Ineffective Oversight of Purchase Cards Results in Inappropriate Purchases at EPA


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O	I	U.S. ENVIRONMENTAL PROTECTION AGENCY

VRo^° OFFICE OF INSPECTOR GENERAL

Ineffective Oversight of Purchase Cards
Results in Inappropriate Purchases at EPA

Statement of Janet Kasper

Director, Contracts and Assistance Agreement Audits

Office of Inspector General

U.S. Environmental Protection Agency

Before the House Oversight and Government Reform
Committee, Subcommittee on Government Operations
U.S. House of Representatives

October 14,2014

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Statement of
Janet Kasper

Director, Contracts and Assistance Agreement Audits
Office of Inspector General
U.S. Environmental Protection Agency
Before the

House Oversight and Government Reform Committee,

Subcommittee on Government Operations
U.S. House of Representatives
October 14, 2014

Good afternoon, Chairman Mica, Ranking Member Connolly and members of the subcommittee.
I am Janet Kasper, Director of Contracts and Assistance Agreement Audits at the Office of
Inspector General (OIG) of the U.S. Environmental Protection Agency (EPA). Thank you for
inviting me to appear before you today. I appreciate the opportunity to submit a statement for the
hearing record about our recent assessment of the agency's purchase card program. This report
addresses the agency's theme of "embracing EPA as a high performing organization."

Promoting economy, efficiency, effectiveness, and the prevention and detection of fraud, waste,
and abuse through the independent oversight of the programs and operations of the EPA and the
U.S. Chemical Safety and Hazard Investigation Board is the mission of our OIG.

BACKGROUND

The government purchase card program was established more than 30 years ago to streamline the
federal acquisition processes by providing a low-cost, efficient vehicle for obtaining goods and
services directly from vendors. The General Services Administration (GSA) administers the
governmentwide purchase card program. GSA contracts with several banks, including J.P.
Morgan Chase, the bank the EPA uses to provide purchase cards to its employees.

The Government Charge Card Abuse Prevention Act of 2012 was enacted on October 5, 2012. It
is designed to prevent recurring waste, fraud and abuse of government charge cards. The law
requires agencies to take appropriate personnel actions for employees who violate purchase card
guidelines or make erroneous, improper or illegal purchases. Under the law, the OIG is to look
for:

• Potentially illegal, improper or erroneous uses of purchase cards.

• Any patterns of such uses.

• Categories of purchases that could be made by means other than purchase cards in order
to better aggregate purchases and obtain lower prices.

Office of Management and Budget Circular A-123, Appendix B, Improving the Management of
Government Charge Card Programs, established minimum requirements and best practices for
agency purchase card programs. In addition, Appendix B requires that each agency develop and
maintain written policies and procedures for the appropriate use of government purchase cards.

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EPA PURCHASE CARD PROGRAM

In fiscal year (FY) 2012, the EPA had 2,071 employees who were assigned purchase cards. Of
those, 1,370 were active cardholders who transacted more than $29 million in purchases. In
addition, the EPA's 309 convenience check writers wrote more than 1,000 checks totaling more
than $500,000. The bank contract provides refunds based on annual net volume of sales as well
as prompt payment, and the EPA estimated that FY 2012 refund dollars totaled $350,900. Some
employees have cards only for emergency response purposes.

Within the EPA, the Office of Acquisition Management, within the Office of Administration and
Resources Management, is responsible for administering the purchase card program and serves
as the liaison between cardholders and the contracted bank. The EPA purchase card team
establishes policies and training requirements. It oversees set up and cancellation of accounts and
provides ongoing advice to cardholders and approving officials. In addition, the team conducts
purchase card oversight to ensure that the program is operating in accordance with applicable
guidance.

AUDIT OF EPA PURCHASE CARD PROGRAM

In March 2014, the EPA OIG issued Report No. 14-P-0128, Ineffective Oversight of Purchase
Cards Results in Inappropriate Purchases at EPA. We had conducted an audit based on a
requirement in the Government Charge Card Abuse Prevention Act of 2012 that states the
Inspector General is to conduct periodic assessments of the agency's purchase card program to
identify risks of illegal, improper or erroneous purchases. The objectives of our audit were to
determine whether the EPA:

• Has sufficient controls to identify potentially illegal, improper and erroneous use of
purchase cards.

