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                  UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                WASHINGTON, D.C. 20460
                                   SEP  I 8 G95
     OFFICE OF
THE INSPECTOR GENERAL
MEMORANDUM
SUBJECT:   Review of EPA's Bankcard Program
             (Audit Report No. E1BMF5-11-0004- 5100486 )

FROM:      Michael Simmons
             Deputy Assistant Inspector General for
              Internal and Performance Audits

TO:          Sallyanne Harper
             Acting Assistant Administrator for
              Administration and Resources Management

       Attached is our final report titled Review of FPA'S Ranlccard Program   The primary
objectives of our review were to determine whether: (1) the EPA bankcard system was
efficient, effective and being used by the Agency's program offices when appropriate (rather
than purchase orders or imprest fund methods) in order to reduce processing time and costs;
(2) the Agency has adequate internal controls in place, and; (3) the bankcard purchases comply
with the Federal Acquisition Regulations (FAR) and EPA regulations.

       This report identifies corrective actions the Office of Inspector General (OIG)
recommends involving EPA's bankcard program.  As such, it represents the opinion of the
OIG.  Final determinations on the matters in the report will be made by EPA managers in
accordance with established EPA audit resolution procedures. Accordingly, the findings
described in this report do not necessarily represent the final EPA position.

       The response by the Office of Administration and Resources Management (OARM) to
our draft report is included as Appendix HI. Our evaluation and comments on the response are
included throughout the report, as appropriate.  Based on OARM's response to the draft report
and prior discussions, we made appropriate changes to this final report.

       In accordance with EPA Order 2750, we have designated the Acting Assistant
Administrator for Administration and Resources Management as the Action Official for this
report. The Action Official is required  to provide this office with a written response to the
audit report within 90 days of the  final audit report date. The response should address all

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   d y 1995        f^oorn 2904,  Maiicodc 3404
                                                                      conMM M IMB 50% racydM «bw

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recommendations. For corrective actions planned but not completed by the response date,
reference to the specific milestone dates will assist us in deciding whether to close this report.
We have no objection to the release of this report to the public.

       Should you or your staff have any questions about this report, please call Edward
Gekosky, Divisional Inspector General for Audit, Headquarters Audit Division or Frances E.
Tafer, Principal Team Leader, at (703) 308-8222.

Attachment

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Report of EPA's Use of The Government Purchase Card
EIBM F5-11-0004-5 i 00486
                            EXECUTIVE SUMMARY
PURPOSE
       The Office of Inspector General (OIG) has completed an audit of the Agency's small
purchase credit card program.  The small purchases credit card program helps in improving
the efficiency of the purchasing and payment processes.  We undertook this review in
November  1994 to examine the Agency's small purchases credit card program, also known
as the bankcard program.

       The objectives of our review were to determine whether: the EPA bankcard system
was efficient, effective and being used by the Agency's program offices when appropriate
(rather than purchase orders or imprest fund methods) in order to reduce processing time and
costs; the Agency has adequate internal controls in place, and; the  bankcard purchases
comply with the  Federal Acquisition Regulation (FAR) and EPA regulations.

BACKGROUND

    The Federal Government has used various methods to accomplish the purchase of goods
and services.  These  methods, such as the SF-441, have proven to be costly, and
occasionally they have not been accepted by merchants.  To promote vendor acceptance and
operational efficiency, the Department of Commerce along with the EPA initiated a pilot
credit card  project  under authority from the Office of Federal Procurement Policy, Office of
Management and Budget (OFPP/OMB). The current program, established in  1989, was
developed by the General Services Administration (GSA) for the purpose of extending credit
card services to all government agencies.

       A number of specific controls  have been developed  for the program that  do not exist
in a traditional credit card environment. These controls ensure that the card can be used
only for specific purchases and within specific dollar limits.  In addition, certification of ail
purchases is required by each cardholder, with verification performed by the approving
official before payment is made to the contractor (Rocky Mountain Bank System).

       The Environmental Protection  Agency (EPA) first piloted the U.S. Government
bankcard program  in 1986;  it became fully operational by March  1989.  The General
Services  Administration (GSA) sponsored program encourages the use of a commercial credit
card to make small purchases of specified  supplies and services for the Federal Government.
The government does not pay vendors directly for purchases made with the credit card.
Instead, the vendors get a credit by their bank which is then  reimbursed by the credit card
company.  The credit card transactions use forms and payment systems familiar to, and
       1  SF-44 Purchase Order- Invoice/Voucher "Over-the-counter local purchase":  A
procedure for making over-the-counter purchases of expendable supplies of $500 or less
where only one delivery and one payment will be made.

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 Report of EPA's Use of The Government Purchase Card
            EIBMF5-11-0004-5100486
 readily accepted by, most merchants.  It provides reduced costs to merchants and to the
 Government, as well as more sources of supply compared to the purchase order method.
        Figure 1 illustrates that there were 153
 bankcards issued at EPA  in fiscal 1988; by the end
 of fiscal 1994, EPA had issued 785 bankcards to
 authorized employees. Figure 2 demonstrates that the
 purchase amounts have also increased from $ 180,037
 in fiscal 19882 to $8.77 million (an average of
 $730,618 per month or $335 per purchase) during
 fiscal 1994.

 RESULTS-IN-BRIEF

       The bankcard program was intended by GSA
 to streamline and to reduce or eliminate the use of
 other less efficient and more costly small purchase
 methods.  Cost savings and other benefits expected
 from the bankcard have not been fully realized
'because the Agency did not implement a small
 purchase mandate directing all procurement officials
 to make maximum use of the bankcard.
       While the bankcard has substantially reduced
 the number of small purchases made through other
 less efficient methods of procurement, significant
 additional savings are possible.  Our review of fiscal
 1994 purchase orders issued for less than $2,500
 indicated that between 33-50 percent of these
 transactions were allowable bankcard purchases
 depending on the office reviewed.  If the results of
 our review are consistent within the entire Agency,
 EPA could have saved as much as $700,000 in
 administrative costs during fiscal year 1994.
 Additionally,  we found that Agency added purchase
 restrictions hindered implementing the bankcard to its
 fullest potential  in EPA.  Many cardholders stated
 that rather than  streamlining the procurement
 processes,  they  found EPA  implemented restrictions
 to be excessive and confusing.
Number of Sankcard  Holders
   I.ODD
*• of Jvtiary 1999
                                                       Annual Bankcard  Transactions
     Mil lions
   110
    »8
    »0
             Fiscal r«*r
A* of JmnM-f 1)95
    :   Information based on data received from the Bankcard Program Team. No information available for
 bankcard activity prior to 1988.
                                           11

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Report ot EPA's Use of The Government Purchase Card
EIBMF5-1 [-0004-5100486
       While recognizing the benefits from the expanded use of the bankcard program within
the Agency, we believe that the bankcard program's management control system should be
improved to support these additional transactions.  We found some inconsistencies in
program management and a lack of effective implementation of some internal controls.
Management is responsible  for establishing effective controls, including procedures to ensure
that program goals are met. The management control system for the bankcard program
could have been improved through written guidance for use by the bankcard program team.
The team also needed the ability to conduct  more than one annual review of bankcard
holder's activities, and computer-generated exception reports could have assisted in
performing administrative responsibilities. Additionally, we found that oversight provided by
some approving officials, who  are responsible for direct oversight and approval of bankcard
purchases, could have been improved.  These officials were  not required by the Purchasing
and Contracts  Management Branch  (PCMB) to  attend bankcard training; and therefore, were
not familiar with specific bankcard program requirements.
PRINCIPAL FINDINGS

The Agency Could Reduce Small Purchase Administrative Costs Bv Increasing The
Bankcard's Use

•      The bankcard program was intended to streamline and to reduce or eliminate the use
       of other less efficient and more costly small purchase methods.  Cost savings and
       other benefits expected from the bankcard have not been fully realized because the
       Agency did not implement a small purchase mandate directing all procurement
       officials to make maximum use of the bankcard.  Our  review of fiscal 1994 purchase
       orders issued at EPA for less than $2,500 indicated that between 33-50 percent were
       allowable bankcard purchases.  If the results of our review are consistent within the
       entire Agency, EPA could have saved as much as $700,000 in administrative costs
       during fiscal year 1994.  Additional efficiencies could.also have resulted had the
       bankcard been used as intended rather than the imprest fund method.

EPA's Restrictions Impeded the Bankcard Program's Growth

•      The use of the bankcard is encouraged in order to streamline government activities;
       however, the bankcard was not always used at EPA when allowable, costing the
       Agency inefficiencies and additional expenses. We found that the Agency's added
       restrictions hindered implementing the bankcard to its  fullest potential at EPA.
       Several cardholders stated that rather than streamlining the procurement process, they
       found EPA's bankcard restrictions to be excessive and confusing.

The Purchasing and Contracts Management Branch (PCMB) Needs to Improve Its
Management Controls

•      We found some inconsistencies in program management and a lack of effective
       implementation of some internal controls which could jeopardize the bankcard
       program's integrity.  Management is responsible for establishing effective controls,
                                         111

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Report of EPA's Use of The Government Purchase Card
El BMF5-11-0004-5100486
       including procedures to ensure that program goals are met.  The bank card program's
       management control system could have been improved through written guidance for
       the bankcard program  team.  The team also needed the ability to conduct more than
       one annual review of bankcard hoider's activities, and computer-generated exception
       reports could have assisted in performing administration responsibilities.
       Additionally, oversight provided by some approving officials could have been
       improved had they been required to attend bankcard training and,  therefore, been
       familiar with specific bankcard program requirements.

RECOMMENDATIONS

       We  recommend that the Acting Assistant Administrator for  Administration and
Resources Management:

•      Establish an  Agency-wide policy requiring the use of the Bankcard whenever
       allowable.

•      Implement a policy of periodically updating the restrictions  listing and disseminate
       this information to cardholders and approving officials.

•      Develop written procedures for members of the bankcard program team to provide
       constancy to the management and oversight of the program, and implement a strategy
       for designing exception reports based on the computerized information available from
       Rocky Mountain Bankcard System.

•      Require all approving officials to attend bankcard training.
                                          IV

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Report of EPA's Use of The Government Purchase Card
                                      E1B M F5-11 -0004-5100486
EXECUTIVE SUMMARY
CHAPTERS
     1.
EXECUTIVE SUMMARY
               PURPOSE
               BACKGROUND
               SCOPE AND METHODOLOGY	3
     2.
     3.
THE AGENCY COULD REDUCE SMALL PURCHASE
ADMINISTRATIVE COSTS BY INCREASING BANKCARD USE

EPA'S RESTRICTIONS IMPEDE BANKCARD PROGRAM'S
GROWTH	
                                                            . .  5
                                                              11
     4.    PCMB NEEDS TO IMPROVE ITS MANAGEMENT CONTROL
          SYSTEM	16

APPENDIX I - ABBREVIATIONS 	26

APPENDIX II - LISTING OF EPA'S PURCHASE RESTRICTIONS 	27

APPENDIX III - AGENCY'S RESPONSE  	29

APPENDIX IV - DISTRIBUTION  	37

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Report of EPA's Use of The Government Purchase Card
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Report of EPA's Use of The Government Purchase Card
E1BMF5-11 -0004-5100486
                                   CHAPTER 1
                                INTRODUCTION
PURPOSE

       The Office of Inspector General (OIG) has completed an audit of the Agency's small
purchase credit card program.  The small purchases credit card program can help in
improving the efficiency of the purchasing and payment processes.  We undertook this
review in November 1994 to examine the Agency's small purchases credit card program,
also known as the bankcard program.

