letter, dated March 27,
2003, was Reported implemented purchase card statements associated sent to
the purchase card points of contact at the with accounts that were "shut
down" Air Force major commands requesting that they (suspended) in July
2002 due to lack of direct their A/OPCs to review all accounts subject
cardholder reconciliation and approving to automatic suspension in July
2002 due to lack official review. of cardholder reconciliation and
approving official

                 review to ensure that they have been manually

                            reconciled. Item closed.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

25. Verify that all potentially fraudulent and Anticipate publication of
revised AFI in March Reported partially implemented erroneous transactions
that have been 2004. pending March 2004 issuance of detected are disputed
and properly revised Air Force Instruction 64-117. resolved. The Deputy
Assistant Secretary of Contracting will revise Air Force Instruction
64-117 to instruct cardholders, approving officials, and installation
program coordinators to verify that all potentially fraudulent and
erroneous transactions that have been detected are disputed and properly
resolved.

26. Require timely cardholder notification to Anticipate publication of
revised AFI in March Reported partially implemented the property
accountability officer of 2004. pending March 2004 issuance of pilferable
property, such as fax machines, revised Air Force Instruction 64-117.
digital cameras, and palm pilots obtained The Deputy Assistant Secretary
of Contracting with the purchase card. will revise Air Force Instruction
64-117 to provide cardholders, approving officials, and installation
program coordinators with detailed instructions to require timely
cardholder notification to the property accountability officer of
accountable pilferable property obtained with the purchase card.

27. Encourage installation contracting officers Air Force Policy Memo
#03-C-05, issued March Reported implemented to consider the benefits of
central 2003, encouraged installation Contracting purchasing and receiving
and acceptance Officers to consider the benefits of central of computer
equipment by installation purchasing and receiving and acceptance of
information technology units to facilitate computer equipment by
installation information recording computer equipment in technology units
to facilitate recording computer accountable property records at the time
equipment in accountable property records at the it is received. time it
is received. Item closed.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

28. 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.

Anticipate publication of revised AFI in March 2004.

Air Force Instruction 64-117 will be revised 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. Sub-paragraph 5.3.1 of DODI 5000.64 allows
additional and/or separate records or other recordkeeping instruments when
required by law, policy, regulation, Agency direction, or for management
purposes (e.g., pilferable item, property hazardous to health and human
safely). Property not meeting the minimum accountability threshold is
still subject to appropriate internal controls which, depending on the
property, can include an accountable property record. SAF/AQCP is working
with USAF/ILGP, Materiel Management Policy Division, to establish clear
accountability and/or visibility criteria that will meet the intent of
GAO's accountability concerns.

Reported partially implemented pending March 2004 issuance of revised Air
Force Instruction 64-117.

29. Establish policies and procedures for recording all pilferable and
sensitive property, including digital cameras, palm pilots, and cell
phones, in installationaccountable property records. At a minimum, require
installations to follow DOD policies and procedures on accountable
property.

Anticipate publication of revised AFI in March 2004.

Current guidance (DODI 5000.64, AFI 33-112, AFI 23-111, and AFI 23-110)
all indicate that organizational commanders must account for property
issued to them or procured by them. These guidelines do not mandate a
mechanism to ensure accountability is established for items procured from
outside of the standard base supply system. SAF/AQCP is working with
USAF/ILGP, Materiel Management Policy Division, to establish clear
accountability and/or visibility criteria that will meet the intent of
GAO's accountability concerns. These changes will be incorporated into AFI
64-117.

Reported partially implemented pending March 2004 issuance of revised Air
Force Instruction 64-117.

30. Direct the Air Force Audit Agency and Air The Air Force Office of
Special Investigations Reported implemented Force Office of Special
Investigations to (AFOSI), in conjunction with the other Defense establish
an Air Forcewide database of Criminal Investigative Organizations (DCIO),
now known fraud cases by type of fraud, reports information on initiated
and ongoing including purchase card fraud, that can be Government Purchase
Card (GPC) investigations used to identify systemic weaknesses quarterly
to the Department of Defense Inspector and deficiencies in existing
internal General for macro-level analysis of systemic control and to
develop and implement weaknesses in the GPC program DOD-wide. additional
control activities, if warranted or justified.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

We recommend that the Assistant Secretary of the Air Force for Acquisition
and the Deputy Assistant Secretary for Contracting take the following
actions:

31. Establish an Air Force-wide database of The DOD IG has been directed
to develop a Reported implemented known purchase card fraud cases by type
centralized purchase card database on known of fraud, including vendor
fraud and fraud cases and audit results that can be used to compromised
accounts, that can be used identify potential deficiencies in existing
internal to identify deficiencies in existing internal controls. The Air
Force will evaluate the Air Force control and implement additional control
cases and audits to determine the effectiveness of activities, if
warranted. existing internal controls and implement additional

                       control activities, if warranted.

