Procurement Executive and Director for Acquisition
Management
U.S. Department of Commerce
Before the
Subcommittee on Oversight and Investigations,
House Committee on Energy and Commerce
May 1, 2002 - 10:00 a.m.
Good
morning Mr. Chairman, Congressman Deutsch, and members of the
subcommittee. My name is Mike Sade and
I serve as the Procurement Executive for the Department of Commerce. I appreciate the opportunity to appear
before you today to discuss the implementation of acquisition reform
initiatives at Commerce, oversight of and improvements to the Purchase Card Program,
and the important benefits that result of the purchase card program.
Typically,
the Department buys over $1 billion in goods and services needed to support its
diverse and geographically dispersed program operations. The majority of these funds are spent
through traditional procurement mechanisms rather than purchase cards. Out of the $1.2 billion that was spent in FY
2001, $1.1 billion – or 89 percent of the total – was awarded through contracts
or purchase orders.
The
Purchase Card Program is one of many acquisition reforms being used to improve
the timeliness and quality of the goods and services used to help Commerce carry
out its mission of promoting job creation and improved living standards for all
Americans by creating an infrastructure that promotes economic growth, technological
competitiveness, and sustainable development.
In addition to the Purchase Card Program, reforms being implemented at
Commerce include: expanded use of task
order contracts, enhanced market research prior to determining acquisition
strategies, improved planning for contract administration and monitoring, and expanded
use of performance-based service contracting.
While
we are actively working to implement the innovative tools that are available to
simplify and streamline the procurement process, we recognize the need for
maintaining proper controls and accountability in carrying out all aspects of
acquisition reform. The importance of
this effort has been highlighted by our Inspector General, who has identified
the implementation of acquisition reform initiatives as one of the top ten
management challenges facing the Department.
To
address this challenge, we have adopted a comprehensive approach for managing
and minimizing the risks involved in carrying out acquisition reform.
•
We
have adopted a balanced scorecard approach to establishing goals for and
measuring performance of procurement offices throughout the Department, and
incorporated acquisition planning into the budget process.
•
We
are providing needed tools and training to front line employees to educate them
about and equip them to comply with new procedural requirements.
•
Additionally,
we are conducting focused program reviews on the use of new procurement methods,
and developing control levers for large dollar or riskier acquisitions.
We have completed or are working on focused program
reviews in the areas of:
•
Acquisition
Workforce Assessment - Complete
•
Government-Wide
Acquisition Contract (GWAC) and Other Agency Contract Review – Draft Report Prepared
•
Appropriate
Delegation of Acquisition Authority – Proposal Under Development
•
Interagency
Agreements/MOUs - Underway
•
Contracting
Officers Technical Representative (COTR) Program - Targeted for September 2002
•
Purchase
Card Use and Compliance - Ongoing with Office of Inspector General (OIG)
Commerce
is proud to have served in the government’s pilot purchase card program
initiated in 1986. The goals of the
pilot were the same as the program that we are currently implementing: (1) improve mission support, (2) streamline
the placement of micro-purchases, and (3) reduce administrative costs and
paperwork while ensuring adherence to federal acquisition regulations.
Because
of the increased savings and efficiencies achieved during the pilot program,
use of the purchase card was greatly expanded in 1988 when the General Services
Administration established the first government-wide Commercial Purchase Card
Program. Five banks provide card
services to the government under the current master contracts, which were
awarded by GSA in 1998. Citibank
provides card services to the Department of Commerce through a five-year task
order that was issued in November 1998.
The
Department presently has over 6,000 card holders. The cardholder-to-approving officials ratio for FY 2001 and FY 2002
is 4:1. In FY 2001, the cost avoidance
or cost savings through the use of Purchase Cards was $22,000,000.
Recognizing
that the flexibilities offered by such a program also pose potential risks, the
Department has continuously taken steps to: identify opportunities to strengthen oversight and management of
the Purchase Card Program, and implement appropriate corrective action.
The
approach taken in managing this program is a direct outgrowth of our risk
management strategy. Oversight of the
DOC Purchase Card Program is a direct result of our overall Risk Management
Approach. Multiple control levers are
in place that assist with the day-to-day management of the program and help to
identify weaknesses. These include Department-wide
policies; centralized management and reporting; bureau-specific policies,
procedures and reviews; regularly scheduled transaction reviews; and systematic
reconciliation procedures.
