oversight

Audit of Controls Over Purchase Card Use in the Office of the Secretary, Office of the Deputy Secretary, and Office of the Under Secretary

Published by the Department of Education, Office of Inspector General on 2005-11-03.

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

                         UNITED STATES DEPARTMENT OF EDUCATION

                                           OFFICE OF INSPECTOR GENERAL





                                                      November 3, 2005

                                                                                                        CONTROL NUMBER
                                                                                                          ED-OIG/A19F0015


Raymond Simon
Deputy Secretary
Office of the Deputy Secretary
U.S. Department of Education
Federal Building No. 6, Room 7W310
400 Maryland Avenue, SW
Washington, DC 20202

Dear Mr. Simon:

This Final Audit Report (Control Number ED-OIG/A19F0015) presents the results of our audit
of Controls Over Purchase Card Use in the Office of the Secretary, Office of the Deputy
Secretary, and Office of the Under Secretary. 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 Secretary, the Office of the Deputy Secretary,
and the Office of the Under Secretary (OS/ODS/OUS).


                                                  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. The Executive Officer is responsible for administering the purchase card

                               400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510
                                                          www.ed.gov
         Our mission is to ensure equal access to education and to promote educational excellence throughout the nation.
Mr. Simon                                                                                                Page 2 of 9


program in OS/ODS/OUS. 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.

On August 31, 2000, the Office of Inspector General (OIG) issued a report entitled “Results of
the OIG Review of OS/ODS/[Office of Congressional and Legislative Affairs] OLCA’s Internal
Controls Over the Procurement of Goods and Services,” (Control Number A&I 2000-010). OIG
reported a number of deficiencies in OS/ODS/OLCA’s internal controls over the purchase card
program including lack of familiarity with Department policies and procedures, lack of written
OS/ODS/OLCA policies and procedures, no evidence of preapprovals, inadequate and/or
missing documentation to support purchase card transactions, purchase card sharing among
office staff, split purchases, lack of documentation or oral quotations, lack of sole source
justifications, and payment of sales tax. 1

On September 19, 2000, the OIG issued a report entitled “Results of the OIG Review of OUS's
Internal Controls Over the Procurement of Goods and Services,” (Control Number A&I 2000­
011). Issues noted in this review included lack of appropriate warrants for all cardholders, lack
of written OUS policies and procedures, lack of familiarity with Department policies and
procedures, missing supporting documentation for purchase card transactions, and split purchase
transactions.

This audit is part of a review of the purchase card program being performed Department- wide.
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 OS/ODS/OUS. 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 reviews, OS/ODS/OUS needs to further
improve internal control over purchase card use. We found that OS/ODS/OUS cardholders did
not always obtain or maintain adequate documentation to support purchases, and OS/ODS/OUS
had not established a central filing location for purchase card statements and supporting
documentation as required by Department policy. We also noted that one purchase was split to
avoid exceeding the $2,500 micropurchase limit, and arrangements for six purchases were made
by a person other than the cardholder for services that were subsequently paid with the purchase
card.

These issues occurred because cardholders did not consistently apply Department requirements,
and the AOs did not always ensure that cardholders submitted complete supporting

1
  OLCA was part of OS until August 2003. Since OLCA is now a separate principal office, it was reviewed
separately under this audit and is not included in this report. OS, ODS, and OUS were combined into one review for
this audit as these offices share an Executive Office and the Executive Officer is responsible for the purchase card
program in all three organizations.

                                                ED-OIG/A19F0015
Mr. Simon 	                                                                             Page 3 of 9


documentation prior to approving statements for payment. The Executive Officer stated, in some
cases, purchases had to be completed quickly to fill an immediate need, so pre-approvals were
not always obtained. We also noted in some cases, purchases were arranged by other
OS/ODS/OUS staff who were not aware that only the cardholders should arrange the purchases.

Lack of adequate supporting documentation reduces assurance that purchases were appropriate
and were made in accordance with Federal regulations, Department policy and procedures, and
OS/ODS/OUS guidelines. Failure to document receipt could result in payment for goods and
services that were not received. Approving purchases without reviewing adequate supporting
documentation increases the Department’s vulnerability to potential misuse or waste of
government resources.

Splitting purchases to stay within the micropurchase limit decreases competition and hampers
government initiatives to set aside purchases for small businesses. The practice of allowing
purchases to be arranged by staff other than the cardholder results in purchases made by
individuals without appropriate procurement training and authority to obligate funds on behalf of
the Department. In addition, funds may not be available for the purchases made.

