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OFFICE OF THE DISTRICT OF COLUMBIA AUDITOR 717 14TH STREET N.W., Suite 900 WASHINGTON, D.C. 20005 TEL. 202-727-3600 • FAX: 202-724-8814
Deborah K. Nichols Mismanagement, Noncompliance, and Ineffective Internal Controls Exposed School System Funds to a Significant Risk of Fraud, Waste, and AbuseJune 16, 2003 TABLE OF CONTENTS
EXECUTIVE SUMMARY
DCPS Paid Approximately $6.3 Million for Purchase Card
Expenditures and $112,415 in Late Payment Penalties During Fiscal Year
2001
CONCLUSION EXECUTIVE SUMMARYPURPOSEPursuant to Public Law 93-198, Section 455, the District of Columbia Auditor conducted a review of purchase card expenditures made by the District of Columbia Public Schools during fiscal year 2001. CONCLUSIONThe Auditor's examination of the District of Columbia Public Schools (DCPS) purchase card program revealed significant management deficiencies and noncompliant uses by cardholders. During fiscal year 2001, DCPS paid approximately $6.3 million in purchase card charges. DCPS' OCFO could not provide documentation to support approximately $984,728 in purchase card payments. The Auditor found that DCPS paid $112,415 in late payment penalties to US Bank for fiscal year 2001 purchase card transactions that were not timely paid. Of the 15 District agencies that incurred late payment penalties, DCPS was assessed the highest cumulative penalty of $112,415. The $112,415 could have been put to more productive use if DCPS' purchase card program had not been mismanaged. The purchase card Manual requires purchase card transactions to be supported by an original invoice or receipt and bank statement. The Auditor found that during fiscal year 2001 DCPS' Office of the Chief Financial Officer failed to adhere to the purchase card policies and procedures as well as effective internal control procedures by directing payment of all outstanding US Bank invoices even though the invoices lacked supporting documentation such as receipts, monthly transaction reports, and bank statements. In a memorandum dated July 9, 2001, a former Chief Financial Officer for DCPS ordered payments to be made notwithstanding the lack of documentation. As a result of this directive from DCPS' then CFO, payments were made to vendors totaling approximately $684,518 for which there were no vendor invoices, receipts, bank statements, transaction reports, or other supporting documentation. Payments made in the absence of supporting documentation exposed DCPS' finances to a significant risk of fraud, waste, and abuse. Further, any order from a financial officer to make payments in the absence of supporting documentation exhibited poor professional judgment, undermined the integrity of transactions processed through DCPS' financial system, and indicated a weak internal control system and environment. The purchase card Manual requires each cardholder to submit a signed and reconciled monthly transaction report along with all supporting documentation to his or her Approving Official. The Auditor found that DCPS OCFO employees recreated monthly transaction reports for cardholder(s) who did not submit this report and supporting documentation as required by the purchase card Manual. DCPS' OCFO did not validate the accuracy of the charges reflected on the Approving Official's Account Summary before recreating monthly transaction reports to facilitate payment on behalf of cardholder(s) who failed to submit a monthly report, and in some cases supporting documentation. This ad hoc process violated the purchase card Manual and may have aided in concealing the misuse of District Government funds. Also, payments based on recreated transaction reports, in the absence of underlying documents supporting the transactions, created unnecessary risks of fraud, abuse and waste of DCPS funds. The Manual requires that if a transaction report is overdue (not received in the Finance Office before the next invoice is received from the bank), the card will be immediately suspended. However, the Auditor found that despite cardholder noncompliance with this provision of the purchase card Manual, the DCPS CFO's office did not ensure the suspension of any affected cards and continued to allow noncompliant cardholder(s) to retain purchase card privileges. The Auditor's review of transactions made by DCPS cardholders during fiscal year 2001 revealed that there were repeated instances where cardholders made improper purchases of prohibited items and other unallowable transactions totaling approximately $82,877. The Auditor further analyzed the purchases and found that DCPS cardholders purchased $18,955.42 worth of fixed assets, sensitive items, and items prone to mysterious disappearance. The Auditor found that $7,125 in fixed assets purchased with the card were never recorded in DCPS' fixed asset inventory. In fiscal year 2001, cardholders made prohibited purchases such as: $3,935.50 for food and water; $1,522.40 for hotel services; $1,050 for entertainment; $11,900 for gifts; and $473.19 for rental cars. The purchase card Manual provides that purchase cards may be used when the total amount of a single purchase (which may consist of more than one item) does not exceed the cardholder's authorized single purchase limit of $2,500. Orders and payments may not be split to avoid the single purchase limit. The Auditor found that DCPS cardholders circumvented the single purchase limit by splitting purchases to avoid exceeding the $2,500 single purchase limit. Further compounding this failure in compliance, the DCPS CFO's office failed to establish an effective system to monitor and ensure adherence to the relevant policies and procedures governing the use of District Government purchase cards. D.C. Code, Section 47-2005(1), exempts the District government from paying sales taxes. The Auditor found numerous instances where DCPS cardholders paid sales taxes on purchase card purchases. DCPS erroneously paid approximately $5,355 in sales taxes on purchases made during fiscal year 2001 using purchase cards. The Manual specifically notes that the use of the card does not mean that competition need not be sought. The Manual requires that before a purchase is made, a cardholder must ensure that the price is fair and reasonable, and that price quotes are obtained from more than one vendor for all purchases. The Auditor's review of DCPS purchases revealed no evidence that purchases were made competitively or that any attempts were made to obtain quotes from more than one vendor, thereby precluding the District from ensuring it obtained the best possible price. As noted throughout this report, the Auditor found numerous instances of purchase card misuse where the cardholders were not penalized by DCPS even though the purchase card Manual requires that the Approving Official enforce disciplinary provisions of card related policies and procedures, and initiate control and disciplinary actions to avoid misuse of cards. DCPS did not maintain an inventory of purchase cardholders which made it impossible for the Auditor to verify the status of cardholders and the legitimacy of purchases made by certain individuals. The Auditor found that DCPS relied on the card account information from U.S. Bank which lists all cardholders regardless of whether they are the current (active) or previous (inactive) cardholder. DCPS' CFO could not provide the Auditor with an inventory of terminated, deactivated and suspended cardholders, or any correspondence sent to US Bank requesting the closing and opening of any accounts in fiscal year 2001. Moreover, the Auditor's review revealed that a total of at least $1,869,916 in DCPS funds were disbursed without adequate documentation, for late payment penalties, for improper or prohibited purchases, and for taxes paid on purchases that should have been tax exempt. These flawed transactions constituted approximately 30% of the $6.3 million in payments for goods and services procured through DCPS' purchase card program. MAJOR FINDINGS
MAJOR RECOMMENDATIONS
PURPOSEPursuant to Public Law 93-198, Section 455, the District of Columbia Auditor conducted a review of purchase card expenditures made by the District of Columbia Public Schools during fiscal year 2001. OBJECTIVES, SCOPE, AND METHODOLOGYThe objectives of the review were to determine:
