oversight

Forest Service Purchase Cards: Internal Control Weaknesses Resulted in Instances of Improper, Wasteful, and Questionable Purchases

Published by the Government Accountability Office on 2003-08-11.

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

              United States General Accounting Office

GAO           Report to Congressional Requesters




August 2003
              FOREST SERVICE
              PURCHASE CARDS
              Internal Control
              Weaknesses Resulted
              in Instances of
              Improper, Wasteful,
              and Questionable
              Purchases




GAO-03-786
              a
                                               August 2003


                                               FOREST SERVICE PURCHASE CARDS

                                               Internal Control Weaknesses Resulted in
Highlights of GAO-03-786, a report to the      Instances of Improper, Wasteful, and
Honorable Charles Grassley, Chairman,
Senate Committee on Finance, and the           Questionable Purchases
Honorable Janice Schakowsky, House of
Representatives




Since 1999, GAO has designated                 Internal control weaknesses in the Forest Service’s purchase card program
Forest Service’s financial                     leave the agency vulnerable to, and in some cases, resulted in, improper,
management as a high-risk area                 wasteful, and questionable purchases. These weaknesses included
because of internal control and                inadequate segregation of duties over purchases, supervisory review and
accounting weaknesses that have                approval of purchases, monitoring activities, and control over property used
been identified by the Inspector
General and GAO. Given these
                                               in Forest Service activities. For example, GAO found instances where items
known risks and the hundreds of                highly susceptible to theft, such as all terrain vehicles, digital cameras, and
millions of dollars in credit card             snowmobiles, were purchased and retained by cardholders, but no records
purchases made by the agency                   of the items were created in Forest Service systems.
each year, GAO was asked to
review the Forest Service’s fiscal             These weaknesses likely contributed to approximately $2.7 million in
year 2001 purchase card                        improper, wasteful, and questionable purchases identified in our review.
transactions to determine whether              GAO identified purchases that totaled over $1.6 million that were improper
(1) existing internal controls were            because they violated law, regulation, or agency policy. These included
designed to provide reasonable                 purchases that had been split into two or more segments to avoid the
assurance that improper purchases              cardholder’s single purchase limit, purchases that had been paid for twice,
would be prevented or detected,
(2) purchases were made in
                                               purchases that exceeded single transaction limits, purchases for which
accordance with established                    required approvals were not obtained, purchases of unauthorized items,
policies and procedures, and                   transactions on accounts of former employees, and instances where
(3) purchases were made for a                  cardholders wrote convenience checks to themselves.
reasonable cost and reflected a
legitimate government need.                    GAO also found purchases totaling $212,104 that it considered wasteful
                                               because they were excessive in cost relative to available alternatives or were
                                               for a questionable government need. Further, GAO found purchases
                                               totaling $869,825 that it considered to be questionable because the Forest
GAO is making a number of
recommendations to strengthen the              Service either could not provide supporting documentation for them, or
Forest Service’s internal controls             supporting documentation was incomplete or incorrect and GAO was unable
and compliance in its purchase                 to determine whether the purchases were proper. Some examples of these
card program, decrease wasteful                are shown in the table below.
purchases, and improve
accountability for assets. In                  Examples of Wasteful and Questionable Purchases
responding to our draft report, the             Item descriptions                                 Examples of vendors                               Amount
Forest Service did not specifically             Cancellation fees                                 Doubletree Hotel, and Rain Country
discuss GAO’s recommendations,                                                                    Bed & Breakfast                                   $34,950
but it outlined actions taken or                Specialty costumes and a                          Carol Flemming Costume Design
planned to strengthen management                decorative tent                                   Studio, and Evelyn Roth Festival
                                                                                                  Arts                                               16,050
of the purchase card program.
                                                Awards and gifts                                  Warner Bros., Eddie Bauer, and
However, the actions outlined will                                                                Mori Luggage and Gifts                             14,134
not address many of the                         Casinos, party items                              Have Party Will Travel,
weaknesses identified in the report                                                               Party Time, and Tribal Bingo
that GAO’s recommendations are                                                                    Casino                                            10, 414
intended to address.                            DVD player for fitness room,                      Ultimate Electronics, Best Buy, and
                                                TV/VCR combination in vehicles,                   Quality Billiards
                                                and billiard table for a bunkhouse                                                                    5,089
www.gao.gov/cgi-bin/getrpt?GAO-03-786.
                                                Aquarium for regional office                      Hair of the Dog                                     2,929
To view the full report, including the scope   Source: GAO’s analysis of Forest Service purchase card transactions selected for fiscal year 2001.
and methodology, click on the link above.
For more information, contact Linda Calbom
at (202) 512-9508 or calboml@gao.gov.
Contents



Letter                                                                                                    1
                            Results in Brief                                                              3
                            Background                                                                    5
                            Scope and Methodology                                                         8
                            Critical Internal Control Activities Were Lacking or Inadequate              12
                            Poor Controls over Purchasing Practices Resulted in Certain
                              Wasteful and Questionable Transactions                                     29
                            Conclusions                                                                  38
                            Recommendations for Executive Action                                         38
                            Agency Comments and Our Evaluation                                           40


Appendixes
             Appendix I:    Comments from the Forest Service                                             45
                            GAO Comments                                                                 49
             Appendix II:   GAO Contacts and Staff Acknowledgments                                       51
                            GAO Contacts                                                                 51
                            Acknowledgments                                                              51


Tables                      Table 1:   Nonaccountable Items Purchased                                    21
                            Table 2:   Revised USDA Purchase Card Policies                               23
                            Table 3:   Categories of Improper Purchases                                  25
                            Table 4:   Purchases Determined to Be Wasteful or Questionable               30


                            Abbreviations

                            APC                Agency Program Coordinator
                            COCO               Chief of the Contracting Office
                            EAGLS              Electronic Access Government Ledger System
                            FAR                Federal Acquisition Regulation
                            GSA                General Services Administration
                            LAPC               Local Agency Program Coordinator
                            MCC                Merchant Category Code
                            OPPM               Office of Procurement and Property Management
                            PCMS               Purchase Card Management System
                            PDA                Personal Digital Assistant
                            USDA               U.S. Department of Agriculture




                            Page i                                  GAO-03-786 Forest Service Purchase Cards
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Page ii                                         GAO-03-786 Forest Service Purchase Cards
A
United States General Accounting Office
Washington, D.C. 20548



                                    August 11, 2003                                                                       Leter




                                    The Honorable Charles Grassley
                                    Chairman
                                    Committee on Finance
                                    United States Senate

                                    The Honorable Janice Schakowsky
                                    House of Representatives

                                    The use of purchase cards in the federal government has dramatically
                                    increased in past years as agencies have sought to streamline the
                                    administrative procedures long associated with making small purchases.
                                    The benefits of using purchase cards can be lower costs and less
                                    paperwork for both the government and the vendor community. However,
                                    given the nature, scale, and increasing use of purchase cards, it is
                                    important for agencies to have adequate internal controls in place to help
                                    ensure their proper use and thus help protect the government from fraud,
                                    waste, and abuse.

                                    The Forest Service has a history of financial management problems,
                                    including serious accounting and financial reporting weaknesses and an
                                    organizational structure that has hampered efforts to correct these
                                    weaknesses. The Department of Agriculture’s (USDA) Office of Inspector
                                    General (IG) and GAO have issued many reports over the last several years
                                    on the financial challenges facing the agency and the need to correct
                                    internal control weaknesses.1 In fiscal year 2002, the Forest Service made
                                    significant progress toward achieving financial accountability, receiving its
                                    first unqualified or “clean” audit opinion on its financial statements.
                                    However, the Forest Service continues to face several major challenges for
                                    which it has corrective actions underway or planned. Since 1999, we have
                                    designated Forest Service’s financial management as a high-risk area on the
                                    basis of serious financial and accounting weaknesses that we and the IG




                                    1
                                      U.S. General Accounting Office, Financial Management: Forest Service's Efforts to
                                    Achieve Financial Accountability, GAO/AIMD-99-68R (Washington, D.C.: Feb. 8, 1999),
                                    Forest Service: A Framework for Improving Accountability, GAO/RCED/AIMD-00-2
                                    (Washington, D.C.: Oct. 13, 1999), and Financial Management: USDA Continues to Face
                                    Major Financial Management Challenges, GAO/T-AIMD-00-334 (Washington, D.C.:
                                    Sept. 27, 2000).




                                    Page 1                                       GAO-03-786 Forest Service Purchase Cards
have identified.2 In August 2001, the IG issued a report3 on USDA’s
purchase card program that identified several internal control weaknesses.
That review examined 400 fiscal year 1999 and 2000 purchase card and
convenience check transactions made by four of USDA’s agencies,
including the Forest Service. Based on its review of this limited sample, the
IG reported that purchases generally were valid and reasonable. However
the report also noted the (1) lack of supervisory review and approval of
cardholder transactions, (2) delays by cardholders in validating purchase
transactions that have been paid, and (3) inadequate monitoring by agency
management.

Given the hundreds of millions of dollars in purchase card purchases made
by the Forest Service each year, these known financial management
deficiencies raise the risk that fraudulent or improper purchases could be
made by its employees and not detected. Because of these risks, you
requested that we review the Forest Service’s fiscal year 2001 purchase
card and convenience check4 transactions to determine their validity.

In response to your request, we initiated a body of work designed to
determine whether (1) existing internal controls at the Forest Service were
designed to provide reasonable assurance that improper purchases would
be prevented or detected in the normal course of business, (2) the Forest
Service’s fiscal year 2001 purchase card transactions were made in
accordance with established policies and procedures, and (3) purchases
were made for a reasonable cost and reflected a legitimate government
need. Our review focused on the $320 million of disbursements that the
Forest Service made for purchase card transactions during fiscal year 2001,
the most recent fiscal year for which complete data were available when
we conducted our review.



2
  U.S. General Accounting Office, Major Management Challenges and Program Risks:
Department of Agriculture, GAO-03-96 (Washington, D.C.: Jan. 1, 2003).
3
  U.S. Department of Agriculture Office of Inspector General Financial and IT Operations
Audit Report, Some Changes Would Further Enhance Purchase Card Management System
Internal Controls, 50099-26-FM (Washington, D.C.: August 2001).
4
  Convenience checks are issued to authorized cardholders. Agency management
determines to whom checks are issued. The checks are similar in appearance to personal
checks and are written against the cardholder’s purchase card account. The total amount
that may be written cannot exceed the cardholder’s single transaction limit. Convenience
checks are used when a merchant does not accept purchase cards.




Page 2                                          GAO-03-786 Forest Service Purchase Cards
Results in Brief   Significant internal control weaknesses in the Forest Service’s purchase
                   card program leave the agency vulnerable to, and in some cases resulted in,
                   improper, wasteful, and questionable purchases, some of which were
                   potentially fraudulent. These weaknesses included a lack of or inadequate
                   segregation of duties over purchases, supervisory review and approval of
                   purchases, monitoring activities, and control over property used in Forest
                   Service activities. For example, we found instances of unauthorized
                   transactions by vendors and former employees that occurred because the
                   Forest Service did not adequately monitor activity to ensure that disputed
                   transactions were resolved or that cardholders’ accounts were closed upon
                   separation. We also found instances where items that are highly
                   susceptible to theft, such as digital cameras, binoculars, or camcorders,
                   were purchased by cardholders, but no records of the items were created
                   in the Forest Service property systems. In response to a prior IG audit
                   report as well as an outside contractor study that reported some of these
                   weaknesses, USDA and Forest Service management have strengthened
                   purchase card policies and procedures. However, these actions have not
                   fully addressed and corrected these weaknesses. These internal control
                   deficiencies, combined with the inherent risk of fraud and abuse associated
                   with purchase cards, created an environment in which improper or
                   fraudulent purchases could occur without being detected in the normal
                   course of business.

                   Internal control weaknesses likely contributed to approximately
                   $2.7 million in improper, wasteful, and questionable purchases identified
                   during our review. Improper transactions were identified using statistical
                   and nonstatistical methods. Based on the results of our statistical sample,
                   we estimate that purchases totaling over $1.5 million violated Forest
                   Service policies or regulations. These included purchases that had been
                   split into two or more segments to avoid the cardholder’s single transaction
                   limit and purchases that had been paid for twice. In addition, we identified
                   purchases in our nonstatistical sample totaling over $165,000 that violated
                   law, regulation, or agency policy. These included purchases that exceeded
                   single transaction limits, purchases for which required approvals were not
                   obtained, purchases of unauthorized items, transactions charged to
                   accounts of former employees, and instances where cardholders wrote
                   convenience checks to themselves, which violated Forest Service policy.

                   We also found 135 purchase transactions totaling $212,104 that we
                   considered wasteful because they were excessive in cost relative to
                   available alternatives, or they were for a questionable government need.



