    Contract Management: Agencies Can Achieve Significant Savings on
    Purchase Card Buys (12-MAR-04, GAO-04-430).

    From 1994 to 2003, the use of government purchase cards exploded
    from $1 billion to $16 billion. Most purchase card transactions
    are for small purchases, less than $2,500. While agencies
    estimate that using purchase cards saves hundreds of millions of
    dollars in administrative costs, the rapid growth of the purchase
    card presents opportunities for agencies to negotiate discounts
    with major vendors, thereby better leveraging agencies' buying
    power. To discover whether agencies were doing this, we examined
    program management and cardholder practices at the Departments of
    Agriculture, Army, Navy, Air Force, Interior, Justice,
    Transportation, and Veterans Affairs. GAO also examined why
    agencies may not have explored these opportunities.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-430
        ACCNO:   A09456
      TITLE:     Contract Management: Agencies Can Achieve Significant
    Savings on Purchase Card Buys
         DATE:   03/12/2004
      SUBJECT:   Cost control
    	     Credit sales
    	     Federal procurement
    	     Internal controls
    	     Military procurement
    	     Program evaluation
    	     Discounts

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    GAO-04-430

    United States General Accounting Office

    GAO

                           Report to Congressional Requesters

    March 2004

    CONTRACT MANAGEMENT

             Agencies Can Achieve Significant Savings on Purchase Card Buys

    GAO-04-430

    Highlights of GAO-04-430, a report to congressional requesters

    From 1994 to 2003, the use of government purchase cards exploded from $1
    billion to $16 billion. Most purchase card transactions are for small
    purchases, less than $2,500. While agencies estimate that using purchase
    cards saves hundreds of millions of dollars in administrative costs, the
    rapid growth of the purchase card presents opportunities for agencies to
    negotiate discounts with major vendors, thereby better leveraging
    agencies' buying power.

    To discover whether agencies were doing this, we examined program
    management and cardholder practices at the Departments of Agriculture,
    Army, Navy, Air Force, Interior, Justice, Transportation, and Veterans
    Affairs. GAO also examined why agencies may not have explored these
    opportunities.

    GAO is making several recommendations to each of the agencies as well as
    the Office of Management and Budget and the General Services
    Administration (GSA), aimed at encouraging agencies to begin taking steps
    to achieve savings through the purchase card program. GAO received
    comments on a draft of this report, either written or via email, from the
    Departments of Agriculture, Defense, the Interior, Transportation, and
    Veterans Affairs and from GSA. In general, the agencies agreed with GAO's
    findings and recommendations.

    March 2004

    CONTRACT MANAGEMENT

    Agencies Can Achieve Significant Savings on Purchase Card Buys

    Although some agencies have begun to take actions to achieve savings
    through their purchase card programs, most have not identified and taken
    advantage of opportunities to obtain more favorable prices on purchase
    card buys-opportunities that could yield hundreds of millions of dollars
    in savings. For example, most agencies have established some discount
    agreements with major purchase card vendors (those vendors with whom they
    did more than $1 million in purchase card business in fiscal year 2002),
    but these agreements cover only a few of the hundreds of major vendors and
    a limited number of products. Further, because agency purchase card
    training programs lack practical information to help cardholders take
    advantage of existing discount agreements or GSA's Federal Supply Schedule
    contracts, cardholders paid higher prices than necessary. The agencies
    that have taken steps to obtain better prices by negotiating discounts
    with their major vendors have achieved notable savings on purchase card
    buys. For example, in fiscal year 2003, the Agriculture Department
    negotiated a discount agreement for office supplies that yielded savings
    of $1.8 million-about 10 percent off Schedule contract prices-and the
    Interior Department recently negotiated agreements with information
    technology vendors for discounts up to 35 percent off Schedule prices. A
    conservative approach indicates that, if the agencies we reviewed obtained
    discounts of only 10 percent with their major vendors, annual savings of
    up to $300 million could be achieved.

    Most agencies have not more aggressively pursued savings through the
    purchase card because of a lack of management focus-simply put, this issue
    has not been the center of attention for managers. Further, the Office of
    Management and Budget has not leveraged its governmentwide oversight role
    by collecting and disseminating information on the successful initiatives
    some agencies have undertaken. Agency officials also expressed concerns
    that imposing additional requirements on cardholders would undermine the
    program's intent to streamline acquisitions and that pursuing discount
    agreements with large suppliers would limit their ability to provide
    opportunities for small businesses. They also cited poor data as a barrier
    to identifying savings opportunities. However, as individual agencies have
    demonstrated, these concerns are not insurmountable. For example, the Air
    Force's Air Mobility Command provides its cardholders a list of community
    vendors-many of which are small businesses-that offer discounts, making it
    easy for the cardholders to obtain discounts from local small businesses.
    Despite data limitations, information such as vendor sales reports could
    be used to identify major vendors with whom to pursue discount agreements
    and to provide insight into cardholder activity.

    www.gao.gov/cgi-bin/getrpt?GAO-04-430.

    To view the full product, including the scope and methodology, click on
    the link above. For more information, contact David Cooper at (202)
    512-5841 (cooperd@gao.gov) or Greg Kutz at (202) 512-9505.

    Contents

      Letter

    Results in Brief
    Background
    Agencies Generally Have Not Taken Advantage of Opportunities to

    Obtain Savings Lack of Management Focus Has Limited Efforts to Capture
    Savings Conclusions Recommendations for Executive Action Agency Comments
    and Our Evaluation 1

    2 4

    8 18 27 27 29

    Appendix I Scope and Methodology

    Appendix II Comments from the Department of Defense

    Appendix III	Comments from the General Services Administration

    Appendix IV Comments from the Department of the Interior

             Appendix V Comments from the Department of Veterans Affairs 47

    Appendix VI Information on Purchase Card Expenditures

                 Appendix VII GAO Contacts and Staff Acknowledgments 55

    Related GAO Products

    56

    Tables

    Table 1: Purchase Cards and Purchase Card Expenditures, Fiscal Year 2002 6
    Table 2: Purchase Card Expenditures and Expenditures with Major Vendors,
    Fiscal Year 2002 9 Table 3: Department of Agriculture Purchase Card
    Expenditures by Transaction Dollar Value, Fiscal Year 2002 52

    Table 4: Department of Defense Military Services Purchase Card
    Expenditures by Transaction Dollar Value, Fiscal Year 2002 52

    Table 5: Department of the Interior Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002 53 Table 6: Department of
    Justice Purchase Card Expenditures by Transaction Dollar Value, Fiscal
    Year 2002 53

    Table 7: Department of Transportation Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002 53

    Table 8: Department of Veterans Affairs Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002 54

    Figure

    Figure 1: Purchase Card Expenditures-Fiscal Years 1994 to 2003

    Abbreviations

    FAR Federal Acquisition Regulation
    FASA Federal Acquisition Streamlining Act
    GSA General Services Administration
    JWOD Javits-Wagner-O'Day Act
    OMB Office of Management and Budget

    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
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    separately.

    United States General Accounting Office Washington, DC 20548

    March 12, 2004

    The Honorable Susan M. Collins
    Chairman
    Committee on Governmental Affairs
    United States Senate

    The Honorable Russell D. Feingold
    United States Senate

    The Honorable Janice Schakowsky
    House of Representatives

    The introduction of government purchase cards fundamentally changed
    the way agencies make small, routine purchases of goods and services.
    The vast majority of purchase card transactions are micropurchases,
    purchases in amounts not greater than $2,500. Purchase card use has
    increased significantly over the past decade-from less than $1 billion in
    fiscal year 1994 to more than $16 billion in fiscal year 2003. This
    explosive
    growth has presented both challenges and opportunities. While estimates
    indicate that the use of government purchase cards could save taxpayers
    hundreds of millions of dollars in administrative costs over time, our
    office
    has reported that inadequate controls over purchase card programs left
    agencies vulnerable to fraud, waste, and abuse. Agencies are working,
    under the guidance of the Office of Management and Budget (OMB), to
    strengthen these controls.

