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Oversight And Management Of The Government Purchase Card Program Reviewing ITS Weaknesses And Identifying Solutions

 

STATEMENT OF PATRICIA MEAD
ACTING ASSISTANT COMMISSIONER
OFFICE OF ACQUISITION

FEDERAL SUPPLY SERVICE
GENERAL SERVICES ADMINISTRATION
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
COMMITTEE ON ENERGY AND COMMERCE

MAY 1, 2002

 

Good morning, Mr. Chairman and members of the Subcommittee. I am Patricia Mead, Acting Assistant Commissioner, Office of Acquisition of the Federal Supply Service. I am pleased to be here on behalf of the General Services Administration to discuss the Government-wide charge card program. While much of my discussion will address purchase cards, I also would like to speak briefly to a few important issues specific to travel cards.

GSA has been responsible for contracting for charge card services since 1984.

GSA serves as a catalyst for change in the card program by providing guidance to agencies, serving as the central repository for Government-wide data with respect to information available to GSA under the contracts, and execution of contract administration functions. GSA facilitates dialog between Government and industry and develops initiatives to educate program participants and improve program performance.

The most recent purchase, travel and fleet charge card contracts were awarded in 1998 to five banks as part of the GSA SmartPay� program. The contracts provided charge cards to streamline the procurement, payment and travel processes and provided refunds to the Government of $75M during last fiscal year. Refunds are provided directly to agencies and are premised upon agency charge volume and payment performance. Management and oversight of cardholders may differ depending on the type of card issued,; therefore I will address purchase cards separately from travel cards.

Purchase Cards

First I would like to discuss purchase cards. The purchase card replaced the paper-based time-consuming purchase order process for small dollar procurements. With annual expenditures of approximately $13.7B, the purchase card is the primary payment and procurement method for purchases under $2,500 (often referred to as micro-purchases). The purchase card currently saves the Government approximately $1.3B annually in administrative costs. The purchase card is the most flexible purchasing tool available to the US government. Agencies use the purchase card to acquire mission related goods and services.

Liability for transactions made by authorized purchase cardholders rests with the Government. If the card is used by an authorized purchase cardholder to make an unauthorized purchase, the Government is liable for payment and the agency is responsible for taking appropriate action against the cardholder. Use of the card by a person, other than the cardholder, who does not have authority and for which the Government does not receive any benefit, is not the liability of the Government. The Government's liability for transactions involving a lost or stolen card is limited to a maximum of $50. Historically, all liability for lost or stolen card transactions has been assumed by the GSA SmartPay banks.

Travel Cards

GSA's Office of Government-wide Policy is responsible for Federal Travel Management Policy including regulations on the mandatory use of travel cards, travel reimbursement, and collection of delinquent amounts owed to the travel card contractors. The travel card is designed to provide travelers with a payment mechanism that is accepted worldwide, eliminate - or greatly reduce the need for - cash advances, and facilitate the collection of essential management data. The Government and Government employees used the travel card to procure transportation, lodging, meals and other travel expenses valued at $5.3B during the last fiscal year. While similar in many ways to purchase cards, travel cards present a different management challenge. Travel cards may be either Government liability (centrally billed) or employee liability (individually billed). The contractors providing travel cards have expressed concerns with cardholder delinquency and write-offs on individually billed accounts. GSA recognizes that high delinquency rates are detrimental to the program and is working diligently with our customers to develop valuable management and training tools.

Split disbursement is the term used to describe a financial management procedure where the agency transmits funds to the agency's travel card contractor for expenses of official travel claimed by an employee that were charged to the employee's Federal contractor-issued travel charge card, with any remainder transmitted to the employee. Salary offset refers to a debt collection procedure which, in the context of the travel card program, would allow for the collection of funds owed by a Federal employee to a Government travel charge contractor as a result of delinquencies, by deduction from the amount of pay owed to that employee, not to exceed 15 percent of the disposable pay of the employee for that pay period.

As an example of the impact salary offset and split disbursement can have on an agency's performance, we point to GSA's recent implementation of these processes for GSA travel cardholders. (GSA as an agency is a user of the GSA SmartPay program for our employees.). As a result of the changes in our processes, GSA experienced a 50% decline in 60+ day delinquency and a 47% increase in recoveries of write-offs over the last twelve months. Agencies have the option of implementing salary offset and split disbursement as program improvements today, and a few have done so recently.

  • Management and Oversight

Agencies have numerous tools for management and oversight of the purchase and travel card program. Realizing the need for the most current and complete data available, GSA mandated that contractors provide electronic reports to agency managers. These reports are secure and easy to access via the Internet. Agencies use these reports to assist in the identification of questionable transactions, split purchases (improperly splitting a single purchase into two or more micro-purchases to avoid otherwise applicable competition requirements), improper cardholder limits exceeding a cardholder's contract warrant authority, and fraudulent activity.

