oversight

Purchase Cards: Steps Taken to Improve DOD Program Management, but Actions Needed to Address Misuse

Published by the Government Accountability Office on 2003-12-02.

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

                United States General Accounting Office

GAO             Report to Congressional Committees




December 2003
                PURCHASE CARDS
                Steps Taken to
                Improve DOD
                Program Management,
                but Actions Needed to
                Address Misuse




GAO-04-156
                a
                                                 December 2003


                                                 PURCHASE CARDS

                                                 Steps Taken to Improve DOD Program
Highlights of GAO-04-156, a report to
congressional committees
                                                 Management, but Actions Needed to
                                                 Address Misuse



 This study responds to a legislative            DOD has initiated actions to implement all of the requirements in the
 mandate, which directs the                      National Defense Authorization Act for fiscal year 2003 and the DOD
 Comptroller General to review the               Appropriations Act for fiscal year 2003. While it has largely completed
 actions taken by the Department of              revamping its policies and other requirements, it still had considerable work
 Defense (DOD) to implement
                                                 to complete in order to implement managerial and oversight mechanisms,
 provisions included in the Bob
 Stump National Defense                          such as strategic sourcing, monitoring, and auditing. However, to implement
 Authorization Act for fiscal year               the legislative requirement that DOD evaluate credit worthiness prior to
 2003 (Public Law 107-314)                       issuing a purchase card, DOD is allowing cardholders to self-certify their
 concerning management of the                    credit worthiness rather than conducting credit checks on cardholders, as is
 purchase card program. This study               typically done in the private sector.
 also discusses DOD efforts to
 implement provisions in the DOD                 DOD started actions to implement nearly all of the 109 GAO
 Appropriations Act for fiscal year              recommendations, some of which may closely relate to the legislative
 2003 (Public Law 107-248) as well               provisions. DOD and the military services have taken disciplinary actions
 as recommendations and the status               against cardholders whom a court of law determined had fraudulently used
 of disciplinary actions taken
                                                 their purchase cards. They have also started to educate cardholders and
 against individuals identified in
 prior GAO reports as having used                approving officials on the proper use of the purchase card.
 the government purchase card for
 potentially fraudulent, improper,               The military services have not taken strong disciplinary actions against
 and abusive or questionable                     cardholders GAO identified as making improper and abusive or questionable
 purposes.                                       purchase card acquisitions. The military services determined that many of
                                                 these purchases did not directly violate existing policies. Consequently, the
                                                 services modified these policies to provide a basis for disciplinary actions
                                                 for similar purchases in the future.
 This report provides the Congress
 with status of actions taken, and
 recommends that the military                    Disciplinary Actions Taken for Improper and Abusive or Questionable Purchases
 services monitor whether the                     Improper and abusive or questionable                                        Air
                                                  transactions                                          Army      Navy     Force              Total
 disciplinary guidelines established
 in response to the fiscal year 2003              Number of transactions GAO identified                          34         59         27      120
 Bob Stump National Defense                       Value of transactions (in thousands)                          $999    $1,103       $961 $3,062
 Authorization Act are properly                   Fired                                                            0         0           0          0
 implemented. DOD was pleased                     Suspended from work                                             0          0           0          0
 that the report recognized the                   Repay for cost of improper charge                               1          0           2          3
 department’s efforts to address                  Give item to government                                         0          0           6          6
 previously cited managerial and                  Written reprimand                                               2          0           0          2
 internal control deficiencies. DOD
                                                  Verbal reprimand                                                1          1           1          3
 did not comment on GAO’s
 recommendations.                                 Credit card revocation                                          1          4           2          7
                                                  Credit card suspension                                          1          0           0          1
                                                  Required to take training                                       8         20         11       39
                                                  Questionable but authorized by service policy                   0          0           3          3
                                                  Still under investigation/review                                0          3           0          3
                                                  No action taken                                                27         36           5      68
 www.gao.gov/cgi-bin/getrpt?GAO-04-156.
                                                 Source: Responses provided by the Army, Navy, and Air Force.
 To view the full product, including the scope   Note: Total actions taken exceed transactions identified because multiple actions were taken for
 and methodology, click on the link above.       some transactions.
 For more information, contact Gregory Kutz,
 (202) 512-9505, or kutzg@gao.gov.
Contents



Letter                                                                                               1
                             Results in Brief                                                        2
                             Background of the Purchase Card Program                                 4
                             DOD Has Taken Actions to Implement the Requirements of Public
                               Laws 107-314 and 107-248                                              9
                             Status of Our Recommendations to Improve Purchase Card
                               Operations                                                           12
                             Conclusions                                                            16
                             Recommendations for Executive Action                                   16
                             Agency Comments and Our Evaluation                                     16


Appendixes
              Appendix I:    Objectives, Scope, and Methodology                                     19
             Appendix II:    Status of Army Actions to Implement GAO
                             Recommendations                                                        21
             Appendix III:   Status of Navy Actions to Implement GAO
                             Recommendations                                                        25
             Appendix IV:    Status of Air Force Actions to Implement GAO
                             Recommendations                                                        37
              Appendix V:    Comments from the Department of Defense                                47
             Appendix VI:    GAO Contacts and Staff Acknowledgments                                 49
                             GAO Contacts                                                           49
                             Acknowledgments                                                        49


Tables                       Table 1: Number and Value of Fiscal Year 2002 Purchase Card
                                      Transactions                                                   4
                             Table 2: Legislative Mandates in the Fiscal Year 2003 National
                                      Defense Authorization and DOD Appropriations Acts              8
                             Table 3: Sample Schedule of Potential Charge Card Offenses and
                                      Remedies/Penalties                                            11
                             Table 4: Status of Recommendations Made to the Military Services
                                      to Improve the Management of the Purchase Card
                                      Program                                                       12
                             Table 5: Disciplinary Actions Taken Against Cardholders                14




                             Page i                                           GAO-04-156 Purchase Cards
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Page ii                                                        GAO-04-156 Purchase Cards
A
United States General Accounting Office
Washington, D.C. 20548



                                    December 2, 2003                                                                            Leter




                                    Congressional Committees

                                    In the past few years, the use of purchase cards has dramatically increased
                                    as federal agencies have sought to eliminate the lengthy process and
                                    paperwork long associated with making small purchases. The Department
                                    of Defense (DOD), in particular, accounts for a large percentage of the
                                    federal government’s purchase card use. For fiscal year 2002, DOD
                                    reported that an average of about 207,000 cardholders used purchase cards
                                    to make about 11 million transactions at a cost of nearly $7 billion. In prior
                                    years, the DOD purchase card program at DOD has not been well managed.
                                    As we stated in various testimonies1 and reports2 issued between July 2001
                                    and December 2002, significant breakdowns in internal controls over the
                                    Army, Navy, and Air Force management of the purchase card program left
                                    the services vulnerable to fraud, waste, and abuse. To address the issues
                                    identified, we made over 100 recommendations targeted at improving the
                                    design and implementation of controls over card use and establishing
                                    guidelines for disciplining those who misused their government purchase
                                    cards.

                                    In response to these concerns, the Bob Stump National Defense
                                    Authorization Act for Fiscal Year 2003 (National Defense Authorization
                                    Act), Section 1007, required DOD to improve the management of the
                                    purchase card program. As directed by the conference report3


                                    1
                                     U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Two Navy
                                    Units Vulnerable to Fraud and Abuse, GAO-01-995T (Washington, D.C.: July 30, 2001);
                                    Purchase Cards, Continued Control Weaknesses Leave Two Navy Units Vulnerable to
                                    Fraud and Abuse, GAO-02-506T (Washington, D.C.: Mar. 13, 2002); Purchase Cards: Control
                                    Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse, GAO-02-844T
                                    (Washington, D.C.: July 17, 2002); Purchase Cards: Navy Vulnerable to Fraud and Abuse
                                    but Is Taking Action to Resolve Control Weaknesses, GAO-03-154T (Washington, D.C.: Oct.
                                    8, 2002).
                                    2
                                     U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Two Navy
                                    Units Vulnerable to Fraud and Abuse, GAO-02-32 (Washington D.C.: Nov. 30, 2001);
                                    Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse,
                                    GAO-02-732 (Washington, D.C.: Jun. 27, 2002); Purchase Cards: Navy Is Vulnerable to
                                    Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses, GAO-02-1041
                                    (Washington D.C.: Sept. 27, 2002); Purchase Cards: Control Weaknesses Leave the Air Force
                                    Vulnerable to Fraud, Waste, and Abuse, GAO-03-292 (Washington, D.C.: Dec. 20, 2002).
                                    3
                                     H.R. Conf. Rep. No. 107-772, at 686 (2002).




                                    Page 1                                                        GAO-04-156 Purchase Cards
                   accompanying the act, this report provides a status of DOD actions to
                   comply with the requirements of Section 1007. Additionally, this report
                   summarizes the actions taken by the Army, Navy, and Air Force to respond
                   to the legislative mandates in the DOD Appropriations Act, 2003. The
                   report also provides the status of DOD efforts to implement the
                   recommendations we made in the reports issued during fiscal years 2002
                   and 2003 aimed at improving the military service’s management of the
                   purchase card program. Finally, we list any action the military services
                   took against individuals we identified in our testimonies and reports as
                   having made or authorized potentially fraudulent, improper, abusive, or
                   questionable purchase card transactions.

                   To meet the objectives of this assignment, we requested that DOD and the
                   military services provide us with the (1) status of DOD and the military
                   services’ efforts in implementing the provisions of the National Defense
                   Authorization Act for fiscal year 2003 and the DOD Appropriations Act,
                   2003, (2) status of actions taken to implement the recommendations
                   included in the four GAO reports, and (3) administrative or disciplinary
                   actions taken against individuals we identified as having made potentially
                   fraudulent, improper, and abusive or questionable transactions. While
                   DOD and the military services provided evidence documenting actions
                   taken to improve the purchase card program and to prevent individuals and
                   companies from further obtaining fraudulent, improper, and abusive or
                   questionable items with a DOD purchase card, we did not make any field
                   visits to independently validate whether DOD had effectively implemented
                   the reported changes.

                   We conducted our review from June through September 2003 in
                   accordance with U.S. generally accepted government auditing standards.
                   We requested comments on a draft of this report from the Secretary of
                   Defense or his designee. We received written comments from the Director
                   of DOD’s Purchase Card Joint Program Management Office, which are
                   reprinted in appendix V. We have incorporated suggested changes as
                   appropriate.



Results in Brief   DOD and the military services have taken positive steps to improve the
                   controls over the purchase card program in response to requirements in the
                   fiscal year 2003 National Defense Authorization and DOD Appropriations
                   acts. In general, DOD has made the most progress in establishing or
                   modifying policies and procedures and has comparatively more to do in the
                   managerial or oversight-related areas. The only area in which actions do



                   Page 2                                             GAO-04-156 Purchase Cards
not seem to embrace the intent of the laws is that DOD is allowing
cardholders to self certify their credit worthiness rather than obtaining
credit reports, as is typical practice in private sector companies.

As for implementing our recommendations, the military services have
implemented or initiated actions to implement nearly all 109 of the
recommendations we made, some of which are overall legislative
requirements. The military services have issued revised purchase card
policies and procedures, retrained cardholders and approving officials, and
reduced the number of purchase card accounts and the credit limits on
those accounts. These actions better articulate what the purchase card can
and cannot be used for, and reduce the risks and financial exposure of the
program. Understandably, some of the management-intensive efforts are
not yet mature. The recommendations they have not yet implemented
include obtaining discounts from frequently used vendors; establishing
servicewide databases for data mining; investigating suspected and known
fraud cases; and linking cardholders’, approving officials, and agency
program coordinators’ performance appraisals to performance standards.
The military services told us they plan on having most of the legislative
provisions and our recommendations fully implemented by June 2004.

Our reports and testimonies also raised concerns about the disciplinary
actions against those who misused purchase cards. In general, the efforts
to date could be characterized as an all or nothing approach. We found that
the military services generally took strong disciplinary actions, such as jail
time for military personnel or dismissal of civilian employees, if a court of
law determined fraudulent use of the purchase cards. There was little
indication, however, that the military services took disciplinary actions
against those who made or authorized transactions that we characterized
as being improper, abusive, or questionable. According to the military
services, they did not take disciplinary actions because many of the
improper and abusive or questionable purchases that we identified in the
reports and testimonies were not in direct violation of then existing
policies and procedures. Therefore, the military services told us that rather
than disciplining cardholders and approving officials, the military services
modified their purchase card policies and procedures to prohibit similar
purchases in the future.

This report contains three recommendations for DOD to monitor whether
the disciplinary guidelines established in response to the fiscal year 2003
National Defense Authorization Act are properly implemented. In
response to this report, DOD was pleased that the report recognized the



Page 3                                                GAO-04-156 Purchase Cards
                    department’s efforts to address previously cited managerial and internal
                    control deficiencies. DOD did not comment on our recommendations.



Background of the   The DOD purchase card program is part of the Governmentwide
                    Commercial Purchase Card Program, which was established to streamline
Purchase Card       federal agency acquisition processes by providing a low-cost, efficient
Program             vehicle for obtaining goods and services directly from vendors. The
                    purchase card can be used for both micropurchases and payment of other
                    purchases. Although most cardholders have single purchase transaction
                    limits of $2,500, some have limits of $25,000 or higher. The Federal
                    Acquisition Regulation, Part 13, “Simplified Acquisition Procedures,”
                    establishes criteria for using purchase cards to place orders and make
                    payments. DOD has issued supplemental guidance to the Federal
                    Acquisition Regulation that contain sections on simplified acquisition
                    procedures.

                    General Services Administration (GSA) reports show that DOD used
                    purchase cards for nearly 11 million transactions, valued at almost
                    $6.8 billion and representing nearly 45 percent of the federal government’s
                    fiscal year 2002 purchase card activity. According to unaudited GSA data,
                    the Army, Navy, and Air Force made about $2.7 billion, $1.9 billion, and
                    $1.6 billion, respectively, in purchase card acquisitions during fiscal year
                    2002. Other DOD agencies, such as the Defense Logistics Agency and the
                    Defense Finance and Account Service, made the remaining $564 million in
                    purchase card acquisitions.



                    Table 1: Number and Value of Fiscal Year 2002 Purchase Card Transactions

                                                            Number of          Cost of    Percentage of
                                                          transactions   transactions     DOD purchase
                    DOD component                      (in thousands)     (in millions)      card costs
                    Army                                        4,553          $2,717              40%
                    Navy                                        2,764          $1,875              28%
                    Air Force                                   3,016          $1,601              24%
                    Other DOD agencies                            647            $564               8%
                    Total                                      10,980          $6,757             100%
                    Source: GSA.