• Is analyzing purchase card transactions to identify purchases that could be made by other
means to obtain lower prices.

We evaluated the EPA's purchase card and convenience check internal controls by interviewing
purchase cardholders, approvers and management responsible for oversight. We used a focused
sampling plan and tested the effectiveness of internal controls through review of transactions
selected. In total, we reviewed 80 of 67,000 purchase card transactions that occurred during FY
2012. In selecting transactions for review, we focused on atypical transactions and transactions
that may have a higher risk. We used this risk-based approach rather than a statistical sample to
identify cases of illegal, improper or erroneous purchases as emphasized by the Government
Charge Card Abuse Prevention Act of 2012.

EPA DID NOT PROVIDE EFFECTIVE OVERSIGHT

Overall, we found that the EPA's oversight is not effective - because of inattention to EPA
policies by cardholders, approving officials and the purchase card team - to ensure that purchase
cardholders and approving officials comply with internal control procedures. Of $152,602 in
transactions we sampled, we found $79,254 of prohibited, improper and erroneous purchases.

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This lack of compliance indicates a continued risk of prohibited, improper and erroneous
purchases.

Although cardholders must evaluate each purchase request to ensure that it complies with federal
and agency acquisition rules, in many transactions, they did not. The approving official is
responsible for conducting personal and detailed reviews of cardholders' transactions to ensure
compliance with all applicable regulations, policy, special approvals and purchase card
procedures; however, the approving official frequently did not provide the required oversight.

Specifically, the internal control oversight issues that we identified in one or more transactions
were:

• Cardholders did not verify receipt of the purchased items.

• Cardholders did not obtain approval before making the purchase.

• Transactions were not funded prior to purchase.

• Purchase logs were not reviewed by the approving official.

• Policies related to restricted transactions that require purchases be made by an acquisition
professional were not followed.

• Required sources were not used.

• Cardholders and approvers did not apply closer scrutiny to transactions such as clothing,
entertainment and light refreshments.

• Records were not maintained.

• Prohibited transactions were approved and purchased.

There were some transactions that, in our opinion, were more egregious. We found that the
required closer scrutiny was not performed when purchasing food for an awards recognition
ceremony. EPA policies allow for the purchase of light refreshments, but not meals, for an award
recognition ceremony. Light refreshments, as defined in EPA policy and GSA regulation,
include coffee, tea, soft drinks, donuts, bagels, fruit, pretzels, cookies, chips or muffins, but do
not include all elements of a meal. For one transaction we reviewed, food and beverages called
"light refreshments" amounted to four different appetizers, chicken tenderloin, fresh fruit, pasta
salad, cookies, soft drinks and punch. The total cost was $2,900, just under the purchase card
$3,000 per-transaction limit.

In 13 (or 15 percent) of the 80 transactions we reviewed, valued at $21,465, cardholders did not
follow requirements related to restricted transactions. EPA policy identifies certain transactions
as restricted for purchase only by acquisition professional cardholders. Cardholders who were
not acquisition officials purchased such items. For example, in three instances, cardholders who
were not acquisition professionals purchased gym memberships that required pre-payment for
services totaling $2,867. Two of those purchases were for family memberships, and not just the
EPA employee.

It is important that approving officials review the logs the purchase cardholders prepare to
document transactions. Our audit found that approving officials did not review purchase card
logs for 14 (or 18 percent) of the 80 sampled transactions, valued at $22,402. For one

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transaction, the approving official incorrectly believed it was unnecessary to perform a quarterly
review because he had approved the purchase in advance. Consequently, he was unaware that the
funder and cardholder amended his prior approval to purchase an additional item for $805 for
personal use. The EPA is now investigating the extent of the situation to determine what action
should be taken.

WEAKNESSES IN EPA OVERSIGHT

Internal controls, policies and procedures are critical tools for helping to ensure the efficiency
and integrity of purchase card programs by eliminating charge card misuse, fraud, and other
forms of waste and abuse. Purchase card program managers are responsible for ensuring that
policies and procedures are carried out effectively. The EPA's oversight was not effective in
ensuring that purchase cardholders and approving officials complied with internal controls. The
EPA's internal controls did not prevent prohibited, improper and erroneous purchases.

