Purchase Cards: Control Weaknesses Leave DHS Highly Vulnerable to Fraudulent, Improper, and Abusive Activity: GAO-06-1117

Kutz, Gregory D.; Jadacki, Matthew
September 2006
GAO Reports;9/28/2006, p1
Government Documents
In the wake of the 2005 hurricanes in the Gulf Region, GAO and the Department of Homeland Security Office of Inspector General (DHS OIG) initiated a number of audits and investigations addressing the federal government's response to those events. On July 19, 2006, GAO testified on the results of its purchase card work. This report summarizes the testimony and provides recommendations. Department of Homeland Security (DHS) cardholders made thousands of transactions related to hurricane relief operations. GAO analyzed transactions between June and November of 2005 to determine if (1) DHS's control environment and management of purchase card usage were effective; (2) DHS's key internal control activities operated effectively and provided reasonable assurance that purchase cards were used appropriately; and (3) potentially fraudulent, improper, and abusive purchase card activity existed at DHS. A weak control environment and breakdowns in key controls exposed DHS to fraud and abuse in its use of the purchase card. While DHS's draft Purchase Card Manual generally contained effective control procedures, it was not finalized due to a lack of leadership by the Chief Financial Officer in resolving disagreements over its implementation. This led to DHS cardholders following different procedures. Inadequate staffing, insufficient training, and ineffective monitoring, along with inconsistent purchase card policies contributed to a weak control environment and breakdowns in specific key controls. GAO and DHS OIG found a lack of documentation that key purchase card internal controls were performed. Based on a statistical sample, GAO and DHS OIG estimated that 45 percent of DHS's purchase card transactions were not properly authorized, 63 percent did not have evidence that the goods or services were received, and 53 percent did not give priority to designated procurement sources. GAO and DHS OIG also found cardholders who failed to dispute improper charges, which resulted in losses to the federal government. Because of the urgent needs caused by the hurricanes, DHS made a number of noncompetitive purchase card acquisitions. GAO recognizes that DHS had the authority to make noncompetitive purchases; however, GAO found transactions where DHS cardholders could have exercised greater prudence without jeopardizing relief efforts. The weak control environment and ineffective internal control activities allowed potentially fraudulent, improper, and abusive or questionable transactions to occur. Although this work was not designed to identify, and we cannot determine the full extent of fraud, waste, and abuse, GAO and the DHS OIG identified numerous examples of potentially fraudulent, improper, and abusive or questionable transactions. This report lists examples of potentially fraudulent activity related to items acquired with DHS purchase cards. In addition, poor control over accountable property acquired with purchase cards may have resulted in lost...


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