FAA Alaska: Weak Controls Resulted in Improper and Wasteful
Purchases (30-MAY-02, GAO-02-606).
GAO reviewed purchasing controls and activities within the Airway
Facilities Division of the Federal Aviation Administration (FAA)
in Alaska. This unit, referred to as AFA, is responsible for
maintaining airway navigation and communication equipment
throughout the state. AFA implemented a pilot program in March
1997 called the Corporate Maintenance Philosophy (CMP) that
reduced periodic maintenance and certification requirements for
equipment, thus allowing AFA to work with fewer staff. Under this
program, AFA's funds originally intended for payroll compensation
and benefits were freed for use on capital improvements and an
employee recognition system. However, AFA did not have good
internal controls. GAO reviewed 150 purchases made in fiscal
years 1999 through 2001. Of these, 118 did not comply with one or
more FAA purchasing requirements. AFA's highly decentralized
operating environment made it susceptible to internal controls
weaknesses and improper or wasteful purchases. FAA headquarters
in Washington, DC, provides little oversight of spending
practices, and regional officials in Alaska have no oversight
authority over AFA's practices. AFA personnel work in various
locations, with more than half having agency credit cards. GAO
found that most cardholders received no training on the use of
these cards. Although CMP ended in 2001, AFA remains vulnerable
to the problems GAO identified because the specific control
weaknesses continue to exist. Management's commitment to
addressing and correcting them is necessary to reduce AFA's
vulnerability to improper and wasteful expenditures.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-606
ACCNO: A03446
TITLE: FAA Alaska: Weak Controls Resulted in Improper and
Wasteful Purchases
DATE: 05/30/2002
SUBJECT: Accountability
Credit sales
Federal agency accounting systems
Internal controls
Procurement practices
Questionable procurement charges
Alaskan Region Logistics Division
Purchase Card Program
FAA Acquisition Management System
FAA Corporate Maintenance Philosophy
Program
FAA Personal Property In-Use Management
System
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GAO-02-606
A
Report to the Chairman, Committee on Transportation and Infrastructure,
House of Representatives
May 2002 FAA ALASKA Weak Controls Resulted in Improper and Wasteful
Purchases
GAO- 02- 606
May 30, 2002 The Honorable Don Young Chairman Committee on Transportation
and Infrastructure House of Representatives
Dear Mr. Chairman: This report responds to your request for a review of
purchasing controls and activities within the Airway Facilities Division of
the Federal Aviation Administration (FAA) in Alaska. This FAA unit, which we
refer to in this report as AFA, is responsible for maintaining airway
navigation and
communication equipment, such as radar and communications towers, throughout
the state.
With the approval of FAA?s Airway Facilities Division headquarters (AFHQ),
AFA implemented a pilot program in March 1997 called the Corporate
Maintenance Philosophy (CMP). This program reduced periodic maintenance and
certification requirements for the equipment, allowing
AFA to do its work with fewer staff members. Under this program, AFA?s funds
originally intended for payroll compensation and benefits were freed for use
on capital improvements and an employee recognition system. The program,
which was discontinued in 2001, was controversial, with
allegations of inappropriate spending among the concerns raised. This
report, our second to address CMP, 1 deals with internal controls and
expenditures at AFA both during and after the program. We focused our work
on determining whether AFA had
maintained a strong set of internal controls over purchases, purchased
items properly (that is, used practices that were in
compliance with FAA purchasing policies), avoided wasteful spending (that
is, spending that was excessive, of questionable need, or of little benefit
to the government), and
1 Our earlier report examined the transition from CMP to national
maintenance and certification standards. See U. S. General Accounting
Office, National Airspace System: Incomplete Transition Back to National
Maintenance and Certification Standards in the Federal Aviation
Administration?s Alaskan Region, GAO- 02- 127R (Washington, D. C.: November
30, 2001).
created an operating environment that minimized susceptibility to poor
internal controls and improper or wasteful spending.
Results in Brief AFA did not have good internal controls over purchases.
Good internal controls include such steps as separating purchasing
responsibilities so that no one person can manipulate the process,
documenting and accurately recording transactions, and ensuring
accountability for purchased items. At AFA, however, purchasing duties were
not separated, supervisory review of purchases was inadequate or lacking,
errors in purchasing records were widespread, and property inventories were
incomplete. For example, the same individual was able to request, approve,
receive, and review final records for a purchase. In addition,
tracking of items after they were purchased was limited, with many assets
not entered into the property management system at all. For example, 39 out
of the 44 accountable assets we reviewed, such as computers and snowmobiles,
should have been entered into the system but were not. Similarly,
inventories of merchandise to be given to employees for awards were not
adequately controlled, increasing their vulnerability to loss or
theft. These control weaknesses allowed many improper purchases to occur. As
part of our review, we selected 150 purchases made in fiscal years 1999
through 2001 that appeared to have high potential for being improper or
wasteful. Of this group, 118, or 79 percent, did not comply with one or more
FAA purchasing requirements. For example, employees did not document how- or
whether- they had ensured that the purchases represented the best value to
the government, such as checking prices at
other locations or showing why an expensive option was better than a less
expensive one. One specific example was a purchase of two digital cameras
costing about $1,620 each (including peripherals) and one pair of
binoculars, costing $599, that were purchased from a small retail camera
store. Although determining and documenting best value is one of the basic
requirements of FAA?s acquisition policies, the purchaser did not document
why the particular equipment purchased and the vendor selected represented
best value. Other improper practices included splitting a purchase into two
transactions in order to circumvent dollar limits on single purchases,
failing to obtain required approval before purchasing certain items such as
food and beverages, purchasing furniture and other items from other than
required vendors, and using a certain type of government- issued credit card
to pay for items such as travel expenses that should have been purchased
through other means.
We also identified purchases that appeared wasteful in that less expensive
options were available or the government received little value for the money
expended. For example, we identified numerous purchases of expensive items
when less expensive alternatives were available, such as
desktop flat panel computer monitors purchased for over $3,000 each when
standard monitors were available for $300. Many of these items were
purchased without regard for standardizing equipment or grouping purchases
to achieve lower prices. This lack of prudence extended to larger purchases
as well. For example, AFA purchased a $340, 000 security system that did not
work properly in the inclement weather in Alaska and was disposed of after
only 2 years.
AFA?s operating environment increased its susceptibility to problems with
internal controls and improper or wasteful purchases. AFA operates in a
highly decentralized environment. Its parent unit at FAA headquarters in
Washington, D. C., provides little oversight of spending practices, and
regional officials administering FAA?s overall operations in Alaska have no
oversight authority over AFA?s practices. AFA itself is highly
decentralized,
with personnel in many different locations, and with more than half of them
having agency credit cards. There was no evidence that within the past 2
years the vast majority of them had received any training on using these
cards. Under CMP, large amounts of money were available for capital
expenditures and employee recognition programs because AFA had
authority to apply unused salary and benefit moneys to these other purposes.
One example of the widespread availability of money was that in fiscal year
2000, AFA solicited its local offices nine times, primarily in the
last 3 months of the year, asking for additional spending priorities.
Spending for these multiple rounds of purchases, which was from 1- year
funds that would have expired at the end of the fiscal year, totaled about
$4. 5 million. Although CMP ended in 2001, AFA remains vulnerable to the
kinds of
problems we identified because the specific control weaknesses continue to
exist. Management?s commitment to addressing and correcting them is
necessary to reduce AFA?s vulnerability to improper and wasteful
expenditures. We are making a number of recommendations, which, if properly
implemented, should help AFA and FAA improve internal controls
over expenditures and reduce vulnerability to improper and wasteful
spending. In its comments on a draft of this report, the Department of
Transportation (DOT) indicated that FAA is taking aggressive action to
address all of the issues and recommendations identified in the report.
