FULL PERFORMANCE EVALUATION OF THE
DEPARTMENT OF ADMINISTRATION
Purchasing Division has Provided
the State Auditor Adequate
Cooperation to Make the West Virginia
State Purchasing Card Program "A Leader"
in the United States
Purchasing Division Should Consider
Developing a Method to Address Purchasing
Violations Identified in the Use of the
Use of the Legislative Appropriation
to the Purchasing Division for the
Purchasing Card Program is not Clear
Issue Area 1: The Purchasing Division has Provided the State Auditor Adequate Cooperation to Make the West Virginia State Purchasing Card Program "A Leader" in the United States.
A primary purpose for implementing the West Virginia State Purchasing
Card Program was to significantly reduce the administrative cost associated
with making payments for transactions, and to speed both the acquisition
of goods and services for the State and payments to vendors. The State
Auditor's Office analyzed all invoice payments processed during fiscal
year 1995. Of the 954,701 invoice transactions, 81% were less than $500
and were considered small dollar transactions. The typical paper invoice
purchasing process contains around 14 steps for each transaction. The use
of an electronic payment system cuts the number of steps to make payments
down to as low as three. The use of the purchasing card shifts paper processing
from State agencies to the financial institution issuing the card through
the following process:
Purchasing Division Responsibilities With Purchasing Card Program
The State Auditor is authorized to establish a Purchasing Card Program
in cooperation with the Department of Administration [WVC §12-3-10a].
As such, the State Auditor's Office has the lead role in developing and
administering the Purchasing Card Program. However, the Legislative rules
governing the Purchasing Card program are required by law to be jointly
proposed by the State Auditor and the Purchasing Division. The Legislative
rules indicate the respective responsibilities to be assumed by the State
Auditor and the Director of the Purchasing Division. The Director of Purchasing
has several responsibilities that may be exercised by rule. Some
of the major tasks are:
The State Now Charges "Small Dollar" Transactions
The State purchasing card has a current transaction limit of $2,500 per transaction.(2) The card also has limits for individual cards which may be lower than the official transaction limit, in order to reflect the anticipated use of the card by the cardholder. The card is used by state agencies, departments or institutions for 35,000 transactions per month and $70 million is charged on the purchasing card annually.
The Purchasing Card program has broadened the involvement of small businesses, due to the immediacy of payments for purchases.(3) The purchasing card also allows for control of small dollar expenditures. The use of the purchasing card allows for monitoring of small dollar transactions within 24 hours by:
1) the agency
The West Virginia State Purchasing Card is a National Leader
In the four years since its inception, the West Virginia Purchasing Card Program has attained a 100% level of participation within the state, with usage by all qualified and eligible West Virginia agencies. Out of 48 states responding to a 1999 survey by the National Association of State Comptrollers, West Virginia was the only state with complete statewide implementation of the purchasing card.
The Director of the Purchasing Card Program, located within the State Auditor's Office, has made presentations at two national conferences to describe how the state was able to expand its program and involve all state agencies in a three year time period. Several elements contribute to the success of the West Virginia program. A cooperative effort between the State Auditor, the Treasurer and the Department of Administration allowed the design of the purchasing card program to contain necessary elements for the state, and identify ways to make the program "user friendly" for all state agencies. This was done by:
The Purchasing Card Advisory Committee [WVC §12-3-10e] was created "to enhance thedevelopment and implementation of the purchasing card program". The 11 member Purchasing Card Advisory Committee (PCAC) consists of the Auditor as chairman, and three members from the West Virginia college and university system, one member from the Department of Health and Human Resources, and one member of the Division of Highways appointed by the Auditor's Office; three members from within the Department of Administration, including one from the Purchasing Division, appointed by the Secretary of the Department; and one member each appointed from the Department of Tax and Revenue and the State Treasurer.
The committee has worked to identify needs of the purchasing card program, and to solve problems through the work of six sub-committees. The agencies of the state have been able to discuss and devise solutions for a broad range of tasks confronting the development of the purchasing card program. The Purchasing Division of the Department of Administration has attended 6 of 7 meetings of the PCAC, and the Purchasing Division has been actively involved with:
Special thanks for the hard work and efforts of Rick Pickens, Dot Yeager, and the Purchasing Division of the Department of Administration.
Prior to the establishment of the Purchasing Card Advisory Committee in 1998, the Purchasing Division was active in the initial development of the program. A member of the Purchasing Division participated on the Purchasing Card Implementation Committee in 1996, and a buyer supervisor from the Purchasing Division was one of three members of the Purchasing Card Program Steering Committee that developed the Request For Proposal for Purchasing Card Provider Services.
