Background The federal government’s civilian real-property holdings include thousands of leased office buildings and warehouses across the country that cost billions of dollars annually to rent, operate, and maintain. GSA’s Public Building Service acquires space on behalf of the federal government through new construction and leasing and acts as a caretaker for federal properties across the country. The type and amount of space for each lease varies based on a particular agency’s need, and GSA categorizes leases by value depending on factors such as square- footage and location. As of fiscal year 2018, the Public Building Service held or leased space in 8,681 buildings or other assets and maintained an inventory of more than 370-million square feet of workspace for 1.1 million federal employees, plus support contractors. The federal-leasing process contains several stages, and brokers can be involved in many parts of this process (see fig. 1) as a way to supplement the work of GSA’s leasing staff. For example, in the “requirements development” phase, GSA can task brokers with drafting project milestones and working with federal agencies that are seeking building space to provide a complete requirements package. In the “lease acquisition” phase, brokers can conduct market research on rental rates, negotiate rates and terms of the lease, and prepare final contract forms. For such work, brokers can earn a commission based on a percentage of the aggregate lease value. However, pursuant to the Federal Acquisition Regulation, brokers are not allowed to complete some activities, as contractors cannot be used for the performance of inherently government functions. Brokers are not allowed to complete all required leasing tasks to execute a federal government lease. For example, according to GSA officials, a broker cannot sign a lease contract on behalf of the federal government with a property owner since that action is considered an inherently governmental function. The broker may prepare the final lease contract, but GSA’s contracting officials are responsible for signing the lease. Even when a broker is involved in the leasing process, GSA officials oversee and approve the broker activities. Prior to 2015, GSA had implemented various changes to how it used brokers to assist with its leasing program. Before 1997, GSA’s in-house staff completed all leasing acquisition work, but starting in the late 1990s, downsizing initiatives at GSA reduced the number of staff and therefore its in-house capacity to acquire leases. In 1997, GSA began to increase its use of brokers by signing regional contracts for broker services and paying brokers by using appropriated funds. By 2003, brokers were completing approximately 20 percent of GSA’s leasing work. In 2003, GSA analyzed the advantages, disadvantages, and costs of different types of contracting options for using the brokers, including having them negotiate leases on a nationwide basis, as compared to designated geographic zones or local areas. Based on that analysis, GSA concluded that contracting for brokers to negotiate leases nationally represented the best option available and formalized the program as the National Broker Contract program. In 2004, under this program, GSA awarded nationwide contracts to four commercial real- estate brokerage firms, moving from a regional to a national approach. In 2010, GSA established the second iteration of the broker program (called the National Broker Contract 2), which maintained a similar nationwide structure with four national contracts to brokers. We have previously found that GSA has been unable to demonstrate cost savings with its broker program. For example, in 2007, we found that GSA was unable to quantify savings from the program and recommended that GSA develop processes for doing so. In response to our recommendation, GSA conducted a comparative analysis of prior agency contracts and broker contracts; this analysis demonstrated program cost savings. However, GSA’s subsequent efforts to demonstrate continued cost savings were less conclusive. For example, in 2012, when GSA attempted to compare rental rates negotiated by brokers with those negotiated by in-house staff, the agency found little difference between the two and noted that the data were insufficient to conduct a meaningful comparison. In 2013, we found that GSA had not linked its goals and metrics for evaluating the broker program to the anticipated cost savings in rental rates. As a result, GSA had no means of evaluating and reporting on this aspect of the program, and the value of the broker program in terms of cost savings continued to be unclear. We recommended that GSA link program goals to anticipated cost savings and develop and implement a means of evaluating and reporting program results. In response, GSA developed a metric for measuring the efficacy of utilizing brokers to assist with lease workloads and a performance report that included information on financial savings and productivity, among other things. We found limitations; however, with these efforts, as discussed in the second section of this report. GSA Has Changed Its Broker Program to Allow Greater Flexibility and Has Prioritized Using Brokers for High Value Leases GSA Has Increased the Number of Brokers and the Flexibility for Using Them GSA has made changes to the broker program to allow more brokers to participate and to increase GSA’s flexibility in its use of brokers. In 2015, GSA changed the program’s name to the GSA Leasing Support Services program (GLS). Under this version of the program, GSA moved from using four brokers on a nationwide basis to designating brokers within four geographical zones. GSA awarded contracts to two or three brokers for each zone (see table 1). Thus, each GLS contract covers a zone rather than the entire country, as was previously done under the National Broker Contract. Currently, there are six GLS brokers, and each broker can serve up to two zones. Of the six GLS brokers, five participated in the National Broker Contract programs. According to GSA officials, modifying the program to operate by zone provided a greater opportunity to involve more brokers, increase competition and local market specialization, and strengthen relations among brokers and GSA regional offices. In addition, awarding contracts by zones rather than the entire country has allowed small businesses to participate as brokers, and GSA selected two small-business brokers as prime contractors: Carpenter Robbins Commercial Real Estate, Inc., and Public Properties LLC. Multiple GSA regional offices oversee and monitor brokers within each zone, except for the National Capital region, which is its own zone. In early 2020, GSA plans to announce the brokers that will be involved in the fourth iteration of the program. In this iteration, called GLS Plus, the zones and number of brokers within each zone will remain the same. In addition to establishing the zones, GSA has also allowed its regional staff to have more flexibility in deciding how to use brokers. During the past two iterations of the National Broker Contract, brokers had to be involved during the entire leasing process. In the GLS program, regional GSA officials choose broker services for specific parts of the leasing process based on the needs of the region. For example, several regional officials said they could now request brokers to perform market research or negotiate a lease, while GSA staff performs other tasks to complete a lease. Officials in three of the six regional offices we interviewed said this change provided additional flexibility in how GSA involves the brokers in the leasing process and helped balance the workload of GSA staff. In GLS Plus, GSA will request that brokers provide additional post-award services such as evaluating pricing for proposed renovations and monitoring on-site construction progress for the leased facility. Brokers Are Used Primarily for High-Value Leases In the GLS program, about 64 percent of the brokers’ workload were high- value leases. GSA officials told us they typically task brokers to negotiate these high-to-moderate value leases because brokers are paid through commissions as a percentage of the lease’s value. Since they earn more money with high value leases, they have a greater incentive to participate in the program. Consistent