oversight

Audit of Controls Over Purchase Card Use in the Office of Chief Financial Officer.

Published by the Department of Education, Office of Inspector General on 2005-09-14.

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

                       UNITED STATES DEPARTMENT OF EDUCATION

                                       OFFICE OF INSPECTOR GENERAL




                                            September 14, 2005

                                                                                  CONTROL NUMBER
                                                                                    ED-OIG/A19F0013

Mr. Jack Martin
Chief Financial Officer
Office of the Chief Financial Officer
U.S. Department of Education
400 Maryland Avenue, SW
Washington, DC 20202

Dear Mr. Martin:

This Final Audit Report (Control Number ED-OIG/A19F0013) presents the results of
our audit of Controls Over Purchase Card Use in the Office of the Chief Financial
Officer. 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 the Chief Financial Officer (OCFO).


                                          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. OCFO’s Executive Officer is responsible for
administering the purchase card program in that office. The Executive Officer is also the
only Approving Official (AO) within OCFO, and as such, is the primary official
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.
Mr. Martin                                                                       Page 2 of 8



On July 26, 2000, the Office of Inspector General (OIG) issued a report entitled, “Results
of OIG Review of OCFO and OCIO Internal Controls Over the Procurement of Goods
and Services,” (Control Number A&I 2000-006). OIG reported a number of deficiencies
in OCFO’s internal control over the purchase card program including lack of familiarity
with Department policies and procedures, training and/or refresher training not completed
by staff involved in the program, and lack of adequate supporting documentation for
purchases.

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 OCFO. A summary report
will be provided 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 OCFO needs to further improve internal control over purchase card use. We found
OCFO did not always obtain and maintain adequate documentation to support purchases,
and did not always obtain advance approval for purchases of furniture and software as
required. These issues occurred because some transactions were completed on-line or
telephonically and appropriate documentation was not generated. With respect to records
of receipt, OCFO staff stated they did not follow up to determine if Department
employees attended and completed training. OCFO also stated it was general practice to
purchase special accommodation furniture without seeking approval from OM, and that
OCIO approval was not obtained for the software purchase due to an oversight. Finally,
we found the AO did not always ensure the cardholders submitted complete supporting
documentation prior to approving statements for payment.

Without adequate supporting documentation, OCFO does not have assurance that
purchases were appropriate and were made in accordance with Federal regulations and
Department policy and procedures. Failure to document receipt of goods and services
could result in payment for items that were ultimately not provided to the Department.
Failure to seek required approvals for purchases of furniture and software could result in
the expenditure of funds for items that are not compatible with existing items, are already
available for use within the Department, or are available at a lower cost through existing
Department contracts and sources. Approving purchases without adequate supporting
documentation increases the Department’s vulnerability to potential misuse or waste of
government resources.

Issues noted above regarding lack of adequate documentation to support purchases were
also reported in the prior OIG review of OCFO purchase card activity.



                                     ED-OIG/A19F0013

Mr. Martin	                                                                           Page 3 of 8



In its response to the draft audit report, OCFO concurred with the finding and
recommendations included in our report. The complete text of OCFO’s response is
included as Attachment 1 to this report.



Finding 1 OCFO Needs To Further Improve Internal Control Over
Purchase Card Use

While improvements were noted from the prior OIG review, OCFO needs to further
improve internal control over purchase card use. We reviewed 41 purchases made by 3
cardholders totaling $35,709, and found the cardholders did not always obtain or
maintain adequate documentation to support purchases as required by Department policy
and OCFO guidelines. Overall, we noted that 25 of the 41 purchases (61 percent) did not
include one or more required elements. Specifically we found:1

           •	   One purchase was not supported by a written purchase request.
           •	   One purchase was not supported by an invoice or other record of purchase.
           •	   23 purchases were not supported by a record of receipt for the good/service.
           •	   Two purchases – one for furniture and one for software – did not include
                documentation showing approval from the Office of Management (OM) or
                Office of the Chief Information Officer (OCIO), respectively, as required.

We also noted that complete supporting documentation required by Department policy
and/or OCFO guidelines was not originally provided in the purchase card files for three
additional purchases. OCFO provided additional documentation that supported these
purchases, and these purchases are not included in the exceptions above.

Departmental Directive OCFO: 3-104, “Government-wide Commercial Purchase Card
Program,” dated January 23, 2002, 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 . . .
                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

1
    Some purchases include issues in more than one category.

                                            ED-OIG/A19F0013

Mr. Martin	                                                                         Page 4 of 8



              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.”

OCFO Procedure CO-097, “Procedure for Buying, Using a Government Commercial
Purchase Card,” revised March 2003, Section 10.d, states the following regarding
documentation,
        Retain data supporting the purchases (including records of oral
        quotations). Keep your files neat, up-to-date, and easily retrievable.
        Documentation will be retained in a central filing location established by
        your Principal Office. The record should be kept for 3 years after final
        payment. The records must be kept secure and be easily retrievable upon
        request. Documentation includes:
              • 	 Request for purchase (a written request from the requisitioner).
              • 	 Record of purchase (i.e. written notes, printout of CPSS Quick
                  Purchase screen, invoice, internet printout, etc.).
              • 	 Record of receipt and acceptance (i.e. packing slip, training
                  certificate). Note – Forward to the Cardholder for retention if you
                  are the recipient of the purchase.

Departmental Directive OM 4-103, “Space Management,” revised July 30, 2002, outlines
procedures regarding the purchase of furniture. Section VI, Part C.4, of the Directive
states,

        The Principal Officers are responsible for . . . 4. Assuring that all furniture
        procurement is through, coordinated and approved by [Office of
        Management, Facilities Services] OM/FS in order to insure these products
        meet the minimum standards and are interchangeable (i.e. connectivity,
        parts, style, color, etc) with our existing inventory, and comply with
        departmental contracting policy and procedures . . . .