       Our objectives were to determine whether:  the EPA bankcard system was efficient,
effective and  being used by the Agency's program offices when appropriate (rather than
purchase orders or imprest fund methods) in order to reduce processing time and costs; the
Agency has adequate internal controls in place; and  bankcard purchases comply with the
Federal Acquisition Regulation (FAR) and EPA regulations.

BACKGROUND

    The Federal Government has used various methods to accomplish the purchase of goods
and services.   These methods, such as the SF-44, have proven  to  be costly, and occasionally
they have not been accepted by merchants.  To promote vendor acceptance and operational
efficiency, the Department of Commerce along with the EPA initiated a pilot credit card
project under authority  from the Office of Federal Procurement Policy, Office of
Management and Budget (OFPP/OMB). The current program, established in 1989, was
developed by the General Services Administration (GSA)  for the purpose of extending credit
card services  to all government agencies.

       A number of specific controls have been developed for the program that do not exist
in a traditional credit card environment. These controls ensure that the card can  be used
only for specific purchases and within specific dollar limits.  In addition, certification of all
purchases is required by each cardholder, with verification performed by the approving
official before payment is made to the contractor (Rocky Mountain Bank System),

       The GSA sponsored program encourages  the use of a commercial credit card to make
small purchases of specified supplies and services for the  Federal Government. The
government does not pay vendors directly  for purchases made with the credit card. Instead,
the vendors get a credit by their bank which is then reimbursed by the credit card company.
The credit card transactions use forms and payment systems familiar to, and readily accepted
by, most merchants.  It provides  reduced costs to merchants and to the Government, as well
as more sources of supply, compared to the purchase order method.

       Prior to receiving a card,  each cardholder is  issued a Delegation of Authority from
the bankcard program team which indicates the maximum dollar amount allowable for each

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 Report of EPA's Use of The Government Purchase Card
               EIBMF5-11-0004-5100486
single purchase made and a dollar limit for total purchases made with the credit card in a
given month.  Emergency purchases over the monthly limit can be made when  certain
procedures are followed.  Each cardholder also receives the "Cardholder Instructions for the
Use of the U.S. Government Credit Card," issued by the  current contractor under the GSA-
approved program, which contains procedures for use of the credit card and for the billing of
credit card purchases.  The "Cardholder Instructions" and the instructions in the "EPA
Bankcard Training and Call Ordering Officer Course Manual" require cardholders to follow
their agencies' administrative-control-of-funds procedures  and to comply with all Federal and
EPA acquisition regulations, policies, and procedures.

       According to the "Cardholder Instructions," each cardholder is required to  review a
monthly  "Statement of Account" for accuracy.  Additionally, prior to submittal of the
statement to the approving official, the cardholder is required to complete a description for
each item purchased, ensuring that the proper appropriation code is provided for each
transaction,  provide a copy of each sales receipt,  and sign the statement. The approving
official is required to review each  cardholder's  purchases,, and determine if these items were
for official use and if they were items allowed to be purchased in accordance with EPA
regulations.

       The EPA issued its 1993 "EPA Bankcard Training and Call Ordering Officer Course
Manual"  which describes the Agency's bankcard policies and procedures, and  includes
instructions  for the completion of the bankcard  holder's bankcard log.  The bankcard log is
used to record the date and description of each  purchase made during the billing cycle.  In
addition, the log identifies the object class code and accounting information.
       The Agency's use of the credit card has
increased annually from  654 purchases in fiscal
1988 to 26,156 in fiscal  1994  as the number of
cardholders at fiscal years' end increased from
153 in fiscal  1988 to 785 in fiscal 1994.  Figure
3 illustrates that the purchase amounts have also
increased from $180,037 in fiscal 1988 to
approximately $8.77 million (an average of
$730,618 per month or $335 per purchase) in
fiscal  1994.

       The flow chart on the following page
highlights the three stages of the bankcard's
process.
Annual  Bankcard Transactions
                                                    AA or janidry 1993
                                                                 Fi»c«l ttar
                                                                 Pigur» 3

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Report of EPA's Use of The Government Purchase Card
                            EIBMF5-11-0004-5100486
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 Report of" EPA's Use of The Government Purchase Card
E1BM F5-11 -0004-5100486
 SCOPE AND METHODOLOGY

       The overall objective of the audit was to determine if the bankcard program was
 effective, efficient, and being used when appropriate.  We also assessed the Agency's
 management of the program.  The audit field work was performed from November  1994
 through May 1995 and included on-site work in Regions IV, VII, VIII, Research Triangle
 Park (RTF), Cincinnati Financial Management Center (CFMC), and various program offices
 in Headquarters.

       We interviewed selected bankcard  holders  at Headquarters and  selected regions, their
 approving officials,  individuals at  the CFMC, and the bankcard program team Members in
 the Purchasing and Contracts Management Branch/Headquarters Procurement Operations
 Division/Office of Acquisition Management (PCMB/HPOD/OAM).  We interviewed
 individuals at General Services Administration (GSA), the Department of Commerce, the
 Department of Defense, and Rocky Mountain Bank Systems.

       We judgmentally selected 35 bankcard holders and  performed reviews of their
 bankcard files for fiscal 1994. The review was conducted of their original documentation
 maintained at the CFMC and also  of copies maintained by the cardholders.

       The data  used in this report to identify the universe of purchase orders issued was
 extracted from an EPA database of issued purchase orders. No audit tests were performed to
 evaluate the adequacy of manual or automated controls for the database system or the validity
 of the data maintained by this system.

       We randomly selected and  performed a review of 620 purchase orders issued during
 fiscal 1994 from three judgmentally selected regions who had high levels of small purchase
 activity.  We reviewed these, purchase orders to determine the number which could have been
 done using a bankcard.  We further reviewed imprest fund transactions in the three
judgmentally selected locations for fiscal 1994 to determine the number of transactions  which
 could have been  done using a bankcard.  The following chart summarizes audit samples and
 the universe of purchase orders and imprest fund transactions conducted during fiscal 1994.
Purchase Orders Reviewed,
Fiscal 1994
Location
Headquarters
Region IV
Region VII
Sample Size
200
200
220
Universe
1,351
1,478
1,241

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Report of EPA's Use of The Government Purchase Card
E1BMF5-11 -0004-5100486
Imprest Fund Transactions Reviewed,
FISCAL 1994
Location
Region IV
Region VII
RTF
Sample Size
814
1,126
554
Universe
814
1,126
554
       The audit was performed in accordance with the Governmental Auditing Standards
issued by the Comptroller General of the United States (1994 revision).  The audit included
tests of management and related Federal Manager's Financial Integrity Act (FMFIA)
controls, policies, and procedures specifically related to the audit objectives. The findings in
the report describe weaknesses  identified during  the audit and our recommendations to
correct these weaknesses. We identified weaknesses in the implementation of the program's
internal controls, and are proposing that EPA consider these bankcard program  weaknesses
as an Agency-level weakness.

       No previous reports have been issued on  the Agency's bankcard program;  and
therefore, no follow-up  audit work was  necessary.  Also, no other issues came to our
attention which we believed were significant enough to warrant expanding the scope of this
audit.

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Report of EPA's Use of The Government Purchase Card
E1BMF5-11-0004-5100486
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Report of EPA's Use of The Government Purchase Card
EIBMF5-11-0004-5100486
                                   CHAPTER!

                      THE AGENCY COULD REDUCE
                                      ADMINISTRATIVE C<
                 BY INCREASING THE BANKCARD'S USE
       The bankcard program was intended to streamline and to reduce or eliminate the use
of other less efficient and more costly small purchase methods.   Cost savings and other
benefits expected from the bankcard have not been fully realized because the Agency did not
implement a small purchase mandate directing all procurement officials to make maximum
use of the bankcard. While the bankcard has substantially reduced the number of small
purchases made through other less efficient methods of procurement, significant additional
savings are possible.

       During fiscal year 1994, EPA issued 26,042 purchase orders under $2,500.  Our
review indicated that between 33-50 percent of small purchase transactions, depending on the
office/region reviewed, made through the standard purchase order method could have been
processed using the bankcard. If the results of our review are consistent within the entire
Agency,  EPA could have saved as much as $700,000 in administrative costs during fiscal
year 1994. Agency officials stated that our savings projections  are probably conservative.
The savings would have resulted because a bankcard transaction is the least expensive small
purchase method, providing the Agency administrative cost savings as compared to the
purchase order method.  Additional efficiencies could also have resulted had the bankcard
been used as intended rather than the imprest fund method.

Increased Bankcard Use  Will Reduce Agency's Small  Purchase Administrative Costs

       Compared to the purchase order method, the bankcard method is a more cost efficient
method of procurement.  The Government Council sponsored a group of governmental
agencies  in 1994 to perform a cost-benefit analysis, comparing the cost of processing a small
purchase transaction using the purchase order method and using  the government bankcard.3
The study estimated the time  required for all the various steps necessary for each process to
acquire supplies and factored  in applicable salary rates.  This governmentwide study
determined a cost savings of $53.77 per  transaction when the bankcard is used  rather than
the purchase order method.
      3 The Government Purchase Card. Reinventing the Federal Government, Purchase
Card Council, dated September 1994.  The government Purchase Card Council, sponsored
by the Office of Management and Budget, Office of Federal Procurement Policy
(OMB/OFPP), was charged with promoting the NPR's streamlining initiatives by
encouraging governmental agencies to use the bankcard.  This report details the results of
their review and provides recommendations to agencies to expand the card's use.

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 Report of EPA's Use of The Government Purchase Card
                          EIB M F5 -11 -0004-5100486
       The bankcard training instructor stated that an EPA-specific study had also been
performed during the mid-1980's which indicated that the cost of processing a standard
purchase order was $250 compared to a $15 cost to complete a bankcard transaction, a
difference in cost of $235.  However, we were unable to obtain evidence from data provided
to specifically substantiate these figures.  At the time of our review, EPA had never
performed its own cost-benefit study; however, procurement officials at EPA and at other
agencies estimate that the average cost now to process a purchase order may be as high as
$300.

       Rather than investing substantial time to develop more precise numbers to estimate
savings than these available, we concluded that under any method, estimated savings would
be very substantial.  We then chose to use the most conservative estimates of savings
possible to show that the possible efficiencies are very substantial under any estimating
method used.

