DOD and the Navy  have issued clarifying guidance to these regulations. Cardholders are to make purchases, maintain supporting  documentation, and reconcile their monthly statements. GAO’s Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, November 1999)
We found that the Navy and Marine Corps units we audited had not  established an effective internal control environment in fiscal year 2001,  and although significant improvements have been made, further action in  several areas is necessary. In response to this issue, command level  agency program coordinators told us that they did not have sufficient time  to perform their transaction reviews. The statement also said that he did not  authorize the purchase of any food. In addition, the existence of similar improper, and  abusive or questionable transactions in our Navy-wide data mining of  selected transactions provides additional indications that a weak control  environment and ineffective specific controls exist throughout the Navy. Potentially fraudulent  transactions can also involve vendors charging purchase cards for items  that cardholders did not buy. As previously stated, one of the benefits of using purchase cards versus  traditional contracting and payment processes is lower transaction  processing costs and less red tape for both the government and the vendor. Conclusions

We support the use of a well-controlled purchase card program. However, the Navy program is not well controlled and as a result is  vulnerable to fraud, waste, and abuse. Nonetheless, the control environment at the Navy has improved over the  last year. However, further actions are needed to  achieve an effective control environment. According  to the General Services Administration (GSA), the Department of Defense  (DOD) reported that during fiscal year 2001 it used purchase cards for  more than 10.7 million transactions, valued at $6.1 billion. Our review of key purchase card controls for the Atlantic Fleet,  Pacific Fleet, NAVSEA, and the Marine Corps covered  the overall management control environment, including  (1) management’s attitude in establishing the needed controls, (2) the  numbers of cardholder and approving officials, (3) cardholder and  approving official credit limits, (4) training for cardholders and  approving officials, (5) monitoring and audit of purchase card activity,  and (6) effectiveness of purchase card infrastructure;   tests of statistical samples of key controls over purchase card  transactions made during the first 11 months of fiscal year 2001  including (1) screening for required vendors, (2) documentation of  independent confirmation that items or services paid for with the  purchase card were received, (3) proper certification of the monthly  purchase card statement for payment, and (4) substantive tests of  pilferable property items included in our sample transactions to verify  whether they were recorded in an accountable record;   analytical reviews of transactions entered into during the last month of  fiscal year 2001;   data mining of the population of fiscal year 2001 transactions to identify  potentially fraudulent, improper, and abusive or questionable  transactions;   analysis and audit work related to invoices and other information  obtained from Franklin Covey, from which, based on interviews with  cardholders and our review of other transactions, we had reason to  believe that the units at the four commands had made improper and  abusive or questionable purchases during fiscal year 2001;    analysis of the population of fiscal year 2001 purchase card transactions,  for the four command units, to identify purchases that were split into  two or more transactions to avoid the micropurchase threshold or other  spending limits; and    analysis of the population of Navy-wide fiscal year 2001 purchase card  transactions to determine whether the Navy was effectively managing  its purchases with frequently used vendors.
What GAO Found

The Department of Defense (DOD) is promoting departmentwide use of purchase cards for obtaining goods and services. It reported that for the year ended September 30, 2001, purchase cards were used by 230,000 cardholders to make 10.7 million transactions valued at more than $6.1 billion. The benefits of using purchase cards versus traditional contracting and payment processes are lower transaction processing costs and less red tape for both the government and the vendor community. Although GAO supports the purchase card program concept, it is important that agencies have adequate internal controls in place to protect the government from fraud, waste, and abuse. A weak overall control environment and breakdowns in key internal controls leave the Navy vulnerable to potentially fraudulent, improper, and abusive purchases. In response to GAO's previous findings, DOD and Navy have begun improving the control environment over the purchase card program. However, further improvements are needed to achieve an effective control environment. GAO determined that the Navy did not provide cardholders, approving officials, and agency program coordinators with sufficient human capital resources--time and training--to effectively perform oversight and manage the program. The weaknesses in the Navy's purchase card control environment at the units audited led to a significant breakdown in key control activities in fiscal year 2001. GAO determined that (1) cardholders did not screen for the availability of goods from required sources, (2) cardholders did not document that someone independent of the cardholder received and accepted the goods and services, (3) many Navy units did not maintain accountability over pilferable property acquired with the purchase card, and (4) cardholders did not reconcile monthly purchase card statements to supporting documentation and approving officials did not review the cardholders' reconciled bills prior to payment certification. The weak control environment and breakdown in key internal controls contributed to potentially fraudulent, improper, and abusive or questionable transactions that went undetected at units in all three Navy commands and the Marine Corps base GAO audited. GAO's site-specific and Navy-wide data mining transactions reviews identified other potentially fraudulent transactions including the purchase of computers, cell phones, food, cameras, power tools, televisions, personal digital assistants, clothing, and stereos. GAO also identified abusive and questionable transactions at all three Navy commands and the Marine Corps base audited and in GAO's Navy-wide data mining. The purchase card transactions that GAO considered to be questionable generally did not include and explanation or advance authorization that would justify these purchases or permit a determination of whether the purchases were improper or abusive.