The Government Charge Act envisioned agencies using effective systems, techniques and
technologies to prevent or identify illegal, improper or erroneous purchases. At the time of our
review, the Office of Acquisition Management reviewed purchase card records for transactions
that had been split in order to be below the purchase card threshold of $3,000 per transaction,
transactions that were declined by the credit card company, and transactions for employees that
were no longer with the agency.

EPA policy requires approving officials to have standard operating procedures in place.

However, some of those procedures were inconsistent with federal and EPA policies. For
example, one office's procedure classified lab/testing supplies, as well as furniture and computer
purchases as routine and therefore did not require prior approval from the approving official.
Another office's policy did not require prior approval for the purchase of training by the
cardholder's approving official.

To ensure compliance with purchase card policies, the EPA requires program offices to conduct
reviews, including testing of transactions, every two years. In 2010, half of the agency's program
offices did not conduct these reviews. Since the biennial review process was not followed,
corrective actions and improvements to internal controls did not occur, and weaknesses
continued to occur from 2008 to 2012.

EPA ACTION TO ADDRESS WEAKNESSES

The EPA agreed to take action to address all of the findings and recommendations in our report.
Some of the improvements we have already seen include:

• Stopping the purchase of gift cards until the agency can assess its policy on the use of gift
card and gift certificates for employee recognition.

• Requiring all purchase cardholders and approving officials to take a training class focused
on the issues identified in the audit report and the proper handling of purchase card
transactions.

• Implementing an automated system for documenting and approving purchase card
transactions. This will allow the EPA to conduct more oversight of specific transactions

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since information will be available electronically in an EPA-wide database, instead of in
decentralized manual records.

• Changing the training requirement for purchase cardholders and approvers from every 3
years to every 2 years.

The EPA planned to complete implementation of many of the corrective actions by September
30, 2014. The OIG is required to report to Congress by January 31 of each year on the status of
the EPA's implementation of recommendations related to purchase cards. Our next report will
include updated information on the status of the EPA's implementation of all corrective actions
relative to its purchase card program.

CONCLUSION

In conclusion, 75 of 80 (94 percent) reviewed transactions were not in compliance with EPA
policies. The total sample value was $152,602, of which the OIG identified $79,254 as
prohibited, improper and erroneous purchases. These transactions represented purchases of gym
memberships, food, hotel space, and split purchases intended to stay under the $3,000 threshold
for using a purchase card. These transactions were undetected by the EPA's approving officials
and purchase card team. Improved purchase card oversight potentially saves money by reducing
prohibited, improper and erroneous purchases, which would be especially helpful in the current
budget environment.

During the past year the OIG has started to publish reports on its own compliance with laws,
regulations, and procedures to improve transparency. As part of this effort, the OIG initiated a
detailed audit of its own internal controls over purchase cards. The audit includes testing of OIG
purchase card transactions to determine whether any were fraudulent or did not comply with
EPA or OIG policies. We plan to make that report public very soon.

Mr. Chairman, this concludes my prepared statement. I would like to thank this subcommittee
for your continuing support of the OIG's mission and your robust interest our work. I will be
pleased to answer any questions you or the subcommittee members may have.

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Biography of Director for Contracts and Assistance Agreement Audits Janet Kasper

Janet Kasper is the Director of Contracts and Assistance Agreement Audits
at the Office of Inspector General (OIG) of the U.S. Environmental
Protection Agency (EPA). She has held this position since September 2006.
As director, Ms. Kasper supervises audits of the EPA's management of
contracts and assistance agreements, compliance with the Improper
Payments Elimination and Recovery Act of 2010, and financial audits of
grant recipients.

Ms. Kasper began her career as an auditor with EPA OIG in 1986. During
that time, Ms. Kasper has conducted numerous audits of EPA programs.
Ms. Kasper is the recipient of Gold and Silver medals for her work at EPA
OIG, along with Awards for Excellence from the Council of the Inspectors
General for Integrity and Efficiency, Institute of Internal Auditors, and Association of Government
Accountants.

Ms. Kasper earned a bachelor degree in accounting from Trinity Christian College and a master's degree
in business administration from the University of Illinois at Chicago. Ms. Kasper is a certified public
accountant and a certified fraud examiner.

Ms. Kasper is a native of the Chicago area and resides in Crete, Illinois.

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