       The following are results  of the Purchase Card Council's study:
Cost; comparison:

Cost of purchase order
Cost of bankcard

Potential Savings
$ 94.20
$ 40.43

$ 53.77
       We reviewed a random sample of purchases orders under $2,500 for fiscal year 1994
in Headquarters and two regions, Region IV and Region VII, to determine whether these
small purchases could have been made using a bankcard.  We found that between 33-50
percent of the purchases, depending on the office/region reviewed, could have been made by
the program offices using a bankcard.  Purchases which could have been bought using a
bankcard included items such as a $12 book, a $21 magazine subscription, $11 of computer
accessories, $11  of office supplies, and $36 for boxes.  The following table shows the
projected procurement administrative cost savings the Agency would have realized during
fiscal 1994 had the bankcard been used whenever possible, using the potential savings figures
from the more conservative Purchase Card Council's study.

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Report ot" EPA's Use of The Government Purchase Card
EIBMF5-11 -0004-5100486
Projected Procurement Administrative Cost Savings
at Three EPA Locations by Maximizing Bankcard Use
Fiscal 1994
EPA Region
Headquarters
Region VII
Region IV
Total
Total number of
purchase orders in
FY '94
1,351
1,241
1,478

Number bankcard
eligible/
Number reviewed
65 / 200
33%
1 1 1 / 220
50%
85 / 200
43%

Potential savings
($53.77 per
transaction)
$23,972.28
$33,364.29
$34,172.99
$91,509.56
       As the table indicates, Headquarters and the two regional offices could have saved
approximately $91,510 in procurement administrative costs during fiscal  1994 using the
bankcard.  Most of the savings would have resulted from reductions in labor costs required
to process purchase order transactions.  If these percentages (between 33 and 50 percent) of
bankcard eligible transactions are consistent throughout the entire Agency, EPA could have
saved between approximately $462,091  and  $700,139 in  administrative and processing costs
during fiscal 1994, according to the following chart.  Had we been able to verify the $235
administrative cost savings cited by the  bankcard  official, using their estimates would have
demonstrated potential cost savings to the Agency of as much as $3 million dollars.
Projected Procurement Administrative Cost Savings
by Maximizing Bankcard Use
Fiscal 1994
Total number of
purchase orders
processed at EPA during
FY '94
26,042
Range in percentage of
purchase orders bankcard
eligible
33%
50%
Potential
savings
($53.77 per transaction)
$462,091
$700,139
       Not only does the use of the bankcard save the government in administrative costs,
the bankcard is a more efficient procurement tool than the purchase order method.  Our
review indicated that in the regions reviewed, the average processing time from the date of

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 Report of EPA's Use of The Government Purchase Card
E1BMF5-11-0004-5100486
request to the date the ordered item arrived ranged between 57 and 70 days.  However, an
item can be purchased by a cardholder in as little as an hour using the bankcard.

       Another method of making small purchases is through the imprest fund.  To review
for instances where the bankcard could have been used, we evaluated imprest fund
transactions for fiscal 1994 in three regional offices (RTF, Region IV, and Region VII). Our
analysis showed that 190 transactions (7.6 percent) out of a total of 2,494 totaling
$20,063.55 were bankcard eligible and that the fund cash levels could have been reduced if
the purchases had been made with the bankcard.

EPA Lacks Mandatory Policy on Bankcard's Use

      • EPA does not have a policy requiring the use of the bankcard whenever  it is
allowable.  During our review,  we found that EPA's bankcard use varied among regional
offices. For example, we found that one region had established a proactive policy mandating
the use of the bankcard whenever allowable,  while another  region had not implemented the
bankcard program at all.   We found one other region and one program office that do not
require the bankcard's use but had tried to encourage the card's use by returning purchase
orders to program offices when the card could have been used.  However, these regional
officials stated that their efforts met with complaints from program offices so they began
processing the purchase orders again.

       Region IV officials issued a policy memo in September 1994 requiring program
offices to use the bankcard whenever allowable, and stated  that purchasing agents would
return all purchase orders to the originating office if the use of a bankcard was allowable.
Regional purchasing agents stated that they had not begun to strictly enforce the policy in
order to give cardholders ample warning and sufficient opportunity to attend the bankcard
training course, but were planning to begin strongly enforcing the policy  after our visit.
They stated that although they had not strictly enforced the  policy at that  time,  the number of
purchase orders processed by Regions IVs Small Purchase Unit (SPU) that were allowable
bankcard purchases had decreased by approximately 50%.

       Our review also indicated that after the policy was announced, the purchasing agents'
average time spent processing purchase orders had decreased by almost one-third.
Therefore,  administrative  time spent by purchasing agents was more effectively spent
ordering higher valued items than items that could  have been ordered through the bankcard
by cardholders.  As the following chart states, as the percentage of purchase orders which
were allowable bankcard purchases decreased, the  SPU's average  processing time decreased.

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Report of EPA's Use of The Government Purchase Card
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Decrease in SPU's Purchase Order Processing Time as
Mandatory Bankcard Policy Memo is Issued
Percent of purchase orders =
potential bankcard purchases
Average time to process purchase
orders in SPU
Pre-policy
43%
67 days
After Policy
21%
45 days
Decrease
51%
33%
       Small Purchase Officials in Headquarters, and RTP, stated that they had tried
returning purchase orders to program offices in instances where the bankcard could  have
been used, but were often met with complaints from program office officials.  An official in
the Headquarters Small Purchase  Unit stated that they began sending  purchase orders back to
program offices  during fiscal 1993 and 1994, requesting that they use the bankcard.   Because
many program office officials complained about the inconvenience, the purchasing agents
were told  by senior level management to process the purchase orders in the name of
"customer service."  According to the Chief of the SPU, if program offices were required to
use the bankcard for at least magazine and book subscription purchases, it would probably
release about one-third of the purchasing agents' time.  He explained that this would far
outweigh the extra resources that may be necessary to compensate for additional oversight of
bankcard transactions.

       Although some regions have mandated or at least recommended the bankcard's use,
we found  that Region VII was not participating in the bankcard  program.  We met with the
regional Small Purchase Unit officials. The officials said that they had not used the card in
the past because program office officials were apprehensive about using the card and did not
believe that the bankcard's use  was advantageous because the region did not have a  large
budget allowance for small purchases. Officials  in the SPU stated that  they had recently
decided to become involved in  the bankcard program due to the encouragement of the
Director, Office of Acquisitions (OAM).   They stated that they were planning to participate
in the program once they were  assured that the proper  controls were  in place in the  region
and individuals had attended the bankcard program training. At the time of our visit,
bankcard training applications for five or six Region VII officials  had recently been  sent to
the bankcard program  team at Headquarters.

       We contacted officials from the Headquarters' bankcard program team and in CFMC
to determine the additional staffing that would  be required if a mandatory policy was
instituted Agency-wide and the  amount of bankcard transactions doubled.  Members of the
bankcard program team stated that they believed that they were already understaffed and that
in order to handle the additional bankcard transactions, they would need at least one
additional procurement agent and additional clerical assistance.  An official in CFMC stated
they would need only limited additional resources to assist in processing payment
information.  We believe that the increase of personnel needed to manage the bankcard
program at Headquarters and CFMC  would  be justified due to the administrative cost savings
of as much as $700,000.  Also, as the purchase order workload decreases due to the increase

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in bankcard use, a purchase agent could be relocated or detailed during peak periods from
the Small Purchase Unit to the bankcard program team section in PCMB.

Conclusion

       The bankcard program was intended to reduce or eliminate the use of other less
efficient and more costly small purchase methods.  Cost savings and other benefits expected
from the bankcard have not been fully realized because the Agency has not implemented a
small purchase mandate directing all procurement officials to maximize bankcard use. Our
review of fiscal 1994 small purchase transactions indicated that reducing  the number of
purchases made through other methods of procurement could result in administrative cost
savings to the Agency of as much as $700,000.  Although additional staffing  would be
necessary to implement a mandatory policy of bankcard use, we believe that the costs for
additional employees would be justified considering the administrative costs savings.
  Recommendation

        In order to reduce smalJ purchases administrative costs by increasing the
  bankcard's use, we recommend that the Acting Assistant Administrator for
  Administration and Resources Management:

  •     Establish an Agency-wide policy requiring the use of the bankcard whenever
        allowable.
AGENCY RESPONSE

       The Agency agreed with our recommendation to establish an Agency-wide policy
requiring the use of the bankcard whenever allowable.  The Agency anticipates issuance of
this policy for comment in draft form by October 1,  1995, and the final policy memorandum
by November  1995,
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                                   CHAPTER 3

                       EPA'S RESTRICTIONS IMPEDE
                 THE BANKCARD PROGRAM'S GROWTH
       The bankcard was not always used when allowable.  This cost the Agency
inefficiencies and additional administrative expenses.  The use of the bankcard is encouraged
in order to streamline government activities.  We found that EPA's additional restrictions
hindered implementing the bankcard to its fullest potential in EPA.

EPA's Restrictions Impede Bankcard's Use

       The bankcard Program was implemented govern men twide to reduce or eliminate the
use of other less efficient and more costly small purchase methods.  The National
Performance Review (NPR) recommended that managers be provided with the ability to
authorize employees who have a bona fide need to purchase small dollar items directly using
a bankcard.  The government Purchase Card Council, sponsored by the Office of
Management and Budget, Office of Federal Procurement Policy (OMB/OFPP), was charged
with promoting the NPR's streamlining initiatives by  encouraging governmental agencies to
use the bankcard.

       The Purchase Card Council, consisting of thirteen governmental agencies, met last
year to discuss impediments to the government's bankcard program. The council's report,
issued September 1994, stated each Agency's procedures needed to  be simple,  direct, and
unencumbered by unnecessary regulations and paperwork in order to expand the use of the
bankcard.  A council participant stated that she found restrictions vary greatly from agency
to agency, and she recommended that agencies review their procedures and remove
unnecessary limitations.  She said that there should be a balance between the safeguards
providing control and hindering the potential full use  of the card.

       In an effort to make the U.S. government bankcard program as nonrestrictive as
possible, GSA prohibited only three types of transactions in its contract with Rocky Mountain
Bank:  (1) rental or lease of land or buildings; (2) purchase  of telephone services, and; (3)
cash advances.  In addition to these exclusions, all purchases must also be made in
accordance with FAR requirements.  Each Agency  is permitted to further restrict types of
purchases authorized. EPA issued several additional  restrictions. These restrictions include
items which are generally those where the government American Express Card would be
used or those considered as personal use  items.  EPA also restricts  items that are provided
through mandatory sources of supply, or items or services that require special  procedures or
conditions. Additionally, EPA restricts purchase of laboratory equipment and  scientific
supplies whose price exceeds $300. (See  Appendix  II for a complete listing of EPA's
purchase restrictions.)
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       A member of the bankcard program team said that EPA had more restrictions than
other agencies.  She said that many of the items are restricted for purchase by EPA bankcard
holders other than purchasing agents because the items are provided through mandatory
sources of supply.  PCMB officials made the decision to include additional restrictions on
"more complicated" purchases available through mandatory supply schedules due to the
limited training provided to bankcard users.

