This document is an HTML formatted version of a printed document. The printed document may contain agency comments, charts, photographs, appendices, footnotes and page numbers which may not be reproduced in this electronic version. If you require a printed version of this document contact the United States Securities and Exchange Commission, Office of Inspector General, Mail Stop 11-7, 450 Fifth Street N.W., Washington, D.C. 20549 or call (202) 942-4460.
Audit No. 357
November 25, 2002
We found that the Commission's purchase card program was generally efficient and effective, and management controls were functioning as intended. Also, we did not identify any instances of apparent misuse of the cards (i.e., unauthorized and potentially fraudulent purchases of items such as jewelry or clothing).
The Office of Administrative and Personnel Management (OAPM) should assign program management a higher priority. OAPM should also provide additional small purchase training; require cardholders placing multiple orders to obtain quotations from more than one supplier; cancel inactive cards; and correct the billing address of cardholders as appropriate. OAPM should require cardholders to notify the property officer when accepting delivery of accountable property, so that it can be bar-coded.
The Office of Financial Management should consider establishing bulk commitments for micro purchases, to streamline the funding authorization process.
OAPM provided written comments (attached) on a prior draft of this report. Generally, OAPM concurred with our findings and recommendations.
SCOPE AND OBJECTIVES
This audit is a follow-up to a prior review (OIG 258, issued September 30, 1997), as well as a response to recent reports of abuse of purchase card privileges at other agencies. Our objectives were to determine whether program management was efficient and effective, and controls were functioning as intended.
During the audit, we reviewed controls related to program management, spending limits, and supervisory review. We scanned 2,471 purchase card transactions processed between January and June 2002, using Merchant Category codes to attempt to identify any apparent misuse of the cards. We also interviewed selected cardholders and approving officials, as well as staff from OAPM and OFM. We did not conduct an inventory of purchases under the program.
We performed the audit between May and August 2002 in accordance with generally accepted government auditing standards.
Under a General Services Administration (GSA) contract with the Mellon Bank, Commission employees selected by their supervisor are authorized to make small purchases (in most cases, up to $2500) with a government purchase card issued to them. The Office of Administrative and Personnel Management has issued regulations for the Commission's purchase card program (SECR 10-6).
Under the regulations, the Associate Executive Director of OAPM issues the selected employees a Delegation of Authority for procurement and sets spending limits. Mellon then issues the purchase card in the employee's name. Only the designated cardholder may use the card, which is limited to official business purchases.
OAPM has also designated an Agency Program Coordinator (APC). Among other duties, the APC acts as liaison to Mellon, gives instructions to approving officials and cardholders on card usage and their reporting responsibilities, and follows up on disputed purchases and billing errors.
The Office of Financial Management (OFM) now requires1 either the cardholder or an administrative contact to prepare a purchase request (RQ) to reserve funds for each transaction. In addition, OAPM approval is required for the purchase of furniture and equipment, while the Office of Information Technology (OIT) approves purchases of ADP and telecommunications equipment, supplies, and services.
At the end of the monthly billing cycle, Mellon sends an individual account statement to the cardholder and a consolidated account statement to the Office of Financial Management for payment. These documents list the transactions for the period.
Cardholders must reconcile their statements with their records. They then forward a signed copy of the statement to the approving official (generally, their supervisor) within two days. The approving official then certifies (signs) the statement and forwards it to OFM. Once OFM receives all statements, it pays for the charges.
The Commission has a total of seventy-one cardholders: OAPM has twenty-four, OIT has ten, and most other offices and divisions have one. From January through June, 2002, approximately $2 million was processed in credit card transactions.
We found that the Commission's purchase card program was generally effective and efficient, and management controls established to ensure proper use of the card were functioning as intended. We did not identify any instances of apparent misuse of the cards.2 Our detailed findings and recommendations for enhancing the program follow.
The Agency Program Coordinator position was vacant between March and June 2002. The new APC told us that she had not been able to spend the time needed to properly administer the program.
We found that more active management of the program is necessary. For example, see the findings below on training and cancellation of inactive cards.