Background AFA maintains FAA equipment that helps guide pilots in Alaska?s
airspace. It is part of FAA?s Alaskan Region (one of nine FAA regions
nationwide),
and it reports to AFHQ in Washington, D. C. AFA is composed of two system
management offices (SMO), 2 a resource management branch, and an operations
branch. There are various other FAA divisions in the Alaskan Region,
including the Logistics Division, which is responsible for acquisitions,
property management, and procurement of real estate. The
Logistics Division also has responsibility for administering the Alaskan
Region?s purchase card program. The CMP program, implemented in March 1997
with the agreement of AFA?s labor union, was a 3- year pilot program that
changed the periodic
equipment maintenance and certification requirements for national airspace
equipment. CMP had several goals, including increased productivity,
decreased operating costs, and improvements to the airspace system
infrastructure. To accomplish these goals, AFA- the only FAA unit where CMP
was implemented- was allowed to conduct periodic
maintenance and certification less frequently than required under national
standards, reducing the level of staffing needed and related travel costs.
During the period the program was in effect, the number of AFA employees
decreased by 19 percent, but AFA?s annual budget authorization increased.
AFA had permission from AFHQ to use unused personnel funds for other
purposes such as capital improvements and an employee recognition system.
During its 4- year existence, CMP was controversial. When the program?s 3-
year pilot phase expired in fiscal year 2000, AFA management continued using
the program without further agreement from its labor union. After the union
filed a complaint with federal labor authorities, management and the union
reached an agreement in early 2001 to terminate CMP. The agreement
identified certain actions to be taken by FAA including, that by October 1,
2001, maintenance of all facilities and services in Alaska would be
completed in accordance with national standards.
2 The two SMOs are the North Alaska SMO located in Fairbanks, Alaska, and
the South Alaska SMO located in Anchorage, Alaska. Each SMO is responsible
for managing a number of field sites in its respective jurisdiction.
Together, the SMOs and their field sites are responsible for all of the
equipment maintenance activities throughout Alaska.
Implementation of CMP occurred soon after FAA had adopted a new acquisition
system. The Department of Transportation and Related Agencies Appropriations
Act of 1996 exempted FAA from other federal acquisition statutes and
regulations, and directed the FAA Administrator to develop and implement
FAA?s own acquisition system. The resulting system, called the FAA
Acquisition Management System (AMS), took effect April 1, 1996. AMS
establishes policy for all aspects of the acquisition life
cycle. It was intended to simplify acquisition management into a system that
provided for more timely and cost- effective acquisition of equipment and
materials. FAA also established the FAA Acquisition System Toolset that
supplements AMS by providing additional acquisition policy and
guidance. In addition, FAA has certain agencywide and region- specific
orders that establish additional or interpret existing policies and
procedures. Although FAA is exempted from other federal acquisition
requirements per se, it has the discretion to incorporate portions of
acquisitions law into its system as it deems appropriate. 3 FAA uses several
methods to acquire goods and services including
contracts, purchase orders, commercial purchase cards, and travel and
vehicle credit cards. The FAA purchase card is a commercial credit card
that, unless otherwise prohibited, is intended to be the primary purchasing
method when vendors accept purchase cards for commercial and
simplified purchases. 4 The purchase card is intended to streamline
procurement and payment procedures and reduce the administrative burden
associated with traditional and emergency purchasing of products and
services. As of February 2002, 240 out of 437 (55 percent) of AFA
employees had commercial purchase cards, most of which had a one- time
purchase limit from $10,000 to $25,000 and a monthly purchase limit of
$120,000.
3 References to FAA policies in this report refer to policies established in
AMS, the acquisition system toolset, or other FAA orders. 4 A commercial
item or service, other than real property, is an item or service customarily
used by the general public or by nongovernmental entities for purposes other
than governmental purposes and that has been sold, leased, or licensed to
the general public. Simplified purchases are purchases of products or
services of any nature that are small in dollar value, less complex, short
term, routine, or commercially available and generally purchased on a fixed
price basis.
Objectives, Scope, and Our objectives were to determine if AFA (1)
maintained a strong set of Methodology
internal controls over purchases, (2) purchased items using practices that
were in compliance with FAA purchasing policies, (3) avoided spending that
was excessive, of questionable need, or of little benefit to the government,
and (4) created an operating environment that minimized its susceptibility
to weak internal controls and improper or wasteful spending.
To determine the adequacy of internal controls over purchases, we
reviewed FAA and AFA financial management orders, policies, and records;
interviewed management and staff members within AFA, the Alaskan Region
Logistics Division, and FAA headquarters;
performed purchase transaction walk- throughs to gain an understanding of
the acquisition process;
compared procedures and controls in place against federal internal control
standards and applicable FAA and AFA orders; and
traced purchases of accountable property to the property management
system. To determine if purchases were made in accordance with established
policies and procedures and provided sufficient value to the government, we
made a nonstatistical selection of 150 AFA purchases that we identified as
having high potential for being improper or wasteful, examined each
transaction for compliance with FAA acquisition policies, and evaluated
them against other guidance for reasonableness. We selected these
transactions from AFA?s databases of obligating transactions from fiscal
years 1999 through 2001 that included obligations of all expenditures except
normal payroll, compensation, and benefits. 5 Our selection was made to
focus on transactions that appeared noncompliant with purchasing policies,
unrelated to the agency?s mission, or excessive in nature. Because our
selection was not a statistical sample, results from
testing cannot be generalized to the population of purchase transactions. 5
The databases did include nonroutine compensation items such as signing
bonuses for certain new hires.
During the course of our work, we also became aware of certain large
transactions outside of our 150- item selection that we believed warranted
further review. We requested and reviewed related supporting documentation
for these expenditures and interviewed appropriate officials and staff
members to determine the purpose, magnitude, and
status of these expenditures. To determine if AFA?s operating environment
minimized its susceptibility to problems with internal controls and improper
or wasteful purchases, we interviewed management and staff members within
AFA, the Alaskan Region Logistics Division, and FAA headquarters to (1)
obtain an understanding of AFHQ?s and AFA?s organizational structures, (2)
obtain an understanding of AFA?s budgeting process, and (3) obtain an
understanding
of the Alaskan Region?s purchase card program, including the process for
issuing purchase cards and the training provided to cardholders. We also
reviewed related documents and records to confirm our understanding.
While we identified some improper purchases, our work was not designed to
identify all fraudulent or otherwise improper payments made by AFA. We
performed our work in accordance with generally accepted government auditing
standards from June 2001 through April 2002 at FAA?s Alaskan Region in
Anchorage, Alaska. We requested written comments on a draft of
this report from the Secretary of Transportation or his designee. Written
comments were received from the department?s Assistant Secretary for
Administration and are reprinted in appendix I. Internal Controls Were
In the federal government, any purchasing system, including one that, like
Lacking or Ineffective
FAA?s, is exempted from many federal acquisition statutes and regulations,
must still follow standards for effective internal control. Our Standards
for Internal Control in the Federal Government contains the specific
internal control standards to be followed. 6 These standards define internal
controls as the policies, procedures, techniques, and mechanisms that
enforce
management?s directives. They help ensure that actions are taken to address
risks, and are an integral part of an entity?s accountability for 6 See U.
