Friday, May 15, 2015

Problems with Purchase Card Programs

Yesterday, the House Committee on Veterans' Affairs held a hearing on waste, fraud, and abuse in the VA's (Veterans Administration) purchase card program (i.e. credit cards issued to VA employees). This hearing focused on the program's weak internal controls which have caused serious violations of procurement laws and, according to the Committee Chairman, has resulted in an astounding $5 billion a year in improper and unauthorized procurement expenditures for at least the past five years.

Although this hearing focused on credit cards issued to VA employees, contractors face the same kinds of problems in their own P-Card (purchase card) programs. The deficiencies identified by the Inspector General's (IG) office of the VA have been found at Government contractors, especially at some of the big DOE (Department of Energy) M&O (Management and Operations) contractors. While the magnitude of the problem is not as significant as the VA, it remains a management concern at most contractors who have implemented purchase card programs.

The litany of identified deficiencies are classic textbook internal control weaknesses frequently found in purchase card programs. These include:

  1. Exceeding authorized purchase limits individually or aggregately
  2. An excessive number of purchase cardholders with inadequate justification
  3. An unmanageable span of control (ratio of cardholders to approving officials is high)
  4. Inadequate financial controls prohibiting duplicative or split payments
  5. Inadequate recording or reporting of financial information
  6. Insufficient oversight of year-end spending, and
  7. Inadequate review of purchases by reviewing officials.

In the context of the VA, the Committee Chairman made the following observation:
Violations of procurement laws are not mere technicalities. It is not just a matter of paying a little more for needed supplies and services as some apologists for VA have asserted. Among other things, purchase card abuse invites cronyism and the directing of business to favored vendors, including those who may employ former VA officials. Moreover, buying biologic and medical supplies without contracts imperils patient safety. Without contracts, FDA certifications are not a legal requirement nor are the Buy American Act or Trade Agreement Act provisions. 
In the context of contractors, the inappropriate use of purchase cards can result in purchases that bypass contractors' purchasing department and its associated internal controls, policies, procedures, and practices. Thus, there is an increased likelihood of paying too much for needed materials and supplies.

Next, we will look as some of the recommendations made by the IG to tighten up the purchase card program. Perhaps some of these recommendations can be applied to contractor purchase card programs.

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