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 ([email protected]) 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

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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
([email protected]) or Gregory Kutz at (202) 512-9505 ([email protected]).
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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