S. General Accounting Office, Standards for Internal Control in the Federal
Government, GAO/ AIMD- 00- 21. 3. 1 (Washington, D. C.: November 2000),
which contains the internal control standards to be followed by executive
agencies in establishing and maintaining systems of internal controls as
required by 31 U. S. C. Section 3512( b), (c), commonly called the Federal
Managers? Financial Integrity Act of 1982.
stewardship of government resources. AFA?s internal controls did not meet
these standards in a number of ways. Specifically, AFA (1) lacked adequate
segregation of duties over purchases, (2) lacked adequate supervisory review
and approval over purchases, (3) made numerous errors, not caught by
supervisors, in coding its purchases, (4) did not ensure that purchased
assets were properly entered and tracked in its property management system,
and (5) did not ensure that award merchandise inventories were properly
controlled. Lacking effective internal controls, AFA does not have
reasonable assurance that purchases are proper or that items purchased are
safeguarded against loss or theft. Segregation of Purchasing Standards for
Internal Control in the Federal Government requires that Duties Was
Inadequate
key duties and responsibilities be divided or segregated among different
people in order to reduce the risk of error or fraud. This involves
separating the responsibilities for authorizing, processing, recording, and
reviewing transactions and for handling any related assets. Simply put, no
one individual should control all the key aspects of a transaction or event.
However, we found a substantial lack of segregation of duties at AFA. For
example, during the course of performing purchasing system walkthroughs and
interviews, we noted instances where purchase cardholders (1) requested the
purchase and placed the order, (2) picked up or received the goods or
services purchased, (3) prepared the financial account coding for the
transaction, (4) matched the purchase invoice and receipt to the monthly
purchase card statement, and (5) maintained possession of the item
purchased. While we did not quantify the frequency of failure to segregate
duties, we did note through review of supporting documentation for 150
purchase transactions further instances where duties were not segregated.
This weakness increases AFA?s vulnerability to theft or misuse since there
is little oversight or control to ensure that purchased items or
services have a legitimate government need and are being used for government
purposes. While the flexibility of the purchase card program offers many
benefits, certain risks heighten the need for effective controls in this
area. Purchase cards allow the cardholders the flexibility and independence
of purchasing items for legitimate mission needs at virtually any business
and immediately having the items to satisfy the current needs. Since many
purchases are made directly at stores or in the field, the cardholders often
become the primary receivers of the goods or services purchased. Adequate
controls can be designed to mitigate risks such as diversion for personal
use, but AFA did not have such controls and did not effectively
enforce the controls it did have. For example, FAA policy states that the
approving official provides a critical checkpoint for verifying that all
transactions made are necessary for official government purposes and are
in accordance with the acquisition regulations. As such, the Alaskan Region
purchase card program coordinator stated that an approving official cannot
request that a cardholder purchase an item for the approving official?s use
and also approve it. However, in our review of AFA purchase transactions, we
identified five instances in which cardholders purchased items, such as a
laptop computer, for their supervisors who
approved the purchases on the cardholders? monthly statements. We also
identified segregation of duties problems with the design of certain aspects
of AFA?s awards program. One aspect of the program allowed employees to
select their awards from a wide selection of merchandise maintained in an
employee general store. 7 According to AFA officials, AFA
spent $462,656 on employee general store expenditures from fiscal years 1997
through 2000. Control over this merchandise, which included such items as
portable compact disc (CD) players, watches, and retail gift certificates,
was limited to a few individuals and was not adequately segregated.
Specifically, each employee general store was managed by a coordinator who
was responsible for purchasing inventory (primarily using purchase cards),
receiving inventory via in- store purchases or mail,
safeguarding inventory, and coding the purchases for entry into the
accounting system. These failures to adequately segregate key
responsibilities increase the risk of loss due to fraud, waste, or abuse.
Supervisory Review and Review of transactions by persons in authority is the
principal means of
Approval Process Was assuring that transactions are valid. The supervisory
review of purchase Inadequate
transactions is particularly critical for AFA because, given the lack of
segregation of duties described above, the supervisor is often the only
person other than the purchaser who would be in a position to identify an
inappropriate purchase. However, we found that AFA?s supervisory review
and approval of purchase transactions was inadequate. FAA policy is vague as
to whether purchasers are required to obtain prior approval, and it does not
require that prior approval be documented. Consequently, supervisors
we interviewed varied as to whether they required cardholders to get prior 7
AFA maintained three employee general stores: one at the regional office and
one each at the North and South SMOs.
approval for purchases. If prior approval was obtained, it was seldom
documented. Without prior approval, the only supervisory review of the
purchase transaction came when the supervisor reviewed and approved the
cardholder?s monthly credit card statement. Although FAA policy requires
purchasers to forward supporting documentation to the approving official
(supervisor), it does not require that approving officials review such
documentation. We found that supervisors were not consistently receiving and
reviewing supporting purchase documentation prior to approving purchases.
Instead, many supervisors were authorizing purchases after the purchases
were made based primarily on a review of the credit card statement, which
provided the vendor name, date, and the amount of the purchase but did not
provide details on the item purchased. In addition, as described later in
this report, FAA acquisition policies require specific
documentation for certain types of purchases. By only reviewing the credit
card statement, the approving supervisor often did not have access to
sufficient detail to determine whether the purchase was necessary or whether
it complied with agency acquisition policies. The lack of supervisory review
is further illustrated by the number of purchase transactions we identified
that were missing key purchase documentation. Despite the fact key
documents, such as a credit card receipt, were missing, supervisors still
approved these purchases. Although FAA policy requires documentation, such
as invoices and receiving documents, for all purchases and requires that
such records be maintained
for 3 years after payment, AFA was unable to consistently provide all
required supporting documentation for the 150 purchase transactions we
reviewed. Table 1 summarizes the required documentation AFA was unable to
provide for the items we had selected.
Table 1: Missing Documentation for 150- Item Purchase Transaction Review
Missing documents Number of instances a
Telephone log or other documentation evidencing 37
purchase request via telephone, e- mail, or fax Purchase card receipt or
invoice 19 Signed receiving document 37
a Some transactions had more than one missing document. Source: GAO analysis
of 150- item AFA purchase transaction review.
Had supervisors been adequately reviewing these transactions, they would
have identified the missing documents and required purchasers to provide
such documents before approving these purchases. Without documented
prior approval and a thorough review of all supporting documentation by
approving officials, there is no assurance that items purchased have a
legitimate government purpose.
Transactions Were Not Office of Management and Budget (OMB) Circular A- 11,
Preparation and
Coded Accurately
Submission of Budget Estimates, requires federal agencies to report
obligations by object class, such as salaries, benefits, travel, supplies,
services, and equipment, to indicate the nature of the expenditures of
federal funds. Accurate object classification data are critical to the
reliability of some information reported in the President?s budget and in
other analyses. Although internal control standards require timely and
accurate recording of transactions, we noted that 79 of the 150 purchase
transactions we reviewed (53 percent) were coded to incorrect object class
codes. This was due to several causes. For instance, many of the incorrectly
coded purchase transactions were coded to object class codes that were close
in description to the correct codes. Thus, we found purchases of
noncapitalizable computer equipment coded to an object class code for
capitalized assets. However, other transactions were coded
to object class codes that clearly did not reflect the items purchased. For
example, conference room fees for a managers? meeting at an off- site lodge
were coded to ?Maintenance and Repair of Office Furniture and Equipment.?
