Sandia National Laboratories:

Further Improvements Needed to Strengthen Controls Over the Purchase Card Program

GAO-04-989R: Published: Aug 5, 2004. Publicly Released: Sep 7, 2004.

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The Sandia National Laboratories (Sandia) operate in Albuquerque, New Mexico and Livermore, California. Sandia is a government-owned, contractor-operated national laboratory of the Department of Energy's (DOE) National Nuclear Security Administration (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 Sandia. This report summarizes the information provided during our June 14, 2004 briefing to Congressional staff on these issues as they relate to Sandia. Specifically, we reviewed Sandia'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.

Internal control weaknesses in Sandia's Pcard program increased the lab's risk of improper purchases. These control weaknesses primarily related to the review and approval processes, which are key controls in the Pcard program. Specifically, cardholders who were managers were allowed to approve their own purchases. Of the nonstatistical selection of 141 transactions obtained through data mining, 15 purchases (11 percent) were made by such cardholders and thus did not have any independent review and approval. In addition, approving officials did not review cardholders' monthly statements in a timely manner for 14 of 49 (29 percent) transactions tested. We also found 7 of the 141 nonstatistically selected transactions lacked an invoice, credit card slip, or other sales documentation. We further found that Sandia required purchases of restricted items to be preapproved, but did not require documentation of such approvals for the majority of our review period. Thirty-one of the 36 (86 percent) restricted item purchases we reviewed totaling $92,857 did not have any documented preapproval. Consequently, neither we nor the lab could determine whether this control was being effectively implemented. These control weaknesses likely contributed to the approximately $479,645 in improper, wasteful, and questionable purchases we identified during our review. This demonstrates vulnerabilities from weak controls that could be exploited to a greater extent. Specifically, we found 10 improper split purchases, which circumvented single purchase limits, consisting of 24 transactions totaling $372,321. Eleven purchases totaling $3,606 we determined to be wasteful because they were excessive in cost compared to other alternatives and/or of questionable need. Another 15 transactions totaling $103,718 we considered questionable because they were missing key documentation that would enable us or the lab to determine what was purchased and whether the purchases 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. Sandia also did not ensure that acquired property and equipment were tracked properly and in a timely manner. Of 43 assets in our nonstatistical selection of Pcard transactions, 21 (49 percent) totaling $39,113 were not recorded in Sandia's property management system at the time we provided the lab with the list of assets selected. We performed a physical observation of 88 assets, which included selected assets identified from the nonstatistical selection of 141 Pcard transactions as well as assets selected from the property database because they were still assigned to separated employees or there were multiple assets with the same serial number. All 88 were either found or--in the case of 12 assets--the lab indicated that the items had been disposed of or written off. However, because they only record the bar-code number and not the asset's serial number on the disposal form or the write-off report, we could not verify that the 12 assets had actually been disposed of or written off. Furthermore, our physical observation revealed several inaccuracies in the property database. The lab has made a number of recent policy and procedural changes that, if properly implemented, should help improve internal controls over its Pcard purchases. However, additional improvements are needed to further reduce the risk of improper and wasteful purchases.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In response to our recommendation, Sandia management cancelled the Pcard for staff responsible for monitoring Pcard activities on June 8, 2004.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to strengthen internal controls over the purchase card program and reduce the lab's exposure to improper, wasteful, and questionable purchases, to cancel purchase card accounts for cardholders who perform oversight functions for the purchase card program to help ensure appropriate independence and separation of duties between these functions.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  2. Status: Closed - Implemented

    Comments: In June 2007, Sandia updated its policy manual to require all managers with purchase card holders reporting to them to take an online training course on their responsibilities every 3 years. Sandia officials provided us a printout of the slides from the training. We noted that the training includes such topics as restricted and unallowable items, split purchases, and other areas of weakness we identified during our audit. We also note that the training is interactive, i.e. requires the managers to respond to questions.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to strengthen internal controls over the purchase card program and reduce the lab's exposure to improper, wasteful, and questionable purchases, to require approving officials to attend initial and periodic refresher training on Pcard policies and procedures to help ensure their knowledge of purchasing requirements remains current.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  3. Status: Closed - Implemented

    Comments: Sandia officials concurred, indicating they emphasize during training sessions and in electronic newsletters and communications the importance of all of these items. They also provided us a copy of their purchase card training slides and we noted that the training includes discussion of items, such as cardholder responsibilities, to verify and reconcile transactions; approving official responsibilities to review and approve transactions; split purchases; policies against unallowable costs and examples of restricted items and attractive assets; documentation requirements; and guidelines for obtaining best value.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to strengthen internal controls over the purchase card program and reduce the lab's exposure to improper, wasteful, and questionable purchases, to emphasize during training for cardholders and approving officials the laboratory's policies on (1) timely cardholder reconciliation and supervisory review of transactions, (2) split purchases, (3) transaction documentation requirements, (4) preapproval requirements for restricted items, (5) prohibited purchases, and (6) considering best value in making and approving purchases. Training should also include reminding these staff of the criteria for accountable assets and the requirements to notify property management to ensure accountable assets purchased are identified, bar-coded, and entered into the property management system.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  4. Status: Closed - Not Implemented

    Comments: Sandia officials have reiterated that they do not believe approving officials for purchase card transactions should be required to verify purchase card purchases against receipts or other independent source documentation. They have stated they would include guidance on reviewing receipts in the training provided to managers. Nonetheless, we continue to believe that establishing a requirement for independent purchase validation is an important internal control that should be required of all Sandia purchase card approving officials.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to strengthen internal controls over the purchase card program an reduce the lab's exposure to improper, wasteful, and questionable purchases, to require approving officials to verify purchases on cardholders' monthly statements to the detailed sales receipts, invoices or other independent support showing the description, quantity, and price of individual items for all purchases made to help ensure that purchases are adequately documented and are proper purchases before approving. This should include verifying that there is documented approval for all purchases of restricted items.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  5. Status: Closed - Implemented

