Regional Audit of Acquisition Cards

Corporate Audit and Evaluation Branch
April 2005

• Executive Summary
• Introduction
• Focus of the Audit
• Findings, Recommendations and Action Plans
  • Adequacy of Internal Controls (Management Framework)
  • Achievement of Policy Objectives
  • Adequacy of Monitoring and Reporting
  • Training
• Conclusion

Executive Summary

Acquisition cards were approved for use in government departments and agencies in 1991. The cards were made available government-wide through contracts established with acquisition card providers. The cards are the most cost efficient method for purchases under $5,000 and are used to reduce and simplify procurement of low value, low risk items. With the decentralization of budgets and procurement activities, Regional Responsibility Centre (RC) managers have increased responsibilities and authorities in areas previously controlled and managed in the Finance and Administration (F&A) area.

Objective: The objective of this audit was to provide assurance that the appropriate management framework is in place in the Prairie Region to ensure that acquisition card usage is effective and adheres to policy and procedures and the tracking of attractive assets. Planning of the audit began in February 2004 and the examination was concluded in June 2004.

Conclusion: The audit concluded that an appropriate management framework is in place in the Prairie region to ensure that acquisition card usage is effective and adheres to policy and procedures. Use of acquisition cards is exercised with due care, purchases reviewed were for normal business use. Managers and interviewees are aware that acquisition cards are to be used when it is efficient, economical and operationally feasible.

However, it was noted that improvements could be made in the following areas:

• guidelines and directives with regard to acquisition card procurement need to be well communicated and understood;
• a formal monitoring framework for acquisition card purchases should be established to enable regional management to monitor activities and ensure operational and compliance requirements are met; and
• training should be emphasized and offered, to ensure acquisition cardholders and responsibility centre managers know their roles, responsibilities and procurement requirements.

Action Plans: Policies and procedures with regard to acquisition card procurement of pre-approval authorizations and when to obtain and document three competitive quotes will be clarified as HQ Administrative Directorate, Policy and Program Development Division is currently revising the Acquisition Card Policy contained in the Finance and Administration Manual (FAM), Chapter 2-2-1. The information contained in the Materiel Management Advisor document entitled "Clarification on the use of Acquisition Cards" will be incorporated during this revision planned for fiscal year 2005-2006.

HQ AD is currently finalizing a National Acquisition Card Monitoring Framework that will outline monitoring procedures, roles and responsibilities. In the interim, HQ AD is currently working on providing the Regional office with reports on acquisition card transactions. Monthly data was provided to regional coordinators starting in December 2004. These reports will be monitored for types of commodities being purchased and any violations to exceptions as outlined in Policy, suspicious purchasing, and contract splitting. The results of this monitoring will be communicated to local offices with specific recommendations regarding the need for enhanced controls and/or to identify additional end user training requirements. All issues will be brought to the attention of HQ AD, Compliance and Business Practices Division for investigation. The monitoring activity will continue to evolve, as F&A moves to restructure the field organization and formally introduce the E-Business Officer role in the Prairie region.

Although there are a number of training courses available, training may not have always been consistently delivered across the Agency. HQ AD, Compliance and Business Practices Division is in the process of implementing electronic safeguards in the application and training processes to ensure that acquisition cards are only issued when the proper training has been successfully completed. An electronic application system is being developed that will link the requestor to the required Computer Based Training module. The acquisition card will not be issued to the individual until both the online application and training are completed. This will ensure a consistent and up-to-date approach across the Agency. The electronic training package will be available in April 2005.

HQ AD also recognizes that responsibility centre managers are an integral part of a successful acquisition card program from the requirements definition stage to the monitoring of purchases through the exercising of their Section 34 delegation. Budget Manager training has been developed and covers their roles and responsibilities within the program, as well as acquisition card processes, best practises and basic CAS tips. A PowerPoint presentation has been developed and provided to Budget Managers in both HQ and the Regions.

Introduction

Acquisition cards were approved for use in government departments and agencies in 1991. The cards were made available government-wide through contracts established with acquisition card providers. The cards are the most cost efficient method for purchases under $5,000 and are used to reduce and simplify procurement of low value, low risk items.

