Pursuant 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.

CONCLUSION

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 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

DCPS paid approximately $6.3 million for purchase card expenditures and $112,415 in late payment penalties during fiscal year 2001.
DCPS failed to comply with the Office of Contracting and Procurement's guidelines for purchase card use.
DCPS' OCFO paid approximately $684,518 for purchase card transactions that lacked proper supporting documentation.
Monthly transaction reports were recreated.
Cardholders purchased approximately $82,900 in prohibited items.
Cardholders made $7,125 in purchases that were not recorded in DCPS' fixed assets system.
Purchases were split to avoid the $2,500 single purchase limit.
Approximately $5,355 in sales taxes were paid on exempt purchases.
Competitive price quotes were not obtained.
DCPS lacked sufficient controls over purchase card use.
DCPS did not maintain a list of DCPS employees issued cards.
DCPS did not maintain records of terminated, deactivated or suspended purchase card accounts.
DCPS did not provide adequate training to purchase card holders.

MAJOR RECOMMENDATIONS

DCPS' CFO ensure that purchase card invoices are supported by adequate appropriate documentation before making payment, and that all records of purchase card transactions are retained for a minimum of three years and available when needed.
DCPS' CFO ensure that cardholders adhere to applicable procurement laws and regulations and purchase card policies and procedures established by the Office of Contracting and Procurement (OCP), and immediately suspend the purchase card privileges of noncompliant cardholders.
DCPS' CFO immediately cease the practice of processing payments based on recreated monthly transaction reports without cardholders and Approving Officials scrutinizing, validating, and certifying the transactions.
The Chief Procurement Officer and DCPS' CFO develop a methodology that ensures that all purchase cards have the requisite controls in place to prevent future approval of unauthorized or unallowable purchases.
Cardholders making unauthorized purchases must be held personally liable and accountable for such purchases. DCPS' CFO immediately institute an effective procedure that ensures cardholders promptly make reimbursement for all unallowable purchases.
The DCPS CFO and Superintendent should immediately take steps necessary to ensure that all information related to fixed assets acquired with purchase cards are promptly recorded in DCPS' fixed assets system.
OCP and 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 documents such as invoices and receipts, to ensure that taxes are not paid on the exempt purchases and that the purchase is proper in all other respects.
The improper purchases identified by the Auditor in this report must be immediately investigated by DCPS' internal auditor and where appropriate DCPS' Superintendent and Chief Financial Officer must take the appropriate steps to recover payments made for these improper purchases from the cardholder. Further, cardholders who abuse or misuse their purchase cards must be held accountable to the fullest extent permitted under the District's personnel law and rules.
DCPS' CFO, Superintendent, and Assistant Superintendents immediately hold cardholders liable and promptly take all actions necessary to retrieve the amount spent on unallowable purchases. Such actions should include, but not be limited to, reimbursement and immediate suspension of cardholder privileges.
DCPS must maintain an inventory of all purchase cardholders; periodically update the inventory to include new cards issued, deactivations, terminations, and suspensions; and compare the inventory to purchase cardholder records so as to accurately determine the identity and number of cardholders and prevent any unauthorized use of the cards.
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.
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.

PURPOSE

Pursuant 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 METHODOLOGY

The objectives of the review were to determine:

the total amount expended during fiscal year 2001 using purchase cards;
the types of goods and services purchased;
the identity and number of authorized purchase card users at DCPS;
whether DCPS management complied with all applicable policies, procedures, and laws governing the use of purchase cards; and
whether internal controls were sufficient to ensure that DCPS funds were adequately protected from waste and misuse inherent in the purchase card program.

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.

BACKGROUND

According 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 Plan

The 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.

FINDINGS

DCPS PAID APPROXIMATELY $6.3 MILLION FOR PURCHASE CARD EXPENDITURES AND $112,415 IN LATE PAYMENT PENALTIES DURING FISCAL YEAR 2001

During 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 USE

The 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 Documentation

The 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 Recreated

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 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 Items

The purchase card Manual explicitly prohibits cardholders' use of the card for the following:

equipment such as printers, microwave ovens, refrigerators etc.;
conference fees, dues, memberships or subscriptions;
gifts or donations to individuals, groups, or organizations;
food items, including snacks and meals, regardless of the occasion;
travel, including airline or hotel reservations;
payment for services of any sort;
telephone expenses, including cellular phones and related expenses; and
advertising for personnel positions.

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
District of Columbia Public Schools
Summary of Prohibited Cardholder Purchases:
Fiscal Year 2001

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

Source: DCPS Purchase Card Records and DC Auditor Analysis

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.

Cardholders Made $7,125 In Equipment Purchases That Were Not Recorded in DCPS' Fixed Assets System

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.

Table II
Purchase Card Purchases Valued Between $1,000 and $5,000
That Were Not Recorded in DCPS's Fixed Assets System:
Fiscal Year 2001

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

Source: DCPS and Office of the D.C. Auditor

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.

Purchases Were Split to Avoid the $2,500 Single Purchase Limit

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.

Approximately $5,355 In Sales Taxes Were Paid on Exempt Purchases

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.

Competitive Price Quotes Were Not Obtained

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.

