Lawrence Livermore National Laboratory:

Further Improvements Needed to Strengthen Controls Over the Purchase Card Program

GAO-04-986R: Published: Aug 5, 2004. Publicly Released: Sep 7, 2004.

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The Lawrence Livermore National Laboratory (LLNL) is a government-owned, contractor-operated national laboratory of the Department of Energy's (DOE) National Nuclear Security Administration (NNSA). The University of California manages the lab under a cost-reimbursable contract with NNSA. During the fall of 2002, the Federal Bureau of Investigation began investigating two Los Alamos National Laboratory employees for alleged misuse of lab credit cards. Other allegations of theft and misuse of government funds at Los Alamos soon followed. In light of the problems identified at Los Alamos, Congress asked us to review selected procurement and property management practices at two DOE and two NNSA contractor labs, including LLNL. This report summarizes the information provided during our June 4, 2004 briefing to Congressional staff on these issues as they relate to Lawrence Livermore. Specifically, we reviewed LLNL's purchase card program and property management practices to determine whether (1) internal controls over the lab's purchase card (Pcard) program provided reasonable assurance that improper purchases would not occur or would be detected in the normal course of business, (2) purchase card expenditures made under the contract properly complied with lab policies and other applicable requirements and were reasonable in nature and amount and thus were allowable costs payable to the contractor under the contract, and (3) property controls over selected asset acquisitions provided reasonable assurance that accountable assets would be properly recorded and tracked. Our review covered selected transactions that occurred during fiscal year 2002 and the first half of fiscal year 2003, which were the most current data available when we requested the data for our review.

LLNL had implemented a number of internal controls over its Pcard program and property management functions. However, weaknesses in LLNL's Pcard program increased the lab's risk of improper purchases. Of the 144 nonstatistically selected transactions obtained through data mining for fiscal year 2002 and the first half of fiscal year 2003, we found 15 (10 percent) totaling $23,923 lacked an invoice, credit receipt, or other sales documentation necessary to validate the dollar amount, quantity, and nature of the items purchased. The lack of such documentation minimizes the effectiveness of supervisory review of Pcard transactions. Additionally, during our review period, the lab allowed supplemental labor personnel--staff that worked at the lab for a labor subcontractor and thus were not LLNL employees--to be issued Pcards, but did not have adequate controls in place to help ensure that the Pcards were returned if supplemental employees stopped working at the lab. Instead, it relied on the subcontractor to perform this function, with no oversight by lab employees. These control weaknesses likely contributed to the $97,348 in improper, wasteful, and questionable purchases we identified in our review. While relatively small compared to the approximately $120 million in purchase card activity that occurred during the review period, it demonstrates vulnerabilities from weak controls that could be exploited to a greater extent. Specifically, 87 of the 144 purchases in the nonstatistical selection we reviewed were for the purchase of controlled items that LLNL's policy requires to be preapproved. Thirty-two of these 87 transactions (37 percent) totaling $31,571 did not have any evidence of preapproval. We also identified two improper split purchases--that is, groups of two or more similar transactions that were split to circumvent single purchase limits--consisting of 11 transactions totaling $28,137 from a statistical sample. Further, we considered 11 transactions totaling $9,945 to be wasteful because they were excessive in cost compared to other available alternatives and/or were of questionable need. We considered 12 transactions totaling $28,220 to be questionable because they were missing key documentation that would enable us or the lab to determine what was purchased, the quantity and cost of the items purchased, and whether the items purchased were proper and reasonable. Because we only tested a small portion of the transactions we identified that appeared to have a higher risk of fraud, waste, or abuse, there may be other improper, wasteful, and questionable purchases in the remaining untested transactions. Accountable assets we tested generally were properly accounted for and tracked in LLNL's property management system. Out of 144 transactions reviewed, there were 6 transactions for the purchase of 26 accountable assets totaling $70,048. Of these 26 assets, one item totaling $3,481 had not been recorded in the property management system. In response to recent internal audit and other reviews, LLNL management has made a number of improvements to its internal controls that, if properly implemented, should further enhance controls over the Pcard program. However, additional corrective actions are needed to address weaknesses identified.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The contractor disagreed with the recommendation. Current policy requires these items to be kept if received, but does not require cardholders to obtain them. In October 2004, the lab began requiring virtually all purchase card orders to be entered into its Electronic Ordering System (EOS). Purchases are either "catalog" or "non-catalog". Catalog purchases, which are purchases from suppliers that have an agreement with the lab for specific goods and services, are transmitted directly from EOS to the supplier. Consequently, the item information in EOS for such orders must match what is purchased. For non-catalog orders, cardholders must still enter the information into EOS, but the actual purchase is still made by the cardholder in-store, by phone, or over the internet. Therefore, EOS does not provide independent support for non-catalog items purchased. The majority of the lab's purchase card purchases are non-catalog. Thus, we still believe independent support such as a receipt or invoice is necessary for non-catalog purchases.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct Lawrence Livermore National Laboratory's Director, to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to establish policies and procedures requiring that purchasers request and maintain a copy of the detailed sales receipt, invoice, or other independent support showing the description, quantity, and price of individual items purchased.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  2. Status: Closed - Not Implemented

