oversight

The Farm Credit Administration's Purchase Card Program, March 7, 2017

Published by the Farm Credit Administration, Office of Inspector General on 2017-03-07.

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

OFFICE OF
INSPECTOR GENERAL    Inspection Report
                    Farm Credit Administration's
                       Purchase Card Program
                              I-17-01



                             Inspector
                              Ava Bell

                       Issued March 7, 2017




                      FARM CREDIT ADMINISTRATION
Farm Credit Administration                                                 Office of Inspector General
                                                                           1501 Farm Credit Drive
                                                                           McLean, Virginia 22102-5090




March 7, 2017


The Honorable Dallas P. Tonsager, Board Chairman
The Honorable Kenneth A. Spearman, Board Member
The Honorable Jeffery S. Hall, Board Member
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Board Chairman Tonsager and Board Members Spearman and Hall:

The Office of Inspector General (OIG) completed an inspection of the Farm Credit Administration’s (FCA or
Agency) Purchase Card Program. The objective of this inspection was to determine whether FCA’s oversight of the
purchase card program was effective.

We found FCA’s oversight of the purchase card program is generally effective. FCA established and implemented
controls over the program. No instances of potentially fraudulent or illegal purchases were identified in our
review. We identified some opportunities to improve the purchase card program. In response to our report, the
Agency agreed to:

    1. Follow up on previous agreed-upon actions by reminding current cardholders and approving officials of
       the importance of:
       • Obtaining written prior approval from the approving official for all transactions unless there is a
            standard agency buy approval in place.
       • Maintaining a purchase activity log and submitting it to the approving official for review and signature
            on a monthly basis.
    2. Review and update Office of Agency Services Directive 6 to ensure guidance is current.

The Office of Agency Services (OAS) corresponded with cardholders and approving officials by email,
reemphasizing requirements. These requirements include: 1) obtaining written approval from the approving
official prior to making purchases for non-standard supplies; and 2) maintaining a monthly purchase activity log
submitted for review and signature to the approving official. OAS Directive 6, Charge Card Operating Procedures,
was also updated. Therefore, the agreed-upon actions are resolved and considered closed.

We appreciate the courtesies and professionalism extended by FCA personnel to the OIG staff. If you have any
questions about this inspection, I would be pleased to meet with you at your convenience.

Respectfully,




Elizabeth M. Dean
Inspector General

Enclosure
AGREED-UPON ACTIONS:

In order to improve the
purchase card program, the
Agency agreed to:               The Farm Credit Administration (FCA or Agency) is an independent Federal agency
                                responsible for regulating, examining, and supervising the Farm Credit System and the
1. Follow up on previous        Federal Agricultural Mortgage Corporation.
   agreed-upon actions by
   reminding current            The objective of this inspection was to determine if FCA’s oversight of the purchase card
   cardholders and              program was effective. We found FCA’s oversight is generally effective:
   approving officials of the
   importance of:                   •   No instances of potentially fraudulent or illegal purchases were identified in our
   a. Obtaining written                 review.
       prior approval from          •   The process for reviewing and approving purchase card transactions is generally
       the approving official           followed.
       for all transactions         •   Purchase card records are generally well organized with thorough
       unless there is a                documentation.
       standard agency buy          •   Cardholder limits match established Agency limits, with a few exceptions
       approval in place.               appropriately justified based on position (e.g., contract specialist) or volume of
   b. Maintaining a                     transactions required.
       purchase activity log        •   No exceptions were noted during our review of sampled cardholder training
       and submitting it to             certifications.
       the approving official       •   Purchase card accounts are closed in a timely manner following a cardholder’s
       for review and                   separation from the Agency.
       signature on a
       monthly basis.           We identified some opportunities to further improve the purchase card program.
2. Review and update Office     Purchase card procedures require cardholders to document approval from the
   of Agency Services           approving official (AO) prior to making a purchase, and have their monthly purchase
   Directive 6 to ensure        activity logs signed by the AO. Although most cardholders obtained prior approval for
   guidance is current.         purchases and maintained a monthly purchase activity log with approvals, a few
                                cardholders did not do so.