With the decentralization of budgets and procurement activities, Regional Responsibility Centre (RC) managers have increased responsibilities and authorities in areas previously controlled and managed in the Finance and Administration (F&A) area. As such, RC managers and staff with acquisition cards must be thoroughly familiar with procurement and financial policies.

In the Prairie Region there are more than 250 cardholders with card purchases annually amounting to over $2.8 million. In support of the e-procurement initiative, Web Based Rapid Order System (WBRO) within Administrative Reform and Renewal, acquisition cardholders are encouraged to consider e-procurement when making purchases. Acquisition card usage has had an impact on traditional paper based control frameworks and there were concerns about potential risk of error or fraud, which may go undetected.

The audit of Acquisition Cards was requested by the Regional Director, Finance and Administration, Prairie Region, to review the area of potential risk in terms of usage, monitoring and control.

During this audit, the final report of the Regional Audit of Non-Capital Asset Management conducted in the Southern Ontario Region was approved. As a result of findings, the Administration Directorate (AD) has committed to review policies and guidelines regarding asset management and to introduce a new or revised Asset Management Directive. These action plans by AD will address the tracking of attractive assets, therefore it was determined that it would be inefficient to proceed with this portion of the review.

Focus of the Audit

The objective of this audit was to provide assurance that the appropriate management framework is in place in the Prairie Region to ensure that acquisition card usage is effective and adheres to policy and procedures.

The scope focused on the controls in place to ensure compliance with policies and procedures, the efficiency and economical use of acquisition cards and the monitoring process. The lines of enquiry were adequacy of internal controls, achievement of policy objectives, adequacy of monitoring and training.

The audit was conducted by reviewing policies, procedures and guidelines related to acquisition cards.

A sample of acquisition card transactions for the 2003-2004 fiscal year was reviewed to determine the compliance with and adherence to established policies and procedures. The data in Corporate Administrative Systems (CAS) was compared with source documents to determine transactional accuracy. Also, the monitoring process was reviewed for adequacy (see Table 1).

To ensure the population was fairly represented, a statistically valid random sample was selected. All transactions over $4000 in the region were examined to ensure that the $5000 ceiling transaction limit was not exceeded. Also, all hotel and purchases that occurred on the weekends were reviewed as these were deemed high risk. During the review period WBRO transactions were limited to regular and normal office supplies purchased from Lyreco therefore due to the low risk of any type of error with these transactions they were excluded from the review.

Finally, interviews were conducted with managers, administrative and clerical personnel and Assistant Directors as well as the Regional Director of Finance and Administration.

This audit was conducted in the Prairie Region with planning beginning February 2004 and examination concluding in June 2004. Consultations were also conducted with HQ officials in the F&A Branch.

Findings, Recommendations and Action Plans

Adequacy of Internal Controls (Management Framework)

The capability of an organization to carry out its mandate is largely dependant upon the collective knowledge and skills of its employees, and tools and communication processes used by these employees. HQ AD will be consolidating all acquisition card related written communications within the FAM website to enable budget managers and acquisition cardholders to easily develop a clear understanding of acquisition card policies and procedures.

The Material Management Directorate site on InfoZone is the chief reference and communication tool for procurement information, and related finance policies and procedures and CAS processes.

The Finance & Administration Manual (FAM) requires purchases to be pre-approved by the budgetary manager. Examination of sample transactions showed that the above policy requiring pre-approval for purchases was inconsistently documented throughout the region. In the random sample of MasterCard and Visa purchases, evidence of pre-approval was not found in 25% (52 out of 205) of the files examined. Evidence of pre-approval is considered to be an email, memo to file or any reference as to why the purchase was requested. Although all purchases reviewed were noted to be for normal business use, the lack of documented evidence of pre-approval could potentially lead to unauthorized and inappropriate items being purchased.

Recommendation

Regional managers with expenditure initiation authority, should comply with the policy requirement to approve purchases in advance and ensure sufficient documentation is available.

Action Plan

Although acquisition card purchases must be approved in advance by the responsible manager, this approval does not have to be in writing. The authority can be verbal and can cover a period of time, amount or specific commodity. For example, a manager can give a clerk approval up to a certain budget amount annually to purchase common stationary supplies.