The audit covered fiscal year 2001 and, where appropriate, was extended to fiscal year 2002. In conducting the examination, the Auditor reviewed policies and procedures of the Office of Contracting and Procurement (OCP) and the Office of the Chief Financial Officer; DCPS monthly purchase card statements of account; detailed invoices from US Bank, the card issuer; vouchers authorizing payment for purchase card charges; monthly transaction reports; DCPS purchase card program policies and operating procedures; the DCPS Purchase Card Deployment Plan; the Procurement Practices Act of 1985, and Title 27 of the District of Columbia Municipal Regulations (DCMR). The Auditor also interviewed DCPS and OCP personnel knowledgeable about the acquisition and use of purchase cards. BACKGROUNDAccording to the Fiscal Year 2001 Operating Budget and Financial Plan, the mission of the District of Columbia Public Schools (DCPS) is to "make dramatic improvements in the achievement of all students today in preparation for their world tomorrow." DCPS is governed by a nine-member Board of Education consisting of four members appointed by the Mayor and confirmed by the Council of the District of Columbia, and five elected members including a president. The day-to-day management and direction of all matters pertaining to instruction and operations are handled by a Superintendent appointed by the Board of Education. DCPS functions as both a local education agency (LEA) and a state education agency (SEA). In fiscal year 2001, DCPS' operating budget was $804,548,701, which served a student population of approximately 70,677. The operating budget funded 104 elementary schools, 26 middle/junior high schools, 23 senior high and alternative schools, and approximately 10,931 fulltime employees. During fiscal year 1999, OCP, through the Purchasing Technologies Group (PTG), designed and instituted a District government purchase card program to enable agencies to make small purchases using a revolving purchase card issued by US Bank. OCP obtained the services of US Bank through the United States General Services Administration. Contracts to provide commercial purchase card accounts are awarded by the General Services Administration, at the request of state and federal government entities, to enable authorized employees to procure goods and services consistent with applicable laws, regulations, policies and procedures. Each agency is assigned an annual limit, and each authorized user is assigned a monthly and single purchase limit. A $2,500 single purchase limit applied to purchase cards issued to DCPS employees. Each DCPS purchase cardholder had a monthly limit ranging from $1,000 to $250,000 and annual limit ranging from $1,000 to $287,400. Overall, DCPS's annual purchase card limit totaled approximately $10.2 million during the audit period. The purchase card program was implemented at DCPS on August 1, 2000, to facilitate a convenient and efficient process of purchasing low-cost supply items for use in DCPS operations. Fiscal year 2001 was the first full year of purchase card use by DCPS. The purchase card helps to eliminate the need to process requisitions and purchase orders for small purchases. During fiscal year 2001, DCPS assigned purchase cards to approximately 217 of its employees. The purchase card agreement prohibits purchases of equipment, conference fees, dues, memberships or subscriptions, food items regardless of the type or occasion, gifts and donations, travel, payments for services of any sort, telephone expenses, including cellular phones and related expenses, and advertising for personnel positions. District of Columbia Public Schools' Purchase Card Deployment PlanThe Auditor reviewed the Purchase Card Deployment Plan ("Plan"), dated April 25, 2000, prepared specifically for DCPS by the Office of Contracting and Procurement. The Plan included a rationale for DCPS' participation in the purchase card program, an agency readiness assessment report, a startup checklist, and a certification of DCPS' Deployment Plan. The Plan stated that the purchase card would simplify the buying process for DCPS purchases, reduce micro-purchase processing costs, reduce paperwork and labor costs, and reduce the number of DCPS purchases of $2,500 or less through the normal procurement process. The Plan concluded that based on historical data, use of the purchase card was justified. The Plan also concluded that the ultimate benefit of the purchase card was its revenue generating opportunity as a result of rebates for every purchase with the card. However, DCPS' purchase card transactions generated a paltry rebate of only $919.19 on $6.3 million in purchases while DCPS paid approximately $112,415 in late penalties during fiscal year 2001. Finally, the OCP, through the Purchasing Technologies Group, recommended the deployment of the purchase card program at DCPS based on: 1) the DCPS agency head's excellent relations with the Office of the Chief Financial Officer (OCFO) and other OCFO personnel; 2) DCPS' demonstrated mature degree of budget discipline; and 3) DCPS' well managed financial processes. Contrary to these assertions, the Auditor found that during fiscal year 2001 DCPS experienced an $81 million deficit, its financial processes were poorly managed, and its relationship with the OCFO was strained. FINDINGSDCPS PAID APPROXIMATELY $6.3 MILLION FOR PURCHASE CARD EXPENDITURES AND $112,415 IN LATE PAYMENT PENALTIES DURING FISCAL YEAR 2001During fiscal year 2001, DCPS paid approximately $6.3 million in purchase card charges. However, DCPS financial managers provided the Auditor with 1,174 purchase card payments totaling only $5.3 million. Of the total $6.3 million payments, DCPS' OCFO could not provide documentation to support approximately $984,728. Additionally, $684,518 of the $5.3 million in purchase card payments lacked proper supporting document. The Auditor found that DCPS paid $112,415 in late payment penalties to US Bank for fiscal year 2001 purchase card transactions that were not timely paid. The late payment penalty was based upon the Federal Prompt Payment Act Interest Rate, P.L. 97-177. The federal Prompt Payment Act allows US Bank to automatically assess interest on unpaid transactions over 30 days at an average rate of 5.875 percent per annum, which is the rate established by the secretary of the treasury pursuant to 31 U.S.C. 3902(a). US Bank at one point threatened to suspend the accounts of 15 District government agencies, including DCPS, if payments on overdue purchase card bills and interest penalties were not made. Of the 15 District agencies, DCPS was assessed the highest cumulative penalty. DCPS FAILED TO COMPLY WITH THE OFFICE OF CONTRACTING AND PROCUREMENT'S GUIDELINES FOR PURCHASE CARD USEThe Manual of Instruction and Standard Procedures for the use of government purchase cards issued by OCP states: "Cardholders are delegated procurement authority under the purchase card program, and are procurement officials as defined in Chapter 18 of 27 DCMR. As such, each cardholder is expected to adhere to the procedures in making purchases utilizing their assigned purchase card." The Auditor found the following violations in DCPS' management and use of purchase cards. DCPS' OCFO Paid Approximately $684,518 For Purchase Card Transactions That Lacked Proper Supporting DocumentationThe purchase card Manual requires each transaction to be supported by an original invoice or receipt and bank statement. Purchase cardholders are also required to obtain an original invoice or receipt from the vendor in addition to a packing slip for purchases made by phone. The General Accounting Office's Standards for Internal Control in the Federal Government, dated November 1999, sets forth the importance of obtaining and maintaining appropriate documentation to support transactions in an effective internal control system. The GAO's Standards for Internal Control state that: "All transactions and other significant events need to be clearly documented, and the documentation should be readily available for examination. All documentation and records should be properly managed and maintained." The Auditor found that during fiscal year 2001 DCPS' Office of the Chief Financial Officer failed to adhere to the purchase card policies and procedures set forth in the Manual, as well as effective internal control procedures, by directing payment of all outstanding purchase card invoices even though the invoices lacked supporting documentation such as receipts, monthly transaction reports, and bank statements. In a memorandum dated July 9, 2001, which was sent to all DCPS schools, divisions, and program offices, a former Chief Financial Officer for DCPS ordered payments to be made notwithstanding the lack of documentation.1 Of the total $6.3 million in purchase card payments identified by the Auditor for fiscal year 2001, approximately $684,518 were paid which lacked vendor invoices, receipts, bank statements, transaction reports, and other supporting documentation were made to vendors as a result of this directive from DCPS' then CFO. Payments made in the absence of supporting documentation exposed DCPS' finances to a significant risk of potential fraud, waste, and abuse. Without supporting documentation, it was impossible for the Auditor or accountable DCPS program and financial managers to determine the legitimacy of these transactions. Moreover, without vendor sales receipts or invoices it was impossible to determine whether items purchased were for DCPS or for the cardholder's personal use. The practice of making payments without supporting documents may have resulted in the use of public funds to support fraudulent, improper or abusive transactions. Further, any order from a District financial officer to make payments in the absence of supporting documentation exhibited poor professional judgment, undermined the integrity of transactions processed through DCPS' financial system, and indicated a weak internal control system and environment. Monthly Transaction Reports Were RecreatedThe purchase card Manual requires each cardholder to submit a signed and reconciled monthly transaction report along with all supporting