GSA Smart Pay Purchase Card

FEDERAL SUPPLY SERVICE
GENERAL SERVICES ADMINISTRATION
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY FINANCIAL MANAGEMENT AND INTERGOVERNMENTAL RELATIONS
COMMITTEE ON GOVERNMENT REFORM AND THE
UNITED STATES HOUSE OF REPRESENTATIVES

JULY 30, 2001

Good morning, Mr. Chairman and members of the Subcommittee. I am Pat Mead, Acting Deputy Assistant Commissioner, Office of Acquisition of the Federal Supply Service. I am pleased to be here on behalf of the General Services Administration to discuss the Government-wide purchase card program.

GSA has been responsible for contracting for purchase card services since 1989. The most recent purchase card contracts were awarded in 1998 to five banks as part of the GSA SmartPay� program.

The purchase card was initially adopted as a management tool. The purchase card replaced the paper-based time-consuming purchase order process for small dollar procurements. Now, as the primary payment and procurement method for purchases under $2,500 (often referred to as micro-purchases), the purchase card currently saves the Government approximately $1.2B annually in administrative costs. In addition to these administrative savings, the Government received refunds from GSA contractor banks in excess of $50M last year based on total purchase card charges of $12B.

Because the GSA SmartPay program was designed as a managerial tool, agencies have numerous tools for oversight of the program. Realizing the need for the most current and complete data available, GSA mandated that contractors provide electronic reports to agency managers. These reports are secure and easy to access via the Internet. Agencies use these reports to assist in the identification of questionable transactions, split purchases (improperly splitting a single purchase into two or more micro-purchases to avoid otherwise applicable competition requirements), improper cardholder limits exceeding a cardholder's contract warrant authority, and fraudulent activity.

While all payment mechanisms are subject to a certain degree of risk, GSA has built safeguards and systematic controls into the program designed to minimize risks. For example, when accounts are set up, agencies determine what limits to set on each transaction. They are able to set limits by dollar amount per transaction, number of transactions per month, total per month, and the types of businesses at which the purchase card may be used. In addition, the agency decides to whom a purchase card should be issued, any limits on use of the card, approval procedures, roles and responsibilities, and degree of agency program oversight. Most agencies establish their operating procedures at the department level with further refinements in the field locations.

The controls GSA established in the contracts with the banks operate at multiple levels. Each cardholder with account activity in a given billing cycle receives a statement from his or her bank at the end of the cycle. This statement is a critical control. The cardholder receives training to understand the importance of promptly reviewing and approving the accuracy of the statement in accordance with agency policy. Operationally, after the cardholder reviews the statement, it is routed to an approving official or certifying official who approves the statement. This review is intended to validate all transactions as proper. Training has been established for all reviewing officials emphasizing the need to report suspected card misuse to the agency program coordinator or Inspector General for further action. Criminal investigation of fraudulent transactions is generally conducted by the Inspector General's office in each agency. The banks routinely provide detailed data to assist the Inspector General office in performing the investigation.

Liability for transactions made by authorized cardholders rests with the Government. If the card is used by an authorized cardholder to make an unauthorized purchase, the Government is liable for payment and the agency is responsible for taking appropriate action against the cardholder. Use of the card by a person, other than the cardholder, who does not have authority and for which the Government does not receive any benefit, is not the liability of the Government. The Government's liability for transactions involving a lost or stolen card is limited to a maximum of $50. Historically, all liability for lost or stolen card transactions has been assumed by the GSA SmartPay banks.

All GSA SmartPay banks maintain a sophisticated fraud detection system to identify fraudulent activity and reduce risk. These systems have, in many cases, successfully deterred or prevented fraudulent activity by outside parties, not necessarily Government employees. In those instances where fraud is suspected, the contractor will notify the agency and begin the account cancellation process, after which a new card will be issued.

The contract provides for agency program coordinators to oversee the program. The role of the agency program coordinator includes ensuring that cardholders properly use the card and monitoring account activity. Because GSA SmartPay is a critical managerial tool, agency program coordinators receive numerous reports on cardholder activity from the banks. To simplify the oversight process, transactions can be segregated by dollar amount, merchant type and frequency of transactions with specific merchants. Although reports can be helpful in identifying questionable purchases, review and approval of transactions at the local level continues to be our most effective control mechanism.

GSA recognizes that cardholder training is essential to ensuring proper use of the card. GSA provides on-line cardholder training free to all purchase cardholders. The training discusses how to make purchases with the card, roles and responsibilities of cardholders, and ethical conduct. Many agencies choose to supplement this training with written, oral or on-line training of cardholders on agency procedures.

GSA requires that all contractors participate in an annual training conference for purchase card program coordinators. Subjects of the annual training conference include electronic reporting tools, industry best practices, fraud monitoring and card management controls. The contractors are also required to provide on-site training of agency program coordinators. Written training materials provided by the contractors include cardholder guides and agency program coordinator guides. These guides address authorized uses of the card and responsibilities of the cardholder and the agency program coordinator.

As part of a continuing effort to improve the card program, GSA has recently formed a purchase card round table comprised of twenty five agencies which will address issues of concern including fraud and program audits. This is an opportunity for agencies to share experiences and learn from each other.

Finally, there is a full electronic record of all transactions under the GSA SmartPay program. This electronic footprint makes fraud or misuse far easier to detect than in a paper-based environment. A strong training program, state of the art tools, and a detailed review structure gives Federal agencies all the tools and internal controls necessary to effectively run the purchase card program. As stated in a recent GAO report on "Strategies to Manage Improper Payments, Learning from Public and Private Sector Organizations," "people make internal controls work, and responsibility for good internal controls rests with all managers". Agencies must use the tools GSA has made available. GSA will continue to work with our industry partners and our customer agencies to minimize risk to the Government and ensure proper use of the cards.

Mr. Chairman, that concludes my prepared remarks for today. I would be happy to answer any questions that you or members of the subcommittee may have. Thank you.