We found that both HUD and Education lacked fundamental internal controls over their purchase card programs that would have minimized the risk of improper purchases. Combined with a lack of monitoring, environments were created at HUD and Education where improper purchases could be made with little risk of detection. One of the most important internal controls in the purchase card process is the review of supporting documentation and approval of each purchase by the approving official. Another control that is effective in helping to prevent improper purchases is the blocking of certain merchant category codes (MCC). This control, available as part of the agencies purchase card contracts with the card issuing financial institutions, allows agencies to prohibit certain types of purchases that are clearly not business related, such as purchases from jewelry stores or entertainment establishments. Strategies to Manage Improper Payments

Now I would like to talk about some of the things that HUD, Education, and other federal agencies can do to address their improper payments comprehensively.
Why GAO Did This Study

This testimony discusses (1) how internal control weaknesses make the departments of Housing and Urban Development (HUD) and Education vulnerable to, and in some cases have resulted in, improper and questionable payments and (2) strategies these and other federal agencies can use to better manage their improper payments. Despite a climate of increased scrutiny, most improper payments associated with federal programs continue to go unidentified as they drain taxpayer resources away from the missions and goals of our government.

What GAO Found

GAO found that both HUD and Education lacked fundamental internal controls over their purchase card programs that would have minimized the risk of improper purchases. Combined with a lack of monitoring, environments were created at HUD and Education where improper purchases could be made with little risk of detection. One of the most important internal controls in the purchase card process is the review of supporting documentation and approval of each purchase by the approving official. Another control that is effective in helping to prevent improper purchases is the blocking of certain merchant category codes. This control, available as part of the agencies' purchase card contracts with the card issuing financial institutions, allows agencies to prohibit certain types of purchases that are clearly not business related.