documentation to his or her Approving Official within five days of receipt of the bank statement. The Approving Official is responsible for reviewing and signing the monthly transaction report and within five days forwarding the report and bank statement, including all original supporting documentation, to the central office designated in the Approving Official's letter of appointment. Both the cardholder and the Approving Official must sign the transaction report. The Auditor found that DCPS OCFO employees recreated2 monthly transaction reports for cardholder(s) who failed to submit this report and supporting documentation as required by the purchase card Manual. These transaction reports were based upon the Approving Official's Account Summary (a monthly record each Approving Official receives from US bank listing all card activity for each cardholder over which he or she has approving authority) which does not contain sufficient information that can be used to scrutinize and authenticate the legitimacy of purchases noted therein. The purchase card Manual requires the Approving Official to ensure that the purchases listed in the Account Summary are the same as those reported by the cardholder. This control technique was undermined by cardholders' failure to submit monthly transaction reports and supporting documentation. As a consequence, DCPS' OCFO did not, and could not, validate the accuracy and propriety of the charges reflected on the Approving Official's Account Summary before recreating the monthly transaction report for payment on behalf of cardholder(s) who failed to submit a monthly transaction report and supporting documentation. This ad hoc process violated the purchase card Manual and may have aided in concealing the misuse of District Government funds. Also, payments based on recreated transaction reports, in the absence of underlying documents supporting the transactions, created unnecessary risks of fraud, abuse, and waste of DCPS funds. The Manual requires that if a transaction report is overdue (not received in the Finance Office before the next invoice is received from the bank), the card will be immediately suspended. However, the Auditor found that despite cardholder noncompliance with this provision of the purchase card Manual, the DCPS CFO's office did not ensure the suspension of any affected cards and continued to allow noncompliant cardholder(s) to retain purchase card privileges. DCPS could not provide the Auditor with evidence indicating that any corrective action whatsoever was taken against cardholders who failed to submit the monthly transaction report as required by the purchase card manual. The audit team did review a memorandum dated March 8, 2001, sent by DCPS' Interim Controller to the DCPS Superintendent, Deputy Superintendents, Chief Contracting Officer, and Chief Financial Officer seeking their assistance in ensuring that cardholders submitted monthly transaction reports on time. The Auditor did not see any evidence indicating that these officials took appropriate and necessary action to ensure the timely submission of complete and accurate monthly transaction reports. Cardholders Purchased Approximately $82,900 In Prohibited ItemsThe purchase card Manual explicitly prohibits cardholders' use of the card for the following:
Further, the Manual prohibits cardholders from purchasing equipment and items that might potentially be classified as fixed assets and items that are sensitive or subject to mysterious disappearance. These items include, but are not limited to, the following: calculators, camcorders, scanners, printers, televisions, DVD and VCR recorders, portable radios, and laptop computers. The Auditor's review of transactions made by DCPS cardholders during fiscal year 2001 revealed repeated instances where cardholders made improper purchases of prohibited items and other unallowable transactions totaling at least $82,900. The Auditor further analyzed the purchases and found that DCPS cardholders purchased $18,955.42 worth of sensitive items that were never recorded in DCPS' fixed asset inventory. Table I summarizes and illustrates the types of improper and unallowable purchases made by DCPS employees who were assigned purchase cards. Appendix I lists the improper purchase transactions by school.
Table I
|
Prohibited Purchases | Amount |
Gifts | $11,900.00 |
Athletic Apparel/Supplies | $20,344.30 |
Food and Water | $3,935.50 |
Furniture | $2,370.05 |
Entertainment | $1,050.00 |
Equipment and Sensitive Items | $18,955.42 |
Subscriptions and Memberships | $1,621.94 |
Rental Car | $473.19 |
Maintenance and Repair Services | $10,583.35 |
Boarding/ Lodging | $1,522.40 |
Other Prohibited Purchases3 | $10,120.73 |
Total FY-2001 Prohibited Purchase Card Expenditures | $82,876.88 |
As illustrated in Table I, the Auditor found significant noncompliance by DCPS cardholders in purchasing prohibited items. In fiscal year 2001, cardholders made prohibited purchases such as: $3,935.50 for food and water; $1,522.40 for hotel services; $1,050 for entertainment; $11,900 for gifts; and $473.19 for rental cars. One DCPS cardholder purchased $2,500 in gifts, and another cardholder purchased 94 gift cards totaling $9,400. Another cardholder was found to have purchased $20,344.30 in athletic apparel that should have been procured through normal procurement channels.
Rules governing the use of purchase cards require that all items purchased with the card that could be classified as fixed assets, sensitive items, or are subject to mysterious disappearance must be included in the agency's fixed assets inventory. Further, Section 1020.301 of the Office of the Chief Financial Officer's (OCFO) Financial Policies and Procedures Manual provides that:
Fixed assets must be adequately safeguarded. Physical and accounting control policies established by the Office of Financial Operations and Systems (OFOS) must be followed by each agency...
Section 1020.302(A) requires that all capitalized and non-capitalized fixed assets be recorded in the Fixed Assets System (FAS). OCFO policies and procedures also require that agencies record and maintain an internal supplementary listing on the agency's FAS, or on the OFOS FAS, of items valued between $1,000 and $5,000. While the vast majority of items purchased were valued at less than $1,000, the Auditor found that at least five items individually valued at over $1,000 were acquired using a purchase card but were not recorded in DCPS' or OFOS' FAS. The Auditor inquired of DCPS officials as to whether DCPS recorded any of the items purchased with a purchase card in the agency's fixed assets system. The Auditor was informed that none of the purchases had been added to DCPS' or OFOS' FAS. Table II lists the items purchased with a purchase card that were not recorded in the FAS.
Purchase Card Purchases | Unit Cost | Date Purchased |
Eltron P310 Color Printer | $2,325.00 | 08/24/01 |
1 Omnibook Laptop Computer | $1,200.00 | 08/29/01 |
1 Omnibook Laptop Computer | $1,200.00 | 08/29/01 |
1 Omnibook Laptop Computer | $1,200.00 | 09/05/01 |
1 Omnibook Laptop Computer | $1,200.00 | 09/05/01 |
Total | $7,125.00 |
The failure to properly record qualified purchases in the FAS does not adequately protect valuable government assets and makes them vulnerable to theft, loss, or misuse.
The purchase card Manual provides that purchase cards may be used when the total amount of a single purchase (which may consist of more than one item) does not exceed the cardholder's authorized single purchase limit of $2,500. Orders and payments may not be split to avoid the single purchase limit. Additionally, Chapter 18 of 27 DCMR states: "A contracting officer shall not split a procurement totaling more than the agency's small purchase limitation into several purchases that are less than the limit 4
The Auditor found that DCPS cardholders circumvented the single purchase limit by splitting purchases to avoid exceeding the $2,500 single purchase limit. Further compounding this failure in compliance, the DCPS CFO's office failed to establish an effective system to monitor and ensure adherence to the policies and procedures governing the use of District Government purchase cards. The Auditor found that one DCPS cardholder made purchases totaling $3,620.83 for classroom supplies from the same vendor on the same day by splitting the purchases into four transactions to avoid exceeding the $2,500 single purchase limit. Additionally, on March 3, 2001, the same cardholder made five split purchases of classroom supplies at a total cost of $4,115.55. Another cardholder made four split purchases totaling $4,346.85 for plumbing supplies and materials from one vendor on the same day. Further, a cardholder made two split purchases on the same day for prom night supplies totaling $2,655.43.
D.C. Code, Section 47-2005(1), exempts the District government from sales taxes on purchases. Additionally, the purchase card Manual requires the cardholder to inform the vendor that purchases are for the District government and therefore exempt from taxes. Further, the U.S. Bank Cardholder Guide advises cardholders to inform vendors and merchants that purchases are tax exempt when making over-the-counter purchases and purchases by mail or telephone.