OAPM should assign a higher priority to program management.
The Commission's property management regulation (SECR 9-2) requires OAPM to enter sensitive items and equipment (i.e., those subject to loss or theft) valued at $2000 or more in the property records. As explained below, current procedures can be enhanced to provide greater assurance that property bought through a credit card is recorded when appropriate.
Under Commission inventory procedures, a bar code number is assigned to property when it is recorded. Thus, requiring cardholders to notify the property officer when they accept delivery of an accountable property item (so that it can be bar-coded) would help ensure appropriate recording of property obtained through a credit card transaction.
We found that cardholders (mostly in the Office of Information Technology) buy a significant amount of property subject to recording. For example, OIT cardholders bought about $290,000 in property from January 2002 to June 2002, using the purchase card. Because of time constraints, we did not determine whether this property was recorded as appropriate. However, one OIT cardholder told us that he/she did not know about the recording requirement in SECR 9-2, which suggests that at least some property may not have been recorded.
OAPM should require cardholders to notify the property officer when they accept delivery of an accountable property item so that it can be bar-coded.
DISTRIBUTION OF PURCHASES
Although only one source needs to be solicited for micro purchases ($2500 or less), multiple purchases must be distributed equitably among qualified suppliers, according to GSA and Commission regulations.
We reviewed purchases from January-June 2002 for a sample of 24 cardholders to determine if this requirement was met. We found that one cardholder made all of his or her purchases with the same supplier. The total value of the services purchased was $21,764.
OAPM should remind cardholders that when making multiple purchases, they should obtain quotations from more than one supplier.
The Treasury Financial Manual requires agencies to establish a training program covering government wide credit card procedures. Training should be provided to cardholders, approving officials, and other employees involved in the program (such as those in the designating payment office).
In the past, OAPM made presentations on the credit card program at conferences for administrative contacts (many of whom have the card). In addition, OAPM issued regulations on the program (SECR 10-6).
Currently, OAPM only requires new cardholders to obtain training from either the GSA website or a comparable provider before they use their purchase card. The GSA online training covers micro purchase requirements, but not the more complex requirements for larger purchases. For example, small purchases over $2500 are subject to the Simplified Acquisition Procedures (Federal Acquisition Regulation Part 13) requiring competition (at least three sources).
We identified four cardholders having purchase authority above the micro purchase limit, whose training was limited to that on the GSA website. Thus, they had not been trained in the purchasing requirements for their spending limits. Two had a single purchase limit of 25,000; one had a limit of $50,000; and one had no limit.
OAPM should provide additional training to the six cardholders discussed above, and ensure that all cardholders' training is consistent with their spending limits.
Several cardholders told us that they had not used their card and did not need it. Inactive cards should be considered for cancellation to prevent possible misuse of the card.
OAPM should monitor card usage and spending limits to identify inactive cards, and cancel the cards when appropriate.
CARDHOLDER BILLING ADDRESS
Several cardholders indicated that they frequently received their account statements late, delaying the processing of their accounts. We found that the address for some cardholders was incomplete (lacking the office and mail stop), which could contribute to the delay.
OAPM should review the mailing address for all cardholders to ensure that it includes the cardholder's office and mail stop.
Currently, the administrative contact or cardholder must submit an automated requisition form (RQ) to the Office of Financial Management budget office to reserve funds before each purchase. The budget office then certifies that funds are available, which allows the cardholder to make the purchase.
Some cardholders stated that this process is time consuming and inefficient, especially for offices making many micro purchases. Advance reservation of funds (bulk commitment) for micro purchases would streamline the procurement process by eliminating the need for repetitive funding approval.
OFM could establish these commitments quarterly, based on an office's anticipated needs and funding allocations. Purchases above the established limits would be handled under the current approval process.
In consultation with affected offices, OFM should consider establishing bulk commitments for micro purchases.
1 After the implementation of the Momentum financial accounting system in fiscal year 2002.
2 Because of the limited scope of our testing, however, abuse of the card could have occurred without necessarily being identified through our tests.