with what GSA officials said, the agency’s leasing data showed that leases involving brokers tended to have large square-footage and higher rents than the rents for leases that did not involve brokers, as shown in table 2. According to GSA’s leasing data from October 2005 to July 2019, the agency used brokers in about 37 percent of all leases. Available data did not clearly demonstrate the extent to which brokers negotiated lower lease rates than GSA’s in-house staff for similar types of properties. Although there are differences in rental rates and other outcomes of leases involving brokers compared to those that do not, it is difficult to determine whether these differences are due to having brokers involved in the process as opposed to the characteristics of the leases themselves. Various factors affect rental rates in federal leases, such as local market areas, type of facility, square footage, and unique requirements, among other issues. According to the Public Buildings Service’s Commissioner, brokers are more successful at negotiating lower lease rates relative to the market than GSA in-house staff and using brokers provides savings to the government. GSA officials said they believe this result is in part because brokers negotiate what are called “commission credits”—a percentage of the total commission that goes back to the federal tenant agency in the form of a reduction in rent— which can result in lower costs for federal tenant agencies. In contrast, several lessors (property owners) said that when GSA uses brokers to negotiate leases, broker commissions have to be paid by the lessor and that this cost is ultimately passed on to GSA’s federal-agency-tenant clients. Furthermore, three real estate economists we interviewed indicated that real-estate sale prices and rental rates are driven primarily by competitive market forces and thus would not be heavily influenced by broker negotiation. These economists were not aware of any research indicating that brokers could affect commercial real estate rental rates. Broker Leases Include Commissions to the Broker and Credits to Tenant Agencies As previously noted, GSA typically tasks brokers to negotiate high-to- moderate value leases. A broker-negotiated GSA lease includes a total commission negotiated between the lessor and the broker that represents a percentage of the aggregate lease value. This total commission is comprised of the standard commission paid to the broker and commission credits given back to the federal tenant agency. In the GLS program, the total commission sometimes includes a “best value” commission that a broker may earn on top of the standard commission. This total commission includes the following three components: Standard Commissions. The standard commission a broker earns is normally a percentage of the total lease value. Our analysis showed that brokers earned about $390 million in standard commissions since fiscal year 2006 (see table 3). For the GLS program, brokers had earned just over $35 million as of July 2019. At the time of our review, the program was ongoing, and brokers were still completing leases. Best Value Commission. Under the GLS, in addition to the standard commission that a broker always earns, the broker can be paid an additional commission, called the “best value commission,” by negotiating a lease rate below an established market rate target and earning high evaluation ratings from GSA. Specifically, the best value commission was expected to incentivize brokers to negotiate lower rental rates. This best value commission is paid out of the commission credit the tenant agency would otherwise receive and does not increase the total cost of the commission. As of July 2019, brokers had collected about $3.5 million in best value commissions during the GLS program. GSA plans to eliminate the best value commission in the new iteration of its broker program, GLS Plus. Officials said determining whether brokers met the best value criteria was burdensome for regional officials and that brokers prefer a steady volume of future government leases as an incentive. Similarly, two real estate economists we interviewed said that the best value commission was unnecessary to incentivize brokers to seek the best rates for their GSA client, and that the prospect of additional future business negotiating government leases was a sufficient incentive. Commission credits. The commission credit is a percentage of the total commission that goes back to the federal tenant agency in the form of a reduction in rent. As part of the total commission, brokers have negotiated over $340 million in commission credits. GSA estimates that its future GLS Plus program will generate $129 million in commission credits throughout the duration of the program. Lessors and real estate economists we interviewed highlighted various issues about GSA’s commission structure, including commissions paid to the broker and commission credits paid back to the tenant agency. The interviewees had different perspectives on whether GSA’s broker program and the current commission structure are beneficial to the federal government. Some questioned whether the use of brokers saves the federal government money. As previously noted, according to GSA officials, lessors, through the commission, pay the brokers, which is customary in commercial real estate. Although GSA does incur some costs from appropriated funds because GSA officials oversee the work of brokers, GSA officials noted that GSA does not currently use its own appropriated funds to compensate brokers for services performed as a part of the broker program. However, four lessors that we interviewed said that broker commission costs are passed through to federal tenants in their leases. These lessors questioned the benefits of using brokers for federal leases. In contrast, two real estate economists we interviewed said that GSA could potentially be missing cost-saving opportunities when brokers are not used because rental rates are generally set by competitive market forces, also GSA’s in-house staff may not negotiate commission credits. GSA officials, however, disagreed with this statement, saying in-house staff generally seek to receive credit or concessions for leases they negotiate since there is no commission to be paid to a broker. Another real estate economist we interviewed indicated that paying brokers based on a fixed price basis, versus a commission basis, could result in lower costs to the government because this type of payment structure could involve GSA brokers’ bidding for lease acquisition assignments in fixed-price terms only. This real estate economist also said that this approach could potentially address past concerns involving GSA’s commission structure. GSA Faces Limits in Assessing Value of Its Broker Program GSA Has Established Various Goals for Its Broker Program Over the years and with different iterations of the program, GSA has established various goals for the broker program; most of these goals pertain to cost savings. During our review, GSA officials also said that the main purpose of the program is to serve as a workforce multiplier for the regional offices—providing needed personnel to complete leases that GSA does not have enough staff to complete on its own. Our review of GSA documents and interviews with GSA staff identified various program goals as shown in table 4. For GLS Plus, the fourth iteration of the broker program, which GSA plans to start in mid-2020, the proposed goals include achieving taxpayer savings, improving the customer experience, and leveraging broker expertise. GSA officials also said that maximized productivity would be a goal of the program. GSA Relies on Data to Measure Cost Savings That Some Stakeholders Said Is Inaccurate As previously discussed, one of the main goals of the broker program is to avoid costs and save the taxpayer money. In November 2019, GSA headquarters officials said that they demonstrate cost savings of the broker program through its Lease Cost Avoidance Plan, which aggregates cost-savings from several efforts, including negotiating leases below market rates, reducing rented square footage, and leasing vacant space. A metric within the Lease Cost Avoidance Plan that seeks to show whether leases are negotiated below market rates is called Lease Cost Relative to Market, which