oversight

Controls Over Purchase Card Use in the Office Safe and Drug-Free Schools.

Published by the Department of Education, Office of Inspector General on 2005-08-11.

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

                        UNITED STATES DEPARTMENT OF EDUCATION

                                        OFFICE OF INSPECTOR GENERAL




                                               August 11, 2005


                                                                                          CONTROL NUMBER
                                                                                            ED-OIG/A19F0010

Deborah Price
Assistant Deputy Secretary
Office of Safe and Drug-Free Schools
U.S. Department of Education
Federal Building 6, Room 1E110A
400 Maryland, SW
Washington, DC 20202

Dear Ms. Price:

This Final Audit Report (Control Number ED-OIG/A19F0010) presents the results of our audit
of Controls Over Purchase Card Use in the Office of Safe and Drug-Free Schools. 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 Safe
and Drug-Free Schools (OSDFS).


                                             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. OSDFS’ Executive Officer is responsible for administering 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 throughout the Nation.
Ms. Price	                                                                     Page 2 of 8




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 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 OSDFS. A summary report will be provided to the Department’s Chief
Financial Officer upon completion of the audits in individual offices.


                                    AUDIT RESULTS
Overall, we found that OSDFS needs to improve internal control over purchase card use. We
found OSDFS did not always obtain and maintain adequate documentation to support purchases,
and inappropriately purchased accountable property with the purchase card. OSDFS also split
purchase card transactions to avoid exceeding the $2,500 micropurchase limit. These issues
occurred because OSDFS staff were not familiar with Department requirements and because the
AO did not ensure the cardholder submitted complete supporting documentation prior to
approving statements for payment. Without adequate supporting documentation, OSDFS does
not have assurance that purchases were appropriate and were made in accordance with Federal
regulations, Department policy and procedures, and OSDFS 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. Purchases of accountable assets with the purchase card could result in
assets that are not appropriately identified and included in the Department’s inventory system.
Splitting purchases to stay within the micropurchase limit decreases competition and hampers
government initiatives to set aside purchases for small businesses.

In its response to the draft audit report, OSDFS concurred with the findings and provided
corrective actions to address each of the recommendations included in our report. The complete
text of OSDFS’ response is included as Attachment 1 to this report.


Finding 1 	 OSDFS Needs To Improve Internal Control Over Purchase
            Card Use

OSDFS did not effectively implement internal control over purchase card use. We reviewed
three randomly selected purchases made by one cardholder totaling $4,815, and found the
cardholder did not obtain or maintain adequate documentation to support any of the purchases as
required by Department policy and OSDFS guidelines. Specifically we found:

    • 	 Two purchases were not supported by a written request for purchase,
    • 	 All three purchases were not supported by a record of receipt for the good/service,
    • 	 All three purchases did not include evidence of prior approval as required by OSDFS
        guidelines, and

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Ms. Price	                                                                       Page 3 of 8



    • 	 The reconciliation package for one purchase did not include the original Bank of America
        statement signed by the cardholder as required by OSDFS guidelines.

An invoice or other record of purchase to support one additional transaction was not originally in
the file. Since OSDFS staff were subsequently able to obtain an invoice for this purchase from
the vendor, this transaction was not included in the exceptions noted above.

We also noted that one purchase included information technology (IT) accountable property
totaling $2,124.

We reviewed eight potential split purchases (e.g. purchases to the same vendor on the same day
or within a few days), and noted these purchases represented four separate instances where the
cardholder inappropriately split the transactions to avoid exceeding the $2,500 micropurchase
limit. None of the purchases included written requests for purchase as required by the
Department policy, or preapproval by the AO as required by OSDFS guidelines. In addition, the
purchase card files did not include any evidence that bids were obtained or documentation of
justification for sole source purchase.

Departmental Directive (Directive) OCFO: 3-104, “Government-wide Commercial Purchase
Card Program,” Section VI, defines cardholder, AO, and Executive Officer 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 . . . 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
        billing cycle . . . 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 further states, “The Cardholder should secure a written
request (email or requisition) 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,



                                         ED-OIG/A19F0010

Ms. Price                                                                                 Page 4 of 8



          All requests for capital and accountable assets must be ordered through
          Contracting and Purchasing Operations (CPO). 1 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.

In September 2003, OSDFS established additional guidelines for purchase card use within its
office. These procedures state,

          3. A purchase card approval form (Request to Use the Government Purchase
          Card) is filled out to authorize the purchase and/or supply list is signed or initialed
          and dated by the Approving Official.