       We interviewed several cardholders and approving officials to  determine  their overall
satisfaction with the bankcard program.  Several stated that they were very pleased with the
program and found  it  to be helpful and convenient overall.  However, many also stated that
in order to fully benefit from its use, they would like to see the program expanded and the
number of restrictions reduced.  They wanted to be allowed to purchase many of the items
now restricted, such as laboratory equipment over the current $300 threshold,  small dollar
office equipment, and award plaques; however, PCMB made the decision to restrict the
purchase of  these items due to their availability from mandatory sources.  Many cardholders
stated that in view of EPA's mission, they do not understand why a restriction was placed on
such a widely-used item as laboratory equipment (over $300), considering one of the
purposes of  the bankcard is to empower employees.

       We also spoke to a number of bankcard holders who said that they found EPA's
listing of restricted items to be very confusing and that the bankcard restrictions were too
numerous and complicated.  We were told that several cardholders in one regional office had
destroyed their bankcards upon receipt after attending the bankcard training course.  They
were concerned that they might accidentally purchase an item on EPA's prohibited listing and
be prosecuted.  We believe these excessive restrictions are hindering  the growth of bankcard
use, which in turn causes inefficiencies and additional administrative costs to the Agency.

EPA's Guidance Includes Items No Longer Restricted

       We found that although several items are no longer restricted for purchase by GSA,
EPA's guidance has not been updated to address these changes. EPA's bankcard guidance
stated that procurement policy requires that certain items available from mandatory sources
of supply may not be  purchased  by bankcard holders other than purchasing agents.
Therefore, these items were placed on EPA's restricted listing and excluded from purchase
by bankcard holders using outside sources. However, several supply schedules  expired;  and
therefore, items available from these schedules were no longer restricted for purchase, but
EPA's restrictions listing has not been updated.

       Last  year, GSA officials  made the decision to cancel many of the mandatory supply
schedules and renew them as optional schedules in support of the Federal Acquisitions
Streamlining Act.  Most GSA schedules are due to expire at various times during the next
three to four years and will also be converted to optional use schedules. As schedules
expire, the items available on those schedules will no longer be restricted for purchase by
bankcard holders from the open  market.  For example, the following schedules  have expired
dealing with:  laboratory instruments and equipment, telecommunications equipment,
miscellaneous furniture, office supplies, and active clothing and footwear.
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       In addition to the GSA schedules that have expired, many mandatory supply sources
now accept the bankcard as a method of payment, including Federal Prison Industries (FPI or
UNICOR), National Institute for the Blind/National Institute for the Severally  Handicapped
(NIB/NISH), and also GSA.  However, many of the items available for purchase through
these sources are still listed as restricted by EPA. For example, furniture which was
originally placed on the restricted items listing because it was  provided on UNICOR's
mandatory supply source is still listed as a restricted item although UNICOR now accepts the
bankcard as a method of payment.

       Although we found during our review  that several mandatory supply schedules had
expired and  that some mandatory sources now accepted the bankcard as a method of
payment, EPA's bankcard guidance had not been updated to address all of these changes.
The bankcard program team told us that they  have very little time for their Bankcard duties
because of the press of their other responsibilities and  there are  "paperless office" restrictions
on dissemination of bankcard data.  We found they have not disseminated updated guidance
materials and bankcard information to all cardholders.  An official in the Procurement and
Policy Branch (PPB) stated that the schedules are expiring  at different times; and therefore, it
has been difficult to track which items are still available  on a  mandatory schedule.  For
example, there are about fifteen schedules for just laboratory equipment and they are all
expiring at staggered increments.  To further complicate the issue, some laboratory
equipment items are overlapping in more than one schedule; and while some schedules have
expired, others have not. The official in  PPB stated that as these schedules are expiring,
they plan to reassess their restrictions.  In the meantime, EPA cardholders are restricted from
purchasing all laboratory equipment over the $300 threshold, although many items are no
longer restricted.

Other Agencies Have Streamlined Their Restriction Policies

       GSA's Contracting Officer for the govemmentwide bankcard program said she
believes that many agencies have more restrictions than are necessary.  She said that a
number of federal agencies have already eliminated many of the prohibited items currently on
EPA's restrictions listing in support of government streamlining. We also spoke to several
officials from other agencies to determine what criteria they had  used for determining their
listing of purchase restrictions.  Most stated that  they were surprised at the number  of
restrictions imposed by EPA in addition to GSA  restrictions,  and believed that EPA was  not
expanding its bankcard program as much as it could.

       An official in the Department of Defense  said she believes that EPA is "micro-
managing" its program by implementing such extensive controls. She does not restrict items
that are available through GSA's Federal Supply  Schedules if they are under the $300
threshold. They justify this because, as stated earlier,  it is not economically feasible to go
through the  standard purchase order process to purchase such  small dollar items rather than
use the bankcard.  Most schedules have a waiver allowing for purchases to be made from
other sources if the cost is under a $300 threshold. Items which appear on EPA's restriction
listing such as calculators, typewriters,  award plaques, and cameras, are not restricted by her
Command Section's program because, again,  it is not  economically feasible to go through the
standard purchase order process. Also,  her department's program allows cardholders to

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justify purchasing "emergency"  items that may be available from mandatory sources of
supply by citing the amount of time it takes for small purchases to be processed using a
purchase order.  She stated that they have not identified any purchasing abuses as a result of
their more liberal policy.

       We also spoke to an EPA official who formerly was a bankcard program coordinator
at the Department of Agriculture (DOA).  He stated that in DOA's bankcard program, there
was no difference between the purchasing power of program and purchasing agent bankcard
holders.  Bankcard holders can order items on the Federal Supply Schedule if they have
attended the training course and understand the  mandatory supply requirements. He also said
that his Agency allowed cardholders to purchase items from the open market that were
available at a mandatory source if the total purchase price  was less  than $300.

       An official in the Department of Commerce (DOC), whose Bankcard program  has
been cited as exceptional, also agreed that EPA is not expanding its program as much as it
could and suggested that EPA's rules may be too stringent. DOC's bankcard  program
procedures also allow bankcard  purchases which are available from mandatory supply
sources if they are under the $300 threshold.

EPA Updated Its Restrictions

       At a July 14th meeting with OAM officials to discuss our position papers, we were
provided a July 7,  1995 memorandum from the Director, OAM which updated EPA's
guidance to provide for changes in GSA schedules.  This memorandum allows bankcard
holders to purchase items which previously were restricted, including awards/trophies and
laboratory equipment over $300. We were told that the Director, OAM had also sent a
memorandum to GSA officials during the prior  week requesting a waiver to allow EPA's
bankcard holders purchase items under a $2,500 threshold level which are available from
GSA's mandatory supply schedules. Additionally, OAM officials said that the members of
the bankcard  program team were preparing a memorandum to cardholders which would raise
previously restricted items, such as typewriters and calculators,  to a $300 threshold level.
We commend these streamlining initiatives taken by OAM; however, we encourage OAM to
promptly disseminate these new guidelines to all bankcard holders and approving officials,
not just to Division Directors and Regional Contracting Officer Supervisors, so that these
changes can be  implemented Agencywide.

Conclusion

       The bankcard program was  implemented governmentwide to reduce or eliminate the
use of other less efficient and more costly small purchase methods. The Agency could better
use the bankcard program to reduce costs, improve timeliness of purchases, and improve the
efficiency of the Agency staff.  Our review indicated that EPA's additional restrictions
hindered  the card's expansion.  OAM officials are currently updating EPA's bankcard
restriction guidelines and are seeking approval from GSA officials to  implement a waiver for
bankcard purchases under a $2,500 threshold available  from mandatory supply schedules.
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  Recomm endation:

         We recommend that the Acting Assistant Administrator for Administration
  and Resources Management re-evaluate and eliminate many of the restrictions which
  impede the bankcard program's growth by:

  •      Implementing a policy of periodically updating the restrictions listing and
         disseminating this information to cardholders and approving officials.
AGENCY RESPONSE AND PIG EVALUATION

       The Agency generally agreed with the finding presented under the heading, "EPA's
Restrictions Impede The Bankcard Program's Growth," and is taking steps to revise and
reduce the list of restrictions. The Agency recently requested a waiver from the General
Services Administration for exemption from mandatory federal supply  schedules within the
micro-purchase dollar threshold ($2,500).  If the waiver is granted, the "EPA Guidelines for
Use of Government Bankcards" will be modified to allow Cardholders to use the Bankcard
for purchases of any supplies/services that are available on the mandatory federal supply
schedule.  If the waiver is denied, the Agency will reevaluate its  position and determine an
alternative remedy.

       The Agency generally agreed with our findings noted under the heading, "EPA's
Guidance  Includes Items No Longer Restricted." However, the Agency requested that we
clarify our statement in  this chapter where we said that several federal supply schedules had
expired.  We cited as examples laboratory instruments and equipment, telecommunications
equipment, miscellaneous furniture, office supplies, and active clothing and footwear. The
Agency identified several federal  supply schedules  which have not expired which contain
laboratory equipment.  We agree  that not all of the laboratory schedules have expired, but
the bankcard restriction  listing should be updated to identify those schedules which have
expired.

       In  regard to our  statement that miscellaneous furniture is no longer on a mandatory
schedule,  the Agency replied that UNICOR (Federal Prison Industries) is still the mandatory
source of  supply for furniture.  However,  the Agency stated in its response to the draft
report that it will begin  notifying  bankcard  holders and approving officials that UNICOR has
begun accepting the bankcard for purchases from their "Quick Ship" catalog in February
1995.  We believe Agency guidance should have been updated sooner  to notify bankcard
holders and approving officials that UNICOR will accept the bankcard for selected items.

       The Agency generally agreed with our findings under the  heading "Other Agencies
Have Streamlined Their Restriction Policies" and is in the process of updating the restricted
list and will allow program office bankcard holders to purchase items from mandatory federal
supply schedules under the $300 threshold.
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                                    CHAPTER 4

                         PCMB NEEDS TO IMPROVE
                  ITS MANAGEMENT CONTROL SYSTEM

       While recognizing the benefits from the expanded use of the bankcard program  within
the Agency, we believe that the bankcard program's management control system should be
improved to support these additional transactions.  Management is responsible for
establishing effective controls, including  procedures to ensure that program goals are met.
The management control system for the bankcard program can  be improved through written
guidance for the bankcard program team. The team also needs the ability to conduct more
than one annual review of bankcard holder's activities, and computer-generated exception
reports should be used to assist in performing  administrative responsibilities.  We found
some  inconsistencies  in program management  and a lack of effective implementation of some
internal controls.  Additionally,  we found that oversight  provided by some approving
officials, who are responsible for direct oversight and  approval of bankcard purchases,  could
have been improved. These officials were not required by PCMB to attend bankcard
training, and therefore, were not familiar with specific bankcard program requirements.
Strengthening internal controls is critical to ensure the bankcard program's  integrity with the
recommended expanded use and increased number of transactions expected.