The Auditor found numerous instances where DCPS cardholders paid sales taxes on purchase card purchases. DCPS erroneously paid approximately $5,355 in sales taxes on purchases made during fiscal year 2001 using purchase cards. Cardholders who incurred sales tax charges on goods and services purchased with a purchase card reflected a lack of adequate training or a reckless disregard for spending government funds properly, if not both. Further, DCPS' OCFO failed to adequately monitor, supervise, and enforce the proper use of purchase cards. Despite violations of the purchase cardholder agreement, cardholders continued to incur charges for taxes on purchases made with purchase cards during fiscal year 2001, and no corrective actions were taken by accountable DCPS officials to prevent future violations.
The purchase card Manual of Instruction provides that
having and using a card does not exempt the cardholder from compliance
with procurement law, regulations, policies, and procedures. The Manual
specifically notes that the use of the card does not mean that
competition need not be sought. The acquisition procedures detailed in
the Manual state that all rules and regulations set forth in the
Procurement Practices Act (D.C. Code, Section 2-301.01 et seq.) and
Title 27 of the District of Columbia Municipal Regulations entitled,
"Contracts and Procurement," continue to apply when using
purchase cards.
The Manual requires that before a purchase is made, a
cardholder must ensure that the price is fair and reasonable, and that
price quotes are obtained from more than one vendor for all purchases.
The Auditor's review of DCPS purchases revealed no evidence that
purchases were made competitively or that any attempts were made to
obtain quotes from more than one vendor, thereby precluding the District
from ensuring it obtained the best possible price.
The purchase card Manual provides:
As Procurement Officials, cardholders are subject to administrative actions and remedies as well as civil and criminal penalties for violation of the Procurement Integrity Act. ...A cardholder who makes unauthorized purchases or carelessly uses the card is personally liable to DC Public Schools, the government of the District of Columbia, and OCP for the total dollar amount of unauthorized purchases made in connection with misuse or negligence.
Further, according to DCPS and OCP representatives, each cardholder was made aware of the penalties associated with misuse of the card before issuance. Such penalties include recovery of the amount of unauthorized transactions from their salary; recommendation for a letter of reprimand from the Accountable Assistant Superintendent; recommendation for suspension or termination of the cardholder and/or the approver depending on the circumstances5.
Additionally, GAO's Standards for Internal Control address management's role in maintaining an organization's integrity and providing guidance for proper behavior, removing temptations for unethical behavior, and providing discipline when appropriate.
One of the most important controls lacking was DCPS' chronic failure to hold accountable those employees misusing purchase cards. As noted throughout this report, the Auditor found numerous instances of purchase card misuse where cardholders were not penalized or held accountable in other meaningful ways. The purchase card Manual requires that the Approving Official enforce disciplinary provisions of card related policies and procedures, and initiate control and disciplinary actions to avoid misuse of cards.
GAO's Standards for Internal Control also state that:
An agency must establish physical control to secure and safeguard vulnerable assets. Examples include security for limited access to assets such as cash, securities, inventories, and equipment which might be vulnerable to risk of loss or unauthorized use. Such assets should be periodically counted and compared to control records.
DCPS did not maintain an inventory of purchase cardholders during fiscal year 2001 which made it impossible for the Auditor to verify the status of cardholders and the legitimacy of purchase card usage. The Auditor found that DCPS relied on the card account information from US Bank which lists all cardholders regardless of whether they are the current (active) or previous (inactive) cardholder. The Auditor used information from voucher payments and bank statements to identify approximately 217 purchase card accounts in use during fiscal year 2001. However, the number of cards identified may have included accounts that were closed or replaced, given that the Auditor obtained copies of only 109 delegations of purchase card authority from OCP that were signed by a DCPS employee during fiscal year 2001.
[A page is missing from the printed report, and will be added online as soon as it is obtained.]
The Auditor's examination of the District of Columbia Public Schools (DCPS) purchase card program revealed significant management deficiencies and noncompliant uses by cardholders.
During fiscal year 2001, DCPS paid approximately $6.3 million in purchase card charges. DCPS' OCFO could not provide documentation to support approximately $984,728 in purchase card payments. The Auditor found that DCPS paid $112,415 in late payment penalties to US Bank for fiscal year 2001 purchase card transactions that were not timely paid. Of the 15 District agencies that incurred late payment penalties, DCPS was assessed the highest cumulative penalty of $112,415. The $112,415 could have been put to more productive use if DCPS' purchase card program had not been mismanaged.
The purchase card Manual requires purchase card transactions to be supported by an original invoice or receipt and bank statement. The Auditor found that during fiscal year 2001 DCPS' Office of the Chief Financial Officer failed to adhere to the purchase card policies and procedures as well as effective internal control procedures by directing payment of all outstanding US Bank invoices even though the invoices lacked supporting documentation such as receipts, monthly transaction reports, and bank statements. In a memorandum dated July 9, 2001, a former Chief Financial Officer for DCPS ordered payments to be made notwithstanding the lack of documentation. As a result of this directive from DCPS' then CFO, payments were made to vendors totaling approximately $684,518 for which there were no vendor invoices, receipts, bank statements, transaction reports, or other supporting documentation.
Payments made in the absence of supporting documentation exposed DCPS' finances to a significant risk of fraud, waste, and abuse. Further, any order from a financial officer to make payments in the absence of supporting documentation exhibited poor professional judgment, undermined the integrity of transactions processed through DCPS' financial system, and indicated a weak internal control system and environment.
The purchase card Manual requires each cardholder to submit a signed and reconciled monthly transaction report along with all supporting documentation to his or her Approving Official. The Auditor found that DCPS OCFO employees recreated monthly transaction reports for cardholder(s) who did not submit this report and supporting documentation as required by the purchase card Manual. DCPS' OCFO did not validate the accuracy of the charges reflected on the Approving Official's Account Summary before recreating monthly transaction reports to facilitate payment on behalf of cardholder(s) who failed to submit a monthly report, and in some cases supporting documentation. This ad hoc process violated the purchase card Manual and may have aided in concealing the misuse of District Government fiends. Also, payments based on recreated transaction reports, in the absence of underlying documents supporting the transactions, created unnecessary risks of fraud, abuse and waste of DCPS funds. The Manual requires that if a transaction report is overdue (not received in the Finance Office before the next invoice is received from the bank), the card will be immediately suspended. However, the Auditor found that despite cardholder noncompliance with this provision of the purchase card Manual, the DCPS CFO's office did not ensure the suspension of any affected cards and continued to allow noncompliant cardholder(s) to retain purchase card privileges.
The Auditor's review of transactions made by DCPS cardholders during fiscal year 2001 revealed that there were repeated instances where cardholders made improper purchases of prohibited items and other unallowable transactions totaling approximately $82,877. The Auditor further analyzed the purchases and found that DCPS cardholders purchased $18,955.42 worth of fixed assets, sensitive items, and items prone to mysterious disappearance. The Auditor found that $7,125 in fixed assets purchased with the card were never recorded in DCPS' fixed asset inventory.
In fiscal year 2001, cardholders made prohibited purchases such as: $3,935.50 for food and water; $1,522.40 for hotel services; $1,050 for entertainment; $11,900 for gifts; and $473.19 for rental cars.
The purchase card Manual provides that purchase cards may be used when the total amount of a single purchase (which may consist of more than one item) does not exceed the cardholder's authorized single purchase limit of $2,500. Orders and payments may not be split to avoid the single purchase limit. The Auditor found that DCPS cardholders circumvented the single purchase limit by splitting purchases to avoid exceeding the $2,500 single purchase limit. Further compounding this failure in compliance, the DCPS CFO's office failed to establish an effective system to monitor and ensure adherence to the relevant policies and procedures governing the use of District Government purchase cards.
D.C. Code, Section 47-2005(1), exempts the District government from paying sales taxes. The Auditor found numerous instances where DCPS cardholders paid sales taxes on purchase card purchases. DCPS erroneously paid approximately $5,355 in sales taxes on purchases made during fiscal year 2001 using purchase cards.
