oversight

Audit of Controls Over Purchase Card Use in the Office of Postsecondary Education.

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/A19F0017

Ms. Sally L. Stroup
Assistant Secretary
U.S. Department of Education
Office of Postsecondary Education
400 Maryland Avenue, SW
Washington, DC 20202-6510

Dear Ms. Stroup:

This Final Audit Report (Control Number ED-OIG/A19F0017) presents the results of our audit
of Controls Over Purchase Card Use in the Office of Postsecondary Education. 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 Postsecondary
Education (OPE).


                                              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. OPE’s Executive Officer is responsible for administering the purchase
card program in that office. The Executive Officer is the only Approving official (AO) within
OPE 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.
Ms. Stroup                                                                       Page 2 of 8




On September 7, 2000, the Office of Inspector General (OIG) issued a report entitled, “Results of
the OIG Review of OPE’s Internal Controls Over the Procurement of Goods and Services,”
(Control Number A&I 2000-013). OIG reported a number of deficiencies in OPE’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, lack of adequate supporting documentation for purchases, and lack of written internal
purchase card procedures.

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 OPE. 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
OPE needs to further improve internal control over purchase card use. We found OPE did not
always obtain and maintain adequate documentation to support purchases and OPE requirements
regarding prior approval of purchases. These issues occurred because OPE staff initiated some
purchases based on verbal requests and/or approvals, and one OPE cardholder was also
approving his/her own purchases. OPE staff did not always follow-up to document whether
items ordered were received, and did not always follow required processes for certain types of
purchases. We also noted the AO did not always ensure the cardholder submitted complete
supporting documentation prior to approving statements for payment.

Without adequate supporting documentation, OPE does not have assurance that purchases were
appropriate and were made in accordance with Federal regulations and Department policy and
procedures. 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. 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 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.

Issues noted above regarding lack of adequate documentation to support purchases represent
repeat conditions from the prior OIG review of OPE purchase card activity.

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

                                        ED-OIG/A19F0017

Ms. Stroup	                                                                         Page 3 of 8



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

OPE needs to further improve internal control over purchase card use. We reviewed 24
purchases made by 5 cardholders totaling $30,313, and found the cardholders did not obtain or
maintain adequate documentation to support a number of the purchases as required by
Department policy and OPE guidelines. Overall, we noted that 14 of the 24 purchases reviewed
(58 percent) did not include one or more required elements. Specifically we found:1

           • 	 Five purchases were not supported by a written request for purchase.
           • 	 10 purchases were not supported by a record of receipt for the good/service.
           • 	 One purchase of furniture did not include documentation showing coordination with
               and approval from the Office of Management/Facilities Services (OM/FS) as
               required.
           • 	 Eight purchases did not include documentation to support that supervisory approval
               was obtained as required by OPE guidelines.

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

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 . . . 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.”

1
    Some purchases include issues in more than one category.

                                                 ED-OIG/A19F0017

Ms. Stroup	                                                                           Page 4 of 8



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) . . . .

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

        The Principal Officers are responsible for . . . 4. Assuring that all furniture
        procurement is through, coordinated and approved by 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.

OPE’s internal guidelines, “Purchase Card Procedures,” effective June 2002, require supervisory
approval prior to purchase. The guidelines also state with regard to purchasing documentation,

        • 	 You should maintain documentation of supervisory approval for the purchases
            that you make with your card. This can be done using an internal requisition
            form (sample attached) or through email. The card is never to be used for
            personal purchases.
        • 	 You need to keep receipts and packing slips associated with your purchases in
            a safe place. You will need to attach these to your monthly statement and
            send them to the Executive Officer by the first of month following the receipt
            of your statement.

OPE officials generally believed their practices effectively met requirements for purchase card
use. However, OPE’s practices did not always provide the documentation required to support
purchases. For example, OPE stated some cardholders initiated purchases based on verbal
requests and/or approvals from the Executive Officer, but did not document the requests and
approvals as required. In addition, one OPE cardholder was also approving his/her own
purchases. OPE’s policy did not include the Department requirement for a written request,
which may have contributed to confusion on this requirement. In addition, OPE cardholders did
not always follow up to document whether items ordered were received and whether employees
attended training purchased, and the AO did not ensure that the cardholder submitted complete
supporting documentation prior to approving the statements for payment.