       During our  review, we found that the management provided by the bankcard program
team could have been more consistent and timely.  The bankcard program team did not
timely update and disseminate current bankcard information, including EPA's master listing
of cardholders and approving officials and EPA's bankcard  program  guidance changes.
Additionally,  we found that the team inconsistently managed the program by granting special
approvals to some cardholders to purchase "restricted" items without documenting these
approvals.  It is important that all  bankcard information is current and disseminated to the
appropriate officials and that the bankcard program is  managed uniformly so that program
guidelines are clear and followed consistently.  We believe that many of these management
problems are caused by the lack of written guidance procedures for the bankcard program
team (A group of individuals consisting of a Procurement Analyst, a Procurement Assistant
and the Contracting Officer's Technical Representative.  The team is responsible for the day-
to-day management of the EPA bankcard program and reports to a Supervisory Contact
Specialist for policy guidance).

Bankcard Program Team Lacks Written Oversight Procedures

       EPA's "Bankcard Training and Call Ordering Officer Course Manual" states that
officials of EPA's bankcard program team are primarily responsible  for the day-to-day
management and oversight of the program.  Although the bankcard program team officials
are responsible for the oversight of EPA's bankcard program, they lack written procedures
detailing their oversight duties and responsibilities.  Written procedures are important
because they provide structure and consistency to the internal controls needed to monitor the
program.  Officials in PCMB inferred  that the only written  guidance the bankcard program
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 Report of EPA's Use of The Government Purchase Card
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 team has regarding their specific bankcard oversight duties is what is included in the "EPA
 Bankcard and Call Ordering Officer Training Course Manual."

        The course manual only briefly states that the bankcard program team is responsible
 for the overall management and oversight of the bankcard program and that the team will
 regularly review bankcard purchases to ensure compliance with bankcard guidelines.  This
 includes reviews of daily transaction reports  received by the bankcard program team in
 Headquarters and reviews of bankcard purchases and supporting documentation which are
 maintained  at the Cincinnati Financial Management Center (CFMC).  The guidance does not
 specifically address each player's role in the  oversight process, the timeliness or scope of
 such reviews, provide detailed procedures to be  followed to ensure compliance with bankcard
 guidelines,  or provide guidance in the case of compliance exceptions.  The lack of detailed
 oversight procedures reduces the opportunity for the bankcard program to operate effectively.

 PCMB Needs to Improve Qversieht Review  Program

        PCMB has performed limited oversight of the bankcard program, delegating overall
 responsibilities to the bankcard program team and to the staff of the CFMC for primary
 oversight and guidance for the bankcard program.

        At the end of each monthly cycle, bankcard holders are responsible for forwarding
 their signed bankcard logs and Statements of Account, along with all supporting
 documentation,  to CFMC.  Although the bankcard training guidance states that CFMC is
 responsible for performing monthly reviews of this documentation and "routinely" notifying
 members of the bankcard program team of any indications of improper purchases, CFMC
 officials stated that they use  this documentation only to obtain financial data, and do not
 perform a review of  individual purchases to determine whether they are proper.

        According to  the bankcard guidance,  the bankcard program team, located at
 Headquarters, is responsible for the overall monitoring of "all" cardholder's purchase
 transactions. The team is composed only of one full-time and one part-time procurement
 analyst. Because the team members do not have access to the detailed transaction
. information sent to Cincinnati, they instead review summary reports provided by the
 contractor bank which  identify only the name of the vendor,  the vendor's standard industrial
 code (SIC), and the amount  of the transaction.  These reports do not contain detailed
 transaction  information such as the actual description, price,  and quantity of each item
 purchased.  The team uses these reports to develop a preliminary "questionable purchases"
 (Q-buys) list of potentially prohibited purchases.  The Q-buys database stores the date, the
 merchant, and the amount of the questionable purchase.  Examples of Q-buys are: (1)
 purchases made at the same  merchant more than once during the same day (potential split
 purchases);  (2) purchases exceeding the single transaction and office monthly spending limit,
 and;  (3) purchases made at a merchant who may sell restricted items.  This listing is used to
 assist in identifying potential card abuses when performing their detailed review of the
 purchase documentation at CFMC.  Although the Q-buys review identifies some possible
 abuses  of the bankcard, it does not identify other abuses such as missing signatures and
 supporting documentation  or signatures on receipts made by officials other than the
 authorized bankcard holder.

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       We were told by team  members that funds are available only to travel to CFMC for
one week out of the year due to other travel priorities.  During this limited time period, the
team is only able to review a small portion of the approximately 26,000 purchases  made
during the year.  During the OIG's review, we selected a sample of 35 (out of almost 900
total to date in  fiscal 1995) cardholders and planned to review their fiscal  1994 bankcard
logs, account statements, and supporting documentation during one week at CFMC.  We
found it difficult to readily locate cardholder's files due to the quantity of documentation and
the complex  filing system established by CFMC's officials which is designed for payment
versus review processes.  Therefore, we were able to review most of the 35 cardholders'
bankcard  logs,  but only two months of statements of account and supporting documentation
for fiscal  1994.

       Members of the bankcard team said that once potential abuses are identified during
their once a year review in CFMC, they will call or  send a letter to the cardholder.  In many
cases,  this may be months after the purchase  has been made. Members of the team stated
that they would understand if these cardholders did not take  the long-overdue warning
seriously. Further, the team stated that the quality of the oversight suffers because they only
have the time to "scratch the surface" when performing their reviews and lack the time to
sufficiently follow up on any problems identified during their review.

       The Chief, PCMB, has  the responsibility and  authority to cancel or suspend any
bankcard  account when it  is determined that cancellation or suspension is necessary due to
causes of:  (1)  fraud,  waste, or abuse; (2) unauthorized  use of the bankcard by the bankcard
holder or  any other individuals having access to the bankcard; (3) bankcard holder's failure
to follow  established Agency guidelines; and  (4) a request by the bankcard holder or
approving official to cancel or suspend the card.

       Bankcard program team members stated that if they could perform  more timely
reviews, they could more  stringently enforce  suspension of cards, especially for cardholders
who routinely send late logs to CFMC or  do  not send them in at all.  They are reluctant to
suspend cards of potential abusers since they  do not have access to all the  necessary
documentation until they perform their on-site review at CFMC. Further,  they told us that
they  do not have adequate staff-time available to continuously track suspended cards.

       We interviewed some of the cardholders who  had violated the bankcard program's
guidelines such as not providing sufficient documentation for all purchases or misusing the
card.  These cardholders said that they had never been contacted nor reprimanded by
bankcard officials.  Adequate review and prompt followup are necessary in order to ensure
that guidelines are being followed properly and to correct any deviances from the guidelines.
Although  the frequency and severity of violations identified were minor, the lack of proper
followup indicates a potential weakness in the review process.
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Oversight Provided bv Approving Officials Needs Improvement

       Although EPA's bankcard training manual states that the approving official is
responsible for overseeing the cardholder and ensuring that all bankcard purchases are
"proper," we found that almost one-third of the approving officials in our sample had not
attended bankcard training.  Several also did not have a copy of the course manual which
explains the role the approving official plays in oversight duties and details which purchases
are restricted or require special approvals.  Several approving officials told us that they trust
their cardholder(s) to know what purchases are proper.

       According to EPA's bankcard training manual, the approving official, generally the
immediate supervisor of the bankcard holder, is responsible for overseeing the cardholder
and ensuring that all bankcard purchases are "proper."  The approving official is responsible
for receiving and reviewing completed bankcard logs and monthly bank statements from  their
cardholders, resolving questions, signing the bankcard logs and statements, and ensuring the
completed cardholder statements are delivered with all attachments to CFMC. The
approving official is required to review each cardholder's purchases, and determine if these
items were for official use and if they were items allowed to be purchased in accordance with
GSA and EPA regulations.  Officials at Rocky  Mountain Bank stated  that they recommended
this dual control in the system, requiring an approving official to monitor the bankcard
holder's purchase activities,  in addition to the bankcard  program team's oversight and review
procedures.  Oversight at the program office level is an important control because it provides
an additional control at  the organizational level and complements the bankcard program
team's oversight.  Unlike cardholders, approving officials at EPA  are not required to attend
bankcard training.

       An official in PCMB said that currently training  is not mandatory for approving
officials because it is an unnecessary burden to place on higher-level supervisors.  However,
members of the bankcard program team involved in the day-to-day management and
oversight of the program agreed that in order for the approving officials to be an effective
control,  they should also be required to attend the training course  so they understand  their
responsibilities. Approving officials would need to take only the four-hour bankcard  portion
of the training  course.  By not having completed the bankcard training course; depending on
their cardholder to determine proper purchases; and, not maintaining  a copy of the course
manual, the potential exists for compromised internal controls.

       We selected seven major bankcard internal control elements and analyzed bankcard
documentation for 35 cardholders in order to determine whether their fiscal 1994 bankcard
purchases complied with the FAR and EPA regulations. We found some instances of
inadequate or  missing documentation; these included cardholder's  monthly statements and
logs, approving official signatures,  receipts, and written descriptions of purchases.  We also
found instances of card  misuses,  including small dollar  purchases  made which are on EPA's
restricted items listing, purchases made by employees other than the official cardholder,  and
purchases which were split in order to stay within established spending limits.  The following
table shows the results of our analysis.
                                           19

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Report of EPA's Use of The Government Purchase Card
E I BM F5- [ I -0004-5 100486
Analysis of Bankcard Internal Control Elements
Internal Control Element
Cardholder included purchase receipts with all
FY '94 statements of account
Cardholder provided adequate description of
purchase on all FY '94 statements of account
Approving Officials signed all FY '94 statements
of account
Cardholder split purchases to avoid card purchase
limits during FY '94
Cardholder purchased items from restricted
listing during FY '94
Cardholder lent card to other employee for use
during FY '94
Cardholder did not secure card at EPA office
location
Yes
31
28
31
3
' 3
4
8
No
4
7
4
32
32
31
27
% Violation
11%
20%
11%
9%
9%
11%
23%
       As shown above, all seven internal controls were violated. The most significant
weaknesses  identified were:  (a) cardholders who did not attach purchase receipts or provide
annotated purchase descriptions along with their monthly statements, (b) approving officials
who did not sign/approve their cardholder's statements of account, and (c) cardholders who
split purchases to avoid their purchase spending limits.

       We found that 11 % of the bankcard holders we sampled did not always attach
purchase receipts to their monthly statements as required.  In addition, 20% did not always
provide annotated  descriptions  of purchases as required by the  bankcard guidance.  We found
that one cardholder had not provided CFMC purchase receipts  along with her monthly
statements.  Her approving official, who had not attended the bankcard training course, said
that he trusted his cardholder and signed the monthly statements without the receipts.  The
failure to include purchase receipts and descriptions along with monthly bankcard  statements
makes it difficult for approving officials to ensure purchases were for official use.