                   Page 3                                  GAO-03-786 Forest Service Purchase Cards
These included $16,250 for specialty costumes and a decorative tent. In
addition, we identified 644 transactions totaling $869,825 that we
considered to be questionable because the Forest Service either could not
provide supporting documentation for them, or supporting documentation
was incomplete or incorrect and we were unable to determine whether the
purchases were proper. These included $2,929 for an aquarium for a
regional visitor information center; $2,295 for a billiard table for a bunk
house; $5,803 at Have Party Will Travel; and $4,100 at Party Time Inc.
Certain of these questionable transactions were considered to be
potentially fraudulent because they appeared to represent unauthorized
purchases for personal use or unauthorized purchases made by persons
using stolen cards or merchants using cardholder account numbers. In
addition, we identified three potentially fraudulent transactions for one
cardholder who, after an IG investigation, pleaded guilty to making over
$31,000 in fraudulent charges over a 2-year period.

While the approximately $2.7 million of improper, wasteful, and
questionable purchase card and convenience check purchases we
identified is relatively small compared to the over $320 million in total
Forest Service purchase card and convenience check activity in fiscal year
2001, it demonstrates vulnerabilities from weak controls that could be
exploited to a greater extent. In addition, because we tested only a small
portion of the transactions we identified that appeared to have a higher risk
of fraud, waste, or abuse, there may be other improper, wasteful, and
questionable purchases in the remaining untested transactions.

Without significant improvements in its internal controls, the Forest
Service’s ability to detect and prevent improper or fraudulent purchase
card use or to safeguard vulnerable assets will continue to be hampered.
We make recommendations in this report to address the internal control,
compliance, and property accountability issues we identified.

In commenting on a draft of this report, the Forest Service did not
specifically address our recommendations. Rather, the response outlined
actions taken or planned since June 2001 to strengthen the overall
management of the purchase card program, which the Forest Service
described as having been taken, notwithstanding our report. We
acknowledged many of these actual and planned actions in our report.
While we believe that these actions, if fully implemented, will help to
address the vulnerabilities that we and the IG identified, many weaknesses
still remain that continue to expose the Forest Service to improper,




Page 4                                   GAO-03-786 Forest Service Purchase Cards
             wasteful, and fraudulent purchase card activity. We address these
             remaining weaknesses in our recommendations.



Background   The General Services Administration (GSA) administers the federal
             government’s contracts in support of agencies’ purchase card programs.
             GSA contracts with commercial banks to issue purchase cards to federal
             employees to make official government purchases. The Bank of America
             issues purchase cards to USDA agencies, including the Forest Service.5
             The purchase card, unless otherwise directed by regulation, is intended to
             be the primary purchasing method for purchases from vendors that accept
             purchase cards for payment. This payment method is intended to
             streamline procurement and payment procedures by reducing the number
             of procurement requests, purchase orders, and vendor payments issued.
             USDA’s purchase card program, including the Forest Service, also includes
             the use of convenience checks to pay vendors that do not accept purchase
             cards as payment. In fiscal year 2001, the Forest Service used purchase
             cards and convenience checks to make 1.1 million purchases totaling
             $320 million.

             The USDA procurement process is subject to the Federal Acquisition
             Regulation (FAR), the primary set of regulations governing acquisition of
             supplies and services by federal executive agencies with appropriated
             funds. The FAR also incorporates U. S. Department of Treasury’s Treasury
             Financial Manual (TFM) requirements6 for the governmentwide purchase
             card program. To implement and supplement these regulations, USDA
             issues the Agriculture Acquisition Regulations (AGAR), which prescribe
             USDA procurement policies and procedures.




             5
               The government also uses commercial purchase cards for government-related travel
             expenditures (travel cards) and for expenditures related to the maintenance and operation
             of government-owned vehicles (fleet cards).
             6
               Agencies using the governmentwide commercial purchase card must establish procedures
             for use and control of the card that comply with TFM Chapter 4-4500 and that are consistent
             with the terms and conditions of the GSA Federal Supply Service Contract Guide for
             Governmentwide Commercial Purchase Card Service. 48 C.F.R. Sec. 13.301 (2002).




             Page 5                                          GAO-03-786 Forest Service Purchase Cards
To implement and supplement the AGAR, the Forest Service issues
directives,7 which contain Forest Service procurement policies and
procedures. The Forest Service Handbook, FSH 6309.32 Part 4G13
Simplified Acquisition Procedures, provides specific guidance on
procurement for the Forest Service, including the use of the government
purchase card. The handbook contains policies and procedures that define
the responsibilities of regional and local program coordinators for
managing the purchase card program, including establishing cardholder
data in the Purchase Card Management System (PCMS) and monitoring
activities for the purchase card program.

GSA and Bank of America also provide purchase card guidance, and GSA
provides training to cardholders and program coordinators. For example,
GSA’s Blueprint for Success: Purchase Card Oversight was prepared by a
working group of agency program coordinators (APC) and provides
general program guidance to APCs in performing their responsibilities.
Beginning in fiscal year 2003, GSA made available to APCs a Web-based on-
line training course covering such topics as APC responsibilities, reporting
tools, and preventive measures to use in monitoring the purchase card
program.

According to USDA policy, APCs and local area program coordinators
(LAPC) are appointed by the head of the agency contracting office. APCs
are primarily responsible for managing the purchase card program in their
agency. In addition, they establish agency-unique purchase card policies
and procedures, provide training and guidance to LAPCs, and conduct
agencywide oversight of the purchase card program. LAPCs are
responsible for the day-to-day operations of the purchase card program
within their respective location. In addition, LAPCs are responsible for
updating cardholder information in PCMS; providing training to
cardholders; and monitoring purchases and reporting fraud, waste, and
abuse in accordance with agency procedures. Currently, there are 137
Forest Service LAPCs.

In the Forest Service, cardholders are responsible for understanding and
complying with purchasing policies and procedures; maintaining records


7
  Forest Service Manuals (FSM) contain legal authorities, objectives, policies,
responsibilities, instructions, and guidance needed on a continuing basis by Forest Service
line officers and primary staff. Forest Service Handbooks (FSH) are the principal source of
specialized guidance and instruction for carrying out the direction issued in the FSMs.




Page 6                                          GAO-03-786 Forest Service Purchase Cards
and receipts of all purchases; validating their purchases against PCMS
online data; disputing unauthorized charges, and obtaining all necessary
prepurchase approvals for certain items, such as information technology
(IT) costing $1,000 or more and other purchases costing $2,501 or more.
For all other purchases costing $2,500 or less, the Forest Service
cardholder is not required to obtain pre- or post-approval. During fiscal
year 2001, approximately 14,000 of the approximately 30,000 employees, or
over one-third of the Forest Service workforce, had purchase cards and
most of them had a single purchase limit ranging from $2,500 to $25,000.
The single transaction limit applies to both the purchase card and
convenience checks issued to the cardholder.

In 1995, the Forest Service’s use of the purchase card was limited to
procurement personnel. However, with implementation of the President’s
National Performance Review recommendations, the Forest Service
reduced its procurement staff by 27 percent by 1998. At the same time,
USDA put together a task force to look at the procurement process and
make recommendations to improve it. The task force recommended
increasing the use of purchase cards within USDA, including the Forest
Service, to streamline the procurement process. USDA rapidly expanded
purchase card use, authorizing operations personnel as well as
procurement personnel to use them.

USDA’s Office of Procurement and Property Management (OPPM) and the
National Finance Center (NFC) developed PCMS in 1995 to reduce
administrative costs and to allow agencies faster procurement of goods and
services. The system allowed USDA, including the Forest Service, to track,
reconcile, and monitor purchases made using the USDA purchase cards
and convenience checks. PCMS is used by program coordinators to
establish and manage cardholder accounts and by cardholders to reconcile
and dispute their transactions from their desktop computers.

In 1998, USDA switched card issuers and issued a task order under the GSA
contract to Bank of America. The Bank of America purchase card system,
developed under the GSA contract and called the Electronic Access
Government Ledger System (EAGLS), includes various tools available to
manage purchase card transactions. EAGLS is able to generate account
activity reports, which identify trends such as purchases from merchants
that would not be expected to be traditional suppliers or unusually high
spending patterns; dispute reports, which identify cardholders with
excessive disputes that may indicate cardholder misuse or fraudulent
activity; and various other exception reports. Bank of America



Page 7                                 GAO-03-786 Forest Service Purchase Cards
              recommended that USDA also use EAGLS to manage its purchase card
              program. However, as PCMS was developed by USDA prior to its
              changeover to Bank of America, USDA officials chose to continue using
              PCMS because they believed that it offered functionality similar to EAGLS.
              Bank of America processes purchase card transaction data received from
              vendors using EAGLS, which records the data, then sends it electronically
              to NFC. NFC uploads the data into PCMS and processes payments.

              In August 2001, the IG issued a report on its review of PCMS, which
              identified several internal control weaknesses. The report noted the
              (1) lack of supervisory review and approval of cardholder transactions,
              (2) untimely validation of purchases against PCMS data, and (3) inadequate
              monitoring by agency management. In addition, a private firm was
              contracted to perform an Independent Verification and Validation8 (IV&V)
              assessment of PCMS, an assessment which also reported weaknesses in
              accounting process controls and internal controls over purchase card
              transactions. Both the IG and contractor reports noted that cardholders
              were authorized to buy a majority of items they wanted at any time. The IG
              made several recommendations, which included

              • instituting a requirement that supervisors periodically review and
                approve their subordinates’ purchase card transactions to confirm they
                are appropriate, for official purposes, and validated against PCMS data
                in a timely manner;

              • developing and implementing appropriate internal control procedures
                over the custody, control, accountability, and issuance operations for
                convenience checks to ensure they are not misused; and

              • instructing USDA agencies to review their controls for ensuring they
                always properly record property purchases valued at $5,000 or more
                (called accountable purchases) in the Office of the Chief Financial
                Officer (OCFO)/NFC Property Management Information System.



Scope and     To obtain an understanding of the Forest Service’s purchase card and
              convenience check policies and procedures, and the related internal
Methodology   controls, we

              8
                Independent Verification and Validation (IV&V) of the Purchase Card Management System
              (PCMS), Assessment Final Report: “Future Directions for PCMS,” October 2001.




              Page 8                                        GAO-03-786 Forest Service Purchase Cards
• reviewed USDA and Forest Service procurement policy, USDA PCMS
  guidance, Forest Service regional purchase card program policy, U.S.
  Department of the Treasury purchase card program policy, and previous
  GAO reports, as well as reports issued by USDA’s IG and an independent
  contractor; and

• observed and documented purchase card procedures and conducted
  telephone interviews with USDA and Forest Service management and
  staff to identify key purchase card, convenience check, and accountable
  property policies, procedures, and initiatives.

Because of known weaknesses in the design of internal controls at the
Forest Service, we did not perform detailed tests to assess the
effectiveness of these controls. However, we reviewed the internal control
findings reported by the IG and the contractor in reports issued on the
purchase card program and PCMS. In addition, we assessed the adequacy
of the internal controls as designed, using our Standards for Internal
Control in the Federal Government,9 Internal Control Management and
Evaluation Tool,10 Guide for Evaluating and Testing Controls Over
Sensitive Payments,11 and Executive Guide: Strategies to Manage
Improper Payments.12

To determine whether the Forest Service’s fiscal year 2001 purchase card
transactions were made in accordance with established policies and
procedures, were reasonable, and reflected a legitimate government need,
we selected transactions using three different methods. For each method
of selection, we provided the Forest Service with the transactions selected
and obtained and reviewed related supporting documentation. The three
methods are as follows:




9
  U.S. General Accounting Office, Standards for Internal Control in the Federal
Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 2000).
10
 U.S. General Accounting Office, Internal Control Management and Evaluation Tool,
GAO-01-1008G (Washington, D.C.: August 2001).
11
  U.S. General Accounting Office, Guide for Evaluating and Testing Controls Over
Sensitive Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May 1993).
12
 U.S. General Accounting Office, Executive Guide: Strategies to Manage Improper
Payments, GAO-02-69G (Washington, D.C.: October 2001).




Page 9                                          GAO-03-786 Forest Service Purchase Cards
• Data mining.13 We performed data mining on Bank of America’s
  database of the Forest Service’s fiscal year 2001 purchase card and
  convenience check transactions for indicators of potential
  noncompliance with established policies and procedures. Specifically,
  we looked for transactions that exceeded cardholder or convenience
  check spending limits, split purchases or duplicate transactions,
  cardholders with multiple cards, transactions on purchase card
  accounts after the separation dates of the employees, and cardholders
  who wrote convenience checks to themselves or for cash. Except for
  potential split and duplicate transactions, we forwarded all selected
  transactions to the Forest Service APC to request supporting
  documentation from cardholders, which we used to assess whether in
  fact these were violations of policy. For split and duplicate transactions,
  we selected a statistical sample of transactions as discussed below.