    Given the rapid growth of this program, we and agency inspectors general
    have recently raised concerns about whether agencies and individual
    cardholders are seizing the opportunity to obtain discounts commonly
    available in the commercial marketplace for large volume purchasers.1
    Recognizing the potential for increased savings, you asked us to (1)
    determine whether agencies are taking advantage of opportunities to help

    1 For example, see U.S. General Accounting Office, 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), 42-43; and
    Department of Veterans Affairs, Office of Inspector General, Evaluation of
    The Department of Veterans Affairs Purchasing Practices, Report No.
    01-01855-75, (Washington, D.C.: May 15, 2001).

    cardholders obtain more favorable purchase card prices and (2) if not,
    identify the reasons why.

    We examined purchase card program management practices at eight federal
    agencies that account for over 85 percent of the government's purchase
    card spending: the Departments of Agriculture; the Interior; Justice;
    Transportation; Veterans Affairs; and within the Department of Defense
    (DOD), the Departments of the Army, Navy, and Air Force.2 In addition, we
    reviewed selected fiscal year 2002 purchase card transactions, at or below
    the micropurchase level, with major vendors at the eight agencies and
    compared prices paid to prices available through the General Services
    Administration's (GSA) Federal Supply Schedule (Schedule)3 and
    telecommunications contracts. Although these transactions were selected at
    random from the population of micropurchase4 transactions with vendors
    having the highest purchase card sales at the eight agencies, we cannot
    project the results to the population of transactions governmentwide. We
    also engaged the Dun and Bradstreet Corporation to perform a spend
    analysis of the Interior Department's fiscal year 2002 purchase card
    transactions to illustrate how a detailed analysis could begin to identify
    opportunities for purchase card savings. We conducted our work in
    accordance with generally accepted government auditing standards. For more
    information on our scope and methodology, see appendix I.

    Results in Brief 	Although we found some initiatives under way to obtain
    vendor discounts, the agencies we reviewed generally had not seized
    opportunities to obtain more favorable prices on purchase card
    buys-opportunities that could yield hundreds of millions of dollars in
    savings. Agency efforts were generally fragmentary and incomplete. For
    example, most agencies had established some agencywide discount agreements
    with major purchase card vendors, but the agreements generally covered
    only a few of the

    2 We also met with officials of the Department of Homeland Security
    because certain components of the Departments of Agriculture, Justice, and
    Transportation were transferred to the new department in March 2003.

    3 The Schedule program offers a large group of commercial products and
    services ranging from office supplies to information technology services.

    4 Micropurchases are acquisitions of supplies or services the aggregate
    amount of which does not exceed the micropurchase threshold. Generally,
    the micropurchase threshold is $2,500, but for certain purchases the
    Federal Acquisition Regulation defines a different threshold (FAR 2.101).

    hundreds of major vendors-those with whom an agency spent $1 million or
    more using the purchase card. Some discount agreements did not cover the
    full range of products cardholders purchased from the vendors. In
    addition, most agency training has appropriately focused on internal
    controls, but the training has not focused on incorporating practical
    information to help cardholders take advantage of existing discount
    agreements or Schedule contracts. Consequently, we found that some
    cardholders paid higher prices than necessary. For example, hundreds of
    Interior Department purchase card transactions with three major office
    supply vendors were for a particular model of ink cartridge, but most of
    these purchases were made at prices higher than the vendors' Schedule
    prices. The experience of some agencies demonstrates agencies can achieve
    significant savings on purchase card buys. For example, the Agriculture
    Department negotiated a discount agreement for office supplies that
    yielded savings of $1.8 million-or about 10 percent off Schedule contract
    prices-during fiscal year 2003. Interior recently negotiated agreements
    with information technology vendors that give cardholders discounts of up
    to 35 percent off Schedule prices. If the agencies we reviewed negotiated
    and properly executed agreements providing discounts of just 10 percent
    off of Schedule prices with the major purchase card vendors from whom they
    currently buy in volume, a conservative approach indicates that $300
    million in savings could be realized annually.5

    Agencies have not taken advantage of potential opportunities to capture
    purchase card savings because of a lack of management focus and oversight.
    The opportunity simply has not been the center of attention for most
    agency managers, who have been absorbed in improving internal controls and
    other priorities. Further, OMB has not leveraged its governmentwide
    oversight role by collecting and disseminating information on the
    successful initiatives some agencies have undertaken. In addition, agency
    officials identified several challenges that, in their view, have hindered
    them from more aggressively pursuing savings through the purchase card
    program. First, agencies are reluctant to impose additional requirements
    on cardholders, fearing that the intent of the program as a streamlined
    acquisition process would be subverted. Second, agency officials told us
    that actively pursuing discount agreements with large suppliers would
    provoke concerns about their ability to comply with socioeconomic
    requirements such as providing opportunities for small

    5 See appendix I, "Scope and Methodology."

    businesses. Third, officials cited the lack of detailed information on the
    specific products and services purchased as a hindrance to analyzing
    purchase card trends. These concerns are not insurmountable, and, in fact,
    individual agencies have been successful in addressing them. For example,
    some cardholders found Schedule contract and discount agreement vendors an
    effective and convenient way to fill their needs rather than a burden. The
    Air Force's Air Mobility Command provided its cardholders a list of
    community vendors-many of which were small businesses-that offered
    discounts, making it easy for the cardholders to obtain discounts from
    local small businesses. Further, despite the data limitations, agencies
    can fairly easily identify major vendors with whom they could pursue
    discount agreements. Vendor reports on sales under discount agreements can
    provide insight into whether cardholders are using the agreements.

    To encourage agencies to begin taking steps to capitalize on opportunities
    for savings through the purchase card program, we are making
    recommendations to OMB, GSA, and the Departments of Agriculture, Defense,
    the Interior, Justice, Transportation, and Veterans Affairs concerning
    actions that could be taken to increase management attention on purchase
    card pricing issues, such as negotiating discount agreements with major
    vendors, improving cardholder training, and developing mechanisms for
    evaluating cardholder buying practices to assess whether cardholders are
    receiving favorable pricing. GSA and the Departments of Agriculture,
    Defense, and Veterans Affairs generally agreed with our recommendations.
    The Departments of Transportation and the Interior did not explicitly
    agree or disagree with our recommendations but offered several
    observations on our report. We did not receive comments from the
    Departments of Homeland Security or Justice or from OMB. The written
    comments we received are reproduced in appendixes II through V.

    Background 	Through the purchase card program, agency personnel can
    acquire the goods and services they need directly from vendors. GSA, which
    manages the purchase card program governmentwide, has awarded contracts to
    banks to provide standard commercial charge cards for use by federal
    employees. When GSA first pilot-tested the purchase card in the late
    1980s, its use was restricted to procurement personnel. In 1994, however,
    the Federal Acquisition Streamlining Act (FASA)6 defined micropurchases as
    purchases in amounts not greater than $2,500. The act authorized

    6 P.L. 103-355, Sec. 4301.

    cardholders to make micropurchases without obtaining competitive
    quotations if they considered the price reasonable and directed that
    purchases be distributed equitably among qualified suppliers. The Federal
    Acquisition Regulation (FAR) designated the purchase card as the preferred
    method of making micropurchases.7 By shifting authority for small
    purchases from procurement offices to individual cardholders, agencies
    dramatically improved their ability to acquire quickly and easily items
    that were needed for day-to-day operations and to reduce administrative
    costs.

