oversight

Purchase Card Inspection

Published by the Farm Credit Administration, Office of Inspector General on 2002-09-09.

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

Memorandum                                                   Farm Credit Administration
                                                             1501 Farm Credit Drive
                                                             McLean, Virginia 22102-5090




September 9, 2002



To:        Michael M. Reyna
           Chairman and Chief Executive Officer

           Cheryl Macias
           Chief Operating Officer

From:      Stephen Smith
           Inspector General

Subject:   Government Purchase Card Program Inspection (No. 02-07)


Attached is the Office of Inspector General (OIG) inspection report of the Farm Credit
Administration’s Government Purchase Card Program. We concluded management
and staff are effectively and efficiently administering the program. Cardholders are
making appropriate use of the program to acquire goods and services for their offices.
The goods and services include: office supplies; books and periodicals; computer
software; and training and awards for employees. The program continues to expedite
the procurement process and controls are generally effective.

A review and analysis of the three months of purchase card documentation as well as
communication with cardholders and Agency official’s shows that controls over the
program are effective. Cardholders use credit cards as often as possible, although
checks are necessary for on-the-spot awards. Likewise, there are still some vendors
who do not accept credit cards as a form of payment. These vendors are also paid by
check.

We did note several areas and made recommendations for management action to
further improve the efficiency and effectiveness of the program. Management agreed
with our recommendations and we have incorporated them in the report as agreed
upon actions. Management did not provide any other comments to the report.

This inspection was conducted according to the President’s Counsel on Integrity and
Efficiency “Quality Standards for Inspections”.

We appreciate the courtesies extended to the OIG. The cardholders were particularly
responsive in providing documentation and answers to our questions in a timely
manner. If you have any comments or questions, I would be pleased to discuss the
report at your convenience.

Copy to: Ann Jorgensen
         Douglas Flory
         Philip Shebest
                                                                         Table of Contents

BACKGROUND...........................................................................................................................................................................1
   PURCHASE CARD PROGRAM .......................................................................................................................................................1
     History.....................................................................................................................................................................................1
OBJECTIVE AND SCOPE ........................................................................................................................................................2

FINDINGS AND RESULTS.......................................................................................................................................................2
   SUMMARY....................................................................................................................................................................................2
   ANALYSIS OF TRANSACTIONS.....................................................................................................................................................3
   MAXIMIZING USE OF PURCHASE CARD .....................................................................................................................................4
     Agreed Upon Action ...............................................................................................................................................................4
   MONITORING INTERNAL CONTROLS...........................................................................................................................................4
     Agreed Upon Actions .............................................................................................................................................................5
   ADHERING TO AGENCY POLICY..................................................................................................................................................5
     Agreed Upon Action ...............................................................................................................................................................5
   USING THE CORPORATE CARD....................................................................................................................................................5
     Agreed Upon Action ...............................................................................................................................................................6
BACKGROUND

        The Farm Credit Administration (FCA or Agency) is an independent agency within the executive
        branch of the United States Government. The FCA’s mission is to ensure a dependable source of
        credit for agriculture and rural America. The Farm Credit System (FCS) is a cooperative system of
        banks, associations, and other related entities. Chartered under the Farm Credit Act, FCS
        provides farmers and ranchers across the nation with credit. FCA employs fewer than 300 people.

        The Office of Inspector General (OIG) is an independent office within the FCA. This office is
        responsible for planning, conducting and overseeing inspections, audits, investigations, and
        reviews of the Agency’s programs and operations. Findings and recommendations are made as a
        result of these reviews in order to gain efficiencies and make improvements.

Purchase Card Program

        The Government Purchase Card Program (Program or SmartPay) is one method the FCA uses to
        acquire a wide variety of goods and services essential to the Agency’s operation. By delegation of
        the Chief Executive Officer through the Chief Administrative Officer, employees are granted
        contract authority in using the credit card program. The cardholders may make small purchases by
        using the SmartPay credit cards.

        Small purchases, called micro-purchases, are limited to the micro-purchase threshold of $2,500
        per transaction for standard purchases (and $2,000 per transaction for construction related
        purchases). Cardholders, except purchase agents, are not to exceed the monthly purchase limit of
        $10,000 within the monthly billing cycle.

        The cardholders make micro-purchases according to the FCA’s guidance, NationsBank
        Purchasing Card Program – Operating Manual for Cardholders and Approving Officials 12/8/98.
        This manual outlines the roles and responsibilities of participants in the program, basic operating
        procedures, and guidelines for proper use of the purchase card.

