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Our overall objective for this audit was to evaluate the effectiveness of controls over the purchase card program of the Board of Governors of the Federal Reserve System (Board). Specifically, we assessed the effectiveness of controls for issuing cards and ensuring proper use, including (1) determining if controls were adequate to ensure cardholder compliance with Board policies and procedures, and (2) assessing whether controls were adequate to prevent and detect improper use and fraudulent use of purchase cards.
The Board participates in the government-wide purchase card program known as the General Services Administration (GSA) SmartPay2 program to streamline payment procedures and reduce administrative costs of acquiring low-cost, standard items.1 Through this program, the Board contracts for purchase card services with JPMorgan Chase (JPMC), and it authorizes JPMC to issue purchase cards to designated employees.2 JPMC invoices the Board for cardholders' purchases, and the Board is liable for transactions made by these authorized cardholders.3 Cardholders' purchases are required to comply with the Board's Acquisition policy and Purchase Card Procedures. The Board has independent procurement authority and, therefore, is not required to follow the Federal Acquisition Regulation. The Board generally follows the spirit of the Federal Acquisition Regulation.
The Government Accountability Office and other Offices of Inspector General have reported that federal agencies have failed to ensure proper use of purchase cards. In light of these prior reports as well as the purchase card program's susceptibility to waste, fraud, and abuse, we conducted this audit. In the future, we plan to conduct periodic reviews of the purchase card program.
The Board's 2010 Acquisition policy governs its acquisition of supplies, services, construction, and real property. Under the policy, the Board considers cardholders as contracting officers and permits cardholders to use the purchase card to acquire and pay for supplies and services that cost $5,000 or less, subject to the cardholder's purchasing limit.4 Cardholders should not use purchase cards for renting or leasing land or buildings; obtaining cash advances; or paying for telecommunications services, capital assets, entertainment, food, beverages, or travel-related expenses. Cardholders are also prohibited from using the purchase card for personal charges. The policy allows cardholders to use the purchase card for transactions that exceed $5,000 if the transaction is within the cardholder's purchasing limit, and the cardholder follows other appropriate acquisition procedures, such as simplified purchase procedures5 and procedures for purchases from the GSA Federal Supply Schedule.6
The Board's 2007 Purchase Card Procedures gives the manager of the Procurement section, which is part of the Board's Division of Financial Management, overall responsibility for administering the Board's purchase card program. A supervisory purchasing agent within the Procurement section serves as the Board's program coordinator. The program coordinator is responsible for serving as the liaison between the Board and JPMC and between the Board and the GSA contracting officer, opening new card accounts, establishing guidelines for proper use of the cards, establishing purchase limits, monitoring the approval of cardholders' purchases, monitoring cardholders' purchases for improper use, and canceling accounts. The program coordinator also conducts administrative training related to the program.
The Board's Purchase Card Procedures and individual cardholders' Purchase Card Acknowledgment Forms outline specific responsibilities for cardholders and approving officials. Cardholders are responsible for, among other things, using the purchase card only for official Board business and authorized purchases, certifying the quantity and quality of items or services purchased, complying with purchase limits, documenting purchases in a log, maintaining evidence for each purchase made for three years, reconciling logged purchases to a monthly statement of account, obtaining approval from an approving official during each billing cycle, and reconciling transactions and assigning accounting codes to purchases prior to the end of the billing cycle. Approving officials are responsible for conducting postcertification reviews, which are reviews and approvals of cardholders' logs and supporting documentation after purchases have been made to verify that purchases are appropriate and properly accounted for.