oversight

Audit of Controls Over Purchase Card Use in the Office of Special Education and Rehabilitative Services.

Published by the Department of Education, Office of Inspector General on 2005-06-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                      UNITED STATES DEPARTMENT OF EDUCATION

                                      OFFICE OF INSPECTOR GENERAL



                                             June 28, 2005


                                                                                        CONTROL NUMBER
                                                                                          ED-OIG/A19F0005

John Hager
Assistant Secretary
Office of Special Education and Rehabilitative Services
U.S. Department of Education
Federal Building No. 6
400 Maryland Ave, SW
Washington, DC 20202

Dear Mr. Hager:

This Final Audit Report (Control Number ED-OIG/A19F0005) presents the results of our audit
of Controls Over Purchase Card Use in the Office of Special Education and Rehabilitative
Services. The objectives of our audit were to assess the current effectiveness of internal control
over the purchase card program and the appropriateness of current purchase card use in the
Office of Special Education and Rehabilitative Services (OSERS).


                                           BACKGROUND
The Government purchase card is a less costly and more efficient way for offices and
organizations to purchase needed goods and services directly from vendors. The purchase card
eliminates the need to process purchase requests through procurement offices and avoids the
administrative and documentation requirements of traditional contracting processes. The
Department of Education (Department) selected Bank of America to provide purchase card
support and services.

The Office of the Chief Financial Officer (OCFO), Contracts and Acquisitions Management
(CAM), coordinates the purchase card program within the Department and acts as the liaison
with Bank of America. OSERS’ Executive Officer is responsible for implementing the purchase
card program in that office. Approving officials (AOs) and alternate approving officials (AAOs)
are appointed by the Executive Officer and are the primary officials responsible for authorizing
cardholder purchases and ensuring timely reconciliation of cardholder statements.




                          400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510

           Our mission is to ensure equal access to education and to promote educational excellence
Mr. Hager                                                                       Page 2 of 8




On July 19, 2000, the Office of Inspector General (OIG) issued a report entitled, “Review of
OSERS’ Internal Controls Over the Procurement of Goods and Services,” (Control Number ED­
OIG/A&I2000-005). OIG reported deficiencies in OSERS’ internal control over the purchase
card program including lack of training or refresher training, lack of written OSERS policies and
procedures, lack of familiarity with Department policies, lack of adequate supporting
documentation for purchases, lack of documentation to support solicitation of bids or sole source
justification, sharing of purchase cards among employees, and untimely reconciliation.

This audit is part of a review of the purchase card program being performed Departmentwide. A
random sample of transactions across the Department, as well as all transactions over $2,500,
charges to blocked merchant category codes, and potential split purchases are being reviewed.
This report represents the results of the portion of the random sample and other transaction
categories reviewed in OSERS. A summary report will be provided to the Department’s Chief
Financial Officer upon completion of the audits in individual offices.


                                    AUDIT RESULTS

While improvements were noted from the prior OIG review of purchase card activity, we found
that OSERS needs to further improve internal control over purchase card use. We found that
OSERS did not always obtain and maintain adequate documentation to support purchases.
OSERS inappropriately purchased accountable property with the purchase card, and purchased
advertisements without appropriate clearance. We also found OSERS staff did not initiate the
process to resolve disputed transactions in a timely manner. These issues occurred because
OSERS did not consistently follow the requirements established by Department policy. In some
cases, OSERS staff were not familiar with Department requirements. Without adequate
supporting documentation, OSERS does not have assurance that purchases were appropriate and
were made in accordance with Federal regulations, Department policy and procedures, and
OSERS guidelines. Approving purchases without adequate supporting documentation could
result in payment for goods and services that were not received and increases the Department’s
vulnerability to potential misuse or waste of government resources.

In monthly reports distributed within the Department, OCFO reported OSERS did not timely
reconcile and approve purchase card transactions. The OTHER MATTER section of this report
contains additional information on this issue.

Issues noted above regarding lack of familiarity with Department policy, lack of adequate
supporting documentation, and untimely reconciliations were also reported in the prior OIG
review of OSERS purchase card activity.

