oversight

Audit of Controls over Purchase Card Use in the Office of Elementary and Secondary Education.

Published by the Department of Education, Office of Inspector General on 2005-09-27.

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

                      UNITED STATES DEPARTMENT OF EDUCATION

                                       OFFICE OF INSPECTOR GENERAL





                                                 September 27, 2005



                                                                                              CONTROL NUMBER
                                                                                                ED-OIG/A19F0018

Henry L. Johnson
Assistant Secretary
Office of Elementary and Secondary Education
U. S. Department of Education
400 Maryland Avenue, SW
Washington, DC 20202

Dear Mr. Johnson:

This Final Audit Report (Control Number ED-OIG/A19F0018) presents the results of
our audit of Controls Over Purchase Card Use in the Office of Elementary and
Secondary 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 Elementary and Secondary Education
(OESE).


                                              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 program in OESE. The Executive Officer is the only
approving official (AO) in OESE and therefore 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. Johnson                                                                     Page 2 of 8




On May 22, 2000, the Office of Inspector General (OIG) issued a report entitled, “Results
of the OIG Review of OESE’s Internal Controls Over the Procurement of Goods and
Services,” (Control Number A&I 2000-002). OIG reported a number of deficiencies in
OESE’s internal control over the purchase card program, including lack of familiarity
with Department policy and procedures, inadequate documentation to support purchases,
sharing of purchase cards among employees, lack of adequate purchase card approval,
and untimely review and approval of statements by the AO.

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


                                 AUDIT RESULTS

While improvements were noted from the prior OIG review of purchase card activity, we
found that OESE needs to further improve internal control over purchase card use. We
found that OESE did not always obtain and maintain adequate documentation and
approvals to support purchases in accordance with Department policies and OESE’s
internal policy. These issues occurred because OESE staff were not always familiar with
Department policy and procedures regarding documentation and clearance for specific
items. We also found that the AO did not ensure cardholders submitted complete
supporting documentation prior to approving the statements for payment. In addition,
OESE guidelines need to be clarified to avoid inconsistent application of requirements.

Without adequate supporting documentation, OESE does not have assurance that
purchases were appropriate and were made in accordance with Federal regulations,
Department policy and procedures, and OESE guidelines. Failure to document receipt of
goods and services could result in payment for items that were ultimately not provided to
the Department. Approving purchases without adequate supporting documentation
increases the Department’s vulnerability to potential misuse or waste of government
resources. Failure to seek required approvals for certain purchases could result in the
improper use of Government funds. Failure to follow internal policies with respect to
pre-approval of purchases reduces the effectiveness of the control established and reduces
OESE’s assurance that purchases made were appropriate. Inconsistent application of
some aspects of internal policy could lead to confusion as to the applicability of other
areas of the policy.

Issues noted above regarding lack of familiarity with Department policy and procedures
and lack of adequate documentation to support purchases were also reported in the prior
OIG review of OESE’s purchase card activity.

                                    ED-OIG/A19F0018
Mr. Johnson	                                                                       Page 3 of 8




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


Finding 1 	 OESE Needs to Further Improve Internal Control Over
            Purchase Card Use
While improvements were noted from the prior OIG review, OESE needs to further
improve internal control over purchase card use. We reviewed 12 purchases totaling
$28,977 made by 2 OESE headquarters cardholders. We found that OESE cardholders
did not always obtain and maintain adequate documentation and approvals to support
purchases as required by Department policy and OESE guidelines. Overall, we found
that 8 of the 12 purchases (67 percent) did not include one or more elements required by
Department policy. Specifically, we determined:1

          •	 Eight purchases did not include complete documentation to support that the
             goods or services were received.
          •	 One purchase, a paid advertisement, did not include documentation to support
             clearance by CAM for the purchase.

In addition, we found that preapproval of six purchases was not documented by
signatures and/or dates of OESE officials as required by OESE guidelines. Specifically,
three purchases did not include the signature of the program director and/or executive
officer on the specified form, and three purchases included required signatures, but the
signatures were not dated to support that approval was obtained prior to the purchase.

