oversight

HUD's Semiannual Purchase Card Violation Report

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-03-19.

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

                                                                              U.S. DEPARTMENT OF
                                                               HOUSING AND URBAN EVELOPMENT
                                                                      OFFICE OF INSPECTORGENERAL
 



                                                                               March 19, 2014
                                                                                                                                   MEMORANDUM NO:
                                                                                                                                        2014-FO-0801


    Memorandum
 
    TO:                        Keith W. Surber
                               Acting Chief Procurement Officer, N
                               Michael Anderson, Chief Human Capital Officer, A

                                //Signed//
    FROM:                      Thomas R. McEnanly
                               Director, Financial Audits Division, GAF

SUBJECT:                       HUD’s Semiannual Purchase Card Violation Report


                                                                          INTRODUCTION

We reviewed the U.S. Department of Housing and Urban Development’s (HUD) violation report
regarding the misuse of a government purchase card in accordance with the Office of
Management and Budget’s (OMB) implementing guidance and the Government Charge Card
Abuse Prevention Act of 2012.1 HUD is responsible for the violation report and the conclusions
expressed in the report. Our objective was to evaluate the fairness of the information presented
in HUD’s violation report.

In its report, HUD stated that no confirmed violations2 occurred during the period April 1 to
September 30, 2013. Thus, there were no adverse personnel actions taken by HUD. Our review
did not disclose any violations by HUD personnel that were required to be reported during the
reporting period. However, we noted the following areas of concern in HUD’s internal controls
that could impact its ability to prevent and identify violations in the purchase card program: (1)
unblocked high-risk merchant category codes, (2) inconsistent monthly transaction reviews, (3)
                                                            
1
     Public Law 112-194
2
  HUD considers a violation confirmed after a completed Office of Inspector General (OIG) investigation. HUD
informed us that it had referred a cardholder to OIG for investigation due to suspicious purchase card activity during
the fourth quarter of fiscal year 2013. The cardholder’s purchase authority was revoked pending the results of the
investigation, which was ongoing.
                                                                         Office of Audit (Financial Audits Division)
                                                                         th
                                                                     451 7 Street SW, Room 3162, Washington, DC 20410
                                                                           Phone (202) 402-8216, Fax (202) 401-2505
                                                               Visit the Office of Inspector General Web site at www.hudoig.gov.
 
hampered split purchase analysis, and (4) oversight staffing constraints.

Our work in this area is ongoing, and we will review these issues further as we perform the fiscal
year 2014 risk assessment and audit of HUD’s credit card programs. Thus, there are no
recommendations in this report.

                               METHODOLOGY AND SCOPE

Our review was conducted in Washington, DC, between December 2013 and February 2014.
Our scope included purchase card activity during the period April 1 to September 30, 2013. Our
limited review primarily consisted of reviewing purchase card transaction reports, questioning
applicable HUD officials, and understanding HUD’s internal controls at the agency level to
identify, prevent, and report purchase card violations. We consulted with key personnel from the
Offices of the Chief Procurement Officer, Chief Human Capital Officer, and Chief Financial
Officer to accomplish our objectives for this assignment.

On March 13, 2014, HUD indicated that it did not need to review and provide formal comments
to this memorandum.

                                        BACKGROUND

On October 5, 2012, the Charge Card Act was signed into law by the President. It required all
executive branch agencies to establish and maintain safeguards and internal controls for purchase
cards, travel cards, integrated cards, and centrally billed accounts. To that end, on September 6,
2013, OMB issued implementing guidance to assist agencies in their implementation of the
Charge Card Act.

One of the key provisions of the Charge Card Act applicable to the Office of Inspector General
(OIG) is the requirement to work with HUD and submit a semiannual joint report to the director
of OMB on purchase card violations by employees. At a minimum, the joint report must include
a summary description of (1) confirmed violations involving misuse of a purchase card following
completion of a review by the agency or by the inspector general of the agency and (2) all
adverse personnel action, punishment, or other action taken based on each violation.