        Another group of selected agency officials are Approving Officials (usually the cardholder’s
        supervisor), Agency Program Coordinators, and Designated Billing Officials. These officials
        oversee the cardholder’s purchase activity. They are responsible for ensuring the cardholder is
        making appropriate purchases, ensuring there are sufficient funds for purchases, settling any
        disputed transactions, or aiding the cardholder in other ways.

        History

        The General Services Administration contracted for use of an internationally accepted credit card
        service for government agencies to use for micro-purchases. This service was to replace system
        use of purchase orders, to reduce the cost and time consumed. FCA began using purchase cards
        in 1989, then known as the International Merchant Purchase Authorization Card (IMPAC) Program.

        The use of the IMPAC card was initially restricted to procurement personnel and was not in
        widespread use throughout the government. However, legislation in 1994 modified the way the
        Federal Government and FCA made purchases. The Federal Acquisition Streamlining Act (FASA)
        and Executive Order 12931 removed the restriction to procurement personnel and placed micro-
        purchase authority with program officials.

        OIG conducted an audit of the IMPAC Program in 1998 to evaluate its effectiveness at FCA. This
        audit found: 1) problems with cardholders not using the card to its fullest extent; 2) difficulty in
        receiving, reporting, and recording purchase activity information; and 3) weaknesses in policies
        and procedures for individual offices. As a result, OIG made five recommendations as follows: 1)
        one form should be used to log all purchases made with the IMPAC; 2) the IMPAC should be used
        to pay for training whenever the vendor accepts this payment method; 3) internal procedures
        should be developed to ensure that controls are in place to prevent duplicate ordering and
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          overspending within budget categories; 4) Human and Administrative Resources Division1 (HARD)
          should develop and implement procedures to randomly audit cardholders’ records; and 5)
          accounting codes on all IMPAC purchases should be assigned in Fiscal Resources Division2
          (FRD).

          In November 1999, FCA replaced the IMPAC Program with SmartPay. FCA also uses the travel
          card and the corporate card services. Both of these cards are generally used for travel when
          employees or contractors travel. While travel cards are assigned individually to employees, the
          corporate card is an Agency-wide card. Specifically, the corporate card is for travel expenses of
          temporary employees or others who do not have travel cards. The Administrative Assistant to the
          CAO is currently the cardholder. If the Administrative Assistant is unavailable, the CAO is also
          authorized to make charges to the corporate card.


OBJECTIVE AND SCOPE

              The objective of this inspection was to determine the effectiveness and efficiency of the
              Government Purchase Card Program at FCA. This inspection was conducted according to the
              President’s Counsel on Integrity and Efficiency “Quality Standards for Inspections”. Our review
              included: 1) reviewing an interactive CD-Rom training session on how to use the SmartPay
              purchase card and attending a PCIE training session on how to review, inspect, and investigate
              government credit card issues; 2) analyzing Purchase Activity Logs, Billing Account Statements,
              and supporting documentation provided by the cardholders; and 3) communicating with
              cardholders concerning questionable transactions.

          The scope of this inspection was limited to analysis of purchase activities for the months of March,
          April, and May of 2002. We reviewed the Purchase Activity Logs, Billing Account Statements, and
          supporting documentation from every cardholder in the Agency who made purchases during these
          three months.

          We held the entrance conference on June 18, 2002 and conducted the fieldwork from June 20
          through July 19, 2002. The draft report was forwarded to management for review on August 2,
          2002. The exit conference was held on August 1, 2002.


Findings and Results

Summary

          The Government Purchase Card Program made significant progress since its inception and has
          improved since OIG issued the IMPAC Program audit in 1998. The Program is efficient and
          effective at FCA and continues to streamline the procurement process. Goods and services are
          acquired more expeditiously with less human resources and paperwork.

          A review and analysis of the three months of Purchase Card documentation, as well as interviews,
          shows that controls over the program are effective. Cardholders are making appropriate use of the
          cards to acquire goods and services for their offices. The goods and services include: office
          supplies; books and periodicals; computer software; and training for employees. Checks are used
          for on-the-spot awards and in instances where vendors do not accept credit cards as a form of
          payment.




          1
              As a result of reorganization, HARD became the Office of the Chief Administrative Officer on October 1, 2000.
          2
              As a result of reorganization, FRD became the Office of the Chief Financial Officer on October 1, 2000

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Analysis of Transactions

         In addition to its growing efficiency, purchase card use has expanded throughout the Agency.
         Before May 1998 purchase card usage was limited to only 7 offices. It is now in active use in
         11 different offices with 35 cardholders.

