oversight

Evaluation of HUD's Governmentwide Purchase Card Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-06-17.

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

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       U. S. Department of Housing and Urban Development 
                                    
            Office of Inspector General for Investigation 
                                    
               Inspections and Evaluations Division 




    Evaluation of HUD’s Governmentwide Purchase Card Program 

                             June 17, 2011 
                              IED‐11‐003R
                                   Executive Summary
The Office of Inspector General (OIG), Inspections and Evaluations Division, conducts
independent, objective examinations of U.S. Department of Housing and Urban Development
(HUD) activities, programs, operations, and organizational issues.

We conducted an evaluation of HUD’s Governmentwide Purchase Card (GPC) Program. Our
objective was to determine whether purchase card transactions complied with prescribed policies
and procedures.

The GPC Program provides for the issuance of commercial purchase cards to eligible personnel
in Federal agencies under contracts with the General Services Administration. The purpose is to
minimize paperwork for authorized acquisitions of goods and services below the simplified
acquisition threshold ($150,000).

Within HUD, the Office of the Chief Human Capital Officer (OCHCO) administers the program
and performs monitoring duties for transactions below the micropurchase threshold ($3,000).
The Office of the Chief Procurement Officer (OCPO) develops policy for the Program and
monitors transactions above the micropurchase threshold.

Our review focused on Purchase Charge Card Account transactions that occurred between
December 1, 2008, and September 30, 2010. We observed the following from our review of 73
transactions:

      Cardholders did not always ensure that (1) the availability of funds was properly
       documented, (2) required sources were used, (3) competitive bids were obtained when
       required, (4) purchase orders were used as required, (5) purchase logs were maintained,
       (6) sales tax charges were not paid, (7) purchase logs were reconciled with monthly bank
       statements, and (8) supporting records were retained for a sufficient period.

      Five of seventeen transactions reviewed were split purchases. A split purchase occurs
       when a purchase from a single vendor is broken down into two or more purchases to
       avoid requirements applicable to purchases exceeding the micropurchase threshold or a
       cardholder’s single purchase limit.

The problems described in this report indicate vulnerability to fraud, waste, and abuse of the
GPC Program. To improve the effectiveness of the GPC Program, steps must be taken by OCPO
and OCHCO. These steps include ensuring that (1) purchase card transactions are conducted in
accordance with applicable laws and regulations, (2) managers and approving officials perform a
thorough review for potential split purchases, and (3) cardholders are properly trained.

We provided a draft copy of the report to OCHCO and OCPO on May 25, 2011, and received
written comments on June 3, 2011 and June 15, 2011 respectively. OCHCO and OCPO agreed
with our observations and recommendations in the report. The complete text of OCHCO’s and
OCPO’s response is included in appendixes A and B.


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                                                         Table of Contents
Introduction ......................................................................................................................................4

Scope and Methodology ..................................................................................................................5

Observations

     Observation 1: HUD Needs To Improve Its Governmentwide
                    Purchase Card Program ....................................................................................7

     Observation 2: Purchase Cardholders Made Split Purchases ...................................................9

Recommendations ..........................................................................................................................10

Comments and OIG’s Response ....................................................................................................11

Appendixes

           Appendix A – HUD Office of Chief Human Capital Officer’s Comments .......................12

           Appendix B – HUD Office of Chief Procurement Officer’s Comments ...........................14

           Appendix C – Roles and Responsibilities in HUD’s Purchase Card Program ..................17

           Appendix D – Procurement Process for HUD’s Governmentwide
                        Purchase Card Program..............................................................................19




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                                            Introduction
The Governmentwide Purchase Card (GPC) Program authorizes the issuance of commercial
purchase cards to eligible personnel in Federal agencies under a contract through the General
Services Administration (GSA). The cards are issued through major national banks. The
purpose of the Program is to minimize the paperwork needed to make properly authorized
purchases of goods and services under the simplified acquisition threshold (SAT) to further the
Federal agency’s mission. The current SAT is $150,000. In 1998, GSA initiated the SmartPay
Program to enable Federal agencies to efficiently manage their purchase card programs with
transaction reporting software and a centralized billing system.

At the U.S. Department of Housing and Urban Development (HUD), the Office of the Chief
Procurement Officer (OCPO) and Office of the Chief Human Capital Officer (OCHCO) are
primarily responsible for administering and maintaining the Program.

 HUD’s GPC Program includes four corporate accounts. Our review covered Purchase Charge
Card Accounts only. Headquarters and field cardholders use these accounts to support routine
operations.

