Purchase Cards:

Navy is Vulnerable to Fraud and Abuse but Is Taking Action to Resolve Control Weaknesses

GAO-02-1041: Published: Sep 27, 2002. Publicly Released: Oct 8, 2002.

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The Department of Defense (DOD) is promoting departmentwide use of purchase cards for obtaining goods and services. It reported that for the year ended September 30, 2001, purchase cards were used by 230,000 cardholders to make 10.7 million transactions valued at more than $6.1 billion. The benefits of using purchase cards versus traditional contracting and payment processes are lower transaction processing costs and less red tape for both the government and the vendor community. Although GAO supports the purchase card program concept, it is important that agencies have adequate internal controls in place to protect the government from fraud, waste, and abuse. A weak overall control environment and breakdowns in key internal controls leave the Navy vulnerable to potentially fraudulent, improper, and abusive purchases. In response to GAO's previous findings, DOD and Navy have begun improving the control environment over the purchase card program. However, further improvements are needed to achieve an effective control environment. GAO determined that the Navy did not provide cardholders, approving officials, and agency program coordinators with sufficient human capital resources--time and training--to effectively perform oversight and manage the program. The weaknesses in the Navy's purchase card control environment at the units audited led to a significant breakdown in key control activities in fiscal year 2001. GAO determined that (1) cardholders did not screen for the availability of goods from required sources, (2) cardholders did not document that someone independent of the cardholder received and accepted the goods and services, (3) many Navy units did not maintain accountability over pilferable property acquired with the purchase card, and (4) cardholders did not reconcile monthly purchase card statements to supporting documentation and approving officials did not review the cardholders' reconciled bills prior to payment certification. The weak control environment and breakdown in key internal controls contributed to potentially fraudulent, improper, and abusive or questionable transactions that went undetected at units in all three Navy commands and the Marine Corps base GAO audited. GAO's site-specific and Navy-wide data mining transactions reviews identified other potentially fraudulent transactions including the purchase of computers, cell phones, food, cameras, power tools, televisions, personal digital assistants, clothing, and stereos. GAO also identified abusive and questionable transactions at all three Navy commands and the Marine Corps base audited and in GAO's Navy-wide data mining. The purchase card transactions that GAO considered to be questionable generally did not include and explanation or advance authorization that would justify these purchases or permit a determination of whether the purchases were improper or abusive.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should identify vendors with which the Navy or Marine Corps uses purchase cards to make frequent purchases, evaluate Navy purchasing practices with those vendors, and forward the results of that evaluation to the Assistant Secretary of the Navy for Research, Development and Acquisition to contract with them, when applicable, to optimize Navy purchasing power.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The Navy now analyzes purchase card transactions, and forwards the result of that analysis of frequently used vendors to the Secretary of the Navy for Research, Development, and Acquisition. The Navy also reported it now has agency wide discount agreements with computer vendors and office supply companies.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should work with the Naval Audit Service and Command Evaluation staff to begin periodic audits of the purchase card program to provide Navy management--at the command and unit level--an independent assessment of the control environment and whether the agency program coordinators, approving officials, and cardholders are adhering to control procedures.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The DON EBUSOPSOFF and the Assistant Secretary of the Navy (Research Development and Acquisition) Acquisition Business Management offices have worked with the Naval Audit Service to finalize a schedule of purchase card command assessments. In addition, the Naval Audit Service started to implement that plan and initiated purchase program audits. As a result of our work, Navy management at the command and unit levels will be strongly encouraged to use the results of those reviews to resolve identified internal control weaknesses.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should link the cardholders', approving officials', and agency program coordinators' performance appraisals to achieving their performance standards.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: In response to our recommendation, the Navy established separate Navy-wide purchase card desk guidelines. These guidelines were updated in September 2003, and describe individual functions and responsibilities for cardholders, approving officials, and agency program coordinators. This action significantly improves agency program coordinators, approving officials, and cardholders to understanding their respective roles and responsibilities related to the purchase card program, and provides management with a standard by which purchase card officials performance can be assessed.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should establish job descriptions that identify responsibility and performance standards for cardholders, approving officials, and agency program coordinators.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The Navy established separate Navywide purchase card desk guidelines. These guidelines were updated in September 2003, and describe individual functions and responsibilities for cardholders, approving officials, and agency program coordinators. This action significantly improves agency program coordinators, approving officials, and cardholders in understanding their respective roles and responsibilities related to the purchase card program.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should direct 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.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The Navy responded to our recommendation by saying that it issued the Navy's eBusiness Operations Office Instruction (EBUSOPSOFFINST) 4200.1 on September 19, 2002, which mandates a control ratio of seven cardholders to one approving official. Other actions the Navy took in response to our recommendation include: (1) a one-time purge was done to realign the hierarchies in accordance with EBUSOPSOFFINST 4200.1; (2) compliance is monitored by EBUSOPSOFF twice a month with data from Citidirect; and (3) when AOs are found to be operating outside the seven to one ratio, they are notified and are required to take corrective action. Further, the Navy issued a policy letter PC02-05 and PCPN #69 requiring all agency program coordinators to review an AO overall workload and determine whether the AO has the time necessary to perform the required review functions. If the determination is that an AO does not have the necessary time, the agency program coordinator will address this situation with the AO's commander or supervisor. This action should significantly help to reduce the risks of having high cardholder-to-approving official rations, and, thus, improve one of Navy's key internal controls related to the reconciliation and certification processes of purchase card activities.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should establish specific training courses for cardholders, approving officials, and agency program coordinators tailored to the specific responsibilities associated with each of those roles.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The Navy reported that role-based training for APCs, AOs, and cardholders have been developed and distributed to all participants on CD ROM and are also posted to the DON EBUSOPSOFF Web site for downloading. This version contains seven training modules and a desk guide for each module for use by APCs. This action by the Navy helps to ensure that its training program is effective by being individually tailored, thus ensuring that individuals acquire the knowledge needed for the different tasks in the purchase card management.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should establish a database that maintains information on all purchase card training taken by cardholders, approving officials, and agency program coordinators. The Director should require that agency program coordinators update that database whenever these purchase card program officials take training.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: Navy issued Navy wide instructions for stand down training of all cardholders and approving officials, with the results to be reported to Navy Supply Systems headquarters. We tested the Navy's compliance with this requirement at NPWC San Diego and determined that it held and provided the required documentation showing that all but 15 NPWC cardholders and approving officials attended the training sessions. NPWC subsequently canceled the accounts of those 15 personnel that did not take the required training. These actions represent positive proactive steps in reducing the risk of loss to fraudulent, improper or abusive purchase card transactions.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should direct all agency program coordinators to review the number of cardholders who report to an approving official and make the changes necessary to prevent approving officials from having the responsibility of reviewing more cardholders than allowed by Navy and DOD policies.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The Navy reported that it is now monitoring twice monthly the span of control ratio for all approving officials to ensure compliance with the seven cardholders to one approving official and taking corrective action, as required, to maintain this ratio. This action should significantly help to reduce the risks of having high cardholder-to-approving official ratios and, thus, improve one of Navy's key internal controls related to the reconciliation and certification processes of purchase card activities.

