Hearing of the Senate Governmental Affairs Committee - Government Purchase Cards

Federal News Service

HEADLINE: HEARING OF THE SENATE GOVERNMENTAL AFFAIRS COMMITTEE

SUBJECT: GOVERNMENT PURCHASE CARDS

CHAIRED BY: SENATOR SUSAN COLLINS (R-ME)

WITNESSES:

GREG KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING OFFICE; COLONEL WILLIAM KELLEY, PROGRAM DIRECTOR, DATA MINING DIVISION, OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF DEFENSE;

DAVID STEENSMA, ASSISTANT INSPECTOR GENERAL, CONTRACT MANAGEMENT DIRECTORATE, OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF DEFENSE; NEAL FOX, ASSISTANT COMMISSIONER FOR COMMERCIAL ACQUISITION, GENERAL SERVICES ADMINISTRATION

LOCATION: SENATE / HOUSE OFFICE BUILDING, WASHINGTON, D.C.

TIME: EDT DATE: 2004

BODY:
SEN. SUSAN COLLINS (R-ME): The committee will come to order. Good morning, today the Committee on Governmental Affairs will explore the federal government's use of purchase cards, which are commercial charge cards used by federal agencies to buy billions of dollars worth of goods and services each year. We will hear the results of the General Accounting Office's investigation into waste, fraud and abuse in the purchase card program.

The American people have the right to expect the federal government to spend their tax dollars carefully and wisely. While this is true at all times, it is never more so than today when the government faces the enormous fiscal pressures and a growing budget deficit. This committee has an important mandate to help safeguard those tax dollars from waste, fraud and abuse. To meet this mandate, the committee has launched an initiative to root out government waste. Today's hearing is part of that overall effort and will focus on wasteful, inefficient, and in some cases, fraudulent, transactions using purchase cards.

Purchase cards were first introduced by the General Services Administration on a government-wide basis in 1989. These cards are primarily used for making routine purchases such as office supplies, computers and copying machines. Purchase cards are similar to the personal credit cards that we all carry, but with one important difference: the taxpayer pays the bill. Although the card is only supposed to be used for official purposes, the federal government is responsible for paying all charges by authorized cardholders, regardless of what is purchased.

While legitimate purchases are usually quite small, they nevertheless add up to big money. Purchase card use has soared during the past decade, from less than $1 billion in Fiscal Year 1994 to more than $16 billion in Fiscal Year 2003. There are more than 134,000 purchase cardholders in the Department of Defense alone. This explosive growth presents both challenges and opportunities. While there are many benefits to the purchase card, such as expediting purchases, cutting down on red tape and paperwork and saving administrative costs, the General Accounting Office and the Inspectors General have reported that inadequate controls over purchase cards leave agencies vulnerable to waste, fraud and abuse.

We will hear testimony describing how smarter use of purchase cards could save taxpayers hundreds of millions of dollars. A GAO report that I requested along with Senator Russ Feingold and Congresswoman Schakowsky, which is being released at this hearing, highlights several wasteful purchasing practices. The GAO concludes that many agency cardholders fail to obtain readily available discounts on purchase card buys. In too many cases, purchase cardholders are buying goods and services from vendors that have already agreed to provide government discounts through the GSA schedule, yet cardholders often lack the information and the training needed to obtain the discounted prices.

As a result, the GAO found numerous instances of cardholders paying significantly more for items for which discounts already had been negotiated. In light of the fact that conscientious shoppers often can obtain savings beyond the schedule discounts, these findings indicate that some federal agencies are substantially overpaying for routine supplies. Let me give you an example. An analysis of the Department of Interior's purchase card buys of ink cartridges found that most of the time the cardholder paid more than the government schedule price to which the vendors had already agreed. One vendor, for example, had agreed to a schedule price of $24.99 for a particular ink cartridge, yet of the 791 separate purchases of this cartridge, only two were at or below that price. Some purchasers paid $34.99 or about 40 percent more for the same item.

Well, that may sound like a small item and a small amount, but when you start multiplying that across federal agencies, it quickly translates into significant money. In conducting its investigation, the General Accounting Office examined six agencies that together account for more than 85 percent of all government purchase card transactions. If the six agencies reviewed in this study negotiated discounts of just 10 percent from major vendors, and if agency employees had used those discounts, the GAO estimates annual savings of approximately $300 million. Over 10 years, that's $3 billion. Since we're in the Dirksen Senate Office building, I'll remind everyone of Senator Dirksen's famous statement that when you're talking about a billion here a billion there, pretty soon you're talking about real money.