          8. Upon completion of the reconciliation process . . . The purchase cardholder then
          submits to the Approving Official the original signed bank statement/purchase card
          approval form and all invoices for the supplies/equipment/training that has been
          processed.

The Federal Acquisition Regulation (FAR) prohibits splitting a transaction into more than one
segment to avoid the requirement to obtain competitive bids for purchases over the $2,500
micropurchase threshold, or to avoid other established limits. Specifically, FAR 13.003(c)(2)
states,

          Do not break down requirements aggregating more than the simplified acquisition
          threshold (or for commercial items, the threshold in Subpart 13.5) or the micro-
          purchase threshold into several purchases that are less than the applicable
          threshold merely to- (i) Permit use of simplified acquisition procedures; or (ii)
          Avoid any requirement that applies to purchases exceeding the micro-purchase
          threshold.

Section VII.A.3 of the Directive also refers to this section of the FAR, stating, “Purchases are not
to be split to stay within the single purchase limit or to avoid following procedures for Simplified
Acquisitions, in accordance with FAR 13.003(c).”

We found that implementation of controls over purchase card use was not always effective
because the OSDFS cardholder and AO were not familiar with policies and procedures
established by the Department, and the AO did not ensure that the cardholder submitted
complete supporting documentation prior to approving the statements for payment. OSDFS’
current Executive Officer stated emails were sometimes used as a form of pre-approval, rather
than the form specified by OSDFS’ policy. However, OSDFS’ purchase card files did not
include copies of such emails and OSDFS staff were not able to locate any emails to support the
pre-approval required by OSDFS’ guidelines.


1
    Contracting and Purchasing Operations (CPO) is now known as Contracts and Acquisition Management (CAM).

                                              ED-OIG/A19F0010

Ms. Price	                                                                        Page 5 of 8



With respect to the split purchases, the Executive Officer initially stated that she did not believe
the purchases noted were intentionally split. However, after reviewing the documentation, which
included some sequential invoice numbers, or faxed confirmations documenting both invoices
were processed together by the vendor, she agreed that was the case. She stated that in one case,
the cardholder had obtained bids, but no documentation of these bids was provided. Had OSDFS
complied with Department policy on obtaining written requests for purchases, and OSDFS’
guidelines for preapproval of purchases, the intent to split these purchases may have been noted
and simplified acquisition processes followed as required.

Lack of adequate supporting documentation reduces assurance that purchases were appropriate
and were made in accordance with Federal regulations, Department policy and procedures, and
OSDFS guidelines. Approving purchases without reviewing 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. Purchase of
accountable assets with the purchase card results in assets that are not appropriately identified
with a Department bar code, and are not appropriately included in the Department’s inventory
system. As such, these items are more vulnerable to loss. Splitting purchases to stay within the
micropurchase limit decreases competition and hampers government initiatives to set aside
purchases for small businesses.

During our review, OSDFS staff began to take corrective action to address the issues noted.
OSDFS obtained a bar code for the accountable property item, and registered the equipment in
the Department’s Asset Management Database. The Executive Officer stated that as a result of
our review, she plans to revise and update OSDFS’ internal purchase card procedures to address
the issues noted.


Recommendations:

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

1.1 	   Ensure OSDFS’ cardholders and AO are familiar with the Department’s policies and
        requirements for: (a) obtaining and maintaining supporting documentation, (b) goods and
        services that cannot be acquired with the purchase card, and (c) prohibitions against
        splitting purchases.

1.2 	   Ensure cardholders consistently obtain and maintain written purchase requests and
        approvals, records of purchase, records of receipt, and other appropriate supporting
        documentation for purchases as required by Department policy and procedures and
        OSDFS guidelines.

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

                                         ED-OIG/A19F0010

Ms. Price                                                                       Page 6 of 8




OSDFS Response:

In its response to the draft audit report, OSDFS concurred with the findings and provided
corrective actions to address each of the recommendations included in our report. OSDFS stated
that it updated its purchase card procedures, is now requiring annual refresher training for its
cardholders, and reported its cardholders and the AO will have completed refresher training as of
August 5, 2005. OSDFS also stated that no purchases would be made without written approval
from the Executive Officer or Budget Officer, and that internal spot audits will be conducted to
ensure consistency in following Department policy and procedures and OSDFS guidelines.


                 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 OSDFS. To
accomplish our objectives, we performed a review of internal control applicable to OSDFS’
administration and management of its purchase cards. We reviewed requirements related to the
purchase card program in the Treasury Financial Manual, Federal Acquisition Regulation, Office
of Management and Budget memoranda, and Bank of America’s contract and task order. We
also reviewed Departmental Directives, OSDFS and OCFO procedures and guidance applicable
to the purchase card program.

