Acquisition Reform: Purchase Card Use Cuts Procurement Costs, Improves
Efficiency (Letter Report, 08/06/96, GAO/NSIAD-96-138).

Pursuant to a legislative requirement, GAO reviewed federal agencies'
progress in using purchase cards, focusing: (1) the extent to which card
use has led to administrative savings or other benefits; (2) the
potential for growth in card use; (3) agencies' management controls; and
(4) opportunities to improve agencies' purchase card programs.

GAO found that: (1) the use of purchase cards for small purchases can
reduce agencies' mission support, labor, and payment processing costs 50
percent by moving simple purchases from procurement offices to program
offices and consolidating payments; (2) some agencies have found that
purchase card use has helped them absorb the impact of administrative
staff reductions and improve service delivery; (3) although the use of
purchase cards has increased since 1990, there is potential for greater
card use; (4) in fiscal year 1995, the average purchase card transaction
was $375, well below the micropurchase threshold of $2,500; (5) there is
no evidence of increased abusive use of purchase cards despite
tremendous growth the purchase card program; (6) electronic records of
all purchase card transactions allows close and detailed monitoring of
card use; (7) agencies' management controls are adequate to protect the
government's interest and agencies are addressing control weaknesses and
failures to follow proper procurement procedures; (8) most agencies are
trying to improve their card programs by emphasizing card use,
reengineering their processes, and increasing their use of automation;
and (9) opportunities to improve the card program include revising the
federal acquisition regulations (FAR) to address card use more
thoroughly and establishing a mechanism so agencies can share their
innovations and experiences.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-138
     TITLE:  Acquisition Reform: Purchase Card Use Cuts Procurement 
             Costs, Improves Efficiency
      DATE:  08/06/96
   SUBJECT:  Small purchases
             Procurement procedures
             Credit sales
             Federal procurement
             Cost control
             Internal controls
             Reductions in force
             Information dissemination operations
             Procurement records
             Procurement regulation
IDENTIFIER:  Government Purchase Card Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

August 1996

ACQUISITION REFORM - PURCHASE CARD
USE CUTS PROCUREMENT COSTS,
IMPROVES EFFICIENCY

GAO/NSIAD-96-138

Acquisition Reform

(705122)


Abbreviations
=============================================================== ABBREV

  FAR - Federal Acquisition Regulation
  FASA - Federal Acquisition Streamlining Act
  GSA - General Services Administration
  NPR - National Performance Review
  RMBCS - Rocky Mountain BankCard System

Letter
=============================================================== LETTER


B-271689

August 6, 1996

Congressional Committees

In 1993, the Vice-President's National Performance Review (NPR)
recommended that agencies increase their use of government commercial
credit cards, called purchase cards, for small purchases to cut the
red tape normally associated with the federal procurement process. 
In 1994, card use was further facilitated by the Federal Acquisition
Streamlining Act of 1994 (FASA) and Executive Order 12931.  FASA
eliminated some requirements for purchases of $2,500 or less, called
micropurchases.\1 The executive order encouraged agencies to use that
micropurchase authority to allow staff in program offices to use the
card.  As of fiscal year 1995, cards were used at most federal
agencies for over 4 million purchases worth more than $1.6 billion. 

As part of our legislatively mandated review of FASA implementation,
we reviewed the nature and extent of progress in using the purchase
card.  Specifically, we examined the extent to which card use has led
to administrative savings or other benefits, the potential for growth
in card use, and the management controls over the program at the
agency level.  We also looked for opportunities for governmentwide
changes that would help agencies improve their purchase card
programs.  Our review included 12 civilian and military agencies,
including the agencies with the 9 largest purchase card programs (see
app.  I).  Combined, these 12 programs account for more than 87
percent of the funds spent with the card. 


--------------------
\1 Micropurchases are exempt from the Buy American Act, certain small
business requirements, and the general requirement for competition. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Agencies have found they can support their missions at reduced costs
by having program staff use the purchase card for simple purchases. 
Further, agency studies have shown that purchase card use reduces
labor and payment processing costs.  In fact, a 1994 interagency
study showed that costs were often cut by more than half.  Other
studies have identified millions in savings or potential savings from
purchase card use.  In addition, some agencies have found that the
card helped them absorb some of the impact of their recent staff
reductions.  Others have found that card use improved their abilities
to support their missions by increasing their efficiencies. 