The GAO also found that agencies should be making greater efforts to collect and analyze data on purchase card transactions. This would help agencies to eliminate waste and to expose fraud and abuse. In addition to testimony from the GAO, we will hear today from an official from the Department of Defense's Inspector General's Office who will report on his very interesting efforts to use data mining to identify inappropriate purchase card transactions, including outright fraud. In one case, an employee used a purchase card to charge $1.7 million in fraudulent purchases from a fictitious company set up by her brother. These fraudulent charges took place over a three year period, and they were not detected by the officials responsible for reviewing the bills, it was the data mining technique that identified these fraudulent charges.

Examples like this one demonstrate the need for better controls over the purchase card program and further demonstrate why it is vital to give agencies the tools that they need to control fraud and abuse. The testimony from the Inspectors General's Office will illustrate how data can be used as a management tool to detect fraudulent and improper transactions, as well as to ensure that agencies get the very best prices on their many purchases. We also will hear from Neal Fox of the General Services Administration, which has overall responsibility for the purchase card program.

We must assure taxpayers that the federal government is shopping carefully, wisely and honestly. That is why Senator Feingold and I today will introduce the Purchase Card Waste Elimination Act of 2004. Our legislation requires the Office of Management and Budget to direct agencies to better train cardholders and to more effectively scrutinize their purchases. This legislation also instructs the GSA to increase its efforts to secure discounts from vendors and to provide better tools to agencies to control wasteful spending.

For example, one commonsense reform that could be implemented is to make sure that those discounts come up at the point of sale. That way, even if the individual cardholder were not aware of the discount, the discount would apply anyway. That's the kind of practical approach that literally could save hundreds of millions of dollars.

I welcome our witnesses today, and I look forward to hearing their testimony. First, let me introduce our first witness today, Greg Kutz, who is the director of financial management and insurance in the General Accounting Office. He is responsible for financial management issues related to the Department of Defense, NASA, State and USAID. I believe that he is accompanied by other GAO officials, including David Cooper and Special Agent John Ryan. We've worked with this GAO team before on numerous investigations and they do a great job and I'm very pleased to have them with us today.

Our second witness will be Colonel William Kelley. Colonel Kelley returned to active duty in January 2002 to support Operation Noble Eagle. He is serving both as the senior military officer in the Office of the Inspector General, the Department of Defense, as well as the program director for the data mining division. He is accompanied by David Steensma who is the assistant inspector general, the Contract Management Directorate. Mr. Steensma is responsible for directing audits and managing operations for issues that cover acquisition, logistics, contracts, charge cards, military construction and environmental policies. I don't think you have nearly enough to do. I think we could, you know, add just a few more things to that list.

And our final witness today will be Neal Fox, who is the assistant commissioner for Commercial Acquisition of the U.S. General Services Administration. Mr. Fox is responsible for managing commercial service in product initiatives under the $16 billion purchase card program.

I very much appreciate all of you being here today, and I look forward to your opening statements. Mr. Kutz, we're going to start with you. Thank you.

BREAK IN TRANSCRIPT
SEN. COLLINS: Thank you, Mr. Fox. Mr. Fox, in your testimony you cited a study and suggested to the committee that the rate of misuse of purchase cards is very small. Of course the problem with that study is that it's only looking at outright fraud, not the kinds of inefficient and wasteful purchases that GAO has documented could amount to something like $300 million a year. But also it seems to me you're underplaying the problem, because if you take even a small percentage and apply it to $16 billion in purchase card transactions, you are very quickly getting into millions of dollars in outright fraud, not to mention the hundreds of millions of dollars that are being lost when cardholders are not taking advantage of discounted prices that the government has already negotiated.

In our investigation, for example, and in working and reviewing-working with GAO, the IGs and reviewing various cases, we found many examples of fraud. For example, the $1.7 million purchase card fraud that occurred at the Department of Defense, Washington headquarters services which I referred to in my opening statement. There was also a Navy card holder who used his purchase card 59 times to make $132,000 in fraudulent purchases, including two automobiles and a motorcycle. We've heard of the kinds of abusive transactions that the GAO uncovered.