    Since the passage of FASA, the dollar value of goods and services acquired
    through the purchase card has exploded, as figure 1 shows. This growth was
    accompanied by an increase in the number of personnel using the purchase
    card.

    Figure 1: Purchase Card Expenditures-Fiscal Years 1994 to 2003

    7 FAR 13.201(b). Further, FAR 13.301 establishes guidelines for the use
    and management of the purchase card.

    Table 1 provides information on fiscal year 2002 purchase card activity
    for the eight agencies we reviewed. Purchase card transactions at these
    agencies account for over 85 percent of the government's purchase card
    spending. While purchase cards may be used to make payments under
    established contracts in addition to making micropurchases, an
    overwhelming majority of transactions are micropurchases. At the eight
    agencies reviewed, micropurchases represented 98 percent of transactions
    and accounted for 63 percent of the dollars expended. Appendix VI provides
    additional information on purchase card activity at the agencies we
    reviewed.

    Table 1: Purchase Cards and Purchase Card Expenditures, Fiscal Year 2002

    Purchase cards Expenditures Agency (as of Sept. 30, 2002) (dollars in
    thousands)

            Department of Agriculture 23,448 $592,296 Department of Defense

                                         Air Force    77,318            1,604,367
                                              Army    101,398           2,739,612
                                              Navy    22,594            1,784,128
                        Department of the Interior    88,736a             487,282
                             Department of Justice    16,274              593,576
                      Department of Transportation    22,243              425,431
                    Department of Veterans Affairs    32,421           1,560,309b
                                             Total    384,432          $9,787,001

    Source: GSA, GAO analysis.

    aThe Department of the Interior has an integrated card program, with a
    single card being used for purchases, travel, or fleet expenditures. Data
    represent the total number of charge cards.

    bDoes not include about $2.7 billion in purchase card transactions under
    Veterans Affairs' prime vendor program.

    GSA, whose mission is to help federal agencies better serve the public by
    offering acquisition services at the best value, has created several tools
    that can help cardholders obtain more favorable pricing for goods and
    services. The most common of these is the Schedule program, which offers
    discounted prices on a wide range of commercial goods and services from
    multiple vendors.8 The GSA Advantage on-line shopping

    8 Although GSA negotiates to obtain discounted prices on its Schedule
    contracts, the GSA Inspector General has raised concerns about whether GSA
    is getting the best possible prices from vendors. GSA is currently
    examining options to address these concerns.

    service allows agencies to compare prices under various Schedule
    contracts, place orders, and make payments over the Internet. In addition,
    GSA has awarded contracts that offer federal agencies discounted prices on
    telecommunications services.

    Our prior work found that weak internal controls left purchase card use at
    DOD and several civilian agencies vulnerable to fraud and abuse. The list
    of Related Products at the end of this report identifies recent work in
    this area. To address these concerns, Congress has enacted legislation
    that directs DOD to improve program management by limiting the number of
    purchase cards, providing appropriate training to purchase card officials
    and cardholders, monitoring purchase card activity, disciplining
    cardholders who misuse the purchase card, and assessing the credit
    worthiness of cardholders.9 We recently reported10 that DOD has taken a
    number of actions to improve the controls over the purchase card program
    based on congressional action and our recommendations. To improve
    management of the purchase card program governmentwide, the proposed
    Purchase Card and Travel Card Accountability Act of 200311 would require
    the Administrator of the Office of Federal Procurement Policy to prescribe
    a governmentwide policy regarding the appropriate and inappropriate uses
    of the purchase and travel cards. In addition, the proposed Credit Card
    Abuse Prevention Act of 200312 would require civilian agencies to
    promulgate regulations to establish safeguards and internal controls to
    prevent fraud, misuse, and abuse.

    9 Bob Stump National Defense Authorization Act for Fiscal Year 2003, P.L.
    107-314, Sec. 1007; Department of Defense Appropriations Act, 2003, P.L.
    107-248, Sec. 8149 as amended by Department of Defense Appropriations Act,
    2004, P. L.108.87, Sec.8144.

    10 U.S. General Accounting Office, Purchase Cards: Steps Taken to Improve
    DOD Program Management, but Actions Needed to Address Misuse, GAO-04-156
    (Washington, D.C.: Dec. 2, 2003).

    11 H.R. 3165, Sec. 2.

    12 H.R. 3329, Sec. 2(b)(c).

    Agencies Generally Have Not Taken Advantage of Opportunities to Obtain
    Savings

    Although we found some initiatives under way to obtain vendor discounts
    from major purchase card vendors, agencies generally had not seized
    opportunities to obtain more favorable prices on purchase card buys-
    opportunities that could yield hundreds of millions of dollars in savings.
    Agency efforts to obtain more favorable prices for purchase cardholders
    had generally been limited to a few agencywide agreements with major
    vendors-that is, vendors with whom an agency spent $1 million or more in
    fiscal year 2002. Further, training for cardholders usually focused on
    internal controls and regulatory policies and did not provide practical
    information about steps cardholders can take to get better prices. As a
    result, cardholders often paid higher prices than necessary. The
    successful initiatives taken within some agencies demonstrate that, if
    agencies negotiated effective discount agreements with major purchase card
    vendors and improved communications to cardholders about how to obtain
    more favorable prices, significant savings could be realized.

    Scope and Coverage of Negotiated Discount Agreements Varied

    We found a wide variation in the number of agencywide discount agreements
    that the eight agencies we reviewed had negotiated with their major
    purchase card vendors. For example, Veterans Affairs had negotiated
    agencywide discount agreements with 37 of its 196 major purchase card
    vendors-the largest number of any of the agencies reviewed. The Army,
    Navy, and Air Force each had agencywide agreements with several major
    information technology vendors and one or more office supply vendors.
    Agriculture, Interior, and Justice each had a few agencywide agreements,
    which covered information technology products or office supplies.
    Transportation's senior procurement executive told us this agency had no
    discount agreements that could be used agencywide. As shown in table 2,
    cardholders at the agencies we reviewed are using the purchase card to a
    great extent to buy items from major purchase card vendors, an indication
    that opportunities exist to negotiate additional discount agreements with
    these vendors.

    Table 2: Purchase Card Expenditures and Expenditures with Major Vendors,
    Fiscal Year 2002

    Expenditures with major purchase card

    Total expendituresa Number of major Agency (dollars in thousands) purchase
    card vendors

    vendors

    Dollars (thousands) Percent of total

    Agriculture $592,296 34 $71,932

    Defense

                 Army               2,739,612          217          774,361
                 Navy               1,784,128          145          395,142
              Air Force             1,604,367          130          444,928
               Interior              487,282           32            85,161
               Justice               593,576           56           153,578
            Transportation           425,431           27            73,732
           Veterans Affairs         1,560,309          196          822,153
                Total               $9,787,001                     $2,820,987

    Source: GAO analysis of bank-provided data.

    aDoes not include about $2.7 billion in purchase card transactions under
    Veterans Affairs' prime vendor program.

    The effectiveness of the agreements that are in place also varied widely,
    and we found a number of ways in which agencies had not maximized their
    agreements' potential to capture additional savings. First, agencies did
    not always take full advantage of competitive forces to ensure that their
    discount agreements with large vendors offered the most favorable prices,
    as shown in the following examples.

    Second, some agency discount agreements covered a limited range of
    products and therefore did not provide cardholders more favorable prices
    on all the items they purchase from a vendor. Overall, in 18 of the 27
    transactions we reviewed where agencies had a discount agreement in place,
    the agreement did not cover the specific items that cardholders purchased,
    as demonstrated in the following examples.

    Finally, some discount agreements were not well-coordinated within the
    agency, creating the potential for overlap, as shown in the following
    example. Representatives of a number of agency components told us that,
    while they believed that their regional and local organizations had
    negotiated some discount agreements, they had no information on these
    agreements.