Decentralized filing of purchase card documentation does not ensure that records are being
appropriately maintained and may result in loss of information required to support Department
purchases.

The issues noted above regarding lack of adequate supporting documentation for purchases, lack
of prior approval, and split purchases were also reported in the prior OIG reviews of purchase
card activity in OS/ODS/OUS.

In his response to the Draft Audit Report, the Deputy Secretary concurred with our finding and
provided corrective actions to address each of the recommendations inc luded in our report. The
complete text of the Deputy Secretary’s response is included as Attachment 1 to this report.


Finding 1 	 OS/ODS/OUS Needs To Further Improve Internal Control Over
            Purchase Card Use
While improvements were noted from the prior OIG review, OS/ODS/OUS needs to further
improve internal control over purchase card use. We reviewed 46 purchases totaling $41,310
made by 7 OS/ODS/OUS Headquarters cardholders. We found that OS/ODS/OUS cardholders
did not always obtain or maintain adequate documentation to support purchases as required by
Department policy and procedures and OS/ODS/OUS guidelines. Overall, we found that 34 of
the 46 purchases reviewed (74 percent) did not include one or more required elements.
Specifically, we found:2

      •    Seven purchases were not supported by a written request prior to purchase.
      •    Three purchases did not include a record of purchase.

2
    Some purchases included exceptions in more than one category.

                                                ED-OIG/A19F0015
Mr. Simon 	                                                                                 Page 4 of 9


    •	 29 purchases were not supported by a record of receipt for the good/service.
    •	 12 purchases did not include evidence of prior approval as required by OS/ODS/OUS
       guidelines.

We also reviewed 19 potential split purchases (e.g. purchases to the same vendor on the same
day or within a few days). Of these 19 purchases, we found one instance where the cardholder
inappropriately split one purchase into two transactions to avoid exceeding the $2,500
micropurchase limit. The purchase card files did not include any evidence that bids were
obtained or documentation of justification for sole source purchase. We also noted that six
additional purchases represented arrangements made by a person other than the cardholder for
services that were subsequently paid with the purchase card. This represents an inappropriate
practice, as the individuals who made the arrangements did not have procurement authority. The
cardholder was not aware of the purchases until invoices were received at a later date.

During our review, we also noted that OS/ODS/OUS had not established a central filing location
for purchase card statements and supporting documentation as required by Department policy.
Instead, some cardholders maintained their purchase card files for the current fiscal year, and
centrally filed the documentation after the close of each fiscal year.

Departmental Directive OCFO: 3-104, “Government-wide Commercial Purchase Card
Program,” Section VI, dated January 23, 2002, 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 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.B.4.e of the Directive includes additional AO requirements that state,

        Upon approval of the bank statement, forward documentation to a central filing location
        for retention.



                                         ED-OIG/A19F0015
Mr. Simon 	                                                                                   Page 5 of 9


OCFO Procedure CO-097, “Procedure for Buying, Using a Government Commercial Purchase
Card,” revised March 2003, Section 10.d, states,

        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) . . . .

In July 2002, OS established additional guidelines for purchase card use within its offices. These
procedures state, “Requests for purchases must be approved in advance. E- mail from the
employee requesting the purchase, to a cardholder, and then on to the Executive Officer for
approval will suffice, as will a written request.”

In addition to the OS procedures, OUS established separate internal procedures for its
cardholders that were in effect during our scope period. These procedures state, “All requests for
purchases using the government purchase card must be approved in advance, through the use of a
purchase request form. This form is to be signed by all designated parties prior to proceeding
with a purchase.”

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 Section
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 cardholders and the AOs did not consistently follow policies and procedures 

       established by the Department. 



                                           ED-OIG/A19F0015
Mr. Simon 	                                                                               Page 6 of 9


    •	 The AOs did not ensure that the cardholders submitted complete supporting 

       documentation prior to approving the statements for payment. 

    •	 In some cases, purchases had to be completed quickly to fill an immediate need.
    •	 Other OS/ODS/OUS staff initiated transactions with vendors and were not aware that
       purchases should only be initiated by the cardholders.

Lack of adequate supporting documentation reduces assurance that purchases were appropriate
and were made in accordance with Federal regulations, Department policy and procedures, and
OS/ODS/OUS guidelines. Failure to document receipt could result in payment for goods and
services that were not received. Approving purchases without reviewing adequate supporting
documentation increases the Department’s vulnerability to potential misuse or waste of
government resources.