is a comparison of the negotiated rental rate to the target market rate. According to this metric, as reported by GSA, over the last 3 years, brokers have negotiated 303 leasing deals, 60 percent of which were below the market rate (17.8 percent below the market rate, on average), which helped GSA avoid $676 million in costs. In addition, GSA found that brokers negotiated better rental rates than GSA in-house staff, on average. For example, GSA reported that in fiscal year 2018, 56 percent of leases negotiated by brokers were below the market rate compared to 38 percent of leases negotiated by GSA in-house staff. As discussed previously, however, there are various factors, including the type of lease that may account for these differences. This metric is calculated primarily using market lease rates that GSA determines using a tool it developed called the “Bullseye” report. To develop the report, GSA gathers available market data from commercial real estate databases and compiles these data to identify local information, analysis, and insight regarding the local real estate submarket. According to GSA guidance, the success of the GLS program is dependent on the brokers’ negotiating competitive lease rates through full utilization of the Bullseye report and standardized negotiation objectives. The guidance further states that the Bullseye report should be utilized by GSA regional offices as a tool to make informed leasing decisions on behalf of the U.S. government and can provide the necessary backup documentation to aid leasing personnel in their negotiation with an offeror. While GSA headquarters officials noted that this tool is adequate for this use, other GSA officials and brokers had concerns about whether the Bullseye report accurately reflects market rates and conditions. GSA regional officials we interviewed had mixed views on the accuracy of the Bullseye report. For example, several officials questioned the accuracy or noted limitations to the Bullseye report. In addition, four of the six brokers found the Bullseye report to be rarely or only sometimes accurate. As a result, brokers told us that they found it difficult to negotiate a rental rate at or below the target Bullseye rate. In addition, two lessors we interviewed agreed that the gap between the Bullseye report and local market rates potentially affected negotiations with GSA. Furthermore, brokers publicly questioned the accuracy of Bullseye reports in written responses to GSA’s draft solicitation for the 2020 GLS Plus program. They also suggested that the new broker program should include an adjudication process for revisiting Bullseye target rates. Selected GSA regional officials and brokers in our review identified several factors that may affect the accuracy of the Bullseye reports: Geography. According to GSA officials, the Bullseye report includes market rates from over 85 major markets in the U.S. However, GSA regional officials and brokers we interviewed said that the Bullseye report provides limited submarket rental rates for specific areas or neighborhoods within large metropolitan areas. This can be problematic because there can be significant rental differences among different areas within a given market. For example, in response to GSA’s draft solicitation for the new broker program, brokers stated that they found the Bullseye target rates to be an obstacle in the rapidly moving West Coast urban markets, and there can be significant discrepancies between Bullseye rates and actual market rates. One selected GSA regional office in our review provided examples of the Bullseye target rate being below the market rate in several instances. For example, the average asking rent for office space in San Diego, CA, was 36 percent higher than the Bullseye rate. Federal requirements. According to GSA regional officials and to brokers, the Bullseye report does not take into account the unique building requirements for federal leases. For example, GSA officials and brokers reported that the Bullseye report develops a target rental rate based on certain classes of buildings (A, B, and C). Although the government generally accepts A and B class buildings, C buildings are generally unacceptable for federal leases. Brokers we interviewed said including these C building rates could lower the market rates identified by the Bullseye market report for certain areas. GSA officials said they are not able to remove the C building rates from the Bullseye report because the data are purchased from a private-sector data source that includes various building rates from a local area. In addition, brokers said the Bullseye report does not take into account the unique requirements of federal buildings. For example, federal law enforcement agencies require certain security measures, such as special entrances. Brokers reported that landlords may increase their pricing to account for these factors. Brokers also identified these issues in the draft solicitation for the new broker contract, noting that the Bullseye does not use comparable buildings that take into account the uniqueness of a specific space requirement. Lag time. Several brokers and GSA officials told us that federal leases generally take significantly longer than commercial leases due to the federal leasing acquisition process. As a result, GSA officials and brokers found that by the time a lease was awarded, which could be years later, the initial target market rate provided by the Bullseye report was outdated. GSA headquarters officials told us if the Bullseye report is over a year old, then an updated report should be requested, although it’s not mentioned by the 2016 Bullseye guidance memo. Officials from selected GSA regional offices varied on whether those updates occurred or not. Furthermore, several brokers in our review told us that they found that the Bullseye report is not always updated after a year. One broker told us that there have been several instances when a lease is about to be awarded—which can be 1 to 2 years after the initial Bullseye report was generated—and the tenant agency is not willing to accept the rental rates negotiated in the lease. Or GSA’s leasing staff is hesitant to execute the lease due to differences between the Bullseye rate and the actual lease contract rate. This can cause significant delays or result in the project being canceled all together. Concerns about the reliability of the Bullseye report call into question whether the Lease Cost Relative to Market metric can accurately demonstrate how brokers’ efforts lead to cost savings, either through achieving rental rates below market or better rates than GSA in-house staff. Even though GSA provided us cost-savings data in November 2019 based on this metric, at other times during our review, GSA officials described limitations and questioned the efficacy of using this metric. Specifically, in April 2019, GSA headquarters officials told us that GSA had stopped using this metric because GSA found it unreliable. For example, GSA found the comparison was not indicative of broker effectiveness or ability to negotiate low rental rates. At that time, GSA officials cautioned against using the Lease Cost Relative to Market data for comparative purposes, such as comparing broker performance to in- house GSA staff performance. The officials said it is impossible to assess the financial information of a lease transaction and evaluate a specific procurement method—using brokers or not—without talking directly to the GSA in-house staff responsible for overseeing the procurement. Furthermore, GSA officials told us in April 2019, that leases negotiated by brokers were not comparable to leases negotiated by in-house staff because they work on different types of leases. In December 2019, however, GSA officials told us that GSA does still track this metric, uses it for GSA’s Lease Cost Avoidance Plan, and that the agency believes brokers can achieve better deals for the government than in-house staff. Nonetheless, GSA officials told us that they have not assessed the reliability of or made any changes to how they calculate the Bullseye report. According to Standards for Internal Control in the Federal Government, management should use quality information to achieve the entity’s objectives and to inform decision-making. Until GSA assesses the reliability of the information