                                           ED-OIG/A19F0017

Ms. Stroup	                                                                       Page 5 of 8



With respect to the purchase of furniture, OPE staff stated OM/FS informed them that they could
deal directly with the vendor for individual purchases if necessary. However, OPE had no
documentation of these contacts with OM/FS. OPE staff also stated that in the past OM/FS had
not been able to provide furniture when OPE made this contact.

Lack of adequate supporting documentation reduces assurance that purchases were appropriate
and were made in accordance with Federal regulations and Department policy and procedures.
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. 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 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.


Recommendations:

We recommend that the Assistant Secretary for OPE hold the Executive Officer/AO 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 OPE
      guidelines.

1.3 	   Require the AO to thoroughly review reconciliation packages provided by cardholders to
        ensure that adequate supporting documentation is maintained and appropriate approvals
        for purchases are documented.


OPE Response:

In its response to the draft audit report, OPE concurred with the recommendations and provided
corrective actions to address each of the three recommendations included in our report. OPE
stated that all cardholders and AOs will be required to take purchase card refresher training on-
line that specifically addresses the importance of (a) obtaining and maintaining written support
documentation, and (b) obtaining prior approval for the purchase of goods and services that
require special approval or clearance. OPE stated it has already updated its purchase card
procedures to include the Department’s requirement for a written request for goods and/or

                                         ED-OIG/A19F0017

Ms. Stroup                                                                        Page 6 of 8



services prior to purchase, and its guidelines now specifically refer to the importance of
maintaining written supporting documentation. OPE also stated it will require cardholders and
AOs to sign a certification that they have read the revised procedures. Finally, OPE stated that it
will assign responsibility for approving purchases and the monthly purchase card statement to a
supervisor in the cardholder’s immediate office in order to strengthen controls.


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

We conducted interviews with OCFO and OPE 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 OPE 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 OPE, we reviewed 20 randomly
selected purchases, 3 purchases over $2,500, 1 purchase made against a blocked merchant
category code, and 19 potential split purchases. Overall, 43 purchases totaling $46,282 made by
6 cardholders were included in our review.

In total, OPE Headquarters cardholders made 438 purchases totaling $197,634 during the scope
period. The purchases we reviewed represented 10 percent of the total number and 23 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 OPE purchases.




                                         ED-OIG/A19F0017

Ms. Stroup                                                                       Page 7 of 8



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 OPE 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 June 1,
2005, through July 13, 2005. We held an exit conference with OPE staff on July 27, 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 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. §552), 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.




                                        ED-OIG/A19F0017

Ms. Stroup                                                                    Page 8 of 8



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/A19F0017

                                                                                                       Attachment 1
                       UNITED STATES DEPARTMENT OF EDUCAT[ON




MEM O IU N I} UI\[


1M T E: 	                  SEP - 6   m
TO: 	                    Mlchclle Wca'cr-Dugan. Director
                         Operallons [lIlenlal Audl1 Team
                         U,S Departnlent ofl:ducalion
                         Office of III~tor Geller.. [
                         400 Marylalld A'clluc. S. W.
                         WaslHnglOli. DC 20202-1510

                         Sally L. Stroup 

                         Asslst:Ull Scerclary 


SUIIJ ECl': 	            Dr.lfl Audit Repon
                         r outrols O"cr I'urchase Card Usc      I!l   III" Office of 1'0stsecOlldary
                         &lIIC"liol l
                         ('onlrol Number I'I)-OIGIA 19FOOl7

Than.... you for Ihe ol'IXlnu <li l Y!\) COlllillent 011 Ihe omcc 0 flnsp~"Clor General 's (0 IG) Draft
Audit RC[l(In. (OMra/.r o,w Pllrchase Card U,,' III /he OJJice of l'os/sccOlU/(Jrr EdllmllOll.
Conlrol Number ED-OJGIA 19FOO17. datoo Augusl 12. 2005. Th~ ohJ<'Ctives oflhe audit were
10 lISS<,"'SS the currem errecu~eness of Illlemal COnltols o,'cr Ihe I'un;ha.>c card program alld the
appropnatellCSS of cUITem pun;hasc canl use in Ihe Office of I'ostsccondar} Educalion (OPE).