Since purchase cards first became available governmentwide, their use
has skyrocketed.  However, there is significant potential for the
program to grow further as agency management encourages card use and
as agencies target purchases to be made with the card.  For example,
agencies identified millions of purchases that could be made with the
card.  The average purchase card transaction was $375 in fiscal year
1995, well below the micropurchase threshold. 

Although purchase card use has greatly increased, we found no
evidence that this has led to increased abuse.  In fact, with the
electronic data maintained on all purchase card transactions, card
use can be closely monitored.  Inspector general, audit agency, and
internal agency reviews of card programs since 1993 generally have
found either that agencies' controls were adequate to protect the
government's interests or that agencies were addressing those
instances where procedures were not followed or control weaknesses
existed.  Overall, the reports did not identify significant patterns
of misuse. 

Several inspectors general and other review reports we reviewed noted
that agencies were not getting the full benefit of the card because
of how their programs were being implemented.  Most of the agencies
in our review indicated they were trying to improve their card
programs by emphasizing card use, reengineering their processes, and
increasing their use of automation.  Still, there are opportunities
to improve the program on a governmentwide level.  Officials at most
of the agencies we reviewed believed that the Federal Acquisition
Regulation (FAR), which governs federal procurement, should more
clearly address the use of the card.  Also, while agencies want to
learn from each other's experiences, no effective mechanism exists
for them to communicate with each other to share their improvements. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Purchase cards first came into use as part of the government's effort
to cut the cost of buying goods and services.  In March 1982, the
President issued an executive order directing executive agencies to
reduce administrative procurement costs.  Under that order, in 1986,
several agencies pilot tested use of a government commercial credit
card, called a purchase card, and found that it reduced such costs. 
According to a report on the pilot tests, those agencies found that
the purchase card had advantages over other procurement methods.\2
Generally, the card could be a less costly and more efficient way to
buy goods and services. 

In 1989, the purchase card was made available governmentwide through
a competitively awarded contract with Rocky Mountain BankCard System
(RMBCS), administered by the General Services Administration (GSA). 
The contract specifies controls that an agency must establish before
issuing cards to their staff.  It also requires that an agency
designate a program coordinator, who serves as liaison to RMBCS and
GSA and who is responsible for the purchase card program within the
agency. 

In 1993, NPR identified the purchase card as an acquisition reform
that could save $180 million annually if one half of small purchases
were made with the card.\3 NPR recommended that all federal agencies
use purchase cards and that the FAR be amended to promote and
facilitate purchase card use for making small purchases and in
ordering from established contracts.  Card use was further
facilitated and encouraged in October 1994 by FASA, Executive Order
12931, and an Office of Management and Budget memorandum to agency
senior procurement executives and the Deputy Under Secretary of
Defense for Acquisition Reform.  In December 1994, an interim FAR
rule was issued making the card the preferred method for making
micropurchases. 


--------------------
\2 The pilot report discussed the cost of the card relative to the
cost of (1) blanket purchase agreements (charge accounts established
with qualified sources of supply used to fill anticipated repetitive
needs for supplies and services); (2) purchase orders (government
offers to buy supplies, services, or construction from commercial
sources under specific conditions and not to exceed the small
purchase limit); (3) standard forms used for on-the-spot,
over-the-counter purchases; and (4) imprest funds, or cash. 

\3 At that time, small purchases were those purchases of $25,000 or
less.  FASA raised that threshold to $100,000. 


   PURCHASE CARD HAS ENABLED
   AGENCIES TO SUPPORT MISSIONS AT
   REDUCED COSTS AND TIME
------------------------------------------------------------ Letter :3

Agency officials have used the purchase card and the micropurchase
authority provided in FASA to move simple purchases from procurement
offices to program offices.  Several studies have shown this move
reduced the labor and payment processing costs for those purchases by
eliminating steps from the procurement process and consolidating
bills for many purchases into one payment.  One interagency study
showed that costs were often cut by more than half.  Several agencies
in our review identified millions of dollars in current or potential
savings from using purchase cards.  In addition, some agencies are
using the card to help absorb the impact of staff reductions being
made as a result of the Federal Workforce Restructuring Act of 1994,
which has a goal of reducing government employment by almost 273,000
staff.  Planned reductions particularly target administrative staff,
such as the procurement and finance staff who buy supplies and pay
bills.  Most agencies in our review also noted that, with purchase
cards, program office staff can buy needed goods and services more
quickly, thus improving their efficiencies and their abilities to
support their agencies' missions. 


