oversight

Audit of Controls over Purchase Card Use in the Office of General Counsel..

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/A19F0022

Kent Talbert, Acting General Counsel
Office of General Counsel
U.S. Department of Education
Federal Building No. 6, Room 6E341
400 Maryland Avenue, SW
Washington, DC 20202

Dear Mr. Talbert:

This Final Audit Report (Control Number ED-OIG/A19F0022) presents the results of
our audit of Controls Over Purchase Card Use in the Office of General Counsel. 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 General Counsel (OGC).


                                               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. OGC’s Executive Officer is responsible for
administering the purchase card program in that office. The Executive Officer is the only
Approving Official (AO) within OGC 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.
Mr. Talbert                                                                     Page 2 of 7


On September 18, 2000, the Office of Inspector General issued a report entitled “Results
of the OIG Review of OGC’s Internal Controls Over the Procurement of Goods and
Services,” (A&I 2000-012). OIG reported a number of deficiencies in OGC’s internal
controls over the purchase card program including lack of familiarity with Department
policies and procedures, lack of EDCAPS training, inadequate segregation of duties, split
procurements, statements not signed by cardholders, and lack of written internal purchase
card procedures.

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 OGC. 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 OGC needs to further improve internal control over purchase card use. We
found that OGC cardholders did not always obtain or maintain adequate documentation
to support purchases. These issues occurred because cardholders did not consistently
apply Department requirements. OGC officials stated that records of receipt were not
always maintained for training, and that obtaining and maintaining complete records of
receipt for purchases made through the General Service Administration was difficult
because one order may be received in multiple shipments. We also found the AO did not
always ensure that cardholders submitted complete supporting documentation prior to
approving statements for payment.

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

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




                                    ED-OIG/A19F0022
Mr. Talbert	                                                                            Page 3 of 7



Finding 1 	 OGC Needs to Further Improve Internal Control Over
            Purchase Card Use
While improvements were noted from the prior OIG review, OGC needs to further
improve internal control over purchase card use. We reviewed six randomly selected
purchases, totaling $7,430, made by two OGC Headquarters cardholders. We found that
OGC cardholders did not always obtain or maintain adequate documentation to support
purchases as required by Department policy. Overall, we noted five of the six purchases
reviewed (83 percent) did not include one or more required elements. Specifically we
found:1

      •	 One purchase did not include a record of purchase.
      •	 Five purchases were not supported by a record of receipt for the goods or 

         services. 


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.

OCFO Procedure C0-097, “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).


1
    One purchase was missing both a record of purchase and a record of receipt.

                                             ED-OIG/A19F0022
Mr. Talbert	                                                                      Page 4 of 7


           •	 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) . . . .

We found that cardholders did not consistently apply Department requirements. For
example, OGC officials stated that records of receipt were not always maintained for
training, and that obtaining and maintaining complete records of receipt for purchases
made through the General Service Administration was difficult because one order may be
received in multiple shipments. In addition, we found the AO did not always ensure that
cardholders submitted complete supporting documentation 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. 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 Acting General Counsel 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 that cardholders and the AO are familiar with and consistently apply the
        Department’s policies and requirements for obtaining and maintaining supporting
        documentation.

1.2	    Ensure cardholders obtain and maintain records of purchase and receipt 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 prior
        to approving the statement for payment.


OGC Response:

In its response to the draft audit report, OGC concurred with the finding and
recommendations and provided corrective actions to address each of the
recommendations included in our report. OGC reported that cardholders and AOs will
provide written certification to the Acting General Counsel that they have read the draft
audit report and reviewed the Department policy and procedures for the purchase card

                                     ED-OIG/A19F0022
Mr. Talbert                                                                    Page 5 of 7


program. OGC stated cardholders would review the requirements for purchase card
documentation and attach this documentation to the monthly statements submitted to the
AO as part of the monthly reconciliation process. The AO will ensure each purchase
includes proper documentation for purchase and receipt, and that the documentation is
maintained in accordance with OCFO requirements. Finally, the Acting General Counsel
stated that he would conduct random inspections of monthly reconciliation statements to
ensure Department policies and procedures have been complied with regarding
appropriate documentation of purchases.