The Manual specifically notes that the use of the card does not mean that competition need not be sought. The Manual requires that before a purchase is made, a cardholder must ensure that the price is fair and reasonable, and that price quotes are obtained from more than one vendor for all purchases. The Auditor's review of DCPS purchases revealed no evidence that purchases were made competitively or that any attempts were made to obtain quotes from more than one vendor, thereby precluding the District from ensuring it obtained the best possible price.
As noted throughout this report, the Auditor found numerous instances of purchase card misuse where the cardholders were not penalized by DCPS even though the purchase card Manual requires that the Approving Official enforce disciplinary provisions of card related policies and procedures, and initiate control and disciplinary actions to avoid misuse of cards.
DCPS did not maintain an inventory of purchase cardholders which made it impossible for the Auditor to verify the status of cardholders and the legitimacy of purchases made by certain individuals. The Auditor found that DCPS relied on the card account information from U.S. Bank which lists all cardholders regardless of whether they are the current (active) or previous (inactive) cardholder.
DCPS' CFO could not provide the Auditor with an inventory of terminated, deactivated and suspended cardholders, or any correspondence sent to US Bank requesting the closing and opening of any accounts in fiscal year 2001.
Moreover, the Auditor's review revealed that a total of at least $1,869,916 in DCPS funds were disbursed without adequate documentation, for late payment penalties, for improper or prohibited purchases, and for taxes paid on purchases that should have been tax exempt. These flawed transactions constituted approximately 30% of the $6.3 million in payments for goods and services procured through DCPS' purchase card program.
Respectfully submitted,
Deborah K. Nichols
District of Columbia Auditor
District of Columbia Public Schools
Unauthorized and Unallowable Purchases
Fiscal Year 2001
School/Office Name | Voucher Number | Vendor | Purchased Items | Purchase Date | Amount |
GIFTS |
|||||
Cardozo SHS | V2002452 | Office Depot | 25 Gift Cards | 08/23/01 | $2,500.00 |
Cardozo SHS | V2002452 | Staples | 25 Gift Cards | 08/23/01 | $2,500.00 |
Cardozo SHS | V2002452 | Staples | 25 Gift Cards | 08/24/01 | $2,500.00 |
Cardozo SHS | V2002452 | Office Depot | 19 Gift Cards | 08/25/01 | $1,900.00 |
C.W. Harris ES | V2001778 | Educational | Gifts | 08/03/01 | $2,500.00 |
Totals | $11,900.00 | ||||
ATHLETIC SUPPLIES |
|||||
Wilson SHS | V1007183 | Riddell/All America | Athletic Pants | 04/11/01 | $562.72 |
Wilson SHS | V1007183 | Dixie Sporting Goods | Athletic Supplies | 04/12/01 | $1,566.00 |
Wilson SHS | V1007183 |
Dixie Sporting Goods |
Athletic Supplies | 04/12/01 | $100.50 |
Wilson SHS | V1007183 | Dixie Sporting Goods | Athletic Supplies | 04/12/01 | $227.94 |
Wilson SHS | V1007183 | Dixie Sporting Goods | Athletic Supplies | 04/12/01 | $339.55 |
Wilson SHS | V2002691 | Dixie Sporting Goods | Sleeveless jerseys, shorts etc. | 06/26/01 | $1,740.00 |
Wilson SHS | V2002691 | Dixie Sporting Goods | 72 reverse weave sweatshirt | 07/26/01 | $1,812.00 |
Wilson SHS | V1011501 | Mark Designs | 18 mens & ladies polo shirts | 05/21/01 | $468.00 |
Wilson SHS | V1011501 | Riddell/All America | 14 adult pants w/knit | 05/22/01 | $630.83 |
Wilson SHS | V 1011501 | Dixie Sporting Goods | Athletic Apparel | 06/15/01 | $2,246.78 |
Hendley ES | V1004183 | Sport Time | Basketball court, bowling bowl | 01/05/01 | $596.86 |
Wilson SHS | V1009090 | MKR Designs | 96 turtleneck shirts | 03/11/01 | $1,440.00 |
Wilson SHS | V1009090 | Riddell/All American | Athletic supplies | 03/06/01 | $351.12 |
Wilson SHS | V2001039 | MKR Designs | 25 sets of warmup jackets & pants | 06/25/01 | $1,625.00 |
Wilson SHS | V2001039 | Barbell Barn | Exercise equipment | 06/26/01 | $2,094.00 |
Wilson SHS | V2001039 | MKR Designs | 24 sets of warmup jackets & pants | 06/26/01 | $1,560.00 |
Wilson SHS | V2001039 | MKR Designs | 24 sets of warmup jackets & pants | 06/29/01 | $1,560.00 |
Wilson SHS | V2001039 | Riddell/All American | 30 jerseys 2 belt tricot | 07/10/01 | $1,423.00 |
Totals | $20,344.30 | ||||
FOOD & WATER |
|||||
Houston ES | V1008397 | Little Italy II | Pizza | 05/06/01 | $350.00 |
C. H. Houston ES | V101212 | Little Italy II | Pizza | 05/03/01 | $70.00 |
Hamilton Center | V1009308 | Dave & Buster | Party Power - food | 05/12/01 | $145.00 |
Merritt Elementary Extended School | D2000313 | Aqua Cool | Water | 07/18/01 | $316.00 |
CW Raymond ES | V1007194 | Aqua Cool | Water | 03/16/01 | $121.26 |
CW Raymond ES | V1007194 | Aqua Cool | Water | 03/16/01 | $153.64 |
CW Raymond ES | accrual | Aqua Cool | Water | 03/20/01 | $274.90 |
Wilson SHS | V2002691 | Aqua Cool | Water | 08/30/01 | $94.88 |
Coolidge SHS | V1009169 | Deer Park | Water | 03/21/01 | $179.81 |
C.W. Raymond | V1006064 | Aqua Cool | Water | 07/25/01 | $248.26 |
C.W. Raymond | V1006064 | Aqua Cool | Water | 07/25/01 | $48.64 |
C.W. Raymond | V1011507 | Aqua Cool | Water | 05/24/01 | $48.64 |
C.W. Raymond | V1011507 | Aqua Cool | Water | 05/24/01 | $247.26 |
C.W. Raymond | V1011507 | Aqua Cool | Water | 05/25/01 | $124.13 |
C.W. Raymond | V1011507 | Aqua Cool | Water | 05/25/01 | $24.32 |
Banneker SHS | V2000858 | Aqua Cool | Water | 06/27/01 | $529.96 |
Banneker SHS | V1010228 | Aqua Cool | Water | 03/08/01 | $368.96 |
Banneker SHS | V1010228 | Aqua Cool | Water | 05/27/01 | $589.84 |
Totals | $3,935.50 | ||||
FURNITURE |
|||||
Wilson SHS | V1007183 | Office Depot | Furniture | 03/20/01 | $339.45 |
Wilson SHS | V1007183 | Office Depot | Furniture | 03/21/01 | $535.20 |
Wilson SHS | V2002691 | Office Depot | Exec. leather chair | 08/22/01 | $369.99 |
Wilson SHS | V2002691 | Dallas Midwest Co. | Hanging caddy | 08/23/01 | $398.00 |
Wilson SHS | V1009090 | Office Depot | Table, chair | 03/09/01 | $727.41 |
Totals | $2,370.05 | ||||
ENTERTAINMENT |
|||||
Brightwood ES | V1012257 | Washington Wizards | Mystic/shock basketball game | 07/09/01 |
$1,050.00 |
EQUIPMENT & SENSITIVE ITEMS |
|||||
Office of the Asst. Superintendent | V1012111 | COMPUSA | Lap top computer | 05/03/01 | $1,999.97 |
Wilson SHS | V1009090 | Radio Shack | 2 RCA camcorders & 48 VHS tapes | 03/09/01 | $1,075.43 |
Wilson SHS | V2001039 | Office Depot | Scanner | 07/18/01 | $299.99 |
MM Washington SHS | V2002677 | Ritz Camera | camera & ac adapter | 0/28/01 | $456.40 |
Wilson SHS | V2001039 | Office Depot | Camedia c-700 ultra | 07/18/01 | $618.46 |
Wilson SHS | V2001039 | Office Depot | HP printer | 07/18/01 | $426.60 |
Dunbar SHS | V1011696 | Long's Electronics | 1 19" TV,tv/dvd/vcr & tv/vcr combo | 4/18/01 | $1,749.74 |
