A Government Accountability Office (GAO) report posted on the GAO website this morning offered a highly critical look at the government purchase card program.  A sampling of over 12 agencies revealed that nearly 41 percent of roughly $14 billion in credit-card purchases, whether legitimate or questionable, were not properly authorized or had not been signed for by an independent third party, as mandated by federal rules to deter fraud. 

When a sampling of purchases over $2,500 was analyzed, GAO determined that 48 percent were not properly authorized.  However, a closer look at the study shows that things aren't quite as bad as they could be.

First, let's get the highly reported bad news out of the way.  

The report noted a number of outrageous cases of fraud, waste, and abuse via the card program.  These cases included:

• A postmaster at USPS used his government purchase card to fraudulently subscribe to two Internet dating services over 15 consecutive months. (Not surprisingly, a love connection was never made.)  The cardholder paid restitution of over $1,100 but faced no disciplinary action for this fraud.
  
  
• A Department of Agriculture employee fraudulently paid over $642,000 to her boyfriend which was used for personal expenditures, such as gambling, car loan and mortgage payments, and other retail purchases over a 6-year period.  The woman was turned in by a whistleblower, sentenced to 21 months in prison and ordered to pay restitution of over $642,000.
  
  
• USPS paid over $13,000 for 8,121 conference attendees to dine at an upscale steak restaurant which cost over $160 per person.
  
  
• At the National Aeronautics and Space Administration (NASA), a cardholder used the government purchase card to acquire two 60GB iPods personalized with the requester's and agency's names and to store songs and music videos. Although the iPods had some business files on them, GAO concluded that the purchase was abusive because other data storage devices without video and audio capabilities were available at lower costs.
  
  
• A National Science Foundation government purchase card was used to transact over $1,800 in fraudulent purchases at a nail salon and women's accessory and specialty store.
  
  
• During fiscal year 2006, four DOD cardholders purchased clothing and accessories for servicemembers, including expensive clothing totaling over $45,000 from high-end vendors, for example, Brooks Brothers, Talbot's, and Johnston Murphy.
  

Now for the upside  

Since its introduction in the late 1980's, the federal government's SmartPay® purchase card program has streamlined the federal acquisition process by "providing a low-cost, efficient vehicle for obtaining goods and services directly from vendors."  Translation: less paperwork to purchase basic items like office supplies means more time for real work (in theory).   

According to the General Services Administration (GSA), the purchase card program has substantially improved the efficiency of the procurement program which results in savings of about $1.8 billion annual.  GSA also reported that in 2007, government agencies were credited with cash refunds exceeding $170 million from credit card companies.  (Think reward miles for $14 billion in purchases.)

So the program in and of itself it clearly worth having.  The only question is, how can management of the program be improved?

A closer look at the GAO's report shows that 85 percent of the purchases were properly authorized - meaning the purchaser had the right to purchase the item(s) and whatever he/she bought had been requested.  A lack of documentation (e.g. emails, written requests, or purchase orders)  accounted for the other 15 percent of time.  But that doesn't mean people were cheating the system 15 percent of the time.  Sometimes, documents are lost and emails are erased.  Anyone who has spent time in an office knows this to be true.

Clearly, in every group, there will be some who try to cheat the system.  So it is important to have and adhere to guidelines to prevent such abuse.  GAO's report shows faults in the implementation of these guidelines, but it stops short of implicating 15 percent of all transactions on the purchase cards as fraudulent, and the media should be careful not to make the situation seem so dire.  

The report also notes that 34 percent of card transactions were not received by an independent third party.  This means that 34 percent of the time, goods ordered were received by the purchase card holder, instead of someone else.

Rules require that those who order items cannot accept responsibility for the items.  In other words, if you use the easy button, don't sign for the supplies when FedEx shows up at your cubicle or you'll be in violation of federal procurement rules.  If the items are for you, make sure you ship them to your cubicle mate - even if you do hate him.

It's easy to see how these GAO figures can be exaggerated if the background information on the study isn't properly explained and if they are paired with sensational stories about $160 meals and gambling expenses being paid.  So OhMyGov! wanted to put a little more thought and energy into reading the 61-page GAO document, instead of just the executive summary.  


A modicum of success

Overall, the GAO audit does show that the governmentwide failure rate for conformance with federal procurement guidelines is unacceptably high and improvement must be made to ensure those few bad seeds don't get their dirty fingers on your tax dollars.  However, when compared to previous studies on purchase card use or misuse, it seems - believe it or not - that the government procurement process has improved.

For example, in 2002, GAO reported that the estimated failure rate for independent receipt and acceptance was 87 percent at one Army location, compared to the government-wide rate of 34 percent projected in this most recent study.  Additionally, in 2006, GAO estimated that 63 percent of purchase card transactions at the Department of Homeland Security failed the same control test.

Since the 34 percent represents an average rate across government, and these other studies only examined individual organizations, a proper statistical analysis cannot be drawn about the rate of improvement government-wide.   But that doesn't make the numbers worthless either.  It's entirely possible that there have been improvements in the enforcement of purchase card guidelines over the past six years and hopefully, this progress will continue into the next six.


One final scary problem

Purchase card rules aside, another truly frightening finding of the GAO report lay in the government's inability to keep track of items that were purchased.  Although the study focused on those items that were purchased with the government purchase card, this ubiquitous problem is not unique to items bought with credit.  Inventory programs that keep track of everything from desks to digital cameras require improvement.  Without proper inventorying, government property has a tendency to disappear or be purchased again unnecessarily.  

In their report, the GAO noted some scary examples of problems in government inventorying.  One involved the Army not being able to properly account for 16 server configurations purchased for over $1.5 million.  Another example involved a Navy cardholder's purchase of 19 pilferable items, including 2 LCD monitors, 5 iPods, a laser jet printer, a PDA, and other computer accessories, 18 of which are now lost and presumed stolen.

Rumors abound in government that mountains of items sit unaccounted for in huge government warehouses.  For smaller items, the fear is theft.  For larger, it is of redundancy.  Desks and chairs being bought when perfectly good ones sit collecting dust.  Computers being purchased when last year's models sit in boxes from the previous round of purchases.

These problems are real and should be tackled in tandem with efforts to improve the purchase card program.  For what good is it to ensure the proper purchase of an item if it's not going to be looked after anyway?