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Conference Report 107-772 - National Defense Authorization Act for Fiscal Year 2003

Conference Report Section

Legislative History

(a) PURCHASE CARD MANAGEMENT IMPROVEMENTS- Section 2784 of title 10, United States Code, is amended--

(1) in subsection (a), by striking `, acting through the Under Secretary of Defense (Comptroller),'; and

(2) by adding at the end of subsection (b) the following:

`(7) That periodic reviews are performed to determine whether each purchase card holder has a need for the purchase card.

`(8) That the Inspector General of the Department of Defense, the Inspector General of the Army, the Naval Inspector General, and the Inspector General of the Air Force perform periodic audits to identify--

`(A) potentially fraudulent, improper, and abusive uses of purchase cards;

`(B) any patterns of improper card holder transactions, such as purchases of prohibited items; and


`(C) categories of purchases that should be made by means other than purchase cards in order to better aggregate purchases and obtain lower prices.

`(9) That appropriate training is provided to each purchase card holder and each official with responsibility for overseeing the use of purchase cards issued by the Department of Defense.

`(10) That the Department of Defense has specific policies regarding the number of purchase cards issued by various organizations and categories of organizations, the credit limits authorized for various categories of card holders, and categories of employees eligible to be issued purchase cards, and that those policies are designed to minimize the financial risk to the Federal Government of the issuance of the purchase cards and to ensure the integrity of purchase card holders.

`(c) PENALTIES FOR VIOLATIONS- The regulations prescribed under subsection (a) shall--

`(1) provide for appropriate adverse personnel actions or other punishment to be imposed in cases in which employees of the Department of Defense violate such regulations or are negligent or engage in misuse, abuse, or fraud with respect to a purchase card, including removal in appropriate cases; and

`(2) provide that a violation of such regulations by a person subject to chapter 47 of this title (the Uniform Code of Military Justice) is punishable as a violation of section 892 of this title (article 92 of the Uniform Code of Military Justice).'.

(b) CONFORMING AND CLERICAL AMENDMENTS- (1) Section 2784 of such title is further amended--

(A) in the section heading, by striking `credit' and inserting `purchase';

(B) in the heading of subsection (a), by striking `CREDIT' and inserting `PURCHASE'; and

(C) in subsection (a) and paragraphs (1) through (6) of subsection (b), by striking `credit' and inserting `purchase' each place it appears.

(2) The table of sections at the beginning of chapter 165 of such title is amended by striking the item relating to section 2784 and inserting the following:

Conference Report 107-772

The House bill contained a provision (sec. 1005) that would require the Secretary of Defense to prescribe regulations including safeguards and internal controls for the use of purchase cards by Department of Defense personnel.  (See H. R. 4546 and House Report 107-436 below.)

The Senate amendment contained a similar provision (sec. 814).  (See S. 2514 and Senate Report 107-151 below.) 

The Senate recedes with an amendment that would provide additional detail on required audits and purchase card policies. The amendment would also clarify that required training and reviews are to be conducted on a periodic basis, rather than an annual basis. The conferees direct the Department to conduct annual training and reviews in calendar years 2003 and 2004 but understand that less frequent training and reviews may be adequate to protect the Department's interests in subsequent years.

The conferees direct the Comptroller General to review the actions that have been taken within the Department of Defense to comply with the requirements of this section and submit a report on those actions to the congressional defense committees no later than one year after the date of enactment of this Act.

H. R. 4546

SEC. 1005. IMPROVEMENTS IN PURCHASE CARD MANAGEMENT.

(a) IN GENERAL- Section 2784 of title 10, United States Code, is amended to read as follows:

`Sec. 2784. Management of purchase cards

`(a) MANAGEMENT OF PURCHASE CARDS- The Secretary of Defense, acting through the Under Secretary of Defense (Comptroller), shall prescribe regulations governing the use and control of all purchase cards and convenience checks that are issued to Department of Defense personnel for official use. Those regulations shall be consistent with regulations that apply Government-wide regarding use of purchase cards by Government personnel for official purposes.

`(b) REQUIRED SAFEGUARDS AND INTERNAL CONTROLS- Regulations under subsection (a) shall include safeguards and internal controls to ensure the following:

`(1) That there is a record in the Department of Defense of each holder of a purchase card issued by the Department of Defense for official use, annotated with the limitations on amounts that are applicable to the use of each such card by that purchase card holder.

`(2) That the holder of a purchase card and each official with authority to authorize expenditures charged to the purchase card are responsible for--

`(A) reconciling the charges appearing on each statement of account for that purchase card with receipts and other supporting documentation; and

`(B) forwarding that statement after being so reconciled to the designated disbursing office in a timely manner.

`(3) That any disputed purchase card charge, and any discrepancy between a receipt and other supporting documentation and the purchase card statement of account, is resolved in the manner prescribed in the applicable Government-wide purchase card contract entered into by the Administrator of General Services.

`(4) That payments on purchase card accounts are made promptly within prescribed deadlines to avoid interest penalties.

`(5) That rebates and refunds based on prompt payment on purchase card accounts are properly recorded.

`(6) That records of each purchase card transaction (including records on associated contracts, reports, accounts, and invoices) are retained in accordance with standard Government policies on the disposition of records.

`(7) That an annual review is performed of the use of purchase cards issued by the Department of Defense to determine whether each purchase card holder has a need for the purchase card.