There was a case in the V.A. which the inspector general has outlined in his statement for the record, where an employee used a purchase card to buy more than $200,000 worth of electronic equipment for personal use. Yet another case where an employee at a V.A. medical center charged $170,000 in computers and other equipment. I could go on and on and on with examples. Do you think this is just a tiny problem, it sounds like a pretty serious cases of abuse to me that would be upsetting to the American taxpayer.

MR. FOX: Senator Collins, any amount of fraud in the federal government by members of the federal government is too much fraud. So although we do like to point out that progress has been made, and that was the intention of the statements, is to show that progress is being made, we want to get to that next level of progress just as everyone here at this table and on your committee want to get to that next level of progress.

You mentioned the progress that can be gained through data mining and we're fully on board at GSA with the need for more data mining. As we can try to get more merchants using transmitting level three data so that we can then have better data mining capability. To drill down to see those exact purchases, what they were, where they were purchased and who purchased them and the exact dollar amounts. That next level data is important to rooting out the remaining fraud. And as you mentioned, it does add up to millions of dollars, and again, any amount of fraud inside the federal government to GSA and all of us inside the federal government is unacceptable.

SEN. COLLINS: The problem is, if GSA as the chief acquisition agency in the federal government minimizes this problem by quoting studies that suggest it's a very small percentage, it doesn't exactly send the right signals to other agencies about the importance of using time, energy and resources such as DOD clearly has done, to try to crack down and eliminate this kind of waste, fraud and abuse.

I want to ask Mr. Kutz GAO's opinion of the scope of the problem and of the study cited by Mr. Fox.

MR. KUTZ: Yes, I would say that it's kind of an academic study of a real world problem. I mean, it was a survey, so it was a voluntary thing. If you were to survey the Department of Defense where we did our work and where Colonel Kelley's done his work, they would have of course answered, we have no fraud and abuse. And so, how valid is this survey in identifying what's a real problem in the government? The V.A. report itself, as I read it, identified 2 percent as misuse in that report.

And I would tell you this, and could you put that poster board back up, John? All the items that we identified on that poster board and all of the other things we identified when we went to the Department of Defense and at the other agencies that we did also, they did not acknowledge, they didn't recognize, they didn't have the controls in place to find these and so if they had answered a survey, none of these would have been recognized on that survey as being fraudulent or misuse of federal funds. So I really think that there are some serious flaws in doing a self study of what this problem is.

I do think that the controls that are in place today versus several years ago mean that the problem is going to be less, and the bottom line is, most cardholders are honest and they're doing the right thing and the vast majority is. But is it a .017 percent problem? I don't think so, I think-you know, we've seen it's probably higher than that and certainly when you start getting to like V.A., one or 2 percent misuse of government purchase cards, that's fairly significant.

SEN. COLLINS: I think your point is a very good one, that if agencies have not yet implemented effective controls, they could be answering the survey very honestly and yet missing the whole extent of the fraudulent transactions. I want to follow up on a point that you made in your testimony about the relatively few cases where disciplinary action had been taken. Colonel Kelley mentioned some cases and I was glad to hear of them where criminal prosecutions had been brought and people had actually gone to jail. And I also want to emphasize that you're absolutely right, that the vast majority of cardholders are ethical and honest and use these cards in appropriate ways that save money for the taxpayer.

But I am concerned, I am troubled that relatively few disciplinary actions have been taken in cases involving really egregious examples of fraudulent transactions for personal use. Now, I understand that you examined 120 improper transactions and that you found that only 20 led to disciplinary action. And this included improper purchases of clothing, of coach leather briefcases, $600 computer bag, Lego toy robots, day planners and a host of other illegal or inappropriate items. Could you give me a sense of what happened in those 120 cases? What kinds-did the individuals end up repaying the federal government for these personal items, for example?

MR. KUTZ: Well, first of all we reported 120 misuses, it was a very target-rich environment for data mining, I would say, and so, as Colonel Kelley said in his opening statement, there was no way for us to follow up and investigate every single item, so we had thousands and thousands of potentially fraudulent and misuse-type cases. But we reported on 120 in the reports we did, three of the individuals that were involved that were cardholders repaid the government for those. And 20 of the 120 had some sort of disciplinary action taken, such as a verbal or written reprimand, they had to in some cases turn the items back.