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

We conducted interviews with OCFO and OGC 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 OGC 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 OGC, the random sample included six purchases totaling $7,430 made by two
cardholders. We also reviewed two potential split purchase transactions totaling $2,869
made by one cardholder. No purchases over $2,500 or charges to blocked merchant
category codes were identified for OGC. One of the potential split purchases was also
included in the random sample. Overall, we reviewed seven different transactions
totaling $8,687 made by two cardholders.

In total, OGC Headquarters cardholders made 103 purchases totaling $58,758 during the
scope period. The purchases we reviewed represented 7 percent of the total number and

                                    ED-OIG/A19F0022
Mr. Talbert                                                                      Page 6 of 7


15 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 OGC 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 OGC 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 22, 2005, through August 4, 2005. We held an exit conference with OGC staff on
August 12, 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.

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 Ed ucation officials.


                                     ED-OIG/A19F0022
Mr. Talbert                                                                     Page 7 of 7


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: Carolyn Adams, Executive Officer/Audit Liaison Officer




                                    ED-OIG/A19F0022
                                                                                                          Attachment 1

                     UNITED STATES DEPARTMENT OF EDUCATION

                                      OFFICE OF THE GENERAL COUNSEL



                                               September 14, 2005

Ms. Michele Weaver-Dugan, Director
Operations Internal Audit Team
U.S. Department of Education
Office of Inspector General
400 Maryland Avenue, S.W.
Washington, D.C. 20202-1510

Dear Ms. Weaver-Dugan:

I am responding to the Draft Audit Report (Control Number ED-OIG/AI9F0022)
regarding your audit of controls over purchase card use in the Office of the General
Counsel (OGC).

I agree with the finding and recommendations, which will further improve internal
controls regarding purchase card documentation and approval of statements for payment.

To implement the three recommendations, OGC plans the following corrective action
steps:

1.1 	 Ensure that cardholders and the AO (Approving Official] are familiar with and
     consistently apply the Department's policies and requirements for obtaining and
     maintaining supporting documentation.

       • 	 The AO and the cardholders will provide to me written certification that they
           have completed the following:
              Read the Office of Inspector General (OIG) Draft Audit Report.
              Reviewed the following:
              o 	 ACS Directive on Government-wide Commercial Purchase Card
                  Program.
              o 	 Purchase card procedures as outlined on the Office of the Chief
                  Financial Officer's (OCIO) website, the Department's Purchase Card
                  Program Home Page (http://connected1.ed.gov/po/ocfo/cpo/credit).
              o 	 Procedures for Using the OCFO Purchase Card) (Supplemental
                  Procedures                                                   (AD-16)
                  (http://connected3/edlproceduresthatwork/popups/popup preview pro
                  cedures.cfm?proc id=30&criteria=purchase%20card)




                            400 MARYLAND AVE.,     s.w. WASHINGTON, D.C.     20202-2110

    Our mission is to ensure equal access to education and to promote educational exceUence throughout the Nation.
                                             2




       •	   In addition, the AO will ensure that each purchase includes the proper
            documentation for purchase and receipt, and that the documentation is
            maintained in accordance with OCFO requirements.

1.2 Ensure cardholders obtain and maintain records of purchase and receipt as required
    by Department policy and procedures.

       •	   Each OGC cardholder will review OCFO requirements for purchase card
            documentation, and the cardholders will attach this documentation to the
            monthly credit card statement submitted to the AO as part of the monthly
            reconciliation process.

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

       •	   The AO will ensure that each purchase includes the proper documentation for
            purchase and receipt, and that the documentation is maintained in accordance
            with OCFO requirements.

       •	   Finally, I will conduct random inspections of the monthly reconciliation
            statements to ensure that Department policies and procedures have been
            complied with regarding appropriate documentation for purchases.

Thank you for the opportunity to comment on the Draft Audit Report and submit a
proposed Corrective Action Plan. I would be pleased to discuss the Draft Audit Report
and the proposed Corrective Action Plan further with you.


                                             Sincerely,




                                             Kent D. Talbert