`(8) That the Inspectors General of the Department of Defense and the military services perform periodic audits with respect to the use of purchase cards issued by the Department of Defense to ensure that such use is in compliance with regulations.

`(9) That appropriate annual training is provided to each purchase card holder and each official with responsibility for overseeing the use of purchase cards issued by the Department of Defense.

`(c) PENALTIES FOR VIOLATIONS- The Secretary shall provide in the regulations prescribed under subsection (a)--

`(1) that procedures are implemented providing for appropriate punishment of employees of the Department of Defense for violations of such regulations and for negligence, misuse, abuse, or fraud with respect to a purchase card, including dismissal in appropriate cases; and

`(2) that a violation of such regulations by a person subject to chapter 47 of this title (the Uniform Code of Military Justice) is punishable as a violation of section 892 of this title (article 92 of the Uniform Code of Military Justice).'.

(b) CLERICAL AMENDMENT- The item relating to section 2784 in the table of sections at the beginning of chapter 165 of such title is amended to read as follows:

`2784. Management of purchase cards.'.

 House Report 107-436

SECTION 1005--IMPROVEMENTS IN PURCHASE CARD MANAGEMENT

This section would amend section 2784 of title 10, United States Code, by enhancing the Secretary of Defense's responsibilities for management and oversight of the Department of Defense's purchase card program. Recent reports, including the Department of Defense's March 2002 Inspector General Report demonstrate that additional managerial steps are needed to prevent negligence, misuse, or abuse of the purchase card. This section would add those safeguards necessary to improve internal controls over this program.

S. 2514

SEC. 814. INTERNAL CONTROLS ON THE USE OF PURCHASE CARDS.

(a) REQUIREMENT FOR ENHANCED INTERNAL CONTROLS- Not later than 120 days after the date of the enactment of this Act, the Secretary of Defense shall take action to ensure that appropriate internal controls for the use of purchase cards issued by the Federal Government to Department of Defense personnel are in place throughout the Department of Defense. At a minimum, the internal controls shall include the following:

(1) A requirement that the receipt and acceptance, and the documentation of the receipt and acceptance, of the property or services purchased on a purchase card be verified by a Department of Defense official who is independent of the purchaser.

(2) A requirement that the monthly purchase card statements of purchases on a purchase card be reviewed and certified for accuracy by an official of the Department of Defense who is independent of the purchaser.

(3) Specific policies limiting the number of purchase cards issued, with the objective of significantly reducing the number of cardholders.

(4) Specific policies on credit limits authorized for cardholders, with the objective of minimizing financial risk to the Federal Government.

(5) Specific criteria for identifying employees eligible to be issued purchase cards, with the objective of ensuring the integrity of cardholders.

(6) Accounting procedures that ensure that purchase card transactions are properly recorded in Department of Defense accounting records.

(7) Requirements for regular internal review of purchase card statements to identify--

(A) potentially fraudulent, improper, and abusive purchases;

(B) any patterns of improper cardholder transactions, such as purchases of prohibited items; and

(C) categories of purchases that should be made through other mechanisms to better aggregate purchases and negotiate lower prices.

(b) TRAINING- The Secretary of Defense shall ensure that all Department of Defense purchase cardholders are aware of the enhanced internal controls instituted pursuant to subsection (a).

(c) COMPTROLLER GENERAL REVIEW- Not later than March 1, 2003, the Comptroller General shall--

(1) review the actions that have been taken within the Department of Defense to comply with the requirements of this section; and

(2) submit a report on the actions reviewed to the congressional defense committees.

Senate Report 107-151 

Internal controls on the use of purchase cards (sec. 814)

The committee recommends a provision that would require the Secretary of Defense to establish enhanced internal controls for the use of purchase cards by Department of Defense (DOD) employees.

In response to a report of the General Accounting Office (GAO) last year, the committee directed the Department to ensure that appropriate internal controls were in place for purchase card purchases. This was the third consecutive year in which the committee report raised concerns about the potential misuse of purchase cards by DOD employees.

Earlier this year, the GAO issued another report, in which it concluded that `serious weaknesses' remain in the Department's internal controls for purchase card purchases. According to the GAO, these continued weaknesses `contributed to additional purchases during fiscal year 2001 that we believe are fraudulent, improper, abusive or otherwise questionable.' Among the questionable purchases were purchases of designer briefcases, Lego robot kits, and high-cost computer bags that were given away by DOD employees.

On April 18, 2002, the Director of the Office of Management and Budget responded to the GAO's findings by directing the heads of all federal departments and agencies to prepare remedial action plans for their purchase card programs. These plans are to include a reexamination of the number of purchase cards issued by the department or agency and detail the internal controls that the department or agency plans to use to manage risk. The Department of Defense has established a task force to address the issue.

While the committee continues to support the use of credit cards, the Department must take strong action to institute effective internal controls and address inappropriate credit card purchases. The provision recommended by the committee would require the Department to implement controls including: requirements for independent, documented receipt and acceptance of goods and services and independent, documented review and certification of monthly purchase card statements; specific policies limiting the number of purchase cards to be issued and establishing credit limits for cardholders; specific criteria for ensuring the integrity of cardholders; accounting system changes to ensure that purchase card transactions are properly recorded in Department of Defense accounting records; and regular internal review of purchase card statements.