                    Page 4                                                    GAO-04-156 Purchase Cards
                           The overall management of DOD’s purchase card program has been
                           delegated to the DOD Purchase Card Joint Program Management Office,
                           which is in the Office of the Assistant Secretary of the Army for Acquisition
                           Logistics and Technology. At each service installation, personnel in three
                           positions—program coordinator, cardholder, and approving official—are
                           collectively responsible for providing reasonable assurance that purchase
                           card transactions are appropriate and meet a valid government need. The
                           installation program coordinator is responsible for the day-to-day
                           management, administration, and oversight of the program, including
                           developing local operating procedures, issuing and canceling cards, and
                           providing training to cardholders and approving officials. Cardholders—
                           members and civilian personnel—use purchase cards to order goods and
                           services for their units and their customers, to be picked up or delivered to
                           themselves or to an end user. The cardholders are responsible for
                           recording the transactions in their purchase log, obtaining documented
                           independent confirmation that the items have been received and accepted
                           by the government, and notifying the property book-officer of accountable
                           items received so that these items can be recorded in the accountable
                           property records. Approving officials, who typically are responsible for
                           more than one cardholder, are to review cardholders’ transactions and the
                           cardholders’ reconciled statements and certify the official consolidated bill
                           for payment. Approving officials are to ensure that (1) all purchases made
                           by the cardholders within his or her cognizance are appropriate and that
                           the charges are accurate and (2) the monthly summary statement is
                           certified for payment on time by the Defense Finance and Accounting
                           Service (DFAS). DFAS relies on the approving official’s certification of the
                           monthly bill as support to make the payment.



Our Previous Findings on   Between July 2001 and December 2002, we testified four times and issued
DOD’s Purchase Card        four reports highlighting a weak control environment and breakdowns in
                           specific internal controls over the purchase card program at the Army,
Program                    Navy, and Air Force. Based on statistical sampling and selected reviews of
                           at- risk transactions we identified through data mining, we reported that
                           these weaknesses left the purchase card program at the three services
                           vulnerable to fraudulent, improper, and abusive purchases. The
                           testimonies and reports we issued pointed to common weaknesses. We
                           identified (1) a proliferation of cardholders, (2) lack of documented
                           evidence of training of cardholders and approving officials, (3) inadequate
                           program monitoring, and (4) lack of disciplinary actions against
                           cardholders who abused the purchase cards. We made recommendations
                           to each of the services for improving the purchase card program.



                           Page 5                                                GAO-04-156 Purchase Cards
Proliferation of Cardholders   We reported that the proliferation of cardholders resulted in an
                               unmanageable approving official span of control and excessive credit limits
                               compared to historical spending. This problem originated from the fact
                               that the services did not have specific policies governing the number of
                               cards to be issued or criteria for identifying employees eligible for the
                               privilege of cardholder status. Consequently, as of September 2002, the Air
                               Force reported that it had about 77,000 purchase card accounts—
                               translating to about 1 purchase card for every 7 employees. By contrast,
                               the Navy, which in 2000 had 1 cardholder for every 3 employees in some of
                               its units, had taken positive steps to reduce the number of its purchase
                               cardholders to only about 1 cardholder for every 31 employees by
                               September 2002. The proliferation of cardholders also resulted in a span of
                               control problem for some approving officials. For example, at the end of
                               fiscal year 2002, some officials at two Air Force installations had multiple
                               job responsibilities in addition to being approving officials for more than 20
                               cardholders, making it difficult for them to systemically scrutinize each
                               purchase card statement they had to certify for payment.

                               We also found that the credit limits on the purchase cards exceeded
                               procurement needs. We saw little evidence that limits were set based on an
                               analysis of individual cardholders’ needs or past spending patterns. For
                               example, at the Marine Corps, the credit limit as of March 2002 exceeded
                               average fiscal year 2001 monthly expenditures by a ratio of 34 to 1, while at
                               an Air Force location, the credit limit exceeded fiscal year 2001 monthly
                               purchases by a ratio of 20 to 1. At the Army, we saw infrequently used
                               cards that, nevertheless, had spending limits set at the maximum. In some
                               cases, we were told that the monthly limits were based on anticipated peak
                               spending to avoid possible limit changes. Limits that are higher than
                               justified by the cardholder’s authorized and expected use unnecessarily
                               increase the government’s exposure to fraudulent, improper, and abusive
                               purchases. Limiting credit available to cardholders is a key factor in
                               managing the purchase card program and in minimizing the government’s
                               financial exposure.

Inadequate Training of         We reported that cardholders, approving officials, and/or agency program
Cardholders and Approving      coordinators did not receive adequate training necessary to carry out their
Officials                      responsibilities. Specifically, we found that 51 percent of the fiscal year
                               2001 transactions at one Air Force location, 56 percent of the transactions
                               at the Marine Corps, and as high as 87 percent of the transactions at one
                               Navy command, were made by cardholders or approved for payment by
                               approving officials for whom there was no documented evidence of either
                               initial training or refresher training at the time the transactions were made.



                               Page 6                                                GAO-04-156 Purchase Cards
                               At the Army, cardholders received initial training, but were seldom
                               provided refresher training as required by DOD guidance. Further, we
                               noted that, even though the functions performed by the agency program
                               coordinators, approving officials, and cardholders were substantially
                               different, the training curriculum for the three positions was identical. The
                               services did not have specific guidance or training concerning the role and
                               responsibilities of agency program coordinators or approving officials.

Inadequate Purchase Card       We reported that all of the military services needed to improve the quality
Program Monitoring             of their monitoring and oversight of the purchase card program. At the
                               time of our audits, the purchase card program offices of the military
                               services did not systematically monitor the purchase card program. We
                               also reported that when a military services’ purchase card program office
                               or audit agency did uncover control weaknesses or improper and abusive
                               or questionable activity, the results of those efforts were not always used to
                               improve program management.

Lack of Disciplinary Actions   We also noted in our reports and testimonies that individuals who misused
                               the purchase card were not always subject to strong disciplinary action or
                               consequences. For example, we found that cardholders who purchased
                               and officials who authorized items with excessive cost or without
                               documented government need, including designer brief cases, folios, and
                               palm pilot carrying cases from Coach, Dooney and Bourke, and Louis
                               Vuitton; personal clothing including golf shirts and ski clothing; food
                               including beer, wine, and cigars; and Bose stereo headset and clock radios,
                               were not disciplined for their actions. We reported that without disciplinary
                               actions, improper, abusive, and questionable purchases like those
                               mentioned above will likely continue.



Legislative Requirements       In response to the concerns we expressed about DOD’s management of the
for Improvements in the        purchase card program, the Congress included Section 1007 in the National
                               Defense Authorization Act for fiscal year 2003 (Public Law 107-314) and
DOD Purchase Card
                               Section 8149 in the fiscal year 2003 DOD Appropriations Act (Public Law
Program                        107-248) to require DOD to take specific actions to improve the
                               management of the purchase card program, and in particular the
                               weaknesses we identified. As shown in table 2, these laws limit the number
                               of purchase cards and require DOD to train purchase card officials,
                               monitor purchase card activity, discipline cardholders who misuse the
                               purchase card, and assess the credit worthiness of cardholders.




                               Page 7                                                GAO-04-156 Purchase Cards
Table 2: Legislative Mandates in the Fiscal Year 2003 National Defense Authorization and DOD Appropriations Acts

Defense Authorization Act                                                                         DOD Appropriation Act
Limit the number of purchase cards
• Conduct periodic reviews to determine whether each purchase         Limit the total number of DOD credit cards (purchase cards and
  cardholder has a need for the purchase card.                        travel cards) in fiscal year 2003 to not exceed 1,500,000.
• Establish specific policies on the number of purchase cards
  issued by various organizations and categories of organizations,
  the credit limits authorized for various categories of cardholders,
  and categories of employees eligible to be issued purchase cards,
  and that those policies are designed to minimize the financial risk
  to the federal government of the issuance of the purchase cards
  and to ensure the integrity of purchase card holders.
Train cardholders and approving officials
Provide appropriate training to each purchase cardholder and each
official with responsibility for overseeing the use of purchase cards
issued by DOD.
Monitor purchase card program
The Inspector General of DOD, the Inspector General of the Army,
the Naval Inspector General, and the Inspector General of the Air
Force perform periodic audits to identify—
• potentially fraudulent, improper, and abusive uses of purchase
  cards;
• any patterns of improper card holder transactions, such as
  purchases of prohibited items; and
• categories of purchases that should be made by means other
  than purchase cards in order to better aggregate purchases and
  obtain lower prices.
Disciplining cardholders
• Establish regulations that provide for appropriate adverse                                      Establish guidelines and procedures for disciplinary actions to be
  personnel actions or other punishment to be imposed in cases in                                 taken against department personnel for improper, fraudulent, or
  which military and civilian employees of the DOD violate purchase                               abusive use of government purchase charge cards.
  card regulation or are negligent or engage in misuse, abuse, or                                 • Guidelines shall include appropriate disciplinary actions for use of
  fraud with respect to a purchase card, including removal in                                       charge cards for purposes, and at establishments, that are
  appropriate cases.                                                                                inconsistent with the official business of the department or with
• Provide that a violation of such regulations by a person subject to                               applicable standards of conduct.
  the Uniform Code of Military Justice be punishable as a violation                               • The disciplinary actions may include—
  of Article 92 of this code.                                                                         • review of the security clearance of the individual involved and
                                                                                                      • modification or revocation of such security clearance in light of
                                                                                                        the review.
Credit Worthiness
                                                                                                  • Evaluate the creditworthiness of an individual before issuing the
                                                                                                    individual a government purchase charge card.
                                                                                                  • Do not issue a government purchase charge card if the individual
                                                                                                    is found not creditworthy as a result of the evaluation.
Source: GAO analysis of the Fiscal Year 2003 National Defense Authorization Act and DOD Appropriation Act.




                                                                   Page 8                                                                    GAO-04-156 Purchase Cards
DOD Has Taken           During fiscal year 2003, DOD and the military services took actions to
                        implement all of the requirements mandated by the fiscal year 2003
Actions to Implement    National Defense Authorization and DOD Appropriations acts. In several
the Requirements of     cases, although DOD and the services have issued policies and guidelines
                        that implement the legislative mandates, sufficient time has not passed for
Public Laws 107-314     the objective of the legislative mandate to be achieved.
and 107-248

Limit the Number of     DOD has substantially reduced the number of purchase cards issued.
Purchase Cards Issued   According to GSA records, DOD had reduced the total number of purchase
                        cards from about 239,000 in March 2001 to about 145,000 in March 2003.
                        DOD also informed us that it manages the gross number of purchase and
                        travel cards in accordance with the DOD Appropriations Act, 2003. To that
                        end, DOD had reduced the total number of purchase and travel cards to
                        about 1.23 million, about .27 million less than the 1.5 million statutory limit.
                        DOD also issued policy guidance on April 25, 2002, to field activities to
                        (1) perform periodic reviews of all purchase card accounts to reestablish a
                        continuing bona fide need for each card account, (2) cancel accounts that
                        were no longer needed, and (3) devise additional controls over infrequently
                        used accounts to protect the government from potential cardholder or
                        outside fraudulent use. The policy cited as an acceptable control for
                        infrequently used cards the reduction of the spending limit to $1 until such
                        time as the card is needed.



Train Cardholders and   To implement the requirement to train each purchase cardholder and each
Approving Officials     official with responsibility for overseeing the use of purchase cards, DOD’s
                        Defense Acquisition University has made available several on-line, self-
                        paced purchase card courses on its Web site. The on-line curriculum
                        included a GSA module targeted to cardholders on how to use the card
                        responsibly, a DOD course for cardholders and billing officials on the
                        mandatory requirements and other guidelines of the purchase card
                        program, and a GSA module aimed at providing advanced training to
                        agency program coordinators who have completed basic training on the
                        purchase card program. Further, on September 27, 2002, DOD issued a
                        memorandum requiring all cardholders, approving officials, and certifying
                        officials to complete the training module.




                        Page 9                                                  GAO-04-156 Purchase Cards
Monitor Purchase Card   To address the requirement that the Inspectors General of DOD and the
Program                 military services periodically audit the program to identify potentially
                        fraudulent, improper, and abusive uses of the purchase cards, as well as
                        any patterns of improper cardholder transactions, DOD indicated that its
                        Office of Inspector General and the Navy have prototyped and are now
                        expanding a data-mining capability to screen for and identify high-risk card
                        transactions (such as potentially fraudulent, improper, and abusive use of
                        purchase cards including prohibited purchases) for subsequent
                        investigation. According to DOD, this capability will eventually be
                        implemented across the department. In addition, on June 27, 2003, the
                        DOD Inspector General issued a report4 summarizing the results of in-
                        depth review of purchase card transactions made by 1,357 purchase
                        cardholders. The report identified 182 cardholders who potentially used
                        their purchase cards inappropriately or fraudulently.

                        With respect to the National Defense Authorization Act’s requirement to
                        use strategic sourcing (i.e., that the Inspectors General identify categories
                        of purchases that should be made by means other than purchase cards in
                        order to better aggregate purchases and obtain lower prices), DOD issued a
                        memorandum on June 5, 2003, reiterating a prior decision requiring all
                        DOD components to review fiscal year 2002 purchase card transaction files
                        and stratify the volume of purchases by vendors. According to the
                        memorandum, these data will be used to determine if any componentwide
                        contracts should be established to optimize purchasing power. DOD also
                        indicated that each of the military departments have initiated a strategic
                        sourcing plan, contract, or Blanket Purchase Agreement (BPA) to take
                        advantage of purchase card demand (sales volume) data. As an example,
                        DOD said that the Army had awarded a BPA for office supplies in 2002 to
                        address long-standing concerns over cardholder compliance with
                        mandatory sourcing requirements. Likewise, the Air Force entered into a
                        BPA with a large provider of office supplies and anticipates others. The
                        Navy is expected to make similar BPA arrangements when its sales volume
                        analysis is completed. According to DOD, the strategic sourcing initiative
                        is still in the infancy stage, but the department is committed to expanding
                        opportunities to leverage its purchase card purchasing power. The issue of
                        strategic sourcing of purchase card transactions is also the subject of an
                        audit that we initiated at the request of the Chairman and Ranking Minority


                        4
                         Department of Defense, Office of the Inspector General, Summary Report on Joint Review
                        of Selected DOD Purchase Card Transactions, D2003-109 (Washington, D.C.: June 27, 2003).