The fact that the manager must review and sign Section 34 of the Financial Administration Act (FAA) for all acquisition card purchases post-payment is deemed to be an adequate safeguard.

HQ AD, Policy and Program Development Division is currently revising the Acquisition Card Policy contained in the Finance and Administration Manual (FAM), Chapter 2-2-1.

FAM requires documentation of three competitive quotes when purchasing goods over $200. From the random sample of MasterCard and Visa purchases, 68% (36 out of 53) of transactions examined that were subject to the competitive process did not have evidence of obtaining three competitive quotes in the file. When purchases are made without following procurement policies, the best value to CRA may not be obtained nor can it be demonstrated that the acquisition of material and assets has been conducted in a fair, open and equitable manner.

In January 2003, HQ AD issued a Materiel Management Advisor document entitled "Clarification on the use of Acquisition Cards" that was widely distributed and states: "Although cardholders must ensure value for money when using their cards, they are not expected to spend large amounts of time to attain small savings. Where it makes sense, apply the competitive process in a fair and open manner. Obtain three quotations only when it is cost effective. For example, if a common purchase is of low value and the cardholder knows the average price, placing an order directly with 'Company ABC' is acceptable. Cardholders should go to another company for subsequent orders to give all local suppliers the opportunity to sell their products and services to the Agency."

Some of the sites visited were unaware of this Communiqué while others had implemented different dollar thresholds for obtaining the three competitive quotes. As the Communiqué gives discretion to cardholders, this may be the contributing factor for the inconsistent application of the competitive process within the region.

Recommendations

Regional F&A should ensure that all regional offices are aware of the January 2003 Communiqué entitled "Clarification on the use of Acquisition Cards" in order to ensure that the use of the competitive process is used only when cost effective.

HQ AD should update the Acquisition Card Policy contained in the Finance and Administration Manual (FAM), Chapter 2-2-1, to include the information contained in the January 2003 Communiqué.

Action Plans

Regional F&A has confirmed that all offices within the Prairie region are aware of the January 2003 Communiqué entitled "Clarification on the use of Acquisition Cards" to ensure the use of the competitive process is used only when cost effective. The region is also developing a management tool to clarify competitive quotes in the procurement process.

HQ AD, Policy and Program Development Division is currently revising the Acquisition Card Policy contained in the Finance and Administration Manual (FAM), Chapter 2-2-1. The information contained in the Materiel Management Advisor document entitled "Clarification on the use of Acquisition Cards" will be incorporated during this revision planned for fiscal year 2005-2006.

Achievement of Policy Objectives

Managers and interviewees are aware that acquisition cards are to be used when it is efficient, economical and operationally feasible. Interviews and examination of records showed that cardholders are using the cards for low dollar purchases, which is more economical than using purchase orders.

Adequacy of Monitoring and Reporting

To ensure compliance with policies and procedures, achievement of operational objectives and to help mitigate risks, ongoing monitoring of acquisition card activities should be in place. A monitoring system provides for early detection of deficiencies and ensures timely corrective actions are taken. It provides for effective accountability for performance, both in terms of results attained and the means used in achieving them. Lack of a monitoring system can compromise management's ability to meet operational requirements.

The results of our examination indicate that informal monitoring does occur in some sites, for example, management reviews Section 34 reports to determine if purchases are appropriate and Free Balance CAS reports are monitored for expenditures to budget. However, the audit revealed that a formal monitoring framework was not in place for acquisition card activities at the local or regional level.

FAM-MM-Procurement Acquisition Card Policy states that "the CRA Acquisition Card Coordinator, HQ AD" is responsible for providing the regions with a framework for monitoring acquisition card activities (para.15 (d)).

Recommendation

HQ AD should develop, implement, and communicate a formal monitoring framework to ensure purchases are pre-approved, appropriate, and that procedures are followed in a consistent manner in all regions.

Action Plan

Ad hoc monitoring has been conducted on acquisition card purchases in the past; however, the recent expansion of the acquisition card program has reinforced the need for more comprehensive acquisition card monitoring with HQ Branches and Regions taking a more active role. The first step was to develop the systems required to capture and report on the increased number of acquisition card transactions and make this information available to all Branches and Regions.