    Most Guidance and Each of the agencies we reviewed had developed guidance
    and training Training Did Not Provide programs for their cardholders that
    focused on regulatory policies and Practical Information on internal
    controls intended to prevent misuse of the purchase card.

    However, most of the guidance and training programs did not
    provideObtaining Favorable cardholders with practical information to help
    them get better pricing byPricing using Schedule contracts or agency
    discount agreements, as in the

    following examples.

    Some training programs, however, had successfully communicated practical
    information to their cardholders on how to seek better prices, as in the
    following examples.

    Lacking Information, Cardholders Paid More Than Necessary

    Dun and Bradstreet's analysis of fiscal year 2002 Interior transactions,
    conducted on our behalf, illustrates that cardholders frequently paid more
    than necessary. For example, the company analyzed Interior purchases from
    three office supply vendors that provided product descriptions along with
    their purchase card billing information. This analysis showed that ink
    cartridges were the most frequently purchased product. For one specific
    model of ink cartridge, 411 of 791 purchases were made at prices higher
    than the Schedule prices the vendors offered, indicating that cardholders
    had generally not taken advantage of discounts available through Schedule
    contracts. The prices paid for the same cartridge model ranged from $20.00
    to $34.99.

    Our review of selected transactions also showed that, because they lacked
    practical information on how to achieve savings on purchases,

    cardholders paid more than necessary, as highlighted in the following
    examples. Some cardholders we talked to were simply unaware of the savings
    potential of using Schedule contracts or agency discount agreements. Of
    the transactions we reviewed where items were available through a GSA
    contract, a number of cardholders were unaware that the items could have
    been purchased through the GSA contract.

    Some cardholders appeared to not understand their fundamental
    responsibility for getting reasonable prices, as in the following
    examples.

    Other cardholders purchased products that were not available through the
    particular vendor's Schedule contract. Because the cardholders did not
    consider whether products that met their needs were available from other
    Schedule vendors, they were unable to take advantage of lower, discounted
    prices these vendors might have offered, as shown in the following
    examples. Of the 135 transactions we reviewed, 70 included items that were
    unavailable through the selected vendor's GSA contract.

    Other cardholders appeared to be confused about whether they were getting
    favorable prices.

    We also found cardholders who were not aware that they had received
    significant discounts, as in the following cases.

    Experience at Some Several agencies or agency components reported
    significant savings from Agencies Suggests their initiatives to leverage
    their buying power by negotiating discount Significant Savings Are
    agreements with major vendors, suggesting the potential for significant
    Possible savings governmentwide. In all cases, the discount agreements are

                   available to cardholders. Several examples follow.

    Lack of Management Focus Has Limited Efforts to Capture Savings

    While the scope of our work did not include developing a governmentwide
    estimate of the potential savings from leveraging purchase card buying
    power, these examples indicate that the potential for savings could be
    significant. Given the range of savings under discount agreements
    currently in place with major vendors (8 to 35 percent) at the agencies we
    reviewed, a conservative approach indicates that, if these agencies were
    to achieve savings of just 10 percent on their purchase card expenditures
    with major vendors, annual savings of $300 million could be realized.

    The primary reason that agencies have not taken advantage of potential
    opportunities to capture savings through the purchase card program is the
    lack of management focus on this issue. Further, OMB has not leveraged its
    governmentwide oversight role by collecting and disseminating information
    on the successful initiatives some agencies have undertaken. In addition,
    agency officials identified several challenges that, in their view, have
    hindered them from more aggressively pursuing savings through the purchase
    card program. First, they noted that the purchase card is intended to
    streamline buying, and they are reluctant to impose requirements on
    cardholders that would undermine the simple, quick purchase card buying
    process. Officials also cited the need to balance governmentwide
    socioeconomic requirements-including providing

    opportunities for small businesses and purchasing products manufactured by
    non-profit agencies for the blind or severely handicapped (referred to as
    "JWOD" products)13-with efforts to get better purchase card prices.
    Finally, officials noted that little detailed information is available on
    the specific products and services purchased through the purchase card,
    hampering efforts to analyze trends in order to achieve more savings.
    Although agency officials consistently identified these challenges, our
    review suggests that the challenges are not insurmountable, as evidenced
    by individual agency initiatives to address them.

    Agencies and OMB Have Not Focused on Opportunities for Savings

    Agency purchase card managers have yet to turn their attention to
    capturing opportunities for savings in their purchase card programs. In
    the mid-1990s, managers were focusing on capturing the savings in
    administrative costs that use of the purchase card made possible and
    reengineering administrative processes that discouraged use of the card.
    In more recent years, our work and the work of agency inspectors general
    highlighted weaknesses in internal controls that left purchase card use
    vulnerable to fraud and abuse. Agency managers have made a concerted
    effort to address these internal control weaknesses, but have not paid
    similar attention to capitalizing on opportunities for savings on purchase
    card buys. In general, the agency management structures and processes do
    not establish departmentwide goals for the effectiveness of micropurchase
    activity, such as savings goals.

    To monitor agencies' progress in implementing better internal controls,
    OMB requires agencies to report quarterly on such topics as investigations
    of potential fraud, disciplinary actions for fraudulent or improper card
    use, and initiatives to improve program management. However, OMB's
    reporting requirement does not include gathering information on agency
    efforts to save money on purchase card buys. Consequently, governmentwide
    information on opportunities to achieve savings is not available.

    13 The Javits-Wagner-O'Day (JWOD) Act established the Committee for
    Purchase from People Who Are Blind or Severely Disabled and charters the
    Committee to develop a procurement list of commodities produced and
    services provided by nonprofit agencies (41 U.S.C. Sec. 46, Sec. 47).
    GSA's proposal instructions for office supply Schedule contracts require
    vendors that are authorized JWOD distributors to describe the procedures
    they have in place to ensure that federal customers do not purchase
    commercial items when JWOD products are available. The act also directs
    agencies to buy items or services on the procurement list from nonprofit
    agencies for the blind or severely handicapped if the items are available
    within the period required by the government. (41 U.S.C. Sec. 48).

    OMB representatives stated that they would consider the benefits of having
    agencies share information on leveraging purchasing power. They believe
    that increased focus on purchase card pricing issues is appropriate and
    mentioned that periodic cross-agency forums, sponsored by GSA, could be
    one mechanism for agencies to share successes they have had in negotiating
    discounts with major vendors. They also acknowledged that the
    currently-required quarterly reports could be used to gather information
    on the steps agencies are taking to better leverage their purchase card
    buying. Most of the agency officials we met with expressed interest in
    learning of steps being taken within the government to capture purchase
    card savings, particularly in light of the challenges discussed below.

    Steps to Capture Savings Need Not Burden Cardholders

    Several agency officials noted that promoting-or in some cases,
    requiring-the use of specific vendors with whom they have negotiated
    discount agreements could hinder cardholders from meeting their needs in
    the simplest, most expeditious manner. They fear that cardholders, who are
    generally not procurement officials, would be expected to spend more time
    seeking better prices-time that should be spent meeting mission
    requirements. While the FAR requires agencies to obtain reasonable prices,
    it limits the actions agencies need to take to verify price
    reasonableness. Given the wide variety of missions that cardholders must
    meet on a daily basis, they must retain the flexibility to make their
    purchases in a way that meets their needs. Our work showed that in some
    cases, as those shown below, Schedule contracts and discount agreements
    were not effective in meeting cardholder needs. In these cases, the
    cardholders took advantage of the purchase card's flexibility to find
    other ways to fill their requirements.

    On the other hand, some cardholders were pleased with the Schedule
    contracts and agency discount agreements they used. Cardholders were able
    to easily place orders with the vendor, and the vendor filled their orders
    promptly and reliably, as in the following examples.