• Statistical sampling. To test for split transactions, we first performed
  data mining to identify possible split transactions from the population of
  purchase card transactions paid from October 1, 2000, through
  September 30, 2001. We then selected a stratified14 random (statistical)
  sample of 213 of 1,854 potential split transactions totaling $3.5 million.
  Similarly, to test for duplicate transactions, we first performed data
  mining to identify possible duplicate transactions from the population of
  purchase card transactions paid from October 1, 2000, through
  September 30, 2001. We then selected a stratified15 random (statistical)
  sample of 230 of the 8,659 possible duplicate transactions totaling
  $1.6 million. We requested supporting documentation for these
  transactions from the APC. Actual findings from both statistical
  samples were projected separately to total fiscal year 2001 Forest
  Service purchase card and convenience check transactions.




13
  Data mining applies a search process to a data set, analyzing for trends, relationships, and
unusual associations. For instance, it can be used to efficiently query transaction data for
characteristics that may indicate potentially improper activity.
14
  We stratified each population into seven groups on the basis of the dollar value for each
transaction. Each sample element was subsequently weighted in the analysis to account
statistically for all the members of the population, including those that were not selected.
15
     See footnote 14.




Page 10                                           GAO-03-786 Forest Service Purchase Cards
• Nonstatistical sampling. We selected transactions nonstatistically to
  allow us to identify those that appeared to have a higher risk of fraud,
  waste, or abuse, although the results cannot be projected to the overall
  population of purchases. We identified merchant category codes
  (MCC)16 or vendor names that appeared more likely to represent
  unauthorized or personal use items. We chose a nonstatistical sample of
  high-risk transactions from the total population of transactions
  identified for each vendor or MCC selected. We then requested
  supporting documentation from the APC for over 5,000 transactions
  totaling $8.7 million that we identified as meeting the criteria mentioned
  above to test for improper purchases. In addition, we requested the
  records for more than 1,000 transactions totaling over $690,000, which
  were disputed by cardholders during fiscal year 2001. We reviewed
  these transactions to determine whether the cardholders properly
  complied with applicable purchasing policies and procedures for
  disputed transactions.

To determine if controls over purchase card and convenience check
equipment acquisitions were adequate to properly record and safeguard
assets, we

• reviewed policies and procedures over the management and control of
  accountable property and sensitive items; and

• tested accountable property selected in the nonstatistical sample
  discussed above to determine whether these assets had been recorded
  in the Forest Service’s property management system prior to our review.

While we identified some improper purchases, our work was not designed
to identify all fraudulent or otherwise improper purchases made by the
Forest Service. We conducted our review from April 2002 through March
2003 at the Forest Service Washington Office in Rosslyn, Virginia, and
USDA headquarters in Washington, D.C., in accordance with generally
accepted government auditing standards. We requested written comments
on a draft of this report from the Chief of the Forest Service. Written
comments were received from the Chief of the Forest Service and are
reprinted in appendix I.


16
  Merchant Category Codes are four digit numbers associated with every transaction that
identify the general category of products sold by a vendor (e.g., 5941 – Sporting Goods, 5944
– Watch, Clock, and Jewelry Stores).




Page 11                                          GAO-03-786 Forest Service Purchase Cards
Critical Internal         The Forest Service’s internal controls did not provide reasonable assurance
                          that improper purchase card and convenience check purchases would not
Control Activities Were   occur or would be detected in the normal course of business. Effective
Lacking or Inadequate     internal controls are the first line of defense in safeguarding assets and
                          preventing and detecting fraud. In addition, they help to ensure that
                          actions are taken to address risks, and are an integral part of an entity’s
                          accountability for stewardship of government resources. Our Standards
                          for Internal Control in the Federal Government contains the specific
                          internal control standards to be followed. Specifically, these standards
                          require, among other things, that (1) key duties and responsibilities be
                          divided or segregated among different people to reduce the risk of error or
                          fraud, (2) transactions and other significant events be authorized and
                          executed only by persons acting within the scope of their authority,
                          (3) internal control monitoring be performed to assess the quality of
                          performance over time and ensure that audit findings are promptly
                          resolved, and (4) physical control must be established to secure and
                          safeguard assets vulnerable to risk of loss or unauthorized use.

                          The IG report, issued in August 2001, covered purchases made during fiscal
                          years 1999 and 2000. The report noted several internal control weaknesses
                          in USDA’s purchase card program, including that of the Forest Service.
                          These included (1) lack of supervisory review of purchase card
                          transactions, (2) untimely reconciliation of purchases, and (3) inadequate
                          monitoring by agency management. Because the IG report addressed
                          significant internal control weaknesses and made several
                          recommendations to address them, we did not conduct detailed tests of
                          internal controls. However, through discussions with USDA and Forest
                          Service officials and our reviews of purchase card policies and procedures,
                          we confirmed that the Forest Service still did not have an adequate
                          supervisory review process or sufficient program monitoring activities.
                          Most importantly, we determined that the Forest Service continued not to
                          have adequate segregation of duties, and property susceptible to theft or
                          misuse was not adequately safeguarded. Our data mining of specific
                          purchase card and convenience check transactions revealed numerous
                          improper and wasteful purchases that could have been prevented or
                          detected if these basic internal controls were in place. Without effective
                          internal controls, the Forest Service does not have reasonable assurance
                          that purchases are proper or that items purchased are safeguarded against
                          loss or theft.




                          Page 12                                 GAO-03-786 Forest Service Purchase Cards
The Forest Service Did Not   Our Standards for Internal Control in the Federal Government requires
Adequately Segregate         that key duties and responsibilities, including authorizing, processing,
                             recording, and reviewing transactions and handling related assets, be
Purchasing Duties            divided or segregated among different people in order to reduce the risk of
                             error or fraud. Simply put, no one individual should control all the key
                             aspects of a transaction or event. The processing and recording duties for
                             purchase card and convenience check transactions were automated and
                             not performed by the cardholder. However, under Forest Service
                             regulations, the majority of purchase card transactions do not require a
                             segregation of duties. Cardholders are allowed to perform the key duties of
                             authorizing purchases, receiving related assets, and validating the
                             purchases subsequent to payment.

                             Although Forest Service guidance required that a requisition be prepared
                             for all procurements as a method to determine that the requestor had the
                             authority for the purchase, a procurement request was not required for
                             acquisitions below $2,500 when using a purchase card or convenience
                             check. In fiscal year 2001, 96 percent of purchase card transactions were
                             for amounts less than $2,500. Further, as purchase card purchases usually
                             involved face-to-face transactions between the cardholder and the vendor,
                             the cardholder received the assets.

                             Lastly, Forest Service guidance required that cardholders reconcile their
                             transactions in PCMS at least once a month using the documentation
                             retained from each transaction. After reconciling a transaction,
                             cardholders validate the transaction by marking an “approved” cell in
                             PCMS. Therefore, for the majority of Forest Service purchase card
                             transactions made by individual cardholders, there is no separate
                             authorization of the purchases, possession of the items, or independent
                             validation of the transactions.

                             In discussions with USDA OPPM management and our review of purchase
                             card policies and procedures, we noted that generally, segregation of duties
                             was not adequately considered in the implementation of the purchase card
                             program. When USDA, including the Forest Service, adopted PCMS, the
                             revised procurement process allowed a much larger population of Forest
                             Service employees to authorize purchasing decisions to buy goods and
                             services as well as the responsibility for validating these purchases, up to
                             their single transaction limit. This new process did away with the need for
                             procurement requests and approving officials for the majority of purchase
                             transactions below $2,500 initiated by Forest Service employees.




                             Page 13                                 GAO-03-786 Forest Service Purchase Cards
                         As noted above, Forest Service purchase card program policies and
                         procedures were written to support the increased authority given
                         cardholders in purchase decisions. The lack of proper segregation of
                         duties increased the Forest Service’s vulnerability to theft or misuse since
                         there was limited oversight or control to ensure that purchased items or
                         services were for a legitimate government need and were being used for
                         those purposes.



Supervisory Review and   Supervisory approval of transactions is a principal means of assuring that
Approval Process Was     only valid transactions are initiated or entered into by persons acting
                         within the scope of their authority. A supervisory review of purchase
Inadequate
                         transactions is particularly important where there is a lack of segregation
                         of duties, because a supervisor or approving official17 may be the only
                         person other than the purchaser who would be in a position to identify an
                         inappropriate purchase. Therefore, the supervisor or approving official’s
                         review is a critical internal control for ensuring that purchases are
                         appropriate and comply with agency regulations.

                         The August 2001 IG report recommended that USDA institute a
                         requirement that supervisors periodically review and approve their
                         subordinates’ purchase card transactions to confirm they are appropriate
                         and revise departmental regulations and purchase card program
                         instructions accordingly. USDA did not concur with this recommendation
                         because the IG audit did not find any material problems with the purchase
                         card transactions that they tested. Further, in commenting on the report,
                         USDA management stated that they believe the existing management
                         structure is effective in ensuring that purchase card transactions are
                         appropriate.

                         During our review of the Forest Service purchase card program for fiscal
                         year 2001, we also noted that supervisory review and approval of purchase
                         card transactions was inadequate. The Forest Service did not require
                         approval of purchase transactions under $2,500, except for certain IT items
                         such as computer hardware, software, and cellular phones. The Forest
                         Service trusts cardholders to make appropriate purchasing decisions for


                         17
                           The U.S. Department of the Treasury’s Treasury Financial Manual defines an approving
                         official as an individual who reviews cardholder statement(s), is responsible for authorizing
                         cardholder purchases (for official use only), and ensures that the statement is reconciled
                         and submitted to the designated billing office.




                         Page 14                                          GAO-03-786 Forest Service Purchase Cards
transactions under this amount. During fiscal year 2001, purchases less
than $2,500 totaled $226 million and accounted for 96 percent of all
purchase card transactions in the Forest Service.

While Forest Service guidance requires prior approval for all purchase
transactions exceeding $2,500 and for specific IT items, we noted that this
requirement was not consistently followed. We identified 11 transactions
totaling $25,452 that required prior approval, but were initiated and
completed by cardholders without obtaining such approval. For example,
we identified a $1,260 purchase for a printer from ComputerLand Center.
Prior approval for the purchase was not obtained as required by Forest
Service policy. The cardholder stated that she did not obtain the proper
approval because she was unaware of the requirement.

USDA issued its revised procurement regulation, Use of the Purchase Card
and Convenience Check (DR-5013-6), in February 2003. The revised
regulation added the cardholder supervisor to the list of responsible
persons in the purchase card program. Supervisors are described as the
first line of control over the purchasing activity of cardholders in their
units. In addition, it states that supervisors will require cardholders to
generate periodic reports of purchase card and convenience check
transactions, and that supervisors review these reports at least quarterly, or
more often if agency procedures require. However, OPPM officials told us
that this new regulation does not require supervisors to review each and
every transaction nor does it require them to review supporting
documentation.18 Rather, these reviews are completed using data that has
been entered into PCMS and do not require the cardholders to submit the
original documentation for their purchases. Both USDA and Forest Service
officials told us that supervisory review of all transactions is not practical
because of the Forest Service’s decentralized organization. However, this
very decentralization makes it even more imperative that a supervisor or
other approving official validate purchases.

Without an independent validation of transactions via supervisory review
of supporting documentation, the Forest Service is at significant risk of
misappropriation of funds due to fraudulent or improper charges. For
example, as mentioned earlier, cardholders are required to “reconcile” or
validate their transactions at least once a month. During this process the


18
   Section 4500 of the U.S. Department of the Treasury’s Treasury Financial Manual (TFM)
also requires monthly review of transactions prior to submission for payment.




Page 15                                        GAO-03-786 Forest Service Purchase Cards
                         cardholders view each individual transaction for their account in PCMS
                         and agree the vendor name, the date of the transaction, and the amount of
                         the transaction to the original documentation maintained by the
                         cardholder. In addition, the cardholders enter the description of the items
                         purchased because this information is not initially included in PCMS.
                         While following up on questionable purchases that we identified, our
                         investigators learned that three of these purchases, for $1,031 in jewelry
                         and china from Meier & Frank, had been made by a Forest Service
                         employee who had been under investigation by the IG since January 2002.
                         In reviewing the IG Report on Investigation we noted that the cardholder,
                         when reconciling her purchases, had entered fictitious items into the item
                         description field in PCMS. For example, the purchases from Meier & Frank
                         were described as nonmonetary awards and length-of-service awards. In
                         addition, purchases of CD players, computers, computer games, and other
                         miscellaneous items at one vendor were entered into the PCMS description
                         field as cartridges, chair mats, folders, binders, paper, pencils, and other
                         supplies. A comparison of the receipt to information in the PCMS database
                         would have detected these purchases as potentially fraudulent.



