HUD Purchase Cards:

Poor Internal Controls Resulted in Improper and Questionable Purchases

GAO-03-489: Published: Apr 11, 2003. Publicly Released: Apr 11, 2003.

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Due to the Department of Housing and Urban Development's (HUD) increasing use of purchase cards and the inherent risk associated with their use, Congress asked GAO to audit the purchase card program concentrating on assessing internal controls and determining whether purchases being made are a valid use of government funds.

Significant internal control weaknesses in HUD's approximately $10.6 million purchase card program resulted in improper, potentially improper, and questionable purchases in fiscal year 2001. Because of these internal control weaknesses, there was often inadequate documentation supporting many purchases GAO reviewed, and as a result, GAO was unable to determine whether these purchases were a valid use of government funds. GAO also found that HUD's remedial action plan for its purchase card program does not adequately address all the control weaknesses we identified. These weaknesses created an environment in which improper purchases could be made with little risk of detection and likely contributed to the $2.3 million in improper, potentially improper, and questionable purchases GAO identified. GAO found improper and potentially improper purchases totaling about $1 million where HUD employees either split or appeared to have split purchases into multiple transactions to circumvent cardholder limits. GAO also found that HUD employees lacked adequate supporting documentation for about $1.3 million in questionable purchases including those from vendors not expected to engage in commerce with HUD, purchases made on holidays and weekends, and $74,500 in portable assets such as computer equipment and digital cameras. In these instances, it was not possible to determine what was purchased, for whom, and why. The problems GAO identified with HUD's purchase card program leave the agency vulnerable to wasteful, fraudulent, or otherwise improper purchases. Unless HUD makes specific improvements to its review and approval process, requirements for documentation and record retention, monitoring process, and remedial action plan, the department remains susceptible to fraud, waste, and abuse.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On May 28, 2003, HUD updated the remedial action plan to include the specific steps necessary to fully implement the majority of the recommendations.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to revise the remedial action plan for purchase cards to include the specific steps necessary to fully implement the above five recommendations.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: HUD designated one staff member to perform planned internal reviews as well as random spot reviews. Reports containing recommendations to correct any deficiencies and weaknesses discovered will be issued on an interim basis as reviews are completed. GAO obtained an example of a notification of review memorandum and the results of that effort and related recommendations.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to develop and implement a formal monitoring process to periodically assess the effectiveness of the enhanced review and approval process.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed - Implemented

    Comments: In response to GAO's work, in January 2003 and again in December 2003, HUD conducted mandatory training for all cardholders and approving officials. All cardholders and approving officials were provided a copy of the purchase card procedures and guidance. The guidance provides detailed instructions on the fields of information for the newly required purchase logs and the types of required supporting documentation.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to establish specific requirements for documentation and records to support all purchase card purchases.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed - Implemented

    Comments: HUD implemented a new procedure in which a list of approving officials, cardholders, and respective spending limits is distributed to each Assistant Secretary or equivalent within the department. They are responsible for reviewing the list for accuracy and submitting corrections to the Agency Program Coordinator, who then will update the list. Additionally, approving officials are required to provide written notification to the Agency Program Coordinator when they are reassigned to other offices or are no longer required to perform approving official duties. Rather than quarterly, this will be an ongoing procedure.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to update the list of approving officials and their designated cardholders quarterly to ensure accuracy and completeness.

    Agency Affected: Department of Housing and Urban Development

  5. Status: Closed - Implemented

    Comments: In response to GAO's work, HUD has developed and implemented a robust review and approval process. HUD conducted mandatory training of this review and approval function to approving officials in January 2003, and again in December 2003.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to develop and implement a robust review and approval function for purchase card transactions, focusing on identifying split purchases and other inappropriate transactions, and on performing a detailed review of relevant supporting documentation for each purchase.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Closed - Implemented

    Comments: In response to GAO's work, HUD has implemented the mandatory use of the HUD FORM 10.4, Requisition for Supplies, Equipment, Forms, Publications and Procurement Service, and formal purchase logs. These forms must be completed by the cardholder and signed by the approving official prior to any purchase card transaction.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to implement the preapproval requirement in the existing purchase card policy.

    Agency Affected: Department of Housing and Urban Development

  7. Status: Closed - Implemented

    Comments: In response to our report, HUD performed a follow-up review on the $2.3 million in questionable purchase card transactions identified. HUD completed reviews on 85% of these transactions which represented $2.1 million (91%) of the $2.3 million identified and found no instances of questionable transactions, fraud, waste or abuse of federal funds. A HUD-IG report (report no. 2005-DP-0003) on the purchase card program noted significant improvement in the overall management of the program as a result of actions taken to address the issues identified in our report. The remaining 15% of transactions that have not been reviewed (which total just under $200,000) are made up of many small dollar transactions (below $1,000.00), with the largest transaction totaling $6,382.60.

    Recommendation: To strengthen its internal control over the purchase card program and reduce HUD's vulnerability to improper purchases, the Secretary should direct the Assistant Secretary for the Office of Administration to follow up on the purchases we identified for which cardholders did not provide adequate supporting documentation to determine the validity and the propriety of the purchases.

    Agency Affected: Department of Housing and Urban Development

 

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