                    Office of Chief Administrative Officer (OCAO) – 6 cards;
                    Office of Secondary Market Oversight (OSMO) – 1 card;
                    Office of Chief Information Officer (OCIO) – 2 cards;
                    Office of Policy and Analysis (OPA) – 4 cards;
                    Office of Chief Financial Officer (OCFO) 2 cards;
                    Office of Examination (OE) which includes all field offices – 11 cards;
                    Office of Chief Operating Officer (OCOO) – 1 card;
                    Office of the Board (OB) – 2 cards;
                    Office of Congressional & Public Affairs (OCPA) – 2 cards;
                    Office of General Counsel (OGC) – 2 cards; and
                    Office of Inspector General (OIG) – 2 cards.

         The transactions reviewed for 3 months are categorized in the following chart.

                                                                                                             Transactions
                                                                                                                Using
                                                                                                             Checks that
                                         Transactions         Transactions           Checks for               could have
                     Transactions        Using Credit             Using              Awards or                used Credit            Check
          Office      Reviewed               Cards               Checks           Reimbursements3               Cards4                Fee5
          OCAO            71                   48                    23                   20                       3                   18
                                            (67.6%)              (32.4%)               (28.2%)                  (4.2%)
             OCIO           25                 25                    0                ________                  ______                ___
                                            (100%)                 (0%)
             OPA            73                 50                    23                     15                      8                  8
                                            (68.5%)              (31.5%)                 (20.5%)                  (11%)
          OCFO              20                 20                    0                   _______                 ______               ___
                                            (100%)                 (0%)
             OE            180                 69                   111                    110                      1                 28
                                            (38.3%)              (61.7%)                 (61.1%)                 (0.6%)
          OCOO               1                  1                    0                   _______                 ______               ___
                                            (100%)                 (0%)
             OB             33                 29                    4                      4                        0                 1
                                            (87.9%)              (12.1%)                 (12.1%)                   (0%)
          OCPA              56                 47                    9                      9                        0                ___
                                            (83.9%)              (16.1%)                 (16.1%)                   (0%)
             OGC             7                 4                     3                      3                        0                ___
                                            (57.1%)              (42.9%)                 (42.9%)                   (0%)
          OSMO               2                 1                     1                      1                        0                 1
                                             (50%)                (50%)                   (50%)                    (0%)
             OIG             8                 7                     1                      1                        0                ___
                                            (87.5%)              (12.5%)                 (12.5%)                   (0%)
         TOTAL             476                301                   175                    163                      12
                                            (63.2%)              (36.8%)                 (34.2%)                  (2.5%)              56

         Most cardholders used their purchase card instead of checks when possible. In total, there were
         476 transactions over the three-month period (not including convenience check fees as
         3
           Also includes vendors who don’t accept credit cards, and therefore, had to be made by check.
         4
          A transaction that was paid for by check for any reason other than for an award or reimbursement. Checks for awards are
         considered an acceptable use of checks in lieu of credit card.
         5
           1.9% surcharge the bank charges for paying by check. Some offices record check fees as separate transactions and others
         do not.

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          transactions). Of these 476 transactions, 301 (63.2%) were paid by government purchase card
          and 175 (36.8%) were paid by check. When a transaction was paid by check or purchase order, it
          was only for one of a few reasons: 1) an award, 2) a reimbursement, or 3) the vendor did not
          accept payment by credit card. Out of the 175 transactions made by check or purchase order,
          163 (93.1%) were for one of those three reasons.


          Despite achieving efficiency in purchases, there are opportunities to further improve the Program.
          There is still a small percentage of transactions that could have been made by credit card but were
          not. Also, internal controls and Agency policies should be improved.

Maximizing Use Of Purchase Card

          The previous chart shows there were 12 instances where it was possible to pay by credit card, but
          instead, payment by check was chosen. Since each check used in lieu of a credit card has an
          accompanying 1.9% service fee, there are efficiencies that would be gained by using the credit
          card more often.

          One cardholder was reluctant to fax the credit card number to vendors or training sources. Out of
          11 transactions made during the three-month period by this cardholder, 6 of the transactions could
          have been paid for in the form of credit card in lieu of check (54.5%). Another cardholder assumed
          that a training vendor, a large university, did not accept credit cards because it had no space to
          enter credit card information on the training form.

          Agreed Upon Action

          1. The CAO will provide annual information to cardholders reminding them about key
             program features and emphasize the use of credit cards in lieu of checks as a form of
             payment to the maximum extent.

Monitoring Internal Controls

          In one instance a noncredit cardholder used a credit card with the permission of the cardholder.
          The purchase exceeded micro-purchase limit. In addition, while interviewing the non-cardholder
          about the issue, the employee stated that he/she knew the cardholder’s purchase card account
          number but did not make any purchases without the cardholder’s consent.