used to calculate reported cost savings for the broker program, it is hindered in its ability to fully assess the effectiveness of the program. GSA Lacks Measures of Brokers’ Effectiveness As a Workforce Multiplier As noted above, throughout the various iterations of the program, GSA has identified various goals for the broker program. During this review, a key goal consistently stated by GSA officials we interviewed was the use of the broker program as a workforce multiplier—providing additional people that enable GSA to complete leasing work it would otherwise be unable to complete. The effectiveness of the broker as a workforce multiplier is significant to GSA because leasing staff has decreased by over 50 percent since the late 1990s, from over 800 personnel to less than 400 in 2019. Consequently, GSA staff rely on brokers to deliver leased space to federal agencies. GSA officials told us that a broker may not accomplish a lease faster or cheaper than GSA staff but that the agency does not currently have the personnel to complete its leasing work. GSA’s Strategic Plan 2018-2022 also states that GSA will use brokers where appropriate to improve efficiency in awarding leases. Although GSA has set target goals for utilizing brokers and tracks the number of leases regional officials assign to brokers, we found that GSA had limited ability to track how using brokers to augment the GSA’s leasing workforce achieves results for GSA’s leasing efforts. For example, GSA has increased its broker utilization targets in recent years, as described in figure 2, requiring regional offices to award more lease projects to brokers. Moreover, GSA tracks performance relative to these targets, and regional officials in our review told us that they are evaluated based on the number of leases they task to brokers. Additionally, in April 2019, GSA developed a model to project, on average, the number of hours a broker saves the GSA’s lease-contracting officer and project manager. The project estimated the broker saved roughly 175 to 125 hours, respectively, per project over a 3-year period. GSA then multiplied the hourly salary of GSA leasing personnel by the potential number of hours saved to generate their reported personnel savings of $3 million per year. However, tracking these outputs alone does not provide GSA with a means to measure the effectiveness of the broker program as a workforce multiplier. An output measure tracks the direct product or activity delivered by a program, while an outcome measure tracks the progress the program is making toward achieving its goal. Tracking the number of hours a broker saves for GSA officials provides limited information to help GSA understand the overall benefits of the broker program as a workforce multiplier. For example, this goal does not demonstrate if brokers are more productive than in-house staff or if they are completing leases more efficiently, such as brokers completing an additional number of leases on an annual basis. According to GSA officials, the principal way they measure broker program outcomes is through its Lease Cost Avoidance Plan, which, as we previously discussed, aggregates cost savings from a number of GSA leasing efforts, including the broker program. The plan identifies realized cost avoidance through various metrics such as leases negotiated below market costs and reductions in rental square footage and vacant space. However, aside from the negotiated rental rates, GSA does not currently have specific metrics that allow it to distinguish the particular role brokers play in achieving those results. For example, GSA officials said that the more leases that can be replaced by using brokers, the more GSA can tackle its expiring lease inventory and right size leases with rental square foot reductions. Specifically, GSA officials said that brokers contributed to a 2.5 percentage square footage reduction in fiscal years 2018 and 2019. However, since this metric applies to the leasing program in general and is not specific to the brokers, GSA is unable to demonstrate the extent to which such reduction is attributable to the use of brokers. GSA officials also told us that using brokers allows GSA to replace more leases on time and thus avoid extending leases, which is more costly and can lead to agencies renting space under less favorable terms. GSA measures this through its lease replacement rate, which tracks the percentage of expiring leases that are replaced in a timely manner. For example, GSA reported that in fiscal year 2019, it replaced 61 percent of its lease inventory, which represented $481 million of its $791 million lease inventory. However, while GSA tracks the number of lease extensions brokers have worked on, GSA is unable to demonstrate the extent to which the use of brokers helps GSA avoid lease extensions and holdovers. Furthermore, similar to the Lease Cost Avoidance Plan, this metric applies to the leasing program in general and is not specific to the brokers. As a result, GSA has limited information on the extent to which brokers contributed to leasing program outcomes. GPRA, as amended, creates a framework for articulating unified goals and outcome measures that can provide federal agencies with a clear direction for successful implementation of program activities and improve the efficiency and accountability of agencies’ efforts. We have previously reported that the GPRA framework can serve as a leading practice at other organizational levels, such as component agencies, offices, programs, and projects. GPRA calls for outcome-based metrics that are linked to goals, which allow a program to track the progress an organization is making toward achieving its intended outcome. Because GSA lacks outcome-based metrics that demonstrate the broker’s role in achieving the program’s goal for being a workforce multiplier, GSA is hindered in its ability to distinguish the role brokers played in its reported program results. Furthermore, having such a metric could help GSA make better decisions about the balance of brokers versus in-house leasing staff since GSA received $34 million dollars for fiscal year 2020 to hire an additional 34 GSA lease-contracting officers and specialists. GSA officials said they plan to complete this hiring in 2020. Conclusions GSA has developed a program that allows the agency to utilize expertise and personnel from leading commercial real-estate brokers to help it complete thousands of federal leases. GSA has stated cost savings and workforce goals for the broker program but lacks the information necessary to assess if the program is achieving its intended results. If GSA envisions that the use of brokers is to save money, then having quality, reliable data and information is critical to demonstrating this result. If using brokers to augment GSA’s workforce were also a goal, then having outcome-based metrics would allow GSA to show whether it is achieving that goal. This information is especially critical as the program has changed over time and could provide GSA insight on what has been successful in the past. This information would also inform GSA’s decision-making as it launches another version of its broker program and uses millions of dollars in appropriated funds to increase the agency’s leasing personnel. Recommendations We are making the following two recommendations to the Administrator of GSA: GSA should assess and address the reliability of the information used to calculate reported cost savings for the broker program. (Recommendation 1) GSA should develop outcome-based metrics to evaluate the effectiveness of using brokers to supplement the GSA’s leasing workforce. (Recommendation 2) Agency Comments and Our Evaluation We provided a draft of this product to GSA for review and comment. GSA provided written comments, which are summarized below and reproduced in appendix I. GSA said it did not agree with our main conclusions and findings because it believed our report did not acknowledge brokers’ demonstrated benefits. We noted throughout the report that brokers play an important role in helping GSA achieve various leasing-related goals. Our position is that the lack of quality data and outcome-based metrics inhibit GSA’s ability to demonstrate the brokers’ specific effect in achieving GSA’s goals as compared to other factors. With regard to the first