March 11, 1997
Dear Mr. Barram:
This report presents the results of the President's Council on Integrity and Efficiency (PCIE) review of the General Services Administration's (GSA) procurement initiative for the next generation of card-based payment systems. The U.S. Department of Agriculture's Office of Inspector General (OIG) was designated as the lead agency for this effort. We coordinated our review with the audit staffs of numerous Inspectors General throughout government and members of the Chief Financial Officer's (CFO) Council.
This project consolidated current issues or concerns of the OIG and
CFO community that may need to be considered and addressed as the GSA moves
forward with initiatives to develop contract proposals. Information in
this report is a "roll up" from completed audits, evaluations/inspections,
or investigations, plus information obtained from various agency personnel
regarding procedures followed in processing travel, fleet, and purchase
card transactions. The participating OIG's made recommendations to their
respective agencies as appropriate, and our recommendations to the GSA
are included in this report.
The PCIE is very supportive of GSA's efforts involving the next generation
of card-based payment systems. If properly implemented, these new systems
can streamline travel, procurement, and payment procedures. The PCIE is
committed to working with GSA as this initiative continues.
Background . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Audit Objectives, Scope and Methodology . . . . . . . . . . . . .
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Executive Summary . . . . . . . . . . . . . . . . . . . . . . . .
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Recommendations . . . . . . . . . . . . . . . . . . . . . . . . .
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Recommendations . .. . . . . . . . . . . . . . . . . . . . . . .
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Recommendation . . . . . . . . . . . . . . . . . . . . . . . . .
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . .
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
The President's Council on Integrity and Efficiency (PCIE) designated
the U.S. Department of Agriculture, Office of Inspector General (OIG),
as the lead agency to consolidate issues and concerns identified regarding
Governmentwide credit card activities for travel, purchase, and fleet card
services. The review was coordinated with the audit staffs of numerous
Inspectors General and the Chief Financial Officer's (CFO) Council.
As part of its ongoing effort to enhance the services provided to Federal
agencies, the General Services Systems Administration (GSA) is changing
its single vendor-single service program to a multiple vendor contract
for each of its charge/credit account programs. The proposed new system
will simplify purchases of more than $4 billion a year. GSA has developed
a procurement strategy to meet the Government's requirements for the next
generation of a card-based payment system. GSA plans to solicit "business
lines" for fleet, travel, purchase cards, and an "integrated
solution" for card services. The initial term of the contract will
be for 5 years, with five 1-year options.
In the move from paper-based to electronic systems, GSA plans to make
full use of existing and future card-based services and technologies. The
enhanced technology for the new system will provide the Government with
electronic systems that streamline processes, improve accountability and
tracking, provide access to and interaction with financial and administrative
data, and enable timely reconciliation and settlement processes.
GSA's ultimate goal is the capability to operate multiple applications,
both financial and administrative, through a single platform.
GSA plans to solicit an "integrated solution or business line"
for providing fleet, travel, and purchase card services. Offerors must
meet the core requirements specified for each card service independently;
and, at a minimum, integrate the reporting function for all three programs.
This "business line" offers the Government the ability to
operate travel, purchase, and fleet card programs in a single, streamlined
Through an "integrated solution," GSA plans to: Gain cost
efficiencies; improve Government operations, particularly accountability
and performance reporting; and streamline procurement, payment, and administrative
Objectives of the Travel, Purchase, andFleet Services Card Program
GSA has identified the following objectives for its Travel, Fleet and Purchase Card System.
Improve Government cash management practices.
Reduce/eliminate imprest funds.
Streamline travel, procurement, and payment procedures.
Reduce administrative costs.
Take advantage of technological advances.
Audit Objectives, Scope, and Methodology
The objective of this review was to identify and consolidate OIG and
CFO concerns regarding the current processes followed in processing travel,
fleet, and purchase card transactions, and to assist the GSA as it moves
forward with initiatives to develop contract proposals.
Our review focused on the audit work completed by selected OIG offices
and issues raised through our analysis of their reports and reviews involving
the travel, purchase, and fleet card programs. Coverage also included an
evaluation of Governmentwide efforts to improve and expand the use of these
card programs through implementing streamlined procedures and emerging
technology such as smart cards. We also coordinated our review effort with
the CFO Council.
To accomplish the proposed objectives, we did the following.
Contacted various OIG's for information on completed audits and reviews
of activities involving the travel, purchase, and fuel card programs.