       In another example of an  internal control element not being followed or enforced, we
found that four of the approving  officials  in our sample did not always sign/approve their
cardholder's fiscal  1994 statements of account.  We found that one cardholder did not
provide receipts or annotated descriptions along with her monthly statement as required by
bankcard guidance and  her approving official did not sign her monthly statements.  However,
the finance office, based on its procedures, would still authorize payment of all bankcard
charges on these statements.
                                           20

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 Report of EPA's Use of The Government Purchase Card
E1BMF5-I1 -0004-5100486
       Additionally, we found that three cardholders had split purchases in order to avoid
their purchase spending limits.  One cardholder stated that because he did not want to wait
for the lengthy purchase order process, he purchased several laser-jet printers during a three-
month period.  He also said he bargained with the merchant to adjust the printer's price to
just below $1000 in order to keep the purchase under EPA's $1000 accountable property
threshold.  We also found that another cardholder had tried to purchase awards (a restricted
item) for an office ceremony that exceed her monthly spending limit. We were told that the
merchant agreed to split the total purchase cost and  charged the excess amount to another
cardholder in her office.  By splitting purchases, these cardholders circumvented imposed
EPA guidelines and limits.  As stated previously, although the frequency and severity of
these violations identified were minor, we believe improved oversight would assist in
identifying and correcting  these and other potentially more severe  violations that could occur.
A Comprehensive Qualify Assurance Program For Information Systems Is Needed

       The lack of automation of EPA's program compromises the timeliness of the
oversight process arid the management support provided to cardholders.  A large portion of
the bankcard program team's time was spent manually preparing cumbersome reports and
providing frequent customer support to cardholders.  Rocky Mountain Bankcard System (the
contractor bank) provides computer-generated reports and files which detail bankcard holder
account information and  transaction data.  This information is maintained on a system which
would enable the team to electronically download the account information and sort it based
on the team's needs.  Also, according to the bankcard program team, another system has
recently been developed by GSA which allows cardholders to interact with a CD Rom system
to answer frequently-asked questions related to bankcard purchases.  Use of this system by
cardholders  would alleviate the large portion of time the team spends providing day-to-day
customer support. At the time of this report, members of the bankcard program team said
they were planning to implement both systems in the near future.

       Rocky Mountain Bank provides agencies' account transaction information in the form
of hard-copy reports,  but also has the capability to download account information directly to
agencies who then develop programs to arrange this information into report format.  During
our review,  we found that members of the bankcard program team were spending a large
portion of their time manually inputting and updating transaction records to complete their
"Questionable buys"  (Q-buys) listing, which at the  time of our request, the team said was not
up-to-date.  This report is compiled using  the hard-copy summary reports provided by the
contractor bank and is used as a tool to identify potential bankcard abuses.  Recently, the
bank developed and made available their own user-friendly program for agencies' use which
replaces the need to provide hard-copy reports to agencies.  The bank offers an incentive, in
the form of a discount, to agencies who request only electronic information, instead of hard-
copy reports.  The discount is equal  to .0005 x the sales volume.  This program would
enable EPA's bankcard program team to print out their own reports;  as well as, modify
accounts, run queries, and sort the data.  With this system is place, the team will no longer
need to compile the "Q buys  list" or other reports manually.  At the time of this report,
members of the bankcard program team stated that they were in the process of establishing
this  system link with the Bank.

                                           21

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Report of EPA's Use of The Government Purchase Card
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       According to bankcard officials, General Services Administration (GSA), the Agency
responsible for the overall governmental bankcard contract, will introduce a CD ROM
system this year that allows customers (cardholders) to interact so that they get answers to
frequently-asked questions related to bankcard purchases.  The system was developed by
GSA in a general format, and each Agency must reformat and customize the program to fit
their own guidelines.  The bankcard program team told us that at least  fifty percent of their
time is spent providing customer support and researching and answering cardholders
questions regarding purchases.  Almost half of cardholders that we interviewed  stated that
they have contacted the team on various occasions and have always  received courteous and
helpful support, but many also stated that the response time was often slow. If the new
GSA-developed system is compatible with  software available to cardholders in EPA's
program offices, it would reduce the amount of time the team  must  spend on customers
support issues.  At the time of this report,  members of the bankcard program team stated that
they were considering purchasing the system, reformatting it to EPA guidelines, and making
it available to cardholders.
Bankcard Listings and Guidance Not Updated

       According to the "EPA Bankcard Training and Call Ordering Officer Course
Manual," if a bankcard holder leaves the Agency or transfers within the Agency, the
approving official must ensure that the bankcard is destroyed and an "I.M.P.A.C. Card
Destruct Notice" form is completed and forwarded by the approving official to PCMB's
Bankcard Unit.  Further, it is the responsibility of the approving official to notify the EPA
bankcard program team of any change in the status of his/her bankcard holders.

       We found during our review that a  number of approving officials and cardholders on
Rocky Mountain Bank's master listing no longer worked for the  Agency, but were still listed
as the current approving official or cardholder.  An approving official stated that, even
though they had sent "I.M.P.A.C. Card Destruct Notices" to headquarters, the bankcard
holders still were sent a new card a year later. Officials in the bankcard program team stated
that all changes go through Rocky Mountain Bank and that sometimes the bank lost
information.  The Agency needs a better way to make sure the changes occur.  It is
important that once a cardholder leaves the Agency that their account be closed so that
fraudulent charges cannot later be made to their account.  Likewise, it is important that the
listing of approving officials be current so  that summary reports  provided by the contractor
bank can be delivered to and reviewed by the appropriate officials.

       EPA has implemented streamlining  measures during the past year, such as new
guidance now allowing cardholders to use the bankcard to procure conference rooms, to
purchase computers under $1000, and to purchase items from merchants other than those
considered  "small" business entities.  Also, as items are expiring from GSA's mandatory
federal supply schedules, they are no longer restricted for purchase by the bankcard.
However,  the bankcard program team stated that in addition to their other duties, they do not
have the time available to update the bankcard guidance  materials and inform cardholders of
the changes.  Also,  members of the team stated that they had not been informed of the Office
of Information Resources Management  (OIRM)'s policy memorandum expanding the

                                          22

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 Report of EPA's Use of The Government Purchase Card
E18MF5-11-0004-5100486
bankcard's use to permit procurement of computers until after the policy had been issued.
Several cardholders .and approving officials we interviewed stated that once they attended the
training, they did not receive guidance updates from the bankcard program team; and
therefore, were not aware of recent guidance changes.

       The bankcard program team told us that they were remiss in not informing all
cardholders and approving officials of all changes in the program.  They said that their D-
Mail distribution listing has  been outdated for quite some time, but that they updated it
earlier this year to include ail current cardholders.  They said that they realized that not all
EPA employees have access to D-Mail, but made a decision to not send hard-copy
memorandums to cardholders due to the government's initiative to go paperless.  As a result,
members of the bankcard program team are required to  spend additional time providing
customer support by answering cardholder's questions to clarify guidance changes.  This also
causes inconsistencies where only cardholders who call are aware of the changes in
restrictions,  while other cardholders who are not aware of the changes  unnecessarily process
purchase orders, resulting in increased  administrative costs to the Agency.

Special Approvals Were Inconsistent And Lacked Documentation

       During our review, we found that members of the bankcard team granted special
approvals to cardholders allowing them to purchase items on EPA's restricted listing;
however, we found no written guidance warranting the team members to make such
decisions. Many cardholders told  us that they had been granted special permission to
purchase restricted items on a one-time special basis.  For example, one cardholder  stated
that he was granted special permission  to purchase items on the restricted listing including  a
cassette recorder, safety clothing exceeding $300, and prescription lenses.  Others stated that
they had been given permission to purchase  newspaper advertisements, club memberships,
and award plaques using the bankcard.  The members of the team said that sometimes they
allowed special exceptions only for the "better" cardholders and that some former team
members were  more lenient than others when granting special approvals.   One approving
official  said  that she was aware of some instances where cardholders had called the  bankcard
program team and had bent  the truth about the expected use of an item when asking for
special permission to purchase restriction items.  We believe that the special approvals
granted were inconsistent and question  the validity of the restrictions given the frequency and
leniency of exceptions granted.

       During our fieldwork, we found that not only were  the special approvals given
inconsistent, but they also were not documented.  Several of the cardholders we interviewed
said that they had been given special permission to purchase restricted  items. Except for one,
who had received written approval from a former bankcard team member, the others said
that they had received the approvals verbally. When we spoke to members of the bankcard
program team,  they stated that they usually give permission in writing, and rarely give verbal
approval.  However, they did not maintain copies of all approvals, nor were there copies of
the team's approvals in the cardholder's bankcard log files; therefore, neither we nor the
bankcard program team could ascertain which approvals were authentic.  It is important that
all special approvals are not only  consistent, but also documented so that an appropriate
                                           23

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 Report of EPA's Use of The Government Purchase Card
E1BMF5-11-0004-5100486
paper trail is available for future reviews.  Members of the team agreed that they should
have documented all approvals and maintained copies.

Conclusion

       We believe that the bankcard program's management control system should be
improved to support additional transactions.  EPA's bankcard program team is primarily
responsible for the day-to-day management and oversight of the program; however, although
many of the internal controls were in place, they were not always implemented.  The
management control system can be improved through written oversight guidance procedures
for the bankcard program team.  The team also needs the ability to conduct more than one
annual review of bankcard holder's activities, and computer generated exception reports
should be used to assist  in performing administrative responsibilities.  Additionally, we found
that oversight provided by some approving officials, could have been improved  had these
officials attended bankcard training; and therefore, been more familiar with specific bankcard
program requirements.
  Recommendations:

         In order to improve the oversight and management, of the bankcard program,
  we recommend that the Acting Assistant Administrator for Administration and
  Resources Management:

  •      Develop written procedures for members of the bankcard program team to
         provide constancy to the management and oversight of the program, and
         implement a strategy for designing exception reports based on the
         computerized information available from Rocky Mountain Bankcard System.