·
Specifically, the Office
of Acquisition Management has, for many years, had an established
Department-wide policy for the Purchase Card Program. The Commerce Acquisition Manual clearly establishes the roles
and responsibilities of program participants as well as procedures and guidance
for program use. This policy document
was entirely rewritten in 1999, and was again updated as recently as February of
this year. I will discuss the specifics
of this update later in my testimony.
·
The Commerce Bankcard
Center, established in 1987, is primarily responsible for centralized
maintenance of Department-wide data and reporting as well as other program
support functions.
·
The Head of the
Contracting Office for each bureau, including the Office of the Secretary, is
responsible for management and day-to-day oversight of the Program within their
respective unit. They are assisted by
individuals who have been designated as the Agency Program Coordinators for
their organizations. Responsibilities
include developing bureau-specific procedures, managing the program, maintaining
proper security, ensuring account reconciliation, conducting scheduled
documentation reviews, and establishing accounts with the contractor.
·
Regularly scheduled
transaction reviews are performed at several levels and include the Commerce
Bankcard Center, bureau Agency Program Coordinators, and approving officials.
At the highest level, the Commerce Bankcard Center
performs a daily review of questionable Standard Industrial Code
transactions. Our service provider,
Citibank, provides a daily transaction file to the Commerce Bankcard Center,
which it screens for questionable transactions such as those involving airlines,
hotels, car rental agencies, gas stations, restaurants, jewelry stores,
clothing stores, catalog merchants, health service providers, and religious and
political organizations. Any questionable
transactions are brought to the attention of the Head of Contracting Office for
investigation.
In addition, each bureau has established procedures
for scheduled transaction reviews by the Agency Program Coordinator, who relies
on transaction data provided by the Commerce Bankcard Center and reports
provided by Citibank. The ad hoc
reporting capability of Citibank’s electronic card management system,
Citidirect, is also utilized to review transactions.
·
This brings us to the
reconciliation process used by cardholders and approving officials to review
and certify individual transactions on a monthly basis at the grass roots level. The general procedure requires that all
cardholders maintain a purchase card log (either electronic or manual). Upon receipt of the monthly statement, the
cardholder reviews all information included in the statement for accuracy and
compares it with the log. Cardholders
are required to describe each transaction on the statement, indicate the
appropriate object class and accounting code, dispute any unrecognizable or
incorrect transactions, and certify the statement for payment.
The cardholder provides the statement, along with
supporting documentation, to the approving official for review and
approval. Upon receipt the approving official
reviews the statement, comparing it to the Detailed Account Cycle Report that
they have received from Citibank. It is
the approving official’s responsibility to resolve any outstanding issues,
verify the appropriateness of the transactions, and certify each statement for
payment. All original documentation is
returned to the cardholder for retention in accordance with the Commerce
Acquisition Manual, and the approved certified statement is forwarded to the
payment office for payment. Although
the general reconciliation procedures are the same across the Department, specific
methods may vary since some bureaus perform the function manually and others
electronically.
·
Finally, it should be
noted that – as part of its system of checks and balances -- the Department is
moving to an all-electronic reconciliation process through implementation of
the Commerce Administrative Management System or CAMS -- the Department’s core financial
system. CAMS includes several
functional administrative systems that provide additional operational
capabilities. One of these is the
Commerce Purchase Card System (CPCS), which provides a reconciliation and
payment function for purchase cards.
Currently, two of our bureaus – Census and NOAA – have implemented CPCS. Once CAMS implementation is completed,
however, CPCS will be used Department-wide.
Use of CAMS, and specifically CPCS, adds several
safeguards over a manual reconciliation process:
- It
requires and verifies that all users (cardholders and approving officials) are current
active employees within the Department.
- System
constraints will not allow a cardholder to be their own approving official.
- Transactions
cannot be edited or deleted from CPCS.
The transaction data, as received from the bank, remains intact within
CPCS.