Handbook OCIO-08, “Handbook for Software Management and Acquisition Policy,”
dated August 25, 2003, outlines procedures regarding the purchase and management of
software. Section VI, Part A.1, of the Handbook states,

        Requisitions for software and upgrades will be submitted to OCIO by the
        Contracts and Purchasing Support System (CPSS) for approval, and upon
        award, delivery and receipt by the Contracting Officer (CO), registered in
        the Software Library.




                                        ED-OIG/A19F0013

Mr. Martin                                                                        Page 5 of 8



Section VI, Part B, of the Handbook states,

        If an application is needed for a specific office, the Principal Office(s)
        may present a business justification and requirements document to OCIO
        for review/approval. OCIO will obtain on behalf of the Principal Office(s)
        software license(s) that meet the guidelines set forth in Executive Order
        13103 [guidance on computer piracy].

OCFO officials generally believed their practices effectively met requirements for
purchase card use. OCFO stated a written purchase request was not prepared for the
transaction noted in our review because the purchase required both the cardholder and
end-user to be present to complete an on-line transaction. OCFO staff stated the
transaction without a record of purchase was completed by telephone and no written
record of the transaction existed other than the entry in the training database. In these
two instances, written notes by the end user and the cardholder, respectively, would be
allowable documentation as noted in Procedure CO-097 cited above.

With respect to records of receipt, OCFO staff stated they did not follow up to determine
if Department employees attended and completed training. In several instances, OCFO
indicated that receipt of training was not possible at the time of payment because the
training occurred after the date the purchase was invoiced. OCFO further stated it was a
general practice for OCFO and other offices to purchase special accommodation furniture
without seeking approval from OM. However, OCFO did not provide any documentation
from OM allowing an exemption from its policy requirements. OCFO staff also stated
OCIO approval was not obtained for the software purchase due to an oversight. We also
found that the AO did not always ensure that the cardholder submitted complete
supporting documentation prior to approving the statements for payment.

Lack of adequate supporting documentation reduces assurance that purchases were
appropriate and were made in accordance with Federal regulations and Department
policy and procedures. Failure to document receipt of goods and services could result in
payment for items that were ultimately not provided to the Department. Failure to seek
required approvals for purchases of furniture and software could result in the expenditure
of funds for items that are not compatible with existing items, are already available for
use within the Department, or are available at a lower cost through existing Department
contracts and sources. Approving purchases without adequate supporting documentation
increases the Department’s vulnerability to potential misuse or waste of government
resources.

During our review, OCFO staff began to take corrective action to address issues noted.
The Executive Officer stated that following our meeting to discuss the issues noted, he
established a process to follow up with employees to document completion of training.
The Executive Officer stated that he is clarifying with OM its requirement to approve
furniture that is purchased occasionally as a reasonable accommodation or in response to
a doctor’s prescription provided by an employee. The Executive Officer also stated that
all software purchases would be sent through OCIO for approval.

                                     ED-OIG/A19F0013

Mr. Martin                                                                        Page 6 of 8



Recommendations:

We recommend the Chief Financial Officer 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 that cardholders and the AO are familiar with the Department’s policies
and requirements for: (a) obtaining and maintaining supporting documentation, and (b)
goods and services 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
documentation for purchases as required by Department policy and procedures and
OCFO guidelines.

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


OCFO Response:

In its response to the draft audit report, OCFO concurred with the finding and
recommendations included in our report. OCFO also asked OIG to continue to work with
its Executive Officer to implement corrective actions.


              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
OCFO. To accomplish our objectives, we performed a review of internal control
applicable to OCFO’s administration and management of its purchase cards. We
evaluated the prior OIG review of the purchase card program in OCFO to determine
issues previously reported. 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, OCFO procedures, and internal OCFO
guidelines applicable to the purchase card program.

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



                                     ED-OIG/A19F0013

Mr. Martin                                                                       Page 7 of 8



The scope of our review included purchases made by 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 OCFO, the sample included 41 purchases, 38 of which were part of the random sample
and 3 of which were made against blocked merchant category codes. No purchases over
$2,500 or potential split purchases were identified for OCFO. Overall, 41 purchases
totaling $35,709 made by 3 cardholders were included in our review.

In total, OCFO Headquarters cardholders made 568 purchases totaling $285,333 during
the scope period. The purchases we reviewed represented 7 percent of the total number
and 13 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 OCFO 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 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
May 5, 2005, through July 13, 2005. We held an exit conference with OCFO staff on
August 5, 2005. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review described above.




                                     ED-OIG/A19F0013

Mr. Martin                                                                       Page 8 of 8



                        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/A19F0013

                                                                                                     Attachment 1


                   UNITED STATES DEPART MENT OF EUUCAT10N
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                                          SEP - 8 20Cb




Ms. M'tllek Weaver·Dugan, D....~clOr
Opcralions [ntenul Audit Teml
U.S. Dqwtment ofEduc3tion
OfEce of Inspector G<-ncral
400 Maryland Ave SW
Wl$lImgton, DC 20202·15[0

D<:arM s.   Weav~r·DUllan :


Thank you for providing your Draft Audit Rcpoorl emilled CQlllro/S Oyer P~l"cha.!e Oml
Usc in Ihr Offlfe o{thr Chjr/ful/JI!ciqi OOjw (ED·OIGIAl9·FOOIJ), d.tcd August [2,
2005. We have reviewed the drJll!llld concur with your 6ndings and rerommellClac,ons.

Please conllnue to work with OCFO', Executive Officer, Michael Holloway, to
il11fllemem the corrective actions.


                                                      Smterely.



                                                      Sack ~l artin