oversight

Audit of Controls Over Purchase Card Use in the Institute of Education Sciences

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/A19F0021

Grover Whitehurst, Director
Institute of Education Sciences
U. S. Department of Education
Capital Place, Room 600D
555 New Jersey Avenue, NW
Washington, DC 20208

Dear Mr. Whitehurst:

This Final Audit Report (Control Number ED-OIG/A19F0021) presents the results of our audit
of Controls Over Purchase Card Use in the Institute of Education Sciences. 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 Institute of Education
Sciences (IES).


                                             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. IES’ Executive Officer is responsible for administering the purchase
card program in that office. 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.




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Mr. Whitehurst                                                                             Page 2 of 7



On August 28, 2000, the Office of Inspector General issued a report entitled “Review of OERI’s
Internal Controls Over the Procurement of Goods and Services,” (Control Number A&I 2000-
009).1 OIG reported a number of deficiencies in IES’ 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 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 IES. 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 IES needs to further improve internal control over purchase card use. We found that IES did
not always obtain and maintain adequate documentation to support purchases. These issues
occurred because IES cardholders did not consistently follow Department requirements and IES
guidelines, and AOs did not always ensure that adequate supporting documentation was obtained
prior to approving statements for payment.

Without adequate supporting documentation, IES 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.

Issues noted above regarding lack of supporting documentation for purchases were also reported
in the prior OIG review of IES’ purchase card activity.

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




1
 The Office of Educational Research and Improvement (OERI) became the Institute of Education Sciences (IES) in
2002.

                                             ED-OIG/A19F0021

Mr. Whitehurst	                                                                     Page 3 of 7



Finding 1 	 IES Needs to Further Improve Internal Control Over Purchase
            Card Use
While improvements were noted from the prior OIG review, IES needs to further improve
internal control over purchase card use. We reviewed nine purchases, totaling $8,913, made by
three IES Headquarters cardholders. We found that IES cardholders did not always obtain or
maintain adequate documentation to support purchases as required by Department policy and
IES guidelines. Overall, we noted seven of the nine purchases reviewed (78 percent) did not
include one or more required elements.2 Specifically we found:

      •	   One purchase was not supported by a written purchase request.
      •	   One purchase did not include a record of purchase.
      •	   Six purchases were not supported by a record of receipt for the good/service.
      •	   One purchase did not include the Purchase Card Approval Form as required by IES
           internal purchase card guidelines.

Departmental Directive OCFO: 3-104, “Government-wide Commercial Purchase Card
Program,” dated January 23, 2002, Section VI, defines cardholder and AO responsibilities. The
Directive states,

           H. The Cardholder is responsible for . . . 2. Purchasing goods or services in
           accordance with established Department policy, procurement regulations, and
           individual internal office procedures . . . 6. Providing documentation to support
           purchases for AO approval and official record keeping. This documentation
           includes receipts, invoices, logs, etc.

           F. An Approving Official (AO) is responsible for . . . 6. Reviewing, validating,
           and approving for payment the Cardholder's reconciled bank statement each
           billing cycle . . . 14. Reviewing all management reports of Cardholder activity
           under his or her authority . . . 15. Reviewing appropriateness of purchases. This
           includes determining individual purchases are appropriate, that the goods or
           services were properly received and accepted, and that the payment was
           proper. . ..

Section VII.A.7 of the Directive further states, “The Cardholder should secure a written request
(email or requisition) from the appropriate Department employee requesting the Cardholder to
procure goods or services.”

OCFO Procedure CO-097, “Procedure for Buying, Using a Government Commercial Purchase
Card,” revised March 2003, Section 10.d, states the following regarding documentation,
      • 	 Retain data supporting the purchases (including records of oral quotations). 

          Keep your files neat, up-to-date, and easily retrievable. Documentation will be


2
    Some purchases were missing more than one element.

                                               ED-OIG/A19F0021

Mr. Whitehurst	                                                                       Page 4 of 7



        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). . . .

IES established additional guidelines for purchase card use within its office. IES’ “Internal
Control Procedures for Purchase Cards,” in effect since October 2002, states the following
regarding documentation,

        Cardholders are to complete and submit the Purchase Card Approval Form (Attachment
        A) to their approving official prior to making a charge. The list may be submitted via
        email or hardcopy. An approving signature or return email is required and should be
        retained as part of the official file.

Appropriate supporting documentation was not obtained and maintained because IES
cardholders did not consistently follow Department requirements and IES guidelines. We also
noted that AOs did not always ensure that adequate supporting documentation was obtained prior
to approving statements for payment.

Lack of adequate supporting documentation reduces assurance that purchases were appropriate
and were made in accordance with Federal regulations, Department policy and procedures, and
IES guidelines. Approving purchases without reviewing adequate supporting documentation
could increase 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.


Recommendations:

We recommend that the Director, IES, hold the Executive Officer, Approving Officials, and
cardholders accountable for their responsibilities in the purchase card program by establishing a
process to:

1.1 	   Ensure that cardholders and AOs are familiar with the Department’s policy and
        procedures and IES guidelines for obtaining and maintaining supporting documentation.