    Comments: Sandia officials informed us they implemented a data analysis and mining tool in early 2005. They provided us screen prints from the system that showed some of the queries available to Pcard staff. These queries included purchases by cardholder (multiple types of queries), purchases by merchant (multiple types of queries), duplicate transactions, restricted items, sales tax charged, weekend purchases, and several other queries. According to Sandia officials and the DOE contracting officer for Sandia, the lab performs data mining monthly and also provides the monthly reports to the contracting officer for her review. We believe these actions are responsive to the recommendation.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to strengthen internal controls over the purchase card program and reduce the lab's exposure to improper, wasteful, and questionable purchases, to implement tools, such as data mining, for use by Pcard program staff in reviewing cardholder purchases for improper purchases. These tools should be used to systematically monitor for potential split purchases, unusual vendors, restricted items without approval, and other potentially improper or wasteful purchases.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  6. Status: Closed - Implemented

    Comments: Sandia officials stated they considered this recommendation and determined that charging the unreconciled transactions to a default project and task code creates more of an incentive for the line organization to allocate the transactions to the appropriate project and task than a formal suspense account would. However, to help improve timely correction of project and task codes, Sandia implemented an online correction tool that enables cardholders to easily go in and make the appropriate change. Once the change is made, the system generates another approval request to the cardholder's manager. This online correction tool replaces a more difficult manual process, and thus should facilitate ensuring transactions are charged to the correct codes.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to strengthen internal controls over the purchase card program and reduce the lab's exposure 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 project and task codes.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  7. Status: Closed - Implemented

    Comments: Sandia implemented several compensating controls to address this recommendation. These include: 1) development of an Asset Accountability Statement that lists all of the assets assigned to each individual. Those with assets assigned are provided their statement annually to verify data elements such as item description, serial number, and location for each asset. Sandia provided us the results from the 2005 review of asset accountability statements, which showed they had a 97.5% response rate from those who received the statements, and that as a result of the verification, 13,705 pieces of property (22%) needed data updates. For example, updates included changes in location, owner, and serial number. 2) Sandia also developed an on-line tool called "My Property" that allows individuals to check the property assigned to them at any time and to request changes in asset information. They provided us a copy of the "My Property" output which showed details of all of the individual's assigned property including the property number, description, location, manufacturer, model, and serial number. It also shows a link next to each property item to allow the user to send an email request to change any of the data. 3) Sandia also performs a quarterly database accuracy review (property inventory) from book to floor and floor to book. They provided us a copy of their fiscal year 2005 third quarter database accuracy report. The results showed that, of the 800 data fields sampled that quarter, accuracy exceed 95% on both the book to floor and floor to book tests. Errors identified included errors in property number fields, descriptions (e.g., "server" vs. "personal computer"), serial numbers (e.g., blanks, transpositions, missing digit), and manufacturer (e.g., blank or "clone"). We believe these compensating controls address the weakness originally identified.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to help improve Sandia's controls over the purchasing, recording, and safeguarding of assets, to require that key information such as the property custodian, location, serial number, and item description are verified against the information entered into the property database during physical inventory counts.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  8. Status: Closed - Implemented

    Comments: Sandia developed a monthly report showing all purchases exceeding $5,000. Property management receives this report monthly, reviews for potential property purchases, and follows up with identified requesters and card owners to determine that purchased items identified as property are tagged and entered into the fixed assets database. We reviewed a copy of one of these reports and saw that four items had been identified for follow-up, and one of these four had been annotated as requiring a property tag. Sandia officials stated that property management also reports the results to the DOE site office as part of the quarterly property review.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to help improve Sandia's controls over the purchasing, recording, and safeguarding of assets, to develop a report to enable property management staff to review recent Pcard purchases for accountable assets that require recording in the property management system.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  9. Status: Closed - Implemented

    Comments: Sandia officials stated that past inventory write-off requests have not included the serial number for each item, nor has a request been made to include it. However, lab officials stated they would revise the fiscal year 2006 inventory write-off request form to require this information. Following the completion of the fiscal year 2006 physical inventory, Sandia property officials provided us a copy of the inventory write-off request that they submitted to NNSA. It provides the serial number for each asset listed in the write-off request. Consequently, we consider the recommendation closed.

    Recommendation: In order to address the issues identified in our review, the Administrator of NNSA should direct the Sandia National Laboratories' Director, in order to help improve Sandia's controls over the purchasing, recording, and safeguarding of assets, to require that serial numbers for items being disposed or written off be listed on the disposal forms or inventory write-off reports.

    Agency Affected: Department of Energy: National Nuclear Security Administration

  10. Status: Closed - Implemented

    Comments: The contracting officer (CO) reviewed the improper, wasteful, and questionable transactions we identified. In her written response to us, the CO stated that she determined that, while purchases appeared to be inappropriate, elaborate, or excessive, Sandia provided additional information that the CO reviewed and considered acceptable and thus deemed the purchases allowable. The CO added that corrective actions taken by the lab to tighten controls, including providing additional training to cardholders and managers, revising Pcard guidelines and procedures, and implementing the data mining tool have resulted in fewer problems. However, to provide better monitoring of such expenditures, the CO stated that effective May 2006 Sandia's purchase card administrator will provide the CO the monthly data mining report within one week after the data mining is conducted. The CO will review these reports to determine if sufficient documentation is being provided to support the conclusion that the action was an acceptable purchase or whether further action is necessary.

    Recommendation: The Administrator of NNSA 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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