  • While all payment mechanisms are subject to a certain degree of risk, GSA has built safeguards and systematic controls into the program designed to minimize risks. For example, when accounts are set up, agencies determine what limits to set on each transaction. They are able to set limits by dollar amount per transaction, number of transactions per month, spend per month, and the types of businesses at which the card may be used.
  • The contract provides for agency program coordinators to oversee the program. The role of the agency program coordinator includes ensuring that cardholders properly use the card and monitoring account activity. Under the GSA SmartPay contracts, agency program coordinators have access to numerous reports on cardholder activity from the banks. Realizing the need for the most current and complete data available, GSA mandated that contractors provide electronic reports to agency managers. These reports are secure and easy to access via the Internet. Agencies should use these reports to assist in the identification of questionable transactions, split purchases (improperly splitting a single purchase into two or more micro-purchases to avoid otherwise applicable competition requirements), improper cardholder limits exceeding a cardholder's contract warrant authority, and fraudulent activity. Finally, there is a full electronic record of all transactions under the GSA SmartPay program. This record is available to agencies to analyze spending patterns and to highlight questionable transactions. This electronic footprint makes fraud or misuse far easier to detect than in a paper-based environment.
  • To simplify the oversight process, transactions can be segregated by dollar amount, merchant type and frequency of transactions with specific merchants. Although reports can be helpful in identifying questionable purchases, review and approval of transactions at the local level continues to be our most effective control mechanism.
  • GSA recognizes that cardholder training is essential to ensuring proper use of the card. GSA provides on-line training free to both purchase and travel cardholders. The training discusses roles and responsibilities of cardholders, proper use of the card and ethical conduct. Many agencies choose to supplement this training with written, oral or on-line training of cardholders on agency procedures.
  • To assist our agencies with implementing good management practices, GSA is sponsoring a series of training sessions in Washington, DC this May, June and July which will specifically address policy issues, indicators of fraud and misuse and preventive measures which may be implemented.
  • GSA requires that all contractors participate in an annual training conference for program coordinators. Subjects of the annual training conference include electronic reporting tools, industry best practices, fraud monitoring and card management controls. To supplement the annual training conference, the contractors are also required to provide on-site training of agency program coordinators. written training materials provided by the contractors include cardholder guides and agency program coordinator guides. These guides address authorized uses of the card and responsibilities of the cardholder and the agency program coordinator.
  • All GSA SmartPay banks maintain a sophisticated fraud detection system to identify fraudulent activity and reduce risk. These systems are designed to deter or prevent fraudulent activity by outside parties, not necessarily Government employees. In those instances where fraud is suspected, the contractor will notify the agency and begin the account cancellation process, after which a new card will be issued. The Government relies on approving officials to review purchase card transactions and determine if they are appropriate.
  • As part of a continuing effort to improve the card program, GSA sponsors both purchase card and travel card workgroups for agency program coordinators. This is an opportunity for program coordinators across Government to share experiences and learn from each other. Using the collective expertise of the program managers, two publications were developed and are available to agencies: "Blueprint for Success: Purchase Card Oversight" discusses detection and prevention of purchase card misuse/fraud (available on-line and in hard copy in May 02) and the "Agency/Organization Program Coordinator (A/OPC) Survival Guide" for travel card agency program coordinators discusses program management and delinquency controls (available on-line and in hard copy).
  • GSA will continue to work with industry and our customer agencies to develop technology to facilitate automated transaction review (e.g. data mining) and account management (e.g. on-line certification).
  • Steps for Improvement
  • The Committee has specifically requested that GSA address ways to improve program oversight and management of travel and purchase cards. The most successful government charge card programs have a common characteristic: strong commitment and leadership by senior management. It is no coincidence that agencies that clearly communicate their intolerance for payment delinquency, misuse, and abuse, and hold those who fail to perform accountable, also have the best run card programs. Program risk can be further mitigated through better account management.

While card policies can differ among agencies due to their varying missions, all agencies need to clearly address the following key areas to help ensure effective control over card usage:

  • Delegation of contracting authority
  • Training requirements for program coordinators, approving officials and cardholders
  • Setting of reasonable single purchase and monthly limits and blocking of merchant category codes
  • Annual reviews to evaluate the number of cardholders and approving officials, cardholder limits and transactions
  • Uses of the card
  • Receipt and acceptance of supplies and services
  • Reconciling accounts and certification of transactions
  • Procedures for appointment of approving officials who can determine proper transactions and act independently
  • Span of control for approving officials and A/OPCs (e.g. one approving official for every seven purchase cardholders)
  • Criteria for establishing accounts
  • Criteria for deactivation/cancellation of cards

To ensure policies are effectively implemented, agencies must:

  • Optimize use of bank internet management tools including reports
  • Work closely with their Office of Inspector General (IG), and
  • Take disciplinary/legal action as appropriate

A strong training program, state of the art tools, and a detailed review structure gives Federal agencies all the tools and internal controls necessary to effectively run their card programs. As stated in a recent GAO report on "Strategies to Manage Improper Payments, Learning from Public and Private Sector Organizations," "people make internal controls work, and responsibility for good internal controls rests with all managers". Agencies must use the tools GSA has made available. GSA will continue to work to minimize risk to the Government and ensure proper use of the cards.

Mr. Chairman, that concludes my prepared remarks for today. I would be happy to answer any questions that you or members of the subcommittee may have. Thank you.

Strategies to Manage Improper Payments, Learning from Public and Private Sector Organizations, May 2001