Payments to Vendors by United States Attorneys' Offices
Report No. 04-07
Office of the Inspector General
United States Attorneys (USAs) serve as the nation's principal litigators under the direction of the Attorney General. They are stationed throughout the United States, Puerto Rico, the Virgin Islands, and the Northern Mariana Islands. Each is appointed by and serves at the discretion of the President of the United States. There are 94 judicial districts with one USA assigned to each, with the exception of Guam and the Northern Mariana Islands. USAs are the chief law enforcement officers of the United States within their jurisdictions and head the United States Attorneys' Offices (USAOs).
The USAOs have three statutory responsibilities under Title 28, Section 507, of the U.S. Code. Their responsibilities include:
When responding to these responsibilities, the USAOs procure a variety of goods and services. Once goods and services are procured, the USAOs make payments to vendors through the Justice Management Division (JMD) for required items using different payment methods. The four payment methods we reviewed were third-party drafts, government purchase cards, electronic fund transfers, and Treasury checks.
Our audit objective was to determine whether the USAOs' controls and procedures over the purchase and payment for goods and services using third-party drafts, government purchase cards, electronic fund transfers, or Treasury checks were adequate to ensure that vendor payments were made according to the policies prescribed by EOUSA and federal regulations.
To accomplish our objective, we sampled and analyzed 1,517 payments for purchases, sampled and physically located purchased property, and reviewed delegations of authority and separation of duties relating to purchases at EOUSA and six district offices.
Procurements by government agencies are in the billions of dollars each year and are regularly in the news because of reported fraud or abuse. As a result, the Office of Management and Budget (OMB) and the Office of the Inspector General (OIG) have conducted investigations and audits to help reduce procurement abuses.
On October 17, 2002, six months after the OMB requested agencies to combat increasing charge card fraud, the Director of the OMB called for federal agencies to provide quarterly reports detailing their efforts to combat fraud and abuse in purchase card and travel card programs. The Director also requested agencies to take disciplinary actions and make civil and criminal referrals of employees who violate the public trust. Further, OMB's Interagency Task Force identified several best practices that agencies have found useful in combating the misuse of government-issued cards. As part of its efforts, the Task Force also reviewed a general plan from the Department of Justice (DOJ) on their purchase and travel card program and determined that the DOJ's plan was adequate.
In conjunction with EOUSA's oversight of USAOs, EOUSA's Evaluation and Review Staff (EARS) conducts reviews of each USAO every three years. The 1-week reviews cover both litigation and administrative activities. The administrative review covers financial management, third?party payments, and acquisition management. The EARS teams are made up of as many as 40 staff from EOUSA and administrative and litigation staff from other USAOs to perform their reviews. If EARS findings are deemed significant, they are reported as "red flags" and are elevated directly to EOUSA's Chief Operating Officer for immediate attention and corrective action. All issued reports require a written response from the applicable USAO within 30 days.
The scope of the EARS reviews includes sampling transactions from the current and prior year. The EARS reviewers look at separation of duties and security over third-party drafts. They also conduct an inventory of unused drafts and perform a voucher file review. In the area of acquisitions, they review the overall management of acquisitions by sampling transactions, reviewing reference materials, and analyzing support from EOUSA and JMD. For delegations of authority, EARS reviews the district office's acquisition procedures, workload, duties, training, ratifications of unauthorized commitments, blanket purchase agreements, and purchase/delivery order files. In the purchase card area, they look at the management of the program and review purchase card files. They also examine the certified invoice procedures used for litigation services and expenses.
Based on our examination, we believe that EARS reviews are generally adequate to identify potential problems in the vendor payment area. However, we have one recommendation in Finding 1 associated with adding steps to their reviews to detect the same types of deficiencies as identified by our audit.
The OIG conducted two recent investigations of procurement and payment frauds committed within the USAOs. In our opinion, EOUSA could have detected the fraud earlier had responsible USAO employees complied with established internal controls and EOUSA's procedures. The OIG investigations resulted in criminal charges against two employees and the resignation of another in lieu of his termination.