      CHANGES IN WORK PROCESSES
      REDUCE THE ADMINISTRATIVE
      COSTS OF PURCHASES
---------------------------------------------------------- Letter :3.1

In 1994, an interagency group, the Purchase Card Council, performed a
cost-benefit study on using the purchase card versus purchase
orders.\4 The group reviewed the labor cost of requisitioning,
purchasing, administering, receiving, invoicing items, and processing
bills through finance offices for payment.  For all 17 organizations
in the study, it found that purchase cards were less expensive than
purchase orders.  For 15 organizations, purchase card use cut costs
by at least one third.\5 For 8 of these 15 organizations, costs were
cut by over half.  Per transaction savings for the 17 organizations
ranged from $1.42 to over $142, with an average saving of about $54. 

Since 1989, 9 of the 12 agencies in our review have performed
cost-benefit analyses on using purchase cards, including 5 agencies
that were part of the interagency study.\6 All found that the card
was less expensive to use than other methods.  However, several noted
that determining savings from using the purchase card can be
difficult because of several factors.  For instance, some studies
noted that the purchase card does not replace all transactions made
with any one procurement method, such as purchase orders, but instead
usually partially replaces transactions previously made by several
different methods, such as purchase orders, imprest funds, and
blanket purchase agreements.  Further, studies stated that the
administrative cost of a purchase is affected by local procedures,
the dollar amount,\7 and the degree that processing systems are
automated. 

Most of the studies we reviewed included the labor cost for program
officials to support the procurement process when using a tool other
than the card (e.g., ensuring funds are available, preparing a
procurement request, and identifying a vendor).  About half of the
studies also included the labor cost for program officials to place
purchase card orders or reconcile statements.  In some cases, the
studies included the cost of an administrative service fee charged by
RMBCS until early 1994.  None included the value of rebates as part
of the benefit.\8 All of the studies we reviewed identified
significant savings.  However, because of the previously mentioned
factors, we found no one precise dollar figure that could be used to
reliably calculate savings for all government agencies. 

Several agencies' studies identified millions of dollars in current
or potential savings from card use.  For instance, in 1994, Health
and Human Services identified the potential to save about $5.7
million a year by using the card.\9 The Postal Service, currently the
second largest card user, also identified major current cost
reductions.  It estimated that using the card, instead of other
means, reduced costs by about $22 per transaction.  In fiscal year
1995, the Postal Service had almost 700,000 purchase card
transactions.  Using the $22 figure, it would have reduced costs by
over $15 million.  The Postal Service developed its estimate of cost
reduction per transaction by comparing the costs of ordering and
making payment for purchase card purchases versus noncompeted, single
source purchases.  It found the shortest time for processing
purchases without the card was eight times longer than the shortest
time with the card, for a labor savings of $15.65 a transaction.  It
also estimated payment savings of over $6.00 a transaction, based on
the cost of paying for transactions individually versus paying for
all purchase card transactions with a single monthly check. 

According to officials at the Office of Federal Procurement Policy,
agencies can maximize the savings potential of the purchase card by
promoting streamlining and empowerment and eliminating unnecessary
paperwork.  Officials stated that one way agencies could do this
would be to identify high-dollar aggregate purchases from individual
merchants and negotiate discounts with those vendors, as recommended
by NPR.  They also noted that agencies have access to central
purchasing contracts that have quantity discounts negotiated into the
prices.  As an example, they cited a contract for office supplies
recently awarded by GSA that allows for 24-hour delivery and payment
by purchase card and has prices below discounted retail prices. 


--------------------
\4 This study included the Departments of Health and Human Services,
Commerce, and State; GSA; the Federal Emergency Management Agency;
and selected bureaus and agencies within the Departments of Treasury,
Transportation, and Interior. 

\5 In the other two organizations, using the card cut costs by about
28 percent and 10 percent, respectively. 

\6 Several other agencies have used the $54 figure from the
interagency study to estimate their savings. 

\7 The amount of administrative savings that may be realized from use
of the purchase card depends in part on whether a purchase exceeds
the micropurchase threshold of $2,500.  Many purchases in excess of
that amount are subject to various requirements, such as competition,
that do not apply at or below the micropurchase threshold. 

\8 Under the contract, RMBCS will pay rebates based on sales volume
for agencies that receive and pay invoices electronically, receive
reports electronically, and/or have an average of less than 54 days
between the date a charge is posted and the date payment is received. 