  •      Require all approving officials to attend bankcard training.
AGENCY RESPONSE

       The Agency agreed with the findings identified in this Chapter.  However, under the
heading "PCMB Needs To Improve Its Management Control System. J1 the Agency disagreed
that the bankcard program team inconsistently managed the program by granting special
approvals to some cardholders to purchase "restricted" items without documenting these
approvals.  Although the team told us they have a procedure for granting approvals which
includes documentation, we could not find such documentation in either the bankcard
holders' files maintained at CFMC nor  did the bankcard program team provide any examples
of approvals.  With respect to approving officials attending bankcard training,  the agency
stated that a draft policy  will  be issued  by November 30, 1995 requiring approving officials
to attend the bankcard training class. If the current approving officials do not  meet the
training requirement within one year of the established waiver, another approving official
will be designated or the bankcard accounts will be suspended until the designated approving
official has met the training requirements.
                                          24

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Report of' EPA's Use of The Government Purchase Card
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       The Agency agreed with the finding under our heading "Bunkcard Program Team
Lacks Written Oversight Procedures" and will be issuing a document detailing written
procedures outlining the duties and responsibilities of the bankcard program team by
December 31, 1995. Further, the Agency agreed with the findings under  "PCMB Needs to
Improve Oversight Review Program" and stated that the Bankcard Unit will become a part of
the Internal Oversight Center within the Policy, Training and Oversight Division - and
bankcard reviews will now be performed by the staff in conjunction with the  Center's
regularly scheduled acquisition management reviews. However, the Agency also stated  that
it expects CFMC to immediately notify members of the bankcard program  team  when an
irregularity is discovered during the payment process.  We were told by the CFMC bankcard
financial specialist that CFMC's first priority is to review financial  data. They are not
interested in specific purchases or whether they are prohibited items but are interested in
whether cardholders send their bankcard logs and statements of account to CFMC in a timely
manner.  In addition, we were told that the financial specialist does not contact Headquarters
regarding questionable  items that may be seen when receiving the logs and statements.

       The Agency requested under our heading "Bankcard Listings and Guidance Not
Updated"  that we delete the statement that the bankcard program team did not keep records
of change requests to later verify that all changes were made.  During  discussions with team
members,  we were never told  that a file existed, nor shown such a  file. Perhaps there was
an oversight when the process was explained to us, so the statement was deleted. More
importantly, the  Agency stated that the bankcard program team can now access the  "Remote
Access" link  to Rocky  Mountain Bankcard System.  This  "Remote Access" system will
enable the bankcard program team  to perform a more effective oversight of the bankcard
program.  With this new system, the bankcard program team can log into the database and
cancel accounts after they receive any "Destruct Notices."  The ability to electronically
cancel accounts is a positive step in maintaining an up-to-date listing of all  bankcard holders
and their approving officials.   In addition, in the bankcard guidance document due to be
issued by December 31, 1995, the  Agency will detail bankcard suspension  procedures which
are planned to be strictly enforced.
                                          25

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Report of EPA's Use of The Government Purchase Card
                                            EI BMF5-11 -0004-5100486
                                                         Appendix I
                                                         Page 1  of I
Abbreviations:

CFMC

FMFIA

GSA

NIB/NISH


NPR

OAM

OMB/OFPP


OIRM

PCMB

SPU

UNICOR

RTP
Cincinnati Financial Management Center

Federal Managers Financial Integrity Act

General Services Administration

National Institute for the Blind/National Institute for the Severely
Handicapped

National Performance Review

Office of Acquisition Management

Office of Management and Budget/Office of Federal Procurement
Policy

Office of Information Resources Management

Procurement and Contracts Management Branch

Small Purchases Unit

Trade name for Federal Prison Industries (FPI)

Research  Triangle Park, NC
                                        26

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Report of EPA's Use of The Government Purchase Card
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                             [ This page intentionally left blank ]

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Report of EPA's Use of The Government Purchase Card
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                                                            Appendix II
                                                            Page 1 of 2
EPA's Listing of Restricted Purchases;

The following items are restricted by EPA for purchase by all its bankcard holders because
they include items which generally would be purchased using the Government American
Express Card or would be considered personal use items:

(a)     Rental or lease of motor vehicles, land, or buildings of any type.
(b)     Purchase of airline,  bus, boat, or train tickets.
(c)     Purchase of meals, drinks, and rooms at hotels or motels for any purpose,  including
       conference or meeting rooms and/or rooms from lodging, or any other travel
       expenses.
(d)     Purchase of any form of entertainment.
(e)     Purchases of gasoline or oil for vehicles or any repairs of vehicles.
(f)     Purchase of any janitorial, yard, or maintenance services, except in emergency
       cleanups.
(g)     Cash advances.
(h)     Personal use items.

The following is a listing of additional items restricted for purchase  by  EPA bankcard
holders other than purchasing agents because these items are either provided through
mandatory sources of supply or are items or services that require special procedures or
conditions.

(a)     Typewriters
(b)     Adding machines
(c)     Calculators (pocket or desk)
(d)     Dictating/transcribing machines (including facsimile  machines)
(e)     Photocopy  machines
(0     Cameras
(g)     Binoculars
(h)     Firearms
(i)     Safety clothing (exceeding $300) and safety equipment
0)     Portable electric power tools
(k)     Furniture and furnishings
(1)     Awards/plaques
(m)    Art work or wall decorations, pictures or posters
(n)     Laboratory/scientific supplies and/or equipment (exceeding $300)
(o)     Any items available from mandatory  sources of supply
                                           27

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Report of EPA's Use of The Government Purchase Card
EIBMF5-11-0004-5100486
                                                            Appendix II
                                                            Page 2 of 2
EPA's Listing of Restricted Purchases, cont.;
(p)     Prescription safety or regular eyewear/glasses
(q)     Air purification systems
(r)     Paid advertisements
(s)     Office supplies available from your EPA supply store
(t)     Expert services/consultants
(u)     Rental and  maintenance agreements
(v)     Air time for cellular telephones
(w)    Memberships in associations
(x)     Emergency equipment repairs estimated at over $500, final cost less than $1000
(y)     Any item of accountable property where costs exceed $1000
                                           28

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Report of EPA's Use of The Government Purchase Card
                                                          E1BMF5-U-Q004-5100486
 ^
•JT
              UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

                         WASHINGTON, O.C. 2046O
                                                     ATTACHMENT
                                                               Page 1 of 8
                                                            Uf-FlCL C»
                                                          ADMINISTRATION
                                                          ANOhesoUNCfcS
                                                           MANAGEMENT
MEMORANDUM

SUBJECT:  Response to Draft Audit Report  Entitled "Review of
             EPA^s  Bankcard Progr,a/rf"

FROM:
  TO:
          ''Office
                   nne"Mrper, Actincj/^Assistant Administrator
                    of -Administration  &  Resources Management (3101)
          Michael  Simmons,  Deputy Assistant Inspector General
            for  Internal and Performance Audits  (2421)
       Thank you for the opportunity to  provide comments on your draft
  findings  contained in the subject audit  dated July 18, 1995.
  Overall,  we agree with your recommendations.   However, I have some
  comments  that I would like you to consider before you prepare
  your final report.

  Chapter 1 - Background

       In this section,  you provided general background information
  as to how the program operates.  Although  we  generally agree with
  your summary narrative,  I would like to  offer several
  clarifications.

       On page 2,  paragraph 1 of your audit,  you stated "emergency
  purchases  over the (maximum]  dollar limits can be made when
  certain procedures are followed."  Although the 30 day limit can
  be increased to accommodate emergency purchases,  in no event
  shall the  single purchase limit exceed the dollar amount
  specified  in the Bankcard Holder's Delegation of  Procurement
  Authority.   Accordingly,  if a bankcard holder's maximum single
  purchase  limit is $2,500.00,  we can not grant approval to exceed
  that daily  limit.   On  the other hand, we will allow our bankcard
  holders to  exceed their  30 day limit amount to accommodate
  emergency situations.
                                     29
        Recycled/Recyclable . Prinled wi!h Vegetable Oil Based Inks on 100% Recycled Paper (40% Poslconsunwf)

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  Report of EPA's Use of The Government Purchase Card
EIBMF5-U-0004-5I00486
                                                    ATTACHMENT
                                                               Page 2 of 8
 Chapter 2 - The.Aqengv Could Reduce Small'Purchase Administrative
             Costs by Increasing the Bankcard's Use

 EPA Lacks Mandatory Policy on Bankcard's Use

      On page 9 of the subject audit, you stated that EPA does not
 have a policy requiring the use of the bankcard whenever it is
 allowable.  Accordingly,  you recommended that the Office
 establish an Agencywide policy requiring the use of the bankcard
 to the maximum extent possible.  Furthermore,  you encouraged us
 to allot additional procurement and clerical support to the
 Bankcard Unit in order to better manage the program.

      We are supportive of both suggestions.   OAM will issue an
 Agencywide purchase card  policy requiring that the bankcard be
 used whenever allowable.
                               t
      The Office of Acquisition Management is in the process of
 reorganizing.   As a part  of this reorganization,  the Bankcard
 Unit will become a part of the Internal Oversight Center,  a ten
 member team comprised of  senior procurement analysts responsible
 for providing quality review and oversight of  the Agency's
 procurement processes.  This should ensure better management of
 the bankcard program.

 Recommendat ion

      We agree with your recommendation to establish and Agency-
 wide policy requiring the use of the bankcard  whenever  allowable.
 We  anticipate issuance of this policy  for comment in draft form
 by  October 1,  1995,  and the final  policy memorandum by  November
 1995.

 Chapter 3  -  EPA's  restrictions Impede  The Bankcard Program's Growth

      On page  12, paragraph 1,  you  stated "We found that EPA's
 additional restrictions hindered implementing  the bankcard to its
 fullest potential  in  EPA."

      EPA's Bankcard Program has  grown  considerably'.   We have
 approximately  1000 bankcard holders  each of  whom  were required to
 take  one eight hour course in order  to become  certified.
 Unfortunately, we  do  not  believe that  an eight hour course has
 sufficiently prepared these individuals  to expertly interpret the
 terms and  conditions of the myriad of  mandatory federal supply
 schedules.  Accordingly, we restricted bankcard holders from
purchasing supplies and services available from mandatory  sources
of supply  in order to provide some assurance that the Agency was
 in compliance with the  requirements  of the Federal Acquisition
Regulation  (FAR).
                                  30

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  Report of EPA's Use of The Government Purchase Card
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                                                                     ATTACHMENT HI
                                                                                  Page 3 of 8
        We agree, however, that "many Cardholders and Approving Officials would like to see
 the program expanded and the number of restrictions reduced." We are taking steps to revise and
 reduce the list of restrictions. OAM has recently requested a waiver from the General Services
 Administration for exemption from mandatory federal supply schedules within the micro-
 purchase dollar threshold ($2,500.00). If the waiver is granted, the "EPA Guidelines for Use Of
 Government Bankcards" will be modified to allow Cardholders to use the Bankcard for
 purchases of any supplies/services that are available on a mandatory federal supply schedule. If
 the waiver is denied, OAM will reevaluate its position and determine an alternative remedy.

 EPA's Guidance Includes Items No Longer Restricted

       We generally agree with your findings. Specifically, on page 13, paragraph 3, you stated
 "that although several items are no longer restricted for purchase by GSA, EPA's guidance has
 not been updated to address these changes." OAM is currently in the process of updating the list
 of restrictions for program office bankcard holders. This list of restrictions will be updated and
 distributed semi-annually to all bankcard holders and approving officials.