Program Monitoring Was   The Forest Service did not adequately monitor its purchase card program
Inadequate               during fiscal year 2001 to ensure that Forest Service employees were
                         following established policies and procedures. Program oversight through
                         monitoring activities is important even when strong preventive controls are
                         in place, and is especially critical in the Forest Service case where there is a
                         lack of supervisory review and segregation of duties. USDA regulations19 in
                         place during fiscal year 2001 required that APCs and LAPCs monitor
                         purchase card transactions through PCMS’s alert subsystem,20 statistical
                         sampling, and query tool software. In August 2001, the IG reported
                         deficiencies in USDA’s (including Forest Service) use of oversight tools for
                         monitoring purchase card usage during fiscal years 1999 and 2000.
                         Specifically, the IG reported that the department had not effectively
                         implemented the alert subsystem of PCMS or implemented reviews of
                         statistically sampled transactions, as required by USDA regulations.
                         During our review of the Forest Service program for fiscal year 2001, we


                         19
                              USDA regulation 5013-6, Use of the Purchase Card and Convenience Check.
                         20
                           The alert system is a subsystem of PCMS that was designed to reduce fraud, waste, and
                         abuse by providing user messages to local coordinators regarding questionable
                         transactions.




                         Page 16                                         GAO-03-786 Forest Service Purchase Cards
noted that it was still not using these tools for monitoring transactions for
compliance with program requirements or for improper purchases.

In our discussions with OPPM officials in May 2002, they stated that they
were not using the alert subsystem because it was generating too many
alerts that did not represent true errors or abuse. They expect to correct
the alert process by June 30, 2003, 6 months ahead of the original
implementation date included in their corrective action plan to address the
IG’s findings. In addition, they informed us that they had not begun
performing reviews of statistically selected samples during fiscal year 2001
but that they had begun performing these reviews during fiscal year 2002,
distributing the results to the specific agencies, including the Forest
Service, for follow-up on the identified transactions. The Forest Service
APC confirmed that she received the transactions from OPPM and had
distributed them to the specific field offices for investigation.

Lack of timely and consistent monitoring activities increases the risk that
inappropriate purchase card transactions and improper cardholder
activities will go undetected. In addition, without adequate monitoring
activities, systematic problems will not be identified and addressed. In our
review of support for transactions identified using data mining techniques,
we found that local coordinators were not always (1) canceling accounts of
permanent and temporary employees when they left the Forest Service,
(2) informed by cardholders that cards had been lost or stolen, or
(3) monitoring disputed transactions to ensure they were completely
resolved and to identify unauthorized activity.

Canceling purchase card accounts. Purchase card accounts were not
consistently being canceled when cards were reported as lost or stolen, or
when a cardholder left the Forest Service. Forest Service guidance
requires, in the case of a lost or stolen card, that the cardholder contact
Bank of America to have a block placed on the account and a new card
issued. The guidance also requires that cardholders, prior to leaving the
Forest Service, surrender their cards and, if issued, unused convenience
checks, to the LAPC who will destroy them and close the account.

We reviewed employee separation procedures at 16 Forest Service regional
and field offices and noted that the written procedures at 3 offices did not
include steps to physically collect the purchase card from the employee.
Further, Forest Service program officials told us that the personnel forms
used in this process are out of date at one office, they differ from region to
region, and are inconsistently filled out.



Page 17                                  GAO-03-786 Forest Service Purchase Cards
In addition, we noted that purchase cards were issued to temporary
employees hired during fire season when there is an increased need for
manpower. According to the Forest Service APC, these cards are collected
when the temporary employees leave the Forest Service. However, one of
the officials we spoke with stated that the cards are not always retrieved.
Instead the purchase limits are reduced to $1 at that time. Our internal
control standards require that an agency must establish physical control to
secure and safeguard assets that might be vulnerable to risk of loss or
unauthorized use. Failure to collect purchase cards due to outdated and
inconsistently applied policies and procedures creates a significant risk of
unauthorized use of purchase cards.

USDA purchase card policy states that cardholders are required to inform
their LAPC immediately of lost or stolen purchase cards or convenience
checks and contact the card issuer in order to have the accounts blocked.
However, we found instances where LAPCs had not been notified that
cards had been lost by cardholders or stolen and the cards had not been
canceled. For example, we identified three instances where cardholders
lost their cards but did not inform their LAPCs. Instead, in each case, the
cardholder canceled the lost card and ordered a new card through Bank of
America without the LAPC’s knowledge.

Monitoring disputed transactions. We found that cardholders were not
always disputing transactions within 60 days of the transaction dates as
required by Forest Service policy and the GSA contract, and disputes were
not being monitored to ensure they were completely investigated and
resolved. Forest Service policy requires that cardholders reconcile their
purchase card transactions in PCMS every 30 days to ensure the recorded
charges are appropriate and correct, and that they dispute21 any charges
identified as inappropriate or erroneous. GSA’s Blueprint for Success:
Purchase Card Oversight, states that agency officials should consistently
monitor disputes filed by cardholders and watch for unusual trends, such
as a high number of disputes for specific merchants. In addition, the GSA
master contract with card issuers of government purchase cards states that
charges disputed within 60 days of the transaction date will be investigated




21
   In order to dispute an unauthorized or erroneous transaction, data are entered into the
PCMS disputes screen by the cardholder and sent to NFC. NFC prints the screen and faxes
it to Bank of America to be investigated and appropriate credit given. No supervisory
review or approval is needed for a dispute to be processed.




Page 18                                         GAO-03-786 Forest Service Purchase Cards
by the card issuer and appropriate credits issued. After 60 days22 the
cardholder is responsible for investigating the disputed charge. In fiscal
year 2001, Forest Service cardholders disputed over 1,000 transactions
totaling $690,157. Of these, we noted 62 transactions totaling over $51,000
that had not been disputed by cardholders within 60 days of the transaction
date.

Forest Service regulations do not require that cardholders inform their
LAPC of transactions to be disputed before they are submitted to Bank of
America. As a result, LAPCs and other management officials may be
unaware of disputed transactions that may indicate potentially fraudulent
or improper purchase card use, and therefore are not ensuring that
unauthorized activity is identified, compromised accounts are canceled,
and appropriate credits are issued. We noted that 76 transactions had been
identified by 51 cardholders as potentially fraudulent, but the transactions
still had not been resolved (i.e., credits issued) and the accounts were still
open as of the end of our fieldwork. For example, a cardholder disputed a
$600 charge at Dillards department store stating that this was one of
several charges against his account for this vendor and that none of the
charges were legitimate. In addition, cardholders disputed a total of 22
charges totaling $2,791 for a vendor named Productivity Plus. In all but 2 of
these 22 transactions the cardholders state that they had attempted to
reach the vendor but were unable to. However, there was no explanation
given as to why the cardholder accounts had not been closed.

The Forest Service issued revised policies and procedures for monitoring
purchase card usage in June 2001. The revised guidance required that for
each Forest Service region, field office, and the Washington office, the
Chief of Contracting Office (COCO) and LAPC perform monthly, quarterly,
and annual reviews of cardholder purchases. The guidance also gave the
COCOs the authority to revoke cardholder purchase card and convenience
check privileges for inappropriate use. However, the revised regulations do
not address the need for monitoring disputed transactions to help ensure
that the purchase cards that have been lost, stolen, or otherwise
compromised are canceled and that disputed transactions are resolved.
Inadequate monitoring is yet another gap in internal controls that leaves
the Forest Service purchase card program open to waste, fraud, and abuse.




22
     Per the GSA master contract for the government purchase card program.




Page 19                                          GAO-03-786 Forest Service Purchase Cards
Property Was Not Properly   Since 1999, we have designated financial management at the Forest Service
Tracked                     as high risk on the basis of serious financial and accounting weaknesses.
                            An area of particular concern has been the Forest Service’s internal
                            controls related to property. Internal controls are essential to safeguarding
                            assets vulnerable to risk of loss or unauthorized use. However, we found
                            that the Forest Service did not adequately track property bought with
                            purchase cards.

                            Forest Service policy requires that property costing more than $5,000 be
                            entered into its personal property management system. Such property is
                            also referred to as accountable property. USDA’s property management
                            regulations state that all accountable property acquired by purchase,
                            transfer, construction, manufacture, or donation will be recorded in the
                            property records at the time it is accepted by the receiving agency. We
                            reviewed supporting documentation for 108 accountable property items
                            purchased in 64 separate transactions during fiscal year 2001, selected on a
                            nonstatistical basis.

                            In our review, we noted that 54 of these transactions were entered in the
                            property system more than 60 days after the purchase transaction or not at
                            all. Specifically, 34 of these items, totaling $266,074, or approximately 31
                            percent, had been recorded in the USDA property system more than 60
                            days after the purchase transaction. In many of those cases, it was several
                            months before the property was recorded. For example, 8 of the items
                            were not entered into the system for more than a year. In addition, we
                            noted 20 property items, totaling $166,803, which the Forest Service could
                            not determine had ever been entered into the property system. These items
                            included 10 all-terrain vehicles, 3 copiers, 2 projectors, 2 generators, and 3
                            plasma monitors. This lack of accountability makes these assets
                            particularly susceptible to loss or theft without detection.

                            The Forest Service does not require that property costing under $5,000 be
                            tracked unless the items are designated as “sensitive.”23 Each USDA
                            agency defines its own list of sensitive property and is responsible for
                            providing this list to the cardholders. The Forest Service designates all


                            23
                              USDA defines sensitive property as any item of accountable property valued at less than
                            $5,000 which is highly susceptible to loss or theft as defined by the Agency Property
                            Management Officer. The Forest Service defines sensitive property as nonconsumable
                            equipment having an original acquisition cost from $500 to $4,999 that, due to its personal
                            desirability or other considerations, warrants a higher level of monitoring and control.




                            Page 20                                          GAO-03-786 Forest Service Purchase Cards
firearms, frequency modulated land-mobile radios, precise positioning
service Global Positioning Satellite (GPS) receivers, IT equipment, and
radiological equipment having a radioactive source as sensitive property,
agencywide. Further, Forest Service guidance allows each of its regions
and field offices to designate other items as sensitive. While the Forest
Service allows field offices to categorize items under $5,000 as sensitive
and thereby track them in inventory, there is no consistent definition of
sensitive property across regions. For example, one Forest Service region
considers VCRs, TVs, and CD players costing more than $500 to be
sensitive property. Another regional office designates video and audio
equipment costing more than $100 as sensitive. That particular region also
considers survival equipment and clothing sensitive while other regions do
not.

USDA regulations state that agencies shall be responsible for maintaining
reasonable controls over their nonaccountable property to safeguard it
against improper use, theft, and undue deterioration. In our review, we
identified transactions totaling $439,789 for purchases of items that were
not recorded in the Forest Service’s inventory that, while not specifically
designated as sensitive, appear to meet both USDA and Forest Service’s
overall definition of sensitive property. The cost of many of these items fell
just under the $5,000 accountable property threshold. As shown in table 1,
these items included all-terrain vehicles, cameras, GPS units, snowmobiles,
and night-vision goggles.



Table 1: Nonaccountable Items Purchased

Item type                                                              Number purchased                      Dollar amount
All-terrain vehicles                                                                             17                      $74,648
LCD projectors                                                                                   25                      130,057
Cameras (digital and standard)                                                                 120                       129,073
Snowmobiles                                                                                        9                      38,787
Global Positioning Satellite Units (GPS)                                                         52                       14,200
Camcorders                                                                                         7                      14,098
Binoculars                                                                                         9                      11,624
Motorcycles                                                                                        2                       9,689
Personal digital assistants                                                                      14                        8,394
Night-vision goggles                                                                               4                       9,219
Total                                                                                          259                   $439,789
Source: GAO analysis of Forest Service purchase card and convenience check transactions selected for fiscal year 2001.




Page 21                                                               GAO-03-786 Forest Service Purchase Cards
Without proper recording and accounting for these vulnerable assets, there
is an increased risk of misappropriation of these items. For example,
without tracking of these items a supervisor may be unaware that a
cardholder leaving the Forest Service purchased one of these items, and
therefore could not ensure that the item remained in the possession of the
Forest Service. In some Forest Service regions, employee checkout
procedures attempt to mitigate this by requiring that an official certify that
the employee has accounted for all property. An inventory listing of these
items would enable the supervisor to ensure that all vulnerable assets are
properly accounted for when employees leave.

USDA’s revised regulations, issued in June 2001, prohibit the purchase of
accountable and sensitive property except by warranted cardholders.24
However, the revised regulations did not mitigate the issues we identified
regarding proper accounting for vulnerable assets. Therefore, these items
continue to be at an increased risk of misappropriation.

