Pacific Northwest National Laboratory:

Enhancements Needed to Strengthen Controls Over the Purchase Card Program

GAO-04-988R: Published: Aug 5, 2004. Publicly Released: Sep 7, 2004.

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The Pacific Northwest National Laboratory (PNNL) located in Richland, Washington, is a government-owned, contractor-operated Department of Energy (DOE) national laboratory. The Battelle Memorial Institute manages the lab under a costreimbursable contract with DOE. Battelle is paid a management fee to operate the lab and is reimbursed for all allowable costs charged to the contract. 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, GAO was asked to review selected procurement and property management practices at two NNSA and two DOE contractor labs, including PNNL. This report summarizes the information provided during our June 14, 2004 briefing to staff of the House Committees on Science and Energy and Commerce on these issues as they relate to PNNL. Specifically, we reviewed PNNL'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 (October 1, 2001, through March 31, 2003), which were the most current data available when we requested the data for our review. This report also includes four recommendations for action--three related to actions needed to be taken by PNNL and one related to action needed to be taken by the DOE contracting officer for PNNL.

The lab had established a number of internal controls to help ensure that improper purchases would not occur or would be detected in the normal course of business. However, we identified additional control areas in the lab's Pcard program that need to be strengthened in order to further reduce the risk of improper purchases. For example, during the majority of our review period, the Pcard administrator and her assistant--who were responsible for monitoring cardholder compliance with Pcard policies, requesting new cards, and authorizing spending limit increases--were also cardholders. This created a conflict of interest that could compromise program oversight. In addition, of the 148 nonstatistically selected Pcard transactions obtained through data mining for fiscal year 2002 and the first half of fiscal year 2003, we found 12 (9 percent) of the transactions totaling $21,834 lacked sufficient documentation such as an invoice, credit receipt, or other sales documentation necessary to fully 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. We also identified $104,250 of improper, wasteful, and questionable purchases in our review of transactions selected on a statistical and nonstatistical basis. While relatively small compared to the approximately $44 million in purchase card activity that occurred during the review period, it demonstrates areas where additional enhancements in controls are needed. We also identified three transactions totaling $693 that we considered wasteful because they were excessive in cost when compared to other alternatives and/or were of questionable need and four transactions totaling $5,619 that we considered questionable because they were missing key documentation that would enable us or the lab to determine what items were purchased and whether they 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 PNNL's property management system. Of the 32 accountable assets totaling $52,753 that were in the test population, 3 assets totaling $4,700 had not been recorded in the property management system. The lab has made a number of recent policy and procedural changes that, if properly implemented, should help improve internal controls over its Pcard program. However, additional corrective actions are needed to address weaknesses identified.

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: In order to address the issues identified in the review, the Secretary of Energy should direct the Pacific Northwest 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 by requiring approving officials, during their review of cardholder transaction documentation, to ensure that the cardholders obtained a sales receipt or invoice to support each purchase, and that the cardholder obtained and documented any required preapprovals before purchase.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: In response to our recommendation, Pacific Northwest National Laboratory issued a policy requiring approving officials to ensure that purchases are backed by supporting documentation, such as detailed receipts and invoices and required preapprovals. This should help ensure that Pcard purchases are adequately supported and reviewed by approving officials.

    Recommendation: In order to address the issues identified in the review, the Secretary of Energy should direct the Pacific Northwest 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 by establishing policies and procedures requiring that purchasers 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

    Status: Closed - Implemented

    Comments: In response to our recommendation, Pacific Northwest National Laboratory issued a new policy to require purchasers to maintain a copy of the detailed sales receipts/invoices, which show item descriptions, quantity, and process. This should help ensure that cardholders maintain independent support for their Pcard transactions.

    Recommendation: In order to address the issues identified in the review, the Secretary of Energy should direct the Pacific Northwest 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 by canceling purchase card accounts for cardholders who also perform oversight functions over the purchase card program to help ensure appropriate independence and separation of duties between these functions.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: In response to our recommendation, the Pacific Northwest National Laboratory management cancelled the purchase card account for the staff member with purchase card oversight responsibilities on June 7, 2004. This action will help establish appropriate separation of duties between cardholders and those with oversight responsibilities for the Pcard program.

    Recommendation: The Secretary of Energy should direct the DOE 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 DOE.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The DOE contracting officer reviewed the improper, wasteful, and questionable items we identified, and PNNL management made cost corrections to reimburse DOE for over $15,000 of transactions we questioned. In addition, PNNL management updated their policy to prohibit purchases of items such as gift certificates, gifts, and party favors---purchases we found in our sample. PNNL's updated policy also provides better guidance to Pcard users and approvers to help ensure that the Pcards are used for proper government purchases.

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