OCPO is responsible for developing policy for the overall GPC Program. OCHCO administers
the Program in headquarters and in the field. Cardholders are normally granted authority to
make purchases at or below the micropurchase threshold, which is currently $3,000 for supplies,
$2,500 for services, and $2,000 for construction. OCPO can grant cardholders the authority to
make purchases above these levels. Individual cardholders may be further restricted by single or
monthly purchase limits on their cards. A “single purchase” limit is a total of those items that
may be purchased at one time from a particular vendor. A “monthly purchase” limit is the
maximum total dollar amount the cardholder is authorized to procure each month.1

Appendix C shows the difference in the roles and responsibilities of the key players in the GPC
Program. Appendix D outlines the procurement procedures that should be followed for the GPC
Program.

The GPC Program is governed by various provisions of the Federal Acquisition Regulation
(FAR), Title 48, chapters 1 and 24 (also known as the HUD Acquisition Regulation),
supplemented by HUD Handbook 2210.3, Procurement Policies and Procedures. HUD
Handbook 2212.1 REV-2, Government Wide Commercial Credit Card Program, provides
specific guidance to individual cardholders and approvers. In addition, each new HUD
cardholder is required by OMB Circular A-123, Attachment B, Revised, dated January 15, 2009
to receive training concerning his/her duties and responsibilities before initially assuming
cardholder responsibilities and, at a minimum, every three years thereafter. This OMB document
prescribes policies and procedures to agencies regarding how to maintain internal controls that
reduce the risk of fraud, waste, and error in government charge card programs. Each new
cardholder who is given authority below the micropurchase threshold is also provided with a
delegation of procurement authority memorandum from OCHCO. Each cardholder given
1
 Draft GPC Guide, OCPO & OBAS [Office of Budget and Administrative Support], dated June 2010, section
4(a)(6)

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authority above this threshold is provided with a delegation of procurement authority letter from
OCPO. This memorandum requires that each cardholder follow a specific set of rules and
procedures provided in an attached document entitled “Purchase Charge Cardholder
Responsibilities and Procedures.” For example, field cardholders must ensure that an
Administrative Client Request/Response System (ACRS) request or Requisition for Supplies,
Equipment, Forms, Publications, and Procurement Services (form HUD-10.4) is prepared and
signed by the approving official and the individual responsible for verifying the availability of
funds. Headquarters cardholders must ensure that a form HUD-10.4 is prepared and signed by
the approving official and the individual responsible for verifying the availability of funds.

Statistics/Fiscal Purchases

 During the period of our review, HUD spent more than $17.6 million under the program. The
breakout of purchases above and below the micropurchase threshold is shown below.

                                             Above MPT*               Below MPT                  Total
 Transactions amount                         $4,078,843.48           $13,610,507.45          $17,689,350.93
 Number of transactions                           288                    36,032                  36,320
 Number of cardholders                             9                      2432                    243
 Number of approving officials                     6                      973                      97
* micropurchase threshold

                                         Scope and Methodology
We interviewed headquarters and field program coordinators and OCPO staff to gain an
understanding of the program. We also reviewed the FAR and applicable HUD requirements.
The evaluation work was performed at HUD’s Washington, DC, headquarters. Supporting
documents from field offices were provided by mail. The review was limited to transactions
from headquarters and the field processed through HUD’s Purchase Charge Card Accounts
between December 1, 2008, and September 30, 2010.

We selected a total of 73 transactions for review. Fifty six transactions were selected to
determine whether they complied with applicable requirements. A breakdown of sample
transactions is shown below.


                                                      Up to MPT                          Above MPT
    Total transaction amount                          $17,334.63                         $731,758.78
    Number of transactions                                24                                 32
    Number of cardholders                                 22                                  9
    Number of approving officials                         20                                  6


2
    Number includes nine cardholders who made purchases above the micropurchase threshold.
3
    Number includes six approving officials who also approved purchases above the micropurchase threshold.

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The remaining 17 transactions were judgmentally selected from 818 potentially duplicate and/or
split transactions that occurred during the period. The criteria used for a duplicate transaction
was one that consisted of two or more charges in a single day from one vendor. The criteria for
our selection of split transactions were those that consisted of two or more charges in a single
day from the same vendor for individual amounts that would exceed the micropurchase threshold
or the cardholder’s single purchase limit in total.