In its response to the draft audit report, OSERS agreed with the findings and recommendations
made. OSERS stated that the Executive Officer has established monthly training sessions with
all OSERS cardholders and approving officials to address the issues noted in our report. OSERS
also stated that the Executive Officer would meet monthly with cardholders to ensure

                                        ED-OIG/A19F0005
Mr. Hager	                                                                           Page 3 of 8



reconciliation packages include appropriate supporting documentation and disputes are initiated
and resolved timely. The complete text of OSERS’ response is included as Attachment 1 to this
report.


Finding 1 	 OSERS Needs to Further Improve Internal Control Over
            Purchase Card Use
OSERS needs to further improve internal control over purchase card use. We reviewed 62
purchases made by 8 cardholders totaling $31,517, and found: 1

           •	 Eight cardholders did not obtain or maintain adequate documentation to support 40
              purchases totaling $15,825. Specifically:
                     •	 39 purchases were not supported by a written request,
                     •	 1 purchase was not supported by an invoice or other record of the
                          purchase, and
                     •	 3 purchases were not supported by a record of receipt for the goods or
                          services.
           •	 One cardholder made a purchase of Information Technology (IT) accountable
              property totaling $1,914.
           •	 Two cardholders made two purchases for advertisements totaling $1,216 that did not
              have prior review or clearance.
           •	 Two cardholders did not initiate 2 disputes totaling $204 within 60 days as required.

We also noted that documentation supporting an additional five purchases (record of purchase,
and/or record of receipt) was not originally in the file. Since OSERS staff was able to locate
documentation for these purchases from other sources, these transactions were not included in
the exceptions noted above. Additionally, one monthly statement and associated supporting
documentation could not be located. This statement represented $3,264 in purchases.

Departmental Directive (Directive) OCFO: 3-104, “Government-wide Commercial Purchase
Card Program,” Section VI, defines cardholder and AO responsibilities. The Directive states,

           H. The Cardholder is responsible for. . .2. Purchasing goods or services in
           accordance with established Department policy, procurement regulations, and
           individual internal office procedures. . .4. Resolving disputed items directly with
           the merchant. Noting any items in dispute and submitting a dispute form to the
           Purchase Card Contractor with a copy to the [Designated Billing Office] DBO. . .
           6. Providing documentation to support purchases for AO approval and official
           record keeping. This documentation includes receipts, invoices, logs, etc.

           F. An Approving Official (AO) is responsible for. . .6. Reviewing, validating,
           and approving for payment the Cardholder's reconciled bank statement each

1
    Some purchases included issues in more than one category.

                                                ED-OIG/A19F0005
Mr. Hager                                                                                 Page 4 of 8



          billing cycle. . .7. Assisting the Cardholder in informing the Purchase Card
          Contractor of disputed charges, and following up with the Cardholder on any
          disputed items. . .14. Reviewing all management reports of Cardholder activity
          under his or her authority. . .15. Reviewing appropriateness of purchases. This
          includes determining individual purchases are appropriate, that the goods or
          services were properly received and accepted, and that the payment was proper.

Section VII.A.7 of the Directive states, “The Cardholder should secure a written request (email
or requis ition) from the appropriate Department employee requesting the Cardholder to procure
goods or services.”

Section VII.A.8.j of the Directive prohibits the use of the purchase card to acquire IT
accountable property. The Department’s Office of Management (OM) Handbook OM-5,
Property Management Manual, Procedure 2, Section 3.0, states,

          All requests for capital and accountable assets must be ordered through
          Contracting and Purchasing Operations (CPO). 2 Individual [Principal Contracting
          Officers] PCO’s with purchasing authority cannot procure capital or accountable
          assets and these assets will not be purchased using an authorized Government
          credit card.

Section VII.A.9.b of the Directive provides examples of categories requiring special review or
clearance including, “Paid advertisements - authority to publish advertisements in newspapers
and periodicals require clearance by the Director, CPO. . ..”

The Department’s “Purchase Card Program Home Page” also provides guidelines for purchase
card use. Under “Cardholder Reminders,” the website states, “. . .Bank of America's policy is
that all disputes must be initiated within 60 days of the statement date on which the transaction
posted.”