As I mentioned, three people paid the money back and otherwise there was really nothing that was done to those individuals. I think to this day, and you get into the culture of the Department of Defense, in some cases the items that we're talking about here, they still believe were appropriate government purchases. They never really agreed with us on the coach briefcases, they said, we'll they're better quality and therefore they're worth us buying, but I think they just missed the point completely.

SEN. COLLINS: Well, it's disturbing that only three actually repaid the government, and it concerns me that the lack of consequences for the misuse of purchase cards makes it more likely that these abuses will continue. Would you agree with that?

MR. KUTZ: Yes, I would agree with that. In fact, it isn't just isolated to the purchase card, we had the same thing with the individually billed travel card, we've seen it with premium class travel. Senators Coleman and Levin had a hearing on extensive improper usage of first and business class airline travel. We've got some draft reports with Senators Coleman and Levin right now, potential voucher fraud and other misuses with respect to centrally billed travel accounts. And again, I seriously question what kind of actions are going to be taken to individuals that misuse government funds.

And that's probably one of the areas we're most disappointed in where the department's gone. As Colonel Kelley said, they issued guidance but they didn't agree at the department level to follow up, that this guidance will be consistently followed across the department. And so certainly it's going to be inconsistently followed, which is what we saw before when we did our work, some people will reprimand individuals, others will do nothing.

SEN. COLLINS: Could I ask Mr. Ryan to join you at the table for the next question? You just mentioned that you're looking at the issue of vendor fraud and I know Mr. Ryan's done a great deal of work and the whole area of looking at vendor fraud, whether it's dealing with purchase cards or fleet cards or other kinds of credit cards. Could you tell us a little bit about your experience at looking at the vendor's side of the purchase product? We tend to focus on the cardholder misusing the card, but are their cases where vendors are ripping off the federal government through the purchase card program as well?

MR. JOHN RYAN: I think the system is set up that the vendor can take advantage of employees that pay less than attention to the bills that come in. You can find that certain vendors are holding the government's purchase card in a database. They can keep submitting a transaction slip to the financial institution for monies to be received from that particular account. They can set it up where they'll send $2,500 to the bank on a purchase card transaction slip and constantly get paid that $2,500 and if no one's confirming the services that the government is getting, the government will pay that vendor.

SEN. COLLINS: So it could be repeated payments of the same bill?

MR. RYAN: That's exactly right, Senator.

SEN. COLLINS: Is there also a problem created by the incentives for employees to make sure if they are paying bills on time? I remember years ago Congress reacting to complaints from small business people that the federal government paid in a delinquent manner, that it caused a lot of cash flow problems, so as I recall, we passed something called the Prompt Pay Act and I'm wondering if perversely that's created an incentive to move these bills, pay them quickly and not necessarily review them to see if they've been paid already?

MR. RYAN: That's absolutely correct. If I'm receiving a bill and the money's not coming out of my pocket, it's coming out of somebody else's pocket and my performance rating is based on how fast I can move paper, I'm going to move it on, because I want to get a good rating. So if you are paying, and I think you've heard me say this before, you're making business decisions over security decisions.

In this particular case you are paying the bill, you have no idea if you have gotten the services. You haven't checked anything out. You're relying on other people but as the processor of that paper you have so many days to move it off your desk, and that's what they do. There's no checks and balance in regards to confirming that.

MR. KUTZ: And the metrics set in place are in fact for timeliness of payment. There are no metrics to look at the other issues we've talked about, and what it's called basically, kind of-I'm not sure it's-pay and confirm is what they call it, but it's really pay and chase, and unfortunately oftentimes the chase never happens. The bill gets paid and no one ever looks to see if we got the goods or services that we're supposed to, or whether they were in the same quality or quantity we ordered.

SEN. COLLINS: Thank you.

Colonel Kelley, you mentioned in your written testimony a case that I cited to Mr. Fox, or actually it's yet another case where a cardholder used his card 52 times over an eight week period to make a total purchase of $551,000 and I understand that that case is under investigation. But I wonder if you could use that example to explain more to the committee how you use data mining to flag an example that appears to be questionable at best, egregious fraud at worst? Could you walk us through the process?

