Zakheim, Aldridge publish policy on internal controls for the purchase card program - Brief Article

Program Manager, March, 2002

OFFICE OF THE SECRETARY OF DEFENSE

1000 DEFENSE PENTAGON

WASHINGTON, D.C. 20301-1000

MAR 12 2002

MEMORANDUM FOR SECRETARIES FO THE MILITARY DEPARTMENTS

CHAIRMAN OF THE JOINT CHIEFS OF STAFF

UNDER SECRETARIES OF DEFENSE

DIRECTOR, DEFENSE RESEARCH AND ENGINEERING

ASSISTANT SECRETARIES OF DEFENSE

GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE

INSPECTOR GENERAL OF THE DEPARTMENT OF DEFENSE

DIRECTOR, OPERATIONAL TEST AND EVALUATION

COMMANDER IN CHIEF, U.S. SPECIAL OPERATIONS COMMAND

COMMANDER IN CHIEF, U.S. TRANSPORTATION COMMAND

ASSISTANTS TO THE SECRETARY OF DEFENSE

DIRECTOR, ADMINISTRATION AND MANAGEMENT

DIRECTORS OF THE DEFENSE AGENCIES

DIRECTORS OF THE DOD FIELD ACTIVITIES

SUBJECT: Internal Controls for the Purchase Card Program

A growing number of reports from the audit community point to incidences of poor internal management controls in place at Department of Defense (DoD) activities that use the government-wide purchase card program. While the auditors note that policies and procedures at Department and DoD Component level are adequate, they continue to identify major findings at field locations. These findings include: 1) inadequate initial or refresher training for cardholders and approving officials; 2) excessive spans of control that place too many cardholders under a single approving official; 3) a failure of approving officials to review cardholder invoices fully prior to certifying invoices for payment; 4) payment delinquencies; and 5) insufficient accountability over goods and services purchased, especially valuable or easily pilferable goods such as personal data assistants.

The purchase card program was established as a cornerstone of DoD acquisition reform because it offers a streamlined, cost-saving method to buy needed goods valued at or below the micropurchase threshold. The cards also may be used as a method of vendor payment by contracting officers and other with delegated procurement authority. As with any tool, however, purchase cards must be employed judiciously and with appropriate management controls to preclude fraud, waste, and abuse.

Effective management controls are required by the "Federal Managers" Financial Integrity Act of 1982" (which is codified in Title 31, United States Code, Section 3512) and implemented by DoD Directive 5010.38 and DoD Instruction 5010.40. Within this context, and relative to the purchase card program, the Fiscal Year 2001 Statement of Assurance of one military department noted that: "These weak internal controls have resulted in lost, stolen, missing, or misused government property, potentially abusive use purchase cards and payment of unauthorized and potentially fradulent charges."

Use of the purchase card shall be in accordance with the Federal Acquisition Regulation, Part 13; the Defense Federal Acquisition Regulation Supplement, Part 213; the General Services Administration (GSA) SmartPay contract; and DoD and Component instructions and policy guidence. In particular, the purchase card shall only be used for authorized U.S. Government purchases. Intentional use of the purchase card for other than official government business is a very serious matter that directly affects public confidence in the Department. Commanders and managers at all levels are responsible for maintaining adequate internal review programs. Commanders and managers at all levels are also responsible for investigating alleged cases of purchase card fraud or abuse, and for taking appropriate corrective and disciplinary action whenever cardholders or approving officials and determined to have violated the rules and regulations governing the use of purchase cards.

The contacts for this memorandum are Ms. Melissa Rider, Office of the Under Secretary of Defense (Acquisition, Technology and Logistics), who may be reached at (703) 695-1098, or by e-mail at: Melissa.rider@osd.mil, or Mr. Tom Hafer, Officer of the Under Secretary of Defense (Comptroller), who may be reached at (703) 602-0116, or by e-mail at: hafert@osd.pentagon.mil

Dov S. Zakheim

Under Secretary of Defense (Comptroller)

E.C. Aldridge, Jr.

Under Secretary of Defense for Acquisition, Technology and Logistics