In a memorandum dated October 18, 2002, OSERS established additional guidelines for
purchase card use within its office. Section B of OSERS’ guidelines states, “In addition to the
duties listed, AOs (and, in their absence, AAOs) are responsible for authorizing Cardholder
purchases before the purchases.” Section E.2 of OSERS’ guidelines states the Executive Officer
will review statements and supporting documentation to ensure the appropriateness of purchases
prior to the AO reconciliation of transactions. OSERS updated this policy as of October 15,
2004, to require cardholders to maintain documentation of prepurchase approvals, and to require
AOs to ensure adequate documentation was present before approving purchases.

Cardholders and AOs did not consistently follow the requirements established by the Department
and OSERS internal guidelines. AOs also did not ensure cardholders submitted complete
supporting documentation prior to approving the statements for payment. OSERS staff were not
aware that IT assets could not be acquired using the purchase card, and were not familiar with


2
    Contracting and Purchasing Operations (CPO) is now known as Contracts and Acquisition Management (CAM).

                                              ED-OIG/A19F0005
Mr. Hager	                                                                           Page 5 of 8



the Department policy regarding items such as advertisements that required special review or
clearance prior to purchase.

With respect to disputes, AOs did not always follow up to ensure disputed purchases had been
resolved, and as a result, did not ensure that disputes were initiated timely. The dispute form for
one purchase was not filed timely because it had been sent to OSERS budget staff, but was never
sent to Bank of America. This transaction was dated October 18, 2003. During our review over
one year later, OSERS determined that the purchase was valid and stated that it would reconcile
and approve the purchase for payment. In the other instance, the cardholder disputed a charge
for sales tax inappropriately charged by the vendor, but the dispute form was not submitted to
Bank of America until six months after the charge was posted to the account.

OSERS staff stated that the monthly statement and supporting documents that could not be
located were misplaced during the relocation of its office. During the exit conference, OSERS
stated that it had initiated actions to reconstruct the file and obtain support for the purchases on
this statement.

Lack of adequate supporting documentation reduces assurance that purchases were appropriate
and were made in accordance with Federal regulations, Department policies and procedures, and
OSERS guidelines. Approving purchases without adequate supporting documentation could
result in payment for goods and services that were not received and increases the Department’s
vulnerability to potential misuse or waste of government resources. Acquiring accountable
assets with the purchase card could result in assets that are not appropriately identified and
included in the Department’s inventory system. As such, these items are more vulnerable to loss.
Untimely initiation and resolution of disputes increases the difficulty in resolving the issues and
the possibility that a credit will not be received, increasing overall Department costs.

During our review, OSERS’ Executive Officer held a mandatory training session with
cardholders and AOs to discuss the weaknesses we identified. The Executive Officer also
drafted revisions to OSERS internal guidelines to strengthen internal control over purchase card
use.


Recommendations:

We recommend that the Assistant Secretary for OSERS hold the Executive Officer, Approving
Officials, and cardholders accountable for their responsibilities in the purchase card program by
establishing a process to:

1.1	    Ensure that cardholders and AOs are familiar with the Department’s policies and
        requirements for obtaining and maintaining supporting documentation, initiating and
        resolving disputes, and goods and services that cannot be acquired with the purchase card
        or that require special approval or clearance.

1.2	    Ensure cardholders consistently obtain and maintain written purchase requests and
        approvals, records of purchase, records of receipt, and other appropriate supporting

                                          ED-OIG/A19F0005
Mr. Hager	                                                                       Page 6 of 8



        documentation for purchases as required by Department policy and procedures and
        OSERS guidelines.

1.3	    Require AOs to thoroughly review reconciliation packages provided by
        cardholders to ensure that adequate supporting documentation is maintained.

1.4	    Require AOs to monitor disputes to ensure timely initiation and resolution.


OSERS Response:

In its response to the draft audit report, OSERS agreed with the findings and recommendations
made. OSERS stated that the Executive Officer has established monthly training sessions with
all OSERS cardholders and approving officials to address the issues noted in our report. OSERS
also stated that the Executive Officer would meet monthly with cardholders to ensure
reconciliation packages include appropriate supporting documentation and disputes are initiated
and resolved timely.