                                Responding to the inspection recommendations, the Office of Agency Services (OAS)
                                prepared and corresponded by email with cardholders and AOs. The correspondence
                                reemphasized requirements previously identified, including: 1) obtaining written
                                approval from the AO prior to making purchases for non-standard supplies; and 2)
                                maintaining a monthly purchase activity log submitted to the AO for review and
                                signature. OAS Directive 6, Charge Card Operating Procedures, was also updated,
                                including the current single purchase amount limit. Therefore, the agreed-upon actions
                                are resolved and considered closed.
                                  TABLE OF CONTENTS



BACKGROUND _______________________________________________________ 1

 Prior Reviews_____________________________________________________________________ 1

INSPECTION RESULTS ________________________________________________ 2

 Purchase Card Administration _______________________________________________________ 2

 Purchase Card Controls_____________________________________________________________ 3

 Agreed-Upon Actions ______________________________________________________________ 5

OBJECTIVE, SCOPE, AND METHODOLOGY _______________________________ 6

ACRONYMS _________________________________________________________ 7
BACKGROUND

    The Farm Credit Administration (FCA or Agency) is an independent Federal agency responsible for
    regulating, examining, and supervising the Farm Credit System and the Federal Agricultural Mortgage
    Corporation. The mission of the Agency is to ensure a safe, sound, and dependable source of credit and
    related services for agriculture and rural America.

    FCA participates in the General Services
    Administration’s SmartPay Program to make official
    purchases related to the Agency’s mission. FCA
    provides purchase cards to employees with a
    certified need to make purchases for their office. The
    Agency contracts with the Bureau of the Fiscal
    Service (BFS) for purchase card program
    administration and services. BFS has contracted with
    Citibank MasterCard for its card program. FCA’s
    Office of Agency Services is responsible for the
    overall administration of the purchase card program.

    FCA maintains written policies and procedures related to the administration of the purchase card
    program in accordance with the requirements of Office of Management and Budget (OMB) Circular A-
    123, Appendix B, Improving the Management of Government Charge Card Programs. The requirements
    include an annual submission of the Agency’s Charge Card Management Plan that outlines FCA’s system
    of internal controls over the charge card programs.

    Additionally, the Government Charge Card Abuse Prevention Act of 2012 (Charge Card Act)
    supplemented OMB Circular A‐123, Appendix B with reporting and audit requirements and
    augmentation of existing controls. The Charge Card Act and OMB Memorandum M‐13‐21,
    Implementation of the Government Charge Card Abuse Prevention Act of 2012, also mandated each
    Inspector General perform assessments of charge card programs. 1 The Office of Inspector General (OIG)
    completes an annual risk assessment and initiated this inspection as part of our ongoing efforts in this
    area.

    Prior Reviews
    The OIG has conducted several reviews of the purchase card program, including:

        •    The OIG performed an inspection, Distribution, Usage and Control of Purchase and Travel Cards
             at the Farm Credit Administration (I-09-01), June 2009. The objective was to determine the
             effectiveness and efficiency of the implementation of government purchase and travel cards at
             FCA. For purchase cards, the inspection found FCA had adequate controls over the program and
             there were no notable delinquencies or misuses. The Agency agreed to update the purchase
             card policy and procedures to: include a link to the FCA Credit Card Management Plan (updated


    1
     FCA does not meet the threshold for a required travel audit set forth in the Charge Card Act. The Charge Card Act did not
    establish a threshold for purchase card programs. Inspectors General must perform an annual assessment of purchase cards. As
    part of our ongoing efforts, the OIG performs an annual assessment of all charge card programs.



                                                                 1
             and submitted to OMB annually); consolidate existing guidance on purchase cards; and include a
             section on inappropriate actions and/or charges.

             All agreed-upon actions were addressed and closed by September 2009.

         •   In 2014, the OIG conducted an audit, Farm Credit Administration’s Purchase Card Program (A-
             14-02), Sept. 2014. The objective of this audit was to determine whether FCA’s oversight of the
             purchase card program was effective. The Agency agreed to:

                 1. Provide education to cardholders and Approving Officials on the light refreshments
                    policy and the preapproval, purchase activity log, convenience check, and
                    documentation requirements.
                 2. Distribute a template of an acceptable standard agency buy form to cardholders.
                 3. Document justifications for cardholders with higher limits.
                 4. Document exceptions to current processes and ensure purchase cardholders and
                    Approving Officials understand the need for documenting approvals when departing
                    from policies and procedures.

             All agreed-upon actions were addressed and closed in September 2014.




INSPECTION RESULTS

     The inspection objective was to determine whether FCA’s oversight of the purchase card program is
     effective. During our review, we found FCA’s oversight of the program is effective.

     FCA has established and implemented controls over the purchase card program, limiting risk for the
     Agency. Specifically, FCA has a documented process for reviewing purchase card transactions. The
     process requires the Approving Official (AO) to review all transactions at the cardholder level. A staff
     member of the Operations Division reviews all purchase card transactions each month. The Bureau of
     the Fiscal Service (BFS) performs an annual audit of cardholder transactions.

