Big headaches from small purchases

It's the little things. Nickles and dimes. They can drive you crazy, and they can drive you poor ("nickle and dimed to death").

So "petty" cash does not mean it is unimportant cash. The low administrative oversight of small purchasing is simply a practical trade-off between conflicting procurement principles of efficiency and accountability, or in the phrases of the Guam procurement law (and its source, the ABA Model Procurement Code), "to provide increased economy" (efficiency) and "to provide safeguards for the maintenance of a procurement system of quality and integrity" (accountability).  It is not an abdication of either principle.

Many jurisdictions accommodate small purchasing by way of approved credit card use. In Guam's case, it is accomplished by a "Blanket Purchase Agreement" made with various vendors, or a Request for Quotes process (RFQ).   In all cases purchase amount limits are limited to small purchases (though "small" is variously defined, relative to the size of government and its economy).

Here's a couple of audit reports on the subject, from Hawaii and Washington.

The Hawaii Public Auditor issued Report No. 10-05, in June 2010, titled "Program and Management Audit of the State’s Purchasing Card Program". A summary of it can be found here, at page 11 of the 2010 Annual Report, together with other reports from 2010. Here are some excerpts:

In 2001, the State Procurement Office (SPO) established its Procurement Card Program (pCard program). The pCard program was meant to simplify the State’s small purchase operations and reduce the administrative burden associated with issuing purchase orders and processing invoices for payment without sacrificing financial controls over expenditures. As of April 1, 2005, executive branch agencies were required to use pCards to pay for goods and services under $2,500.

We found that the pCard program has had some benefits: vendors are paid sooner, cardholders (purchasers) receive goods and services faster, and the State receives a rebate from its bank. However, other benefits, including a more efficient and streamlined government procurement system, have not been achieved. Although the procurement office is ultimately responsible for the program, it has taken a hands-off approach to its administration by delegating significant responsibilities to the executive departments.

We recommended the procurement office play a stronger administrative role by ensuring the intent of the pCard program is met. We also made specific recommendations for the procurement office to establish clear guidelines to help executive branch agencies achieve consistency and efficiency with the pCard program. In its response to our draft report, the State Procurement Office claimed that we made many misstatements and failed to take into account the limited resources available.

Fast forward to the present. Hawaii is still experiencing problems, according to a story reported by the Hawaii Procurement Institute:

The Hawaii state auditor says the State Procurement Office isn’t allowing it to verify improvements to its administration of a credit card program for government agencies. Acting Auditor Jan Yamane says auditors haven’t been able to check whether the office followed up on these recommendations because procurement officials won’t meet with them.

Things may not be so different further east in Washington (a lot further east if you start from Guam). Mike Purdy's Public Contracting Blog reports,

The Washington State Auditor's Office recently issued an audit finding to the Grays Harbor County Fire Protection District No. 16 for not having adequate supporting documentation, such as invoices or detailed receipts, to support $19,695 in expenses with District issued credit cards. The audit cited purchases for food, fuel, clothes, holiday decorations, supplies, and lodging that were not documented, raising the question whether they were an allowable use of public funds as required by state law.

He notes,

Government issued credit cards, sometimes known as "Purchasing Cards," "Procurement Cards," or "P-Cards" can be a great tool to simplify the procurement process. However, they come with risks if there are not adequate controls in place.

He provides some "practical tips" to deal with the issues.

It may be interesting to note that the audit finding found

The District’s Board has not adopted a policy relating to the use of District credit cards. Such a policy should require detailed supporting documentation, approval and a thorough review to ensure the transactions are for an allowable use of public funds.

The Commissioner of the tagged Board responded tersely and in stark contrast to Hawaii's State Procurement Office,

As a response to the audit findings, as a Commissioner of GHFD #16 I will not allow a credit card to be issued to the department until the proper policies are in place, and we have strict monitoring procedures.