AFA officials also indicated that some of the errors might have occurred
because the financial system used to initially record these
transactions already has a default object class code filled in, and although
the user is required to change the default code if it does not pertain to
the particular purchase, he or she may not always do so. However, they added
that it is the approving official?s responsibility, during the supervisory
review and approval of the purchase, to confirm that the purchase is
properly coded. The fact that there were so many coding errors demonstrates
the inadequacy of training, ineffectiveness of the supervisory review and
approval process, and lack of attention to financial
accountability in AFA. Such weaknesses make it difficult to determine the
amounts spent on particular activities. For example, our selection of 150
purchase transactions contained at least 7 purchases of items for employee
general store award merchandise, all of which were coded to the wrong object
class code. Although officials reported that AFA spent $462,656 on award
merchandise from fiscal years 1997 through 2000, due to miscodings such as
these it cannot ensure the accuracy of amounts spent on its employee awards
program both for reporting purposes and for management decision
making. Accountable Items Were FAA personnel in the Alaskan Region did not
always follow established Not Properly Tracked
property control policies, and did not consistently identify, record, and
track all accountable assets in FAA?s Personal Property In- use Management
System (PPIMS). As a result, FAA cannot ensure that purchased assets are
being properly used and accounted for, thus increasing the risk that
purchased items may be lost or stolen without detection. Responsibilities
for the management and custody of property in the Alaskan Region cross
division lines. Property management, which includes managing and maintaining
PPIMS data and ensuring that physical inventories are conducted, is the
responsibility of the Logistics Division. However, property custodians, who
are responsible for the use, accountability, and control of in- use personal
property in their respective areas, are located throughout the FAA
divisions, including AFA. 8 FAA policy requires property management
personnel to identify accountable items, complete property input forms, and
enter adjustments to PPIMS. However, we identified a substantial paperwork
backlog from a 2- year period, from 1997
through 1999, when the property management staff members did not enter a
significant number of accountable items into PPIMS. Logistics Division
officials said this was largely due to the fact that it did not have a full-
time PPIMS manager during this period. In addition, the PPIMS manager stated
that because many purchases of accountable assets are made directly by the
divisions throughout the region, property management does not have a
means of consistently identifying all purchases of accountable assets that
need to be entered. As a result, PPIMS did not contain an accurate record of
all FAA accountable assets. FAA policy also requires the regional property
manager to conduct a physical inventory of personal property every 3 years,
and requires property custodians to perform inventories of their assigned
property items when requested to do so. However, property management
officials indicated that a physical inventory had not been conducted in at
least 5
years, and could not provide any documentation evidencing that a physical 8
AFA officials stated that supervisors are typically assigned as the property
custodians for their assigned custodial areas or cost centers.
inventory had ever been accomplished. In June 2000, the PPIMS manager
requested that all the property custodians in the region conduct inventories
of their respective areas. However, at the time of our review, about
onethird
of the 37 AFA property custodians still had not completed their inventories.
The date of completion is now estimated for June 30, 2002. With such lax
controls to ensure property was timely entered into PPIMS and the lack of
inventory procedures to identify items that had not been entered, FAA had no
means of establishing accountability for and monitoring its accountable
assets. As a result, we found that 39 of the 44 accountable assets in our
150- item purchase selection had not been recorded in PPIMS even though some
of these items had been purchased up to 2 years ago. These weaknesses
resulted from a lack of training for
property custodians and inadequate oversight of the property management
program. Prior to our review, the Alaskan Region had not established a
formal program to train property custodians. As a result, during discussions
with property custodians, we found they were not always aware of their
responsibilities. Furthermore, AFA did not have a property management focal
point responsible for general program oversight and
coordination when necessary. Consequently, the PPIMS manager in the
Logistics Division had to coordinate individually with all 37 of AFA?s
property custodians to request the physical inventory, further hindering
property management oversight. Combined, the backlog of accountable items to
be input to PPIMS, the lack
of a full- time PPIMS manager for 2 years, the lack of compliance with
physical inventory requirements, and the lack of training for property
custodians reflect the low priority given to property management within
the Alaskan Region. The lack of timely and accurate property information may
impede program officials? ability to properly manage and safeguard these
assets. Until these weaknesses are addressed, government assets in the
Alaskan Region are at increased risk of theft or loss.
Award Merchandise As mentioned earlier, AFA maintained three employee
general stores where
Inventories Were Not employees who received performance awards could select
from a wide
Properly Controlled range of merchandise. Because these items fell below the
$500 accountability threshold, they were not required to be entered and
tracked in PPIMS. However, the merchandise included items highly vulnerable
to misappropriation, such as store and restaurant gift certificates and CD
players. Standards for Internal Control in the Federal Government requires
certain controls such as periodic counts and comparisons to
control records in order to properly safeguard and account for vulnerable
assets, which include inventories. AFA did not have adequate inventory
procedures to establish proper accountability for such items, which,
according to AFA officials, totaled almost a half- million dollars from
fiscal year 1997 through fiscal year 2000. Specifically, guidance for the
employee general stores did not require conducting periodic inventory
verifications or maintaining records on additions and issuances of
merchandise. Officials told us store coordinators occasionally performed
partial inventories for restocking purposes, but the resulting inventory
records were not always kept. While store coordinators maintained some
documentation, such as redemption
logs, they were not consistently maintained and the coordinators could not
verify the completeness of any of the documentation. In addition, the
information compiled in the logs was insufficient to consistently track
items from purchase to inventory to distribution. Therefore, the store
coordinators had no records to determine if a particular item purchased was
still in inventory. If the item was no longer in inventory, they had no
records to determine if it had been issued and, if so, to whom. This lack of
inventory controls made it difficult for AFA to determine if merchandise was
missing and therefore made it highly susceptible to theft or other improper
use. In addition, AFA did not establish appropriate controls over the
awarding of store merchandise. One of the ways employees could select and
receive store merchandise was through the receipt of various redemption
cards. Program guidance extended to all AFA employees the authority to
recognize individuals with these redemption cards without placing
restrictions on frequency of recognition or requiring adequate supervisory
review. Because there was little recordkeeping of who was awarding or
receiving cards and how frequently an employee gave or received cards, there
was little control to prevent, for example, collusion between two employees
who might give each other multiple cards. Without appropriate recordkeeping,
there was also no control to identify if several employees independently
awarded one employee for the same act.
Shortly after the agreement to end CMP was signed in March 2001, AFA shut
down several elements of its awards program and returned to the national
program. However, because AFA had purchased so much inventory for the
program in advance, an AFA official informed us that over $67,580 in award
inventory remains locked in cabinets and storage rooms. AFHQ officials
stated that AFA is to gradually use the inventory in
conjunction with the national awards program procedures. However, while most
of the inventory will hold its value until disbursed, AFA estimated that
$13,160 of gift certificates has already expired. Although attempts were
made to get vendors to extend the expiration dates for gift certificates,
many of the gift certificates that were granted extensions have also
expired. The remaining gift certificates are not for vendors that AFA would
use in its normal course of business, so use of the gift certificates for
business purposes is not feasible. More prudent purchasing and inventory
practices might have prevented this loss as well as the expenditure of tens
of thousands of dollars in merchandise that may take years to issue.