                        Page 10                                                      GAO-04-156 Purchase Cards
                                              Member of the House Committee on Government Reform, Subcommittee
                                              on Government Efficiency, Financial Management and Intergovernmental
                                              Relations.



Disciplining Cardholders                      With respect to establishing regulations that provide for appropriate
                                              adverse personnel actions or other punishment for misuse, abuse, or fraud
                                              with respect to purchase cards, DOD has issued disciplinary guidelines,
                                              separately, for civilian and military employees. In both updated guidelines,
                                              DOD continues to emphasize its policy that improper, fraudulent, abusive,
                                              or negligent use of a government charge card is prohibited. This includes
                                              any use of government charge cards at establishments or for purposes that
                                              are inconsistent with the official DOD business or with applicable
                                              regulations. The intent of the guide is to ensure that management emphasis
                                              is given to the important issue of personal accountability. The civilian
                                              guide has a sample range of potential charge card offenses and remedies or
                                              penalties for such offenses as shown in table 3.



Table 3: Sample Schedule of Potential Charge Card Offenses and Remedies/Penalties

Offenses                                                         First offense     Second offense         Third offense
Unauthorized use of or failure to appropriately control use of   Letter of         14-day suspension to   30-day suspension
Government Purchase Card as a cardholder, approving official     Counseling to     removal                to removal
responsible for use or oversight of the card.                    removal
Source: DOD memorandum.


                                              According to the disciplinary guidelines, there is no single response for all
                                              cases. Instead, a progression of increasingly severe disciplinary measures
                                              is often appropriate in the case of minor instances of misuse, but more
                                              serious cases may warrant the most severe sanctions in the first instance.
                                              The disciplinary guide for military employees indicates that actions
                                              available when military personnel misuse a purchase or travel card include
                                              counseling, admonishment, reprimand, nonjudicial punishment (Article 15,
                                              Uniform Code of Military Justice – UCMJ), court-martial, and
                                              administrative separation. In addition to corrective disciplinary actions,
                                              military personnel who misuse their government charge cards may have
                                              their access to classified information modified or revoked if warranted in
                                              the interests of national security. These guidelines emphasized that while
                                              the merits of each case may be different, timeliness, proportionality, and
                                              the exercise of good judgment and common sense are always important.




                                              Page 11                                               GAO-04-156 Purchase Cards
Credit Worthiness    Finally, with regard to the requirement that DOD evaluate the credit
                     worthiness of cardholders, DOD told us that a senior focus group
                     consisting of acquisition, financial management, and general counsel
                     executives had concluded that there are conflicts between this legislation
                     and the Fair Credit Reporting Act. The department is pursuing an
                     alternative solution that would rely on a self-certification process by
                     prospective cardholders. The legality and practicality of this alternative
                     are being staffed and coordinated. This process, however, is in stark
                     contrast to the standard industry practice of conducting credit checks on
                     credit card applicants.



Status of Our        According to information provided by representatives of the Army, Navy,
                     and Air Force, the three services have either completed or initiated actions
Recommendations to   to implement nearly all of the 109 recommendations we made to improve
Improve Purchase     the management of the purchase card program. As shown in table 4, we
                     made 22 recommendations to the Army to improve its purchase card
Card Operations      program and the Army provided us with information that it had
                     implemented 18 of those recommendations and initiated actions to
                     implement the remaining 4 recommendations. In addition, the Navy told us
                     that it had implemented 38 of our 48 recommendations, and initiated
                     actions to implement the 10 other recommendations. Similarly, the Air
                     Force reported that it had implemented 24 of our 39 recommendations and
                     initiated actions to implement the 15 other recommendations.



                     Table 4: Status of Recommendations Made to the Military Services to Improve the
                     Management of the Purchase Card Program

                     Recommendations                                        Army   Navy    Air Force          Total
                     Made                                                     22     48           39           109
                     Fully implemented                                        18     38           24            80
                     Partially implemented                                     4     10           15            29
                     Source: GAO analysis of military services responses.


                     The recommendations that the Army, Navy, and Air Force told us they have
                     implemented related to issuing new purchase card policies and procedures,
                     retraining cardholders and approving officials, and reducing the number of
                     purchase card accounts to improve management of the purchase card
                     program. The recommendations they have not fully implemented generally



                     Page 12                                                              GAO-04-156 Purchase Cards
                               were those dealing with leveraging purchase card buying power,
                               establishing servicewide databases for data mining, investigating suspected
                               and known fraud cases, and linking the cardholders’, approving officials,
                               and agency program coordinators’ performance appraisals to performance
                               standards.

                               The Air Force and Navy reported to us that they planned to complete
                               implementation of most of the remaining GAO recommendations by June
                               2004. The Air Force planned to complete implementation of all of the
                               partially completed recommendations by January 4, 2004. The Navy
                               indicated that some of the recommendations would be implemented by
                               June 2004. The Army and the Navy did not provide a date for when some of
                               the partially completed recommendations would be implemented, but
                               indicated that there was an ongoing effort to identify opportunities to
                               leverage purchasing power, develop data mining, analysis, and
                               investigation functions, and develop databases of known fraud cases to
                               improve internal controls.

                               Appendixes II, III, and IV summarize GAO recommendations and the
                               military services’ representations of actions taken. We have not verified
                               whether the military services are effectively implementing the policies and
                               procedures that we recommended they establish and/or modify.



Limited Disciplinary Actions   In our purchase card reports and testimonies, we identified 51 cases where
Taken                          cardholders had used the government purchase card to make fraudulent or
                               potentially fraudulent purchases and 120 cases where cardholders had
                               made improper and abusive or questionable purchases. In general, when a
                               court of law determined that a cardholder fraudulently used the purchase
                               card, all the military services took strong disciplinary actions (i.e., assessed
                               fines, and in the case of uniformed personnel, sentenced the individual to
                               jail/confinement). We also found that the military services either took
                               strong disciplinary actions or were actively investigating the cases we
                               reported as potentially fraudulent. For example, our two Navy reports
                               identified 26 fraudulent and potentially fraudulent transactions totaling
                               more than $1,342,000. The Navy reported that in response, it fired six
                               cardholders, reduced the grade of others, confined several uniformed
                               serviceman to from 14 months to 60 months, and required repayment to the
                               government of over $460,000. Other actions taken on fraudulent or
                               potentially fraudulent transactions included suspending or revoking
                               purchase card privileges, requiring repayment to the government for the
                               cost of the items obtained, giving the items obtained back to the



                               Page 13                                                 GAO-04-156 Purchase Cards
                                               government, and written reprimands. In eight instances where no action
                                               was taken against cardholders we categorized as having used the purchase
                                               card in a fraudulent or potentially fraudulent manner, the military services
                                               and the credit card company determined that the fraud was committed by a
                                               third party, and the government had no responsibility for the charge. The
                                               military services were still investigating 15 cases for fraud.

                                               However, as shown in table 5, the military services often did not discipline
                                               the 120 individuals that we identified as having made improper, abusive, or
                                               questionable transactions. Further, the discipline, if it was imposed at all,
                                               was usually retraining. The responses the military services provided to our
                                               inquiries concerning disciplinary actions indicated that in three instances
                                               the cardholder had to repay the government for the cost of the improper,
                                               abusive, or questionable item(s) we identified. Of the remaining
                                               cardholders, 7 had their purchase card privileges revoked, 5 received
                                               verbal or written reprimands, and 6 had to return items that we deemed
                                               improper, abusive, or questionable to the government.



Table 5: Disciplinary Actions Taken Against Cardholders

Dollars in thousands
Type of disciplinary action taken                                            Army          Navy       Air Force         Total
Potentially fraudulent transactions
Number of potentially fraudulent transactions identified by GAO                 13            26            12            51
Value of potentially fraudulent transactions identified by GAO            $209,561    $1,342,257       $71,749    $1,623,567
No action taken because it was third party fraud                                 2             3             3              8
Fired                                                                            5             6             0            11
Suspended from work                                                              0             0             0              0
Court-martial, confinement, probation, reduction in grade, and
restitution                                                                      3             7             1            11
Repay the cost of the fraudulent items                                           2             0             1              3
Give item to government                                                          0             0             0              0
Written reprimand                                                                3             1             0              4
Verbal reprimand                                                                 0             0             0              0
Credit card revocation                                                           9             1             1            11
Credit card suspension                                                           6             0             1              7
Required to take training                                                        0             2             1              3
Still under review/investigation                                                 7             6             2            15
No action taken                                                                  0             5             4              9




                                               Page 14                                               GAO-04-156 Purchase Cards
(Continued From Previous Page)
Dollars in thousands
Type of disciplinary action taken                                                                      Army              Navy          Air Force             Total
Improper, abusive, or questionable transactions
Number of transactions identified by GAO                                                                   34                59                27              120
Value of transactions identified by GAO                                                            $999,094        $1,102,647          $960,704        $3,062,445
Fired                                                                                                       0                 0                 0                 0
Suspended from work                                                                                         0                 0                 0                 0
Repay for cost of improper, abusive, or questionable charge                                                 1                 0                 2                 3
Give item to government                                                                                     0                 0                 6                 6
Written reprimand                                                                                           2                 0                 0                 2
Verbal reprimand                                                                                            1                 1                 1                 3
Credit card revocation                                                                                      1                 4                 2                 7
Credit card suspension                                                                                      1                 0                 0                 1
Required to take training/guidance                                                                          8                20                11               39
Still under review/investigation                                                                            0                 3                 0                 3
Written policy authorized purchase – no disciplinary action taken                                           0                 0                 3                 3
No action taken                                                                                            27                36                 5               68
Source: Responses provided by the Army, Navy, and Air Force.

                                                               Note: Total actions taken exceed transactions identified because multiple actions were taken for some
                                                               transactions.


                                                               Further, in their response to our inquiries concerning the disciplinary
                                                               actions taken against cardholders who we identified as making improper,
                                                               abusive, or questionable purchases, the military services stated that they
                                                               did not take any action in over half of the transactions we identified. We
                                                               believe that these items were imprudent use of tax dollars, but the military
                                                               services claimed that policies existing at the time the purchases were made
                                                               permitted the acquisitions. Therefore, the military services did not think
                                                               that they had the authority to discipline the cardholders or approving
                                                               officials. Rather, the military services told us they modified their policies
                                                               and procedures to prohibit similar acquisitions in the future. The Navy, for
                                                               example, told us that it had issued numerous e-mails and updated its
                                                               policies to indicate that some products purchased in the past were now
                                                               prohibited, and that it planned to better monitor purchases so that none of
                                                               these purchases would occur in the future. While clarifying purchase card
                                                               policies and procedures is appropriate, failure to take any disciplinary
                                                               actions against individuals who purchased or authorized the purchase of
                                                               items that clearly exceed the needs of the government (designer
                                                               briefcases) or were excessive in cost ($350 clock radios) does not serve as
                                                               a deterrent to future abuse or the waste of tax dollars.



                                                               Page 15                                                               GAO-04-156 Purchase Cards
Conclusions           DOD and the military services have taken strong actions to improve the
                      controls over the purchase card program. DOD has initiated actions to
                      implement all of the requirements that were mandated in the fiscal year
                      2003 National Defense Authorization and DOD Appropriations acts. In
                      addition, DOD and the military services have taken actions on nearly all of
                      109 recommendations that GAO made in its four reports on the purchase
                      card program, and DOD has plans to have most of the recommendations
                      implemented by June 2004. While the military services have generally
                      taken strong disciplinary actions against cardholders who we identified as
                      having made fraudulent or potentially fraudulent purchases, the military
                      services generally have done little or nothing to discipline cardholders who
                      have made improper, abusive, or questionable purchases.



Recommendations for   To help provide reasonable assurance that DOD holds cardholders and
                      approving officials accountable for improper and abusive purchase card
Executive Action      acquisitions, we recommend that the Secretary of Defense direct the
                      service secretaries and the heads of DOD agencies to establish procedures
                      to:

                      • monitor the results of purchase card reviews conducted by the military
                        services and the DOD agencies,

                      • track whether the major commands and units are consistently applying
                        DOD’s disciplinary guidelines to those who made and/or authorized
                        improper or abusive acquisitions, and

                      • notify the appropriate officials at the major commands or units if DOD’s
                        disciplinary guidelines are not being consistently applied.



Agency Comments and   In comments on a draft of this report, reprinted in appendix V, DOD stated
                      that while more needs to be done, it appreciated our recognition of the
Our Evaluation        department’s efforts to address previously cited managerial and internal
                      control deficiencies. In its response, DOD requested that we add some
                      perspective to table 5 that shows the extent to which DOD had not taken
                      disciplinary actions on purchases that we had characterized as improper,
                      abusive, or questionable because the military services belief that they had
                      documented policies that specifically authorized the purchases we
                      questioned. To provide this additional perspective, we modified table 5 to
                      separately identify the three transactions that we considered abusive or


                      Page 16                                              GAO-04-156 Purchase Cards
questionable that the military services believe were specifically authorized
by existing Air Force regulations. While we believe that this differentiation
is useful, we continue to question whether the purchase card was the
appropriate vehicle to make the purchases we identified as abusive or
questionable in our prior report. We also modified the report’s title to be
focused on future program improvements. DOD did not comment on our
recommendations to monitor implementation of the disciplinary guidance.


We will send copies to interested congressional committees; the Secretary
of Defense; the Under Secretary of Defense, Comptroller; the Under
Secretary of Defense for Acquisition Technology and Logistics; the
Secretary of the Army; the Secretary of the Navy; the Secretary of the Air
Force; the Director of the Defense Finance and Accounting Service; and the
Director of Management and Budget. We will make copies available to
others upon request. In addition, the report will be available at no charge
on the GAO Web site at http://www.gao.gov.

Please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov, or
John V. Kelly at (202) 512-6926 or kellyj@gao.gov if you or your staffs have
any questions concerning this report. Major contributors to this report are
acknowledged in appendix VI.