    Comments: Contractor disagreed with recommendation. The contracting officer stated they believe the approach the contractor is using to require all transactions to be entered into the Electronic Ordering System (EOS) is a more cost-effective approach to documentation of transactions. However, EOS information is entered by the cardholder and thus, for non-catalog orders (the majority of the lab's purchases), does not provide independent support for the item purchased.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct Lawrence Livermore National Laboratory's Director, to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to require approving officials to review transaction documentation before approving transactions listed on the cardholders' monthly transaction summary reports. This should include determining that there is independent support for the description, quantity, and price of individual items purchased, and that the cardholder obtained and documented any required preapprovals before purchase.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  3. Status: Closed - Implemented

    Comments: The contracting officer considered the recommendation and determined that the contractor's current process was adequate given certain mitigating controls that the lab has implemented. If a cardholder does not reconcile his transactions in their electronic ordering system (EOS) timely, the transactions will post to the cardholder's default account and EOS will send the cardholder a notification along with instructions to update EOS with the required order detail. In addition, the lab now generates a weekly report of unreconciled transactions that were automatically charged to the default account, and assigned responsibility to an internal review team to follow up on these items. The contracting officer stated that failure on the part of the cardholder to update the system may result in findings by the lab's self-assessment review team during their regular reviews and subsequent corrective action which could include withdrawing the cardholder's purchase authority. Consequently, the contracting officer believed the current process was adequate. These mitigating controls, if effectively implemented, are adequate to address our finding.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct Lawrence Livermore National Laboratory's Director, to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to consider modifying the Pcard system so that purchases that are not reconciled timely by the cardholder are charged to a temporary suspense account rather than to each cardholder's default account codes.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  4. Status: Closed - Not Implemented

    Comments: According to the Lab contracting officer, the cardholder training program provides comprehensive training regarding the importance of, and the process by which, approvals are required and obtained for items identified on the controlled items and services list. However, according to the contract officer, the training did not cover consideration of best value. In addition, it was not clear whether training for approving officials covered either of these topics. Consequently, these actions have not sufficiently address our concerns.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct Lawrence Livermore National Laboratory's Director, to strengthen internal controls over the purchase card program and reduce the lab's vulnerability to improper, wasteful, and questionable purchases, to, in conjunction with the implementation of the lab's online training and recertification for cardholders and approving officials, include in such training an emphasis on (1) the lab's policy to obtain preapprovals for all purchases of items listed on the controlled items and services list, and (2) consideration of best value in making and approving purchases. Because the controlled items and services list is frequently updated, the training should include reviewing the items on the current list and any recent changes.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  5. Status: Closed - Implemented

    Comments: The contracting officer provided a response on the results of his review of each of the transactions indicated. Some of the transactions had already been repaid during the course of our fieldwork, and he concluded that no other transactions required repayment. However, the contracting officer stated that the contractor made changes to its controlled items and services list (CISL) to preclude possible exploitation for some classes of items and services that we pointed out in our review. For example, we noted the February 2006 CISL now specifically requires preapproval for air purifiers, backpacks, electronic organizers (such as PDAs), hand lotions, sunscreen, headphones, and Gatorade -- all items that we questioned during our transaction review. None of these items were listed in the February 2003 CISL (the most recent CISL at the time of our review). In addition, written justification requirements and dollar limits were added to the CISL requirements for the purchase of non-protective clothing after we questioned some of their clothing purchases. Requiring preapproval for these and other items added to the CISL should help reduce the risk of improper and wasteful purchases.

    Recommendation: The Administrator of NNSA should direct the NNSA contracting officer for the lab to review the improper, wasteful, and questionable items we identified to determine whether any of these purchases should be repaid to NNSA.

    Agency Affected: Department of Energy: National Nuclear Security Administration

 

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