Noncompliance with
The lack of good internal controls could be readily seen in the specific
Purchasing transactions we reviewed, which often were not carried out in
accordance with the requirements of FAA?s purchasing system. Although FAA is
Requirements Resulted exempt from certain federal acquisition statutes and
regulations, it does in Improper Purchases
have specific policies establishing purchasing requirements that incorporate
many of the federal requirements. In our review of 150 purchase
transactions, we found 118 of these transactions (79 percent) did not comply
with one or more FAA acquisition requirements and, therefore, were
considered to be improper purchases. More specifically, we noted (1)
purchases where determination of ?best value? for the agency had not been
made or documented as required, (2) instances in which cardholders split a
single purchase into two transactions to circumvent single purchase limits,
(3) purchases of restricted items that required but did not have advance
approval from contracting officers, (4) purchases from other than required
vendors without the appropriate waivers, and (5) purchase cards used for
unallowable purposes. Table 2 shows the extent to which the 150 transactions
showed problems in each of these areas, as described further below.
Table 2: Transactions Not in Compliance with Purchasing Requirements
Percentage of Number of
Number of applicable
transactions transactions not in
transactions not in Purchasing requirement
applicable compliance
compliance
Documentation of best value 140 99 71 Transaction within purchase limits
without splitting 150 4 3 Preapproval for purchase of restricted items 27 27
100 Purchase from required vendor 25 23 92 Purchase with correct purchase
card 150 5 3
Source: GAO analysis of 150 purchase transactions.
Determination of Best Value The goal of FAA?s acquisition system is to
obtain high- quality products,
Was Seldom Documented services, and property timely and cost effectively, at
prices that are fair and
reasonable. A major component of this goal is the requirement that
purchasers determine and document that prices are fair, reasonable, and
provide the best value to FAA. In reviewing the selected items, we accepted
as determination of best value any indication that the purchaser considered
prices from other vendors, service provided by the vendor,
quality of product versus alternatives, prior experience with a vendor, or
useful life of the product. Although AFA was able in some cases to provide
documented evidence that the purchasers considered best value before making
their purchases, in 99 of the 140 transactions (71 percent) to which this
requirement applied, 9 no such documentation was available. For example, we
identified a purchase of two digital cameras costing about $1, 620 each
(including peripherals) and one pair of binoculars, costing
$599, that were purchased from a small retail camera store in downtown
Anchorage. Although an AFA official indicated a need for digital cameras and
binoculars, there was no evidence that the purchaser took any of the
steps outlined above before selecting the specific products and vendor. 9
Not all purchase transactions in our 150- item selection were subject to the
requirement to document determination of best value. For example, purchases
from required vendors, travel card purchases, and payroll compensation
related items were not subject to determination of best value.
Purchases Were Split to Although FAA acquisition policy specifically
prohibits the splitting of Circumvent Purchase Limits purchases in order to
circumvent the cardholder?s single purchase limits, we identified four
transactions where the cardholders did just that. 10 For example, one
purchaser made a $28, 375 purchase, which exceeded the purchaser?s $25,000
single purchase limit. Because the purchase was
ordered by telephone, the vendor faxed to the purchaser two handwritten
purchase card receipts, one for $25,000 and one for $3, 375. Although the
vendor had handwritten the dates on the two charge receipts as ?9/ 14/ 00?
and ?9/ 15/ 00,? the fax was dated September 14, 2000, and both receipts
referenced the same purchase order number. We identified another instance in
which a cardholder with a $25,000 single purchase limit purchased three all-
terrain vehicles with trailers and two snowmobiles totaling $31, 039 from
the same vendor. Even though the vendor billed the all- terrain vehicles on
one invoice and the snowmobiles on another, the invoices were both dated on
the same day. Furthermore, the invoices were each paid with the same
purchase card, on the same date, only 2 minutes apart. The purpose of the
single purchase limit is to require large
purchases to be subject to additional controls to ensure they are properly
reviewed and approved before obligating the agency?s funds. By allowing
these limits to be circumvented, FAA has less control over the obligation
and expenditure of its resources.
Restricted Items Purchased FAA acquisition policy prohibits purchases of
certain items such as food without Required and beverages, gifts, and
household appliances without advance approval Preapprovals
from the contracting officer in the Logistics Division. We found that AFA
cardholders did not always comply with this requirement. Specifically, none
of the 27 purchases of restricted items in our selection had the required
pre- approval. For example, we noted the purchase of food and
beverages for managers? meetings, a jade bear plaque retirement gift, and a
mini- refrigerator that did not have the required preapprovals. By failing
to obtain and document approval for restricted items, purchasers
circumvented controls designed to prevent fraud, waste, and abuse. 10 Two of
these transactions related to both parts of one split purchase.
Purchases Not Made from FAA policy requires that purchasers acquire certain
products and services Required Vendors from designated mandatory sources,
including Javits- Wagner- O?Day Act (JWOD) 11 suppliers and the Federal
Prison Industries, Inc. (UNICOR). 12 FAA purchasers are permitted to
purchase from other sources only after the mandatory source provides a
waiver indicating that it cannot provide
the requested items. However, 23 of the 25 transactions in our selection
that were required to be purchased from specific vendors were not purchased
from the mandatory vendors and did not have the required waivers. For
example, an AFA purchaser obtained 35 conference room chairs costing $11,400
from a local vendor without obtaining a waiver indicating that UNICOR could
not meet the purchase request. Moreover,
numerous transactions from our selection indicated that AFA purchasers often
purchased items available from JWOD suppliers from commercial vendors. AFA
could not provide waivers for any of these purchases of non- JWOD items.
Purchase Card Used for FAA acquisition policy specifically prohibits the use
of the purchase card Unallowable Purposes
for travel- related expenses and for vehicle repairs, which should be
procured using the individualized travel card or the vehicle- specific
credit card, respectively. In 5 purchases from our 150- item selection,
cardholders used the purchase card for these purposes. For example, a
cardholder used the purchase card to charge $8,500 for food and lodging for
16 managers attending an off- site management meeting. Although all staff
members apparently checked in under their own credit cards, all of the
charges were transferred to one staff member?s purchase card at checkout.
AFA officials indicated this was done to save money and avoid daily per diem
13 costs; however, by doing so they circumvented controls in which
11 JWOD governs products and services offered for sale by workshops of the
blind or other severely handicapped persons. The Committee for Purchase from
People Who are Blind or Severely Disabled is an independent government
activity and is responsible for determining products and services to be
purchased from the central nonprofit agencies, that is, the National
Industries for the Severely Handicapped and the National Industries for the
Blind. They carry a wide range of office products and household supplies. 12
UNICOR is a self- supporting, government- owned corporation that provides
training and employment for prisoners confined in federal penal and
correctional institutions through
the sale of its products and services to government agencies. It carries a
wide range of office furniture products. 13 Daily per diem costs as used
here refer to the subsistence reimbursement provided to federal employees
for meals and incidentals while on official travel duty.
staff members outside AFA review all travel expenses against established
travel requirements before approval or payment. Similarly, using the
purchase card for vehicle- related expenses bypasses the fleet manager?s
review process in the Logistics Division and does not allow for reliable
tracking of the aggregate costs of operating individual vehicles.