          Cardholders should safeguard and restrict access to account numbers to avoid fraudulent or
          unauthorized card use. FCA procedures, NationsBank Purchasing Card Program – Operating
          Manual for Cardholders and Approving Officials prohibit cardholders from allowing anyone to use
          their credit cards. It also states that cardholders are responsible for all purchases made on their
          purchase cards. Reminding cardholders about their responsibilities may avoid such improper use.

          As a result of the IMPAC Program Audit A98-03, HARD (now OCAO) agreed to develop and
          implement procedures to conduct random audits of cardholders’ records.

          HARD developed a comprehensive template and assured the Audit Follow-up Official and the OIG
          that periodic internal audits would be performed. However, we found the program manager was
          not performing this task. In fact, the only internal review is periodic “eyeballing” of credit card
          invoices.

          Conducting random audits is essential in ensuring that transactions and practices are consistent
          with approved procedures. Lack of adherence to an agreement to improve internal controls
          caused duplication of effort by OIG staff, and wasted effort by staff who developed the template.

          Cardholders are required to keep a uniform purchase activity log, providing information on the date,
          vendor from which purchase was made, cost, and accounting codes for each transaction. In one


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         instance, a cardholder was under the impression that the log was no longer required because of a
         change in accounting procedures.

         In another instance, a cardholder had inadequate back-up documentation to explain transactions
         such as "training". Because of this, it was necessary to ask for an explanation of why payment
         was made. With time elapsing between transaction and explanation, memories dim and it is more
         difficult and time-consuming to reconstruct the justification. Furthermore, adequate documentation
         streamlines the review by the approving official and is required by Agency policy.


         Agreed Upon Actions

         2. The CAO will require cardholders to sign an accountability reminder when purchase
            cards come up for renewal or reissuance, including a reminder of the requirement to
            keep account numbers secure.

         3. The CAO will reinstitute the internal audits of credit cardholders to include the use of
            the template developed as follow-up to the OIG IMPAC Program Audit.

         4. The CAO will ensure all credit cardholders use uniform purchase activity logs and
            provide sufficient information and documentation for approving officials and anyone
            conducting a review to understand the purpose of each transaction.

Adhering to Agency Policy

         The FCA’s Administrative Handbook contains the “NationsBank Purchasing Card Program,
         Operating Manual For Cardholders And Approving Officials.” This document (Section V (5)) states:

             “Prior to placing orders for subscriptions, publications, and printed material from the
             Government Printing Office, the requestor shall send an e-mail to the Information Center,
             describing the purchase (including titles). Upon approval by the Information Center, the order
             may be placed.”

         During the course of this inspection, it became apparent that often the cardholder did not inform the
         FCA Information Center of a prospective purchase. In fact, the procedure is rarely followed.

         Agreed Upon Action

         5. The CAO will review the Agency administrative procedure, NationsBank Operating
            Manual, to decide whether the procedure concerning the Information Center approval
            should be enforced, changed, or deleted.

Using the Corporate Card

         Since 1999, the corporate credit card has been used primarily for travel incurred by employees
         who do not have a government travel card. The existence of a corporate credit card is not widely
         known within the Agency.

         Recently, FCA initiated a new travel system called FEDTRIP. One aspect of the system involves
         creating profiles for all travelers. Entering profiles simplifies the process of arranging for travel.
         These profiles include personal information and the account number of the credit card used to
         charge transportation and lodging. Once information is entered into the database it becomes an
         automated process to charge travel expenses when a reservation is made.

         Several employees (including summer interns) have the corporate card number on file in their
         profile. As a result, they are able to make charges without pre-approval or notice to the cardholder.
         When a reservation is made, payment for travel goes directly to the travel agency without going
         through OCAO for authorization. Since the credit card number was used without the cardholder’s
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knowledge or authorization, the credit card invoices were difficult to reconcile because the
supporting documentation for the transactions was lacking or nonexistent. The cardholder had to
piece the relevant information together, which was a time consuming task.

While the OCFO developed procedures for the employees using the corporate card, the
procedures were not consistently followed. This is a problem resulting from the transition to
FEDTRIP, which should be addressed. Prior to arranging for plane tickets or travel expenses
charged to the corporate credit card account, there should be a process or mechanism in place to
notify the cardholder. The existing automated process does not provide this type of notification.
The reconciliation process is now inefficient and there is potential for uncontrolled use of the
corporate card or a mistaken transaction to go undetected.

Agreed Upon Action

6. The CFO will develop new procedures for use of the corporate credit card to address:
   1) which FCA office should be the responsible cardholder; 2) how authorization will
   take place; and 3) how reconciliation of invoices will take place.




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