    GSA is working to further simplify cardholder access to discounted prices.
    To receive Schedule discounts, cardholders generally must place orders
    with a vendor through the GSA Advantage on-line shopping service or other
    designated ordering procedures. Some of GSA's Schedule contracts, however,
    provide vendors the option of offering cardholders discounts at the point
    of sale in the vendors' retail stores. For example, one GSA contracting
    officer modified a vendor's contract to provide for point-ofsale
    discounts. The vendor then programmed cash registers in its retail stores
    to recognize a federal government purchase card when a shopper presents
    one and to apply the appropriate Schedule discount to the shopper's order.
    GSA has partnered with DOD purchase card program officials to explore ways
    to increase the number of vendors that offer point-of-sale discounts to
    federal purchasers. Civilian agency officials expressed strong interest in
    this approach to facilitating cardholder access to Schedule discounts.

    Concerns about Balancing Governmentwide Socioeconomic Policies with
    Purchase Card Savings Initiatives Can Be Mitigated

    Balancing governmentwide socioeconomic policies-such as providing federal
    contracting opportunities to small businesses-with initiatives to leverage
    agency buying power has also been a recurring concern for agencies.
    Although agencies are not required to reserve micropurchases for award to
    small businesses, officials we met with repeatedly noted that because
    large national vendors would be in the best position to win agencywide
    discount agreements, concerns would be raised that opportunities for
    small, local vendors could be reduced. Officials similarly raised concerns
    about the effect agencywide discount agreements would have on their
    ability to meet requirements to purchase JWOD products.

    Despite these concerns, some agencies have been able to leverage
    purchasing power while providing opportunities for small businesses, as
    highlighted in the following examples.

    Further, agency experience indicates that appropriately structured
    discount agreements can help ensure that cardholders purchase JWOD
    products when required, as in the following cases.

    Available Data, Though Limited, Can Be Used to Identify Potential Savings

    Agency officials point to the lack of adequate data as a barrier to taking
    steps to analyze purchase card activity. They raised concerns about their
    ability to analyze purchase trends due to a lack of detailed information
    on the specific products and services purchased, known as "level 3"
    data.14 The banks that provide the agencies' purchase cards generally do
    not have such data. For example, our analysis of Interior's fiscal year
    2002 transaction data indicated that less than 15 percent of all
    transactions included descriptions of the items and services purchased.
    Dun and Bradstreet found that many merchants have not invested in the
    electronic point-of-sale devices needed to transmit item descriptions
    along with other transaction information. A common reason offered by major
    vendors for not providing level 3 data is that their customers-the
    ordering agencies- have not requested it. Agency officials told us,
    however, that they have made clear to the banks that issue their purchase
    cards that access to level 3 information would be very helpful to them in
    gaining an understanding of what their cardholders are buying.

    14 Level 1 data include basic information about the transaction, such as
    the date and amount and basic identifying information about the merchant.
    Level 2 data include information on sales tax charged and additional
    information about the merchant. Level 3 data include details on the
    descriptions, quantities, and prices of items purchased. Our report -U.S.
    General Accounting Office, Contract Management: Government Faces
    Challenges in Gathering Socioeconomic Data on Purchase Card Merchants,
    GAO-03-56, (Washington, D.C: Dec. 13, 2002)-discussed the lack of detailed
    purchase card transaction data.

    GSA and other agencies are pursuing initiatives to provide agencies better
    data on their purchase card activity. GSA's contracts with the banks that
    provide purchase cards, for example, require summary and analytical
    reports on agency purchase card activity, including information on the top
    100 vendors by agency and on the types of vendors. According to the GSA
    purchase card program manager, these reports were intended to provide GSA
    with data it could use to help agencies gain insight into their purchase
    card expenditures and identify opportunities to leverage their purchasing
    power. The program manager indicated, however, that reports from the banks
    have frequently not been provided, not been provided timely, or not been
    provided in a format that facilitates analysis. For example, until the
    most recent reporting period, GSA had not received even basic information,
    such as the top 100 purchase card vendors, from some banks. The GSA
    program manager is pursuing efforts to encourage the banks to provide more
    useful reporting so that GSA will be able to provide more effective
    assistance to agencies, such as negotiating point-of-sale discounts with
    vendors. Other initiatives are also in place. GSA is working with DOD and
    other agencies to determine what barriers limit the level 3 data agencies
    receive and to explore ways to overcome these barriers. In addition, the
    Air Force Materiel Command is piloting a system intended to accumulate
    more consistent and specific information on purchase card transactions.

    While the lack of level 3 data is a valid concern, agencies can use the
    information that is available to start taking steps to get better prices.
    For example, we obtained from the banks a listing of all fiscal year 2002
    purchase card transactions for each agency we reviewed. Using this
    listing, we summarized information on the vendors with whom cardholders at
    each agency had done $1 million or more in business during fiscal year
    2002. All agencies have access to these data. When we shared this
    information with agency officials, several indicated that simply being
    able to identify major vendors was a useful first step in identifying
    opportunities to leverage their buying power.

    Several agencies have taken the initiative to begin analyzing their
    purchase card expenditures to identify opportunities for additional
    savings, although these initiatives in some cases had limitations, as in
    the following examples.

    While analyses conducted by agency components can provide useful insight
    into opportunities to leverage their purchasing power, they do not reflect
    the bigger picture of agencywide expenditures or agencywide opportunities
    to capture savings.

    Several of the agency discount agreements we reviewed require vendors to
    report periodically on sales made under discount agreements. This
    information can help agencies determine whether cardholders are taking
    advantage of favorable pricing.

    Conclusions

    Recommendations for Executive Action

    Agencies have just begun to tap the potential of leveraging the purchase
    card for better pricing. If greater management attention were paid to
    capitalizing on the opportunities to obtain more favorable prices,
    hundreds of millions of dollars in savings could be realized annually.
    Given the volume of purchase card activity, agencies could take advantage
    of these opportunities without sacrificing the ability to acquire items
    quickly or compromising socioeconomic goals. If agencies were to build on
    their initial experiences and duplicate these steps governmentwide, they
    would have the opportunity to save the taxpayer almost $300 million
    annually. OMB should take the lead in focusing management attention on
    this opportunity and guiding agencies towards capturing these savings.

    We are making the following eight recommendations to OMB, GSA, and the
    agencies we reviewed:

    To focus governmentwide management attention on taking advantage of
    opportunities to achieve savings on purchase card buys, we recommend that
    the director of OMB take the following two actions:

    o  	Require agencies to report-either through the current quarterly
    reports or another mechanism-on the steps they are taking to leverage
    their purchase card buys in areas such as

    o  negotiating discount agreements with major purchase card vendors,

    o  	implementing initiatives to better inform cardholders of opportunities
    to achieve savings,

    o  conducting analyses to identify such opportunities, and

    o  	assessing, through mechanisms such as vendor reports, whether
    cardholders are taking advantage of savings opportunities.

    o  	Annually report to Congress on the government's progress in
    identifying and taking advantage of opportunities for savings on purchase
    card micropurchases.

    To assist agencies in identifying opportunities to achieve savings on
    purchase card buys and to facilitate cardholder access to discounted
    prices, we recommend that the administrator of GSA direct the purchase
    card program manager to take the following three actions

    o  	continue efforts to improve reporting by the banks that provide
    purchase cards so that GSA will have the data it needs-including basic
    information such as top vendors and level 3 data where feasible-to assist
    agencies in effectively identifying opportunities to leverage their
    purchasing power;

    o  	work with GSA's acquisition center contracting officers to pursue
    point-of-sale discounts with large vendors; and

    o  	as part of the existing cross-agency forums for purchase card
    discussions, encourage agencies to share information on their successes in
    leveraging the purchase card to obtain better prices as well as strategies
    for overcoming challenges that could hinder agencies' ability to achieve
    purchase card savings.