\9 This figure includes the Social Security Administration, which has
since become an independent agency.  Without the Social Security
Administration, such savings would be about $5.6 million a year. 


      SHIFTING PURCHASES TO
      PROGRAM OFFICES LESSENS THE
      IMPACT OF STAFF REDUCTIONS
---------------------------------------------------------- Letter :3.2

Agencies have reported that using the purchase card reduces the
workload in procurement and finance offices.  At the same time, the
number of staff in those offices is being targeted for reductions by
government reform efforts.  In 1993, the executive branch announced a
goal to eliminate 252,000 government jobs, particularly targeting
administrative areas.  The Federal Workforce Restructuring Act of
1994 later raised that goal to 272,900.  According to the September
1995 update of NPR, more than 160,000 of those positions had been
eliminated. 

Several agencies in our review cited staffing cuts in support areas
as one reason they are emphasizing purchase cards.  The Department of
the Interior noted that its procurement workforce has decreased by 12
percent since 1993 and that its ability to manage its workload with
reduced staff can be partially attributed to the card.  Social
Security Administration officials also told us that the finance staff
is scheduled to be reduced by about one third in fiscal year 1996 and
that they will be better able to manage those losses since the card
has reduced the number of bills the finance office is paying. 


      CARD USE HELPS PROGRAM
      OFFICES IMPROVE EFFICIENCY
      AND SERVICE DELIVERY
---------------------------------------------------------- Letter :3.3

The reforms contained in FASA have enabled program staff to use the
card to make many purchases that had been handled by procurement
offices.  While procurement offices had done the actual buying,
program office staff supported the procurement process by identifying
the needed supplies or services, preparing procurement requests,
ensuring money was available, and following up with procurement and
other offices involved in the purchases.  With the authority provided
in FASA and the purchase card, program staff can buy the needed item
or service.  Most of the agencies in our review reported that, with
this change, program offices can improve their efficiency by filling
their requirements more quickly and reducing procurement lead times. 
This improved efficiency enables them to better deliver their
services. 

One example where service delivery has improved is at the Department
of Veterans' Affairs, which pilot tested the use of the card in its
vocational rehabilitation and counseling program offices.  In the
pilot test, those offices reduced the time veterans had to wait for
services by an average of 22 days.  They did this by using the card
to pay for books, tools, and other items veterans needed to enter
rehabilitation programs.  This use of the card allowed them to better
serve veterans by reducing the time the veterans waited to attend
classes or to obtain the tools or books needed for classwork.  Based
on the success of the pilot test, Veterans' Affairs plans to use the
purchase card in vocational rehabilitation and counseling programs
nationwide. 


   PURCHASE CARD PROGRAM HAS
   SIGNIFICANT GROWTH POTENTIAL
------------------------------------------------------------ Letter :4

Since the beginning of the purchase card program, the use of the
cards has skyrocketed.  However, there is still significant growth
potential for card use.  During fiscal year 1990, the first full year
that cards were available governmentwide, the cards were used for
about 271,000 purchases worth about $64 million.\10 Over the next 5
years, card purchases increased by about 1,500 percent, and the value
of those purchases increased by almost 2,400 percent until, by fiscal
year 1995, purchase cards were used for more than 4 million purchases
worth over $1.6 billion.  According to agency and GSA officials, this
growth is generally due to purchases below the micropurchase level. 
In fiscal year 1995, the average purchase card transaction, which
could include purchases of several items, was $375.  The program
growth by number of transactions and by dollars is shown in figure 1. 

   Figure 1:  Program Growth

   (See figure in printed
   edition.)

   Source:  RMBCS.

   (See figure in printed
   edition.)

Currently, most agencies use purchase cards to some extent.  Still,
agency data show many purchases that could be made with the card are
being made by other means.  Some agencies have set goals for card use
or have identified purchases that they believe should be made with
the card.  For instance: 

  -- The Department of Agriculture could make 207,000 purchases by
     using the card instead of purchase orders. 

  -- Health and Human Services could make about 100,000 purchases
     using the card in program offices instead of purchase orders in
     procurement offices. 

  -- Veterans' Affairs could make most of its 1.4 million
     micropurchases with the card. 