    Recommendation: The Secretary of the Navy should modify the definition of "Pilferable Personal Property" in the Secretary of the Navy Instruction 7320.10 dated August 1, 2001, by eliminating the requirement that a portable item easily converted to personal use also be difficult to repair or replace, and specifically identify items such as computers, cameras, personal digital assistants, and audiovisual equipment as meeting the definition of being pilferable and thus accountable.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: On September 19, 2002, the Navy issued its Navy's eBusiness Operations Office Instruction (EBUSOPSOFFINST) 4200.1, which redefined pilferable personal property. Specifically, this Navy instruction redefined pilferable to include "items that have a ready resale value or application to personal possession and which are, therefore, especially subject to theft." The new Navy instruction eliminated the commander's discretion to exclude items not considered hard to repair or replace. The Navy also reported to us in August 2003 that Navy has made a similar change in the draft revision of the Secretary of the Navy Instruction 7320.10. As a result of GAO's work, the Navy issued revised instructions that will better protect pilferable items acquired with purchase cards.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should modify the Naval Supply Systems Command (NAVSUP) Instruction 4200.94 to provide cardholders, approving officials, and agency program coordinators detailed instructions on timely and independent receiving and acceptance of items obtained with a purchase card and documenting the results of that process.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: On September 19, 2002, the Navy issued revised instruction, DONEBUSOPSOFF 4200.1, which requires specific duties for approving officials that include ensuring proper receipt, acceptance, and inspection is accomplished on all items being certified for payment. As a result of GAO's work, the Navy revised its instruction to ensure better accountability for receipt and acceptance of items acquired with a purchase card.

    Recommendation: The Director of the Departtment of the Navy eBusiness Operations Office should modify NAVSUP Instruction 4200.94 to include a schedule of disciplinary actions as a guide for taking actions against cardholders who make improper or abusive acquisitions with the purchase card.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: In response to the recommendation, DOD issued a schedule of disciplinary actions that Navy incorporated in the revised Navy EBUSOPSOFF instruction 4200.1A. As a result of GAO's work, the Navy has deterrence for improper or abusive use of the purchase card by establishing a schedule of disciplinary consequences for cardholders who abuse their card carrying responsibilities.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should establish a Navy-wide data mining, analysis, and investigation function to supplement other oversight activities. This function should include providing oversight results and alerts to major commands and installations when warranted.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: In response to our recommendation, the Navy issued its Department of Navy eBusiness Operations Office Instruction (EBUSOPSOFFINST 4200.1) that addresses recommended internal controls including monthly reviews of all purchase card transactions for suspected improper transactions and semi-annual reviews evaluating local operating procedures, internal management controls and a transactional review. A copy of the report is to be provided to the activity commanding officer and the agency program coordinators. In addition, semi-annual program reviews have been established and reports are being submitted to the Department of the Navy Electronic Business Operations Office.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should establish a Navy-wide database of known purchase card fraud cases by type of fraud that can be used to identify deficiencies in existing internal control and to develop and implement additional control activities, if warranted or justified.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Not Implemented