    To more effectively capture the significant potential for savings that
    agencies can achieve, we recommend that the Secretaries of Agriculture,
    Defense, the Interior, Justice, Transportation, and Veterans Affairs
    direct their purchase card program managers-in coordination with officials
    responsible for procurement, finance, small business utilization, and
    other appropriate stakeholders-to take the following three actions:

    o  	Develop mechanisms that provide cardholders more favorable pricing
    from major vendors or for key commodity groups, such as agencywide
    discount agreements with major vendors or simpler mechanisms that
    capitalize on trade discounts offered by local merchants. In designing
    such mechanisms, purchase card program managers should consider the need
    to

    o  	take full advantage of competitive forces to assure the most favorable
    prices,

    o  	ensure that agreements cover an adequate range of the products
    cardholders are likely to buy,

    o  	coordinate negotiation activities within the department to reduce
    duplication of effort, and

    o  	ensure that agreements appropriately support agencies' efforts to meet
    governmentwide socioeconomic requirements.

    o  	Revise programs for communicating with cardholders to ensure that the
    programs provide cardholders the information they need to effectively take
    advantage of mechanisms the agency has established to achieve savings.
    Such information would include telling cardholders about

    o  	the GSA Schedule contracts or agency-specific agreements chosen as
    vehicles for leveraging the agency's buying power, and

    o  	procedures cardholders should follow to access and use these vehicles
    when they plan to make a purchase from these vendors.

    o  	To the extent possible using available data, such as information on
    major vendors, analyze purchase card expenditure patterns to identify
    opportunities to achieve additional savings and to assess whether
    cardholders are getting good prices. Where available data are not
    sufficient for such analyses, investigate the feasibility of gathering
    additional information. In evaluating options for gathering additional
    information, purchase card program managers should carefully consider the
    costs and benefits of obtaining comprehensive information and imposing
    unwarranted burdens on cardholders, vendors, and other stakeholders.

    We received written comments on a draft of this report from DOD, GSA, the
    Department of the Interior, and the Department of Veterans Affairs. We
    received comments via e-mail from the Departments of Agriculture and
    Transportation. The Department of Homeland Security, the Department of
    Justice, and OMB did not provide comments.

    DOD concurred with our recommendation that the department develop
    mechanisms that provide cardholders more favorable prices, but stated that
    negotiating agencywide discount agreements might impede achieving the
    department's small business goals. Accordingly, DOD intends to emphasize
    installation-level initiatives to obtain discounts from local vendors and
    to pursue point-of-sale discounts with larger vendors. DOD also concurred
    with our recommendation to revise programs for communicating with
    cardholders and partially concurred with our recommendation to analyze
    purchase card expenditure patterns to identify opportunities for savings.
    DOD stated that, until data on specific purchases is widely available, the
    feasibility of developing informed and

    Agency Comments
    and Our Evaluation

    cost-effective strategic sourcing decisions is questionable. Our
    recommendation, however, contemplated agencies using readily available
    data to gain insight into their purchase card expenditure patterns.
    Analysis of available purchase card transaction data could provide
    agencies a clearer understanding of which vendors are significant to their
    purchase card program. DOD's written comments are reproduced in appendix
    II.

    GSA concurred with our findings and recommendations and stated that the
    report provides an objective analysis of the savings that agencies can
    obtain through the Schedule program and purchase card program. GSA's
    written comments are reproduced in appendix III.

    The Department of the Interior did not specifically agree or disagree with
    our recommendations, but offered several observations on our report. The
    department took exception to our statement that lack of management focus
    and oversight had led to agencies' not taking advantage of opportunities
    to capture purchase card savings. This statement was intended to portray
    the general picture at all the agencies we reviewed, and our report
    discusses the instances we noted where agencies had focused management
    attention on capturing savings and the benefits agencies obtained by doing
    so. Interior also commented that our recommendation that departments
    develop mechanisms to provide cardholders with more favorable prices
    should be directed to GSA rather than Interior, and that GSA's buying
    programs should be revised to incorporate greater price reductions and be
    expanded to cover more vendors. We did not audit GSA's buying programs as
    part of this report; however, recognizing the benefits of point-of-sale
    discounts, we have made a recommendation to GSA to pursue these discounts
    with large vendors. At the same time, we found that individual agencies
    could achieve savings in the short term by negotiating discount
    agreements, such as Interior has done for information technology products.
    Interior- pointing to convenience and simplicity as key benefits of the
    purchase card program-also commented that we should further highlight in
    our recommendations the need for purchase card managers to take into
    account the costs and benefits of obtaining comprehensive information and
    imposing unwarranted burden on cardholders and others. We believe that our
    recommendations, as stated, afford program managers sufficient flexibility
    to develop mechanisms for more favorable pricing while not inconviencing
    cardholders. Finally, Interior recommended that we incorporate into the
    report a table of "best practices." The scope of our work did not include
    gathering information to verify that the agreements agencies have
    negotiated represent best practices. Interior's written comments are
    reproduced in appendix IV.

    The Department of Veterans Affairs concurred with our recommendations and
    cited a number of planned and ongoing actions intended to provide
    cardholders with more favorable prices. In addition, Veterans Affairs
    expressed concern that our recommendation to OMB would impose a cumbersome
    and costly data-gathering burden on agencies. Veterans Affairs is
    apparently interpreting our recommendation as requiring agencies to report
    on discounts obtained on specific transactions. We agree that the
    availability of data to prepare such a report may be an issue and
    therefore are not recommending that OMB require such a report. Instead, we
    recommend that OMB require agencies to report on initiatives they have
    taken, such as analyzing purchase card expenditure patterns and
    negotiating discount agreements that cardholders can use. Veterans Affairs
    also endorsed our recommendation that GSA pursue point-of-sale discounts
    with large vendors and suggested that GSA consider encouraging vendors to
    program point-of-sale devices to recognize that federal purchases are
    exempt from sales taxes. Veterans Affairs' comments are reproduced in
    appendix V.

    In comments sent via e-mail, the Department of Agriculture concurred with
    our recommendations and outlined a number of steps the department will
    take to implement them. Commenting on our finding that Agriculture's
    discount agreement for office supplies did not take full advantage of
    competitive forces to ensure the most favorable prices, Agriculture stated
    that it reviews this agreement annually and will recompete the agreement
    when these annual reviews indicate that recompetition is warranted. We
    believe that periodic-but not annual-recompetitions would provide the best
    information for assessing whether the agreement continues to offer the
    most advantageous prices for office supplies.

    In comments sent via e-mail, the Department of Transportation did not
    specifically agree or disagree with our recommendations, but noted that
    our report could benefit by explicitly recognizing that the greatest
    savings could by achieved by pooling the buying power of the entire
    federal government. We agree that leveraging governmentwide buying power
    would result in the greatest savings. While this would be the best
    endstate, we see this as a long-term effort with many obstacles to be
    overcome before it can be achieved. Our work identified initiatives-
    relatively simple to implement-that agencies can begin now to start
    achieving savings. In addition, Transportation commented that our report
    does not adequately depict the fundamental difficulties of complying with
    JWOD purchase requirements while at the same time achieving best value. We
    believe our report appropriately reflects the concerns agency officials

    expressed to us about complying with socioeconomic requirements, including
    JWOD, and we provide several examples of how some agencies have taken
    steps appropriately structure discount agreements so that they help ensure
    that cardholders purchase JWOD products when required. In addition,
    Transportation commented that the report should discuss some of the
    positive accomplishments of the purchase card program. Our report
    acknowledges that the purchase card has fundamentally changed the way
    agencies make small, routine, purchases and we believe the report
    appropriately reflects the administrative cost savings and convenience
    purchase cards have provided. Finally, Transportation suggested a
    technical correction, which we have incorporated in the report.