The Purchasing Division Approves Purchasing Cards
While the State Auditor is primarily responsible for the daily activities of the Purchasing Card program, the Purchasing Division must review all purchasing cards through:
In addition to approval of the cards, the Purchasing Division assists with all cardholder training. A member of the Purchasing Division attends all training sessions, and presents information on the proper use of the purchase card. Training is held at the request of participating agencies, either in the conference room at the Purchasing Division, or onsite at the agency. Annual training is held for all card coordinators to update their knowledge of Purchasing Card policies and procedures. Training is considered a necessary component of the Purchasing Card program both for initial agency participation, and in the event that post-auditing reveals problems in the way that the audited agency is utilizing the purchasing card.
Purchasing Division Contracts For Card Provider Services
The Purchasing Division of the Department of Administration also holds the contract for the purchasing card. The West Virginia State Purchasing Card Program began in 1996 with the acceptance of a contract with One Valley Bank for card provider services following a national bid process. The length of the contract was for three years, with two renewals. This contract will either be rebid, or renewed as a "non-obligating contract" in 2001. This contract has several features which have assisted the Purchasing Card program:
Delayed Implementation of a Higher Transaction Limit has been Costly
Although the Purchasing Division has provided adequate cooperation in assisting the State Auditor's Office, Purchasing has delayed the implementation of increasing the higher transaction limits approved by the Legislature effective July 1, 2000. According to the State Auditor, the state has lost over $432,900 since July 1, 2000 in cost avoidance savings, and an estimated $64,609 in estimated tangible savings by retaining the lower limit. The State has lost a combined $497,509 in cost avoidance and tangible savings for the six month period since the higher limit was approved. See Appendix B for estimates from the State Auditor's Office.
In order for the higher transaction limit to be implemented, the Purchasing Division must approve the higher limit for each cardholder. According to the Director of the Purchasing Division, his reasons for the delay are as follows:
As of November 15, 2000, the higher transaction limit had not been implemented. The Director of the Purchasing Division indicated that discussions with the State Auditor's Office were being held to develop the best method of effecting the change. Given that the higher transaction limit will provide for greater cost savings to the State, and since the Legislature approved the higher transaction to be effective July 1, 2000, the Purchasing Division should provide greater priority in implementing this change.
Toward the end of this performance audit, the Legislative Auditor received a letter from the State Auditor (the letter is in Appendix D). He expressed the desire to have the Department of Administration removed from the statutory language in order to have the Auditor's Office assume full control of the Purchasing Card Program. The State Auditor indicated that the Purchasing Division's role is fairly limited and can be easily assumed by the Auditor's Office. He also asserted that the necessary checks and balances between the purchasing process and the payment process are already established in code (Article 10, Section 3 of the Constitution of West Virginia, and WVC§12-3-9); therefore the Purchasing Division is not necessary as a part of the Purchasing Card Program. The Legislative Auditor's Office did not examine this issue during this audit, thus expresses no opinion on this matter.
The Purchasing Division has provided adequate cooperation to the State Auditor to make the West Virginia State Purchasing Card Program a leader in the United States through 100% agency participation in the use of the purchasing card for small dollar purchases. The Purchasing Division's assistance in the development of the Purchasing Card program has given way to a specific role in which the Purchasing Division maintains control of the purchasing cards, administers the financial contract, participates in agency training on cardholder policies and procedures, and assists in post audit sanction decisions.
Continue the structure of cooperative administration of the Purchasing Card Program, with the Division of Purchasing providing necessary "checks and balances".
Issue Area 2: The Purchasing Division Should Consider Developing a Method to Address Purchasing Violations Identified in the Use of the Purchasing Card.
The State Auditor is responsible for the daily administration of the Purchasing Card program, including the performance of post audits which combine the use of computer monitoring and onsite inspection of agency records. Post audits are performed to test the purchasing card transactions for compliance to Purchasing Card Policies and Procedures. Post audit reports are sent to the Director of Purchasing. The Purchasing Card post audit division of the State Auditor can place an agency, or spending unit within the agency, under probation. In certain instances, card holders may lose the privilege to hold a card, and the card may be revoked. The Purchasing Division of the Department of Administration must agree to the card revocation, and sign a form revoking the card.
Purchasing Division is also involved in the post audit process when
additional sanctions may be warranted, when the audited agency falls under
the Department of Administration's jurisdiction or when a purchasing violation
involving statewide contracts occurs. Post-audits have been conducted for
approximately one year, since September 1999. Thus far about 39 agencies
have been audited. The Legislative Auditor sampled 10 of these post audits.
Table 1 indicates frequent violations identified by the State Auditor(4).