                                     OTHER MATTER
OCFO reported in “Fast Facts,” a monthly internal Department publication of business
indicators, that OSERS did not timely reconcile and approve purchase card transactions for
payment. During the six- month period ending October 2004, a monthly average of 114 purchase
card transactions totaling $30,133 had not been reconciled/approved timely by OSERS staff. On
February 23, 2005, OCFO sent to all cardholders and approving officials a detailed list of all
unreconciled transactions for the period July 2001 through January 2005. This list included 94
OSERS transactions, 39 of which were charges totaling $10,018, and 55 of which were credits
totaling $5,565.

OSERS stated that it had attempted to resolve unreconciled transactions and had also requested
assistance from OCFO. OSERS stated that it had reported some transactions as invalid to
OCFO, but the transactions remained unreconciled. Unreconciled charges represent payments
that have not been made and could result in interest payments to the purchase card contractor.
Unreconciled credits reduce the amount of funds available for other uses within OSERS. We
suggest that OSERS staff continue to work with OCFO staff to resolve unreconciled transactions.


                  OBJECTIVES, SCOPE, AND METHODOLOGY
The objectives of our audit were to assess the current effectiveness of internal control over the
purchase card program and the appropriateness of current purchase card use in OSERS. To
accomplish our objectives, we performed a review of internal control applicable to OSERS’
administration and management of its purchase cards. We evaluated the prior OIG review of the
purchase card program in OSERS to determine issues previously reported. We reviewed
requirements related to the purchase card program in the Treasury Financial Manual, Federal

                                         ED-OIG/A19F0005
Mr. Hager                                                                        Page 7 of 8



Acquisition Regulation, Office of Management and Budget memoranda, and Bank of America’s
contract and task order. We also reviewed Departmental Directives, OSERS and OCFO
procedures and guidance applicable to the purchase card program.

We conducted interviews with staff in OCFO and OSERS to obtain information and an
understanding of the purchase card program. We also reviewed training records for staff
participating in the program. To test controls and evaluate the appropriateness of purchase card
use, we reviewed supporting documentation provided by OSERS staff for purchases made during
the scope period noted below.

The scope of our review included purchases made by OSERS Washington, DC, (Headquarters)
cardholders during the period July 1, 2003, through June 30, 2004. We used sampling and data
mining to select purchases for review. From the universe of purchases made by Department
Headquarters cardholders, we randomly selected purchases of $50 or more for review. The
random sample was chosen to provide a representative review of purchases across the
Department. We also identified high-risk categories of potentially inappropriate purchases and
reviewed all transactions in those categories – purchases over $2,500, charges to blocked
merchant category codes, potential split purchases, and purchases with transaction dates that
occurred on weekends.

In OSERS, the random sample included 19 purchases. High-risk purchases for OSERS included
two purchases over $2,500 and 41 transactions with dates that occurred on weekends. No
purchases to blocked merchant codes or potential split purchases were identified for OSERS.
Overall, 62 purchases totaling $31,517 made by 8 cardholders were included in our review.

In total, OSERS Headquarters cardholders made 631 purchases totaling $137,950 during the
scope period. The purchases we reviewed represented 9.8 percent of the total number of
purchases, and 22.8 percent of the total amount of purchases made during the period. Since the
random sample was selected based on the universe of all purchases of $50 or more made by
Headquarters cardholders in the Department, the results of this review cannot be projected to the
universe of OSERS purchases.

We relied on computer-processed data initially obtained from Bank of America’s Electronic
Account Government Ledger System to select cardholder purchases made during the scope
period. This data was also recorded in the Department’s Contracts and Purchasing Support
System and reconciled by OSERS and OCFO staff through Education’s Central Automated
Processing System. We verified the completeness and accuracy of the data by reviewing
cardholder statements, invoices, receipts, and other supporting documentation to validate
purchase amounts recorded in these systems. We noted that the transactions with dates that
occurred on weekends were primarily due to timing differences between when the purchase was
made with a vendor and when it was posted on the Bank of America system. Based on our
testing, we concluded that the computer-processed data were sufficiently reliable for the purpose
of our audit.

