oversight

Audit of Controls over Purchase Card Use in the Office of Intergovernmental and Interagency Affairs.

Published by the Department of Education, Office of Inspector General on 2005-10-25.

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

                      UNITED STATES DEPARTMENT OF EDUCATION

                                       OFFICE OF INSPECTOR GENERAL





                                                 October 25, 2005

                                                                                              CONTROL NUMBER
                                                                                                ED-OIG/A19F0020

Christina Culver
Director, Regional Services
Office of Communications and Outreach
U.S. Department of Education
Federal Building No. 6, Room 5E311
400 Maryland Avenue, SW
Washington, DC 20202

Dear Ms. Culver:

This Final Audit Report (Control Number ED-OIG/A19F0020) presents the results of
our audit of Controls Over Purchase Card Use in the Office of Intergovernmental and
Interagency Affairs. 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 Intergovernmental and Interagency Affairs (OIIA).


                                              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 OIIA. The Executive Officer is the only
Approving Official (AO) for the program in OIIA, 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. Culver                                                                      Page 2 of 7


On August 18, 2000, the Office of Inspector General (OIG) issued a report entitled
“Results of the OIG Review of OIIA’s Internal Controls Over the Procurement of Goods
and Services,” (Control Number A&I 2000-008). OIG reported a number of deficiencies
in OIIA’s internal controls over the purchase card program including lack of familiarity
with Department policies and procedures, lack of appropriate warrants for some
cardholders, lack of training or refresher training, lack of written OIIA policies and
procedures, lack of signatures on cardholder statements, and inadequate and/or missing
documentation to support purchase card 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 OIIA. A summary report will be
provided to the Department’s Chief Financial Officer upon completion of the audits in
individual offices.

Subsequent to our audit work, OIIA staff became part of a new organization, the Office
of Communications and Outreach (OCO). The former Acting Assistant Secretary for
OIIA, to whom the draft report was directed, is now the Director of Regional Services for
OCO. The final report is directed to the former Acting Assistant Secretary for OIIA, but
reflects her new title and position in OCO.


                                AUDIT RESULTS
While improvements were noted from the prior OIG review of purchase card activity, we
found that OIIA needs to further improve internal control over purchase card use. We
found that OIIA cardholders did not always obtain or maintain adequate documentation
to support purchases, and cardholders were charged sales tax for some purchase card
transactions. These issues occurred because cardholders did not consistently apply
Department requirements and the AO did not always ensure that cardholders submitted
complete supporting documentation prior to approving statements for payment.

Without adequate supporting documentation, OIIA 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.
Payment of sales tax increases the cost of goods and services purchased, and reduces
funds available for other uses. Approving purchases without reviewing adequate
supporting documentation increases the Department’s vulnerability to potential misuse or
waste of government resources.

The issues noted above regarding lack of supporting documentation for purchases, and
lack of familiarity with Department policies and procedures, were also reported in the
prior OIG review of OIIA’s purchase card activity.

                                    ED-OIG/A19F0020
Ms. Culver 	                                                                        Page 3 of 7




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


Finding 1 	 OIIA Needs to Further Improve Internal Control Over
            Purchase Card Use
While improvements were noted from the prior OIG review, OIIA needs to further
improve internal control over purchase card use. We reviewed 23 purchases totaling
$18,906 made by 4 OIIA Headquarters cardholders. We found that OIIA cardholders did
not always obtain or maintain adequate documentation to support purchases as required
by Department policy and procedures. Overall, we found that 17 of the 23 purchases
reviewed (74 percent) did not include one or more required elements. Specifically we
found:1

      •	 Records of purchase for two transactions showed a lower amount than actually
         charged. Documentation to support the higher amount was not included in the
         purchase card files or provided by OIIA.
      •	 Records of receipt were not documented for 17 purchases.
      •	 The amount charged for two purchases included sales tax.

We also noted complete supporting documentation required by Department policy and
procedures was not originally provided in the purchase card files for one additional
transaction. OIIA provided additional documentation that supported this purchase, and
this purchase is not included in the exceptions noted above.