Poor Purchasing Our review of the 150 items, together with reviews of
several other Practices Resulted in acquisitions that came to our attention,
identified a number of transactions
that we classified as wasteful- that is, while not in violation of specific
Wasteful Spending policies or regulations, were excessive or for
questionable needs. Specifically, AFA purchased expensive items when
significantly less
expensive alternatives were available, often did not give consideration to
economies of scale and standardization in making purchases, and purchased
certain large items that provided little value to the agency. Expensive
Items Purchased
We identified a number of potentially wasteful transactions. While these
When Less Costly
items may have been used for government business, less costly alternatives
Alternatives Were Available
that would meet the same basic needs were available. Many of these were
items of new technology when acquired, and were purchased in multiple lots
of one or two. Purchases we identified that fell into this category include
the following:
Flat panel computer display monitors. Our selection of 150 transactions
contained two purchases for two 18- inch desktop flat panel monitors, at a
cost of over $3, 000 per monitor. According to AFA officials, a total of 18
of these monitors were purchased for a total cost of $44, 965, or an average
price of about $2,500 per monitor. In contrast, the current General Services
Administration schedule cost of a standard 17- inch computer monitor is
about $300. Because these types of monitors were relatively new on the
market at the time these purchases
were made, they were costly compared to other alternatives that would have
met the same basic need. The primary advantages of a flat panel monitor are
that it saves desk space and has better display quality. However, at
locations in AFA headquarters where 10 of the monitors were found, we
observed that all 10 had a large amount of vacant desktop space behind them
that would have easily accommodated a
much less expensive monitor. AFA management indicated these monitors were
needed because employees use their computers so much, and flat panel
monitors are easier on users? eyes and reduce
occurrences of headaches. However, we did not observe any greater use of
computers in AFA than would occur in other government offices nor the use of
any graphics or specialty software that would require higher
resolution or display quality. Plasma displays for conference rooms.
According to AFA management, three wall- mounted plasma displays were
purchased for a total cost of $34,587, or an average cost of about $11,500
each. AFA officials indicated that the plasma displays were for
videoconferences, slide displays, and other presentations. A projector
capable of similar functions as the plasma display costs about $4, 500. Two
such projectors were in our selection of purchase transactions. AFA
officials indicated the lower- cost projectors would be used for
presentations while traveling, while the higher- cost plasma displays would
be permanently attached to the walls in AFA conference rooms. They indicated
that since the plasma display is anchored to the wall there is less chance
for damage than if a projector was used. However, we question whether
this rationale warrants the additional cost of $7,000 per unit.
Personal digital assistants. Another example of purchasing expensive items
instead of less costly alternatives was AFA?s liberal policy of purchasing
personal digital assistants (PDA), which are handheld electronic devices
that function as calendars, address books, and other job aids. We noted
several purchases of PDAs in our selection of transactions that, with
peripherals, ranged in price from $300 to over $500. By comparison,
alternatives such as a calendar or a daily planner
cost about $15 and $50, respectively. Refills for the daily planner cost
about $20. AFA had an informal policy that anyone who wanted a PDA instead
of a calendar or daily planner could have one. AFA management indicated that
in the long run it was cheaper to buy PDAs than refills for daily planners.
However, we question that statement, given that it would
take about 15 years of purchasing daily planner refills to total $300, and
we saw purchases of other peripherals such as digital camera attachments for
the PDAs, which would likely continue as technology
improves. Part of the reason these types of purchases were so expensive was
because AFA did not always make a concerted effort to centralize purchases
of items such as computer equipment in order to take advantage of quantity
discounts. For example, AFA cardholders were not required to coordinate
computer and other automated data processing equipment purchases
through the information technology group, which is responsible for
computer purchasing and technical support. Consequently, in our 150- item
selection we noted numerous purchases of varying brands of automated data
processing equipment in small quantities at various times with no documented
coordination with the information technology group. Specifically, we noted
six purchases of individual computers from three different manufacturers,
all occurring on different dates from April 1999
through August 2001. Such haphazard purchasing practices prevent AFA from
taking advantage of quantity discounts, and hinder the information
technology group?s ability to build, support, and maintain a standardized
computer network.
Certain Large Expenditures AFA made several high- dollar, fixed- asset
purchases that were short- lived
Yielded Little Value or underutilized. While there may have been legitimate
reasons initially for
engaging in these purchases, adequate controls were not in place to ensure
that the projects were properly implemented or to periodically assess their
viability. As a result, millions of dollars were wasted. These purchases
included the following:
Housing project. AFA constructed 30 residential housing units in King
Salmon, Alaska, at a total cost of about $12.9 million. 14 Initial surveying
and utilities work on the housing project began in October 1995, and major
construction began in May 1996. Prior to the start of construction, two
events occurred that reduced AFA?s need for residential housing in King
Salmon. In 1993, FAA?s flight service station was closed due to reduced U.
S. Air Force traffic, and in September 1995, operation of the
air traffic control tower in King Salmon was contracted out so that FAA
personnel were no longer needed to staff the tower. However, although its
housing needs were reduced, AFA continued with its plan to build all 30
units in King Salmon. As of January 2002,
8 of the units had been vacant since completion of construction in
February 1997,
14 Although we did not evaluate the costs incurred to build these units, we
did note that it is generally more expensive to construct housing units in
Alaska, especially in remote areas, due to transportation of materials and
equipment and travel and accommodation costs for
construction personnel.
11 were being leased out to other agencies in order to keep the units
occupied- leases on these units were entered into shortly after completion
of construction,
7 were being occupied by full- time AFA employees who reside in King
Salmon, and
4 were being used as transient quarters by AFA employees. Although there
might have been a legitimate need for a housing project this size when plans
were first being discussed, AFA should have reassessed its needs,
particularly with the staff reductions that occurred as a result of the
flight service station and air traffic control changes.
Based on executed leases and AFA?s records, it does not appear that rental
revenues received from the units are adequate to cover AFA?s monthly
operating costs. Given that eight (27 percent) of the units have never been
used, ongoing needs assessments might have saved the government millions of
dollars spent building and maintaining these units.
Security system. In response to an aging lock system with compromised
security in the field, AFA purchased a security locking system for $340, 000
in September 1998. Before purchasing the system, AFA tested it noting system
deficiencies including brittle key buttons that occasionally broke and locks
that did not open in extremely cold conditions. An AFA official indicated
one example in which a technician had to use bolt cutters to remove a frozen
lock. Despite knowledge of these system deficiencies, AFA proceeded to
invest $340,000 in the security system and another $30,000 to install the
system at various facilities, where staff again reported similar problems.
With
the end of CMP, a team of AFA labor and management personnel 15 recommended
cancellation of the new security lock system and a return to the previous
system. The new system was subsequently dismantled and is currently in
storage as excess equipment. Although AFA plans to use three computers from
the system, the majority of the $370,000 spent represents a complete loss.
15 The labor management team was established to make recommendations on the
transition of AFA from CMP back to national maintenance standards.
Thirty- foot powerboat. In September 1997, AFA awarded a $122, 809
contract for the construction of a 30- foot powerboat intended to ferry
maintenance technicians and equipment approximately 10 miles from Sitka to
Biorka Island where a variety of airspace system equipment was located. AFA
management indicated that travel costs to maintain
equipment on Biorka Island had been averaging about $65,000 to $75,000 a
year to charter a helicopter and that safety of its employees was the
primary concern. AFA took delivery of the boat in February 1998. The
technicians who were sent to maintain and repair the airspace equipment were
required to operate the boat themselves and, according to management, were
provided with training on boating safety and navigation. During the 3 years
the boat was in operation, two incidents occurred that seriously damaged the
boat. The first incident required part of the propulsion system to be
replaced. AFA was unable to provide supporting documentation for the repair
costs associated with replacing the propulsion system. The second occurred
when the boat broke loose from its mooring and crashed on the rocks,
damaging 14
feet of hull. Repair costs for the second incident were about $42,000. Based
on the CMP labor management team?s recommendation, the boat was removed from
service in June 2001 and later excessed to the U. S.
