EPA's Use of The Government Purchase Card

Executive Summary

#5100486

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-44 (footnote 1), 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 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 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 (available only in hard copy) 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 (available only in hard copy) demonstrates that the purchase amounts have also increased from $180,037 in fiscal 1988 (footnote 2) 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.

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 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. 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, 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 holder'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.

Footnote

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.

2 Information based on data received from the Bankcard Program Team. No information available for bankcard activity prior to 1988.

Created November 18, 1996

To request a hard copy, please contact EPA Office of Inspector General, Office of Audit at (202) 260-7784

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EPA's Use of The Government Purchase Card

Executive Summary

#5100486

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