We also reviewed reports prepared by OCFO staff that reported purchase card transactions that
were overdue for reconciliation. These reports were part of the “Fast Facts” reports distributed

                                        ED-OIG/A19F0005
Mr. Hager                                                                        Page 8 of 8



monthly to all Department staff through the Department’s Intranet. We did not validate the
accuracy of these reports, as we used them for informational purposes only, as an indicator of
reconciliation timeliness.

We conducted fieldwork at Department offices in Washington, DC, during the period October
21, 2004, through March 16, 2005. We held an exit conference with OSERS staff on March 28,
2005. Our audit was performed in accordance with ge nerally accepted government auditing
standards appropriate to the scope of the review described above.


                            ADMINISTRATIVE MATTERS
Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System. Department policy requires that you develop a final corrective action plan
(CAP) for our review in the automated system within 30 days of the issuance of this report. The
CAP should set forth the specific action items, and targeted completion dates, necessary to
implement final corrective actions on the finding and recommendation contained in this final
audit report.

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report represent the opinions of the Office of the Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. § 522), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.

We appreciate the cooperation provided to us during this review. Should you have any questions
concerning this report, please call Michele Weaver-Dugan at (202) 245-6941. Please refer to the
control number in all correspondence related to the report.

                                        Sincerely,




                                        Helen Lew /s/

                                        Assistant Inspector General for Audit Services 





                                         ED-OIG/A19F0005
---------------------'-------------------------,--,-_.



                         UNITED STATES DEPARTMENT OF EDUCATION

                        OFFICE OF SPECIAL EDUCATION AND REHABILITATIVE SERVICES

                                                                                                   THE ASSISTANT SECRETARY
                                                    JUN, 6 2005


   Michele Weaver-Dugan
   Director, Operations Internal Audit Team
   U.S. Department of Education
   Office of Inspector General
   400 Maryland Avenue, S.W.
   Washington, D.C. 20202-1510

   Dear Ms. Weaver-Dugan:

   This letter responds to your letter of May 12, 2005, regarding the Draft Audit Report
   (Control Number ED-OIG/AI9FOOO5) presenting the results of the IG's audits of
   controls over purchase card use in the Office of Special Education and Rehabilitative
   Services (OSERS). We appreciate the opportunity to respond to your findings and
   recommendations.

   First, I want to emphasize that we take very seriously our responsibilities under the
   regulations governing the use of government purchase cards. We welcome any audit
   such as the one conducted by your office because it gives us the opportunity to correct the
   administrative errors such as the ones your staff identified in the audit.

   Second. with regard to corrective actions for recommendations 1.1. 1.2. the Executive
   Officer, Dr. Paul O'Connell, has established monthly training sessions with all OSERS
   cardholders and Approving Officials. In fact. the first such training session was held on
   June 3, 2005 and Dr. O'Connell discussed the results of the 10 audit, corrective actions
   and other matters of importance. The agenda for future meetings will include. among
   other topics, the Department's and OSERS policies for:

      • 	 Obtaining and maintaining supporting documentation, written purchase requests
          and approvals, records of pwdlases. NCOI'ds of receipt and other appropriate
          supporting ~ntation.
      • 	 lnitiatilll and ~soIvins disputes, and
      • 	 Identifyins JOOds and services that cannot be acquired with the pwdIase card or
          that require special approval or clearaace

   With ~gard to recommendatioas 1.3 and 1.4. the Executive Officer will meet with
   cardholders mondtly duriaJ the period to nx:oncile monthly statemeats to enSIR that:

       • 	 Reconciliation packages provided by the cardholdets iftclude the appropriate
           suppordI\J docUll1OlRadOll and
       • 	 runely inidatioD and resolution of disputed purchases.

                                   400 MARYLAND AVE., S,W., WASHINGTON, D.C. 20202-2500
                                                             www,ed_gov

            Our mission is to ensure equal access to education and to promote educational excellence throughout the nation,
Again, we are appreciative of the professionalism your staff displayed during the audit
and intend to aggressively eliminate these and other deficiencies in the future.

Sincerely,



John H. Hager

cc: Paul O’Connell