We conducted the inspection/evaluation in accordance with the Quality Standards for Inspection
and Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency.




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                                       Observations

Observation 1: HUD Needs To Improve Its Governmentwide Purchase Card
Program
Cardholders did not follow the FAR and HUD requirements governing the use of purchase
charge cards for 38 of 56 transactions reviewed. Problems noted included (1) availability of
funds not properly documented, (2) required sources not used, (3) competitive bids not obtained
when required, (4) purchase orders not used as required, (5) purchase logs not maintained, (6)
sales tax charges not disputed with vendors, (7) purchase logs not reconciled with monthly bank
statements, and (8) supporting records not retained for a sufficient period. For a number of
transactions, multiple problems were noted.

These problems are attributable, in part, to insufficient reviews of transactions involving
headquarters cardholders and insufficient training of headquarters cardholders with purchase
authority exceeding the micropurchase threshold. In addition, HUD permits certain headquarters
cardholders to make purchases above the micropurchase threshold contrary to the provisions of
the FAR.

The Purchase Charge Cardholder Responsibilities and Procedures attached to the delegation of
authority provides that, before making a purchase, each cardholder must

      Verify and document the availability of funds. Headquarters cardholders must ensure
       that a form HUD-10.4 is prepared and signed by the approving official and the individual
       responsible for verifying the availability of funds. Field cardholders may use an ACRS
       request or a form HUD-10.4 for these functions.
       Consider required sources such as Federal Prisons Industries (UNICOR) and National
       Industries of the Blind (NIB), etc. (FAR 8.002 specifies the priorities for use of
       Government supply sources).
      Obtain at least three competitive bids when he/she receives a request for a purchase
       above the $3,000 micropurchase limit. A purchase order must be issued and for purchases
       above $3,000.
      Maintain charge card logs which record all purchases made during the billing cycle.
      Reconcile items purchased shown on monthly statements from the participating bank
       with purchase logs and submit to the approving official within five business days.
      Retain copies of purchase charge card records for three years including copies of request
       documents, itemized invoices or receiving reports, bank statements, purchase logs, and
       competitive bids when required.

Handbook 2212.1 REV-2, chapter 3, paragraph 3-4, provides that no Federal or State sales tax
should be paid. If sales tax is included in the bill amount, the discrepancy must be resolved
directly with the vendor.

In addition FAR section 13.301(c), provides that purchase cards may only be used to make
micropurchases, place a task or delivery order if authorized in the basic contract, or make
contract payments when the contractor agrees to accept payment by card. Purchases above the
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micropurchase level that do not involve a task order or contract payments must be made using
simplified acquisition procedures.


Our review of 56 purchase transactions indicated that cardholders had not

   -   Documented the availability of funds by completing form HUD-10.4 or ACRS reports
       signed by an approver and the person responsible for verifying fund availability in 12
       instances.

   -   Purchased an item from an available mandatory source in one instance. The cardholder
       did not document the reason why the mandatory source was not used.

   -   Performed market research to obtain at least three quotes for purchases above the
       micropurchase threshold in six instances.

   -   Maintained a purchase charge card log in at least eight instances.

   -   Reconciled the monthly bank statement with the purchase log in one instance.

   -   Maintained copies of records supporting one purchase transaction for the required three
       years.

   -   Resolved a sales tax charge of $255 with the vendor in one instance.

   -   Issued a purchase order for transactions above the micropurchase threshold but, instead,
       used the charge card to complete these transactions in 28 instances. Most of these
       purchases were made by five cardholders in headquarters whose single purchase limit
       exceeded the $3,000 micropurchase threshold. The remaining purchases were made by
       cardholders whose single purchase limits were below $3,000 but who were granted
       waivers in individual cases so that they could complete purchases above $3,000.

       In addition, these 28 purchases included two transactions that were initially estimated to
       be below the micropurchase threshold and the cardholders’ card limits. Both transactions
       involved rental of hotel conference rooms for training purposes. In one case, the cost
       estimate was $3,000. In the other, it was slightly under $3,000. Since neither hotel
       provided a firm quote at or below the threshold, the cardholders should have told the
       requestors to submit requisitions to the appropriate purchasing offices. However, in each
       case, the cardholder was granted a one time increase or override of the card limit in order
       to make a payment in excess of $3,000 when the hotel invoice exceeded the original
       estimate.

