oversight

OIG Review of OERI's Internal Controls Over the Procurement of Goods and Services (A&I 2000-009) Date Issued: 8/28/2000 PDF (38K)

Published by the Department of Education, Office of Inspector General on 2000-08-28.

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

MEMORANDUM

TO            :       C. Kent McGuire
                      Assistant Secretary
                      Office of Educational Research and Improvement

FROM          :       John P. Higgins, Jr.
                      Acting Assistant Inspector General
                      Analysis and Inspection Services

SUBJECT        :      Results of the OIG Re view of OERI’s Internal Controls Over the
                      Procurement of Goods and Services (A&I 2000-009)


INTRODUCTION

This memorandum transmits the results of our review of OERI's internal controls over the
procurement of goods and services. This review is part of OIG's Department-wide
review of this area. The Department’s management is responsible for establishing and
maintaining internal controls. We will transmit the Department-wide results to the
Deputy Secretary with copies to the Assistant Secretaries and other senior staff when we
complete our review. On August 17, 2000, OIG staff met with you and members of your
procurement staff to discuss the results of this review.

RESULTS

We identified certain deficiencies that prevent OERI from satisfying GAO’s Standards
for Internal Control in the Federal Government. For your information and corrective
action, those deficiencies are listed in the attached chart (Attachment A). In the future,
we anticipate conducting a follow-up review to assess the actions you have taken to
satisfy GAO’s Standards for Internal Control in the Federal Government.

In addition, we want to advise you and OERI managers of inherent vulnerabilities we
identified in two Department procurement systems.

ü Purchase Cards – For efficiency reasons, the Department designed a purchase card
  system where cardholders can order, receive and approve payments for goods and
  services. Consequently, as a control, the Department established approving officials
  to review the use of purchase cards. Therefore, it is important that approving officials
  properly review all cardholder statements, including invoices, before forwarding them
  to OCFO for payment.
ü Third Party Draft System (TPDS) – An individual with signature authority can issue
  TPDS checks without the involvement of anyone else. Therefore, it is important that,
  at a minimum, the supervisor of the individual with signature authority conduct
  periodic reviews of TPDS disbursements.

During our review, we noted that some OERI staff assigned purchase cards are below the
minimum grade level (GS-9) required to receive annual ethics training. Because of their
procurement responsibilities, we believe that ethics training would be beneficial to these
employees. Management should require them to attend annual ethics training.

OBJECTIVE

Our review objective was to assess the internal controls over compliance with laws and
regulations for the procurement of goods and services other than studies or evaluations.

SCOPE

We limited our work to procurements in Washington, D.C. (Headquarters). Although we
interviewed staff regarding contracts for the purchase of goods and services, we did not
review contract files. We limited testing of accounting records to procurements using
the Third Party Draft System (TPDS) and Purchase Cards. We did not conduct testing on
OERI’s use of “Corporate” Government Travel Accounts.

METHODOLOGY

To achieve our objectives, we conducted interviews with OERI staff who were involved
with the procurement process, and we reviewed relevant documents. As part of our
work, we reviewed samples of TPDS checks and purchase card transactions. For the
TPDS, we selected a random sample of 50 TPDS checks issued between October 1998
through September 1999 (FY 1999) and October 1999 through February 2000 (FY 2000).
We judgmentally selected a sample of monthly purchase card statements dated between
October 16, 1999 and June 16, 2000. Then we selected 50 transactions to review. We
also reviewed OERI monthly purchase card statements that were in the Financial
Management Policies and Administrative Programs Group files for the months of
September 1999 and March 2000.

We based our conclusions about OERI's internal controls on the information gathered
during our interviews and transaction testing. We conducted our interviews and
transaction testing between May 1, 2000 and July 24, 2000. We assessed OERI's internal
controls based on GAO's Standards for Internal Control in the Federal Government
issued November 1999. Attachment B to this memorandum contains a summary of the
GAO Standards. We conducted our work in accordance with the President's Council on
Integrity and Efficiency (PCIE) Quality Standards for Inspection dated March 1993.
We appreciate the cooperation shown by your staff during our review. If you have any
questions regarding the results of this review, please call me at 205-5439.


Attachments


cc:   Deputy Secretary
                                                                          Attachment B

          GAO’s Standards for Internal Control in the Federal Government
                        Components of Internal Control

•   Control Environment – Management and employees should establish and maintain
    an environment throughout the organization that sets a positive and supportive
    attitude toward internal controls and conscientious management.

    Factors:

    3 Management and staff maintain and demonstrate integrity and ethical values.

    3 Management maintains an active commitment to competence.

    3 Management’s philosophy and operating style exerts a positive influence on the
      organization (especially toward information systems, accounting, personnel
      functions, monitoring and audits).

    3 Organizational structure is appropriately centralized or decentralized, and
      facilitates the flow of information across all activities.

    3 Agency delegates authority and responsibility and establishes related policies
      throughout the organization in a manner that provides for accountability and
      control.

    3 Agency establishes human resource policies and practices that enable it to recruit
      and retain competent people to achieve its goals.