Table 2 summarizes the actions USDA and the Forest Service have taken to
address many of the internal control weaknesses identified by the IG
and/or us. We did not test the effectiveness of these actions because they
were implemented subsequent to our review time frame. On reviewing the
proposed actions, however, we found that in certain cases, even if properly
implemented, they will still not fully remedy known vulnerabilities in
internal controls. These cases are noted in the table.




24
  A warranted cardholder is an employee who has contracting authority delegated to him or
her by a duly authorized appointing official in accordance with federal and USDA
regulations. The warrant, SF-1402, states the level of contracting authority delegated to an
individual, including any limitations on that authority. Above the micropurchase threshold,
only warranted individuals may bind USDA contractually.




Page 22                                          GAO-03-786 Forest Service Purchase Cards
Table 2: Revised USDA Purchase Card Policies

Policies in place during fiscal   Audit findings for fiscal year    USDA/Forest Service actions
year 2001                         2001                              to strengthen control              Continued vulnerabilities
Cardholder’s authorize            Forest Service regulations do     None                               No requirement of independent
purchases, receive related        not support a segregation of                                         review by the LAPC or
assets, and validate the          duties in purchase card                                              supervisor to validate
purchases subsequent to           transactions under $2,500.                                           transactions or independent
payment for purchases under                                                                            verification of receipt of goods or
$2,500.                                                                                                service leaves the Forest
                                                                                                       Service purchase card program
                                                                                                       vulnerable to fraud, waste, and
                                                                                                       abuse.
Transactions under $2,500 do      No requirement of independent     LAPCs and COCOs are required       These limited post-reviews are
not require preapproval unless    review by LAPC or supervisor to   to audit a percentage of           not sufficient oversight given the
they are for specific IT items.   validate transactions, or         transactions on a monthly,         decentralization of the
                                  independent verification of       quarterly, and annual basis to     organization and the lack of
                                  receipt of goods or service.      ensure micro-purchase rules        segregation of duties. As
                                                                    have been followed using PCMS      supervisors would be expected
                                                                    screens and reporting, including   to be more knowledgeable of a
                                                                    review of description fields       cardholder’s daily activities and
                                                                    completed by cardholders. Also,    responsibilities, the review of
                                                                    LAPCs are to audit 3 percent of    actual documentation should
                                                                    transactions annually, by          also be at the supervisor level.
                                                                    reviewing all supporting           Cardholders are able to enter
                                                                    documentation for the              fictitious descriptions of item or
                                                                    transactions.                      service purchased in PCMS.
                                                                                                       Therefore, without a review of
                                                                    (FS 6309.32 revised 6/01)          original supporting
                                                                                                       documentation at all levels the
                                                                    Supervisors were added to list of Forest Service cannot ensure
                                                                    responsible parties for            that the purchase was
                                                                    monitoring USDA’s regulation on appropriate and reflected a valid
                                                                    purchase card usage. In            government need.
                                                                    addition, supervisors will require
                                                                    cardholders to generate periodic
                                                                    reports of purchase card and
                                                                    convenience check transactions.
                                                                    Supervisors shall review
                                                                    cardholder transaction reports at
                                                                    least quarterly, or more often if
                                                                    agency procedures require.

                                                                    (USDA 5013-6 issued 2/03)




                                              Page 23                                          GAO-03-786 Forest Service Purchase Cards
(Continued From Previous Page)
Policies in place during fiscal                 Audit findings for fiscal year     USDA/Forest Service actions
year 2001                                       2001                               to strengthen control               Continued vulnerabilities
USDA-OPPM and Forest                            Alert subsystem not being used     Alert subsystem expected to be
Service APCs and LAPCs are                      due to problems.                   running by June 30, 2003. New
required to monitor purchase                                                       system will also include some
card transactions using the                                                        data on disputed transactions for
PCMS alert subsystem,                                                              review by LAPCs.
statistical sampling, and query
tool.                                           Statistical sampling not being     OPPM has begun producing
                                                performed during 2001.             random queries of PCMS data to
                                                                                   identify transactions having a
                                                                                   higher than normal potential for
                                                                                   abuse and sending them to the
                                                                                   respective agencies for
                                                                                   investigation.
Cardholders are to validate their               Disputed transactions are not    Forest Service began                  Cardholders will still be able to
transactions periodically and to                always submitted within 60 days deactivating purchase card             use convenience checks to
dispute any erroneous or                        of transaction date.             accounts for which transactions       make purchases.
unauthorized transactions within                                                 were unreconciled more than 30
60 days of the transaction date.                Cardholders are not required to days after transaction date.
                                                communicate disputed items to                                          It is not known whether the data
                                                supervisors and supervisors are The agency expects to have the         provided will ensure that
                                                not required to monitor disputed Alert subsystem running by            purchases that may be improper
                                                transactions.                    June 30, 2003. New system will        or potentially fraudulent are
                                                                                 also include some data on             brought to management’s
                                                Potentially fraudulent           disputed transactions for review      attention for investigation and
                                                transactions were still          by LAPCs.                             resolution.
                                                unresolved as of the end of our
                                                fieldwork.
Accountable and sensitive                       Accountable property is not        Only warranted cardholders may Property items that appear to
property is to be recorded                      entered in the property system.    purchase accountable or        meet the overall USDA and
immediately after purchase.                     Certain vulnerable items are not   sensitive property.            Forest Service definition of
                                                considered sensitive and                                          sensitive are still not included in
                                                included in property system.       (FS 6309.32 revised 6/01)      the agency-level list of items to
                                                                                                                  be entered into the property
                                                                                                                  system.
Source: GAO analysis of Forest Service documentation.




Noncompliance with                                          The lack of adequate internal controls resulted in violations of numerous
Purchasing Requirements                                     federal acquisition requirements and USDA/Forest Service purchase card
                                                            policies that we classified as improper purchases. These included
Resulted in Instances of
                                                            (1) purchases that were split into two or more transactions to circumvent
Improper Purchases                                          single transaction limits, (2) purchase transactions that were paid for
                                                            twice, (3) purchases of unauthorized items, (4) purchases that exceeded
                                                            single purchase limits, (5) unapproved information technology (IT)
                                                            purchases, (6) transactions charged to purchase card accounts of former
                                                            employees, and (7) convenience checks written by cardholders to



                                                            Page 24                                           GAO-03-786 Forest Service Purchase Cards
reimburse themselves. Table 3 shows the total dollar amounts for
exceptions we identified for each category.



Table 3: Categories of Improper Purchases

                                                                                                         Dollar amount of
Policy violation                                                                                             transactions
Split purchases                                                                                                   $1,285,252a
Duplicate transactions                                                                                                   177,187b
Purchases of unauthorized items                                                                                           53,324
Purchases that exceeded single transaction limit                                                                          41,445
Information technology purchases that were not approved                                                                   25,452
Transactions on accounts of former employees                                                                              43,625
Convenience checks written for cash reimbursement                                                                          2,014
Total                                                                                                              $1,628,299
Source: GAO analysis of Forest Service purchase card and convenience check transactions selected for fiscal year 2001.
a
 This amount includes split transactions for which we selected a statistical sample of 213 transactions.
Based on the results of our review we estimate that almost $1.3 million of the total fiscal year 2001
purchase card transactions identified as potential splits were actual split transactions. We are 95
percent confident that the total dollar value for actual split transactions was between $.9 million and
$1.6 million.
b
 This amount includes duplicate transactions for which we selected a statistical sample of 230
transactions. Based on the results of our review we estimate that almost $177,187 of the total fiscal
year 2001 purchase card transactions identified as potential duplicates were actual duplicate
transactions. We are 95 percent confident that the total dollar value for actual duplicate transactions
was between $43,458 and $310,916.


While the total amount of improper purchases we identified is relatively
small compared to the more than $320 million in annual purchase card and
convenience check transactions, it demonstrates vulnerabilities from weak
controls that could easily be exploited to a greater extent. The above
policy violations are discussed in more detail below.

Split purchases. Using data mining techniques, we identified purchases
that appeared to have been split into two or more transactions by
cardholders to circumvent their single transaction limit. We requested
supporting documentation for a statistically determined sample of 213 out
of 1,854 potentially split purchases we identified. Of these 213, we
identified 29 actual split purchases for which we received and examined
documentation that confirmed that the purchases were split into two or
more transactions. Based on these results, we estimate that almost




Page 25                                                               GAO-03-786 Forest Service Purchase Cards
$1.3 million25 of the total fiscal year 2001 purchase card transactions were
split transactions. For example, a cardholder with a single purchase limit
of $2,500 purchased 13 toner cartridges totaling $3,918. The cardholder
had the vendor split the purchase between two invoices to avoid exceeding
her single purchase limit. In another example, the cardholder purchased
$36,984 of safety equipment for rescue workers. The cardholder had the
vendor separate the total charge into three charges to circumvent her
single transaction limit of $25,000. The projected amount of split
transactions may have been higher had we received all documentation
requested. However, for 59 of the 213 sampled transactions, we could not
determine whether they were split transactions because cardholders did
not provide documentation through the APC to enable us to assess them.
The purpose of the single purchase limit is to require that purchases above
established limits be subject to additional controls to ensure that they are
properly reviewed and approved before the agency obligates funds. By
failing to monitor transactions, these limits may be circumvented and the
Forest Service will have less control over the expenditure of its resources.

Duplicate transactions. Using data mining techniques, we identified
individual purchases that appeared to have been charged twice to
cardholder’s accounts. We requested supporting documentation for a
statistically determined sample of 230 of the 8,659 potentially duplicate
transactions we identified. Of these 230, we identified 6 actual duplicate
transactions. Based on these results, we estimate that $177,18726 of the
total fiscal year 2001 purchase card transactions were duplicate
transactions. The projected amount of duplicate transactions may have
been higher had we received all documentation requested. However, for
30 of the 230 sampled transactions, we could not determine whether they
were duplicate transactions because cardholders did not provide
documentation through the APC to enable us to assess them. Supervisory
review of the documentation supporting the cardholder’s transactions
reduces the risk that duplicate charges would go undetected and result in
financial losses to the government. In addition, an effective monitoring
program at the APC/LAPC level would help flag these types of improper
transactions.



25
  We are 95 percent confident that the total dollar value of actual split transactions was
between $.9 million and $1.6 million.
26
  We are 95 percent confident that the total dollar value of actual duplicate transactions was
between $43,458 and $310,916.




Page 26                                           GAO-03-786 Forest Service Purchase Cards
Purchases of unauthorized items. USDA purchase card policy states that
the purchase card and convenience checks will not be used for the
purchase of hazardous items such as firearms, ammunition, explosives, or
hazardous biological and radioactive substances. However, we identified
10 transactions totaling $53,324 for the purchase of ammunition, rifles, and
explosives. For example, we identified two transactions for the purchase
of rifles, which are used for animal control and other Forest Service
activities. When we informed the cardholders that these transactions were
improper, one cardholder stated that he was unaware that purchase card
policy prohibited this purchase. The other cardholder stated that as a
warranted cardholder, she was allowed to purchase the rifle. This is not
the case under Forest Service policy, and when we brought this to the
attention of the Forest Service APC, she contacted the employee to inform
her that the purchase was improper. Further, we identified a $500 purchase
of ammunition, which was given to the local sheriff's department under a
cooperative agreement. Under the agreement, the sheriff's department
would patrol campgrounds because of manpower shortages within the
Forest Service. The cardholder told our investigator that it is a common
occurrence in his region to have cooperative agreements with local law
enforcement agencies. When we discussed this transaction with the Forest
Service APC she expressed some concern as to whether the intent of the
cooperative agreement program was being properly administered in the
cardholder’s region.

Purchases that exceeded single transaction limits established by USDA
policy. Through our data mining efforts, we identified 12 purchases
totaling $41,445 that exceeded the cardholder’s single transaction limit by
10 percent or more. Of the purchases we identified, we noted that none of
them were made using the purchase card; instead they were made using
convenience checks that had been issued to the cardholder. According to
the Forest Service APC, when an individual cardholder uses a purchase
card and the amount of the purchase is in excess of the limit, electronic
controls established by Bank of America deny the transaction and it cannot
be completed. However, these controls do not exist for convenience
checks. The cardholder’s single transaction limit is printed on the face of
his/her convenience checks. Yet when a cardholder writes a check in
excess of their transaction limit, only scrutiny by the vendor would identify
this. According to the Forest Service APC, the Bank of America honors all
convenience checks. Therefore, when vendors submit checks written for
amounts in excess of the cardholder’s limit to Bank of America, the checks
are accepted and processed for payment. This lack of control allows a
cardholder to circumvent the single transaction limit, even in the case



Page 27                                  GAO-03-786 Forest Service Purchase Cards
where the Forest Service has reduced a cardholder’s single transaction
limit to $0 or $1 for abusing the purchase card program or due to separation
from the agency, increasing the risk of unauthorized or improper purchases
by cardholders.