    As arranged with your offices, unless you publicly announce its contents
    earlier, we plan no further distribution of this report until 30 days from
    its issue date. At that time, we will send copies of this report to the
    Secretaries of Agriculture, DOD, Homeland Security, the Interior, Justice,
    Transportation, and Veterans Affairs; the director of OMB; the
    administrator of GSA; and other interested congressional committees. We
    will provide copies to others on request. This report will also be
    available at no charge on GAO's Web site at http://www.gao.gov.

    If you or your staffs have any questions about this report or need
    additional information please call David Cooper at (202) 512-4841
    (cooperd@gao.gov) or Gregory Kutz at (202) 512-9505 (kutzg@gao.gov).
    Key contributors to this report are acknowledged in appendix VII.

    David E. Cooper
    Director
    Acquisition and Sourcing Management

    Gregory D. Kutz
    Director
    Financial Management and Assurance

                           Appendix I: Scope and Methodology

    We reviewed laws and regulations relating to the purchase card program,
    held discussions with GSA officials responsible for governmentwide program
    management and OMB representatives responsible for program policy and
    oversight, and reviewed governmentwide policy and guidance for the
    program. We also performed our work at the Departments of Agriculture,
    Defense (DOD), the Interior, Justice, Transportation, and Veterans
    Affairs. These agencies accounted for over 85 percent of governmentwide
    purchase card expenditures during fiscal year 2002. Within DOD, we focused
    our work at the Departments of the Army, the Navy, and the Air Force,
    which represented 92 percent of all DOD purchase card expenditures during
    fiscal year 2002. We contacted all major component agencies-referred to as
    major commands in the Army and Air Force and as major claimants in the
    Navy. At the civilian departments, we contacted the component agencies
    that were the largest users of purchase cards.

    To determine whether agencies had taken advantage of opportunities to
    obtain more favorable purchase card prices, we held discussions with
    officials responsible for the purchase card program at each department to
    obtain information on (1) efforts to identify opportunities to obtain more
    favorable prices, (2) efforts to negotiate discount agreements that made
    more favorable prices available to cardholders, and (3) guidance and
    training provided to cardholders to inform them of opportunities to obtain
    more favorable prices. We reviewed policy and guidance manuals, training
    materials, and other agency documentation that provided information on
    these topics. We also contacted the components responsible for the largest
    volume of purchase card activity within each department. Finally, to
    assess cardholder buying practices and gain insight into whether they were
    obtaining favorable prices, we selected a limited number of fiscal year
    2002 micropurchase transactions at each department for review. We obtained
    and reviewed documentation relating to the transactions, such as invoices,
    and discussed the transactions with cardholders.

    To identify the reasons why agencies had not taken advantage of
    opportunities to obtain more favorable purchase card prices, we discussed
    these issues with officials responsible for departmental purchase card
    programs and reviewed applicable agency documentation.

    To select transactions for review, we first obtained data files of fiscal
    year 2002 purchase card transactions from the banks that provided purchase
    cards to each of the departments reviewed. (In the case of the military
    services, we obtained data files from the Defense Manpower Data Center,
    which had previously obtained the files from the applicable banks.) We

    Appendix I: Scope and Methodology

    reviewed these files to determine that they did not contain any apparent
    erroneous data and then summarized the total number and dollar value of
    transactions for each department. We reconciled these totals with totals
    reported by GSA for each department. Having determined that the data files
    were generally reliable, we summarized the data to determine the total
    number and dollar value of transactions by vendor and identified major
    purchase card vendors at each department. We defined major purchase card
    vendors as those vendors where the department had purchase card
    expenditures of $1 million or more in fiscal year 2002.

    We then combined the data on major purchase card vendors for the eight
    departments and summarized the number and dollar value of transactions by
    vendor to identify those vendors where the eight departments had the
    highest purchase card expenditures. From this combined listing, we
    determined that vendors providing information technology products, office
    supplies, and cellular telecommunications services were among the top
    vendors at all eight departments. Accordingly, we selected two of the top
    information technology vendors, two of the top office supply vendors, and
    two of the top cellular telecommunications service providers as the
    vendors for which we would select transactions for review.

    For each department, we identified the population of micropurchase
    transactions with the selected vendors. If a department did not have $1
    million or more in micropurchase transactions with the vendor, we excluded
    that vendor's transactions from further analysis at that department. We
    then identified, for each vendor, the subpopulation of micropurchase
    transactions valued at $100.00 or more for information technology and
    office supply vendors or $25.00 or more for cellular telephone service
    providers at each department.1 We selected-using a random selection
    process-3 transactions with each vendor at each department for a total of
    135 transactions. Although these transactions were selected at random, we
    cannot project the results of the selected transactions to the population
    of transactions.

    To assess the prices cardholders had paid on a transaction, we ascertained
    whether the vendor had a GSA contract or agency-negotiated discount
    agreement applicable to the items or services purchased. We obtained

    1 We excluded transactions valued at less than $100.00 to limit our
    investment in researching transactions involving minimal amounts of money.
    We included smaller cellular telecommunications transactions because these
    are normally monthly, recurring charges that involve an annual amount
    greater than $25.00.

    Appendix I: Scope and Methodology

    information on prices for the items or services under these contracts or
    agreements and used these prices as benchmarks for assessing whether the
    cardholder had obtained favorable pricing. In addition to making these
    price comparisons, we contacted the cardholders to discuss the transaction
    and gain insight into their buying practices and awareness of vehicles
    that provide favorable pricing.

    To assess the potential magnitude of savings that agencies can achieve by
    negotiating discount agreements with their major purchase card vendors, we
    considered the discounts individual departments had obtained on the
    agencywide discount agreements we reviewed during our work. Discounts
    offered under these agreements varied-for example, 8 percent under an
    Interior agreement for desktop computers, 10 percent under an Agriculture
    agreement for office supplies, and 35 percent under an Interior agreement
    for laptop computers. We considered the 10 percent discount that
    Agriculture obtained to represent a reasonable and conservative benchmark
    for the potential discounts departments could obtain from their major
    vendors.

    Our analysis showed that the agencies reviewed spent about $2.8 with major
    purchase card vendors in fiscal year 2002. Although some of these
    expenditures would have been covered by discount agreements the
    departments had negotiated, we found that agency discount agreements often
    did not cover all the items that cardholders purchased from those vendors.
    Further, we found that cardholders did not always know of, or take
    advantage of, the discounts agreements agencies had negotiated. A number
    of the transactions we reviewed were made at retail prices. If the
    agencies we reviewed obtained discounts of about 10 percent on the $2.8
    billion spent with their major purchase card vendors, their savings would
    amount to about $282 million. Actual discounts would vary with factors
    such as sales volume, profit margin, and competitiveness of the industry.
    If agencies obtained discounts equivalent to the high end of the range we
    saw during our work, savings would amount to almost $1 billion, although
    it is unrealistic to expect savings of this magnitude. Nonetheless, we
    believe it is reasonable to anticipate that the federal government could
    save hundreds of millions of dollars if agencies negotiated discounts with
    major purchase card vendors.

    Finally, we engaged the Dun and Bradstreet Corporation to perform a spend
    analyses of Interior's fiscal year 2002 purchase card transactions to
    illustrate how a detailed analysis could begin to identify opportunities
    for purchase card savings. In addition to performing analyses of
    Interior's purchase card transactions, Dun and Bradstreet gathered
    information on

    Appendix I: Scope and Methodology

    the costs and benefits to merchants and other stakeholders of providing
    "level 3" data-which includes descriptions of the items and services
    purchased-and on barriers to vendors providing this information.