Gregory D. Kutz
Director
Financial Management and Assurance




Robert J. Cramer
Managing Director
Office of Special Investigations




Page 17                                               GAO-04-156 Purchase Cards
List of Committees

The Honorable John Warner
Chairman
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Daniel Inouye
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Duncan Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representative

The Honorable Jerry Lewis
Chairman
The Honorable John Murtha
Ranking Minority Member
Subcommittee on Defense
Committee on Appropriations
House of Representative




Page 18                       GAO-04-156 Purchase Cards
Appendix I

Objectives, Scope, and Methodology                                                            AA
                                                                                               ppp
                                                                                                 ep
                                                                                                  ned
                                                                                                    nx
                                                                                                     idx
                                                                                                       eIis




              This study responded to the legislative mandate in the conference report to
              the Bob Stump National Defense Authorization Act of 2003, that directs the
              Comptroller General to review the actions taken by the Department of
              Defense (DOD) to comply with the requirements of Section 1007 of the act
              and submit a report on those actions to the congressional defense
              committees no later than December 2, 2003. At the request of the
              committee, this report also summarizes the actions taken by the Army,
              Navy, and Air Force to respond to the legislative mandates in Section 8149
              of fiscal year 2003 DOD Appropriations Act, and actions taken by the
              military services to implement the recommendations we made in four
              reports issued during fiscal years 2002 and 2003 aimed at improving the
              military services’ management of the purchase card program. Finally, the
              report also discusses the actions taken by the military services against
              individuals we identified in our testimonies and reports as having made
              potentially fraudulent, improper, abusive, or questionable purchase card
              transactions.

              To meet the objectives of this assignment, we requested that DOD and the
              military services provide us the (1) status of DOD and the military services’
              efforts in implementing certain provisions of the National Defense
              Authorization Act for fiscal year 2003 and the fiscal year 2003 DOD
              Appropriations Act, (2) status of actions taken to implement the
              recommendations included in our four reports, and (3) administrative or
              disciplinary actions taken against individuals we identified as having made
              potentially fraudulent, improper, and abusive or questionable transactions.
              While we asked DOD and the military services to provide evidence
              documenting actions taken to improve the purchase card program and
              prevent individuals and companies from further obtaining fraudulent,
              improper, and abusive or questionable items with a DOD purchase card, we
              did not make any field visits to independently validate whether DOD had
              effectively implemented the reported changes.

              We briefed DOD managers, including DOD officials in the Office of the
              Undersecretary of Defense (Comptroller), and the Inspector General; Army
              officials in the Office of Deputy Chief of Staff for Logistics; Navy officials in
              the Office of the Assistant Secretary of the Navy for Research Development
              and Acquisition; and Air Force officials in the Office of the Deputy Chief of
              Staff for Installation and Logistics. We conducted our review from June
              through September 2003 in accordance with U.S. generally accepted
              government auditing standards. We requested comments on a draft of this
              report from the Secretary of Defense or his designee. We received written
              comments from the Director of DOD’s Purchase Card Joint Program



              Page 19                                                 GAO-04-156 Purchase Cards
Appendix I
Objectives, Scope, and Methodology




Management Office, which are reprinted in appendix V. We have
incorporated suggested changes as appropriate.




Page 20                                          GAO-04-156 Purchase Cards
Appendix II

Status of Army Actions to Implement GAO
Recommendations                                                                                                                           Appendx
                                                                                                                                                iI




                                                     Status of GAO recommendation, as reported by the          GAO observation on the
GAO recommendation                                   Army                                                      status of recommendation
Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse (GAO-02-732, June 27, 2002)
Overall program management and environment
Address key control environment issues in
Army-wide standard operating procedures. At a
minimum, the following key issues should be
included in the procedure:
1.   Controls over the issuance and                  Identified in Army Standard Operating Procedure (SOP) Reported implemented
     assessment of ongoing need for cards.           Section 15. Also reinforced by Army in memorandum
                                                     issued May 22, 2002, requesting that heads of
                                                     contracting activities ensure cards are issued only to
                                                     individuals with bonafide needs and that the limits reflect
                                                     actual needs and available funding.
2.   Cancellation of cards when a cardholder         Identified in Army SOP Section 15.                        Reported implemented
     leaves the Army, is reassigned, or no
     longer has a valid need for the card.
3.   Span of control of the approving officials.     Identified in Army SOP Section 5.                         Reported implemented
4.   Appropriate cardholder spending limits.         Identified in Army SOP Sections 15 and 16. Also           Reported implemented
                                                     reinforced by Army in memorandum issued May 22,
                                                     2002, requesting heads of contracting activities to
                                                     ensure cards are issued only to individuals with
                                                     bonafide needs and that the limits reflect actual needs
                                                     and available funding.
5.   Help ensure that program coordinators and       Issued Memorandum endorsed by General John Keane, Reported implemented
     approving officials have the needed             Vice Chief of Staff articulating the focus on the number
     authority, including grade level, to serve as   of purchase card organizations for each card account
     the first line of defense against purchase      (300), and the skill sets typically require a GS-11 and
     card fraud, waste, and abuse by issuing a       also required in-depth skills in financial and contracting
     policy directive that specifically addresses    policy and procedures with strong verbal
     their positions, roles, and job descriptions.   communications skills. The DOD Concept of
     Policies should also be established that        Operations (CONOPS) report has been updated to
     hold these officials accountable for their      further identify skill sets for the billing official and
     purchase card program duties through            cardholders.
     performance expectations and evaluations
6.   Assess the adequacy of human capital            Memorandum signed by Vice Chief of Staff, July 8,         Reported implemented
     resources devoted to the purchase card          2002, directed Army commanders to provide adequate
     program, especially for oversight activities,   resources for purchase card program coordinators to
     at each management level, and provide           ensure a system of strong internal controls. This was
     needed resources.                               also reemphasized in the Army SOP.
7.   Develop and implement a program                 Identified in Army SOP Section 9.                         Reported implemented
     oversight system for program coordinators
     that includes standard activities and
     analytical tools to be used in evaluating
     program results.




                                                   Page 21                                                       GAO-04-156 Purchase Cards
                                                 Appendix II
                                                 Status of Army Actions to Implement GAO
                                                 Recommendations




(Continued From Previous Page)
                                                     Status of GAO recommendation, as reported by the        GAO observation on the
GAO recommendation                                   Army                                                    status of recommendation
8.   Develop performance measures and goals          Identified in Army SOP Section 9 and appendixes J and Reported implemented
     to assess the adequacy of internal control      I. Also reinforced in Secretary of the Army
     activities and the oversight program.           memorandum dated January 28, 2003.
9.   Require reviews of existing cardholders         September 2002 the Army had 101,398 cardholders.           Reported implemented
     and their monthly spending limits to help       Army canceled 35,778 since September. Additionally,
     ensure that only those individuals with valid   agency program coordinators are required to review this
     continuing purchasing requirements              as part of their surveillance reviews as identified in the
     possess cards and that the monthly              Army SOP.
     spending limits are appropriate for the
     expected purchasing activity. These
     reviews should result in canceling
     unneeded cards Army-wide and especially
     at Fort Hood where we found a significant
     problem.
Direct the implementation of specific internal
control activities for the purchase card program
in an Army-wide standard operating procedure.
While a wide range of diverse activities can
contribute to a system that provides reasonable
assurances that purchases are correct and
proper, at a minimum, the following activities
should be included in the promulgated
procedure:
10. Advance approval of purchases, including         Identified in SOP Sections 12 and 18.                   Reported implemented
    blanket approval for routine, low dollar
    purchases.
11. Independent receiving and acceptance             Identified in SOP 13.                                   Reported implemented
    of goods and services.
12. Independent review by an approving official Identified in SOP Section 11.                                Reported implemented
    of the cardholder’s monthly statements and
    supporting documentation.
13. Approving official reconciling the charges  Identified in SOP Section 11.                                Reported implemented
    on the monthly statement with invoices and
    other supporting documentation and
    forwarding the reconciled statement to the
    designated disbursing office for payment as
    required by governmentwide and DOD
    regulations.
14. Cardholders obtaining and retaining          Identified in SOP Section 12.                               Reported implemented
    invoices that support their purchases and
    provide the basis for reconciling cardholder
    statements.




                                                 Page 22                                                        GAO-04-156 Purchase Cards
                                                   Appendix II
                                                   Status of Army Actions to Implement GAO
                                                   Recommendations




(Continued From Previous Page)
                                                     Status of GAO recommendation, as reported by the           GAO observation on the
GAO recommendation                                   Army                                                       status of recommendation
15. Develop and implement procedures and             Identified in SOP Appendix E.                              Reported implemented
    checklists for approving officials to use in
    the monthly review of cardholders’
    transactions. These procedures and
    checklists should specify the type and
    extent of review that is expected and the
    required review documentation.
16. Reiterate records retention policy for       Identified in SOP Section 19.                                  Reported implemented
    purchase card transaction files and require
    that compliance with record retention policy
    be assessed during the program
    coordinator’s annual review of each
    approving official.
17. Require the development and                Identified SOP Section 8.                                        Reported implemented
    implementation of coordination and
    reporting procedures to help ensure that
    accountable property bought with the
    purchase card is brought under appropriate
    control.
18. Require additional prior documented         Identified in SOP Section 18 and Appendix D.                    Reported implemented
    justification and approval of those planned
    purchases that are “questionable” that fall
    outside the normal procurements of the
    cardholder in terms of either dollar amount
    or type of purchase.
19. Analyze the procurements of continuing           Ongoing effort. If the Army identifies leveraging          Reported partially
    requirements through micropurchases and          opportunities, they will be implemented through some       implemented
    require the use of appropriate contracting       form of contracting process.
    processes to help ensure that such
    purchases are acquired at the best prices.       The Army issued 12 mandatory Blanket Purchase
                                                     Agreements for office products and supplies in
                                                     September 2002. The army has also teamed with the
                                                     Army Comptroller’s office in awarding a support contract
                                                     to assess the Army’s purchasing data to determine if
                                                     leveraging opportunities exist.
20. Develop an Army-wide database on known           The Army participates in the DOD charge card special Reported partially
    fraud cases that can be used to identify         focus group to look at this issue DOD-wide. However,     implemented
    potential deficiencies in existing internal      the Army has teamed with the Army Criminal
    control and to develop and implement             Investigative Command and the Public Affairs office to
    additional control activities, if warranted or   identify, report, and publish newsworthy fraud cases and
    justified.                                       to inform Army soldiers and Department of the Army
                                                     civilian personnel, their supervisors, and the public of
                                                     corrective actions taken to resolve misuse of the Army
                                                     Purchase Card.




                                                   Page 23                                                         GAO-04-156 Purchase Cards
                                               Appendix II
                                               Status of Army Actions to Implement GAO
                                               Recommendations




(Continued From Previous Page)
                                                   Status of GAO recommendation, as reported by the         GAO observation on the
GAO recommendation                                 Army                                                     status of recommendation
21. Develop and implement an Army-wide data        Ongoing. Army will continue to work with the DOD         Reported partially
    mining, analysis, and investigation function   Charge Card Focus Group.                                 implemented
    to supplement other oversight activities.
    This function should include providing         The Army participates in the DOD Charge Card Focus
    oversight results and alerts to major          Group to look at this issue DOD-wide. DOD is currently
    commands and installations when                working with the DOD IG to test a Navy prototype data-
    warranted.                                     mining system. A July 2003 Draft Army Audit Report
                                                   Audit of Army Government Purchase Card (using DOD
                                                   IG data-mining techniques) stated that about 6 percent
                                                   (281) of the 4,537 reviewed Army purchase card
                                                   transactions were improper. Over half of those
                                                   instances were instances of compromised purchase
                                                   cards used by third parties for charges and in billing
                                                   adjustments that returned about 98 percent of the
                                                   improperly charged Army funds. This left about 3
                                                   percent of purchases that were improper, which is less
                                                   than commercial industry standards of 4.2 percent
                                                   identified in the 2003 Purchase Card Benchmark survey
                                                   results, a VISA survey conducted by Palmer and
                                                   Mahendra Gupta dated July 21, 2002.
22. Incorporate GAO recommendations, to the The Army participates in the DOD Charge Card Focus              Reported partially
    extent applicable, into the Charge Card Group to look at these issues DOD-wide.                         implemented
    Task Force’s future recommendations to
    improve purchase card policies and
    procedures throughout DOD.
Source: GAO analysis of DOD responses.




                                               Page 24                                                         GAO-04-156 Purchase Cards
Appendix III

Status of Navy Actions to Implement GAO
Recommendations                                                                                                                                Appendx
                                                                                                                                                     Ii




                                                                                                                      GAO observation on the
                                                           Status of GAO recommendation, as reported by               status of
GAO recommendation                                         the Navy as of August 29, 2003                             recommendation
Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse (GAO-02-32, Nov. 30, 2001)
Proliferation of cardholders
1.   Establish specific policies and strategies            The revised eBusiness Operations Office Instruction        Reported implemented
     governing the number of purchase cards to be          (EBUSOPSOFFINST) 4200.1 incorporates the
     issued with a focus on minimizing the number of       Department of Defense “Span of Control Goals”
     cardholders.                                          which resulted in approving officials having a
                                                           reasonable number of cardholders. The Navy
                                                           executes the DOD Purchase Card Program in a
                                                           decentralized manner consistent with DOD policy.
                                                           This allows individual commands to issue purchase
                                                           cards to employees as mission requirements
                                                           warrant. No less than semiannually, Agency
                                                           Program Coordinators (APC) review the continuing
                                                           need for each account under their purview.
2.   Develop criteria for identifying employees eligible   The criterion on eligibility for cardholder’s duties has   Reported partially
     for the privilege of cardholder status. As part of    been developed and is incorporated in Department           implemented
     the effort to develop these criteria, assess the      of Navy (DON) PC desk guides. The issue of credit
     feasibility and cost-benefit of performing credit     checks was deferred to DOD. DOD is seeking
     checks on employees prior to assigning them           additional legislative action required to implement
     cardholder responsibilities to ensure that            credit checks.
     employees authorized to use government
     purchase cards have demonstrated credit
     worthiness and financial integrity.
3.   Develop policies and strategies on credit limits      EBUSOPSOFFINST 4200.1, chapter 2, paragraph 3, Reported implemented
     provided to cardholders with a focus on               defines DON policy. In addition, the EBUSOPSOFF
     minimizing specific cardholder spending               monitors credit limits quarterly and takes action
     authority and minimizing the federal                  when it appears that existing credit limits exceed
     government’s financial exposure.                      mission requirements. Credit limits are now a critical
                                                           element in the revised semiannual review
                                                           procedures.
4.   Confirm that required training has been               EBUSOPSOFFINST 4200.1, chapter 3, paragraph 9, Reported implemented
     completed and documented.                             addresses mandatory requirements for training. In
                                                           addition, chapter 4, paragraph 1b.2, mandates that
                                                           program compliance with applicable training be
                                                           reported as part of the semiannual APC review.
                                                           Major claimants have been reporting status of
                                                           training completion via the semiannual review report
                                                           and have reported corrective actions are necessary.