No preapproval of IT purchases. While the Forest Service generally does
not require preapproval of purchases under $2,500, there are some specific
categories of items for which prior independent approval must be obtained.
According to Forest Service policy, cell phones, fax machines, scanners,
and other IT equipment are not to be purchased without first obtaining
approval from the appropriate IT personnel. However, we found 11
transactions totaling $25,452 for equipment, including cell phones,
scanners, printers, and fax machines, that did not have this required
preapproval.

Transactions by cardholders separated from the Forest Service. Using
data mining techniques, we identified purchase card accounts that had
transactions totaling approximately $43,625 charged to them with
transaction dates that appeared to be after the cardholders left the Forest
Service.27 In discussions with the Forest Service APC, she agreed that,
based on the available data, $4,385 of these transactions could be
confirmed to be improper, having been made after the employees had left
the Forest Service. For example, one former employee left the Forest
Service on November 4, 2000, but PCMS records indicated that six
purchases, totaling $1,632, were charged to the employee’s purchase card
account over the next 2 months at Ames and Kmart department stores. The
Forest Service was unable to provide documentation to support the
appropriateness of the remaining transactions totaling $39,240.

Cardholders wrote convenience checks to themselves. We found 26
instances, totaling $2,014 where cardholders wrote checks to themselves,
contrary to Forest Service policies that prohibit this practice. Writing
checks for cash is also an unauthorized transaction, according to USDA’s
micropurchase guide. In addition, the guide states that cardholders may
issue checks to reimburse other employees for local travel expenses, such


27
  We compared cardholder names from Bank of America data to the Forest Service list of
employees who had left the Forest Service during fiscal year 2001, including their dates of
separation. However, in some cases we found that the full name of the employee who left
the Forest Service was the same as the cardholder, but was actually a different person.
Therefore, it was necessary for us to obtain verification from the Forest Service before
concluding on these transactions.




Page 28                                          GAO-03-786 Forest Service Purchase Cards
                       as mileage, parking, and taxis, authorized by their agency while on official
                       business, or miscellaneous expenditures (e.g., supplies, services,
                       registration fees, and telephone use for official business) that were cleared
                       with the cardholder before the purchase was made. However, the proper
                       documentation must be completed and the expenditures must be approved
                       by an authorized official other than the cardholder. In most of the cases we
                       identified, the cardholders stated that they were unaware of the prohibition
                       against writing checks to themselves for cash. The remaining cardholders
                       stated that they were aware of the restriction, but did it anyway to expedite
                       their reimbursement as no other cardholders with checks were available at
                       the time, or in one case, the employee who reimbursed himself was the
                       only one with checks at that location.

                       The above examples not only illustrate a lack of adequate oversight, but
                       also the need for better training. According to USDA and Forest Service
                       regulations, each cardholder is required to obtain some type of training
                       before being issued a card. Each agency within USDA is responsible for
                       training participants in accordance with USDA or agency-specific
                       regulations and is allowed to determine the method of certification.



Poor Controls over     The inadequacies and ineffectiveness of internal controls were also evident
                       in the 779 wasteful and questionable transactions we identified that totaled
Purchasing Practices   over $1 million. Transactions we classified as wasteful were for items or
Resulted in Certain    services that were (1) excessive in cost compared to other available
                       alternatives, (2) for a questionable government need, or both. We also
Wasteful and           identified other transactions that we classified as questionable because
Questionable           there was insufficient documentation to determine what was purchased.
Transactions           Lacking key purchase documentation, we could not determine what was
                       actually purchased, how many items were purchased, the cost of each of
                       the items purchased, and whether there was a legitimate government need
                       for such items.

                       Table 4 indicates the number of transactions and dollar amounts that we
                       determined to be wasteful or questionable. These transactions are
                       indicative of what can occur when purchase card use is not properly
                       controlled. We tested only a portion28 of the transactions that we identified


                       28
                         Out of a total population of over 800,000 transactions, we identified approximately 68,000
                       transactions that appeared at higher risk of being inappropriate, of which we selected about
                       5,000 for our review.




                       Page 29                                          GAO-03-786 Forest Service Purchase Cards
                     that appeared to have a higher risk of fraud, waste, or abuse; there may be
                     other improper, wasteful, and questionable purchases in the remaining
                     untested transactions.



                     Table 4: Purchases Determined to Be Wasteful or Questionable

                                                                      Number of      Dollar amount of
                     Transaction category                           transactions         transactions
                     Wasteful transactions:
                     Excessive cost                                            93             $127,319
                     Questionable government need                              42               84,785
                      Total wasteful purchases                               135              $212,104
                     Questionable transactions:
                     Inadequate/incomplete documentation                     317               253,388
                     No documentation                                        327               616,437
                      Total questionable purchases                           644              $869,825
                     Grand total                                             779            $1,081,929
                     Source: GAO.




Wasteful Purchases   We identified 135 purchases totaling $212,104 that we determined to be
                     wasteful because they were excessive in cost relative to available
                     alternatives, of questionable government need, or both. We considered
                     items to be excessive in cost when less expensive alternatives would meet
                     the same basic needs. We defined items as being of questionable
                     government need when they appeared to be a matter of personal
                     preference or personal convenience, were not reasonably required as part
                     of the usual and necessary equipment for the work the employees were
                     engaged in, or did not appear to be for the principal benefit of the
                     government. Specifically, we identified 93 purchases totaling $127,319 that
                     we considered excessive in cost, including purchases for digital cameras,
                     premium satellite and cable TV packages, awards and gifts, and
                     cancellation fees. In addition, we identified 42 purchases totaling $84,785
                     for which we questioned the government need. Such purchases included
                     specialty costumes, PDAs, and PDA accessories.

                     Forest Service policy requires that purchasers buy equipment, supplies, or
                     materials that economically meet the needs of the government, avoid
                     deluxe items when the requirements are satisfactorily met by less costly
                     standard articles, and take into account the perspective of the user of the



                     Page 30                                   GAO-03-786 Forest Service Purchase Cards
product. When we reviewed the supporting documentation for many of the
purchases we identified, we noted that the cardholders frequently did not
document their determination that the item purchased economically met
the needs of the government based on an evaluation of price and other
factors, thus avoiding deluxe items as required by Forest Service
purchasing policy. When we requested additional information from
cardholders, they either did not provide the requested information or the
documentation provided was inadequate to support that the specific
purchase was in compliance with this policy.

Items purchased at a price higher than that of available alternatives that
would have met the same basic needs included:

• Digital cameras. During our detailed testing, we identified 66 digital
  cameras and accessories purchased in 37 separate transactions totaling
  $61,243 that appeared to have been purchased based on the personal
  preference of the cardholder, not on the minimum specifications to
  support the anticipated use. Digital cameras are available at many price
  levels, with the price usually reflecting the technical specifications of
  the cameras and the options included. The Forest Service uses digital
  cameras for various purposes in its operations, such as taking digital
  images of nursery and reforestation activities throughout the nation.
  These images are used for publications, presentations, workshops, and
  placed on the RNGR web site as part of the technology transfer and
  technical assistance missions of certain teams. Depending on the
  intended use of the images, cameras must have certain capabilities of
  which the users should be knowledgeable or at a minimum have readily
  available guidance on. This helps to ensure that cameras purchased
  meet and not exceed the needs of the user. In our review of the
  supporting documentation and cardholder statements we noted that
  some of the cardholders knew how the cameras were going to be used.
  However, they did not know what minimum technical capabilities the
  cameras had to have. Cardholders purchased cameras ranging from 1
  megapixel to 4 megapixels of data resolution, ranging in price from
  around $350 to over $1,900, that appeared to be based on personal
  preference, not Forest Service need. Forest Service policy states that
  the requirements of an item must be taken into account in its purchase
  to ensure that it economically meets the needs of the government and to
  prevent the purchase of deluxe items when the requirements are
  satisfactorily met by less costly standard articles. However, the Forest
  Service had not developed guidelines on the purchase of high-tech items
  such as digital cameras. In addition, the individual transactions by



Page 31                                  GAO-03-786 Forest Service Purchase Cards
     cardholders at various vendors involved the purchase of usually only
     one or two cameras at a time. This does not allow the Forest Service to
     achieve possible economies of scale by purchasing them from a single
     vendor at a discount.

• Premium satellite and cable TV packages. We identified 21 transactions
  totaling $4,843 for monthly satellite television programming. The
  Forest Service is authorized to provide minimum recreation facilities
  and opportunities for its employees consistent with the degree of
  isolation and permanence of the individual work centers. However, in
  each television entertainment purchase we identified, the cardholder
  had not contracted for the basic service offered by the vendor but
  instead for a premium package, such as HBO, Cinemax, NFL or NBA
  games, or for pay-per-view movies. In one instance the invoice included
  charges for pornographic movies. In addition, we noted one $833
  transaction for Direct TV service that the cardholder stated was needed
  in order to allow the office to track weather conditions in that part of
  the country. We questioned the need for this capability given that
  detailed weather tracking is accessible on the Internet, which, according
  to a Forest Service telecommunications manager, is available in all
  offices. In addition, we reviewed the invoice supporting this transaction
  noting that the cardholder had also subscribed to 2001 NFL Sunday
  Ticket ($199), a subscription to view NFL games on Sunday during the
  NFL season, through the vendor.

• Awards and gifts. We noted several purchases for awards and
  retirement and farewell gifts for which adequate supporting
  documentation was not provided or the award items purchased were
  not in compliance with USDA policy. USDA policy provides for a
  number of performance award categories and criteria for each, and
  requires that the purpose and type of award given should be
  documented. Nonmonetary awards, according to USDA policy, are time
  off awards, keepsakes,29 letters of appreciation, and honorary awards.
  We identified purchases for which the Forest Service was unable to
  identify the purpose of the award or provide supporting documentation.
  For example, we identified eight transactions, totaling $13,694 in award
  purchases, which included hats, mugs, backpacks, and blankets


29
  Keepsakes are defined as medals, certificates, plaques, citations, badges, pen-and-pencil
sets, pins, and coffee cups as long as the item displays the department's name and is suitable
for display.




Page 32                                           GAO-03-786 Forest Service Purchase Cards
   purchased from vendors such as Warner Bros., Eddie Bauer, and Mori
   Luggage and Gifts, in which the cardholder either gave no or inadequate
   justification for the purchase of these items. In addition, USDA’s
   regulation on career service recognition states that awards are intended
   to recognize employees for their special efforts, and motivate others
   who witness the presentation. According to the regulation, employees
   should not be recognized monetarily when they leave USDA either
   through retirement or separation. However, USDA agencies may
   consider providing some form of honorary or nonmonetary recognition
   of an employee’s efforts in support of USDA’s mission. Items such as
   plaques or pins are considered appropriate and may be presented.
   However, we identified one transaction for the purchase of a golf bag as
   a farewell gift and another for the purchase of a rifle as a retirement gift
   for an employee.

• Cancellation fees. We found two transactions totaling $34,950 for
  cancellation fees for rooms not used by Forest Service employees for a
  conference and housing for a seasonal work crew. Specifically, the
  Forest Service paid a $30,000 cancelation fee to Doubletree Hotel in
  Denver, Colo.. The Contracting Officer did not recall the specific facts
  related to this transaction except that the program office rescheduled
  this conference several times with the hotel and then finally canceled,
  but not in time to avoid the fee. The Forest Service also paid a $4,950
  cancellation fee to the Rain Country Bed and Breakfast for late
  cancellation of its reservation to house seasonal workers.

We also found government expenditures that appeared to be for items that
were a matter of personal preference or convenience, were not reasonably
required as part of the usual and necessary equipment for the work the
employees were engaged in, or did not appear to be for the principal
benefit of the government, which included the following.

• Specialty costumes and decorative tent. Forest Service policy provides
  for purchases to promote programs related to Smokey the Bear and
  Woodsy the Owl. We noted three transactions totaling $8,750 for
  costumes not related to these two programs. For example, the Forest
  Service purchased two fish costumes, Frank and Franny Fish, from the
  Carol Flemming Costume Design Studio at $2,500 each, used for aquatic
  education in the Pacific forest regions. The cardholder explained that
  these personalities are to the fisheries program what Smokey Bear is to
  the fire program. We also identified a transaction totaling $3,750 for 39
  “web of life” costumes, including animals and nature themes, to be used



Page 33                                   GAO-03-786 Forest Service Purchase Cards
   in education programs. However, Forest Service policy does not
   support the purchase of these costumes and the cardholder’s statement
   does not establish sufficient government need for the costumes to
   support regional programs. In addition, we identified a $7,500 purchase
   of a hand-stitched “salmon tent” from Evelyn Roth Festival Arts. The
   supporting documentation did not provide a purpose for the purchase of
   the tent, only a note that the Forest Service has purchased several of
   these tents over the last 5 years or so.

