Internal Control Noncompliances in Purchase Card Program

Just like commercial companies including Government contractors, the U.S. Government issues purchase cards to selected employees to streamline the acquisition process. Purchase cards provide a low-cost, efficient way to obtain goods and services directly from vendors. All companies have (or should have) effective internal controls to manage the cards and ensure the propriety of purchases paid through such cards. Larger companies often have internal audit departments that periodically assess employee compliance with such controls. Smaller companies may not have the resources available to dedicate to such internal auditing. As a result, they may be at more risk for fraud, waste, and abuse than larger companies. No company (or Government contractor) that we know of shares the results of their internal auditing publicly. So we never really know the effectiveness of controls put in place by contractors or the level of compliance achieved. We don't have that problem with internal audits by Government entities. Most of their internal control reports are available to the public. And these reports are often instructive for companies to review and find out what works and what might not be effective when it comes to protecting company assets.

The State Department's Office of Inspector General recently concluded an audit of the Department's purchase card program to determine whether (i) card holders used their Government card only for purchases allowed by laws and regulations, (ii) card holders recorded purchases, documented purchases, and reconciled monthly statements as required by Department policy, and (iii) the Department administered the purchase card program in accordance with established policies. Contractors with purchase card programs should study this report and assess their level of vulnerability in inappropriate purchasing.

The IG reviewed 580 purchase card transactions selected from nearly 2,000 State Department card holders and noted only 17 exceptions. Three purchases had been split into six separate transactions to circumvent micro-purchase limitations. Eleven transactions were used to inappropriately pay for catering services. Most notably however, the IG did not find any instances of cardholder fraud, wast or abuse.

The IG did find that record keeping was a mess. They found that 27 percent of the 580 transactions were missing one or more pieces of required documentation and nine percent failed to provide evidence that monthly statements were reconciled (as required). These record keeping deficiencies were attributable to the fact that cardholders did not maintain required documents.

Had this failure occurred at a Government contractor, there wold be a strong likelihood that contract auditors would have questioned the costs for lack of support and equally likely that the contracting officer would have sustained the finding. Would you want that to happen?

Read the full State Department report here.