MacFarland MS | V1009306 | Franklin Covey | Palm Handheld & purse | 04/28/01 | $237.60 |
Wheatly ES | V1009091 | Ultimate Office | 5 Pocket Rotary Organizers | 04/09/01 | $715.00 |
Management Information System | V1011510 | Verizon | Headset & Leather case | 05/22/01 | $84.96 |
Chief Technology Office | Accrual | Motorola | Vehicle power adaptor | 09/12/01 | $36.92 |
Dunbar SHS | Accrual | Identicard System Inc. | Eltron P310 Color Printer | 08/24/01 | $2,325.00 |
Dunbar SHS | Accrual | Com Tech | 4 Kenwood VHF portable radio | 08/30/01 | $1,414.50 |
Dunbar SHS | Accrual | Com Tech | 4 Kenwood VHF portable radio | 08/31/01 | $1,414.50 |
Dunbar SHS | Accrual | Com Tech | Panasonic VHS camcorder & replacement battery | 08/30/01 | $868.00 |
Dunbar SHS | Accrual | Capital Services & Supplies | 2 Omnibook laptop computers | 08/29/01 | $2,400.00 |
Dunbar SHS | Accrual | Capital Services & Supplies | Niffty nabber for laptop computers | 09/04/01 | $432.35 |
Dunbar SHS | Accrual | Capital Services & Supplies | 2 Omnibook laptop computers | 09/05/01 | $2,400.00 |
Totals | $18,955.42 | ||||
SUBSCRIPTIONS & MEMBERSHIPS |
|||||
C.W. Raymond | V1011507 | IRA | Membership fees | 05/23/01 | $77.00 |
Oak Hill Academy | V1013455 | Knowledge Unlimited | Online subscription fees | 06/29/01 | $149.00 |
Oyster ES | Accrual | Assn. for Supervision & Curr. Dev. | Membership fee | 01/02/01 | $94.00 |
Malcolm X | Accrual | National Aquarium | Membership fee | 04/10/01 | $75.00 |
Fletcher-Johnson | V2001088 | Costco Membership Process | Membership | 07/11/01 | $135.00 |
Bell Multicultural HS | V1011325 | NASSP | Membership | 05/24/01 | $85.00 |
Janney ES | Accrual | National Assn. of Elementary | Renewal Membership | 01/25/01 | $440.00 |
Janney ES | V1004225 | AWL* Pearson Education | Renewal Membership | 01/17/01 | $462.94 |
Janney ES | V1004225 | ASDN Educational Mtrl | Renewal Membership | 01/17/01 | $104.00 |
Totals | $1,621.94 | ||||
RENTAL CAR |
|||||
Malcolm X ES | V1007683 | Thrifty Car Rental | Car rental | 04/02/01 | $149.94 |
Lasalle ES | V1011679 | U-Haul | U-Haul rental | 06/11/01 | $80.00 |
Burville ES | V2002041 | U-Haul | Rental | 08/25/01 | $243.25 |
Totals | $473.19 | ||||
MAINTENANCE, REPAIR & SERVICES |
|||||
Lincoln MS | V1007530 | All Star Carpet | Install wall to wall carpet | 02/24/01 | $1,050.00 |
Lincoln MS | V1008993 | All Star Carpet | New carpet installation | 05/03/01 | $1,250.00 |
Facilities Mgmt Services | V1002431 | GMC Inc. | Plumbing | 11/01/00 | $375.00 |
Facilities Mgmt Services | V1002431 | GMC Inc. | Plumbing | 11/01/00 | $696.00 |
Facilities Mgmt Services | V1002431 | GMC Inc. | Plumbing | 11/01/00 | $348.00 |
Facilities Mgmt Services | V1002431 | GMC Inc. | Plumbing | 11/01/00 | $946.80 |
Facilities Mgmt Services | V1002431 | GMC Inc. | Plumbing | 11/01/00 | $1,575.28 |
Wilson SHS | V1009090 | Long Fence | Repair of backstop | 03/06/01 | $2,132.00 |
Wilson SHS | V2001039 | Long Fence | basketball goals furnished and installed | 07/10/01 | $1,960.50 |
Wilson SHS | V2002691 | BCE Corp. | Service copier/printer | 06/22/01 | $125.00 |
Wilson SHS | V2002691 | BCE Corp. | Service fax machine | 06/12/01 | $125.00 |
Totals | $10,583.58 | ||||
HOTEL SERVICES |
|||||
Merritt ES | Accrual | Hyatt Hotels Cambridge, MA | Pre- Registration fees | 04/04/01 | $193.00 |
Merritt ES | Accrual | Hyatt Hotels Cambridge, MA | Pre- Registration fees | 04/04/01 | $193.00 |
Merritt ES | Accrual | Hyatt Hotels Cambridge, MA | Pre- Registration fees | 04/04/01 | $213.00 |
Merritt ES | Accrual | Hyatt Hotels Cambridge, MA | Pre- Registration fees | 04/04/01 | $213.00 |
Merritt ES | V1010953 | Hyatt Hotels Cambridge, MA | Pre- Registration fees | 03/10/01 | $150.00 |
Merritt ES | V1010953 | Hyatt Hotels Cambridge, MA | Pre- Registration fees | 03/10/01 | $150.00 |
Merritt ES | V1010953 | Adams Mark Hotel Jacksonville | Pre- Registration fees | 03/10/01 | $136.80 |
Merritt ES | V1010953 | Adams Mark Hotel Jacksonville | Pre- Registration fees | 03/10/01 | $136.80 |
Merritt ES | V1010953 | Adams Mark Hotel Jacksonville | Pre- Registration fees | 03/10/01 | $136.80 |
Totals | $1,522.40 | ||||
Other Prohibited Purchases | |||||
Bancroft ES | Accrual | WMATA (metrorail) | Metro fare cards | 05/17/01 | $66.00 |
Parkview ES | Accrual | WMATA | Metro fare cards (Discovery Creek trip) | 05/05/01 | $448.50 |
Parkview ES | Accrual | WMATA | Metro fare cards (Discovery Creek trip) | 05/30/01 | $276.00 |
Merritt ES | V1010953 | Washington Post | Newspaper | 03/08/01 | $368.90 |
Lincoln MS | V1011697 | Johnson Flowers & Garden | Saucers, Pots, plants & flowers | 03/19/01 | $695.69 |
MLK Jr. ES | Accrual | Sharper Florist | Teddy Bear & Balloon (get well) | 04/03/01 | $44.95 |
MLK Jr. ES | Accrual | Sharper Florist | Teddy Bear & Balloon (get well) | 04/03/01 | $44.95 |
Merritt ES | V1009231 | Sharpe Florist | Flowers | 04/23/01 | $245.06 |
Merritt ES | V1009231 | Sharpe Florist | Flowers | 04/23/01 | $245.06 |
Woodrow Wilson SHS | V1011501 | Washington Post | Classified Advertising | 05/22/01 | $95.08 |
C. H. Houston ES | V1007130 | FSC Continuing Education | Employee Training | 04/04/01 | $180.00 |
C.W. Harris ES | V2001778 | Jimmie Muscatellos | Shirts, Pants, & Jackets | 08/09/01 | $558.00 |
Roosevelt SH | V1009386 | INTAC INC. | Calculators | 04/13/01 | $2,381.82 |
Roosevelt SH | V1009386 | INTAC INC. | Calculators | 04/13/01 | $1,020.78 |
Roosevelt SH | V1009386 | INTAC INC. | Calculators | 04/19/01 |
$2,477.25 |
C.W. Raymond | V1011507 | Ritz Camera | film process, 6 volt battery | 05/23/01 |
$92.75 |
Wilson SHS | VIOL 1501 | Johnson Flower & Garden | Missing invoice | 05/23/01 |
$167.34 |
Wilson SHS | V1009090 | Hertz | Furniture | 03/14/01 |
$237.95 |
MacFarland MS | V2000856 | Ames | Feminine Hygiene Products | 07/05/01 | $45.00 |
Dunbar SHS | Accrual | Central Safe & Lock | Duplicate keys | 08/21/01 | $17.00 |
Dunbar SHS | Accrual | Central Safe & Lock | Duplicate keys | 08/29/01 | $74.00 |
Dunbar SHS | Accrual | Central Safe & Lock | Duplicate keys, rekey, new lock, box key tags | 08/29/01 | $292.50 |
Dunbar SHS | Accrual | Central Safe & Lock | Duplicate keys | 09/10/01 | $19.80 |
Dunbar SHS | Accrual | Central Safe & Lock | Duplicate keys | 09/13/01 | $14.00 |
Dunbar SHS | Accrual | Central Safe & Lock | Duplicate keys | 09/18/01 | $12.35 |
Totals | $10,120.73 |
On April 23, 2003, the Office of the District of Columbia Auditor submitted this report in draft for review and comment to the Superintendent of the District of Columbia Public Schools, the Assistant Director of the Office of Contracting and Procurement, Purchasing Technologies Group, the Director of Field Services for the District of Columbia Public Schools', the President of the District of Columbia Board of Education, and the Acting Chief Financial Officer of the District of Columbia Public Schools.