OCHCO has not performed a review of headquarters transactions since 2008. Handbook 2212.1
Rev-2, chapter 5, paragraph 5-6 requires that evaluations of the Department’s Governmentwide
Card program be performed in Headquarters and the field. An OCHCO representative told us
that OCHCO lacked the resources to perform purchase card audits. We also noted that four of

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five cardholders in headquarters with single purchase limits above $3,000 had not yet completed
required contracting training Federal Acquisition Certification in Contracting (FAC-C) is
required for employees issued new Contracting Officer warrants after 2006. This certification
has minimum requirements for education, including 24 business credits from an accredited
institution, and for additional contracting training. One of the five Headquarters cardholders with
purchase authority above the micropurchase threshold had been issued a new warrant after
December 31, 2006. The other four cardholders, who had warrants issued before this date, had
to complete the training requirements only. February 2011 memorandums from OCPO addressed
to the five Headquarters cardholders required all five to complete the training and/or educational
requirements of the FAC-C program by September 30, 2011. Only one of the five had completed
the applicable requirements at the time of our review. Further, OCHCO permitted all five
cardholders to make purchases above the micropurchase threshold contrary to the FAR, which
requires the use of simplified acquisition procedures for these transactions.

Observation 2: Purchase Cardholders Made Split Purchases
Purchase cardholders split purchases contrary to requirements for five of 17 transactions
reviewed. As a result, HUD may not have obtained the most competitive prices for the items
purchased. Also, vulnerability to fraud and abuse in the cardholder program was increased.

HUD Handbook 2212.1, chapter 3, paragraph 3-4, prohibits cardholders from splitting purchases
to stay within the single purchase spending limit. Provisions of the FAR at subpart 13.003(c)(2)
prohibit breaking down purchases merely to avoid a requirement that applies to purchases
exceeding the $3,000 micropurchase threshold. The five transactions consisted of purchases of
information technology (IT) equipment, file cabinets, and storage boxes in August, September,
and November 2009, respectively, and of ceremony items (awards, plaques) and copier toner in
March and July 2010, respectively. The IT equipment acquisition was split into three separate
charges that if combined, would have exceeded the cardholder’s single purchase limit. The
transactions for file cabinets and storage boxes consisted of orders made over several days in
amounts slightly below the micropurchase threshold. The charges for storage boxes were each
$2,999. The total purchase amount for the ceremony items was slightly above the micropurchase
threshold but was evenly divided into two separate charges. The toner purchase was split into
two charges. Each charge was for a different color toner in an amount slightly below the
micropurchase threshold.

An OCHCO representative agreed that the acquisition of file cabinets met the criteria for a split
purchase.  Cardholders responsible for the other four transactions either provided no explanation
or claimed that the decision on the quantity and timing of items purchased was based on the
needs of the office and not on a desire to avoid exceeding the micropurchase threshold.

Permitting cardholders to split purchases increases HUD’s vulnerability to fraud and waste
because purchases made below the micropurchase threshold are subject to different controls than
purchases above the threshold. For example, purchases made below the threshold do not require
that a purchase order be issued. In addition, because cardholders are not required to obtain
competitive quotes for purchases below the micro purchase threshold, the Government may not
have benefited from the lower prices that competitive quotes could have provided.

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                                   Recommendations
We recommend that OCHCO and OCPO

   1. Reemphasize to all cardholders and approving officials that they must comply with
      requirements applicable to purchase cards including the requirements to complete forms
      HUD 10.4 and ACRS requests, maintain purchase logs, use mandatory sources when
      possible, dispute State sales tax charges, and maintain supporting documentation on file
      for all transactions.

   2. Resume audits of purchase card transactions made by cardholders on a regular basis in
      accordance with HUD policies.

   3. Require the cardholder and approver responsible for the sales tax charge of $255 to
      obtain a credit in that amount from the vendor. Also, ensure that purchase cardholders
      verify whether or not sales taxes have been charged. Sales taxes that have been charged
      must be immediately disputed.

   4. Require all cardholders with single purchase limits above $3,000 to complete
      contracting training if they have not yet done so.

   5. Instruct all cardholders with single purchase limits above $3,000 that purchase
      transactions above the micropurchase level that do not involve either a task order or
      contract payments must be carried out using simplified acquisition procedures in
      accordance with the FAR. An alternative would be to reduce all cardholders’ single
      purchase limits to $3,000.

   6. Reemphasize to all cardholders that they must not intentionally separate purchases in
      order to avoid exceeding micropurchase thresholds or single purchase limits.