- CPCS
ensures that transactions are entered in and matched to the order log, reconciled by the card holder, and reviewed
and approved by the approving official.
- CPCS
requires that proper accounting codes are applied to all transactions as part
of the reconciliation process.
-
Additionally, CPCS generates reports identifying all transactions that
have not been reconciled and approved in a timely manner.
Risk
management is a vital component of the DOC Purchase Card Program and on-going
oversight is a priority. Six cases of
abuse, during the period of 1997 – 2001, have been identified. The total dollar value of the six cases
identified totaled $64,278, or .0116% of the total Purchase Card Sales of
$555,590,940 from 1997 to 2001. In
each identified case of abuse, the individual was prosecuted to the full extent
of the law, terminated or resigned, and full restitution was made to the
government.
Continuous
program improvement has been the key to success for the Purchase Card Program at
Commerce. We will continue to work –
both with the Inspector General and independently – to address areas needing
improvement, implement corrective actions, and identify opportunities to enhance
the oversight and management of DOC’s Purchase Card Program. We are focusing on three major areas: improving cardholder performance, updating approving
official procedures, and strengthening the control of accountable property
purchased under the program.
We
have taken action to strengthen the Purchase Card Program on several fronts.
·
In June 2001, we
conducted a conference specifically focused on the use of purchase, travel, and
fleet cards. During the conference,
several program issues were identified and possible solutions discussed. These include:
-
Improving oversight by implementing a Department-wide risk management
initiative,
-
Continuing to improve cardholder and approving official performance by
clarifying their roles and responsibilities in the Commerce Acquisition Manual,
- Improving controls
over accountable property acquired with the Purchase Card,
- Clarifying
the responsibilities of approving officials within their designation, and
- Recommending
annual review of cardholders and credit limits
·
As mentioned earlier, we
revised the Commerce Acquisition Manual this past February to improve cardholder and approving official training
standards, requiring all cardholders
and approving officials to complete GSA’s web-based training prior to participating
in the program. In cases where authority
will exceed the $2,500 micro-purchase threshold, cardholders and approving
officials must also complete a 40-hour course on simplified acquisition
procedures. Additionally, refresher
training consists of completing a minimum of 24 hours in the area of simplified
acquisition once every five years.
·
The Department is
currently in the process of revising its Contracting Officer Warrant Program to
require warrants, based on training, education, and experience, for all
purchase card holders with authority over the $2,500 threshold.
·
The Risk Management
approach to the Purchase Card program has recently been further implemented
when two procurement offices within the Department, including NOAA, the
Department’s largest program participant, realigned to include Purchase Card
Oversight Teams that are dedicated to management, oversight, and identifying
areas of improvement and solutions.
We
believe that these actions have and will continue to help us in maintaining the
integrity of this important program. We
recognize, however, that there are always areas in which improvement is
possible. These challenges include:
·
Replacing multiple
financial systems and implementing CPCS Department-wide – The Department is moving
forward to implement a single financial system which will play a significant
role in reconciliation,
·
Ensuring continued
compliance with established policy and procedures; and
·
Controlling accountable
property within the Department.
Conclusion
The
Purchase Card Program has played a key role in the implementation of Department
of Commerce Acquisition Reform Initiatives.
It streamlines the procurement process and empowers the buyer to fulfill
low cost program needs in a timely and efficient manner, thereby, supporting
the overall mission of the Department.
Key benefits from this program include the procurement cost
avoided. It is estimated that – in FY
2001 alone – the use of the purchase card saved the Department of Commerce
approximately $22 million. Primarily
through the use of the purchase card, the cost to spend ratio or cost of
procurement operations cost to spend one dollar for the Department of Commerce
has gone from $.03 in 1997 to just over $.01 in 2001.
That
having been said, we believe that these benefits must be balanced by
responsible and prudent use of the purchase card. I hope that my description of the oversight mechanisms and
management controls that are now in place, and the steps that are being taken
to strengthen our program is helpful in understanding how we are working to
achieve this balance. We look forward
to continuing to work with the Inspector General to implement any
recommendations that might result from the review that is now underway.
Thank
you, Mr. Chairman, for the opportunity to testify before the subcommittee. I would be glad to answer any questions at
this time.