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In Brief: Smithsonian Needs to Improve Preventative Controls for the Purchase Card Program, No.A-13-04, Issued March 31, 2014

Why We Did This Audit

The Smithsonian management has a heightened interest in reducing the risk of misuse, fraud, waste, and abuse in such vulnerable areas as cash processing and purchasing. Purchase cards allow the same individual to order, pay for, and receive goods and services. If purchase card internal controls are not properly designed, it will be difficult for management to detect and prevent fraudulent purchases or improper uses of the cards.

Our audit objective was to determine if the Smithsonian exercises effective management and oversight of the government purchase card program.

Background

The Smithsonian uses purchase cards to reduce the administrative cost of small dollar purchases, incurring over $27 million in expenditures for 100,498 transactions from October 1, 2011 through December 31, 2012. At the end of 2012, there were 658 open purchase card accounts issued to Smithsonian personnel.

What We Found

We found that the Smithsonian generally exercised effective management and oversight of the Smithsonian Purchase Card Program. In general, the purchase card transactions we reviewed were appropriate for the mission of the purchasing unit. However, we determined that some additional preventative controls could improve the program.

We found that approving officials were not always approving purchase card transactions in the Smithsonian’s financial system or documenting their review of cardholder purchase logs and credit card statements as required by Smithsonian policies and procedures.

We also found that the management had not blocked Merchant Category Codes that allow certain high-risk transactions, such as purchases of jewelry, watches, furs, and alcohol. In addition, Smithsonian had not fully implemented best practices to ensure effective strategic sourcing when employees use government purchase cards to acquire commonly purchased goods and services.

Lastly, we found that the Smithsonian may have inappropriately paid state and local sales taxes on purchase card transactions.

What We Recommended

To strengthen the Purchase Card Program, we recommended that management: reinforce the need for approving officials to timely approve transactions in the Smithsonian’s financial system; evaluate restrictions on Merchant Category Codes; develop and implement a strategic sourcing program that encompasses all procurement methods, including purchase card transactions; develop thresholds for recovering erroneous tax payments.

Management generally concurred with our findings and recommendations and has planned corrective actions to address the recommendations. We will continue to monitor management’s progress towards completion of these recommendations.




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