Neither GSA nor the agencies we reviewed believed the cards have been
used to their fullest potential.  Instead, they believe that use will
increase as agencies continue to emphasize card use for existing
cardholders and add new cardholders in program offices.  The results
can be dramatic.  In the first 4 months of fiscal year 1996,
Veterans' Affairs exceeded by almost 200 percent the number of card
purchases it had made in all of fiscal year 1995.  Card use is also
growing at the Department of the Army, which has the largest agency
card program.  In the first 10 months of fiscal year 1995, the Army
more than doubled its fiscal year 1994 card purchases, from over
310,000 to over 701,000.  According to Army data, that number could
increase to almost 1.4 million if the Army were to make 80 percent of
its micropurchases with the card. 


--------------------
\10 All sales figures are in constant fiscal year 1995 dollars. 


   CONCERNS ABOUT SYSTEMATIC ABUSE
   HAVE NOT MATERIALIZED
------------------------------------------------------------ Letter :5

The emphasis in the purchase card program has been on using the cards
to allow staff in program offices to make simple purchases.  At the
same time, however, there have been concerns that placing the cards
in the hands of program staff would lead to increased abuse.  We
found no evidence of increased abuse.  In fact, with the controls
required by the purchase card contract and some tools that agencies
have developed, purchase card use can be closely monitored. 

The purchase card contract requires that agencies have certain
specified procedures in place before any purchase cards can be issued
to agency staff.  For example, agencies must have procedures to

  -- identify, by name, those persons who are authorized to use
     cards;

  -- set spending limits for cardholders and offices, including
     single purchase limits and monthly limits;

  -- approve purchases and ensure funds are available before goods or
     services are bought; and

  -- reconcile and approve cardholder statements. 

Agencies may add other management and financial controls they deem
necessary.  Also, agencies have recently been able to obtain RMBCS
electronic data that identify purchases by cardholder, approving
official, date, dollar amount, merchant type, and merchant name. 
Those agencies in our review that have begun using this electronic
data are finding that the card leaves a trail that is more complete
and easier to follow than traditional paper records.  In addition to
these procedural controls, agencies have another safeguard against
fraudulent use of the card by unauthorized individuals--they can
dispute any purchases they find questionable.  In such cases, the
contract requires RMBCS to issue a credit against that purchase until
the dispute is resolved. 

One organization that has used the electronic data is the Postal
Service.  Postal Inspection Service officials developed surveillance
software that allows them to analyze thousands of card transactions
from a remote location with limited manpower.  They are able to
analyze transactions by cardholder, approving official, dollar
amount, date of purchase, vendor name, vendor type, vendor city, and
other attributes.  At the recommendation of the Inspection Service,
the surveillance software is being made available to appropriate
Postal Service managers nationwide.  Postal Service officials believe
that this will improve their oversight of the card program, since the
electronic reviews are more expedient than reviews of paper records. 

Since 1993, agency inspectors general, audit agencies, or internal
review offices have reviewed card programs at most of the agencies in
our review.  Generally, those reviews found either that controls were
adequate or that agencies were taking steps to address control
weaknesses.  Such weaknesses included noncompliance with procedures
and failure to record purchases of accountable property.  The reviews
did identify several instances where cards were used for prohibited
or questionable purchases.  Also, officials from one inspector's
general office expressed concern about the rapid growth in card use
and questioned whether budgetary and other management controls were
sufficient to ensure that credit card purchases were warranted and
justified.  Overall, the reviews did not identify significant
patterns of misuse. 


   OPPORTUNITIES EXIST TO FURTHER
   ENHANCE AGENCY CARD PROGRAMS
------------------------------------------------------------ Letter :6

Several inspectors general, audit agencies, and internal review
reports noted that agencies were not achieving the full benefit of
the card because much of the paperwork had not been eliminated from
processes, cards had not been provided to staff outside of
procurement offices, or card use had not been encouraged or had been
excessively limited.  Most of the agencies we reviewed indicated they
were taking steps to address such concerns.  Agency officials told us
they were emphasizing card use, reengineering their processes, and
developing automated tools to improve their programs.  They stated
that their efforts were producing benefits, including increased
savings.  There are still opportunities, though, for the program to
be improved on a governmentwide level.  For instance, most agencies
in our review believed that more explicit guidance to promote the
purchase card was needed in the FAR.  At present, the FAR only
discusses the card in the micropurchase section.  Also, we found no
effective mechanism for agencies to communicate with each other about
their experiences and share innovations. 