    We conducted our review between March 2003 and January 2004 in accordance
    with generally accepted government auditing standards.

    Appendix II: Comments from the Department of Defense

    Note: Page numbers in the draft report may differ from those in this
    report.

    Appendix II: Comments from the Department of Defense

    Appendix II: Comments from the Department of Defense

    Appendix III: Comments from the General Services Administration

    Appendix III: Comments from the General Services Administration

    Appendix IV: Comments from the Department of the Interior

    Appendix IV: Comments from the Department of the Interior

    Appendix IV: Comments from the Department of the Interior

    Appendix IV: Comments from the Department of the Interior

    Page 47 GAO-04-430 Purchase Card Pricing

                        Page 48 GAO-04-430 Purchase Card Pricing

                        Page 49 GAO-04-430 Purchase Card Pricing

                        Page 50 GAO-04-430 Purchase Card Pricing

                        Page 51 GAO-04-430 Purchase Card Pricing

    Appendix VI: Information on Purchase Card Expenditures

    Table 3: Department of Agriculture Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002

                                      Transactions

                                      Expenditures
                                 (dollars in thousands)

                Dollar value range   Number     Percent   Dollar value    Percent
                $0.00 to $2,500.00  1,584,822       98.4    $396,797
                      $2,500.01 to      25,221       1.6        158,630
                           $25,000
                      Over $25,000         793         a         36,869

                          All transactions 1,610,836 $592,296

    Source: GAO analysis.

    aLess than 0.1 percent.

    Table 4: Department of Defense Military Services Purchase Card
    Expenditures by Transaction Dollar Value, Fiscal Year 2002

                                      Transactions

                                      Expenditures
                                 (dollars in thousands)

            Dollar value range Number Percent Dollar value Percent Army Navy

                      $0.00 to $2,500.00   4,512,803      98.1         $1,683,207
                    $2,500.01 to $25,000     81,670           1.8         585,759
                            Over $25,000     7,710           0.2b         470,646
                        All Transactions   4,602,183                    2,739,612

    $0.00 to $2,500.00 2,545,170 97.6 1,141,762

    $2,500.01 to $25,000 57,595 2.2 407,594

    Over $25,000 4,451 0.2 234,772

          All Transactions 2,607,216 1,784,128
          Air Force
          $0.00 to $2,500.00 2,938,898 97.5 1,022,646 63.7
          $2,500.01 to $25,000 75,587 2.5 532,522 33.2
          Over $25,000 971 49,199 3.1

                                           a

    All Transactions 3,015,456 $1,604,367

    Source: GAO analysis.

    aLess than 0.1 percent.
    bExceeds 100 percent due to rounding.

    Appendix VI: Information on Purchase Card Expenditures

    Table 5: Department of the Interior Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002

    Expenditures Transactions (dollars in thousands)

                Dollar value range   Number     Percent   Dollar value    Percent
                $0.00 to $2,500.00  1,334,245       98.7    $356,082         73.1
                      $2,500.01 to      17,438       1.3        103,500      21.2
                           $25,000
                      Over $25,000         545         a         27,700

                          All Transactions 1,352,228 $487,282

    Source: GAO analysis.

    aLess than 0.1 percent.

    Table 6: Department of Justice Purchase Card Expenditures by Transaction
    Dollar Value, Fiscal Year 2002

    Expenditures Transactions (dollars in thousands)

                Dollar value range   Number    Percent    Dollar value    Percent
                $0.00 to $2,500.00  897,028         96.9    $390,784         65.8
                      $2,500.01 to   28,988          3.1        195,883      33.0
                           $25,000
                      Over $25,000        146          a          6,909
                  All Transactions  926,162                 $593,576

    Source: GAO analysis.

    aLess than 0.1 percent.

    Table 7: Department of Transportation Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002

    Expenditures Transactions (dollars in thousands)

    Dollar value range Number Percent Dollar value Percent
    $0.00 to $2,500.00 935,892 97.9 $279,300 65.7
    $2,500.01 to $25,000 19,823 2.1 120,034 28.2
    Over $25,000 439 26,097 6.1

    a

    All Transactions 956,154 $425,431

    Source: GAO analysis.

    aLess than 0.1 percent.

    Appendix VI: Information on Purchase Card Expenditures

    Table 8: Department of Veterans Affairs Purchase Card Expenditures by
    Transaction Dollar Value, Fiscal Year 2002

    Expenditures Transactions (dollars in thousands)

                 Dollar value range   Number     Percent   Dollar value   Percent
                 $0.00 to $2,500.00  2,540,159       96.6    $920,137        59.0
               $2,500.01 to $25,000      87,739       3.3        506,769     32.5
                       Over $25,000       2,620       0.1        133,403
                   All Transactions  2,630,518              $1,560,309

    Source: GAO analysis.

    Note: Data do not include about $2.7 billion in purchase card transactions
    under Veterans Affairs' prime vendor program.

    Appendix VII: GAO Contacts and Staff Acknowledgments

    GAO Contacts 	John Kelly (202) 512-6926 Michele Mackin (202) 512-4309

    Acknowledgments 	In addition to the individuals named above, Robert
    Ackley, Victoria Klepacz, James Moses, Jerrod O'Nelio, Monty Peters, Jose
    Ramos, Harold Reich, Sanford Reigle, Kenneth Roberts, Sylvia Schatz, Quan
    Thai, Najeema Washington, and Gary Wiggins made key contributions to this
    report.

    Related GAO Products

    Products concerning purchase card internal controls:

    Purchase Cards: Steps Taken to Improve DOD Program Management, but Actions
    Needed to Address Misuse, GAO-04-156 (Washington, D.C.: Dec. 2, 2003).

    Audit Guide: Auditing and Investigating the Internal Control of Government
    Purchase Card Programs, GAO-04-87G (Washington, D.C.: Nov. 1, 2003).

    Forest Service Purchase Cards: Internal Control Weaknesses Resulted in
    Instances of Improper, Wasteful, and Questionable Purchases,

    GAO-03-786 (Washington, D.C.: Aug. 11, 2003).

    HUD Purchase Cards: Poor Internal Controls Resulted in Improper and
    Questionable Purchases, GAO-03-489 (Washington, D.C.: Apr. 11, 2003).

    FAA Purchase Cards: Weak Controls Resulted in Instances of Improper and
    Wasteful Purchases and Missing Assets, GAO-03-405 (Washington, D.C.: Mar.
    21, 2003).

    Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to
    Fraud, Waste, and Abuse, GAO-03-292 (Washington, D.C.: Dec. 20, 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 Army Vulnerable to Fraud, Waste,
    and Abuse, GAO-02-732 (Washington, D.C.: June 27, 2002).

    FAA Alaska: Weak Controls Resulted in Improper and Wasteful Purchases,
    GAO-02-606 (Washington, D.C.: May 30, 2002).

    Government Purchase Cards: Control Weaknesses Expose Agencies to Fraud and
    Abuse, GAO-02-676T (Washington, D.C.: May 1, 2002).

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

    Related GAO Products

    Products concerning strategic purchasing:

    Contract Management: Restructuring GSA's Federal Supply Service and
    Federal Technology Service, GAO-04-132T (Washington, D.C.: Oct. 2, 2003).

    Best Practices: Improved Knowledge of DOD Service Contracts Could Reveal
    Significant Savings, GAO-03-661 (Washington, D.C.: June 9, 2003).

    Contract Management: Taking a Strategic Approach to Improving Service
    Acquisitions, GAO-02-499T (Washington, D.C.: Mar. 7, 2002)

    Best Practices: Taking a Strategic Approach Could Improve DOD's
    Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002)

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