Splitting purchases to stay within the micropurchase limit decreases competition and hampers
government initiatives to set aside purchases for small businesses. The practice of allowing
purchases to be arranged by staff other than the cardholder results in purchases made by
individuals without appropriate procurement training and authority to obligate funds on behalf of
the Department. In addition, funds may not be available for the purchases made.

Decentralized filing of purchase card documentation does not ensure that records are being
appropriately maintained and may result in loss of information required to support Department
purchases.

Subsequent to our review, OS/ODS/OUS began to take corrective actions to ensure that
cardholders maintain appropriate supporting documentation. Specifically, OS/ODS/OUS
developed a checklist to ensure that all purchases have the required supporting documentation, as
well as a certification form to ensure goods and services are received. The Executive Officer
also revised the internal purchase card procedures, and reported that, effective July 2005, all
purchase card files are being centrally located.

The Executive Officer also stated that she has implemented an additional level of review in the
purchase card reconciliation process to ensure that all necessary documentation is obtained prior
to approval for payment.


Recommendations:

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

1.1	    Ensure OS/ODS/OUS cardholders and AOs are familiar with the Department’s policies
        and requirements for obtaining and maintaining supporting documentation, and
        prohibitions against splitting purchases.




                                         ED-OIG/A19F0015
Mr. Simon 	                                                                              Page 7 of 9


1.2	    Ensure cardholders consistently obtain and maintain written purchase requests and
        approvals, records of purchase, and records of receipt for purchases as required by
        Department policy and procedures and OS/ODS/OUS guidelines.

1.3	    Require AOs to thoroughly review reconciliation packages provided by cardholders to
        ensure that adequate supporting documentation is maintained
        and purchases are not split.

1.4	    Revise and implement internal purchase card guidelines to ensure that purchase card
        statements and supporting documentation are maintained in a central file consistent with
        Department policy.

1.5	    Ensure all OS/ODS/OUS staff are aware that purchases should only be arranged by
        cardholders.


Deputy Secretary Response:

In response to our Draft Audit Report, the Deputy Secretary concurred with our finding and
provided corrective actions to address each recommendation. The Deputy Secretary stated he is
directing cardholders to attend training to reinforce the Department’s policies, and AOs will
certify to the Deputy Secretary that each cardholder has completed the training and is fully aware
of policies governing the use of purchase cards. The Deputy Secretary stated the Executive
Officer will issue a memorandum to cardholders advising them that their adherence to
Department policy and other internal guidance will be included as part of their annual
performance appraisal.

The Deputy Secretary also stated a separate review is now conducted of each transaction to
ensure all supporting documentation is included, all purchase card files are now centrally
located, and internal purchase card procedures have been updated. Finally, the Deputy Secretary
stated he is directing the Executive Officer to issue a memorandum to all staff advising them that
only those with designated authority may be involved in the purchase process. He further stated
any individual who executes a contractual obligation without the authority to do so is personally
responsible for the expense.


                  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 OS/ODS/OUS.
To accomplish our objectives, we performed a review of internal control applicable to
OS/ODS/OUS’ administration and management of its purchase cards. We evaluated the prior
OIG reviews of the purchase card program in OS/ODS/OUS to determine issues previously
reported. We reviewed requirements related to the purchase card program in the Treasury
Financial Manual, FAR, Office of Management and Budget memoranda, and Bank of America’s


                                         ED-OIG/A19F0015
Mr. Simon                                                                                Page 8 of 9


contract and task order. We also reviewed Departmental Directives, OCFO procedures, and
internal OS/ODS/OUS guidance applicable to the purchase card program.

We conducted interviews with OCFO and OS/ODS/OUS 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 OS/ODS/OUS staff for purchases made
during the scope period noted below.

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 OS/ODS/OUS, the random sample
included 36 purchases. High-risk purchases for OS/ODS/OUS included 10 blocked merchant
category code purchases and 19 potentially split purchases. No purchases over $2,500 were
identified for OS/ODS/OUS. Two transactions were included in both the blocked merchant
category code and potentially split purchase samples. Overall, 63 purchases totaling $64,401
made by 7 cardholders were included in our review.