FI N[) I NG NU1\ III ER I: 0 I' t: N~etls lu Fu rt he r J 1111'''0' c 10Iernai Co ntrol 0 , er I'u rch ase
C ard Use.

The OIG cited lhc folio" illS 'SSues

    • 	 Fi,'c Ilurchases "ere no, sup[l(lrtcd by a ",lIncn rcquCSl for purchas.:
    • 	 Ten purchases werc nOI SUPIlOrtcd by a recon.l ofrccclpl
    • 	 One purchase of furnllure ,1,,1 not ",dud" documental;Ou shu\\ IIlg coor.hnallon '~i'h. ~nd
        arJ'IO"al from. Ihe Office of 1\ lallagclllCut; faCilitics Ser.... lCes (0:1.1 I'S). as re<julred by
        J)cpartmcnl 'lOltcy alld I'rocl-dU(C5.
    • 	 F' lghll,ul'cim$Cs d,u nOi 'nclude docu"'~n ' ~tlOn to 5"1'[100 Ih"l sup"n 'wry appro"al "as
        ohl3med. as required hy OJ'I' gUidelines.
"" '"   """., "   .•. •..   ,   ,~




         P~!>"'   2 . M,chele We aver-Dugan

         RE eO.\ IL' 1E,....' I)ATIO N 1.1; Ensure that cardho lders and the Approving Offic,al (AO) an::
         tarmloar '" th ll,e Department's polic,es and rcq uiremcnts for: (a) obtaining and maintaining
         supponmg document"tlOn, and (b) goods and servicCl> that require special approval or clearance.

         We conc ur ""Ih the OIG·s recommendation OI' E purchasc cardholders and AOs will be
         r~'101rcd   10 l~ kc pmcha:<e tJrd refresher lrarning, Th~ training wil l be offered on_line, and
         '"~, J~,,,:J~,, .!I,d ,\Os ",II prrnl Dul "" terl, iicat c of comp Ietlon, Traimng will 'peci fically address
         !h~ ,mpDn.ncc of (d ) obtaini ng amI lllaintalning written support documentation, and (b)
         Oblarmn); prior written approval for th~ purchas. of goods and services that require special
         approval or clearaJlce_

         R r CO;\ll\ l U,,' Il ATlON \.Z: Ensure cardholders consistently ohlarn and mainlain wrillen
         purchase [CqUC,t5 and approvals, records of purchase, records of receipt, and alire" appropnale
         support"'g documentation for purchases, as reqUIred by Department pohey and procedures am!
         UP!! !ll!,dehllcs.

          We coneur wllh the O!G's rccommendallOfl OPE has rev ised its internal guidchncs to include
         lh~ D~p""tl1lcII('s        requlremenl for 3 wnlten request for goods a.nd/or services prior to purchases.
          n,c Intern"! gut,lehn". specifically Icfer to the importance ofmamlaming written supporting
         document~ t;on in accordance with Departmenl 'Policy and procedures, OPE will require
         , ,,,,,n,, Iole'~ .lilt! .'1.0, ", "gil a cen, fica l",n lhat they have read Iht reqsed procedures

         ;{l ~ C\l \1 f:~ IJ \"1' 10 ,.... I.J; RcquJrt the AO 10 tlrorougl, ly feVleW reconC iliat ion packages
         prn",dcd hy carc.lhulders to enS ure that adequale supporting documentation is maintained and
         approp,,,,te approvals for purchases arc documented.

         \\." ""ncUl ",illr tlr" OIG's recommendaliov_ To slrcllgthen imerna! controls. OPE will assign
         respollslhl ht y for approv ing purchases and the :.ppro,·al of the monthly purchase card statement
         to 3 superv,sor m the cardholder's Immediate office. OPE's Exccutwe Officer w,ll notify
         supervl<ors of therr lIew responsibilities by email.

         We anticipate that the above actions will be comptclcd hy December I, 2005.

          'i,.",~   ).'U [,ll        r~' IC" mg pUf~h~,c c.ml usc In OPE dnd for making r~commcnc.l.,lions to improve
         OUI HttCnl<l] (ontrol., If you have an y qUCS\lo,,~         r~gardlr1g   this respOllse, please contact
         Humphrey Barnes at 202·502·7550.