COL. KELLEY: Yes, ma'am. Basically the tools you use are your expectations form your business rules. For example, in this instance, this vendor was not used by a number of different cardholders. An expectation would be the more cardholders you have using a vendor, the less risk you have. So those vendors that are doing business with a small number of cardholders have a higher risk. In this instance, those transactions were flagged for that reason.

The other business rule we used to couple with that was the fact that we were looking for cardholders that made repetitive buys near the dollar limit over certain periods of time, and we can move that line in the sand anywhere you want, depending on what you're looking to do. In this instance, these transactions popped up for two of those indicators which we thought were pretty significant. And they went out and did the work to look at them and the organization that did the work for us, is smart partnering now with our DCIS investigators. And I can say that this is going to probably end up in a referral for criminal prosecution for a number of reasons. Of course, it's an open investigation so that's all I'd like to say for that for right now.

SEN. COLLINS: But it is an example of a case that was identified by using data mining, correct?

COL. KELLEY: Yes, ma'am.

SEN. COLLINS: Mr. Steensma, as you know and as GAO has indicated, it isn't just the purchase card program that has had problems with waste and fraud and abuse. There have been similar concerns with the travel card, the fleet card and the aviation card programs. Do you believe that-well first of all, is DOD looking at extending data mining techniques which are being used successfully in the program card-the purchase card program to those other cards as well?

MR. STEENSMA: Yes, we are, ma'am. We're already looking at the travel card and data mining that. We're looking at the air card and we've done that actually in the past once and issued a report on it. And we will be looking at the fleet card. But when you have millions of transactions like Colonel Kelley talked about, data mining is the only way you can actually get a handle and put the auditors or investigators in the right place to look at something and determine if it's valid or not.

SEN. COLLINS: What role do you believe that GSA should play in promoting greater use of data mining techniques such as you're using successfully at DOD to identify questionable transactions?

MR. STEENSMA: Well, what we'd like to see is that GSA get all the data from all the banks, create a central repository of all the charge card data, then GSA would promote the data mining and use standard business rules and techniques across all the cards and all the data, and we would also like them to operate or run a program such as-put the board back up there, Colonel Kelley was going to explain. There aren't enough auditors or investigators out there to check on everything.

But the way to cut down all these frauds and inappropriate purchases, it didn't just happen once, it happened numerous times. And if you have data mining at a central repository with standard business rules for all agencies, what we would like to see is that on a regular basis things that look inappropriate, emails or some electronic notice gets sent to the supervisor or the approving official said, hey, this looks strange, give us some feedback on it. The supervisor would then respond and explain in the email after looking into the transaction whether it was valid or not.

That type of information would then be kept in a database also to looked at, to determine patterns and techniques. But I think GSA needs to take the lead for the whole federal government and like Colonel Kelley said, we've helped out 13 other agencies. That really isn't our job. We need somebody to take the lead on data mining for everything. We also need them to do additional research on how to develop new data mining techniques and also so they can be used to improve the management controls and push it back out to the agency managers, so they can actually manage this program and they can be the ones that help prevent fraud, waste and abuse, or at least catch it before it gets widespread like we talked about today.

SEN. COLLINS: Mr. Fox, what is GSA doing to promote the expansion of data mining techniques in other agencies? DOD has indicated that they've had inquiries from several other agencies, they've been providing information to the Department of Commerce, the Postal Service, the CIA. But that's not really DOD's job, that is more GSA's job. Could you inform us of what actions GSA is taking in this area?

MR. FOX: Yes, we're working with all the agencies to look at ways to better accomplish the data mining.

We have some-we have discussions, certainly monthly discussions with the DOD folks as our largest customer, on how we can help them better accomplish this task. We're looking at building a next generation SmartPay program that will accomplish-that will encompass more sophisticated data mining capabilities into it. But in the short term, we're working with the agencies to do a better job of data mining.

Again, much of it goes back to trying to obtain more detailed data that comes out of the merchants themselves. Many of the merchants that are beneficiaries of the card are small businesses and have not jumped forward to put in place the systems to pass the level three data. So trying to get the card agency associations to work with their merchants to try to pass more detailed data into the system and then find ways to accomplish the data mining.

We often find that the data mining is best done at the local level, as opposed to the centralized level. We're looking at both options as to what the right way to do it is, but if abuse is going to be found it is most often going to be found at the local level. And to provide that data mining available to the lowest level folks, those folks who immediately supervise the purchase cardholders, that were we can have the most impact, is to provide them the tools at the most local level.