     Purchase Card Administration
     The Agency Organization Program Coordinator is responsible for initiating and maintaining cardholder
     accounts, overseeing internal reviews of cardholder accounts, and canceling the accounts of separated
     employees. We reviewed FCA’s listing of 22 active purchase cardholders and identified three employees
     who had separated from the Agency on the list, as well as one current cardholder who was not on the
     list. BFS records showed the accounts had been closed in a timely manner (two accounts closed within
     one week of separation from the Agency, and one account within three weeks of separation). However,
     the Agency’s list of current cardholders was not updated.

     Cardholder limits generally match established Agency limits, which are $3,500 for a single purchase and
     $10,000 for total monthly purchases. There are four exceptions to the established limits. We reviewed
     these exceptions and found them appropriate based on position (e.g., contract specialist) or volume of




                                                          2
transactions required for the cardholder’s office. All exceptions were documented in FCA records and
justifications were appropriate based on the position of the individual.

Cardholders are required to take training when they initially receive a purchase card and every three
years thereafter for refresher training. Cardholders must pass a test following review of the purchase
card guidelines and training course. Cardholders certify they have read the procedures and understand
the possible consequences of card misuse. We judgmentally sampled and reviewed the training
certifications for employees who were issued cards after the OIG’s 2014 purchase card audit. We found
no exceptions in the training records.

Purchase Card Controls
Cardholder and Approving Official (AO) responsibilities are described in:

    •   OAS Directive 6, Charge Card Operating Procedures
    •   Operational Handbook for the Purchase Card Program
    •   FCA Charge Card Management Plan
    •   BFS purchase card procedures

All guidance is current, except the office directive has not been updated since September 2009, and
does not have the current single purchase limit amount in its guidance (increased from $3,000 to $3,500
in 2015).

The guidance establishes cardholders are required to:

    •   confirm funding is available for the purchase;
    •   obtain written approval from his/her AO prior to making a purchase;
    •   document proof of the purchase and/or receipt of the goods and services;
    •   maintain a monthly purchase activity log of all transactions, signed by the AO;
    •   review the electronic monthly statement (e-statement) and reallocate each transaction to the
        appropriate accounting code; and
    •   submit the e-statement for AO review and approval.

The cardholder’s AO is responsible for:

    •   providing written prior approval for the cardholder’s purchases or designating routine items as a
        “standard agency buy”;
    •   reviewing the monthly purchase activity log and providing written approval;
    •   reviewing the transactions and accounting codes on the monthly e-statement; and
    •   submitting the e-statement.




                                                    3
                             PURCHASING PROCESS FOR THE CARDHOLDER


                                                                                               Ensure IT
                                                              Obtain written
                                                                                          compatibility and
    Identify need               Confirm funding              approval prior to
                                                                                           508 compliance,
                                                                purchase
                                                                                             if applicable




                                                                                         Ensure appropriate
                               Complete entry in              Complete and
      Reconcile                                                                            source with fair
                               purchase activity                document
     e-statement                                                                           and reasonable
                                     log                       transaction
                                                                                               pricing




                                                            Provide activity log
                                                                                           Retain files and
  Assign accounting                  Submit                   and supporting
                                                                                             supporting
        codes                     e-statement               documentation to               documentation
                                                             AO for approval




To test purchase card controls, we reviewed purchase card activity from Fiscal Years (FY) 2015-2016,
totaling 2,820 transactions. We reviewed the transactions for potentially improper, erroneous, and
illegal activity, including transactions with merchants that might be at higher risk for card misuse, such
as online retailers, bulk purchase warehouses, grocery stores, and restaurants. We judgmentally
sampled 354 transactions for further review of supporting documentation. After reviewing merchant
category codes, descriptions, names, amounts, dates, and supporting documentation, we identified no
instances of potentially fraudulent or illegal purchases.

We requested documentation for the sampled transactions to review:

    •   written prior approval;
    •   proof of purchase or receipt of the goods or services; and
    •   monthly purchase activity log, with AO signature.

Purchase card records are required to be maintained for six years and three months following the
month of the transaction. Most purchase cardholders maintained well organized and thorough
documentation. However, we found some cardholders had not always followed the process. Exceptions
generally fell into one of two categories:

    1. Approval prior to the date of the transaction
       Twelve cardholders were missing documentation of written prior approval for 43 transactions.
       Four cardholders had prior approval from a senior staff member who is not their AO for 21
       transactions. Eleven of these transactions were instances of the cardholder ordering for another
       office that did not have a current purchase cardholder. Purchase card procedures state that only
       the AO may approve transactions for the cardholder. Additionally, a cardholder may have an
       alternate AO approve transactions.


