DOD purchase card scrutiny grows

"Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse"

Two lawmakers are broadening their investigation into questions of fraud and abuse in the Defense Department's purchase card program after DOD officials rejected a handful of recommendations that would tighten controls on the program.

The comments come after the General Accounting Office recommended that the Navy adopt strict internal controls over purchase card transactions to reduce fraud and abuse.

Purchase cards, which are essentially government-issued credit cards, have been rolled out to federal employees as a way to streamline the procurement process by eliminating reams of paperwork for small-ticket items. However, a GAO audit published in July 2001 found that the purchase cards were being abused at the Navy's Space and Naval Warfare Systems Command and the Navy Public Works Center, both in San Diego.

In a hearing before the House Government Reform Committee's Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee, Navy officials argued that some of the items that GAO listed as unnecessary can be justified. Flat-panel monitors, for example, use less space on already-crowded ships and use less energy, which was important during the energy crisis that was going on in California at the time. However, some of the most egregious cases included purchases of a $400 Coach-brand leather briefcase and $500 in Mary Kay cosmetics.

The follow-up GAO report, dated Nov. 30, 2001, but made public Jan. 2, recommends that the two centers reduce the number of cards they issue and centralize the management of the program.

The report, "Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse," lays out 29 recommendations for improving the oversight of the purchase card program.

In commenting on the draft of the report, DOD's director of procurement, Deidre Lee, said the department was in "overall agreement with the majority of the recommendations cited in the draft report," concurring with 19 of the 29 suggestions. DOD partially concurred with seven other recommendations and did not concur with three recommendations.

"Purchase card holders are designated based on the assessment that they are trusted employees, not because they can pass a credit check," DOD officials are quoted by the committee as saying.

Furthermore, Lee noted that DOD is implementing an online statement review, approval and certification process that will improve internal controls, increase the visibility of card transactions, increase the speed of payments and reduce problem payments by creating a link between the bank and DOD financial systems.

The reports of fraud and abuse are of growing concern because the fiscal 2002 Defense authorization bill raised the limit on the purchase cards to $15,000 per transaction for purchases relating to biological or chemical terrorism and other terrorist acts, up from $2,500 per transaction previously, said Rep. Stephen Horn (R-Calif.), chairman of the House subcommittee.

Horn criticized DOD for a "serious failure to control the use of the purchase cards" at these two Navy facilities. But he said it is unclear if these are an indication of a broader problem.

Therefore, Horn and Sen. Charles Grassley (R-Iowa) have asked GAO to broaden the investigation to include other areas of DOD.