1.2 	 Ensure cardholders 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 IES guidelines.




                                           ED-OIG/A19F0021

Mr. Whitehurst	                                                                 Page 5 of 7



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


IES Response:

In its response to the draft audit report, IES concurred with the finding and recommendations and
provided corrective actions to address each of the three recommendations included in our report.
IES stated a training session was held on August 17, 2005, with all cardholders and approving
officials to review the audit findings and to ensure that cardholders and approving officials are
thoroughly familiar with the Department’s policy and procedures and IES guidelines for
obtaining and maintaining supporting documentation. IES indicated additional training sessions
would be held annually. IES stated it revised and distributed the Institute’s Internal Control
Procedures for Purchase Cards to specifically outline the documentation requirements for each
purchase card transaction. Finally, IES stated the Executive Officer has been directed to review
all the purchase card documentation submitted each month to ensure that cardholders obtain and
maintain written purchase requests and approvals, records of purchase, and records of receipt for
purchases, and that approving officials thoroughly review reconciliation packages provided by
cardholders to ensure that adequate supporting documentation is maintained.



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

We conducted interviews with OCFO and IES 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 IES 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

                                        ED-OIG/A19F0021

Mr. Whitehurst                                                                   Page 6 of 7



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 IES, the random sample included nine
purchases totaling $8,913 made by three cardholders. No purchases over $2,500, charges to
blocked merchant category codes, or potential split purchases were identified for IES.

In total, IES Headquarters cardholders made 233 purchases totaling $72,363 during the scope
period. The purchases we reviewed represented 4 percent of the total number and 12 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 IES 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 IES 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 13,
2005, through July 11, 2005. We held an exit conference with IES staff on July 29, 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.




                                        ED-OIG/A19F0021

Mr. Whitehurst                                                                   Page 7 of 7



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.

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/A19F0021

                          UNITED STATES DEPARTMENT OF EDUCATION
                                INST ITUTI': OF EDUC,ITION SCfENCES


                                                                         TI II ·: I)II\EC I'01\


                                                 Aug ust 3 1, 2005


MEMORANDUM


TO: 	           Michele Weaver-Dugan, Director
                Operations Inte rnal Audit Team
                Office of Inspector Gene ral

FROM:         'f1Jrover J. Whitchurt •            •
SUBJ ECT: 	     Draft A udit Repo rt of Co ntro ls Over Purc hase Ca rd Use in the Institute of
                Education Sciences (Con tro l Num ber ED-OI G/ A 1917002 I )


This is in response to your lette r of August 12,2005, co ncerning the Draft Aud it Report
of Contro ls Over Purc hase Card Usc in the Institute of Education Sciences (Control
Number ED-O IG/A 19F002 1). We app rec ia te the opportunity to respo nd to yo ur findings
and recol11mendations.

IES co ncurs w ith the auditors' linding that IES cardho ld e rs did not always ob tai n or
maintain adeq uate documentation to support purchases as required by Department policy
and IES gu id el ines. S pccilicall y tile a uditors fo und that for the nine purchases rev iewcd:

    •	   One purchase was no t supported by a wri tten pu rc hase request.
    •	   One purchase did not include a record of purchase.
    •	   Six purchases were not supported by a reco rd o f receipt for the good/service.
    •	   One purchase did not include the Purchase Card Approva l Form as req uired by
         Irs interna l purchase card gu id elines.

The a udit reco ml11 end s tha t the IES Director hold the Fxecutive Officer, App rovi ng
O rti cials, and cardholde rs accountabk for their responsib iliti es in the purchase card
program by estab li sh in g a process to:

1.1 Ensure that cardho lde rs a nd AO' s arc familiar with the Department's po licy and
    procedures and IES gu idel ines for obta in ing and ma inta ining supporti ng
    docu men tat io n.

1.2 	 i:nsu rc cardho lders obtain and maintai n \\I'illen purc hase req uests and approva ls,
      records of purc hase, and records o r receipt for purc hases as requir..:d by Department
      policy a nd rrocedures a nd [lOS guidelines.
1.3 	 Require AO's to thoroughly review reconciliation packages provided by cardholders
      to ensure that adequate supporting documentation is maintained.

In response to the three recommendations, we have taken a number of steps to correct the
problems identified and make improvements in the IES purchase card program:

A training session was held on August 17,2005, with all cardholders and approving
officials to review the audit findings and to ensure that cardholders and approving
officials are thoroughly familiar with the Department's policy and procedures and rES
guidelines for obtaining and maintaining supporting documentation. Additional training
sessions will be held annually.

In addition, we have revised the Institute's Internal Control Procedures for Purchase
Cards to specifically outline the documentation requirements for each purchase card
transaction:

   • 	 Request for purchase (a written request from the requisitioner).
   • 	 Signed Purchase Card Approval form (or similar document).
   • 	 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)

Copies of the revised procedures were distributed to all card holders and approving
officials at the August 17 training session.

The executive officer has been directed to review all the purchase card documentation
submitted each month to ensure that cardholders obtain and maintain written purchase
requests and approvals, records of purchase, and records of receipt for purchases and that
approving officials thoroughly review reconciliation packages provided by cardholders to
ensure that adequate supporting documentation is maintained.

Thank you for the opportunity to respond to this draft. We look forward to the issuance
of the final audit report. If you have any questions, please feel free to contact Sue Betka
at (202) 219-1385.