Forest Service in October 2001. Operating
At AFA, several factors in the operating environment increased the
Environment
susceptibility to the kinds of problems we identified with internal controls
and individual transactions. First, there was little outside oversight of
AFA?s Contributed to
financial activities due in part to FAA?s decentralized organizational
Improper and Wasteful structure. Although AFA was in the Alaskan Region,
local regional
Purchases management had no authority over it. Instead, AFA reported
directly to
AFHQ management in Washington, D. C., thousands of miles away, but AFHQ
management supplied little in the way of oversight. This decentralization
was further extended through AFA?s practice of allowing its units a high
degree of spending autonomy. Second, under CMP, AFA had substantial amounts
of money to spend. AFA was allowed to use millions
of dollars originally authorized for personnel costs for other discretionary
spending and was exempted from certain spending restrictions that were
imposed on other FAA regions. Third, AFA did not provide adequate training
to its many staff members who had purchase cards or to the supervisors who
approved purchases. Although the termination of CMP may have removed some
availability of funds, all these other factors- as well as the control
weaknesses discussed earlier- still remain.
Decentralized AFA operates with considerable autonomy in regard to planning,
directing,
Organizational Structure and controlling operations. It reports directly to
AFHQ in Washington, D. C., Resulted in Little Oversight thousands of miles
away. Although AFA submits periodic budget to actual of Spending
status reports to AFHQ, the reports are at a summary level and do not
provide sufficient detail to facilitate oversight of spending activities.
Although external reviews are done to review AFA?s maintenance activities,
there are no outside reviews of its financial activities. In addition, the
FAA Alaskan Region?s Regional Administration Office, which has certain
operational responsibilities for the Alaskan Region, has no authority over
AFA. Consequently, it cannot require or enforce any actions on the part of
AFA. The decentralized operating environment leaves AFHQ without critical
information about AFA?s programs and funding.
For example, during our review an AFHQ official indicated to us that a
component of AFA?s awards program, the Instant Gratification Bags, had been
discontinued. This component of the program allowed a supervisor to provide
a staff member with an on- the- spot award that the staff member could
select from the supervisor?s Instant Gratification Bag. Although the
headquarters official said the program was discontinued in February 2000, we
noted that the program was still operational in late 2001.
This decentralized organizational structure is further demonstrated by AFA?s
management philosophy, which provides its units with a high degree of
purchasing autonomy. SMOs and branches are required to submit to AFA
division management a budget request by object class. The budget allotments
the SMOs and branches ultimately receive are lump- sum
amounts, and they have the autonomy to allocate their lump- sum budget
allotments as they deem necessary. SMOs and branches are also free to
reallocate budget amounts between object classes without tracking their
original budget allotment allocations. Although AFA division management
reviews the SMOs? and branches? budget submissions against the prior year?s
actual expenditures, there is little challenging of funding needs. An AFA
management official indicated that SMOs and branches almost always get the
amounts they request.
AFA Had Substantial Funds AFA had substantial funds available with few
restrictions, which made it Available with Few
more susceptible to improper and wasteful purchases. FAA headquarters
Restrictions allotted funds to AFA based in part on its authorized full-
time employees, but due to CMP, AFA?s authorized number of full- time
employees was significantly higher than the actual number employed (see
table 3). From fiscal year- end 1997 to fiscal year- end 2000, AFA?s actual
number of employees fell 19 percent from 483 to 391. However, during the
same period AFA?s budget allotment increased. AFA was free to use the
unexpended personnel funds for other purposes. 16
Table 3: AFA Employee and Budget Information, Fiscal Years 1997 through 2002
1997 1998 1999 2000 2001 2002 a
Authorized number of employees 519 514 505 488 461 461 Actual number of
employees 483 442 420 391 430 b 433 Final budget authorization (dollars in
$ 56.9 $ 63. 4 $ 61. 9 $ 63. 8 $ 65. 6 $69. 3 millions) a The actual number
of employees and final budget authorization are as of March 31, 2002.
b At the end of CMP, due to specific staffing actions identified in the
management/ union agreement, personnel levels began to rise in fiscal year
2001. Source: FAA?s Financial Management Division and AFA?s Annual Budgetary
Authorization sheets.
The ready availability of money was all the more pervasive because AFA was
not operating under spending restrictions placed on the rest of the agency.
Because of budget constraints, the FAA Administrator issued agencywide
spending restrictions in February 1999. In response, AFHQ issued more
specific spending restrictions on all other Airway Facilities regions to
reduce or eliminate all costs not directly related to the operation
and maintenance of the national airspace system. However, while CMP was in
effect, AFA was exempt from these spending restrictions, although the
restrictions stated that AFA was still expected to be prudent and adhere to
the spending guidelines to the extent possible. Although these
restrictions remained in effect for almost 2 years through December 2000,
the ready availability of funds allowed AFA to spend more freely. For
example, during this period AFHQ restricted other Airway Facilities
16 According to AFHQ officials, other Airway Facilities regions were allowed
to shift funds budgeted for personnel costs to other purposes only during
the end of the fiscal year. However, AFA was allowed to shift funds all
year.
regions from spending on nonessential travel related to conferences,
meetings, workshops, and site visits. However, AFA officials took at least
three 1- week trips during this period for management meetings at premier
resorts in Alaska costing from $6,000 to $8,800 each.
This substantial availability of funds at AFA is further demonstrated by its
year- end spending practices. To manage its annual budget, AFA?s resource
management branch, which is responsible for managing AFA?s budget,
maintains a reserve account consisting of the difference between the budget
allotment received from FAA headquarters and the amounts subsequently
allotted to the SMOs and branches. This allows the resource management
branch to shift funds between SMOs and branches as needs change and
unexpected emergencies arise. However, because AFA had substantial funds
available due to reductions in personnel, travel, and other costs resulting
from CMP, the balance in the reserve account was
significant. Since the funds in the reserve account were 1- year funds and
expired at the end of each fiscal year, the resource management branch
sometimes had to solicit multiple spending requests from the SMOs and
branches in order to use up the money in the reserve account. For example,
in fiscal year 2000, AFA solicited the SMOs and branches nine times for
additional spending requests, primarily in the last 3 months of the
year, spending a total of about $4. 5 million. Included in such purchases
were items such as health club equipment, plasma displays, PDAs, and
snowmobiles.
In addition to AFA?s reserve account, the individual SMOs and branches each
maintained their own reserve accounts as well. Except in one year, fiscal
year 2000, AFA division management did not require the SMOs and
branches to specifically identify the purchases made from their individual
reserve accounts. In that year, we noted that the SMOs and branches spent an
additional $611, 000 from their reserve accounts on purchases that included
laptop computers, PDAs, digital cameras, snowmobiles, and allterrain
vehicles. With the end of CMP in 2001, the level of funding available to AFA
for purchasing is likely to be reduced. Funds available for purchases during
CMP because positions were unfilled are now being applied once again to
compensation and benefits for the additional staff members needed under
the management/ union agreement. However, the other factors discussed here
remain, as do the control weaknesses previously identified.