Written comments were received from the Chief Procurement Officer of the District of Columbia on May 8, 2003 and the Superintendent of the District of Columbia Public Schools on May 16, 2003. Where appropriate, changes were made to the final report to reflect the comments received. All written comments received by the Auditor are appended, in their entirety, to the final report.
GOVERNMENT OF THE DISTRICT OF COLUMBIA
Office of Contracting and Procurement
441 4th Street N.W., Suite 700 South, Washington, D.C.
20001
(202) 727-0252 Fax: (202) 724-5673
Director
May 8, 2003
Deborah Nichols
District of Columbia Auditor
717 14th Street, NW, Suite
900
Washington, D.C. 20005
RE: DC Auditor's report "Review of the District of Columbia Public Schools' Purchase Card Program" for Fiscal Year 2001
Dear Ms. Nichols:
We appreciate your review of the District of Columbia Public Schools' (DCPS) Purchase Card Program for fiscal year 2001, and offer the following comments in response to your findings and recommendations.
Recommendation #4 on page 12 of the auditor's draft report: We agree with the auditor's finding and will schedule a working session with the DCPS' CFO and other participants to discuss improvement measures that ensure that all purchase cards have the requisite controls in place to prevent future approval of unauthorized or unallowable purchases. As we believe that our methodology is sound, in the working session, we will reiterate the responsibilities of program participants and emphasize measures to improve compliance enforcement. Also, based on prior audits, program reviews, and lessons learned, we are in the process of publishing updated purchase card procedures. Such procedures include instructions and guidance to help Approving Officials strengthen controls to prevent future approval of, and increase detection and mitigation of, unauthorized or unallowable purchases. We will formally recommend that the DCPS' CFO either modify its internal procedures or adopt the new program procedures to strengthen all aspects of DCPS' purchase card program management.
Recommendation #7 on page 12 of the auditor's draft report: We agree with the auditor's findings and we will take the following steps, based on available resources, to ensure that adequate training is provided to all cardholder and Approving Officials:
1. collaborate with DCPS leadership to schedule refresher training for DCPS cardholders and Approving Officials in small groups, and encourage DCPS leadership to make attendance at such training compulsory with the proviso that: (a) purchase cards will not be issued to those DCPS employees designated to receive and use cards but who do not attend and complete such training, and who
2. require DCPS purchase card program trainees to sign a training attendance roster and a newly revised and more comprehensive Affidavit (over and above the existing User's Agreement) attesting to their understanding of and compliance with the requirements of 27 DCMR Contracts and Procurement Chapter 18, and their acknowledgement of receipt of all applicable materials and policies and procedures governing card use, which include Sales Tax Exemption notification to vendors for District government card purchases;
3. encourage DCPS leadership to require DCPS cardholders and Approving Officials to comprehensively review monthly transaction reports and supporting documents such as invoices/receipts to ensure that taxes are not paid and that card purchases are proper in all respects;
4. encourage DCPS card users to refrain from waste, fraud, abuse, and mismanagement of purchase cards, such as splitting small purchase awards, and to comply with the requirements of 27 DCMR Chapter 18 for executing small purchases non-competitive small purchases.
With respect to the auditor's finding that "Competitive Price Quotes Were Not Obtained": We note that for fiscal year 2001 in accordance with rules approved by the Council of the District of Columbia on July 8, 2000, by resolution No. 13-778, pursuant to section 205(a) of the Procurement Practices Act (D.C. Code §1-1 182(5)(a)), and relating to non-competitive small purchases, "a procurement for an amount of $2500 or less may be made without obtaining competitive quotations." (Subsequent rulemaking has raised the noncompetitive limit to $10,000.) However, for purchase requirements that exceed the cardholders' monthly credit limit or authority as prescribed in the delegation of contracting authority, we will reiterate to the DCPS leadership that DCPS cardholders and other program participants shall forward such requirements to the DCPS Contracting Officer for processing as appropriate in accordance with 27 DCMR.
Recommendation #3 on page 15 of the auditor's draft report: We agree with the auditor's findings and will resume a comprehensive, mandatory, and continuing training program for all District government cardholders, based on available training resources, to ensure their familiarity with and adherence to all policies and procedures government purchase card usage. As stated earlier in our response, and based on prior audits, program reviews, and lessons learned, we are in the process of publishing updated purchase card procedures. These procedures are more comprehensive than the ones presently in place, and will serve as the basis for any future formal training sessions for cardholders and other program participants. Cardholders and other program trainees will be required to sign a "DISTRICT OF COLUMBIA GOVERNMENT PURCHASE CARD TRAINING AFFIDAVIT & USERS' AGREEMENT" attesting to their completion of purchase card training, and their understanding and acceptance of all applicable laws, policies, and procedures governing the proper use of the purchase card.
At the time of OCP's assessment of DCPS' readiness and capability to judiciously participate in the program (Spring 2000), OCP personnel were neither aware that the DCPS had incurred an $81 million deficit nor that such deficits were related to poor financial management in DCPS. Additionally, during its assessment review (as documented in the referenced DCPS Purchase Card Deployment Plan dated April 25, 2000), DCPS principals assured OCP personnel that DCPS procurement and financial personnel had excellent relations.
Based on our review of the auditor's report, we believe that the auditor's recommendations, if implemented, will greatly strengthen the DCPS' purchase card program performance. We look forward to working with the DCPS leadership and senior management to implement the auditor's recommendations.
In the meantime, we appreciate your report, and if you have any questions, please feel free to call me on 202-727-0252, or call Gregory B. Dean, Assistant Director, Purchasing Technologies on 202-724-5218.