      FAR GUIDANCE FOR PURCHASE
      CARD IS INSUFFICIENT
---------------------------------------------------------- Letter :6.1

In 1993, NPR recommended that the FAR be amended to promote and
facilitate purchase card use for making small purchases and ordering
from established contracts.\11 At the time, the FAR provided no
guidance on card use, although the cards had been available
governmentwide since 1989.  As part of implementing FASA, an interim
FAR rule for micropurchase procedures was issued in December 1994
that encouraged the use of purchase cards or electronic purchasing
techniques for micropurchases to the extent practicable. 

Officials at most of the agencies in our review told us that more
explicit coverage to promote the card in the FAR would be helpful,
although some were concerned that coverage not be too restrictive. 
While agencies have their own regulations and policies for card use,
those documents typically refer to the FAR for guidance.\12 In fact,
as far back as 1989, Health and Human Services identified the need
for purchase card coverage in the FAR and agency regulations.  Health
and Human Services noted then that, like all agencies, it was being
encouraged to use the purchase card, but FAR coverage had not yet
been developed and agency regulations would naturally follow the FAR,
rather than precede it. 

With the current coverage, some agencies in our review had differing
opinions or were confused about how the card could be used above and
even below the micropurchase threshold.  Areas of confusion or
dispute included whether the card could be used to pay for services
or nonexpendable items.  The FAR does not provide guidance on usage
of the card comparable to the guidance provided for imprest funds,
purchase orders, and blanket purchase agreements.  Each of those has
a separate section in the FAR.  The purchase card, on the other hand,
is only discussed in the FAR's micropurchase section.  That section
states that use of the card is not limited to micropurchases if
otherwise authorized under agency procedures.  However, no guidance
is provided for such use. 

As the FAR was being revised to incorporate changes from FASA, GSA
commented on the proposed changes during the public comment period. 
GSA commented that the small purchase/simplified procedures section
was illogical, confusing, and of limited usefulness to the program
staff.  Specifically, GSA said that the proposed language did not
provide the necessary encouragement to agencies to make maximum
effective use of the card and did not promote the objectives of
Congress or the executive branch.  GSA added that even with the
proposed changes, the FAR would provide more coverage for imprest
funds, which the government wants to deemphasize, than for purchase
cards, which the government wants to encourage. 

An interagency team has looked at how the FAR addresses small
purchases/simplified procedures to determine what revisions may be
necessary and has proposed FAR language.  In its proposal, the team
has included a separate section on the purchase card.  A proposed FAR
rule is planned for issuance later this year. 


--------------------
\11 Authority for revising the FAR is shared by the three executive
agencies represented on the Federal Acquisition Regulatory Council by
the Secretary of Defense, the Administrator of General Services, and
the Administrator of National Aeronautics and Space or their
designees.  The Office of Federal Procurement Policy within the
Office of Management and Budget is responsible for providing overall
leadership and for ensuring action in cases where the three agencies
cannot agree or fail to issue FAR revisions in a timely manner. 

\12 The Postal Service, which is not subject to the FAR, has amended
its Procurement Manual to include the card. 


      AGENCIES LACK AN EFFECTIVE
      SYSTEM FOR SHARING
      INNOVATIONS AND EXPERIENCES
---------------------------------------------------------- Letter :6.2

Most of the agencies in our review have identified the potential to
increase their savings or efficiencies gained from card use by
reengineering their programs or using automated tools to improve
their processes.  Agency officials told us that they are interested
in communicating with each other about their efforts and have
identified instances where tools developed by one agency can be
useful to other agencies.  However, we found no effective system for
agencies to communicate with each other about their successes or
problems.  In fact, several agencies in our review identified
problems that we learned had been addressed or partially addressed by
other agencies' efforts. 

Agencies have found that efforts to improve their programs can be
very resource-intensive, requiring input from several offices, top
management support, and good communication.  However, they have also
found that such efforts can have a significant payoff.  Agriculture,
for example, initially emphasized purchase cards because it found
that the process cost was less than half of that for a purchase
order, or $32 versus $77.  It has since determined that reengineering
can cut the process cost almost in half again.  By automating the
billing and payment processes as recommended by a cross-functional
team guided by a top management review board, Agriculture expects to
reduce the card process cost to $17.  According to its business
process reengineering report, this could lead to over $45 million in
savings from fiscal years 1996 through 2000.  This amount is in
addition to what is already saved by using cards instead of purchase
orders.  Agriculture has already eliminated an administrative payment
system costing $400,000 per year. 