recommendation about data used to calculate reported cost savings from the broker program, GSA said it concurred with the recommendation and is making changes to its data systems that it believes will improve its data on brokers. GSA said it did not agree with the second recommendation as it was originally worded about having outcome-based measures to evaluate the effectiveness of using brokers. In providing technical comments on our report, GSA officials raised concerns that this recommendation gave the impression that GSA had no metrics to assess the brokers. The agency said that it has several outcome-based metrics in place that it believes can be correlated with the value of the brokers, including achieving cost savings, replacing leases on time, and reducing the need to hire more GSA staff. In GSA’s letter, it referenced these statistics, several of which we had included in our report as well. For example, our report discusses GSA’s Lease Cost Relative to Market measure, which is a comparison of the negotiated rental rate to a target market rate. We also noted, however, that this metric is calculated primarily using data, that GSA staff and other stakeholders we interviewed expressed concerns about as unreliable. These concerns resulted in our first recommendation. Further, other metrics, such as reducing square footage and replacing leases, that GSA pointed to relate to GSA’s leasing efforts in general and are not designed in a way to distinguish the brokers’ contributions specifically. Specifically, GSA officials said that brokers contributed to a 2.5 percentage square footage reduction in fiscal years 2018 and 2019. This metric, however, applies to the overall leasing program, and GSA is unable to demonstrate the extent to which such reduction is attributable to the use of brokers. In addition, GSA does not have a means to measure the effectiveness of the broker program in supplementing its workforce to achieve these goals, a result that GSA staff in headquarters and regional offices consistently told us was the primary reason GSA uses brokers. Tracking the number of hours a broker saves for GSA officials provides limited information to help GSA understand the overall benefits of the broker program. Such information does not demonstrate if brokers are more productive or efficient than in-house staff, such as whether brokers are completing an additional number of leases on an annual basis, for example. Additional metrics focused on evaluating the outcomes of GSA’s use of brokers would benefit the agency because it has lost over 50 percent of its leasing personnel since the 1990s. Furthermore, GSA received $34 million to hire additional agency lease-contracting officers and specialists in 2020. Consequently, it is imperative that it has information and data that could inform the right mix of brokers and GSA leasing personnel as the agency moves forward with its leasing work. In response to GSA’s concerns and to make our recommendation more specific, we clarified the recommendation. Specifically, we focused it more narrowly on the need to evaluate the effectiveness of using brokers to supplement the GSA leasing workforce. We also made some additional changes to the draft to include more information about the metrics GSA uses and that it believes can be correlated to the use of brokers. We are sending copies of this report to the appropriate congressional committees, the Administrator of the General Services Administration, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or RectanusL@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Appendix I: Comments from the U.S. General Services Administration Appendix II: GAO Contact and Staff Acknowledgments GAO Contact Lori Rectanus, (202) 512-2834 or RectanusL@gao.gov. Staff Acknowledgments In addition to the individual named above, other key contributors to this report were: Andrew Huddleston (Assistant Director), Nelsie Alcoser, (Analyst-in-Charge), Caitlin Cusati, Josh Ormond, Colleen Taylor, Jack Wang, Michelle Weathers, Crystal Wesco, and William Woods.


Background The government's purchase card program has its origins in Executive Order (E.O.) 12352, issued by President Ronald Reagan in 1982. E.O. 12352 directed agencies to develop programs that simplified procedures and reduced the administrative costs of procurement, particularly with regard to "small" purchases ($25,000 or less). Several agencies subsequently participated in a pilot program that evaluated the use of a commercial credit card, called a purchase card, as an acquisition tool. At the time, even a routine order for widely available items, such as office supplies, typically required agency program staff to submit a written procurement request to a contracting officer, who reviewed it, obtained the necessary signatures, made the actual purchase, and processed the associated paperwork. To critics, this process was inefficient, especially for small purchases. Not only was it time-consuming for both program and procurement personnel, but it also prevented program offices from quickly filling immediate needs. Under the pilot program, nonprocurement staff used purchase cards to conduct small-dollar transactions directly with local suppliers, thus bypassing procurement officers entirely. A report on the pilot program concluded that purchase cards could reduce administrative costs and improve delivery time, and in 1989 the Office of Management and Budget (OMB) tasked the General Services Administration (GSA) with making purchase cards available government-wide. Participation in GSA's purchase card program was not mandatory, and card use did not initially grow as rapidly as some had expected. In 1993, however, a report issued by the National Performance Review (NPR) sparked a number of legislative and regulatory reforms intended to increase purchase card use. The NPR was a Clinton Administration initiative that sought to "reinvent" the federal government by making government operations both less expensive and more efficient. One of the NPR's objectives was to identify opportunities to streamline a number of government-wide processes, including procurement. Drawing on input from experts in the public and private sectors, the NPR's initial report recommended expanding the use of purchase cards across the government, a step it said would "lower costs and reduce bureaucracy in small purchases." In a separate report that focused solely on procurement, the NPR estimated that if half of all small acquisitions were made using purchase cards, the government would realize $180 million in savings annually. The report further recommended amending the Federal Acquisition Regulation (FAR)âthe government's primary source of procurement guidanceâto promote the use of purchase cards for small purchases. Building on the NPR's recommendations, Congress passed the Federal Acquisition Streamlining Act (FASA; P.L. 103-355 ) in 1994. FASA introduced several reforms that increased the use of purchase cards. Among these, Title IV of FASA established a simplified acquisition threshold (SAT) of $100,000 (increased to $250,000 in 2017). Purchases at or below the threshold were exempted from the provisions of a number of procurement laws. This reform obviated the need for procurement officials to make small purchases. To further streamline procedures for the smallest acquisitions, Title IV also established a "micro-purchase" threshold of $2,500 (which was increased to $3,000 in 2006, and again to $10,000 in 2017). FASA further exempted micro-purchases from sections of the Buy American Act and the Small Business Act, and they could be made without obtaining a competitive bid, if the cost was deemed reasonable by the cardholder. At the same time, the Clinton Administration took steps to increase the use of purchase cards. Citing the need to make agency procurement procedures "more consistent with recommendations of the National Performance Review," President Clinton issued Executive Order 12931 on October 13, 1994. E.O. 12931 directed agency heads to (1) expand purchase card use; and (2) delegate the micro-purchasing authority provided in FASA to program offices, which would enable them to make purchases whose value did not exceed the micro-purchase threshold. E.O. 12931 also directed agency heads to streamline procurement policies and practices that were not mandated