Sincerely,
Jacques Abadie III, CPCM
Chief Procurement Officer
cc: Paul Vance, Superintendent, District
of Columbia Public Schools
Tracy Usry, Acting Deputy Director, Office of Contracting
& Procurement
Nancy Hapeman, General Counsel, Office of Contracting
& Procurement
Thomas E. Brown, Jr., Deputy Auditor, Office of the
District of Columbia Auditor
Debor Dosunmu, Director, Contracts & Acquisitions,
District of Columbia Public Schools
Gregory B. Dean, Assistant Director, Purchasing
Technologies Office of Contracting & Procurement
DISTRICT OF COLUMBIA PUBLIC SCHOOLS
OFFICE OF THE SUPERINTENDENT
825 North Capitol Street,
NE, 9th Floor
Washington, D.C., 20002-1994
(202) 442-5885 - fax: (202) 442-5026
May 16, 2003
Deborah K. Nichols
District of Columbia Auditor
Office of the District of Columbia Auditor
717 14th
Street, N.W., Suite 900
Washington, DC 20005
Dear Ms. Nichols:
Thank you for providing the District of Columbia Public Schools (DCPS) with an opportunity to comment on your draft audit report titled Review of the District of Columbia Public School's Purchase Card Program. Attachment A provides our response to your twelve recommendations for corrective action that apply to our operations. We have established a projected date of September 30, 2003 for completion of corrective action for all your recommendations.
I have reviewed the recommendations and our responses with my staff. I believe that each of the responses addresses your concerns and recommendations. Our corrective actions will enhance the internal controls necessary for the successful operation of the procurement card program.
Should you have any questions on this letter or our responses to your recommendations, please contact John Cashmon, the DCPS Director of Compliance, at 202-442-5656.
Sincerely,
Paul L. Vance
Superintendent
Attachment A
Review of the District of Columbia Public School's Purchase Card Program
Recommendation: DCPS' CFO should ensure that all purchase card invoices are supported by adequate appropriate documentation before making payment, and that all records of purchase card transactions are retained and available when needed.
DCPS Response: DCPS concurs with the recommendation. The Office of the Chief Financial Officer (OCFO) will take the following corrective actions:
Recommendation: DCPS' CFO should ensure that all cardholder(s) adhere to the procurement laws and regulations and all purchase card policies and procedures established by the Office of Contracts and Procurement (OCP), and immediately suspend purchase card privileges of noncompliant cardholders.
DCPS Response: DCPS concurs with the recommendation, and the Acting CFO will notify all noncompliant cardholders by June 15 that their P-Card has been suspended until all outstanding reports and issues have been resolved.
In the additional policies and guidance for P-Card use discussed in the prior response OCFO will include policy on the purchase of goods that complies with the applicable D.C. Code and the DCPS' Office of Contracts and Acquisition (OCA) policies for the competitive purchase of goods.
Recommendation: DCPS' CFO should immediately cease the practice of processing payments based on recreated monthly transaction reports without the cardholder(s) and Approving Officials validating and certifying transactions.
DCPS Response: DCPS concurs with the recommendation. The Acting CFO will by May 31, 2003 issue a memorandum to all P-Card users and authorizing officials that all processing of recreated monthly transaction reports will cease immediately and that all users and approving officials must validate and certify the P-Card's transactions.
Recommendation: The Chief Procurement Officer and DCPS' CFO should develop a methodology that ensures that all purchase cards have the requisite controls in place to prevent future approval of unauthorized or unallowable purchases.
DCPS Response: DCPS concurs with the reports recommendations and will take the following corrective actions:
Recommendation: Cardholders making unauthorized purchases must be held personally liable and accountable for the expenditure. DCPS' CFO must immediately institute an effective procedure that ensures that cardholders promptly make reimbursement for all unallowable purchases.
DCPS Response: The Acting CFO concurs and will work with the Office of the General Counsel to develop a policy and procedures that will ensure the prompt repayment of unauthorized purchases. Our additional policies and guidance to each P-Card user and authorizing official will include a statement notifying both individuals that unauthorized purchases will not be tolerated and will be required to be repaid to DCPS.
Recommendation: The DCPS CFO and Superintendent should immediately take the necessary steps to ensure that all information related to fixed assets acquired with the purchase card are promptly recorded in DCPS' fixed asset system.
DCPS Response: DCPS will record the information provided by the Auditor in its fixed asset records. Additionally, Logistics will be notified to place a property tag on these assets and to update their database.
Recommendation: OCP and the DCPS' CFO should ensure that adequate training is provided to all cardholders and Approving Officials, and ensure that monthly transaction reports are adequately reviewed, including supporting documentation such as invoices/receipts to ensure that taxes are not paid and the purchase is proper in all respects.
DCPS Response: DCPS concurs and both OCA and OCFO will conduct this training for the OCFO accounts payable staff and all P-Card users and authorizing officials. Training for the OCFO staff and Central Office users and authorizing officials will be provided by August 15 and training for all school-based users and authorizing officials will be provided by September 30, 2003.
Recommendation: The improper purchases identified by the Auditor in this report must immediately investigated by the DCPS' internal auditor and where appropriate DCPS Superintendent and Chief Financial Officer take appropriate steps to recover the payments made for these improper purchases from the cardholder. Further, cardholders who abuse or misuse their purchase cards should be held accountable for the fullest extent permitted under the District's personnel law and regulations.
DCPS Response: DCPS concurs and the Office of Compliance will review the Auditor's schedule, the actual transactions, and any supporting documentation maintained by the individual school or Central Office unit. The Office of Compliance will provide the Superintendent, Chief Operating Officer, and the Chief Financial Officer with addition information on the transactions by June 30, 2003. The Superintendent and other DCPS officials to determine any disciplinary action that may be taken against specific violators will use this additional information.
Recommendation: DCPS' CFO, Superintendent and Assistant Superintendents should immediately hold cardholders liable and promptly take all necessary actions to retrieve the amount spent on unallowable purchases. Such actions should include but not be limited to reimbursement and immediate suspension o f cardholder privileges.
DCPS Response: The Acting CFO concurs and will work with the Office of the General Counsel to develop a policy and procedures that will ensure the prompt repayment of unauthorized purchases. Our additional policies and guidance to each P-Card user and authorizing official will include a statement notifying both individuals that unauthorized purchases will not be tolerated and will be required to be repaid to DCPS.
Recommendation: DCPS should maintain an inventory of all purchase cardholders; periodically update the inventory to include new cards issued, deactivations, terminations, and suspensions, and compare the purchase cardholder records so as to accurately determine the number of cardholders and prevent any unauthorized use of the cards.
Response: DCPS agrees and will have an inventory of the P-Card users developed by June 30, 2003. This inventory will be updated monthly to ensure the accuracy of the inventory and the database.
Recommendation: The Chief Procurement Officer must institute a comprehensive, mandatory, and continuing training program for all District government purchase cardholders to ensure their familiarity with and adherence to all policies and procedures governing purchase card usage.
Response: This recommendation does not appear to apply to DCPS directly. DCPS in prior responses to this report has indicated that training will be provided to the OCFO accounts payable staff, Central Office and school based users and authorizing officials on P-Card policies, regulations and procedures.
Recommendation: DCPS must ensure that all DCPS employees designated to use purchase cards are thoroughly trained and knowledgeable of all applicable policies and procedures. Failure to comply with applicable policies and procedures should result in the immediate suspension of purchase card privileges.
DCPS Response: The DCPS OCA and OCFO will undertake joint training of all DCPS P-Card users and authorizing officials. This training will be completed by September 3 0, 2 003. B Both OCA and OCFO will continue to a evaluate the need for additional training as changes in users and authorizing officials occur. OCA and OCFO will provide annual refresher training for users and authorizing officials to assist in ensuring compliance with the P-Card policies and procedures.
1. The DCPS CFO issuing this directive is the current Budget Director for the District of Columbia government.
2. Defined as creating a monthly log report of purchase card transaction activity using the approving official's account summary in the absence of the following documents: invoice, receipt, bank statement, cardholder signature, and approving official signature.
3. Other prohibited purchases included metro fare cards, newspapers, saucers, pots, plants, flowers, teddy bear and balloons, classified advertising, calculators, employee training, uniforms, female hygiene products, and duplicate keys.
4. In the case of purchase card procurements, the Auditor considers $2,500 to be the small purchase limitation under Chapter 18 of 27 DCMR.
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