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


1
    Some purchases included exceptions in more than one category.

                                            ED-OIG/A19F0020
Ms. Culver 	                                                                         Page 4 of 7


        purchases are appropriate, that the goods or services were properly
        received and accepted, and that the payment was proper . . . .

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) . . . .

The Federal Acquisition Regulation (FAR) 29.302, “Application of State and
local taxes to the Government,” states,

        (a) Generally, purchases and leases made by the Federal Government are
        immune from State and local taxation. Whether any specific purchase or
        lease is immune, how-ever, is a legal question requiring advice and
        assistance of the agency-designated counsel. (b) When it is economically
        feasible to do so, executive agencies shall take maximum advantage of all
        exemptions from State and local taxation that may be available.

Section VII.A.5 of the Directive also addresses the Department’s exemption from paying
sales tax as follows:

        At the time of purchase, the Cardholder should tell the merchant that he or
        she is paying with a Government Purchase Card. He or she must also
        confirm that the merchant understands the purchase is not subject to sales
        tax.

We found cardholders and the AO did not consistently apply policies and procedures
established by the Department, and the AO did not ensure that the cardholder submitted
complete supporting documentation prior to approving the statements for payment. The
Executive Officer stated that other possible causes for inadequate or missing
documentation could be due to lack of follow through by the cardholder, misplaced
documentation, the cardholder working on another assignment, or either the receipt for
the purchase, or the person that initially made the request for the purchase, was not
readily available.



                                      ED-OIG/A19F0020
Ms. Culver 	                                                                     Page 5 of 7


With respect to the transactions involving sales tax, the Executive Officer stated that the
cardholders are instructed to resolve these by contacting Bank of America and the
merchant and to document their attempts in the purchase card files. However, for the two
cases noted, OIIA’s purchase card files did not include such documentation.
Lack of adequate supporting documentation reduces assurance that purchases and
amounts charged 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. Payment of sales tax increases the cost of goods and services purchased,
and reduces funds available for other uses. Approving purchases without reviewing
adequate supporting documentation increases the Department’s vulnerability to potential
misuse or waste of government resources.


Recommendations:

We recommend that the Acting Assistant Secretary for OIIA 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 OIIA cardholders and the AO consistently apply the Department’s policies
        and requirements for: (a) obtaining and maintaining supporting documentation,
        and (b) ensuring sales tax is not charged.

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

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


OIIA Response:

In its response to the draft audit report, OIIA concurred with the finding and
recommendations included in our report. OIIA stated that it would work toward
implementing the recommendations in the new Office of Communications and Outreach.


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

                                     ED-OIG/A19F0020
Ms. Culver                                                                       Page 6 of 7


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 Directive s, OIIA and OCFO procedures and guidance applicable
to the purchase card program.

We conducted interviews with OCFO and OIIA 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 OIIA 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 OIIA, the random sample included 20 purchases. High-risk purchases for OIIA
included three blocked merchant category code purchases. No purchases over $2,500 or
potential split purchases were identified for OIIA. Overall, 23 purchases totaling $18,906
made by 4 cardholders were included in our review.

In total, OIIA Headquarters cardholders made 290 purchases totaling $148,008 during the
scope period. The purchases we reviewed represented 8 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 OIIA 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 OIIA 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 comp uter-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



                                     ED-OIG/A19F0020
Ms. Culver                                                                         Page 7 of 7


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 August 17, 2005. We held an exit conference with OIIA staff on
August 30, 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 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 



cc: Norman Hall, Former OIIA Executive Officer/Audit Liaison Officer


                                     ED-OIG/A19F0020
                                                                                                           Attachment 1

                    UNITED STATES DEPARTMENT OF EDUCATION
                             OFFICE COMMUNICATIONS AND OUTREACH




October 3, 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 20202-1510

Dear Ms. Weaver-Dugan:

Thank you for providing your Draft Audit Report on Controls over Purchase Card Use in
OIIA. The draft has been reviewed and we concur with your findings and
recommendations.

We will work toward implementing the recommendations in the new Office of
Communications and Outreach.

                                                  Sincerely,



                                                  Christina Culver /s/
                                                  Director, Re gional Services




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

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