RECOMMENDATIONS:

DCPS' CFO ensure that purchase card invoices are supported by adequate appropriate documentation before making payment, and that all records of purchase card transactions are retained for a minimum of three years and available when needed.
DCPS' CFO ensure that cardholders adhere to applicable procurement laws and regulations and purchase card policies and procedures established by OCP and immediately suspend the purchase card privileges of noncompliant cardholders.
DCPS' CFO immediately cease the practice of processing payments based on recreated monthly transaction reports without cardholders and Approving Officials scrutinizing, validating and certifying the transactions.
The Chief Procurement Officer and DCPS' CFO develop a methodology that ensures that all purchase cards have the requisite controls in place to prevent future approval of unauthorized or unallowable purchases.
Cardholders making unauthorized purchases must be held personally liable for the payment of such purchases and held accountable to the fullest extent permitted under District and DCPS personnel rules. DCPS' CFO immediately institute an effective procedure that ensures cardholders promptly make reimbursement for all unallowable purchases.
The DCPS CFO and Superintendent should immediately take steps necessary to ensure that all information related to fixed assets acquired with purchase cards are promptly recorded in DCPS' fixed assets system.
OCP and 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 documents such as invoices and receipts, to ensure that taxes are not paid on tax exempt purchases and that the purchase is proper in all other respects.
The improper purchases identified by the Auditor in this report must be immediately investigated by DCPS' internal auditor and where appropriate DCPS' Superintendent and Chief Financial Officer must take the appropriate steps to recover payments made for these improper purchases from the cardholder. Further, cardholders who abuse or misuse their purchase cards must be held accountable to the fullest extent permitted under District personnel law and rules.

DCPS LACKED SUFFICIENT CONTROLS OVER PURCHASE CARD USE

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.

DCPS Did Not Maintain a List of DCPS Employees Issued 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.]

cards used to purchase prohibited items;
sales taxes paid on District government purchases;
purchases split to avoid exceeding the single purchase limit; and
cards used to purchase personal items.

RECOMMENDATIONS

DCPS' CFO, Superintendent, and Assistant Superintendents immediately hold cardholders liable and promptly take all actions necessary to retrieve the amount spent on unallowable purchases. Such actions should include, but not be limited to, reimbursement and immediate suspension of cardholder privileges.
DCPS must maintain an inventory of all purchase cardholders; periodically update the inventory to include new cards issued, deactivations, terminations, and suspensions; and compare the inventory to purchase cardholder records so as to accurately determine the identity and number of cardholders and prevent any unauthorized use of the cards.
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.
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.

CONCLUSION

The Auditor's examination of the District of Columbia Public Schools (DCPS) purchase card program revealed significant management deficiencies and noncompliant uses by cardholders.

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.

Respectfully submitted,
Deborah K. Nichols
District of Columbia Auditor

APPENDIX I

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

Office of the District of Columbia Auditor Mismanagement, Noncompliance, and Ineffective Internal Controls Exposed School System Funds to a Significant Risk of Fraud, Waste, and Abuse June 16, 2003

Mismanagement, Noncompliance, and Ineffective Internal Controls Exposed School System Funds to a Significant Risk of Fraud, Waste, and Abuse

TABLE OF CONTENTS

EXECUTIVE SUMMARY

PURPOSE

CONCLUSION

MAJOR FINDINGS

MAJOR RECOMMENDATIONS

PURPOSE

OBJECTIVES, SCOPE, AND METHODOLOGY

BACKGROUND

District of Columbia Public Schools' Purchase Card Deployment Plan

FINDINGS

DCPS PAID APPROXIMATELY $6.3 MILLION FOR PURCHASE CARD EXPENDITURES AND $112,415 IN LATE PAYMENT PENALTIES DURING FISCAL YEAR 2001

DCPS FAILED TO COMPLY WITH THE OFFICE OF CONTRACTING AND PROCUREMENT'S GUIDELINES FOR PURCHASE CARD USE

DCPS' OCFO Paid Approximately $684,518 For Purchase Card Transactions That Lacked Proper Supporting Documentation

Monthly Transaction Reports Were Recreated

Cardholders Purchased Approximately $82,900 In Prohibited Items

Table I District of Columbia Public Schools Summary of Prohibited Cardholder Purchases: Fiscal Year 2001

Cardholders Made $7,125 In Equipment Purchases That Were Not Recorded in DCPS' Fixed Assets System

Table II Purchase Card Purchases Valued Between $1,000 and $5,000 That Were Not Recorded in DCPS's Fixed Assets System: Fiscal Year 2001

Purchases Were Split to Avoid the $2,500 Single Purchase Limit

Approximately $5,355 In Sales Taxes Were Paid on Exempt Purchases

Competitive Price Quotes Were Not Obtained

RECOMMENDATIONS:

DCPS LACKED SUFFICIENT CONTROLS OVER PURCHASE CARD USE

DCPS Did Not Maintain a List of DCPS Employees Issued Cards

RECOMMENDATIONS

CONCLUSION

APPENDIX I

Office of the District of Columbia Auditor
Mismanagement, Noncompliance, and Ineffective Internal Controls Exposed School System Funds to a Significant Risk of Fraud, Waste, and Abuse
June 16, 2003

Table I
District of Columbia Public Schools
Summary of Prohibited Cardholder Purchases:
Fiscal Year 2001

Table II
Purchase Card Purchases Valued Between $1,000 and $5,000
That Were Not Recorded in DCPS's Fixed Assets System:
Fiscal Year 2001