Interviewed responsible program personnel to determine if new initiatives,
best practices, and technical procedures have been implemented.
Obtained comments from responsible program personnel and CFO personnel
on card features they believe should be included in the new contract, as
well as current features or procedures which should be eliminated or changed.
Met with banking industry representatives to obtain information on commercial
practices and procedures for credit card operations.
GSA Methodology Sound
The General Services Administration's master contract approach has effectively
established the basis for identifying the Government's requirements for
the next generation of card-based payment systems. In our discussions with
members of the CFO community, as well as agency procurement and program
officials, we learned that GSA has considered the diverse needs and interests
of its customers, and has established a sound economic case for industry
participation and competition. GSA held meetings, symposiums and focus
group sessions with its customers to obtain their input for the next generation
of card programs. Many agency officials told us GSA has "listened"
to their concerns and has addressed them in the recently issued draft Statement
of Work. Our review has shown that GSA is moving forward to find new and
innovative methods to streamline the card programs and enhance their usefulness
to the user community.
Some Additional Areas for Consideration
During our review, we noted several areas of concern that GSA may wish
to consider as it moves toward issuing contracts in the coming months.
We learned that inequities in the tax exempt treatment among the card programs
result in additional costs in the travel program from $80 million to $100
million annually. Also, the lack of a uniform Governmentwide policy for
the treatment of rebates has caused some confusion among agencies. We believe
GSA should take the lead in these areas to bring about consistency in the
treatment of tax exemptions and rebates.
Further, we noted that agencies have developed a variety of systems
(both manual and automated) for managing card transactions. GSA should
encourage agencies to consider using automated systems currently available
at selected agencies prior to developing new and costly systems independently.
In addition, GSA needs to ensure that contracts include appropriate requirements
for audits of service providers, in accordance with Statement of Auditing
Standard No. 70. Finally, our discussions with banking industry officials
disclosed that many automated controls exist in the private sector to monitor
transactions for potential abuses. GSA may need to evaluate these enhanced
features to determine their appropriateness for Government systems.
We presented our findings to officials of GSA who agreed with our results.
They concurred that resolution of the tax and rebate issues may require
the involvement of Office of Management and Budget (OMB) and the U.S. Department
of the Treasury (Treasury) to bring about appropriate Governmentwide changes
in these areas.
GSA needs to take the lead in establishing Governmentwide credit card
programs that provide for an exemption from taxes on all official transactions.
Currently, purchases made with the travel card that are billed directly
to the traveler are taxed at the prevailing rate for the locality where
the transaction took place, while purchases made with the GSA commercial
credit card (IMPAC) and fleet cards are exempt from any State or local
taxes. Eliminating this disparity could result in savings to the government
of an estimated $80 million to $100 million annually.
The GSA IMPAC program is intended to streamline payment procedures and
reduce the administrative burden associated with traditional purchasing
of supplies and services. Cards are issued directly to approved individuals
who use the cards to obtain goods and services. Purchases are billed directly
to the participating agencies which are responsible for timely payment
of the invoice. Purchases made with the IMPAC card are exempt from all
State and local taxes. Similarly, fleet cards are available to purchase
fuel, maintenance services, and fleet-related expenses. Like the IMPAC
card, fleet card purchases are also centrally billed and are exempt from
Inequity in the Travel Card System
The GSA travel expense system consists of individually billed accounts,
centrally billed accounts, ATM access and travelers checks, all of which
are for use in connection with official Government travel and travel-related
expenses. Employees with individually billed accounts are responsible to
pay their account balances in full each month and obtain appropriate reimbursement
from their agency. Transactions charged to individually billed accounts
are generally subject to State and local taxes. Centrally billed accounts
are established by some agencies to pay for travel and travel-related expenses
under special circumstances, and are exempt from State and local taxes.
Historically, it has been held that purchases billed directly to an agency
of the Federal Government are exempt from tax, while purchases billed to
individuals generally are taxed, regardless of their status as federal
employees on official business. Under the present system, agencies seeking
to avoid these taxes are required to negotiate separately with each provider
(hotels, rental car companies, etc.) to obtain central billing and to ensure
their purchases are not taxed.