HUD submitted the joint report to OMB on January 31, 2014, which is the required deadline.
Our portion of the joint report to OMB included the review results expressed in this
memorandum report.

                                    RESULTS OF REVIEW

Our review did not disclose any violations by HUD personnel that were required to be reported
during the reporting period. However, we noted the following areas of concern in HUD’s
internal controls that could impact its ability to prevent and identify violations in the purchase
card program:




                                                 2 
 
             Unblocked high-risk merchant category codes. HUD had not established a policy to
              perform a periodic assessment of high-risk merchant category codes. In its fiscal year
              2013 third quarter report to OMB, HUD reported that two purchase card accounts were
              compromised and fraudulently used at a department store and a big retail store. It was
              determined that the two cardholders were not responsible for these transactions. On
              January 24, 2014, OIG was informed that HUD may consider blocking additional codes
              to minimize the risk of fraudulent purchase card transactions after conducting additional
              analysis and review. Blocking purchases at establishments such as department stores,
              which are rarely needed for official government purposes, is a good business practice to
              reduce instances of purchase card fraud or misuse.

             Monthly transaction reviews. Tools used by HUD to identify potential purchase card
              violations were largely manual, and the methodology used for HUD’s reviews was not
              always documented and applied in a consistent manner. On January 24, 2014, during our
              discussion of our preliminary results, HUD was amenable to establishing a written policy
              to consistently perform and document monthly reviews of purchase card transactions at
              the agency level. HUD believed that using automated tools and reports to identify and
              investigate suspicious transactions each month would increase its efficiency in this area.
              HUD had spoken with the General Services Administration (GSA) regarding the use of a
              reporting tool, which GSA is developing, to assist in monitoring the purchase card
              program. HUD planned to implement this tool, once GSA has developed, tested, and
              deployed it across the government.

             Split purchase3 reviews. HUD’s processes for identifying split purchases were hampered
              by the banking data available and cardholder practices. HUD is considering more
              detailed information from vendors4 be included in Citibank’s monthly purchase card
              transaction report to help identify suspicious transactions, including split purchases.
              HUD stated that this refinement of the monthly report may be addressed during the next
              charge card contract renewal with GSA. Our limited review of purchase card
              transactions showed the need for HUD to increase its efforts to encourage cardholders to
              combine transactions when possible to decrease the appearance of split purchases.

             Oversight staffing constraints. HUD noted that staffing constraints in the Offices of the
              Chief Human Capital Officer and the Chief Procurement Officer had impacted its ability
              to manage and oversee the purchase card program. As a result, HUD was using its
              limited resources to target areas of risk or concern.
                                                            
3
  According to HUD’s Government Purchase Card Policy Guide, dated July 2013, and the Federal Acquisition
Regulation, subpart 13.003(c)(1) and (2), a split purchase occurs when a cardholder breaks down purchase
requirements aggregating more than the simplified acquisition threshold (micro-purchase threshold) into several
purchases that are less than the applicable threshold, merely to permit use of simplified acquisition procedures or to
avoid any requirement that applies to purchases exceeding the micro-purchase threshold.
4
 Only vendors under the Federal Strategic Sourcing Initiative (FSSI) are required to provide more detailed purchase
data (third-level data). Strategic sourcing is the structured and collaborative process of critically analyzing an
organization’s spending patterns to better leverage its purchasing power, reduce costs, and improve overall
performance. HUD mandated that purchase card holders make all office supply purchases through GSA’s FSSI
office supplies blanket purchase agreements.

                                                               3 
 
We presented these areas of concern to HUD during our review. Our work in this area is
ongoing, and we will review these issues further as we perform the fiscal year 2014 risk
assessment and audit of HUD’s credit card programs.


                                  RECOMMENDATIONS

There are no recommendations for this report.
 




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