       However, we do ask that you clarify the following statement On page 13, paragraph 4,
you stated "...the following schedules have expired dealing with: laboratory instruments and
equipment, telecommunications equipment, miscellaneous furniture, office supplies, and active
clothing and footwear." There are numerous federal supply schedules that include
laboratory/scientific supplies and or equipment that have not expired. Listed below are the
Federal Supply Schedule numbers and  their expiration dates:
       Lab Instruments & Equipment
       Medical & Vet Equipment/Supplies
       Clinical & Biological Equipment
       Instruments & Lab Equipment
       Graphic Recording Equipment
       Electrical Test Equipment
       Analyzers
       Power Supp. & Components
       Meters & Analysis Equipment
       Blood Analyzers
       Lab & Biological Equipment
       Lab & Pharmacy Furniture
       Environmental Analysis Equipment
       Environmental Analysis Equipment
       Biological Safety Cabinets
66 11 A
66IIB
66 IIC
66IIF
66IIG
66IIG
66 II J
66 II L
66IIM
66 UN
66 IIO
66 IIP
66IIQ
66IIR
66IIT
09/30/94
04/30/95
01/31/95
12/31/98
01731/97
01/31/97
05/31/98
07/31/97
04/30/99
05/31/96
03/31/95
01/31/96
. 11/30/95
01/31/99
06/30/97
                                             31

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                                                                     ATTACHMENT III
                                                                                  Page 4 of 8
        In regard to your statement that "miscellaneous furniture" is no longer on a mandatory
 schedule, UNICOR is still the mandatory source of supply for furniture. In fact, to purchase
 furniture from a source other than UNICOR, requires a waiver from UNICOR prior to purchase.
 Although we teach this in our training class, many program offices continue to submit purchase
 requests for vendors other than UNICOR.  As a result, the Agency believes that this is one area
 subject to continued misuse. Recently, UNICOR began accepting the bankcard for purchases
 from their "Quick Ship" catalog in February 1995. OAM has placed an order for 1,250 catalogs
 to distribute with a copy of the revised list of restrictions to all bankcard holders and approving
 officials.

 Other Agencies Have Streamlined Their Restriction Policies

       On page 14, paragraph 3, you stated that "GSA's contracting officer for the government
 wide bankcard program said she believes "many agencies have more restrictions than are
 necessary...fand] that a number of federal agencies have already eliminated many of the
 prohibited items currently on EPA's list of restrictions in support of government streamlining."
 As stated above, OAM is in the process of revising the list of restricted purchases.

       We would, however, like to address one area of concern.  On page 14, paragraph 4, you
 stated that officials in the Department of Defense do not restrict purchases such as calculators,
 typewriters, award plaques, and cameras because their costs are considered immaterial.  It should
 be noted that OAM did not place these items on the restricted list solely on the basis of cost   -
 Unlike the Department of Defense, the Environmental Protection Agency is not exempt from
 mandatory federal supply schedules.  Accordingly, we have certain sources of supply from which
 we must obtain these items.

       You have also stated, on page 14, paragraph 3, "...[one] department's program allows
 cardholders to justify purchasing 'emergency* items that may be available from mandatory
 sources of supply by citing the amount of time it takes for small purchases to be processed using
 a purchase order."  It should be noted that FAR 8.404-1  contains two exceptions to the
 mandatory use, micro-purchase requirements:  (a) urgent requirements and (b) small
 requirements. Accordingly, we utilize these regulations whenever we receive an emergency
 request so that we, too, can legally meet our customer's needs in a timely manner.

       Lastly, on page 15, paragraph 2, you indicated that the Department of Commerce's
 (DOC's) bankcard program officials allow bankcard purchases which are available from
mandatory supply sources if they are under the $300 threshold. OAM is updating our restricted
 list and we will allow program office bankcard holders to purchase items from mandatory federal
supply schedules under the $300 threshold.
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 Recommendation

        You have recommended that we implement a policy of periodically updating the
 restrictions listing and disseminating this information to cardholders and approving officials.
 OAM will update the restricted list seml-annually and will distribute the list to all bankcard
 holders and approving officials starting in November 1995.

 Chapter 4 - PCMB Needs To Improve Its Management Control System

        We agree that OAM needs to improve its management control system. Specifically, on
 page 17, paragraph 1, you stated that Approving Officials were not required by the Purchasing
 and Contracts Management Branch (PCMB) to attend bankcard training and therefore, were not
 familiar with specific bankcard program requirements. OAM will issue a policy requiring
 approving officials to attend the bankcard training class. This draft policy will be issued by
 November 30,1995.

 You stated on page 17, paragraph 2,"... we found that the team inconsistently managed the
 program by granting special approvals to some cardholders to purchase 'restricted' items without
 documenting these approvals. We disagree. Before the Bankcard Program Team grants "special
 approvals", they utilize the following procedures:

       (a)     the Bankcard Holder transmits a copy of their Bankcard Log to the Bankcard
              Program Team;

       (b)     The Bankcard Program Team reviews the request and signs the "Special
              Approvals Block;"

       (c)     After the Bankcard Program Team approves the purchase, they transmit a copy of
              the Bankcard Log to the Bankcard Holder,

       (d)     The bankcard holders sends the bankcard log to the Cincinnati Financial
              Management Center (CFMC) at the end of the billing cycle;

       (e)     The Bankcard Program Team verifies their evidence of "special approvals" in the
              bankcard holders file during their reviews at CFMC.

Bankcard Program Team Lacks Written Oversight Procedures

       On Page 17, paragraph 3, you stated "[although the bankcard program team officials are
responsible for the oversight of EPA's bankcard program, they lack written procedures detailing
their oversight duties and responsibilities." We agree with your concern, OAM will issue a
document detailing the above by December 31, 1995.
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                                                                                  Page 6 of 8
 PCMB Needs to Improve Oversight Review Program

        Although we generally agree with your concerns, we would like to offer some
 clarifications for you to consider before you prepare your final version. Specifically, on page 18,
 paragraph 2, you stated "PCMB has performed limited oversight of the bankcard program,
 delegating overall responsibilities to the bankcard program team and to the staff of the CFMC for
 primary oversight and guidance for the bankcard program."

        PCMB is comprised of various sections including the Bankcard Unit. The Bankcard Unit
 within PCMB is responsible for the overall monitoring of cardholder's transactions.  The
 Cincinnati Financial Management Center (CFMC) is responsible for the management of all
 financial matters, including payment.

       OAM realizes that oversight of the Bankcard Program is its ultimate responsibility;
 however, OAM does expect CFMC to immediately notify members of the Bankcard Program
 team when an irregularity is discovered during the payment process.

       On page 18, paragraph 4, you stated  "[bjecause the team members do not have access to
 the detailed transaction information sent to Cincinnati, they instead review summary reports
 provided by the contractor bank which identify only the name of the vendor, the vendor's
 standard industrial code (SIC), and the amount of the transaction. These reports do not contain
 detailed transaction information such as the actual description, price, and quantity of each item
 purchased."  These reports used to be the only  types of reports that were available from the
 Rocky Mountain Bankcard System (RMBS).

       The Bankcard Program Team can now  access the "Remote Access" link to RMBCS.
 This "Remote Access" system will enable the Bankcard Program Team to perform a more
 effective oversight of the Bankcard Program by utilizing the "Transaction Inquiry" and the
 "Custom Reporting" features available to directly access cardholder's files. The Unit now has
 direct access to detailed transaction information including data which can be used to determine
 whether a purchase was in accordance  with Agency rules and regulations.

       In summary, we agree with your concerns and are taking steps to provide better oversight.
The Bankcard Unit will become a part  of the Internal  Oversight Center within the Policy,
Training and Oversight Division. Bankcard  reviews will now be performed by the staff in
conjunction with the center's regularly  scheduled acquisition management reviews.  Lastly, in
our guidance document due to be issued by December 31,1995, we will detail bankcard
suspension procedures, which we plan  to strictly enforce. These three steps will help ensure that
we provide increased oversight.
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                                                                                   Page 8 of 8
 that appear on the restricted list, the Team would determine if the restricted item was restricted
 by law or by the GSA Federal Supply Schedules For Internationa) Merchant Purchase
 Authorization Card (I.M.P.A.C.). The Bankcard Unit then follows the procedures explained on
 page 6 of this response.

       In closing, since the members of the Bankcard Unit are also contracting officers, the
 Bankcard Unit is warranted to procure items in accordance with FAR. However, as a means to
 ensure •consistency in application of special approval procedures, we will include a discussion on
 special approvals in our guidance document due for dissemination by December 31, 1995.

 Recommendations

       In order to improve the oversight and management of the bankcard program, you
 recommended that we develop written procedures for the bankcard unit and implement a strategy
 for designing exception reports.  You also recommended that we require that all approving
 officials attend bankcard training.

       We agree with your recommendations. As stated above, OAM will be developing written
 procedures regarding the management and oversight of the Bankcard Program by December 31,
 1995.  In addition, as stated earlier, EPA has gained access to RMBS computerized exception
 reports and is using it to better manage our oversight of daily transactions.  Furthermore, by
 November 30,1995, OAM will issue policy requiring that all Approving Officials receive
 mandatory training. If a current Approving Official does not meet the training requirement
 within one year of the established waiver, OAM will require the designation of an approving
 official that has completed the training, or the bankcard accounts will be suspended until the
 designated Approving  Official has met the training requirements.

       Again, I would like to thank you for allowing me to comment on the subject audit. If you
have any questions or need further clarification, do not hesitate to contact me directly at (202)
26
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                          REPORT DISTRIBUTION
                                                            ATTACHMENT IV
                                                                        Page 1 of 2
Office of Inspector General
      Inspector General (2410)

      Deputy Inspector General (2410)
Headquarters Office

      Acting Assistant Administrator for
        Administration and Resources Management (3101)

      Director, Office of Acquisition Management (3801F)

      Director, Office of Acquisition Management,
        Headquarters Procurement Operations Division (3803F)

      Comptroller, Office of the Comptroller (3301)

      Financial Management Officer,
        Cincinnati Financial Management Center (3303F)

      Chief,  Purchasing and Contracts Management Branch (3803F)

      Section Head, Small Purchase and Bankcard Unit (3803F)

      Bankcard Team (3803F)

      Chief,  Financial Management Division,
        Financial Compliance and Quality Assurance Staff (3303F)

      Agency Follow-up Coordinator, Office of Administration
        and Resources Management, Attn: Director, Program and
        Policy Coordinator Office (3102)

      Audit Follow-up Coordinator, Office of
        Acquisition Management (3802F)

      Headquarters Library (3304)
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                                                                       Page 2 of 2
Regional Offices
      Regional Administrator, Region  1

      Regional Administrator, Region  2

      Regional Administrator, Region  3

      Regional Administrator, Region  4

      Regional Administrator, Region  5

      Regional Administrator, Region  6

      Regional Administrator, Region  7

      Regional Administrator, Region  8

      Regional Administrator, Region  9

      Regional Administrator, Region  10

      Director,  Contracts Management Division
        Research Triangle Park, N.C.  27711
                                        38

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