Other agencies have also automated or reengineered their payment
processes, including the Social Security Administration, Veterans'
Affairs, and, within the Department of Transportation, the Coast
Guard, which accounts for about 70 percent of Transportation's card
purchases.  Agency officials told us that, by improving how they pay
their bills, they have also increased their potential for rebates. 
In fact, from November 1994 through July 1995, the most current
period for which data were available, Transportation was the largest
rebate recipient.  Over that time period, Transportation received 34
percent of all rebates paid to agencies, even though it accounted for
only 8 percent of sales.  In addition to these efforts, some other
agencies or organizations within agencies have developed automated
tools to address particular problems.  For example: 

  -- Within the Department of Defense, the Defense Mapping Agency
     developed a database intended to help streamline the process for
     reconciling cardholder statements and maintain accounting
     information and property accountability for goods and services
     purchased with the card. 

  -- Within the Department of Transportation, the Federal Aviation
     Administration developed a database intended to help cardholders
     reconcile their statements. 

  -- The Postal Service developed surveillance software, discussed
     earlier in this report, intended to improve program oversight. 

  -- GSA and, within Defense, the Army Management Engineering
     College, developed an interactive program intended to improve
     training for cardholders and approving officials. 

Agencies have found that their improvement efforts can be useful to
other agencies.  For instance, the Postal Service has demonstrated
its surveillance software for purchase card program coordinators from
15 agencies and inspectors general from 10 agencies, both civilian
and military.  Almost all officials attending the demonstrations
believed that the software was worth deploying governmentwide and
that it would be useful for finance, accounting, inspectors general,
and program management offices.  The Postal Service plans to make its
software available to other agencies.  Officials said the software is
being provided to the Departments of Transportation, Treasury, and
Commerce.  In another example, after the Defense Mapping Agency's
database was profiled in an issue of "Government Computer News,"
officials said they were inundated with requests for information from
other agencies, both military and civilian.  They sent copies of
their database to more than 90 agencies and offices in 32 states and
Europe. 

Although agencies want to share information about their innovations,
we found that innovations were not always well known outside the
agencies that developed them.  We also found no effective means for
agencies to communicate with each other about their problems or
improvements.  Some agency officials share information through
informal networks and there are some formal multiagency forums, such
as GSA and RMBCS purchase card conferences, the Purchase Card
Council, and the Chief Financial Officers Council's Financial
Implementation Team for Electronic Commerce.  However, these
mechanisms are not readily accessible to all officials, particularly
those who are away from headquarters or who are newer to the program. 
Further, there can be considerable lag time between when an agency
identifies a problem or develops an innovation and when a formal
interagency meeting or conference is scheduled. 

Without a more effective means of communication, agencies may not be
able to build on the successes and failures of other agencies to
improve their purchase card programs.  Officials at the Office of
Federal Procurement Policy stated that Acquisition Reform Net, a
government Internet site for acquisition reform information and
discussion, could be used for this type of communication.  By its
nature, it would be available to agency officials nationwide and
could be used to disseminate information or questions quickly. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

Using the purchase card has helped government agencies achieve
administrative savings and efficiencies, absorb some of the impact of
staffing cuts, and improve their abilities to fulfill their missions. 
However, the FAR does not provide guidance on usage of the card
comparable to the guidance provided for imprest funds, purchase
orders, and blanket purchase agreements.  Further, agencies have no
effective means to communicate with each other about their problems
and innovations.  We therefore recommend that the Administrator for
Federal Procurement Policy

  -- ensure, in conjunction with the Federal Acquisition Regulatory
     Council, that the FAR provides clear guidance on the appropriate
     uses of the purchase card as a means for making payments,
     purchases, and orders from established contracts and

  -- establish a site on one of the government's electronic media,
     such as the Acquisition Reform Net on the Internet, to
     facilitate agencies' efforts to exchange information about
     problems or progress with purchase card use. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

In commenting orally on a draft of this report, the Office of Federal
Procurement Policy said that it had no major objections.  It obtained
informal comments from the agencies we reviewed and found that they
also indicated no material objections to our report, although several
agencies stressed that any FAR coverage should emphasize flexibility
and not be restrictive.  We have incorporated in our report, where
appropriate, editorial and technical comments that were provided. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To obtain background and program history information, we reviewed
executive and congressional guidance, including Executive Orders
12931 and 12352; the Vice President's NPR and subsequent updates;
FASA; the FAR; and agency regulations, policies, and directives.  We
also interviewed officials from the Office of Management and Budget's
Office of Federal Procurement Policy, GSA, and the Interagency
Purchase Card Council.  We obtained card program statistical data
from RMBCS and GSA for the government as a whole and by agency for
1989 through 1995.  The data included number and dollar value of
transactions and rebates and the number of cardholders.  We did not
validate the computer-generated data; however, we discussed data
reliability and quality with all of the agencies in our review and
with GSA. 