    Comments: The Navy has not provided information on any actions taken to address this recommendation.

    Recommendation: The Director of the Deparment of the Navy eBusiness Operations Office should modify NAVSUP Instruction 4200.94 to require cardholders to maintain documented justification and advanced approval of purchases that fall outside the normal procurements of the cardholder in terms of either dollar amount or type of purchase.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: on September 19, 2002, the Navy issued revised instruction, DONEBUSOPSOFF 4200.1, which requires specific duties for cardholders including maintaining documentation of individual transactions. As a result of GAO's work, the Navy issued revised instructions that will prevent unnecessary costs of questionable purchases before they occur, not after.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should modify NAVSUP Instruction 4200.94 to provide cardholders, approving officials, and agency program coordinators detailed instructions on prompt cardholder notification to property accountability officer of the pilferable property obtained with the purchase card, and approving official responsibility for monitoring that the pilferable property has been recorded in the accountability records.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: In response to the recommendation, the Navy issued a revised purchase card instruction, DONEBUSOPSOFF 4200.1 on September 19, 2002. The revised instruction requires units to establish local operating procedures for property management, cardholders to promptly notify that property accountability officer concerning the acquisition of pilferable property with a purchase card, and approving officials to monitor cardholder adherence to the new policy. In addition, the new policy discusses additional record keeping requirements for pilferable items that have a ready resale value or application to personal possession and are, therefore, especially subject to theft. As a result of GAO's work, the Navy issued revised instructions that will better protect pilferable items acquired with purchase cards.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should modify NAVSUP Instruction 4200.94 to provide cardholders, approving officials, and agency program coordinators detailed instructions on promptly reviewing a cardholder purchase card statement by the approving official prior to certifying the statement for payment and documenting the results of that review.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: The Navy revised its DONEBUSOPSOFF instruction 4200.1 on September 19, 2002. The revised instruction establishes specific duties for both cardholders and approving officials. Cardholders duties now specifically require cardholders to review the monthly purchase card statement to ensure that all charges are proper and accurate and forward the monthly statement to the approving official with the appropriate supporting documentation, i.e, sales slips, documentation of receipt and acceptance, purchase log, etc., in a timely manner. Approving officials are now required to ensure that cardholders purchases are appropriate and that proper receipt, acceptance, and inspection is accomplished in a timely manner before certification for payment. As a result of GAO's work, some abusive and questionable purchases will not go undetected by the Navy.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should modify NAVSUP Instruction 4200.94 to provide cardholders, approving officials, and agency program coordinators detailed instructions on promptly reconciling the monthly purchase card statements to supporting documentation and documenting the results of that reconciliation.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: As a result of GAO's work, on September 19, 2002, the Navy issued revised instruction, DONEBUSOPSOFF 4200.1, which requires specific duties for approving officials including ensuring cardholders purchases are appropriate and that proper receipt, acceptance, and inspection is accomplished in a timely manner before certification for payment. As a result of GAO's work, some abusive and questionable purchases will not go undetected by the Navy.

    Recommendation: The Director of the Department of the Navy eBusiness Operations Office should modify NAVSUP Instruction 4200.94 to provide cardholders, approving officials, and agency program coordinators detailed instructions on screening purchases for their availability from required vendors and documenting the results of the screening.

    Agency Affected: Department of Defense: Department of the Navy

    Status: Closed - Implemented

    Comments: On September 19, 2002, the Navy issued revised instruction, DONEBUSOPSOFF 4200.1, which requires specific duties for cardholders including screening all requirements for their availability from mandatory government sources of supply and documenting the results of such screening. As a result of GAO's work, more Navy purchase card acquisitions will be screened for availability from statutory sources.

    Recommendation: The Under Secretary of Defense (Comptroller) should direct the Charge Card Task Force to assess the above recommendations and, to the extent applicable, incorporate them into its future recommendations to improve purchase card policies and procedures throughout DOD.

    Agency Affected: Department of Defense: Under Secretary of Defense (Comptroller)

    Status: Closed - Not Implemented

    Comments: The Navy has not provided any information as to whether the above recommendations were considered in developing any future-oriented recommended actions.

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