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                                                Recommendations




(Continued From Previous Page)
                                                                                                                GAO observation on the
                                                          Status of GAO recommendation, as reported by          status of
GAO recommendation                                        the Navy as of August 29, 2003                        recommendation
5.   Incorporate into purchase card training programs     Policy changes resulting from previous GAO audit     Reported implemented
     any relevant changes in policies and procedures      recommendations were incorporated into revised
     made as a result of the recommendations in this      desk guides and training modules as well as the
     report.                                              September 2002 revision of the DON
                                                          EBUSOPSOFFINST 4200.1. Furthermore, a second
                                                          combined Purchase Card/Travel Card APC
                                                          conference was held in San Diego Nov. 5-8, 2002. A
                                                          third combined conference was held in Philadelphia,
                                                          Mar 17-20, 2003. On Sept 27, 2002, the Navy
                                                          commenced distribution of training CDs that
                                                          contained four training modules for purchase
                                                          cardholders and approving officials (AO). A total of
                                                          30,000 CDs were distributed at that time. In
                                                          December. 2002, the remaining three training
                                                          modules were completed and posted to the DON
                                                          eBusiness Web site for downloading of complete
                                                          training modules. A second version of the Navy
                                                          training CD was released and distributed at the
                                                          March 2003 APC conference. This version contains
                                                          seven training modules and a desk guide for each
                                                          module for use by APCs. Each module contains
                                                          both a Citidirect (shore) and WINSAALTS (afloat)
                                                          version.
Rebates
6.   Investigate ways to maximize potential rebates,      A plan for the “on-line statement process” (electronic Reported partially
     such as (1) working with Citibank to facilitate      certification) was presented to APCs at the March       implemented
     timely receipt of monthly purchase card              2003 APC conference in Philadelphia. All general
     statements and (2) reducing the time associated      fund activities are expected to be performing
     with mailing and receipt of hard copy billing        electronic certification by Sept. 30, 2003. All others,
     statements.                                          including outside the continental United States
                                                          (OCONUS), nonappropriated fund (NAF), and Navy
                                                          working capital fund (NWCF) activities, are expected
                                                          to be performing electronic certification by June 30,
                                                          2004. In April 2003, a Navy Working Capital Fund
                                                          users conference convened to discuss issues,
                                                          explore problem areas, and develop an
                                                          implementation plan. The electronic certification tool
                                                          provides Navy purchase card customers with the
                                                          ability to significantly decrease payment timelines,
                                                          thereby optimizing rebate amounts.
7.   Establish effective policies and procedures for      The Defense Contract Audit Agency (DCAA) was       Reported partially
     routinely calculating and verifying Citibank         assigned the task of auditing the integrity of the implemented
     rebates.                                             rebate computation process. A number of systems
                                                          issues have been discussed with the banks and
                                                          DCAA has finalized its audit recommendations. The
                                                          Navy and the PC Program Management Office are
                                                          assessing the results.




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                                                 Status of Navy Actions to Implement GAO
                                                 Recommendations




(Continued From Previous Page)
                                                                                                                GAO observation on the
                                                           Status of GAO recommendation, as reported by         status of
GAO recommendation                                         the Navy as of August 29, 2003                       recommendation
8.   Develop guidance for routine distribution of          The Navy made a determination to retain the rebates Reported implemented
     rebate earnings to Navy units and activities.         at the department level in lieu of disbursing them to
                                                           lower echelons.
Monitoring and review
9.   Establish in Navy Supply Systems Command              EBUSOPSOFFINST 4200.1, chapter 4, addresses          Reported implemented
     (NAVASUP) Instruction 4200.94 further                 this issue.
     guidelines for an effective internal review
     program, such as having reviewers analyze
     monthly summary statements to identify (1)
     potentially fraudulent, improper, and abusive
     purchases and (2) any patterns of improper
     cardholder transactions, such as purchases of
     food or other prohibited items.
10. Revise NAVSUP Instruction 4200.94 to require           EBUSOPSOFFINST 4200.1, chapter 4, addresses          Reported implemented
    that (1) written reports on the results of internal    this issue. Semiannual program reviews have been
    reviews along with any recommendations for             established and reports are being submitted to the
    corrective actions be prepared and submitted to        DON EBUSOPSOFF.
    local management and cognizant commands
    and (2) commands identify and report systemic
    weaknesses and corrective action plans to the
    Naval Supply Systems Command for monitoring
    and oversight.
11. Require purchase card agency program                   EBUSOPSOFFINST 4200.1, chapter 4, addresses          Reported implemented
    coordinators to report in writing to the unit          this issue. Semiannual program reviews have been
    commander and the Commander of Naval                   established and reports are being submitted to the
    Supply Systems Command any internal control            DON EBUSOPSOFF.
    weakness identified during the semiannual
    program reviews.
12. Disclose systemic purchase card control                The Navy included systemic purchase card             Reported implemented
    weaknesses along with corrective action plans in       weaknesses identified in the semiannual report in
    the Secretary of the Navy’s Annual Statement of        the Secretary of the Navy’s Annual Statement of
    Assurance, prepared under 31 U.S.C. 3512 (d).          Assurance.
Receipt of goods and services
13. Revise NAVSUP Instruction 4200.94 to eliminate         EBUSOPSOFFINST 4200.1 is a comprehensive                Reported implemented
    ambiguous language suggesting that advance             instruction that addresses the roles of each
    independent authorization of a purchase can be         participant in the purchase card process, with
    substituted for independent confirmation that          specific guidance addressing the responsibilities of
    goods and services ordered and paid for with a         each program participant. EBUSOPSOFFINST
    purchase card have been received and accepted          4200.1, chapter 2, section 4d—Approving Official
    by the government.                                     Duties, states that the AO will “ensure proper receipt,
                                                           acceptance, and inspection is accomplished on all
                                                           items being certified for payment.” Additionally,
                                                           EBUSOPSOFF 4200.1, chapter 3, section 7–
                                                           Establishing Internal Management Controls,
                                                           discusses the separation of functions between
                                                           receipt and acceptance of goods and services.




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                                                Recommendations




(Continued From Previous Page)
                                                                                                                 GAO observation on the
                                                          Status of GAO recommendation, as reported by           status of
GAO recommendation                                        the Navy as of August 29, 2003                         recommendation
14. Implement procedures to require and document EBUSOPSOFFINST 4200.1, chapter 3, paragraph                     Reported implemented
    independent confirmation of receipt of goods and 7c, under Establishing Internal Management
    services acquired with a purchase card.          Controls separation of function, addresses this issue.
15. Revise NAVSUP Instruction 4200.94 to require         EBUSOPSOFFINST 4200.1 has been revised to               Reported implemented
    that (1) cardholders notify approving officials      reflect the issues noted. The specific provisions are
    prior to payment that purchase card statements cited below:
    have been reconciled to supporting
    documentation, (2) approving officials certify         (1) Chapter 2, Section 6e, Cardholders Duties—
    monthly statements only after reviewing them for       Review the monthly purchase card statement to
    potentially fraudulent, improper, and abusive          ensure that all charges are proper and accurate;
    transactions, and (3) approving officials verify, on   (2) Chapter 2, Section 6f, Cardholders Duties—
    a sample basis, supporting documentation for           Forward the monthly purchase card statement to
    various cardholders’ transactions prior to             the AO with the appropriate supporting
    certifying monthly statements for payment.             documentation, (i.e., sales slips, documentation of
                                                           receipt and acceptance, purchase log) promptly to
                                                           maximize rebates and minimize prompt payment
                                                           penalties;
                                                           (3) Chapter 2, Section 4.c, Approving Official
                                                           Duties—Notify the Commanding Officer and APC
                                                           in the event of any suspected unauthorized
                                                           purchase (purchases that would indicate
                                                           noncompliance, fraud, misuse, and/or abuse);
                                                           (4) Chapter 2, Section 4.b, Authorizing Official
                                                           Duties—Verify supporting transaction
                                                           documentation on all card accounts prior to
                                                           certifying the monthly invoice.
16. The Navy Comptroller withdrew the June 3,             The Navy Comptroller policy letter dated June 3,       Reported implemented
    1999, policy memorandum or revised the policy         1999, was rescinded effective March 12, 2002.
    guidance to be consistent with the preceding
    recommendation for revising payment
    certification guidance in NAVSUP Instruction
    4200.94.
Proper and timely accounting
17. Monitor and confirm that purchase card                Both Public Works Center, San Diego, and Naval         Reported implemented
    transactions are recorded to projects that            Space and Warfare Systems Command (SPAWAR)
    benefited from the goods and services or to           Systems Center, San Diego, concurred and are
    relevant overhead accounts promptly, in               complying. Internal operating procedures at both
    accordance with internal control standards and        sites include guidance on the issue.
    federal accounting standards.
18. Revise NAVSUP Instruction 4200.94 to require          EBUSOPSOFFINST 4200.1, chapter 2, paragraph 4, Reported implemented
    that purchase card expenses be properly               addresses this issue.
    classified in the Navy’s detailed accounting
    records.




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                                                Recommendations




(Continued From Previous Page)
                                                                                                              GAO observation on the
                                                          Status of GAO recommendation, as reported by        status of
GAO recommendation                                        the Navy as of August 29, 2003                      recommendation
19. Verify that the detailed purchase card transaction Both Public Works Center, San Diego, and SPAWAR Reported implemented
    records reflect the proper object classification of Systems Center, San Diego, concurred and are
    expense.                                            complying. The Navy issued policy as an interim
                                                        change to NAVSUP Instruction 4200.94—Standards
                                                        of Compliance for Timely Recording and Classifying
                                                        of Navy Purchase Card Commitments and
                                                        Obligations, which reiterates existing Navy and DOD
                                                        Financial Management Regulation policy on the
                                                        issue.
Accountable property
20. Require and verify that accountable property          The EBUSOPSOFFINST 4200.1 definition of                Reported implemented
    obtained using a purchase card is promptly            accountable property reads as follows: Accountable
    recorded in property records as it is acquired, in    Property: A term used to identify property recorded
    accordance with DOD and Navy policies and             in a formal property management or accounting
    procedures.                                           system. Accountable Property includes all property
                                                          purchased, leased (capital leases), or otherwise
                                                          obtained, having a unit acquisition cost of $5,000 or
                                                          more (land, regardless of cost), and items that are
                                                          sensitive, or classified. Additional and/or separate
                                                          records or other recordkeeping instruments shall be
                                                          established for management purposes, or when
                                                          otherwise required by law, policy, regulation, or
                                                          Agency direction, including, but not limited to
                                                          pilferable items (items that have a ready resale value
                                                          or application to personal possession and which are,
                                                          therefore, especially subject to theft). Additionally,
                                                          EBUSOPSOFFINST 4200.1, chapter 2, sections 6d
                                                          and f, require a detailed purchase log to identify all
                                                          purchase card transactions, including defined
                                                          “Pilferable Personal Property.” Purchase log data are
                                                          also forwarded to the AO as part of its purchase
                                                          review process. A similar change is included in the
                                                          draft revision to Secretary of Navy (SECNAV)
                                                          Instruction 7320.10, which is currently in the
                                                          coordination phase.
Fraudulent, improper, and abusive transactions
21. Immediately cancel all known active                   All compromised accounts are closed.                Reported implemented
    compromised purchase card accounts.
22. Determine whether purchases of excessive cost,        EBUSOPSOFFINST 4200.1, chapter 4, paragraphs        Reported Implemented
    questionable government need, or both, such as        1 and 2 require a monthly 100 percent APC review
    items for personal use, including personal digital    and a semiannual APC review that addresses this
    assistants (such as Palm Pilots) and flat screen      issue.
    computer monitors, that were identified by GAO,
    are proper government purchases. If not, the
    Commander should prohibit their purchase.




                                                Page 29                                                        GAO-04-156 Purchase Cards
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                                              Status of Navy Actions to Implement GAO
                                              Recommendations




(Continued From Previous Page)
                                                                                                       GAO observation on the
                                                        Status of GAO recommendation, as reported by   status of
GAO recommendation                                      the Navy as of August 29, 2003                 recommendation
23. Establish written policies and criteria requiring   EBUSOPSOFFINST 4200.1, Enclosure 2, contains a Reported implemented
    documented justifications and procurement           list of generally prohibited items. Due to differing
    management approval for types of items that can     mission requirements and unique requirements
    be acquired with a government purchase card.        throughout the Department of the Navy and DOD, it
                                                        is difficult to develop a general list of what items can
                                                        be purchased with or without special justification.
                                                        Ticket purchases to Disneyland may be an
                                                        appropriate purchase not requiring special
                                                        justifications within a Non-Appropriated Funded
                                                        activity, but may require such documentation at an
                                                        Appropriated Funded activity. These decisions are
                                                        best left to the local command.




                                              Page 30                                                  GAO-04-156 Purchase Cards
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                                              Status of Navy Actions to Implement GAO
                                              Recommendations




(Continued From Previous Page)
                                                                                                              GAO observation on the
                                                        Status of GAO recommendation, as reported by          status of
GAO recommendation                                      the Navy as of August 29, 2003                        recommendation
24. Examine purchase card acquisition guidance to       The cardholder training CD in use Navy-wide               Reported implemented
    determine whether the purchase card is the right    contains specific information on the requirement to
    vehicle for acquiring certain goods and services,   verify other contracting sources prior to making all
    such as vehicle and equipment maintenance,          purchases. EBUSOPSOFFINST 4200.1 chapter 2,
    installation of upgraded computer software, and     section 6.b, Purchase Cardholder Duties, includes a
    other recurring or installationwide services, or    requirement to “screen all requirements for their
    whether these items should be subject to            availability from mandatory Government sources of
    negotiated contracts.                               supply.” Additionally, the Naval Facilities
                                                        Engineering Command (NAVFAC) has undertaken
                                                        an initiative to facilitate client ordering of Indefinite
                                                        Delivery Indefinite Quantity (IDIQ) services from
                                                        Base Operations Support (BOS) contracts using the
                                                        Department of Defense Electronic Mall (DOD
                                                        EMALL). The NAVFAC Electronic Facilities support
                                                        Contracts (e-FSC) initiative was created to facilitate
                                                        direct client ordering by governmentwide commercial
                                                        purchase cards (GCPC), thereby streamlining the
                                                        BOS IDIQ ordering process and providing better
                                                        compliance with DFARS 213.270 (Use of the
                                                        Governmentwide Commercial Purchase Card).
                                                        Each NAVFAC contract’s IDIQ schedule that is
                                                        posted to the DOD EMALL is from a competed
                                                        contract that has satisfied Competition In Contracting
                                                        Act (CICA) requirements. This distinguishes
                                                        NAVFAC contracts on the DOD EMALL from blanket
                                                        purchase agreements (BPA) and other contracting
                                                        instruments since orders off of the IDIQ catalogs are
                                                        not considered stand-alone (open-market)
                                                        purchases. The e-FSC initiative is currently in its
                                                        early stages. NAVFAC is in the process of adding
                                                        the Payment by Third Party clause (48 C.F.R.
                                                        52.232-36) and an e-FSC requirement to all new
                                                        BOS solicitations and selected existing BOS
                                                        contracts from installations and regions across the
                                                        DON. As new BOS IDIQ schedules continue to be
                                                        uploaded to the DOD EMALL, NAVFAC anticipates
                                                        that within the next year many BOS contracts at most
                                                        major installations will be available for electronic
                                                        ordering by GCPC. This strategic initiative is
                                                        expected to result in significant labor-hour savings
                                                        and expedite the order and delivery process.