•   Risk Assessment – Internal controls should provide for an assessment of the risks the
    agency faces from both external and internal sources.

       Precondition: establishment of clear and consistent agency objectives.

       Risk assessment : the comprehensive identification and analysis of relevant risks
       associated with achieving agency objectives, like those defined in strategic and
       GPRA annual performance plans, and forming a basis for determining how the
       agency should manage risks.

       Risk identification: methods may include qualitative and quantitative ranking
       activities, management conferences, forecasting and strategic planning, and
       consideration of findings from audits and other assessments.

       Risk analysis: generally includes estimating the risk’s significance, assessing the
       likelihood of its occurrence, and deciding how the agency should manage its risk.
•   Control Activities – Internal control activities help ensure that employees carry out
    management directives. The control activities should effectively and efficiently
    accomplish agency control objectives.

    3 The control activities are the policies, procedures, techniques, and mechanisms
      that enforce management’s directives. They help ensure that employees take
      actions to address risks.

    3 Control activities occur at all levels and functions of the entity, and include a wide
      range of diverse activities such as approvals, authorizations, verifications,
      reconciliations, performance reviews, maintenance of security, and creation and
      maintenance of related records that document the execution of these activities.

•   Information and Communications – Employees should record and communicate
    information to management and others within the entity who need it in a form and
    within a time frame that enables them to carry out their internal control (and other)
    responsibilities effectively and efficiently.

    3 An organization must have relevant, reliable, and timely communications relating
      to internal as well as external events. Information is needed throughout the
      agency to achieve all its operational and financial objectives.

    3 Effective communications should occur in a broad sense with information flowing
      down, across, and up the organization.

    3 Management should ensure there are adequate means of communicating with, and
      obtaining information from, external stakeholders that may have a significant
      impact on the agency achieving its goals.

•   Monitoring – Internal control monitoring should assess the quality of performance
    over time and ensure that audit and other review findings are promptly resolved.

    3 Includes regular management and supervisory activities, comparisons,
      reconciliations, and other actions employees take in performing their duties.

    3 Should include policies and procedures for ensuring that audit and other review
      findings are promptly resolved.
                                                                                                               Attachment A


Internal Control Evaluation Form for the Office of Educational Research and Improvement

Control Component     Deficiencies
Control Environment   • Assignment of Authority/Training – According to records maintained by OCFO as of May 8, 2000, four
                         cardholders with single purchase limits exceeding $2,500 did not have the required warrants. Three of
                         those have no record of taking small purchase training, which is required to obtain a warrant.
                      • Training – Staff have not received recent or refresher procurement training.
                      • Training – On May 11, 2000, the Executive Officer requested approval from OCFO that supervisors of
                         cardholders be given the responsibility of being approving officials. These individuals will need training
                         prior to taking on this responsibility.

Risk Assessment       •   Identification of Risks – OERI has no formal procedures for risk assessment in the procurement area. In
                          addition, the Executive Officer has not been involved with the Federal Managers’ Financial Integrity Act
                          (FMFIA) reporting process.
                      •   Identification of Risks – Two procurement staff members have been assigned a low risk level when the
                          employees’ responsibilities suggest that a moderate risk level is more appropriate.

Control Activities    •   Policies and Procedures – Although required by the Department’s Directive on Commercial Credit Card
                          Service (C:FIM:6-102) dated March 12, 1990, OERI has no written policies and procedures on the
                          purchase card process.
                      •   Purchase Cards – We reviewed the September 1999 and the March 2000 statements from OCFO files.
                          Our purpose was to verify that OERI had submitted all its monthly card statements with activity to
                          OCFO and that the approving official had signed the card statements. We also reviewed 50 judgmentally
                          selected purchase card transactions.
                          ♦ Approval of Monthly Purchase Card Statements – The approving official informed us that he stopped
                              signing the statements because there was no longer a line on the monthly card statement for his
                              signature.
Control Component   Deficiencies
                           • For September 1999, 17 cards had activity. One statement was missing from OCFO files. The
                                approving official signed only one statement.
                           • For March 2000, 11 cards had activity. One statement was missing from OCFO files. The
                                approving official signed none of the statements.
                       ♦ Approval of Purchases – Thirty-five purchases had no documentation of preapproval.
                       ♦ Recordkeeping – We were unable to trace 22 purchase card charges to purchase card expenditures
                           listed on an EDCAPS report using the EDCAPS transaction numbers listed on the monthly card
                           statements.
                       ♦ Documentation – Six purchases were missing receipts.
                    • TPDS Checks – We reviewed 50 randomly selected TPDS checks.
                       ♦ Documentation – One file for the requested TPDS checks was not available for review. The check
                           was for $3,000.
                       ♦ Approval – Two of the 49 checks with files available for review had no documentation of
                           preapproval.

Information &       •   Communication of Key Information – The procurement staff that we interviewed were not familiar with
Communications          the Department’s Directive on Commercial Credit Card Service.

Monitoring          •   On-going Monitoring – The supervisor of the individual with signature authority for TPDS checks does
                        not perform periodic reviews of the EDCAPS reports on the checks issued by OERI.