Cardholders and A lack of acquisition training also contributed to a weak
operating Supervisors Lacked
environment at AFA. FAA procurement guidance requires that all Acquisitions
Training prospective cardholders and approving supervisors receive training
in the proper use, financial control, and property management restrictions
of a purchase card prior to being granted delegation of purchase authority
or approving authority. This is especially important with respect to
purchase card purchases because purchasing authority was widely dispersed
among the staff, with 55 percent of employees having purchase cards, most
with authorized limits of up to $120,000 per month. The large number of
cardholders and transactions makes it difficult to monitor individual
purchases for propriety and compliance with the various acquisition
policies. However, based on Alaskan Region training records, we found no
evidence that 38 percent of current cardholders and 67 percent of approving
supervisors at AFA had received purchase card training since
AMS was implemented in April 1996. Furthermore, as table 4 indicates, most
cardholders and approving supervisors had not received any purchase card
training in the last 2 years.
Table 4: Training of Purchase Cardholders and Approving Supervisors Since
AMS Purchase cardholders Approving supervisors
Percentage Percentage
Actual of total Actual of total
Trained within the last 2 years a 34 14 1 4 Trained over 2 years ago b 115
48 7 29 No evidence of training post- AMS 91 38 16 67 Totals 240 100 24 100
a Calculated based on our review of Alaskan Region training records as of
the date the work was performed, that is from February 13, 2002, back 2
years to February 14, 2000.
b Calculated based on our review of Alaskan Region training records as of
February 13, 2000, back to the implementation of AMS on April 1, 1996.
Source: GAO analysis of AFA training records from April 1, 1996, to February
13, 2002.
AFA has no system to monitor whether and when its cardholders and approving
officials have had acquisition training. In addition, cardholders and
approving supervisors are not required to receive periodic refresher
training to inform them of new purchasing requirements and other updates to
the program. This lack of timely, sufficient training of purchase
cardholders and approving supervisors increases the risk that improper or
wasteful purchases will be made and go undetected.
Conclusions The problems we found in AFA?s purchasing system were
widespread. They leave the organization vulnerable to improper purchases,
wasteful spending, and loss or theft of assets. Although the substantial
availability of funds under CMP may have exacerbated these weaknesses, we
saw no
evidence that the end of CMP substantially changed their underlying causes.
Fixing these problems requires top- to- bottom strengthening of AFA?s
procedures- a strengthening that would be enhanced through management
attention at the Department of Transportation and FAA headquarters levels.
Until positive action is taken to remedy this situation, improper and
wasteful spending practices such as those we identified are likely to
continue.
Recommendations for We recommend that the Administrator of FAA ensure that
the following
Executive Action actions are taken to address internal control weaknesses,
noncompliance
with purchasing requirements, and operating environment issues identified in
our report in order to reduce AFA?s vulnerability to improper and wasteful
purchases.
Internal controls With regard to improving AFA?s internal controls over
purchasing, we recommend the Alaskan Region Logistics Division Manager and
the AFA Division Manager do the following.
Establish and implement policies and procedures to effectively implement
the segregation of duties principle. No individual should be able to take
all the steps needed to make and pay for a purchase. Require approving
supervisors to review supporting documentation including applicable waivers,
proper object class code, and any applicable PPIMS input forms for purchase
card procurement
transactions prior to approving the credit card statements. In addition,
supervisors should also review for potential split purchases.
Require purchase card system users to input an object class code for each
transaction and eliminate the default object class code feature in the
system. Establish a focal point in AFA to assist property management in
ensuring that property custodians are informed of their responsibilities
and timely comply with policies and procedures such as periodic inventory
requirements.
We further recommend that the Alaskan Region Logistics Division Manager or
designee do the following.
Provide the property manager or designee read- only access to obligating
systems to review for potential accountable assets that can then be compared
against PPIMS input forms to verify that accountable assets have been
identified and input forms received.
Conduct a complete regionwide inventory (floor to book and book to floor)
of all accountable assets.
Complete the input of existing backlogged PPIMS input forms by fiscal
year- end 2002.
Establish a policy requiring PPIMS input forms to be completed and entered
within 10 business days after the items have been placed into service.
Purchasing Requirements With regard to identifying noncompliance with and
enforcing purchasing requirements at AFA, we recommend that the Alaskan
Region Logistics Division Manager and AFA Division Manager do the following.
Establish policies covering the allowability, justifications, and
approvals
required for purchasing specific high cost or sensitive items such as plasma
displays, flat panel monitors, PDAs, and digital cameras.
Require purchases of certain assets such as computer equipment, handheld
radios, and snowmobiles to be coordinated centrally to take advantage of
economies of scale and to standardize types of equipment purchased.
Require annual reassessments of construction projects lasting over 1 year,
from the time of initial bid to time of completion, as to the continued
viability, need, and size of the projects.
We further recommend that the Alaskan Region Logistics Division Manager do
the following.
Perform periodic independent reviews of AFA purchase transactions,
including the supervisory approval function, and test for compliance with
specific purchasing requirements.
Revoke or suspend purchasing authority of cardholders found to be
repeatedly noncompliant with policies.
Operating Environment In order to provide a positive and supportive attitude
toward internal control at AFA, we recommend that the Director of Airway
Facilities or designee perform periodic site visits to Alaska to review
AFA?s financial operations and activities, including management?s decision-
making process behind the procurement of large purchases.
We also recommend that the Director of Airway Facilities and the AFA
Division Manager assess the number of individuals at AFA who need purchase
cards and whether current purchasing limits are appropriate.
We further recommend that the Alaskan Region Logistics Division Manager do
the following.
Require existing and new purchase cardholders and approving officials to
sign that they have read, understood, and agreed to follow all local and
national acquisition policies.
Require all existing purchase cardholders and approving officials to
attend periodic refresher training covering key purchasing requirements such
as documentation requirements, segregation of duty requirements, proper
object class coding, as well as any recent policy changes.
Establish a system to track and monitor training for purchase cardholders
and approving officials to help ensure they receive training before being
granted purchase cards or approval authority and receive timely refresher
training.
Agency Comments and DOT agreed with our findings and recommendations and
indicated that Our Evaluation
FAA has taken or plans to take a number of actions to ensure that the issues
identified in our report are effectively addressed and appropriately
enforced. For example, the Director of Airway Facilities issued a memorandum
on April 30, 2002, to reemphasize purchase card
requirements. The Director also has plans to partner with other FAA offices
to conduct a comprehensive review of the adequacy of internal controls
related to FAA purchase cards and other acquisition requirements,
and plans to review the appropriateness of all purchase cards issued and the
cardholders? purchase limits. Implementation of these and the other
recommendations in our report should greatly reduce AFA?s vulnerability to
improper purchases, wasteful spending, and loss or theft of assets.
We are sending copies of this letter to the Ranking Minority Member, House
Committee on Transportation and Infrastructure; Senator Ted Stevens; Senator
Frank H. Murkowski; the Secretary of Transportation; and the FAA
Administrator. Copies will also be made available to others upon request. In
addition, the report will be available at no charge on the GAO Web site at
http:// www. gao. gov.
If you have any questions about this report, please contact me at (202) 512-
9508 or Doreen Eng, Assistant Director, at (206) 287- 4858. Key contributors
to this report were Richard Kusman, Justin Flaa, Aaron Holling, and Stan
Stenersen.
Linda M. Calbom Director, Financial Management and Assurance
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Appendix I
Appendix I Comments from the Department of Transportation
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