                                              Page 31                                                          GAO-04-156 Purchase Cards
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                                               Status of Navy Actions to Implement GAO
                                               Recommendations




(Continued From Previous Page)
                                                                                                                GAO observation on the
                                                         Status of GAO recommendation, as reported by           status of
GAO recommendation                                       the Navy as of August 29, 2003                         recommendation
25. Work with the Under Secretary for Acquisition,       The DOD EMALL is now available to the Navy and its Reported implemented
    Technology, and Logistics and DOD’s Purchase         use and availability are being articulated to Navy
    Card Joint Program Office to determine whether       purchasers as a single point for commercial
    the purchase card should be used to acquire          purchases, including computers, using the
    computers and other equipment or property            government purchase card. Most recently, a DOD
    items individually that could be more                EMALL representative spoke at the March 2003 APC
    economically and efficiently procured through        conference. The DON EBUSOPSOFF is in the
    bulk purchases.                                      process of querying all Level III APCs to identify all
                                                         strategic sourcing agreements in their respective
                                                         claimancies. This information will then be shared
                                                         Navywide.
26. Revise NAVSUP Instruction 4200.94 to make it       EBUSOPSOFFINST 4200.1, chapter 1, paragraph 4, Reported implemented
    consistent with the Federal Acquisition            contains clarifying guidance.
    Regulation, 48 C.F.R. 13.301(a), which states
    that the “card may be used only for purchases
    that are otherwise authorized by law or
    regulation.” The clarifying guidance should
    specifically state that in the absence of specific
    statutory authority, purchases of items for the
    personal benefit of government employees, such
    as flowers or food, are not permitted and are
    therefore improper transactions.
Split purchases
27. Prohibit splitting purchases into multiple           EBUSOPSOFFINST 4200.1, chapter 1, paragraph         Reported implemented
    transactions as required by the Federal              5a, addresses this specific issue. In addition,
    Acquisition Regulation and emphasize this            training modules emphasize the prohibition on split
    prohibition in purchase card training provided to    purchases, as do all monthly and semiannual
    cardholders and approving officials.                 program reviews. Also, APCs have an on-line tool to
                                                         monitor split purchases.
28. Require approving officials to monitor monthly       EBUSOPSOFFINST 4200.1, chapter 2, paragraph 4, Reported partially
    purchase card statements and identify and report     requires the approving official to verify supporting   implemented
    to them regarding any split purchases and the        documentation on all card accounts prior to certifying
    names of cardholders who made the                    the monthly accounts. Detecting potential split
    transactions.                                        purchases and notifying AOs to review these
                                                         transactions will be a capability of the data-mining
                                                         tool. The tool will push the suspected split purchase
                                                         down to the AO for review. The data-mining tool will
                                                         identify the cardholder(s) who are splitting purchase
                                                         requirements, along with the disciplinary actions
                                                         associated with the transaction.
29. Incorporate GAO recommendations, to the              Guidance for actions that may be taken for             Reported partially
    extent applicable, into the Commander of the         noncompliance with the regulations have been           Implemented
    Naval Supply Systems Command’s future                incorporated as disciplinary guidelines in the draft
    revisions to NAVSUP Instruction 4200.94, to          revision of EBUSOPSOFFINST 4200.1A.
    include specific consequences for
    noncompliance with these guidelines and not
    enforcing the guidelines.




                                               Page 32                                                          GAO-04-156 Purchase Cards
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                                               Status of Navy Actions to Implement GAO
                                               Recommendations




(Continued From Previous Page)
                                                                                                                 GAO observation on the
                                                         Status of GAO recommendation, as reported by            status of
GAO recommendation                                       the Navy as of August 29, 2003                          recommendation
Purchase Cards: Navy Is Vulnerable to Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses (GAO-02-1041, Sept. 27,
2002)
Overall program management and environment
30. Direct all agency program coordinators to review     On September 19, 2002, DON issued                       Reported implemented
    the number of cardholders who report to an           EBUSOPSOFFINST 4200.1 that mandates a
    approving official and make the changes              maximum span of control of card accounts to
    necessary to prevent approving officials from        approving officials (AO) of 7:1: this metric (span of
    having the responsibility of reviewing more          control ratio of 7:1) is monitored by the Navy on a
    cardholders than allowed by Navy and DOD             monthly basis and corrective action is taken as
    policies.                                            required.
31. Establish a database that maintains information      DON EBUSOPSOFF is building and will maintain an Reported partially
    on all purchase card training taken by               automated centralized training database using an e- implemented
    cardholders, approving officials, and agency         mail response mechanism. Training completion
    program coordinators. Require that agency            responses are currently being accumulated and held
    program coordinators update that database            off-line until the centralized training database is
    whenever these purchase card program officials       completed. After completion, e-mail responses will
    take training.                                       be electronically processed and student records will
                                                         be recorded in the database.
32. Establish specific training courses for              Role-based training for APCs, Aos, and cardholders Reported implemented
    cardholders, approving officials, and agency         have been developed and distributed to all
    program coordinators tailored to the specific        participants on CD ROM and are also posted to the
    responsibilities associated with each of these       DON EBUSOPSOFF Web site for downloading. This
    roles.                                               version contains seven training modules and a desk
                                                         guide for each module for use by APCs. Each
                                                         module contains both a Citidirect (shore) and
                                                         WINSAALTS (afloat) version.
33. Direct agency program coordinators to review an      EBUSOPSOFFINST 4200.1 mandates a maximum Reported implemented
    approving official’s overall workload and            7:1 ratio (seven accounts for each AO). Additionally,
    determine whether the approving official has the     approximately 1 year ago, a one-time purge was
    time necessary to perform the required review        done to realign the hierarchies in accordance with
    functions.                                           this policy. Compliance is monitored by
                                                         EBUSOPSOFF twice a month with data from
                                                         Citidirect. When an AO is found to be operating
                                                         outside the ratio, they are notified and are required to
                                                         take corrective action. Also on October 29, 2001,
                                                         DON issued a policy letter PC02-05 and PCPN #69
                                                         requiring all agency program coordinators to review
                                                         an approving official’s overall workload and
                                                         determine whether the approving official has the time
                                                         necessary to perform the required review functions.
                                                         If the determination is that an approving official does
                                                         not have the necessary time, the APC will address
                                                         this situation with the approving official’s commander
                                                         or supervisor.




                                               Page 33                                                           GAO-04-156 Purchase Cards
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                                                Status of Navy Actions to Implement GAO
                                                Recommendations




(Continued From Previous Page)
                                                                                                                GAO observation on the
                                                          Status of GAO recommendation, as reported by          status of
GAO recommendation                                        the Navy as of August 29, 2003                        recommendation
34. Establish job descriptions that identify              Established recommended guidelines in the DON         Reported implemented
    responsibility and performance standards for          PC desk guides.
    cardholders, approving officials, and agency
    program coordinators.
35. Link the cardholders’, approving officials, and       The Office of the Secretary of Defense, Personnel     Reported partially
    agency program coordinators’ performance              and Readiness, has advised that inclusion of          implemented
    appraisals to achieving their performance             purchase card duties in the performance goals is
    standards.                                            solely a supervisory responsibility, just as the
                                                          inclusion of other performance outcomes, and
                                                          should not be separately mandated. The DON
                                                          EBUSOPSOFF cannot mandate this requirement.
                                                          Performance goals are established by supervisors
                                                          and employees and are a reflection of the
                                                          employee’s major duties/responsibilities and the
                                                          desired performance outcomes based on those
                                                          duties. The goals established and the performance
                                                          appraisals given are unique to the individual.
                                                          However, roles and responsibilities have been
                                                          outlined in DON PC desk guides. Internal
                                                          management controls have been identified (e.g.,
                                                          span of control ratios, credit limit determination,
                                                          delinquency management, separation of functions).
36. Work with the Naval Audit Service and                 The DON EBUSOPSOFF and the Assistant                  Reported implemented
    Command Evaluation staff to begin periodic            Secretary of the Navy (Research Development &
    audits of the purchase card program to provide        Acquisition) Acquisition Business Management
    Navy management at the command and unit               (ABM) offices are engaged with the Naval Audit
    levels an independent assessment of the control       Service (NAVAUDSVC) to finalize a schedule of
    environment and whether the agency program            purchase card command assessments. Ongoing
    coordinators, approving officials, and                audits:
    cardholders are adhering to control procedures.       NAVAUDIT
                                                          Activity reviews
                                                          Validate filters
                                                          Rebates
                                                          GAO
                                                          Leveraging buying power
                                                          DODIG
                                                          Convenience checks
                                                          OCONUS transactions
37. Identify vendors with which the Navy or Marine        The data mining of purchase card transactions was Reported implemented
    Corps uses purchase cards to make frequent            completed in September 2002 and May 2003. Total
    purchases, evaluate Navy purchasing practices         transactions by vendor were extracted from the bank
    with those vendors, and forward the results of        database and forwarded to the Office of the ASN
    that evaluation to the Assistant Secretary of the     (ACQ) for further review to determine whether Navy-
    Navy for Research, Development, and                   wide contracts should be established.
    Acquisition to contract with them, when
    applicable, to optimize Navy purchasing power.




                                                Page 34                                                         GAO-04-156 Purchase Cards
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                                               Status of Navy Actions to Implement GAO
                                               Recommendations




(Continued From Previous Page)
                                                                                                              GAO observation on the
                                                         Status of GAO recommendation, as reported by         status of
GAO recommendation                                       the Navy as of August 29, 2003                       recommendation
38. Modify the definition of “Pilferable Personal        The EBUSOPSOFFINST 4200.1 definition of                 Reported implemented
    Property” in SECNAV Instruction 7320.10 dated        accountable property reads as follows: Accountable
    August 1, 2001, by eliminating the requirement       Property: A term used to identify property recorded
    that a portable item easily converted to personal    in a formal property management or accounting
    use also be difficult to repair or replace, and      system. Accountable Property includes all property
    specifically identify items such as computers,       purchased, leased (capital leases), or otherwise
    cameras, personal digital assistants, and            obtained, having a unit acquisition cost of $5,000 or
    audiovisual equipment as meeting the definition      more (land, regardless of cost), and items that are
    of being pilferable and thus accountable.            sensitive, or classified. Additional and/or separate
                                                         records or other recordkeeping instruments shall be
                                                         established for management purposes, or when
                                                         otherwise required by law, policy, regulation, or
                                                         Agency direction, including, but not limited to
                                                         pilferable items (items that have a ready resale value
                                                         or application to personal possession and which are,
                                                         therefore, especially subject to theft). Additionally,
                                                         EBUSOPSOFFINST 4200.1, chapter 2, sections 6d
                                                         and f, requires a detailed purchase log to identify all
                                                         purchase card transactions, including defined
                                                         “Pilferable Personal Property.” Purchase log data are
                                                         also forwarded to the AO as part of the AO purchase
                                                         card review process. A similar change is included in
                                                         the draft revision of SECNAV Instruction 7320.10,
                                                         which is currently in the coordination phase.
Specific internal control activities
Modify NAVSUP Instruction 4200.94 to provide
cardholders, approving officials, and agency program
coordinators detailed instructions on the following:
39. Timely and independent receiving and                 Complete – This subject was addressed in the         Reported implemented
    acceptance of items obtained with a purchase         DONEBUSOPSOFF Instruction 4200.1 dated
    card and documenting the results of that             September 19, 2002.
    process.
40. Screening purchases for the availability from   Complete – This subject was addressed in the              Reported implemented
    required vendors and documenting the results of DONEBUSOPSOFF Instruction 4200.1 dated
    the screening.                                  September 19, 2002.
41. Promptly reconciling the monthly purchase card       Complete – This subject was addressed in the         Reported implemented
    statements to supporting documentation and           DONEBUSOPSOFF Instruction 4200.1 dated
    documenting the results of that reconciliation.      September 19, 2002.
42. Promptly reviewing a cardholder purchase card        Complete – This subject was addressed in the         Reported implemented
    statement by the approving official prior to         DONEBUSOPSOFF Instruction 4200.1 dated
    certifying the statement for payment and             September 19, 2002.
    documenting the results of that review.




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                                                     Appendix III
                                                     Status of Navy Actions to Implement GAO
                                                     Recommendations




(Continued From Previous Page)
                                                                                                                     GAO observation on the
                                                               Status of GAO recommendation, as reported by          status of
GAO recommendation                                             the Navy as of August 29, 2003                        recommendation
43. Prompt cardholder notification to property                 Complete – This subject was addressed in the          Reported implemented
    accountability officer of the pilferable property          DONEBUSOPSOFF Instruction 4200.1 dated
    obtained with the purchase card, and approving             September 19, 2002.
    official responsibility for monitoring that the
    pilferable property has been recorded in the
    accountability records.
Potentially fraudulent, improper, and abusive or questionable purchases
44. Modify NAVSUP Instruction 4200.94 to require     Complete – This subject was addressed in the                    Reported implemented
    cardholders to maintain documented justification DONEBUSOPSOFF Instruction 4200.1 dated
    and advanced approval of purchases that fall     September 19, 2002.
    outside the normal procurements of the
    cardholder in terms of either dollar amount or
    type of purchase.
45. Establish a Navy-wide database of known                    This is a parallel effort to the Automated Review and Reported partially
    purchase card fraud cases by type of fraud that            Response Oversight Wizard (ARROW) data-mining implemented
    can be used to identify deficiencies in existing           tool discussed below. ARROW is in the early stages
    internal control and to develop and implement              of development. Additionally, the Office of the DOD
    additional control activities, if warranted or             IG, Investigative Policy and Oversight, has
    justified.                                                 established a Government Purchase Card Fraud
                                                               Investigations database that is already operational.
46. Establish a Navy-wide data-mining, analysis, and           The EBUSOPSOFF, in partnership with DOD IG, is Reported partially
    investigation function to supplement other                 conducting the ARROW data-mining project. Phase implemented
    oversight activities. This function should include         I of the data-mining pilot was completed in June
    providing oversight results and alerts to major            2003 at the Marine Corps site at Camp LeJeune,
    commands and installations when warranted.                 Fayetteville, N.C. The automated process is
                                                               functioning as planned and initial reaction to the
                                                               process from the participants has been positive;
                                                               however, the fraud indicators were not adequately
                                                               validated in Phase I. Phase 2 development will focus
                                                               on validating the proposed fraud indicators. The
                                                               Phase 2 pilot will begin in January 2004.
47. Modify NAVSUP Instruction 4200.94 to include a A schedule of disciplinary actions has been                       Reported implemented
    schedule of disciplinary actions as a guide for incorporated in the revised EBUSOPSOFF
    taking action against cardholders who make      instruction 4200.1A.
    improper or abusive acquisitions with the
    purchase card.
48. Incorporate GAO recommendations, to the                    The Navy sent this recommendation to OUSD for         Reported partially
    extent applicable, into the Charge Card Task               action.                                               implemented
    Force’s future recommendations to improve
    purchase card policies and procedures
    throughout DOD.
Source: GAO analysis of military service respones.