                                                     4
    2. Approval signature on the monthly purchase activity log
       Six cardholders did not consistently submit their monthly purchase activity logs to their AO for
       review and signature. Agency procedures require cardholders to have their monthly purchase
       activity logs reviewed and signed by the AO.

In response to our last purchase card audit in 2014, the Agency issued an email to cardholders and AOs
on pre-approval, purchase activity log, and documentation requirements, noting some cardholders had
not consistently followed established policies and procedures. The 2015 BFS audit results and the 2016
Internal Control Review for purchase cards both showed some cardholders persist in not following the
purchase card policies and procedures for required approvals and documentation.

Agreed-Upon Actions

In order to improve the purchase card program, the Agency agreed to:

    1. Follow up on previous agreed-upon actions by reminding current cardholders and approving
       officials of the importance of:

        •   Obtaining written prior approval from the approving official for all transactions unless there
            is a standard agency buy approval in place.
        •   Maintaining a purchase activity log and submitting it to the approving official for review and
            signature on a monthly basis.

    2. Review and update Office of Agency Services Directive 6 to ensure guidance is current.

Responding to the inspection recommendations, OAS prepared and corresponded by email with
cardholders and approving officials. The correspondence reemphasized requirements previously
identified, including: 1) obtaining written approval from the approving official prior to making purchases
for non-standard supplies; and 2) maintaining a monthly purchase activity log submitted for review and
signature to the approving official. OAS Directive 6, Charge Card Operating Procedures, was also
updated, including the current single purchase amount limit. Therefore, the agreed-upon actions are
resolved and considered closed.




                                                    5
OBJECTIVE, SCOPE, AND METHODOLOGY

     The inspection objective was to determine whether FCA’s oversight of the purchase card program is
     effective. We conducted the inspection at FCA’s Headquarters in McLean, Virginia from October 2016
     through February 2017. We limited our scope to Fiscal Years 2015 and 2016.

     We took the following steps to accomplish the objective:

         •   Identified and reviewed applicable Federal laws, regulations, and guidance related to the
             inspection objective.
         •   Considered results from prior reviews related to the inspection objective.

         •   Conducted interviews with personnel from the Office of Agency Services.
         •   Identified and reviewed applicable internal FCA policies and procedures.
         •   Requested and reviewed FCA’s listing of all active purchase card accounts and purchase limits
             for each account as of October 2016. Compared listing to current employees to determine if
             separated employees were removed.
         •   Determined if purchase limits were within established guidelines and appropriate.
         •   Judgmentally sampled training records of new cardholders to ensure training certificates were
             completed.
         •   Requested and reviewed transaction activity on each purchase card account for Fiscal Years
             2015 and 2016 for potentially improper, illegal, or erroneous charges. Judgmentally sampled
             charges for further review based on merchant category codes and names, descriptions,
             amounts, and dates of transactions. Verified documentation maintained by the cardholders.
             Because our sample was judgmental, it cannot be projected to the entire population.
     This inspection was performed in accordance with the Council of the Inspectors General on Integrity and
     Efficiency’s Quality Standards for Inspection and Evaluation. Those standards require that we plan and
     perform the inspection to obtain sufficient, competent and relevant evidence that supports a
     reasonable basis for our findings, conclusions and recommendations. We assessed internal controls,
     laws and regulations to the extent necessary to satisfy the objective. Because our review was limited, it
     would not necessarily have disclosed all internal control deficiencies that may have existed at the time
     of our inspection. We assessed the information and data collected during the inspection and determined
     it was sufficiently reliable and valid for use in meeting the inspection objective. We assessed the risk of
     fraud related to our inspection objective in the course of evaluating evidence. Overall, we believe the
     evidence obtained is sufficient to provide a reasonable basis for our findings and conclusions based on
     the inspection objective.




                                                         6
ACRONYMS


           AO    Approving Official

           BFS   Bureau of the Fiscal Service

           FCA   Farm Credit Administration

           FY    Fiscal Year

           OAS   Office of Agency Services

           OIG   Office of Inspector General

           OMB   Office of Management and Budget




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    R E P O R T
Fraud | Waste | Abuse | Mismanagement




     FARM CREDIT ADMINISTRATION
      OFFICE OF INSPECTOR GENERAL

   Phone: Toll Free (800) 437-7322; (703) 883-4316

                Fax: (703) 883-4059

           E-mail: fca-ig-hotline@rcn.com

          Mail: Farm Credit Administration
            Office of Inspector General
               1501 Farm Credit Drive
                 McLean, VA 22102