by statute, and to ensure that their agencies were maximizing their use of the new simplified acquisition procedures. In addition, the FAR was amended in 1994 to designate the purchase card as the "preferred method" for making micro-purchases. Card use increased sharply as agencies implemented these reforms. The dollar value of goods and services acquired with purchase cards increased from $527.0 million in FY1993 to $19.5 billion in FY2011. During that same time span, the number of cardholders nearly tripled to 278,000, and the number of purchase card transactions increased from 1.5 million to just under 22.8 million in FY2011. The flexibility of the purchase card may have contributed to its growth: it could be used for in-store purchases, which allowed the cardholder to take immediate possession of needed goods, or it could be used to place orders by telephone or over the internet and have goods delivered. According to GSA, the use of purchase cards now saves the government $1.7 billion a year in administrative costs. Structure The federal purchase card program is implemented by individual agencies, with the involvement of GSA and OMB. In broad terms, agencies establish and maintain their own programs, but they select pu rchase card services from contracts that GSA negotiates with selected banks, and their programs must conform to the government-wide guidance issued by OMB. Agencies Each agency is responsible for establishing its own purchase card program. The agency, within the framework of OMB guidance, establishes internal rules and regulations for purchase card use and management, decides which of its employees are to receive purchase cards, and handles billing and payment issues for agency purchase card accounts. Two levels of supervision generally exist within an agency's purchase card program. Individual cardholders are assigned to an Approving Official (AO). The AO is considered the "first line of defense" against card misuse, and agency policies often require the AO to ensure that all purchases comply with statutes, regulations, and agency policies. To that end, the AO is responsible for authorizing cardholder purchases, either by approving purchases before they are made or by verifying their legitimacy through reviews of cardholder statements and supporting documentation, such as receipts. The AO may also be required to ensure that statements are reconciled and submitted to the billing office in a timely manner. Each agency also appoints an Agency Program Coordinator (APC) to serve as the agency's liaison to the bank and to GSA. At some agencies, each major component has an APC, one of whom is chosen to serve as the agency's liaison. The APCs are also usually responsible for agency-wide activities, such as developing internal program guidelines and procedures, sampling cardholder transactions to identify fraudulent or abusive purchases, setting up and deactivating accounts, and ensuring that officials and cardholders receive proper training. GSA GSA's primary responsibility is to award and administer contracts with card vendors on behalf of the government. In November 1998, agency purchase card programs began operating under GSA's SmartPay initiative. SmartPay permitted agencies to select a range of credit card products from five banks with which GSA had negotiated contracts. The SmartPay contracts established prices, terms, and conditions for credit card products and services from these five banks. Purchase cards were established as centrally billed accounts under the contracts, which meant that agencies, and not individual cardholders, were billed for purchases. The contracts required agencies to make payment in full at the end of each billing cycle. New purchase card contractsâknown collectively as SmartPay2âtook effect government-wide in November 2008. In November 2018, all federal agencies began operating under SmartPay3 contracts. OMB OMB issues charge card management guidance that all agencies must follow. This guidance, located in Appendix B of OMB Circular A-123, establishes agencies' responsibilities for implementing their purchase, travel, and fleet card programs. Chapter 4 of Appendix B identifies the responsibilities of charge card managers in developing and implementing risk management controls, policies, and practices (often referred to collectively as "internal controls") that mitigate the potential for charge card misuse. Agency charge card managers must ensure that cardholder statements, supporting documentation, and other data are reviewed to detect delinquency and misuse; key duties are separated, such as making purchases, authorizing purchases, and reviewing and auditing purchase documentation; records are maintained for training, appointment of cardholders and authorizing officials, cardholder purchase limits, and related information; disciplinary actions are initiated when cardholders or other program participants misuse their cards; appropriate training is provided for cardholders, approving officials, and other relevant staff; employees are asked about questionable or suspicious transactions; and charge card statement reconciliation occurs in a timely manner. Chapter 4 also identifies administrative and disciplinary actions that may be imposed for charge card misuse, such as deactivation of employee accounts, and it requires managers to refer suspected cases of fraud to the agency's Office of Inspector General or the Department of Justice. Circular A-123 provides OMB with oversight tools by requiring agencies to submit to OMB each year a charge card management plan that details their efforts to implement and maintain effective internal controls and minimize the risk of card misuse and payment delinquency. It also requires agencies to report the number of AOs it has appointed, the average number of monthly purchase card transactions each AO reviews, the number of reported cases of misuse, and the number of disciplinary actions taken in response to misuse. Purchase Card Program Weaknesses Audits of agency purchase card programs conducted by the Government Accountability Office (GAO) and agency inspectors general (IGs) through FY2011 attracted congressional attention with their revelations of abusive purchases made by government employees. Among the many cases of abuse cited by auditors were a Department of Agriculture (USDA) employee who, over a period of six years, used her purchase card to funnel $642,000 to her boyfriend; a Forest Service employee who charged $31,342 to his purchase card for personal items, including Sony PlayStations, cameras, and jewelry; and a Coast Guard cardholder who used his purchase card to buy a beer brewing kitâand then brewed alcohol while on duty. Congress held several hearings to address purchase card misuse and the underlying internal control weaknesses that auditors said allowed it to occur. The following section examines the weaknesses identified in audit reports published between 2002 and 2011, which highlight the issues that led to the passage of the Charge Card Act. Ineffective Transaction Review and Approval Processes One of the primary safeguards against improper use of government purchase cards is the review and approval of cardholder transactions by someone other than the cardholder. As noted, purchase card AOs are usually responsible for reviewing the cardholder's monthly statement. Given that the AO is often the only person other than the cardholder to assess the validity of a purchase before payment is made to the purchase card vendor, the review and approval process is considered one of the most critical components of an agency's purchase card control environment. Steven Kutz, GAO's Managing Director of Forensic Audits and Special Investigations, stated in testimony before the Senate, Basic fraud prevention concepts and our previous audits of purchase card programs have shown that opportunities for fraud and abuse arise if cardholders know that their purchases are not being properly reviewed. Despite the importance of the AO's role in preventing and detecting improper purchases, some agencies failed to ensure that cardholder statements were carefully reviewed prior to their approval. At the Department of Education, auditors estimated that 37% of monthly cardholder statements they reviewed had not been approved by the AO. GAO also estimated that nearly one of every