                                                     Page 36                                                         GAO-04-156 Purchase Cards
Appendix IV

Status of Air Force Actions to Implement GAO
Recommendations                                                                                                                           Appendx
                                                                                                                                                i
                                                                                                                                                IV




                                                  Status of GAO recommendation, as reported            GAO observation on the status of
GAO recommendation                                by the Air Force                                     recommendation
Purchase Cards: Control Weaknesses Leave the Air Force Vulnerable to Fraud, Waste, and Abuse (GAO-03-292, Dec. 20, 2002)
Overall program management and environment
Direct the Assistant Secretary of the Air Force
for Acquisition and the Deputy Assistant
Secretary for Contracting to take the following
actions:
1.   Establish specific policies and strategies   Air Force Policy Memo #03-C-05, issued March         Reported implemented
     governing the number of purchase cards       18, 2003, directed that the number of cards
     to be issued with a focus on minimizing      issued should be minimized. Item closed.
     the number of cardholders.
2.   Direct all command and installation-level    Air Force Policy Memo #03-C-05, issued March       Reported implemented
     agency program coordinators to review        18, 2003, directed that Installation Purchase Card
     purchase card use with a view towards        Managers eliminate unneeded purchase card
     eliminating unneeded purchase card           accounts. Item closed
     accounts.
3.   Eliminate purchase cards used to             Air Force Policy Memo #03-C-05, issued March       Reported implemented
     facilitate line-item accounting.             18, 2003, directed that Installation Purchase Card
                                                  managers, in conjunction with Financial Services
                                                  officers, review all purchase cardholders with
                                                  multiple accounts and eliminate those accounts
                                                  existing to facilitate line-item accounting. Item
                                                  closed.
4.   Direct all agency program coordinators to    Air Force Policy Memo #03-C-05, issued March       Reported implemented
     review the number of cardholders who         18, 2003, directed that Installation Purchase Card
     report to an approving official and make     managers and coordinators review the number of
     the changes necessary so that approving      cardholders who report to an approving official
     officials do not have responsibility for     and make the changes necessary so that
     reviewing more cardholder accounts than      approving officials do not have responsibility for
     allowed by Air Force and DOD policies.       reviewing more cardholder accounts than allowed
                                                  by Air Force and DOD policies. Item closed.
5.   Review existing credit limits and monthly    Air Force Policy Memo #03-C-05, issued March         Reported implemented
     spending and develop policies and            18, 2003, directed that installation purchase card
     strategies on credit limits provided to      program managers shall to review existing credit
     cardholders with a focus on minimizing       and monthly spending limits against current
     specific cardholder spending authority       spending patterns and determine if cardholder
     and minimizing the federal government’s      spending authority can be reduced in the interest
     financial exposure.                          of minimizing the federal government's financial
                                                  exposure.
6.   Deactivate purchase card accounts of         Air Force Policy Memo #03-C-05, issued March         Reported implemented
     alternate cardholders and approving          18, 2003, directed that alternate cardholders and
     officials when primary cardholders and       billing official accounts be suspended when
     approving officials are available.           primary cardholders and billing officials are
                                                  available. Item closed.




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                                                     Status of Air Force Actions to Implement
                                                     GAO Recommendations




(Continued From Previous Page)
                                                     Status of GAO recommendation, as reported            GAO observation on the status of
GAO recommendation                                   by the Air Force                                     recommendation
7.   Establish specific training courses for         Air Force Policy Memo #03-C-05, issued March      Reported implemented
     cardholders, approving officials, and           18, 2003, directed that, in addition to already
     agency program coordinators tailored to         instituted mandatory training through the Defense
     the specific responsibilities associated        Acquisition University for cardholders, billing
     with each of those roles.                       officials, and financial services officers, all
                                                     A/OPCs are required to take the A/OPC training
                                                     developed by GSA. Item closed.
8.   Require installation program coordinators       Air Force Policy Memo #03-C-05, issued March       Reported implemented
     to track and monitor corrective actions on      18, 2003, directed that Installation Purchase Card
     purchase card audit and annual                  managers track and monitor corrective actions on
     surveillance findings and provide periodic      purchase cards and annual surveillance findings
     status reports to their installation            and provide quarterly status reports to their
     contracting directors.                          installation Contracting Director. Item closed.
9.   Develop and implement a program                 Air Force Policy Memo #03-C-05, issued March         Reported implemented
     oversight system for program                    18, 2003, directed mandatory use of the review
     coordinators that includes standard             checklist in the GPC Surveillance Guide. Item
     activities and analytical tools to be used in   closed.
     evaluating program results.
10. Require reports on annual surveillance           Air Force Policy Memo #03-C-05, issued March         Reported implemented
    results to include an assessment of              18, 2003, directed that reports on annual
    control environment issues, including the        surveillance results include an assessment of
    ratio of cardholders to employees, ratio of      control environment issues, including the ratio of
    approving officials to cardholder                cardholders to employees, ratio of approving
    accounts, ratio of monthly credit limits to      officials to cardholder accounts, ratio of monthly
    actual spending, and number of                   credit limits to actual spending, and number of
    cardholders and approving officials              cardholders and approving officials requiring
    requiring training.                              training. Item closed.
11. Assess the adequacy of human capital             Air Force Policy Memo #03-C-05, issued March        Reported implemented
    resources devoted to the purchase card           18, 2003, directed that the Directors of
    program, especially for oversight activities     Contracting address the adequacy of personnel
    at each management level, and provide            devoted to the purchase card program, especially
    needed resources where appropriate.              for oversight activities, at each management level,
                                                     and work to increase manpower authorizations
                                                     where appropriate.
Direct the Assistant Secretary of the Air Force
for Acquisition and the Deputy Assistant
Secretary for Contracting to make the
following revisions to Air Force Instruction 64-
117, Air Force Government-wide Purchase
Card Program:
12. Correct faulty records retention guidance        Per the Air Force response to the GAO final          Reported implemented
    by referring to specific guidelines in the       report, correction was incorporated into the
    Federal Acquisition Regulation, National         December 6, 2002, revision to AFI 64-117. Item
    Archives and Records Administration              closed.
    federal records retention guidelines,
    DOD’s Financial Management
    Regulation, and other federal guidelines
    as appropriate.




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                                                 Status of Air Force Actions to Implement
                                                 GAO Recommendations




(Continued From Previous Page)
                                                 Status of GAO recommendation, as reported            GAO observation on the status of
GAO recommendation                               by the Air Force                                     recommendation
13. Require purchase card program                Anticipate publication of revised AFI in March       Reported partially implemented
    management and administrative records        2004.                                                pending March 2004 issuance of
    generated by installation program                                                                 revised Air Force Instruction 64-117.
    coordinators and approving officials, such   Air Force Instruction 64-117, Air Force
    as records of cardholder and approving       Government-wide Purchase Card Program, will
    official appointments and training,          be revised to require purchase card program
    cardholder delegations of authority, and     management and administrative records
    purchase card surveillances, to be           generated by installation program coordinators
    retained for 3 years.                        and approving officials, such as records of
                                                 cardholder and approving official appointments
                                                 and training, cardholder delegations of authority,
                                                 and purchase card surveillances, to be retained
                                                 for 3 years.
14. Stipulate, in the body of the Instruction,   Anticipate publication of revised AFI in March       Reported partially implemented
    that approving officials are required to     2004.                                                pending March 2004 issuance of
    have annual purchase card refresher                                                               revised Air Force Instruction 64-117.
    training.                                    Air Force Instruction 64-117, Air Force
                                                 Government-wide Purchase Card Program, will
                                                 be revised to specify that approving officials are
                                                 required to have annual purchase card refresher
                                                 training.
15. Require that the surveillance checklist,    Anticipate publication of revised AFI in March        Reported partially implemented
    which is included in an appendix to the Air 2004.                                                 pending March 2004 issuance of
    Force Instruction, be used to guide and                                                           revised Air Force Instruction 64-117.
    document surveillance results.              Air Force Instruction 64-117, Air Force
                                                Government-wide Purchase Card Program, will
                                                be revised to require that the surveillance
                                                checklist be used to guide and document
                                                surveillance results.
16. Require reports on the results of annual     Anticipate publication of revised AFI in March       Reported partially implemented
    surveillances to be signed by installation   2004.                                                pending March 2004 issuance of
    contracting directors to demonstrate                                                              revised Air Force Instruction 64-117.
    management oversight and “tone at the        Air Force Instruction 64-117, Air Force
    top.”                                        Government-wide Purchase Card Program, will
                                                 be revised to require reports on the results of
                                                 annual surveillances to be signed by the
                                                 contracting squadron commander/chief of the
                                                 contracting office.
17. Require reports on surveillance results to Anticipate publication of revised AFI in March         Reported partially implemented
    be addressed to unit commanders.           2004.                                                  pending March 2004 issuance of
                                                                                                      revised Air Force Instruction 64-117.
                                                 Air Force Instruction 64-117, Air Force
                                                 Government-wide Purchase Card Program, will
                                                 be revised to require reports on surveillance
                                                 results to be addressed to unit commanders.




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                                                   Status of Air Force Actions to Implement
                                                   GAO Recommendations




(Continued From Previous Page)
                                                   Status of GAO recommendation, as reported            GAO observation on the status of
GAO recommendation                                 by the Air Force                                     recommendation
18. Require reports on surveillance results to     Anticipate publication of revised AFI in March       Reported partially implemented
    include recommendations for unit               2004.                                                pending March 2004 issuance of
    commander action, where approving                                                                   revised Air Force Instruction 64-117.
    officials and cardholders have failed to       Air Force Instruction 64-117, Air Force
    follow Air Force policy—particularly policy    Government-wide Purchase Card Program, will
    related to federal regulations, such as        be revised to require reports on surveillance
    micropurchase requirements and                 results to include recommendations for unit
    mandated sources of supply.                    commander action, where approving officials and
                                                   cardholders have failed to follow Air Force policy
                                                   related to federal regulations.
To resolve noncompliance with requirements
in law for proper certification of purchase card
payments, we recommend that the Secretary
of the Air Force take the following actions:
19. Direct the Assistant Secretary of the Air      The Under Secretary of Defense (Comptroller)         Reported implemented
    Force for Acquisition and the Deputy           requested an opinion from the Deputy General
    Assistant Secretary for Contracting to         Counsel (Fiscal) (DGC(F)) to determine whether
    work with the Under Secretary of Defense       “pay and confirm” is in compliance with Title 10,
    (Comptroller) to resolve inconsistencies       United States Code (U.S.C.), section 2784. In its
    between DOD and Air Force policies and         response, the DGC(F) stated that the business
    procedures for reconciling purchase card       practice of paying a purchase card statement of
    statements prior to payment.                   account before receipt of a reconciled statement
                                                   and detailed supporting documentation is
                                                   supported by governmentwide policy, and not
                                                   otherwise prohibited by statute. Counsel did
                                                   caution that the practice is contingent upon
                                                   maintaining appropriate internal controls sufficient
                                                   to ensure that the benefits associated with this
                                                   practice outweigh the risk of loss. Item closed.
20. Develop a strategy for achieving Air Force     The Under Secretary of Defense (Comptroller)         Reported implemented
    compliance with requirements in the law        requested an opinion from the Deputy General
    that DOD purchase card policies and            Counsel (Fiscal) (DGC(F)) to determine whether
    procedures require reconciliation of           “pay and confirm” is in compliance with Title 10,
    purchase card statements prior to              United States Code (U.S.C.), section 2784. In its
    payment.                                       response, the DGC(F) stated that the business
                                                   practice of paying a purchase card statement of
                                                   account before receipt of a reconciled statement
                                                   and detailed supporting documentation is
                                                   supported by governmentwide policy, and not
                                                   otherwise prohibited by statute. Counsel did
                                                   caution that the practice is contingent upon
                                                   maintaining appropriate internal controls sufficient
                                                   to ensure that the benefits associated with this
                                                   practice outweigh the risk of loss. Item closed.




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                                                   Status of Air Force Actions to Implement
                                                   GAO Recommendations




(Continued From Previous Page)
                                                   Status of GAO recommendation, as reported             GAO observation on the status of
GAO recommendation                                 by the Air Force                                      recommendation
21. Establish appropriate criteria, including      Anticipate publication of revised AFI in March        Reported partially implemented
    types of items and dollar thresholds for       2004.                                                 pending March 2004 issuance of
    documenting independent receipt and                                                                  revised Air Force Instruction 64-117.
    acceptance of items obtained with a            The Deputy Assistant Secretary of Contracting
    purchase card.                                 will revise Air Force Instruction 64-117 to provide
                                                   cardholders, approving officials, and installation
                                                   program coordinators appropriate criteria,
                                                   including types of items and dollar thresholds for
                                                   documenting independent receipt and acceptance
                                                   of items obtained with a purchase card.
22. Establish specific procedures for              Anticipate publication of revised AFI in March        Reported partially implemented
    documenting independent receiving, such        2004.                                                 pending March 2004 issuance of
    as requiring the approving official or                                                               revised Air Force Instruction 64-117.
    supervisor to sign and date the vendor         The Deputy Assistant Secretary of Contracting
    invoice, sales receipt, or credit card         will revise Air Force Instruction 64-117 to provide
    receipt, or requiring the approving official   cardholders, approving officials, and installation
    to sign the cardholder’s monthly purchase      program coordinators with detailed instructions on
    log to verify that items noted as having       procedures for documenting independent
    been received were actually received.          receiving, such as requiring the approving official
                                                   or supervisor to sign and date the vendor invoice,
                                                   sales receipt, or credit card receipt, or requiring
                                                   the approving official to sign the cardholder’s
                                                   monthly purchase log to verify that items noted as
                                                   having been received were actually received.
23. Require cardholders to maintain         Anticipate publication of revised AFI in March               Reported partially implemented
    documentation of timely and independent 2004.                                                        pending March 2004 issuance of
    receiving and acceptance of items                                                                    revised Air Force Instruction 64-117.
    obtained with a purchase card.          Deputy Assistant Secretary of the Air Force
                                            (Contracting) will revise Air Force Instruction 64-
                                            117 to require cardholders to maintain
                                            documentation of independent receiving and
                                            acceptance of items obtained with a purchase
                                            card.
24. Require reconciliation of monthly              A SAF/AQC letter, dated March 27, 2003, was         Reported implemented
    purchase card statements associated            sent to the purchase card points of contact at the
    with accounts that were “shut down”            Air Force major commands requesting that they
    (suspended) in July 2002 due to lack of        direct their A/OPCs to review all accounts subject
    cardholder reconciliation and approving        to automatic suspension in July 2002 due to lack
    official review.                               of cardholder reconciliation and approving official
                                                   review to ensure that they have been manually
                                                   reconciled. Item closed.