Purchasing Card Program Post Audit Results
|Area of Finding||Policy & Procedure Non-compliance|
|Lack of Card Security||70%|
|Sales Tax Being Paid||70%|
|No Itemized Invoices||70%|
|No Individual Log Sheets||50%|
|Stringing of Purchases||40%|
|Restricted Purchases Made||40%|
|Cardholders Not Reconciling||40%|
The eight violations shown in Table 1 are areas in which Purchasing Card program Policies and Procedures have not been followed. Three of these areas ( Itemized Invoices, Individual LogSheets, and Cardholders Not Reconciling) relate to internal record keeping. Late Payment reflects the agency's payment to the State Auditor, and impacts the "timely payments" rebate to the Purchasing Card program. Stringing of Purchases is defined as: The intentional manipulation of the ordering, billing or payment process in order to circumvent the transaction limit. Restricted Purchases are prohibited by the Policies and Procedures of the Purchasing Card program. State tax being charged violates state statutes, and may result from a lack of understanding on the part of the vendor. Card Security can be a lack of security, or a spending unit violation of policy by directing an employee whose name is not on the card to use it for agency purchases.
There are two cases in which legal prosecutions are being pursued, and there have been a few cases in which cardholders were required to make restitution for purchases that were not for State official business. Although violations that require legal prosecution are a small number, there are certain procedural violations identified in Table 1 that are common and occur frequently. Since the Purchasing Division by rule has authority to review spending unit's records, and to ensure proper use of the purchasing card, the Purchasing Division may want to consider developing a method to address these violations which are purchasing issues handled by the Purchasing Division. The post audit division of the Purchasing Card program should provide as much documentation as possible to assist the Purchasing Division in its investigation of purchasing violations.
There is concern that the frequent violations identified in post audits may be prevalent among users of the purchasing card. Since post audits have been conducted for only a year, and a limited number of agencies have been audited, it is possible that the violations identified by the post-audits are occurring in other agencies. Instead of waiting for post-audits to identify these problems over the next few years, the Purchasing Division should examine ways to reduce purchasing violations as soon as possible.
The Purchasing Division should consider examining ways to reduce the occurrences of purchasing violations of the purchase card, possibly by inspection of agencies not recently audited, or follow-up inspections of agencies with many audit findings.
Issue Area 3: Use of the Legislative Appropriation to the Purchasing Division for the Purchasing Card Program is not Clear.
For fiscal years 1998 through 2000, the Purchasing Division has received an appropriation from the Legislature in the amounts of $120,000; $121,788; and $90,561 respectively. Although Purchasing is involved in training state employees on the use of the purchasing card, and provides administrative assistance to the State Auditor, the Legislative Auditor's concern is whether the appropriation is in excess of what the Purchasing Division needs to assist the State Auditor in this program.
The Legislative Auditor asked the Purchasing Division to provide documentation on the specific uses of these appropriations towards the Purchasing Card program. The Purchasing Division provided a list of expenditures for each year, showing that the appropriations were completely disbursed. However, it was not clear to what extent this appropriation is being spent on the Purchasing Card program.
The Legislative Auditor specifically asked the Director of Purchasing
"Is the appropriation used exclusively for the Purchase Card Program?"
The Director did not respond to this question. Table 2 contains the appropriation
information provided to the Legislative Auditor from the Purchasing Division.
Purchasing Section - Fund 0210 Purchasing Card Program
|Activity 711 Unclassified||FY 1998||FY 1999||FY 2000|
|010||Civil Serv PEIA/PERS||28||28||60|
|011||Social Security Matching||2,054||1,829||2,119|
|012||Public Employees Ins||3,645||2,100||1,435|
|016||Pension and Retirement||2,614||2,312||2,663|
|052||Training & Development||100||225|
|053||Postal & Freight||13,100||13,330||8,638|
|055||Credit Card Pur-Supplies||1,560|
|063||Bldg&Household Equip Rep||122|
|Total Expenses Activity 099||$120,000||$121,788||$90,561|
The Legislative Auditor is concerned that the appropriation received by the Purchasing Division for the program is greater than is needed given the level of involvement that Purchasing currently has. No documentation or statement provided by the Director of Purchasing indicates if the appropriation is used exclusively for the Purchasing Card program.
The Legislature should consider examining whether there is a need to change the amount of the appropriation given to the Purchasing Division for the Purchasing Card program to be consistent with the level of assistance the Purchasing Division provides the State Auditor.
1. The cost savings is likely over-stated because it does not take into account the administrative cost associated with making payments through the purchase card. Therefore, the net savings has not been calculated.
2. The Purchasing Card Program started with a transaction limit of $500. The transaction limit was subsequently raised to $1000, and is now set at $2500 per transaction.
3. It is estimated that the use of the Purchasing Card has cut the payment cycle from 45 days to 4 days.
4. A single violation in a post audit report results in a finding of non-compliance.