six purchase card transactions government-wide had not been properly authorized. Even when AOs did conduct reviews, they sometimes failed to meet government standards. Agencies are required by OMB to ensure that cardholder statements are compared with supporting documentation, such as invoices and receipts, as part of the review process. This is necessary because purchase card statements are rarely itemized; they usually provide only the store or contractor name and the amount charged. For AOs, receipts and invoices are the principal means of verifying what items were purchased and determining whether those items were for legitimate program purposes. According to GAO, many agencies have not ensured that supporting documentation is available and examined as part of the review and approval process. An audit of the Department of Housing and Urban Development's (HUD's) purchase card program found that the agency did not have adequate documentation for 47% of transactions auditors deemed questionableâpurchases from merchants that are not normally expected to do business with HUDâwhich meant auditors "were unable to determine what was purchased, for whom, and why." Similarly, an audit of the Veterans Health Administration's (VHA's) purchase card program estimated that $313 million of its transactions lacked key supporting documentation. One consequence of these weaknesses was that fraudulent and abusive transactions slipped through the review process unnoticed. For instance, GAO found that AOs at agencies across the government approved cardholder statements that included questionable transactions, such as purchases of jewelry, home furnishings, cruise tickets, electronics, and other consumer goods. At the Forest Service, one employee used her purchase card over a period of years to accumulate more than $31,000 in jewelry and electronics. Similarly, HUD cardholders spent $27,000 at department stores like Macy's and J.C. Penney in a single year. In one egregious case, a Federal Aviation Authority (FAA) employee had his statement approved even though it showed he violated agency policy by charging cash advances to his purchase cardâwhile at a casino. The lack of adequate oversight is also evident where AOs have approved duplicate transactionsâvendors charging the government twice for the same goods or servicesâand purchases made by someone other than the cardholder. One audit identified an estimated $177,187 in duplicate charges at one agency. An audit at FAA discovered that a cardholder had allowed unauthorized individuals to charge over $160,000 to her purchase card account. When an AO identifies unauthorized and duplicate transactions, the agency should use the process described in the SmartPay master contract to dispute the charges. When AOs fail to identify and dispute fraudulent charges, the government often pays them in full or fails to obtain a refund from the purchase card vendor. Inconsistent Program Monitoring GAO further found that many agencies failed to monitor and evaluate the effectiveness of their purchase card controls, a responsibility that is often assigned to the APC. Monitoring and evaluation may include sampling purchase card transactions for potentially improper purchases, ensuring purchase card policies are being properly implemented across the agency or component, and assessing program results. These duties are often unfulfilled. At FAA, for example, an audit found that APCs "generally were not" utilizing available reports to detect misuse and fraud, nor was the headquarters APC taking steps to assess the overall program. Similarly, an audit of the Forest Service purchase card program found that the agency's APCs failed to review sampled transactions for erroneous or abusive purchases, as required by USDA regulations. Lack of Separation of Duties Agencies are required to ensure that key procurement functions are handled by different individuals. When having goods shipped, for example, the same person should not approve and place the order, or place the order and receive the goods. At many agencies, however, the cardholder may perform two functions that should be separated, which increases the possibility that items may be purchased for personal use, lost, or stolen. In March 2008, GAO estimated that agencies were unable to document separation of duties for one of every three purchase card transactions. Three Navy cardholders ordered and received $500,000 of goods for themselves with their purchase cards before getting caught. In this way, inadequate separation of duties may result in millions of dollars of items that cannot be located. Items that are easily converted to personal useâcommonly referred to as "pilferable property"âare particularly vulnerable to loss and theft. The Department of Education, for example, could not account for 241 personal computers bought with purchase cards at a cost of $261,500. An audit of the Federal Emergency Management Agency's (FEMA's) spending on items related to hurricane recovery found that $170,000 worth of electronics equipment acquired with purchase cards had not been recorded in FEMA's property records and could not be found. Inadequate Training Given the complexities of federal procurement policies and procedures, training on the proper use and management of purchase cards is considered an important component of an agency's internal control environment. Through training, cardholders, approving officials, and program managers learn their roles in ensuring compliance with applicable regulations and statutes, and in reducing the risk of improper card use. To that end, OMB requires all agencies to train everyone who participates in a purchase card program. Cardholder training covers federal procurement laws and regulations, agency policies, and proper card use. Approving officials are required to receive the same training as cardholders, in addition to training in their duties as AOs. Program managers are required to be trained in cardholder and AO responsibilities, as well as management, control, and oversight tools and techniques. In addition, all purchase card program participants are supposed to complete their initial training prior to appointment (e.g., becoming a cardholder, or being designated as an AO or program manager) and receive refresher training at least every three years. Agency audits published between 2002 and 2011 revealed a number of agencies had not fully implemented OMB's training requirements. A report by the inspector general at the Department of the Interior (DOI), for example, noted that DOI had not provided any training to its AOs, and concluded that many of those officials were not performing adequate reviews. The AOs themselves reportedly said that they did not know how to conduct a proper review of purchase card transactions, or how and why to review supporting documentationâboth subjects that are normally included in AO training. Similarly, an audit at FAA concluded that the agency's failure to provide refresher training for cardholders and AOs may have contributed to violations of statutory sourcing requirements. The failure to comply with sourcing statutes, which require agencies to purchase certain goods and services from specified vendor categories, may undermine congressional procurement objectives. The Javits-Wagner-O'Day Act (JWOD), for example, requires the government to buy office supplies and services from nonprofits that employ blind and disabled Americans. Cardholder failure to comply with the provisions of JWOD and other sourcing statutes was widespread enough that GAO estimated that tens of millions of dollars of purchase card transactions may have been conducted with vendors other than the ones Congress intended. Excessive Number of Cards Issued and High Credit Limits The number of cardholders grew from under 100,000 in FY1993 to 680,000 in FY2000. After auditors expressed concerns that the government had issued too many credit cards and provided excessive credit limitsâfactors that raised the risk of card misuseâOMB issued a memorandum in April 2002 that required agencies to examine the number of purchase cards they issued and to consider deactivating all cards that were not a "demonstrated necessity." That same year, provisions in the Bob Stump National Defense Authorization Act for FY2003 ( P.L. 107-314 ) required the Department of Defense (DOD) to