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                                                  Status of Air Force Actions to Implement
                                                  GAO Recommendations




(Continued From Previous Page)
                                                  Status of GAO recommendation, as reported              GAO observation on the status of
GAO recommendation                                by the Air Force                                       recommendation
25. Verify that all potentially fraudulent and    Anticipate publication of revised AFI in March         Reported partially implemented
    erroneous transactions that have been         2004.                                                  pending March 2004 issuance of
    detected are disputed and properly                                                                   revised Air Force Instruction 64-117.
    resolved.                                     The Deputy Assistant Secretary of Contracting
                                                  will revise Air Force Instruction 64-117 to instruct
                                                  cardholders, approving officials, and installation
                                                  program coordinators to verify that all potentially
                                                  fraudulent and erroneous transactions that have
                                                  been detected are disputed and properly
                                                  resolved.
26. Require timely cardholder notification to     Anticipate publication of revised AFI in March         Reported partially implemented
    the property accountability officer of        2004.                                                  pending March 2004 issuance of
    pilferable property, such as fax machines,                                                           revised Air Force Instruction 64-117.
    digital cameras, and palm pilots obtained     The Deputy Assistant Secretary of Contracting
    with the purchase card.                       will revise Air Force Instruction 64-117 to provide
                                                  cardholders, approving officials, and installation
                                                  program coordinators with detailed instructions to
                                                  require timely cardholder notification to the
                                                  property accountability officer of accountable
                                                  pilferable property obtained with the purchase
                                                  card.
27. Encourage installation contracting officers   Air Force Policy Memo #03-C-05, issued March      Reported implemented
    to consider the benefits of central           2003, encouraged installation Contracting
    purchasing and receiving and acceptance       Officers to consider the benefits of central
    of computer equipment by installation         purchasing and receiving and acceptance of
    information technology units to facilitate    computer equipment by installation information
    recording computer equipment in               technology units to facilitate recording computer
    accountable property records at the time      equipment in accountable property records at the
    it is received.                               time it is received. Item closed.




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                                                     Status of Air Force Actions to Implement
                                                     GAO Recommendations




(Continued From Previous Page)
                                                     Status of GAO recommendation, as reported                GAO observation on the status of
GAO recommendation                                   by the Air Force                                         recommendation
28. Define and list examples of sensitive and        Anticipate publication of revised AFI in March           Reported partially implemented
    pilferable property purchased with a             2004.                                                    pending March 2004 issuance of
    government purchase card, including cell                                                                  revised Air Force Instruction 64-117.
    phones, digital cameras, fax machines,           Air Force Instruction 64-117 will be revised to
    palm pilots, and copiers and printers, and       define and list examples of sensitive and pilferable
    require prompt recording of these items in       property purchased with a government purchase
    installation property systems.                   card, including cell phones, digital cameras, fax
                                                     machines, palm pilots, and copiers and printers.
                                                     Sub-paragraph 5.3.1 of DODI 5000.64 allows
                                                     additional and/or separate records or other
                                                     recordkeeping instruments when required by law,
                                                     policy, regulation, Agency direction, or for
                                                     management purposes (e.g., pilferable item,
                                                     property hazardous to health and human safely).
                                                     Property not meeting the minimum accountability
                                                     threshold is still subject to appropriate internal
                                                     controls which, depending on the property, can
                                                     include an accountable property record.
                                                     SAF/AQCP is working with USAF/ILGP, Materiel
                                                     Management Policy Division, to establish clear
                                                     accountability and/or visibility criteria that will
                                                     meet the intent of GAO’s accountability concerns.
29. Establish policies and procedures for            Anticipate publication of revised AFI in March           Reported partially implemented
    recording all pilferable and sensitive           2004.                                                    pending March 2004 issuance of
    property, including digital cameras, palm                                                                 revised Air Force Instruction 64-117.
    pilots, and cell phones, in installation-        Current guidance (DODI 5000.64, AFI 33-112,
    accountable property records. At a               AFI 23-111, and AFI 23-110) all indicate that
    minimum, require installations to follow         organizational commanders must account for
    DOD policies and procedures on                   property issued to them or procured by them.
    accountable property.                            These guidelines do not mandate a mechanism to
                                                     ensure accountability is established for items
                                                     procured from outside of the standard base
                                                     supply system. SAF/AQCP is working with
                                                     USAF/ILGP, Materiel Management Policy
                                                     Division, to establish clear accountability and/or
                                                     visibility criteria that will meet the intent of GAO’s
                                                     accountability concerns. These changes will be
                                                     incorporated into AFI 64-117.
30. Direct the Air Force Audit Agency and Air        The Air Force Office of Special Investigations   Reported implemented
    Force Office of Special Investigations to        (AFOSI), in conjunction with the other Defense
    establish an Air Forcewide database of           Criminal Investigative Organizations (DCIO), now
    known fraud cases by type of fraud,              reports information on initiated and ongoing
    including purchase card fraud, that can be       Government Purchase Card (GPC) investigations
    used to identify systemic weaknesses             quarterly to the Department of Defense Inspector
    and deficiencies in existing internal            General for macro-level analysis of systemic
    control and to develop and implement             weaknesses in the GPC program DOD-wide.
    additional control activities, if warranted or
    justified.




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                                                    Status of Air Force Actions to Implement
                                                    GAO Recommendations




(Continued From Previous Page)
                                                    Status of GAO recommendation, as reported           GAO observation on the status of
GAO recommendation                                  by the Air Force                                    recommendation
We recommend that the Assistant Secretary
of the Air Force for Acquisition and the Deputy
Assistant Secretary for Contracting take the
following actions:
31. Establish an Air Force-wide database of         The DOD IG has been directed to develop a            Reported implemented
    known purchase card fraud cases by type         centralized purchase card database on known
    of fraud, including vendor fraud and            fraud cases and audit results that can be used to
    compromised accounts, that can be used          identify potential deficiencies in existing internal
    to identify deficiencies in existing internal   controls. The Air Force will evaluate the Air Force
    control and implement additional control        cases and audits to determine the effectiveness of
    activities, if warranted.                       existing internal controls and implement additional
                                                    control activities, if warranted.
32. Identify vendors with which the Air Force       Air Force Policy Memo #03-C-11, issued May 22,      Reported implemented
    used purchase cards to make frequent,           2003, directed that A/OPCs identify vendors with
    recurring purchases, evaluate Air Force         which they used purchase cards to make
    purchasing practices with those vendors,        frequent, recurring purchases, evaluate
    and where appropriate, develop contracts        purchasing practices with those vendors, and
    with those vendors to optimize Air Force        where appropriate, develop contracts with those
    purchasing power.                               vendors to optimize Air Force purchasing power.
                                                    Item closed.
33. Review organizational use of the                Anticipate publication of revised AFI in Mar 04.    Reported partially implemented
    purchase card and revoke purchase                                                                   pending March 2004 issuance of
    cards issued to organizations that do not       The Deputy Assistant Secretary for Contracting      revised Air Force Instruction 64-117.
    have authority to participate in the            will review organizational use of the purchase
    governmentwide purchase card program.           card and revoke purchase cards issued to
                                                    organizations that do not have authority to
                                                    participate in the governmentwide purchase card
                                                    program. However, AF/HC does not agree that
                                                    the Chaplain Service had no authority to use
                                                    GPCs. DODD 1015.1. recognizes Chaplain
                                                    Religious Funds and states that “funds are
                                                    administered and managed in accordance with
                                                    separate DOD Component regulations” (Par. 2.2.
                                                    and 2.2.11.). Based on DODD 1015.1, AFI 52-
                                                    101 (May 19, 1997) was issued that stated “The
                                                    International Merchant Purchase Authorization
                                                    Card (IMPAC) is the official Chaplain Service
                                                    funds credit card” (Para. 4.3.). AF/HC will
                                                    recommend reinstatement of the Chaplain Funds
                                                    into the revised publication of DODD 1015.1,
                                                    Establishment, Management, and Control of
                                                    Nonappropriated Fund Instrumentalities. AFI 52-
                                                    101 is in the process of being updated to reflect
                                                    the current DOD and AF policies regarding the
                                                    GPC.




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                                                Status of Air Force Actions to Implement
                                                GAO Recommendations




(Continued From Previous Page)
                                                Status of GAO recommendation, as reported            GAO observation on the status of
GAO recommendation                              by the Air Force                                     recommendation
34. Cancel convenience check privileges of      Air Force Policy Memo #03-C-05, issued March       Reported implemented
    cardholders who have continued to           18, 2003, directed that installation purchase card
    improperly use convenience checks.          managers cancel convenience check privileges of
                                                cardholders who have misused convenience
                                                checks more than once. Item closed.
35. Require accounting adjustments to be        A SAF/AQC letter, dated March 27, 2003, was          Reported implemented
    made to correct transactions that were      sent to SAF/FMP requesting that an accounting
    charged to the wrong appropriation          adjustment be made to correct any GPC
    account with respect to fiscal year and     transactions that were charged to the wrong
    purpose of the expenditures.                appropriations account with respect to fiscal year
                                                and items purchased. Item closed.
36. Establish appropriate, consistent Air       The Deputy Assistant Secretary of the Air Force     Reported implemented
    Force-wide policy as a guide for taking     (Contracting) does not make Air Force-wide policy
    disciplinary actions with respect to        as a guide for taking disciplinary actions with
    cardholders and approving officials who     respect to cardholders and approving officials
    make or approve fraudulent, improper, or    who make or approve fraudulent, improper, or
    abusive purchase card transactions.         abusive purchase card transactions. Guidelines
                                                for procedures regarding the violation of Air Force
                                                GPC procedures are already contained in AFI 64-
                                                117. In addition, the Deputy Assistant Secretary
                                                of the Air Force (Contracting) has issued a
                                                memorandum requiring a summary of each case
                                                of purchase card fraud and each instance of
                                                repeated misuse of the purchase card and a
                                                quarterly briefing by the contracting squadron
                                                commander to the installation commander
                                                including the disciplinary action taken. Item
                                                closed.
37. Require cardholders and/or approving        Air Force Policy Memo #03-C-05, issued March       Reported implemented
    officials to reimburse the government for   18, 2003, directed that installation purchase card
    any unauthorized or erroneous purchase      managers remind all cardholders and billing
    card transactions that were not disputed.   officials that they are “accountable officials” in
                                                accordance with Attachment 2, paragraph 1.b. of
                                                AFI 64-117, and as such, may be pecuniarily
                                                liable for erroneous payments (see DOD Financial
                                                Management Regulation, Volume 5, Chapter 33,
                                                August 1998, page 33-1) and may be required to
                                                reimburse the government for any unauthorized or
                                                erroneous purchase card transaction that was not
                                                disputed within the 60-day grace period. In
                                                addition, all “benefiting individuals” who have
                                                requested personal items to be purchased for
                                                their use may also be required to reimburse the
                                                government for such purchases. Item closed.




                                                Page 45                                                       GAO-04-156 Purchase Cards
                                                Appendix IV
                                                Status of Air Force Actions to Implement
                                                GAO Recommendations




(Continued From Previous Page)
                                                Status of GAO recommendation, as reported        GAO observation on the status of
GAO recommendation                              by the Air Force                                 recommendation
38. Require benefiting individuals to           Air Force Policy Memo #03-C-05, issued March       Reported implemented
    reimburse the government for the cost of    18, 2003, directed that installation purchase card
    any personal items that they requested or   managers remind all cardholders and billing
    directed a cardholder to purchase for       officials that they are “accountable officials” in
    them.                                       accordance with Attachment 2, paragraph 1.b. of
                                                AFI 64-117, and as such, may be pecuniary liable
                                                for erroneous payments (see DOD Financial
                                                Management Regulation, Volume 5, Chapter 33,
                                                August 1998, page 33-1) and may be required to
                                                reimburse the government for any unauthorized or
                                                erroneous purchase card transaction that was not
                                                disputed within the 60-day grace period. In
                                                addition, all “benefiting individuals” who have
                                                requested personal items to be purchased for
                                                their use may also be required to reimburse the
                                                government for such purchases. Item closed.
39. Incorporate GAO recommendations, to         This recommendation was directed to the Under Reported partially implemented
    the extent applicable, into the Charge      Secretary of Defense (Comptroller), not to the Air
    Card Task Force’s future                    Force.
    recommendations to improve purchase
    card policies and procedures throughout
    DOD.
Source: GAO analysis of DOD responses.




                                                Page 46                                                    GAO-04-156 Purchase Cards
Appendix V

Comments from the Department of Defense                 Appendx
                                                              i
                                                              V




              Page 47           GAO-04-156 Purchase Cards
Appendix V
Comments from the Department of Defense




Page 48                                   GAO-04-156 Purchase Cards
Appendix VI

GAO Contacts and Staff Acknowledgments                                                      Appendx
                                                                                                  iI
                                                                                                  V




GAO Contacts      John V. Kelly, (202) 512-6926
                  James D. Moses, (213) 830-1085



Acknowledgments   Staff making key contributions to this report were Francine DelVecchio,
                  Gail Luna, Jerrod O’Nelio, Harold Reich, John Ryan, Quan Thai, and Gary
                  Wiggins.




(192090)          Page 49                                           GAO-04-156 Purchase Cards
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