   7. Ensure that managers and approving officials comply with Federal and departmental
      polices to incorporate a thorough review for split purchases when approving and
      monitoring purchase card transactions. Cardholders who have carried out split
      purchases should have their purchase card responsibilities discontinued if they carry out
      additional split purchases.




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                            Comments and OIG Response
We provided a draft copy of the report to HUD’s Office of Chief Human Capital Officer
(OCHCO) and Office of Chief Procurement Officer (OCPO) on May 25, 2011. The OCHCO’s
response was received on June 3, 2011 (Appendix A). The OCPO’s response was received on
June 15, 2011 (Appendix B). The OCHCO and OCPO agreed with our observations and
concurred with our seven recommendations. We recognized OCHCO’s and OCPO’s effort to
improve the operations of the Governmentwide Purchase Card Program. However, the
recommendations remain open pending verification of corrective actions. OIG will follow up
with the OCHCO and OCPO to determine the status of the corrective actions taken




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Appendix A – HUD Office of the Chief Human Capital Officer’s Comments




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13
Appendix B – HUD Office of the Chief Procurement Officer’s Comments




                                        14
15
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Appendix C – Roles and Responsibilities in HUD’s Governmentwide Purchase Card
             Program

    Division          Responsibilities
    GSA                  Governmentwide administration and monitoring of the GSA SmartPay
                          Program
    OCPO –               Develops policy for HUD’s GPC Program
    Policy,              Grants authority to cardholders to make purchases above the micro-
    Systems &             purchase threshold (MPT)4
    Oversight            Audits transactions above the MPT
    Division
    OCHCO                Administers the purchase card program in headquarters and the field
                         Audits transactions below the MPT
                         Prepares GPC reports for the Office of Management and Budget
                         Serves as a liaison between the cardholder and servicing bank
                         Issues cards to designated/authorized cardholders
    Office of            Serves as a liaison between the program finance office and the
    Accounting            agency/organization program coordinators (A/OPC)
                         Verifies availability of funds
                         Downloads and pays invoices from the servicing bank in compliance
                          with the Prompt Payment Act
    Servicing            Awarded a SmartPay contract with HUD to run from November 30,
    bank -                2008, to November 29, 2012
    Citibank
    A/OPC                Maintains up-to-date information on the cardholders
                         Participates in training conferences and trains cardholders
                         Ensures that cardholders use the cards correctly
                         Monitors account activity and manages delinquencies
                         Ensures that appropriate steps are taken to mitigate suspension and
                          cancellation actions
    Approving            Designates and monitors cardholder in a specific organizational unit
    official             Reviews the appropriateness of each purchase by cardholders
                         Reviews monthly billing statements




4
 The current MPT is $3,000 for supplies, $2,500 for services, and $2,000 for construction. The FAR, subpart 2.101,
https://www.acquisition.gov/far/current/html/Subpart%202_1.html#wp1145507


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Appendix C – Continued


 Division             Responsibilities
 Cardholder       Secures the card
                  Maintains a purchase log
                  Uses the card only to make informed buys of approved supplies and
                   services
                  Ensures availability of funds before purchase
                  Is aware of reasonable prices offered in the marketplace
                  Observes all dollar limits on purchases
                  Reconciles and documents transactions
                  Uses the card ethically
                  Complies with the Federal Acquisition Regulation and HUD’s policies,
                       procedures, and regulations governing the purchase card program




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Appendix D – Procurement Process for HUD’s Governmentwide Purchase Card Program

Amount          Process
Up to MPT           Determine eligibility for purchase
                    Obtain approval through requisition documents
                    Verify funding availability
                    Research vendor for purchase (required source or other)
                    Make purchase without sales tax or surcharge
                    Arrange for delivery; billing should occur upon shipment
                    Register purchase in log
                    Receive products/services
                    Receive and reconcile monthly bank statement
                    Maintain supporting documentation for purchase
                    Submit support to approving official for review/approval
                    Send bank statement with attached support to Office of Chief
                      Financial Officer
Above MPT           Follow the procedures above
and up to SAT       Have OCPO approval to make purchases as a contractor
                    Follow the five phases of the contracting process (planning,
                      solicitation, evaluation, award, post award)
                    Use purchase order
                    Enter transaction into the Federal Procurement Data System - Next
                      Generation (HUD’s small purchase system)
                    Publicize solicitation for bids
                    Set aside purchases for small businesses if two small businesses
                      meet purchase requirements
                    May obtain competition from other businesses if two small
                      businesses do not meet criteria




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