32. Identify vendors with which the Air Force Air Force Policy Memo
#03-C-11, issued May 22, Reported implemented used purchase cards to make
frequent, 2003, directed that A/OPCs identify vendors with recurring
purchases, evaluate Air Force which they used purchase cards to make
purchasing practices with those vendors, frequent, recurring purchases,
evaluate and where appropriate, develop contracts purchasing practices
with those vendors, and with those vendors to optimize Air Force where
appropriate, develop contracts with those purchasing power. vendors to
optimize Air Force purchasing power.

                                  Item closed.

33. 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.

Anticipate publication of revised AFI in Mar 04.

The Deputy Assistant Secretary for Contracting will 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. However, AF/HC does not agree that the Chaplain Service had
no authority to use GPCs. DODD 1015.1. recognizes Chaplain Religious Funds
and states that "funds are administered and managed in accordance with
separate DOD Component regulations" (Par. 2.2. and 2.2.11.). Based on DODD
1015.1, AFI 52101 (May 19, 1997) was issued that stated "The International
Merchant Purchase Authorization Card (IMPAC) is the official Chaplain
Service funds credit card" (Para. 4.3.). AF/HC will recommend
reinstatement of the Chaplain Funds into the revised publication of DODD
1015.1, Establishment, Management, and Control of Nonappropriated Fund
Instrumentalities. AFI 52101 is in the process of being updated to reflect
the current DOD and AF policies regarding the GPC.

Reported partially implemented pending March 2004 issuance of revised Air
Force Instruction 64-117.

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

34. Cancel convenience check privileges of Air Force Policy Memo #03-C-05,
issued March Reported implemented cardholders who have continued to 18,
2003, directed that installation purchase card improperly use convenience
checks. managers cancel convenience check privileges of

                    cardholders who have misused convenience

                      checks more than once. Item closed.

35. Require accounting adjustments to be A SAF/AQC letter, dated March 27,
2003, was Reported implemented made to correct transactions that were sent
to SAF/FMP requesting that an accounting charged to the wrong
appropriation adjustment be made to correct any GPC account with respect
to fiscal year and transactions that were charged to the wrong purpose of
the expenditures. appropriations account with respect to fiscal year

                       and items purchased. Item closed.

36. 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.

The Deputy Assistant Secretary of the Air Force (Contracting) does not
make 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. Guidelines
for procedures regarding the violation of Air Force GPC procedures are
already contained in AFI 64117. In addition, the Deputy Assistant
Secretary of the Air Force (Contracting) has issued a memorandum requiring
a summary of each case of purchase card fraud and each instance of
repeated misuse of the purchase card and a quarterly briefing by the
contracting squadron commander to the installation commander including the
disciplinary action taken. Item closed.

                              Reported implemented

37. Require cardholders and/or approving officials to reimburse the
government for any unauthorized or erroneous purchase card transactions
that were not disputed.

Air Force Policy Memo #03-C-05, issued March 18, 2003, directed that
installation purchase card managers remind all cardholders and billing
officials that they are "accountable officials" in accordance with
Attachment 2, paragraph 1.b. of AFI 64-117, and as such, may be
pecuniarily liable for erroneous payments (see DOD Financial Management
Regulation, Volume 5, Chapter 33, August 1998, page 33-1) and may be
required to reimburse the government for any unauthorized or erroneous
purchase card transaction that was not disputed within the 60-day grace
period. In addition, all "benefiting individuals" who have requested
personal items to be purchased for their use may also be required to
reimburse the government for such purchases. Item closed.

                              Reported implemented

    Appendix IV Status of Air Force Actions to Implement GAO Recommendations

                         (Continued From Previous Page)

Status of GAO recommendation, as reported GAO observation on the status of
GAO recommendation by the Air Force recommendation

38. 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.

Air Force Policy Memo #03-C-05, issued March 18, 2003, directed that
installation purchase card managers remind all cardholders and billing
officials that they are "accountable officials" in accordance with
Attachment 2, paragraph 1.b. of AFI 64-117, and as such, may be pecuniary
liable for erroneous payments (see DOD Financial Management Regulation,
Volume 5, Chapter 33, August 1998, page 33-1) and may be required to
reimburse the government for any unauthorized or erroneous purchase card
transaction that was not disputed within the 60-day grace period. In
addition, all "benefiting individuals" who have requested personal items
to be purchased for their use may also be required to reimburse the
government for such purchases. Item closed.

                              Reported implemented

39. Incorporate GAO recommendations, to This recommendation was directed
to the Under Reported partially implemented the extent applicable, into
the Charge Secretary of Defense (Comptroller), not to the Air Card Task
Force's future Force. recommendations to improve purchase card policies
and procedures throughout DOD.

                     Source: GAO analysis of DOD responses.

                                   Appendix V

                    Comments from the Department of Defense

Appendix V
Comments from the Department of Defense

Appendix VI

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	John V. Kelly, (202) 512-6926 James D. Moses, (213) 830-1085

Acknowledgments	Staff making key contributions to this report were
Francine DelVecchio, Gail Luna, Jerrod O'Nelio, Harold Reich, John Ryan,
Quan Thai, and Gary Wiggins.

GAO's Mission	The General Accounting Office, the audit, evaluation and
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