No Easy Solutions
In our discussions with GSA, we learned that attempts have been made in the past to rectify this tax inequity, but without achieving adequate solutions. For example, it has been suggested that all transactions be centrally billed, thereby avoiding all taxes. However, concerns were raised over situations where a traveler might charge a non-reimbursable expense to the travel card, and the expense was ultimately paid through a centrally billed account. This could occur if, for example, a traveler charged a restaurant or gift shop purchase to their hotel bill. To preclude this situation, one approach would be for the contracting card vendor to develop an accounting system that could breakout centrally billed, non-taxable purchases from those which are the responsibility of the individual traveler. Another solution currently being discussed within GSA is the use of a stored-value card for travelers. This would be a debit card issued in the name of the Government rather than an individual traveler, thereby rendering it tax exempt. The card would contain a specific amount of money available for travel purposes, and could be replenished on a trip-by-trip basis.
While there are obstacles to overcome to effect a positive change, we
believe GSA should actively pursue a course of action to bring about such
changes. According to GSA, during the travel card contract period 1993
to 1996, approximately 1.3 million Federal travelers charged an estimated
$3.3 billion annually in travel-related expenses. GSA officials advised
us that the potential tax savings represented by this level of activity
could be estimated to be between $80 million and $100 million annually.
1. GSA should take the lead, in conjunction with OMB and Treasury, to
bring about legislative, regulatory, or administrative change over the
tax inequity in the travel card program.
2. In the interim, GSA may need to task potential travel card contractors to propose possible solutions to the tax inequity in the travel card program. For example, one option would be a system that:
a. Includes central billing as a primary feature,
b. establishes procedures for distinguishing between non-taxable transactions
and those which are the responsibility of the individual traveler, and
c. creates an information network to assist service providers to account for taxable and non-taxable transactions.
3. Based on the changes brought about through Recommendations Nos. 1
and 2, GSA should establish procedures for Federal travelers which clearly
define approved taxable and non-taxable transactions, and provide appropriate
procedures for reporting the transactions and obtaining reimbursements,
Uniform Procedures are Needed
GSA needs to work with OMB and Treasury to establish consistency in
the treatment of rebates to agencies participating in the Governmentwide
credit card programs. Our review disclosed that agencies were unsure of
how rebates should be credited, whether the rebates could be used to offset
program costs, or if they needed to be returned to the Treasury. Further,
some agencies paid their accounts as quickly as possible in order to maximize
their rebates. In one case, this process violated provisions of the Prompt
Payment Act requiring that agencies not pay invoices early without first
considering the cost of money to the Government, and if appropriate, obtaining
a waiver from OMB to do so.
Currently, contractors are required to pay rebates to agencies based on certain factors, such as volume of activity or timeliness of payments. GSA's draft Statement of Work, dated December 19, 1996, continues to apply the rebate provisions to the new contracts. Under the sections entitled "Financial Considerations to Agencies," GSA requires that contractors provide each agency a financial return based on net purchase volume.
Rebates Encourage Improvements
In addition, agencies can elect to participate in a productivity rebate
based on the agency's performance (e.g., faster pay, reduced delinquencies,
electronic receipt of invoices/reports, reduced write-offs, etc.). The
productivity rebate is designed to motivate agencies to improve and streamline
credit card operations and payments. For example, if an agency elects to
receive electronic invoices, it will receive a fixed rebate amount. Further,
if the agency pays the invoice within a short time, say for example, 20
days, the agency will receive an additional rebate calculated based on
the payment date.
Lack of Consistency Creates Confusion
In our discussions with agency officials, we learned they were cognizant
of the benefits of rebates and they encouraged their staff's to take advantage
of them. However, we also learned that program officials in some agencies
were unsure of how to handle the rebates once received. Personnel in one
agency told us they returned the rebate to Treasury, while another agency
returns it to their program general fund. Both agencies indicated they
were not sure their process was correct. In another agency, an Inspector
General audit disclosed that agency personnel returned the rebate checks
to the contractor for credit to their account rather than entering the
check into the agency's accounting system. Finally, GSA's Statement of
Work states that agencies may use rebates to offset the cost of items ordered
from the contractor, such as bank checks. We believe GSA needs to address
these inconsistencies, in consultation with OMB, to ensure that procedures
are consistent throughout Government, and rebates are used in accordance
with established policy.
During our review, we noted that some agencies attempt to pay the invoice
as quickly as possible, thereby increasing their rebate amount. Current
GSA contract provisions require that the contractor remit a refund to agencies
which accelerate payment of their accounts. The contract stipulates 54
days as the baseline (file turn) at which no refund is earned. A file turn
is the average number of calendar days between the time a charge is posted
and payment is received by the contractor. Agencies can earn refunds by
reducing their file turn below 54 days. Under the contract, rebates begin
with a file turn of 53 days, and progressively increase to the maximum
available rebate with a file turn of 1 day.