SEN. COLLINS: Mr. Kutz, what does GAO see as GSA's role in this area, as far as data mining or improving the internal controls used by other agencies?

MR. KUTZ: I would concur with Mr. Steensma, I would go further with respect to, and I think that there are certain agreements we have with the banks now and the GSA representative could probably be more specific with that, but the banks have their own fraud detection software. Have you ever got a call from the bank with an unusual charge on your account and saying is that really your charge? I've gotten those before certainly. We didn't see that happening at the Department of Defense, and so our suspicions when we've talked about this are that the banks were running the software but not making the calls.

And so I think that that's another part of the prevention of fraud and misuse that could be utilized because we didn't see examples where people took these cards and they went down the mall and they hit each of the stores in the mall. They were clearly fraudulent purchases, if someone had made a call, they could have shut it off before more transactions had occurred.

SEN. COLLINS: We've spent a considerable amount of time talking about fraudulent purchases and how data mining techniques could identify those in the sea of bills that agencies are dealing with. But at least as important, perhaps even more important, is taking advantage of negotiated discounts.

Mr. Fox, why doesn't the GSA negotiate agreements with vendors so that these discounts come up at the point-of-sale, so that you don't have to worry about the cardholder being aware of what the price should be on a particular item?

MR. FOX: We are aggressively pursuing that. We are up to 19 stores that our customers can walk into and get point-of-sale discounts. They include, as I mentioned, Home Depot, Office Depot and others. We're adding others, we're working with Staples right now. We've talked to folks like Walmart, talked to other large vendors who do not have scheduled contracts to try to bring them onboard.

Some of them resist. Walmart has consistently resisted a GSA schedule contract for their own business reasons, but we are aggressively working that. Again, we're up to 19 walk-in stores and 32 catalogues. We had catalogues that customers can use to get-with discount companies and they provide the GSA discount.

So we do promote, we're up to a total of over 14,500 total GSA schedule contracts with vendors of all sizes around the country, 75 percent of which are small businesses which tend to use the purchase card, sometimes almost exclusively. So we are trying to expand our programs all the time, we're adding new vendors at the rate of 20 percent per year right now and trying to expand those opportunities for our customers. And also the automatic credit card recognition is a big item for us. As we add these walk-in, walk-out stores where customers can go in and present their card and not even mention they're with the federal government, but get that automatic discount from places like Home Depot and Office Depot as they are now. That's high on our agenda.

SEN. COLLINS: Mr. Steensma, based on your experience, actually I'm not sure whether this should go to Colonel Kelley or to you, so either of you can respond. Based on your experience, do you think purchase card holders usually get the discounted price?

MR. STEENSMA: No I don't, especially on many of the activities we went to. Colonel Kelley talked about we were down there at Louisiana, and they spent over $800 buying normal computers and office equipment and supplies. They didn't get one discount off any contract, GSA schedule or anything. We found the same problem at Washington Headquarters Service. Part of this comes from an education standpoint. Well, at those two activities there was a lack of controls. But we have in DOD well over 100 and some thousand buyers right now.

If you go look at the training that they're provided it's pretty good training on what they're required to do, the controls they should follow and so on, but there really is no training in there on how to become a smarter buyer. When we're talking about $16 million in purchases here, we need somebody that's going to do research on and teach people, come up with web-based training, how to create better buyers for DOD, not just DOD but the whole federal government. And we need somebody to do that and that should be a role of GSA, how to make smarter buyers. And we can save a lot more money than we've even talked about today once we can educate people not to just what's out there but what the trends are and where people are going to buy and maybe we can negotiate lower discounts than we've already got.

SEN. COLLINS: I think this is an area where there's a possibility of tremendous savings and we could make a real difference by instituting point-of-sale and also by better training buyers, as you've suggested. And by being more aggressive in seeking these discounts from vendors with large volumes. The final issue I want to touch on today is the proliferation of purchase cards. We obviously want to make sure that everyone who needs a purchase card has one, uses it appropriately and that should save money for the federal government and make the process more efficient.

On the other hand, Colonel Kelley, I was struck by your statement, I think I got it correctly, that you have reduced the number of purchase cards at DOD by 47 percent. Is that correct? Did I --

COL. KELLEY: Yes, ma'am. We didn't do it-DOD, the department did it.