• Personal Digital Assistants (PDA). During our review, we identified 11
  transactions for the purchase of 14 PDAs and accessories totaling $8,768
  from vendors such as Palm Computing, Casio, Amazon.com, and Best
  Buy. The Forest Service does not have a policy on the purchase of
  PDAs, handheld electronic devices that function as calendars, address
  books, and other personal administrative aids. Calendars and daily
  planners cost from $6 to $56 with refills for the daily planner costing
  about $20. We noted that some cardholders had purchased high-end
  items such as the Palm VTM and Palm M505TM with costs ranging from
  $350 to $450. By comparison, alternatives such as Palm’s M105TM model
  retailed for approximately $200 at the time of these transactions. In our
  review of the supporting documentation for these purchases, we found
  nothing to show how the cardholders determined that the PDAs were
  necessary to fulfill a valid government need, rather than the personal
  preference of the cardholders. For example, one cardholder purchased
  a single IBM workpad with hotsync cradle for $829 to use as a calendar,
  address book, and to check e-mail messages. Another cardholder
  purchased six new PDAs from Casio Electronics by trading in six Forest
  Service PDAs plus $199 each. When asked to explain the need for the
  newer PDAs, his response was that the newer ones were faster and had
  more memory to support e-mail. Lastly, the Forest Service incurred
  other expenses for items to support the PDAs, such as keyboards and
  carrying cases. In one instance we identified a purchase of PDA
  keyboards, totaling $374, which, according to the cardholder, would be
  used for taking notes in meetings.

• Cordless phones and headsets. We noted several purchases of cordless
  phones or headsets for Forest Service employees where cardholders
  were unable to provide documentation supporting the necessity for the
  item in performing their duties. Instead, the purchases have the
  appearance of having been made for personal convenience. For
  example, a Forest Service cardholder purchased cordless phones and
  handsets totaling $2,242. When we asked why the phones were needed,



Page 34                                 GAO-03-786 Forest Service Purchase Cards
                            the cardholder responded that they were purchased for the ease of use
                            and to enhance the workplace for certain employees.

                         We also identified numerous other individual purchases that we considered
                         to be wasteful due to excessive cost or questionable government need.
                         Such purchases included $9,219 for six pairs of night vision goggles ($1,536
                         average), that we found available at prices ranging from $379 to $1,949;
                         $2,701 for sound masking equipment, which the cardholder stated was
                         needed to reduce the level of noise coming from the cubicles in the regional
                         office where she worked; $2,929 paid to Hair of the Dog for an aquarium in
                         an Alaska regional visitor information center; $2,295 paid to Quality
                         Billiards for a billiard table for a Forest Service bunk house; $2,204 paid to
                         Best Buy for TV/VCR combinations and their installation into Forest
                         Service vehicles; $589 paid to Ultimate Electronics for a DVD player to be
                         used by employees to watch exercise videos in the fitness room; and $200
                         for a leather briefcase.

                         Until the Forest Service provides adequate management oversight of its
                         purchase card program, including a more thorough, systematic review and
                         monitoring of expenditures with appropriate disciplinary action when
                         warranted, the types of wasteful and abusive purchases we identified are
                         likely to continue.



Questionable Purchases   Forest Service policy requires that cardholders maintain adequate
                         documentation of all purchase card and convenience check transactions.
                         As discussed earlier in this report, we requested supporting documentation
                         for a nonstatistical sample of over 5,000 transactions. Of these, we
                         identified 644 transactions totaling over $869,825 that appeared to be
                         improper, wasteful, or potentially fraudulent, but for which the Forest
                         Service either provided insufficient or no documentation to determine the
                         propriety of the transactions.

                         For 104 transactions, totaling $184,682, that appeared to be either improper
                         or wasteful, the documentation we received was inadequate or was not the
                         correct supporting documentation, and we were unable to make a
                         determination of the propriety of the transactions. For example, we
                         requested supporting documentation for a $2,315 transaction charged by
                         Unisys Corporation. Supporting documentation was not provided to us.
                         The Forest Service explained that the employee knowledgeable about this
                         charge had left the Forest Service and the documentation related to the
                         purchase could not be located. The remaining transactions represented



                         Page 35                                  GAO-03-786 Forest Service Purchase Cards
purchases made at various vendors such as $5,803 at Have Party Will
Travel; $4,940 at Spencer’s TV & Appliance; $2,400 at Grand Home
Furnishings; $2,828 at Lowder’s Home Entertainment; $1,729 at Mick’s
Scuba Inc.; and $3,430 at Samson Tours.

We also identified 213 transactions totaling over $68,706, which appeared
to be either unauthorized and for personal use, made using compromised
accounts or unauthorized transactions by merchants, but adequate
documentation was unavailable to allow us to determine the propriety of
the purchases. We were subsequently able to determine that several of the
transactions were in fact fraudulent. These fraudulent and potentially
fraudulent transactions included the following.

• Transactions made by cardholders that appeared to be unauthorized
  and intended for personal use. For example, we identified three
  transactions totaling $1,031 in jewelry and china for one cardholder that
  appeared to be unauthorized or for personal use. In the course of our
  follow-up inquiries, we found that the cardholder had been under
  investigation by the IG since January 2002 when an employee at a local
  vendor expressed concerns to a Forest Service employee about some
  purchases by another Forest Service employee. In our review of the
  USDA IG Report of Investigation on this cardholder, we noted that the
  fraudulent activity identified by the IG spanned from May 1999 through
  January 2002. During this period the cardholder purchased five digital
  cameras totaling $2,960, six computers totaling $6,019, three palm pilots
  totaling $736, jewelry totaling $1,967 and various other items including
  cordless telephones, figurines, and Sony Playstations totaling $6,101. On
  December 2, 2002, the employee pleaded guilty to one felony count of
  theft of government money and property in the amount of $31,342. In
  addition, we identified one transaction totaling $511, at a Tribal Bingo
  Casino, for another cardholder who, according to the IG, is also
  currently under investigation.

• Transactions made using compromised accounts in which a purchase
  card or account number was stolen and used to make unauthorized
  purchases. For example, we identified unauthorized transactions for
  $692 at Kmart, Circuit City, and other vendors by a person other than the
  cardholder using the cardholder’s account number. The cardholder
  contacted one of the merchants about the charges and was told that the
  merchant’s security personnel requested personal identification from
  the individual after the purchase, but the individual left the store and did
  not return. The cardholder’s account was canceled. In addition, we



Page 36                                  GAO-03-786 Forest Service Purchase Cards
     identified a transaction that had been disputed by a cardholder and
     upon investigation the cardholder determined that the charge was
     incurred by an employee of a local vendor for calls made to a phone-sex
     line.

• Unauthorized transactions charged by merchants to cardholder
  accounts. For example, we identified 20 disputed transactions, totaling
  over $2,700, for one merchant, Productivity Plus. On the basis of
  cardholder explanations we reviewed in PCMS’s dispute screen, it
  appeared that the merchant had obtained several cardholder account
  numbers and charged amounts to them without the authorization of the
  cardholders.

For the remaining 327 transactions,30 totaling $616,437, the cardholders
provided no documentation to the APC. Lacking key purchase
documentation, we could not determine what was actually purchased, how
many items were purchased, the cost of individual items purchased, and
whether there was a legitimate government need for the items. Based on
the vendor names and MCCs which identified the types of products or
services sold by these vendors, we believe at least some of these items may
have been determined to be improper or wasteful had the documentation
been provided or available. These transactions included $2,178 in
purchases from Best Buy, $2,500 from BUY.COM, $6,840 at
HPSHOPPING.com, $4,100 from Party Time Inc. and $3,185 from USA
Tours.

The majority of these transactions represent single transactions for
individual cardholders. However, we noted that there were several
cardholders with multiple transactions who did not provide us with
supporting documentation for their purchases. For example, one
cardholder in the pacific southwest region did not provide documentation
for five transactions of electronic purchases totaling $3,349 that appeared
to be either improper or wasteful. Another cardholder in the pacific
southwest region did not provide documentation for six transactions,
totaling $11,267, for on-line services, electronics, and one payment by
convenience check.



30
  Subsequent to the end of our fieldwork, the Forest Service had obtained documentation
for approximately 200 of these transactions. However, due to the lateness of the
documentation, we were unable to review them.




Page 37                                        GAO-03-786 Forest Service Purchase Cards
Conclusions             The Forest Service lacks certain basic internal controls over its purchase
                        card program, and thus is susceptible to waste, fraud, and abuse. The IG in
                        its August 2001 report also identified many of the same control weaknesses
                        that we did. The Forest Service took several steps to address these
                        problems when it issued revised purchase card regulations in June 2001,
                        December 2002, and most recently, in conjunction with USDA, in February
                        2003. However, the revised regulations did not fully address the critical
                        issues reported by the IG and confirmed by us as continuing weaknesses
                        during our audit, such as supervisory review, effective monitoring of
                        purchase card transactions, and property accountability. Until these
                        weaknesses in fundamental internal controls are addressed, the types of
                        improper, wasteful, and potentially fraudulent purchases we identified are
                        likely to continue and certain assets will remain vulnerable to theft. The
                        Forest Service will have to thoroughly reassess and strengthen its current
                        policies and procedures to address the weaknesses identified, develop a
                        strong commitment at all levels of the agency to carryout these policies and
                        procedures, and implement appropriate oversight to continually assess
                        their effectiveness.



Recommendations for     We recommend that the Chief of the Forest Service take the following
                        actions to strengthen internal controls and compliance in its purchase card
Executive Action        program, decrease improper and wasteful purchases, and improve the
                        accountability over assets.



Internal Controls       With regard to improving the Forest Service’s internal controls over
                        purchasing, we recommend that the Chief of the Forest Service do the
                        following.

Segregation of Duties   • Establish policies and procedures that segregate duties for at least some
                          phases of the purchasing process when using the purchase card. The
                          Forest Service program should ensure that no one individual is able to
                          take all the steps needed to request, purchase, receive, maintain, and
                          validate goods and services.

Supervisory Review      • Establish policies and procedures requiring that supervisors review and
                          validate all of their subordinates’ purchase card transactions, including
                          review of original supporting documentation to confirm they are
                          appropriate, for official purposes, and reconciled in a timely manner.



                        Page 38                                 GAO-03-786 Forest Service Purchase Cards
Monitoring                • Strengthen policies and procedures to ensure that the appropriate LAPC
                            is notified and the LAPC cancels cardholder accounts immediately when
                            a purchase card is lost or stolen or a cardholder leaves Forest Service
                            employment.

                          • Establish a systematic process that the APC can use to track and
                            monitor training for cardholders and program coordinators to help
                            ensure that they receive (1) training before being granted purchase
                            cards or approval authority and (2) timely, periodic refresher training in
                            areas such as proper segregation of duties, purchasing policies and
                            procedures, supervisor and program coordinator responsibilities for
                            reviewing and approving individual purchases, and reporting potential
                            purchase card fraud and abuse.

                          • Revise and strengthen policies and procedures for cardholders who
                            have had their purchase card use suspended or limited to ensure that
                            similar action is taken on the use of convenience checks.

                          • Revise and strengthen policies and procedures over disputed
                            transactions to ensure that all disputed transactions are identified in a
                            timely manner and completely resolved.

                          • Establish policies and procedures to ensure that original documentation
                            is maintained in central locations, such as regional offices, so that it is
                            readily available for periodic monitoring reviews by supervisors, LAPCs,
                            and COCOs.

Property                  • Revise and strengthen policies and procedures for designating property
                            costing under $5,000 as “sensitive” to include all equipment susceptible
                            to theft. Also, ensure that the revised policies and procedures are
                            applied consistently across all Forest Service regions.

                          • Establish policies and procedures to ensure that all sensitive and
                            accountable personal property used in Forest Service operations is
                            promptly entered into the PROP system or other comparable system
                            and that a periodic inventory of the items is taken.



Compliance with           With regard to improving and enforcing compliance with purchasing
Purchasing Requirements   requirements at the Forest Service, we recommend that the Chief of the
                          Forest Service do the following.




                          Page 39                                  GAO-03-786 Forest Service Purchase Cards
                            • Implement monitoring techniques to identify improper transactions
                              such as cardholders making split purchases, cardholders writing checks
                              payable to themselves, purchases exceeding established dollar
                              thresholds, or purchasing unauthorized items.

                            • Revoke or suspend purchasing authority of cardholders who are found
                              to be frequently or flagrantly noncompliant with policies and
                              procedures.



Wasteful and Questionable   With regard to purchases that may be at an excessive cost or for
Purchases                   questionable government need, we recommend that the Chief of the Forest
                            Service do the following.

                            • Require purchases of certain assets, such as computer equipment,
                              PDAs, and other electronics to be coordinated centrally to take
                              advantage of economies of scale, standardize types of equipment
                              purchased, and better ensure bona fide government need for each
                              purchase.