Department Directive (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 individual


1
    Some purchases included issues in more than one category.
                                            ED-OIG/A19F0018
Mr. Johnson	                                                                            Page 4 of 8



        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,

    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).

Section VII.A.9.b of the Directive states, “Examples of categories requiring special
reviews or clearances . . . b. Paid advertisements - authority to publish advertisements in
newspapers and periodicals require clearance by the Director, [Contracts and Purchasing
Operations] CPO . . . .”2

OESE’s “Internal Procedures for Purchase Cardholders on the Safeguarding and
Authorized Use of the Purchase Card,” (OESE guidelines), dated June 30, 2003, states in
the “Internal Controls” section,

        . . . Requests for purchases using the government purchase card must be
        approved in advance, through the use of a purchase request form, signed
        and dated by the program director and the Executive Officer . . . .

We found that OESE cardholders and other officials involved in the purchase card
program were not always familiar with Department policy and procedures. In addition,
the AO did not ensure that adequate supporting documentation was obtained before
approving statements for payment. OESE staff also stated their belief that additional
approvals were not required for the advertisement due to the small dollar value of the
purchase.



2
 Contracting and Purchasing Operations (CPO) is now known as Contracts and Acquisition Management
(CAM).
                                         ED-OIG/A19F0018
Mr. Johnson	                                                                        Page 5 of 8



We also found that OESE’s guidelines needed clarification with respect to requirements
for approval, signatures, and documentation. Program director signatures were not
provided on the form required by OESE guidelines for two of the transactions. For one
of these transactions, the Executive Officer also did not sign the required form. In one
other case the Program Director signed the required form but the Executive Officer did
not. OESE stated that the signatures provided on other forms or by other officials were
considered acceptable, but this does not conform to OESE’s guidelines as written. In
three other cases, the Executive Officer signed the form, but did not date her signature, so
approval in advance of the purchase was not documented.

Lack of adequate supporting documentation reduces assurance that purchases were
appropriate and were made in accordance with Federal regulations, Department policy
and procedures, and OESE guidelines. Failure to document receipt of goods and services
could result in payment for items that were ultimately not provided to the Department.
Failure to obtain proper approval for advertisements could result in improper use of
Government funds. Approving purchases without reviewing adequate supporting
documentation increases the Department’s vulnerability to potential misuse or waste of
government resources.

Failure to follow internal policies with respect to pre-approval of purchases reduces the
effectiveness of the control established and reduces OESE’s assurance that purchases
made were appropriate. Inconsistent application of some aspects of internal policy could
lead to confusion as to the applicability of other areas of the policy.

As a result of our audit, OESE reported it has established a process by which cardholders
open shipments of goods and obtain a copy of any packing slips and other documentation
to support receipt prior to delivering the goods to the requesting staff member. In
addition, OESE stated it plans to clarify its internal guidelines to address the issues noted.


Recommendations:

We recommend that the Assistant Secretary for OESE 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 OESE 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 for purchase.

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 OESE guidelines.



                                      ED-OIG/A19F0018
Mr. Johnson	                                                                     Page 6 of 8



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

1.4	    Update OESE’s Purchase Card Guidelines to accurately reflect intended controls
        and business practices.

OESE Response:

In its response to the draft audit report, OESE concurred with the recommendations and
provided corrective actions to address each of the recommendations included in our
report. OESE reported that the Executive Officer/AO met with cardholders on August 5,
2005, to review the findings in the audit and the requirements of the Department
Directive. OESE also reported the AO had reviewed the most recent reconciliation
package, was assured that each purchase had supporting documentation, and the AO will
continue this process for all future monthly reconciliations and payments. Finally, OESE
reported that it had revised its internal guidelines to more clearly reflect intended
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
OESE. To accomplish our objectives, we performed a review of internal control
applicable to OESE’s administration and management of its purchase cards. We
evaluated the prior OIG review of the purchase card program in OESE to determine the
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, OESE and OCFO procedures and guidance
applicable to the purchase card program.

We conducted interviews with OCFO and OESE 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 OESE 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.