We reviewed purchase card programs in the agencies with 12 of the
largest programs, including the 9 largest programs judged by either
dollars or transactions (see app.  I).  In addition to obtaining data
on program size, we obtained data on potential for growth, length of
involvement in the purchase card program, special program
initiatives, and administrative responsibility. 

To determine the extent to which card use has resulted in
administrative savings or other benefits, we interviewed purchase
card program coordinators, officials from agency finance and
procurement offices, and officials from GSA, NPR, and the Office of
Federal Procurement Policy.  We also obtained and reviewed
cost-benefit studies, management reports, and reengineering studies. 
We discussed the methodology used for those studies, and the
subsequent findings and projections, with appropriate personnel.  We
did not verify the cost data and savings projections in those
studies. 

To determine the potential for continued growth in purchase card use,
we examined trends in card use and projections made by the agencies
in our review, GSA, and RMBCS.  We also reviewed agency and federal
directives encouraging, requiring, or setting goals for card use. 

To identify protections against misuse, we interviewed appropriate
personnel at agencies and audit organizations.  In addition, we
reviewed the RMBCS contract guide, agency purchase card procedures
and regulations, and internal audit and inspectors general reports. 

To identify opportunities to improve agency card programs, we
interviewed appropriate agency personnel and reviewed public comments
on proposed FAR changes stemming from FASA and agencies' plans to
automate or reengineer portions of their systems or processes.  We
also witnessed demonstrations of the Postal Service's surveillance
software, the Social Security Administration's and the Coast Guard's
automated payment systems, the Defense Mapping Agency's and the
Federal Aviation Administration's tracking databases, and GSA's and
the Army Management Engineering College's training material. 

We conducted our work from May 1995 through April 1996 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Director, Office of
Management and Budget; the Administrator for Federal Procurement
Policy; the Administrator, GSA; and officials at the agencies in our
review.  Copies will also be made available to others upon request. 

Please contact me or my Associate Director, David Cooper, at (202)
512-4841 if you or your staff have any questions concerning this
report.  Major contributors to this report were David Childress,
Maria Storts, and Diane Handley. 

Louis J.  Rodrigues
Director, Defense Acquisition Issues

List of Congressional Committees

The Honorable Ted Stevens, Chairman
The Honorable John Glenn, Ranking Minority Member
Committee on Governmental Affairs
United States Senate

The Honorable Strom Thurmond, Chairman
The Honorable Sam Nunn, Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Christopher S.  Bond, Chairman
The Honorable Dale L.  Bumpers, Ranking Minority Member
Committee on Small Business
United States Senate

The Honorable William F.  Clinger, Jr., Chairman
The Honorable Cardiss Collins, Ranking Minority Member
Committee on Government Reform and Oversight
House of Representatives

The Honorable Floyd D.  Spence, Chairman
The Honorable Ronald V.  Dellums, Ranking Minority Member
Committee on National Security
House of Representatives

The Honorable Jan Meyers, Chairman
The Honorable John J.  LaFalce, Ranking Minority Member
Committee on Small Business
House of Representatives


AGENCIES REVIEWED
=========================================================== Appendix I


   CIVILIAN AGENCIES
--------------------------------------------------------- Appendix I:1

Department of Agriculture, Washington, D.C. 

Department of Commerce, Washington D.C. 

Department of Health and Human Services, Washington, D.C. 

Department of Interior, Washington, D.C. 

Department of Transportation, Washington, D.C. 

Department of the Treasury, Washington, D.C. 

Department of Veterans Affairs, Washington, D.C. 

Social Security Administration, Baltimore, Md. 

U.S.  Postal Service, Washington, D.C. 


   DEPARTMENT OF DEFENSE
--------------------------------------------------------- Appendix I:2

Department of the Air Force

Department of the Army

Department of the Navy


*** End of document. ***