                            • Develop and implement purchasing guidelines, based on specific Forest
                              Service uses, for equipment such as digital cameras and projectors.

                            • Require that cardholders document their determination that purchased
                              items economically met the needs of the government based on an
                              evaluation of price, consideration of the item’s expected use, and other
                              factors.

                            • Follow up on transactions we identified for which no supporting
                              documentation was provided to determine that the items purchased
                              were for a legitimate government need, and take appropriate
                              disciplinary or corrective action as warranted.



Agency Comments and         The Forest Service provided written comments on a draft of this report. In
                            its response, the Forest Service did not specifically comment on our
Our Evaluation              recommendations. However, the response acknowledged that some of the
                            internal control weaknesses identified in our report existed both prior to
                            and during our review. The response further outlined actions taken or
                            planned since June 2001 to strengthen the overall management of the
                            purchase card program, which the Forest Service described as having been



                            Page 40                                 GAO-03-786 Forest Service Purchase Cards
taken, not withstanding our report. We acknowledged many of these actual
and planned actions in our report and believe that these actions, if fully
implemented, will help to address some of the vulnerabilities that the IG
and we identified. However, as shown in Table 2 on page 30 of our report,
many weaknesses will still remain that continue to expose the Forest
Service to improper, wasteful, and fraudulent purchase card activity. Our
15 recommendations address remaining weaknesses identified in the table
and elsewhere in our report.

Specific actions taken as outlined in the Forest Service’s response
included, among other things, requiring definitive levels of auditing of
purchase card transactions, performing data mining queries of transaction
data to identify potential questionable purchases, and conducting training
for regional and local agency program coordinators.

In its response, the Forest Service also stated that in fiscal year 2003 USDA
issued an Internal Control Blue Print to decrease risks and improve
internal controls over the purchase card program. In response, the Forest
Service developed a Plan for Improving Internal Controls (Plan) that
included improvements such as significantly decreasing the use of
convenience checks beginning in fiscal year 2003 with the goal of totally
eliminating them in the future, reducing the number of cardholders by 10
percent, developing additional data mining queries including PCMS alerts
and statistical sampling, ensuring that the ratio of LAPCs to cardholders is
appropriate, and requiring supervisors to review cardholder purchases
including backup documentation.

If fully institutionalized and enforced, the actions included in the Forest
Service’s Plan, along with those actions previously taken, will go a long way
in identifying improper purchases. However, it will be important that these
actions be carried out in a systematic manner. Further, even if these
actions are implemented systematically, they still fall short in mitigating
certain internal control weaknesses that are addressed by the 15
recommendations in our report.

Specifically, the Forest Service letter outlined actions to strengthen
monitoring such as the monthly, quarterly, and annual transaction reviews
by LAPCs and COCOs, data mining queries developed and furnished to
coordinators, and reviews by regional offices of audits performed by local
offices. While these revised policies will provide much needed oversight at
a macro level, these actions do not specifically address our
recommendations regarding controls over cancellation of stolen cards,



Page 41                                  GAO-03-786 Forest Service Purchase Cards
disputed transactions, training, and the maintenance of documentation in a
central location.

The Forest Service letter stated that its Plan requires supervisors to review
cardholder purchases, including backup documentation. Upon review of
the Forest Service’s Plan, we noted that it does not require supervisors to
review backup documentation, as stated in the response letter. The Plan
only states that the Forest Service will communicate, by July 15, 2003, the
requirement for cardholder’s supervisors to review transactions quarterly
in accordance with DR 5013-6, which also does not require that supervisors
review backup documentation. We confirmed our understanding of this in
discussions with USDA OPPM officials. We continue to believe that limited
post-reviews are not sufficient, given the lack of segregation of duties, the
decentralization of the organization, and the ratio of cardholders to LAPCs
in the organization to detect or prevent inappropriate transactions. As
recommended in our report, we believe that the Forest Service should
establish policies and procedures requiring a front-line review by
supervisors to validate all of their subordinates’ purchase card
transactions, including review of original supporting documentation to
confirm that they are appropriate, for official purposes, and reconciled in a
timely manner.

The Forest Service response also did not discuss any actions taken to
reduce purchases that are of excessive cost or for questionable government
need. In our report, we recommended that the Forest Service purchase
certain assets centrally, develop purchasing guidelines, and require that
cardholders document that items meet the needs of the government. We
believe that our recommendations, if implemented, will assist in reducing
waste in the purchase card program.

In the area of property accountability, the Forest Service responded that
unwarranted cardholders are no longer permitted to acquire accountable
property with purchase cards. Further, the letter stated that the Forest
Service plans to issue guidance requiring that all property be labeled as
Forest Service property and prohibiting regions from individually
determining what property is considered sensitive. However, these new
policies will not require the tracking of items costing under $5,000, such as
PDAs, cameras, ATVs, and snowmobiles that we consider to be at high risk
for theft or misuse. USDA has determined that the $5,000 accountability
threshold is the level of acceptable risk for tracking property in the
property system. USDA has further determined that items such as PDAs
and digital cameras rapidly lose their value and usefulness and therefore,



Page 42                                  GAO-03-786 Forest Service Purchase Cards
the cost of tracking and maintaining property records for these types of
items exceeds their value. We disagree with this position. None of the
documentation we have reviewed or individuals we have spoken to
indicated that uses for which these items were purchased will change
dramatically or cease altogether in the near term, thus these items will
continue to be useful for some time to come. We are not suggesting that
items costing less than $5,000 be capitalized for financial reporting
purposes, however, we continue to believe that the Forest Service should
track these items to help ensure accountability over them to mitigate the
risk of misappropriation.

The Forest Service response also characterized the $2.7 million of alleged
improper, wasteful, and questionable purchases that we identified as
relatively small compared to the $320 million in purchases during fiscal
year 2001. While we acknowledge this in the report, we also note that these
improper transactions demonstrate vulnerabilities from weak controls that
could be exploited to a greater extent. Further, in performing our review,
we identified approximately 68,000 transactions that appeared to be at a
higher risk of being improper or wasteful. However, we selected only 5,000
of these transactions for detailed review, therefore the actual amount of
improper payments at the Forest Service is likely higher that what we
identified.

The Forest Service response further stated that it appears that “GAO’s goal
is a risk free micro-purchase program that would include approval and/or
review of each and every micro-purchase transaction.” While no purchase
card program can be risk free, the goal of our recommendations is to
reduce the level of risk in the Forest Service program to an acceptable
level. Currently, we believe that the risk of waste, fraud, and abuse in the
program is unacceptably high. A micro-purchase program should and can
be designed with certain basic internal controls that need not be costly or
onerous to implement to help ensure that improper transactions are
detected or prevented in the normal course of business and therefore that
taxpayer funds are effectively used toward the achievement of agency
goals and objectives.

The Forest Service’s written comments and our evaluation of certain of
those comments not addressed above are presented in appendix I.


As arranged with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its date. Then we



Page 43                                   GAO-03-786 Forest Service Purchase Cards
will send copies of this report to the Ranking Minority Member of the
Senate Committee on Finance, congressional committees with jurisdiction
over the Forest Service and its activities, the Secretary of Agriculture, the
Chief of the Forest Service, and the Director of the Office of Management
and Budget. We will also make copies available to others upon request. In
addition, this report will be available at no charge on GAO’s Web site at
http://www.gao.gov.

Should you or your staff have any questions on matters discussed in this
report, please contact me at (202) 512-8341 or calboml@gao.gov or Alana
Stanfield, Assistant Director, at (202) 512-3197 or stanfielda@gao.gov.
Major contributors to this report are acknowledged in appendix II.




Linda Calbom
Director, Financial Management
  and Assurance




Page 44                                  GAO-03-786 Forest Service Purchase Cards
Appendix I

Comments from the Forest Service                                          AA
                                                                           ppp
                                                                             ep
                                                                              ned
                                                                                n
                                                                                x
                                                                                id
                                                                                 e
                                                                                 x
                                                                                 Iis




Note: GAO comments
supplementing those in
the report text appear
at the end of this
appendix.




See comment 1.




See comment 2.




                         Page 45   GAO-03-786 Forest Service Purchase Cards
Appendix I
Comments from the Forest Service




Page 46                            GAO-03-786 Forest Service Purchase Cards
                 Appendix I
                 Comments from the Forest Service




See comment 3.




See comment 4.



See comment 5.




See comment 6.




                 Page 47                            GAO-03-786 Forest Service Purchase Cards
Appendix I
Comments from the Forest Service




Page 48                            GAO-03-786 Forest Service Purchase Cards
               Appendix I
               Comments from the Forest Service




               The following are GAO’s comments on the Forest Service’s letter dated
               July 7, 2003.



GAO Comments   1. We received summary documentation for the number of cardholders
                  from USDA’s Office of Procurement and Property Management and the
                  Forest Service that supported approximately 14,000 and 11,000
                  cardholders respectively. Since USDA’s Office of Procurement and
                  Property Management is responsible for the oversight of the purchase
                  card program for all of USDA’s agencies, we used the number of
                  cardholders that they provided for fiscal year 2001 in our report.

               2. Discussed in the “Agency Comments and Our Evaluation” section of the
                  report.

               3. Of the 29 split purchases identified in the draft report provided to
                  Forest Service for comment, 4 were made by cardholders who were
                  also warranted employees, employees who can enter into, administer,
                  or terminate contracts to the extent of the authority delegated to them.
                  The contracting authority limit for a warranted Forest Service
                  employee is separate and distinct from the single transaction limit for
                  purchase card transactions. The Forest Service response stated that
                  USDA regulations allowed a single purchase limit of $2 million or the
                  cardholder’s warrant level. According to USDA purchase card
                  regulations, warranted cardholders may conduct transactions up to the
                  lesser of their purchase card single transaction limit or warrant
                  authority. For all 4 purchases mentioned above, the total invoice
                  amounts exceeded the single transaction limits of the cardholders.
                  Therefore, the cardholders violated USDA regulations by splitting the
                  invoice amount into separate purchase card transactions to circumvent
                  their single transaction limits. Further, the Forest Service requires that
                  cardholders submit requisition forms for all purchases exceeding
                  $2,500, to ensure that they are properly reviewed and approved.
                  However, requisition forms were not submitted by the cardholders for
                  these 4 purchases, violating policies and procedures. In addition, none
                  of the 29 split purchases identified in our report reflected transactions
                  with GSA Advantage.

               4. As stated in our report, the Forest Service was unable to provide us
                  with documentation to support the appropriateness of $39,240 of the
                  $43,625 in transactions that appeared to have occurred after the
                  cardholders left the Forest Service. The Forest Service confirmed the



               Page 49                                  GAO-03-786 Forest Service Purchase Cards
Appendix I
Comments from the Forest Service




    remaining $4,385 as having been charged after the cardholder left the
    agency.

5. As part of our review, we tested compliance with existing Forest
   Service policies and procedures that were meant to prevent or detect
   improper payments, including the policy that cardholders are
   prohibited from writing checks to themselves. We identified 23
   transactions that were in clear violation of this policy, indicating that
   this control was not functioning effectively. Although the purchases
   related to these particular transactions were not determined to be
   improper, this control weakness leaves the Forest Service vulnerable to
   improper purchases. The Forest Service’s internal control plan
   supports eliminating the use of convenience checks for non-emergency
   purchases, as well as other measures that should reduce the risk of
   improper use of convenience checks. However, as these steps have not
   yet been fully implemented, we are unable to assess their effectiveness.

6. The original requests for supporting documentation were made
   between June 20 and July 26, 2002. We asked the Forest Service to
   provide documentation on the last request by August 16, 2002.
   Subsequently, we extended the deadline until November 30, 2002, more
   than four months after our last request for information. In a status
   meeting held December 4, 2002, we informed OPPM and Forest Service
   officials that we had not received any supporting documentation for
   327 transactions included in our requests and that these transactions
   would be categorized as questionable transactions in our report. We
   explained that continuing to accept this documentation would require
   us to significantly delay issuance of our report due to the time required
   to adequately review and assess any new documentation. OPPM and
   Forest Service officials both concurred with our position. Subsequently,
   the Forest Service offered to provide us with supporting
   documentation for 200 of the 327 transactions and we declined per the
   agreement reached during the December meeting.




Page 50                                 GAO-03-786 Forest Service Purchase Cards
Appendix II

GAO Contacts and Staff Acknowledgments                                                          Appendx
                                                                                                      Ii




GAO Contacts      Linda Calbom, (202) 512-8341
                  Alana Stanfield, (202) 512-3197



Acknowledgments   In addition to those named above, the following individuals made
                  important contributions to this report: William Brown, Sharon Byrd, Cary
                  Chappell, Lisa Crye, Francis Dymond, Jeffrey Jacobson, Jason Strange, and
                  Ed Tanaka.




(190053)          Page 51                                GAO-03-786 Forest Service Purchase Cards
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