Poor oversight, lax attitudes fuel Navy purchase card fraud

Witnesses at a House hearing Wednesday blamed poor oversight and lax accountability for the widespread abuse of government purchase cards at two Navy units.

Despite the Navy's efforts over the past year to reduce purchase card fraud, some employees and managers at two San Diego-based naval units continue to justify questionable purchases made with government credit cards, according to the General Accounting Office.

"Such an attitude perpetuates an overall environment that tacitly condones possibly fraudulent, wasteful, abusive or otherwise questionable spending of government funds," said Gregory Kutz, director of financial management and assurance at GAO, and John Ryan, assistant director of the agency's office of special investigations, in joint testimony before a House Government Reform subcommittee.

Purchase cards have been adopted across government to circumvent the time-consuming and costly procurement process for relatively small, routine purchases. The cards, which are used like credit cards, may be used for official government purchases of up to $2,500 without going through the paperwork required for major acquisitions.

The Defense Department used purchase cards for approximately 10 million transactions with a total value of $6 billion in fiscal 2001. The Navy used purchase cards for about 2 million transactions worth $1.8 billion.

But over the past few years, Navy personnel at the Space and Naval Warfare Systems Command (SPAWAR) and the Navy Public Works Center (NPWC) in San Diego have systematically ripped off the government, using federal purchase cards to buy expensive personal items including clothes, handbags and compact discs, according to lawmakers and GAO officials.

The hearing came a day after the Pentagon sent top agency officials a memorandum on internal controls for the purchase card program. "Intentional use of the purchase card for other than official business is a very serious matter that directly affects public confidence in the department," said the memo from Defense Comptroller Dov S. Zakheim and Defense Undersecretary for Acquisition, Technology and Logistics E.C. Aldridge Jr.

Since September 2000, the Navy Public Works Center in San Diego has reduced the number of employees with purchase cards from 292 to 173 and reduced credit limits for cardholders by about $9 million, said Capt. James Barrett, commanding officer of the unit. NPWC in San Diego has also added 41 approving officials since last July, according to Barrett, who has led the unit since August 2001.

The San Diego SPAWAR unit has reduced the number of cardholders by more than 30 percent and increased the number of oversight officials, according to Capt. Patricia Miller, the unit's commanding officer. Miller, who took over the unit in December, said cardholders and approving officials were trained on the proper use of purchase cards last fall, and the agency plans to continue educating its workforce.

Miller acknowledged that SPAWAR needs to do more to effect "a cultural change among the workforce" on the misuse of purchase cards.

But Rep. Janice Schakowsky, D-Ill., expressed frustration over what she called the absence of oversight at the two Navy units and the Defense Department's "weak" response to purchase card misuse.

"Why is it taking so long for Defense to fix this problem?," Schakowsky asked Defense officials testifying at the hearing, including Deirdre Lee, director of procurement. Congress held an oversight hearing on purchase card abuse last summer and GAO has periodically investigated the fraud allegations at SPAWAR and NPWC.

Lee said Defense has suspended the purchase card program at all SPAWAR locations and will not resume them until senior Defense officials "are satisfied that appropriate controls are in place and cardholders understand their duties and accountability to the taxpayer." Lee also noted that both San Diego units have made improvements since last summer, and that Barrett and Miller have been in their positions for a relatively short period of time. "Of course that is not an excuse…we are painfully aware of the issues with purchase cards," Lee said.

Rep. Tom Davis, R-Va. introduced a bill (H.R. 3832) earlier this month that would raise the transaction limit on most government purchase cards from $2,500 to $25,000 per transaction.

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