The WBRO tool has been enhanced to support this reporting requirement and HQ AD is providing all Branches and Regions with monthly acquisition card reports to enable them to monitor their activity within their own organizations. An acquisition card monitoring framework and associated checklist are being developed and are due to be released by the end of summer 2005.

AD is currently finalizing a National Acquisition Card Monitoring Framework that will outline monitoring procedures, roles and responsibilities. In the interim, AD is currently working on providing Regional Offices with reports on acquisition card transactions. These reports will be monitored for types of commodities being purchased and any violations to exceptions as outlined in Policy, suspicious purchasing, and contract splitting. The results of this monitoring will be communicated to local offices with specific recommendations regarding the need for enhanced controls and/or to identify

additional end user training requirements. The transaction monitoring activity began in the Prairie Region in January of 2005 and this activity will continue to evolve, as F&A moves to restructure the field organization and formally introduce the E-Business Officer role in the Prairie region.

Training

The CRA has developed the necessary procurement training packages. Training courses have been developed by AD for individuals to meet the certification requirements for exercising procurement delegation authorities in the Agency. CAS training for the data-capture and processing of procurement and payment transactions is provided online through the CAS site.

Roles and responsibilities of managers and employees involved in procurement-related activities for the Agency are generally set out in the policies and procedures of FAM published on the InfoZone. During interviews, managers and staff stated that they did not always receive the necessary training prior to assuming a position where they can exercise procurement authority. Managers acknowledged they need more procurement training to ensure that the policy and guidelines on the acquisition of goods are followed. When a manager with expenditure initiation is unaware of procurement requirements, non-compliance can occur.

Recommendation

Regional F&A should ensure that training for staff involved in acquisition card procurement-related activities is clearly defined, communicated and implemented. A review of the existing training should be completed to ensure that a sufficient and consistent level of training on procurement policies and procedures is provided to all acquisition cardholders and responsibility centre managers within the Prairie region.

Action Plans

Although there are a number of training courses available, training may not have always been consistently delivered across the Agency. HQ AD, Compliance and Business Practices Division is in the process of implementing electronic safeguards in the application and training processes to ensure that acquisition cards are only issued when the proper training has been successfully completed. An electronic application system is being developed that will link the requestor to the required Computer Based Training module. The acquisition card will not be issued to the individual until both the online application and training are completed. This will ensure a consistent and up-to-date approach across the Agency. The electronic training package will be available in April 2005. HQ AD Compliance and Business Practises Division is currently working with the Training and Learning Directorate to enhance, not just the process but also the training content.

HQ AD also recognizes that responsibility centre managers are an integral part of a successful acquisition card program from the requirements definition stage to the monitoring of purchases through the exercising of their Section 34 delegation. Budget Manager training has been developed and covers their roles and responsibilities within the program, as well as acquisition card processes, best practises and basic CAS tips. A PowerPoint presentation has been developed and provided to Budget Managers in both Headquarters and the Regions.

AD is working with Training & Learning to develop enhanced interactive learning courses in support of acquisition card transactions including WBRO. This training will enhance the ongoing training/support, which is provided by the local Super Users.

AD will be holding monthly video conferencing with WBRO Super Users to share best practices, communicate changes, challenges and solutions. Super users in local offices will be responsible to communicate relevant information to acquisition cardholders.

This on-going training and support role will become the responsibility of the Regional E-Business Officer.

Conclusion

The audit concluded that an appropriate management framework is in place in the Prairie region to ensure that acquisition card usage is effective and adheres to policy and procedures. Use of acquisition cards is exercised with due care; it was noted that all purchases reviewed were for normal business use. Managers and interviewees are aware and have confidence that acquisition cards are to be used when it is efficient, economical and operationally feasible.

Regional Finance and Administration needs to ensure that headquarters Administration Directorate's guidelines and directives on acquisition card procurement are well communicated and understood.

A formal monitoring framework for acquisition card purchases should be established to enable regional and local management to monitor activities and ensure procurement policy requirements are met.

There are various training courses available on acquisition card procurement. In some cases, detailed and comprehensive training is provided; in other cases the training varied depending on the user e.g. cardholder, budget or line manager. Training needs to be continually emphasized and monitored to ensure users and managers are receiving the required courses to carry out their responsibilities and that they are familiar with the requirements of the procurement policies.