Rebates Could be Costly
We spoke with officials of one agency that have achieved a 1 day file
turn. The officials advised us they arranged with the contractor to receive
electronic invoices on a daily basis, and the agency pays the invoice each
day electronically. Consequently, this agency receives the maximum possible
rebate. We learned that, in carrying out this process, the agency has not
considered the requirements of OMB Circular A-125, "Prompt Payment,"
which states that agencies shall make payments no more than 7 days prior
to the payment due date, unless warranted based on a case-by-case determination.
Further, the circular cautions against the frequent use of this authority
without considering the cost of funds to the government. The agency officials
advised us they have not determined if the 1 day file turn maximizes rebates
at the expense of added costs to the government. Although the GSA contract
makes reference to the requirement of the Prompt Payment Act to pay interest
on late payments, it is silent on the provisions pertaining to early payment.
1. GSA should consult with OMB and Treasury to establish uniform Governmentwide
policy for the control, accounting and application of rebates, including
their applicability and relationship to provisions of the Prompt Payment
2. Contract modifications should be made to ensure that provisions of
the contract address the requirements of the Prompt Payment Act, including
consideration of the cost of money to the Government when making payments
National Performance Review
The National Performance Review (NPR) established a goal to create a
Government that works better and costs less. Governmentwide procurement
reform was identified as one avenue to accomplish this objective. GSA's
draft Statement of Work shows that GSA plans to move rapidly ahead to provide
advanced services to agencies in fleet, travel, and purchase card areas.
Our review has shown that agencies currently have a variety of systems
and processes in place for reconciliation, accounting, and control of purchase
card transactions. These agencies are also at various stages in transitioning
to electronic commerce. Some of these agency systems are paper-based and
labor intensive. Other agencies have implemented or are in the process
of implementing automated systems for reconciliation, reporting, and payment
of card transactions.
We believe that agencies should be encouraged to leverage the benefits
of developed systems, including cross-servicing, prior to development of
new accounting and payment systems. One such source, the Department of
Agriculture, has developed a centralized automated system that streamlines
and integrates the administrative and financial process for management
of purchase card transactions. This new system strengthens financial management
over existing conventional purchase card processes.
1. GSA should advise agencies to consider using available automated software prior to creating new systems to function with the new purchase card program.
SAS 70 Audits Needed
Contracts for services provided under the "Fleet, Travel, Purchases, and Integrated Solution Services" should require annual audits of contractor or subcontractor service operations. These audits, conducted in accordance with Statement of Auditing Standard No. 70, "Reports on the Processing of Transactions by Service Organizations," would provide the necessary assurances that agency auditors would need to obtain in order to audit each agency's financial statements as required by the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994.
With billions of dollars in estimated activity, the services provided
will affect the agency's ability to record, process, summarize, and report
financial information in its financial statements. The nature and materiality
of the transactions affected by the services and the high degree of interaction
between the control structure of the agency and the service provider, will
require each agency's auditor to assess the control risk for the assertions
embodied in the account balances and transaction classes. Potentially,
each user agency's auditor would be required to review the contractor's
internal control structure. A SAS 70 audit would provide these assurances
and only subject the contractor to a single review.
1. GSA needs to ensure that vendor contracts include appropriate language
to require that audits of the contractors be performed in accordance with
GSA needs to request input from the vendor community regarding the availability and use of advanced applications (artificial intelligence) to monitor cardholder transaction activity for potential abuses. The draft statement of work addresses requirements for required authorization controls at the point of sale, and provides that the contractor shall monitor account transactions and notify the agency of any unusual spending patterns. However, it does not address specific requirements and the types of controls that the contractor will be required to implement to monitor card transaction activity.
In our discussions with the vendor community, we learned that advanced
applications are available for transaction checking and identification
of changes in cardholder spending patterns or frequencies. Some specific
checks that could be established include the following.
Identifying multiple purchases having the characteristics of a "split
purchasing" pattern (a purchase split between two or more purchase
orders to evade maximum order limitations).
Alerting to attempted purchases at excluded merchants.
Flagging purchases that are made on dates and times that are outside
of normal cardholder spending patterns.
1. In its Request for Proposals, GSA should task potential contractors to offer proposals that provide the most current technological advances to monitor transaction activity for potential abuses.