In total, OS/ODS/OUS Headquarters cardholders made 1,110 purchases totaling $450,882 during
the scope period. The purchases we reviewed represented 6 percent of the total number and 14
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
OS/ODS/OUS 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 OS/ODS/OUS 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.




                                        ED-OIG/A19F0015
Mr. Simon                                                                                  Page 9 of 9


We conducted fieldwork at Department offices in Washington, DC, during the period May 12,
2005 through September 12, 2005. We held an exit conference with OS/ODS/OUS staff on
September 22, 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 recommendations 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 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 


cc: JoAnn Ryan, OS/ODS/OUS Executive Officer




                                         ED-OIG/A19F0015
                                                                                                                   _
                                                                                                                  ..   .... ,_ ....   , ,, _   ....   _--------




                                                                                                 Attachment 1

                    , UNITED STATES DEPARTMENT OF EDUCATION'

                                                                                                   THE DEPUTY SECRETARY

                                                 October 26, 2005


Ms. Michele Weaver-Dugan
Director, Operations Internal Audit Team
U.S. Department of Education
Office of Inspector General
400 Maryland Avenue, SW
Washington, DC 20202

Dear Ms. Weaver-Dugan:

Thank you for the Draft Audit Report on the results of your review of purchase card use in the
Office of the Secretary, Office of the Deputy Secretary, and Office of the Under Secretary
(ED-OIG/AI9FOOI5). Several offices from ODS and OUS that were included in your review
are now part of the Office of Planning, Evaluation, and Policy Development (OPEPD).
OPEPD is serviced by the OS Executive Office.

I have reviewed the report and concur with your finding and recommendations. I am
initiating the following actions in response to your review:

Recommendation
1.1 	 Ensure OS/ODS/OUS cardholders and AOs are familiar with the Department's policies
      and requirements for obtaining and maintaining supporting documentation, and
      prohibitions against splitting purchases.

    Response
    I am directing OS/ODS/OUS/OPEPD cardholders to attend training to reinforce the
    Department's policies. The Approving Official will certify to me that each cardholder
    has completed a refresher training course and is fully aware ofthe policies governing the
    use ofpurchase cards.

Recommendation '
1.2 Ensure cardhqlders consistently obtain and maintain written purchase requests and
    approvals, records of purchase, and records of receipt for purchases as required by
    Department policy .and procedures for OS/ODS/OUS guidelines.

    Response
    In addition to the training that will reinforce the Department's policies, I am directing the
    OS/ODS/OUS/OPEPD Executive Officer to issue a memorandum to cardholders advising
    them that their adherence to Department policy and other internal guidance will be
    included as part of their annual performance appraisal.




                                 400 MARYLAND AVE., S.W., WASHINGTON, D.C. 20202-0500
                                                      www.ed.gov 


         Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation. 

Recommendation
1.3 Require AOs to thoroughly review reconciliation packages provided by cardholders to
    ensure that adequate supporting documentation is maintained and purchases are not split.

    Response
    As noted in your Draft Audit Report, the OS/ODS/OUS/OPEPD Executive Officer has
    already initiated changes to address this issue. A separate review is now conducted of
    each transaction to ensure all supporting documentation is included. The review provides
    consistency in each transaction and each file is certified prior to the Approving Official's
    release for paYment.

Recommendation ·
1.4 Revise and implement internal purchase card guidelines to ensure that purchase card
    statements and supporting documentation are maintained in a central file consistent with
    Department policy.

    Response
    As of July 25, all purchase card files within the purview of your report are centrally
    located and the internal purchase card procedures have been updated. Most of the staff
    members for whom Brenda Long serves as reviewing official are in the process of
    relocating to the central OS Executive Office. Their files, which currently are centrally
    located, will be combined with the purchase card files of the other cardholders in the
    Executive Office, so the files for OS, ODS, OUS, and OPEPD are in one location.

Recommendation
1.5 Ensure all OS/ODS/OUS staff are aware that purchases should only be arranged by
    cardholders.

    Response
    I am directing the OS/ODS/OUS/OPEPD Executive Officer to issue a memorandum to all
    staff advising them that only those with the designated authority may be involved in the
    purchase process. Any individual who executes a contractual obligation without the
    authority to do so is personally responsible for the expense.

I assure you that we are committed to complying fully with the Department's policies and
procedures on the \lse of purchase cards.

Thank you for the :opportunity to review and respond to this report.

                                             Sincerely,



                                             Raymond Simon

cc: JoAnn Ryan