SEN. COLLINS: I didn't mean you personally.

COL. KELLEY: Okay, thank you, ma'am.

SEN. COLLINS: You took away each one of those, right?

COL. KELLEY: I've been accused of that, ma'am.

SEN. COLLINS: But a 47 percent reduction is really significant. And I guess what I would ask you and Mr. Steensma is did reducing the number of cardholders by that extraordinary number have a negative impact on the efficiency of the department or of the ability of individuals to get the items they needed quickly?

Mr. Steensma?

MR. STEENSMA: No, I would say not in the least. They eliminated cards from people who didn't need them, shouldn't have had them, don't use them, but the volume of purchases actually went up. I haven't heard one complaint about people couldn't get things that they needed on time because there wasn't a buyer there. We just had way too many cards, not just DOD but all the agencies out there and it was a good move to eliminate the thousands of cards that are already gone.

SEN. COLLINS: Mr. Fox, does the GSA put out guidelines for agencies to follow on how to decided whether employees should have purchase cards?

MR. FOX: We do put out guidelines and they're available through our training programs.

We have our annual conference, training conference where we're again-last year, we had 3,000 folks come to our training, annual training conference for SmartPay and we put out guidance to them and we think that we have pushed the reduction-number of cardholders out of GSA and the agencies certainly have done a great job in picking up on that, because we believe that reducing the numbers has a positive impact in two ways.

It eliminates-it makes the agencies make tough choices about who will get the card and there for they give them to those who need them the most, and also it decreases the number of cardholders managed per supervisory card manager and that's down on average to about three and a half cardholders per supervisory manager which we believe is a great statistic. So the agencies where you see them going up to 10 or 15 or 20 cardholders per supervisory manager, it's very difficult for those managers to keep track of those and reconcile the accounts and reduce fraud. We think accurate card reconciliation at the local level is an extremely important part of fighting fraud.

SEN. COLLINS: Mr. Kutz, is part of the problem here the proliferation of cards?

MR. KUTZ: That was a major problem. Some of the initial looks we did at the Navy, for example, we found one out of every three cardholders would have a purchase card. And they did not have enough approving officials as I think the GSA representative mentioned here and so you had instances where approving officials had 100 or more people that were making transactions that there were responsible for reviewing the statement and it wasn't their full time job, it was an other duty as assigned, which meant it was a rubber stamp. There was no review of the bills being paid and that was where a lot of the cases we found that was one of the symptoms of the-or causes of the problem.

SEN. COLLINS: Thank you.

It seems to me if you have so many cardholders then we do have way more transactions that lessons the chance they're going to be reviewed, and it increases the chances that they're going to be misused and it would be good if other agencies took the kind of aggressive approach that DOD did and really evaluating who needs the card. It is highly significant to me as Mr. Steensma testified that you could reduce the number of cardholders by 47 percent and yet the purchases have gone up. So that does suggest that the proliferation of cards is another area that we need to examine.

I want to thank each of you for being here today. I want to thank the GAO for doing a terrific job in taking a look at this issue and DOD also for the aggressive work you're doing. Data mining has been a very touch issue, as you know in Congress, but this seems to me to be an ideal use of data mining that would allow us to identify questionable or outright fraudulent transactions without raising some of the privacy and personal information issues that are so controversial when data mining is applied in other arenas.

Mr. Fox, I'd like to see GSA work more closely with the agencies to promote best practices, to learn from the experience that DOD and to implement fully the recommendations made by the General Accounting Office. It's my understanding GSA has endorsed those recommendations, and is working to expand point-of-sale discounts and to implement the other reforms. We look forward to working with you, I will be pursuing the legislation with Russ Feingold as well, which I also think will be helpful.

But thank you all very much for your assistance today. I'm convinced that if we focus on issues like this one that we can make a real difference in saving literally hundreds of millions of dollars across our government each year. And Colonel Kelley put it well, because each of those dollars are dollars that could be put to the war against terrorism, or used to reduce the deficit or for other important programs, and we have an obligation to the taxpayers to make sure that their money is wisely spent and I think that the discussion today will help advance that goal.

The hearing record will remain open for 14 days for the submission of any additional materials. I want to thank my staff also for their hard work on this hearing. This hearing is now adjourned.