                                    ED-OIG/A19F0018
Mr. Johnson                                                                      Page 7 of 8



In OESE the random sample included eight purchases. High-risk purchases for OESE
included two potential split purchases and four purchases over $2,500. No purchases
made against blocked merchant category codes (MCCs) were identified for OESE.
Overall, we reviewed 14 OESE purchases totaling $33,028 made by 2 cardholders.

In total, OESE Headquarters cardholders made 149 purchases totaling $85,990 during the
scope period. The purchases we reviewed represented 9 percent of the total number and
38 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 OESE 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 OESE 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 8, 2005, through July 12, 2005. We held an exit conference with OESE 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.


                        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.




                                     ED-OIG/A19F0018
Mr. Johnson	                                                                     Page 8 of 8



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 Miche le 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:	    Ruth Hall, OESE Executive Officer
        Dolores Warner, OESE Audit Liaison Officer




                                     ED-OIG/A19F0018
                                                                                                   Attachment 1

                      UNITED STATES DEPARTMENT OF EDUCATION

                           OFFICE OF ELEMENTARY AND SECONDARY EDUCATION

                                                                                            TIlE ASSISTANT SECRETARY


                                                                                 CONTROL NUMBER
                                                                                 ED-OIG/AI9FOOI8

Michele Weaver-Dugan, Director
Operations Internal Audit Team
U.S. Department of Education                                           SEP 22 2005
Office of Inspector General
400 Maryland Avenue, S.W.
Washington, DC 20202-1510

Dear Ms. Weaver-Dugan:

This letter is in response to your August 29,2005 letter presenting the Draft Audit Report
of controls over purchase card use in the Office of Elementary and Secondary Education
(OESE). The objective of your audit was to assess the current effectiveness of internal
controls over the purchase card program and the appropriateness of current purchase card
use in OESE. As a result of your audit, you made several recommendations for
improvement, with which we concur.

OESE considers this audit as a critical and serious matter and have made or plan to make
the following corrective actions to your recommendations:

Recommendation:
1.1 	 Ensure OESE 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 for purchase.

Corrective Action:
1.1 	 The Executive Officer (who is the AO in OESE) met with OESE purchase card
       holders on August 5, 2005 to discuss the findings in the OIG audit and the
       Department Policy Directive ACS OCFO: 3-104, titled "Government-wide
       Commercial Purchase Card Program". These discussions were intended to
       refresh the cardholder's and AO's knowledge of the policies and procedures for
       use of the government purchase card.

Recommendation:
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 OESE guidelines.



                                 400 MARYLAND AVE., S.W. , WASHINGTON, DC 20202
                                                       www.ed.gov 


      Ou, mission is to ensure eaual access to edurotion and to Dromote edurotional exceUence throuahout the nation. 

Page 2 – Michele Weaver-Dugan

Corrective Action:
1.2	   In the August 5, 2005 meeting with OESE cardholders, the Executive Officer/AO
       reiterated to the cardholders that it is imperative that they review each written
       request for purchases to ensure that the requests meet Department policy and
       OESE internal guidance/standards prior to submission to the AO for approval.

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

Corrective Action:
1.3	   The OESE Executive Officer/AO has reviewed the most recent reconciliation
       package for August purchases and payment and was assured that each purchase
       had supporting documentation. The AO will continue this process for all future
       monthly reconciliations and payments.

Recommendation:
1.4	 Update OESE’s Purchase Card Guidelines to accurately reflect intended controls
     and business practices.

Corrective Action:
1.4	   The Executive Officer/AO has revised OESE’s Purchase Card Guidelines
       (Revised 8/31/2005) to more clearly reflect the intended controls. See enclosure.

We are pleased to note that you found improvements in OESE’s internal controls from
the prior OIG review, and assure you that subsequent audits will continue to show
marked improvement.

Thank you for the opportunity to respond to your concerns regarding the OESE purchase
card internal control procedures. We appreciate the cooperation of your staff during the
audit process, and are confident that your recommendations will be helpful in reaffirming
controls over future purchase card use in OESE.

Sincerely,



Henry L. Johnson

cc: Ruth E. Hall

Enclosure