Central District of California. In the Central District of California, a procurement clerk defrauded the government of over $435,000 over a 31-month period (July 1997 through February 2000). The clerk used her government purchase card to acquire goods and services for personal use. She also used two former employees' purchase cards in the scheme. Fraudulently purchased goods included trips to Israel, Australia, and Alaska; department store gift certificates and general merchandise; cellular phone service; car insurance; automobile maintenance; clothing; over 35 computers; 35 printers; 10 scanners; and 50 inkjet cartridges. Due to the volume of improper purchases, a 19-foot rental truck was used to transport some of the items that were seized during the execution of the search warrant. Explanations the procurement clerk used for some of these personal purchases were for items needed for the government's Weed and Seed Program.2
The fraudulent procurement scheme was first noticed when BankOne, the purchase card issuer, contacted the Central District of California's Chief of Support Services in December 1999 about questionable purchases made in Las Vegas using an ex-employee's purchase card.3 At the time, the Chief was an accountable officer and approving official.4 The Chief asked the procurement clerk about the purchases, but she was able to explain the charges to the Chief's satisfaction. The fraud continued until a routine audit by JMD raised concerns, prompting an investigation by the OIG. During the investigation, the Chief was questioned about the excessive purchases. The Chief indicated as the approving official that he would only do a cursory review "to ensure that there was not an absolutely ridiculous expense." Concurrently, but independently of the JMD review, the EARS conducted a review at the Central District of California and found that 1) purchase card statements were sometimes not signed by either the cardholder or approving official, 2) purchase cards were shared with other employees, and 3) purchase card files lack required documentation.
In summary, the Chief of Support Services was not following the existing government purchase card procedures. According to the OIG investigative report, the clerk was able to elude detection because of, in the Chief's words, his "complacency, stupidity, and ineptness." The Chief also said the procurement clerk "would produce paperwork supporting the purchase, which he [the Chief] realized at the time ... was fabricated." Had the chief been doing his job according to EOUSA's Government Purchase Card Program for Simplified Acquisition, as an approving official, he would have 1) signed and dated the monthly statements after reviewing supporting documentation, where he should have noticed that monthly account cycle reports included charges for former employees; 2) cancelled the purchase cards of former employees; and 3) challenged documentation for purchases not meeting the needs of the USAO.5 The clerk was convicted of defrauding the government and the Chief resigned in lieu of termination.
District of Oregon. In the District of Oregon, the Deputy Administrative Officer defrauded the government for $39,105 during an 11-month period (January 2000 through November 2000). As reported in the OIG investigation report, the Deputy Administrative Officer was responsible for most of the budgeted accounts, reviewing official travel charges, and receiving monthly listings of travelers' delinquent accounts. She was also responsible for reviewing a monthly printout of the office's financial obligations. The EARS team completed a review the year before the fraud occurred. The Deputy Administrative Officer responded to the OIG Investigator that she "knew that any money stolen during the first year after their [EARS] audit would more than likely not be identified [detected]."
This creative fraudulent scheme included misusing her government?issued travel card, developing her own form as the basis for requesting third-party drafts to be issued, using the password of a former administrative technician to issue checks to herself, forging the signature of the third-party draft disbursing officer, authorizing third-party drafts to be issued without supporting documentation, creating a fictitious account under the Expert Witness Program, and entering checks into the FMIS accounting system that caused drafts to be written to for her personal use.6
Using the Deputy Administrative Officer's position in the administrative unit, she was able to instruct a subordinate disbursing officer to sign third-party drafts without presenting supporting documentation, such as an original invoice. For documentation, the subordinate disbursing officer was asked to compare the written drafts to the Deputy Administrative Officer's self-made form rather than to the invoices and supporting documents. The District of Oregon received notices of misuse of the Deputy Administrative Officer's government-issued travel card and did not report them to her supervisor.
This undetected fraud primarily occurred because a disbursing officer in the District of Oregon was not following the requirement to review supporting documentation prior to signing third-party drafts. In some instances, the Deputy Administrative Officer presented her self-made form as documentation instead of original invoices. According to the OIG investigative report, one disbursing officer just signed the drafts left on the table without reviewing the supporting documentation. Disbursing officers should be able to stop proposed payments because of the lack of sufficient supporting documents. The fraud also occurred because missing copies of the fraudulent third-party drafts did not cause suspicion and the use of non?standard, self-made forms should have caused the disbursing officer to question those transactions and deny signature on the applicable third-party drafts. In this fraud the regulations were not followed, and the Deputy Administrative Officer abused her authority, resulting in her prosecution.