We conducted interviews with staff in OCFO and OSDFS 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 OSDFS staff for purchases made during
the scope period noted below.

The scope of our review included purchases made by OSDFS 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, and potential split purchases. In OSDFS, the random sample included
three purchases. High-risk purchases for OSDFS included eight potential split purchases. One
purchase was included in both the random sample and potential split purchases identified. No
purchases over $2,500 or purchases to blocked merchant category codes were identified for
OSDFS. Overall, 10 purchases totaling $13,085 made by 1 cardholder were included in our
review.

In total, OSDFS Headquarters cardholders made 64 purchases totaling $37,202 during the scope
period. The purchases we reviewed represented 16 percent of the total number and 35 percent of

                                        ED-OIG/A19F0010

Ms. Price                                                                        Page 7 of 8



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 OSDFS 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 OSDFS 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. 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
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 April 1,
2005, through April 21, 2005. We held an exit conference with OSDFS staff on June 15, 2005.
Our audit was performed in accordance with generally 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.



                                        ED-OIG/A19F0010

Ms. Price                                                                       Page 8 of 8



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/A19F0010

                                                                                                        Attachment 1
                            UNITED STATES DEPARTMENT OF EDUCATION
                                     OFFICE OF SAFE AND DRUG-FREE SCHOOLS




                                                                                      August 4, 2005

Memorandum

TO:               Michele Weaver-Dugan, Director
                  Operations Internal Audit Team
                  Office of Inspector General

FROM:             Deborah A. Price
                  Assistant Deputy Secretary
                  Office of Safe and Drug-Free Schools

SUBJECT:          Comments on Controls Over Purchase Card Use in the Office of Safe
                  and Drug-Free Schools Draft Audit Report
                  Audit Control Number: ED-OIG/A19F0010

We appreciate the opportunity to comment on the above referenced draft audit report over
purchase card use in the Office of Safe and Drug-Free Schools (OSDFS). We concur with the
auditors’ findings and in response to the auditors’ recommendation, our office has taken several
steps to make improvements in the OSDFS purchase card program. In addition to updating the
OSDFS purchase card procedures, the following corrective actions have been taken:

Audit Recommendation 1.1: Ensure OSDFS’ cardholders and AO are familiar with
Department’s policies and requirements for obtaining and maintaining supporting
documentation, goods and services that cannot be acquired with a purchase card and prohibitions
against splitting purchases.

Corrective Action: Refresher training for all purchase cardholders in OSDFS is now mandatory
on an annual basis. Purchase cardholders completed training on 07/20 and 07/27-28/05. The
AO will attend training will attend 08/05.

Audit Recommendation 1.2: Ensure cardholders consistently obtain and maintain written
purchase requests and approvals, records of purchase, records of receipts, and other appropriate
supporting documentation for purchases as required by Department policy and procedures and
OSDFS guidelines.

Corrective Action: As of 12/01/04, no purchases are made with the OSDFS purchase card
unless the purchase cardholder receives a written approval from either the Executive Officer or
the Budget Officer. In addition, annual staff training and internal spot audits of reconciliation
packages will ensure consistency in maintaining Departmental policy and procedures and
OSDFS guidelines for all purchases.

                                 400 MARYLAND AVE., SW., WASHINGTON, DC 20202
                                                 www.ed.gov
      Our mission is to ensure equal access to education and to promote educational excellence throughout the nation.
Audit Recommendation 1.3: Require the AO to thoroughly review reconciliation packages
provided by cardholders to ensure that adequate supporting documentation is maintained.

Corrective Action: A spot audit of randomly selected reconciliation packages completed
between 02/07/05 through 07/15/05 was performed by the Executive Officer to ensure that
purchase cardholders and the approving official adhered to ED and OSDFS purchase card
policies and procedures. Spot audits of reconciliation packages will continue to be performed by
the Executive Officer on a quarterly basis to ensure that purchase cardholders and the approving
official adhere to ED and OSDFS purchase card policies and procedures.

We look forward to the issuance of the final audit report. If you have any questions, please feel
free to contact either Tina Hunter at (202) 260-2526 or Michelle Padilla Georgia, at (202) 260-
2648.

Attachment

cc: 	   Tina M. Hunter
        Executive Officer, OSDFS

        Michelle Padilla Georgia 

        Audit Liaison, OSDFS 





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