Using purchase cards for acquisitions and payments  over the micropurchase limit of $2,500 represented about 3 percent of  purchase transactions and accounted for more than 44 percent of the  dollars spent from July 1, 2005, through June 30, 2006. Key Internal Controls Were Ineffective

Internal control weaknesses in agency purchase card programs exposed  the federal government to fraudulent, improper, and abusive purchases  and loss of assets. Lack of proper authorization. As depicted in table 1, our  statistical sampling of executive agency purchase card transactions also  found that 34 percent of transactions failed independent receipt and  acceptance, that is, goods or services ordered and charged to a  government purchase card account were not received by someone other  than the cardholder. Table 2 provides failure rates from our prior  work related to proper approval and independent receipt and acceptance  for certain individual agencies. Additionally, in 30 percent of the  transactions, cardholders failed to provide sufficient evidence of  independent receipt of the goods or services. The total value of the items was over $2.7 million, and the  purchase amount of the missing items was over $1.8 million. The lost or stolen items included computer servers, laptop computers,  iPods, and digital cameras. We  then evaluated each photograph to determine whether the photograph  represented the accountable or pilferable item we selected for testing. Further,  when we asked for inventory records as an acceptable alternative, the  Army could not provide us evidence showing that it had possession of  the 16 server configurations. As part of the plea  agreement, the cardholder agreed to pay restitution of $642,000. Further, in November 2007, the cardholder was sentenced to 21 months  imprisonment followed by 36 months supervised release. Although the  vehicles appeared to have been shipped overseas for a legitimate  government need, our investigative work found that these purchases  were made in violation of USDA purchase card policies and with the  implicit agreement by FAS policyholders as follows:    According to written communications at FAS, the requester for one  of the cars had a “large chunk of money that needed to be used  before the end of the fiscal year (2006).” The requester requested  that the vehicle be purchased in the United States, and then shipped  overseas because it was not possible to finalize the purchase during  fiscal year 2006 if the agency was to purchase the vehicle in the  country where the office was located. A-123. Forest Service Purchase Cards: Internal Control Weaknesses Resulted in  Instances of Improper, Wasteful, and Questionable Purchases. Specifically, we (1)  determined the effectiveness of internal controls intended to minimize  fraudulent, improper, and abusive transactions by testing two internal  control attributes related to transactions taken from two statistical  samples and (2) identified specific examples of potentially fraudulent,  improper, and abusive transactions through data mining and  investigations. We  also selected a second sample from the population of over 600,000  transactions totaling nearly $6 billion that exceeded the $2,500  micropurchase threshold. Internal Control Testing

Our audit of key internal controls focused on whether agencies provided  adequate documentation to substantiate that (1) purchase card  transactions were properly authorized and (2) goods and services acquired  with purchase cards were independently received and accepted. While we identified fraudulent, improper, and abusive  transactions, our work was not designed to identify and we cannot  determine the extent of fraudulent, improper, or abusive transactions  occurring in the population of governmentwide purchase card  transactions.
Why GAO Did This Study

Over the past several years, GAO has issued numerous reports and testimonies on internal control breakdowns in certain individual agencies' purchase card programs. In light of these findings, GAO was asked to analyze purchase card transactions governmentwide to (1) determine whether internal control weaknesses existed in the government purchase card program and (2) if so, identify examples of fraudulent, improper, and abusive activity. GAO used statistical sampling to systematically test internal controls and data mining procedures to identify fraudulent, improper, and abusive activity. GAO's work was not designed to determine the overall extent of fraudulent, improper, or abusive transactions.

What GAO Found

Internal control weaknesses in agency purchase card programs exposed the federal government to fraud, waste, abuse, and loss of assets. When testing internal controls, GAO asked agencies to provide documentation on selected transactions to prove that the purchase of goods or services had been properly authorized and that when the good or service was delivered, an individual other than the cardholder received and signed for it. Using a statistical sample of purchase card transactions from July 1, 2005, through June 30, 2006, GAO estimated that nearly 41 percent of the transactions failed to meet either of these basic internal control standards. Using a second sample of transactions over $2,500, GAO found a similar failure rate--agencies could not demonstrate that 48 percent of these large purchases met the standard of proper authorization, independent receipt and acceptance, or both. Breakdowns in internal controls, including authorization and independent receipt and acceptance, resulted in numerous examples of fraudulent, improper, and abusive purchase card use. These examples included instances where cardholders used purchase cards to subscribe to Internet dating services, buy video iPods for personal use, and pay for lavish dinners that included top-shelf liquor. GAO identified some of the case studies, including one case where a cardholder used the purchase card program to embezzle over $642,000 over a period of 6 years from the Department of Agriculture's Forest Service firefighting fund. This cardholder was sentenced to 21 months in prison and ordered to pay full restitution. In addition, agencies were unable to locate 458 items of 1,058 total accountable and pilferable items totaling over $2.7 million that GAO selected for testing. These missing items, which GAO considered to be lost or stolen, totaled over $1.8 million and included computer servers, laptop computers, iPods, and digital cameras. For example, the Department of the Army could not adequately account for 256 items making up 16 server configurations, each of which cost nearly $100,000.