establish policies limiting both the number of purchase cards it issued and the credit available to cardholders. These reforms contributed to a net decrease of 392,000 government purchase cards between FY2000 and FY2011. Despite this decrease in the total number of purchase card users, audits through FY2011 indicated that a number of agencies, including some with relatively large purchase card programs, did not establish appropriate controls over card issuance and credit limits. A 2006 GAO report on purchase cards at the Department of Homeland Security (DHS), for example, identified 2,468 cardholdersâabout 20% of all DHS cardholdersâwho had not made any purchases in over a year. Similarly, a congressionally directed audit of the Veterans Health Administration's (VHA's) $1.4 billion purchase card program found that VHA had issued cards with credit limits up to 11 times greater than the cardholders' historical spending levels, thereby exposing its program to unnecessary risk. Government Charge Card Abuse Prevention Act In response to these findingsâand evidence of similar abuse in agency travel card programsâCongress passed the Government Charge Card Abuse Prevention Act of 2012 (Charge Card Act; P.L. 112-194 ). The Charge Card Act established new internal control and reporting requirements for both purchase cards (Â§2), and travel cards (Â§3 and Â§4). The following paragraphs examine the Charge Card Act's requirements for purchase cards. Given that the Charge Card Act directly amends the U.S. Code, the requirements are identified by their location in code rather than in the act itself. Management of Purchase Cards Statutory purchase card requirements for civilian agencies are located in a different title of the U.S. Code than those for DOD. The Charge Card Act therefore amended Title 41 to codify the civilian agency provisions and Title 10 to codify DOD's provisions. In addition, the Charge Card Act establishes similar, but not identical, requirements for civilian agencies and DOD. Civilian Purchase Card Program Requirements Section (2)(a)(1) of the Charge Card Act added civilian agency purchase card requirements to Chapter 19, Title 41, of the U.S. Code. The new requirements are found in 41 U.S.C. Â§1909(a) through (e). 41 U.S.C. Â§1909(a), Required Safeguards and Internal Controls, requires executive agencies to ensure 1. There is a record of each cardholder that includes the applicable limitations on single transaction and total transactions. 2. Each cardholder is assigned an AO other than the cardholder. 3. Each cardholder and AO are responsible for (a) reconciling the charges appearing on the cardholder's statements with receipts and other supporting documentation; and (b) forwarding a summary report to the certifying official. 4. Any disputed charges or discrepancies between the cardholder's receipts and bank statements are resolved in accordance with the terms of GSA's purchase card contract with the card issuer. 5. Payments on purchase card accounts are made by the prescribed deadlines to avoid interest penalties. 6. Rebates and refunds are reviewed for accuracy and recorded as receipts. 7. Records of each transaction are retained in accordance with record disposition policies. 8. Periodic reviews are performed to determine whether each cardholder needs a purchase card. 9. Appropriate training is provided to each purchase card holder and official responsible for overseeing purchase cards in the agency. 10. The agency has specific policies that establish the number of purchase cards issued by various component organizations and the authorized credit limits for those cards. 11. The agency uses effective systems, techniques, and technologies to identify illegal, improper, or erroneous purchases. 12. The agency invalidates the purchase card of each employee who (a) ceases to be employed by the agency, immediately upon termination, or (b) transfers to another unit of the agency, immediately upon transfer, unless both units are covered by the same purchase card authority. 13. The agency takes steps to recover the cost of any illegal, improper, or erroneous purchases made with a purchase card, including through salary offsets. 41 U.S.C. Â§1909(b), Guidance, requires the OMB Director to provide guidance on the implementation of the requirements of subsection (a). 41 U.S.C. Â§1909(c), Penalties and Violations, requires agencies to establish adverse personnel actions or other punishment for cases where a cardholder violates agency purchase card policies or otherwise makes illegal, improper, or erroneous purchases with a card. The prescribed penalties must include dismissal of the employee, as appropriate. In addition, subsection (c) requires the head of each agency with more than $10 million in annual purchase card expenditures to issue a semiannual report on purchase card violations by its employees. The report must be issued jointly with the agency IG and submitted to the OMB Director. 41 U.S.C. Â§1909(d), Risk Assessment and Audits, requires the IG of each agency to 1. Conduct periodic assessments of agency purchase card programs to identify and analyze the risks of misuse and to use these assessments to develop an audit plan. 2. Audit purchase card transactions in order to identify potential misuse, patterns of misuse, and categories of purchases that could be made with another payment method in order to obtain lower prices. 3. Report the audit results to the agency head, along with recommendations for addressing any findings. 4. Report to the OMB Director on the implementation of the IG's recommendations. The OMB Director must compile the IG reports and transmit them to Congress and the Comptroller General. 41 U.S.C. Â§1909(e), Relationship to Department of Defense Purchase Card Regulations, clarifies that subsections (a) through (d) do not apply to DOD. DOD Purchase Card Program Requirements Section 2(a)(2) of the Charge Card Act amended 10 U.S.C. Â§2784(b) to codify new purchase card management requirements for DOD. Only the Charge Card Act requirements are listed below. 10 U.S.C. Â§2784(b)(2) requires DOD to ensure that each cardholder is assigned an approving official other than the cardholder. 10 U.S.C. Â§2784(b)(11) requires DOD to use effective systems, techniques, and technologies to prevent or identify potential fraudulent transaction. 10 U.S.C. Â§2784(b)(12) requires DOD to invalidate the purchase card of each employee who (a) ceases to be employed by DOD, immediately upon termination, (b) transfers to another unit of DOD, immediately upon transfer, unless both units are covered by the same purchase card authority, or (c) is separated or released from active duty or full-time National Guard duty. 10 U.S.C. Â§2784(b)(13) requires DOD to take steps to recover the cost of any illegal, improper, or erroneous purchases made with a purchase card, including through salary offsets. 10 U.S.C. Â§2784(b)(15) requires DOD to conduct periodic assessments of agency purchase card programs in order identify and analyze the risks of misuse and to report the results to the OMB Director and Congress. Implementation of the Charge Card Act In an effort to assess compliance with the Charge Card Act and other purchase card requirements across the government, GAO reviewed agency policies and data from FY2014 and released its analysis in 2017. More recently, the Council of the Inspectors General on Integrity and Efficiency (CIGIE) launched a coordinated audit of FY2017 purchase card data. The IGs at 20 agencies sampled a total of 1,255 "high-risk" transactionsâpurchases that potentially violated program policies or proceduresâfrom and shared their findings with CIGIE. By July 2018, the IGs had released their own reports and CIGIE had issued a summary and analysis of the findings. According to the CIGIE analysis, while there were few examples of fraud at the 20 agencies that participated in the project, nearly 51% (501) of the purchases sampled failed to comply with at least one purchase card policy. Patterns of noncompliance, with examples and analysis from the GAO report, individual agency audits, and the CIGIE report are discussed below. Purchases from Prohibited or Questionable Merchants Federal statutes and regulations, including agency-specific regulations, may prohibit the purchase of supplies and services from certain merchants or for certain items. USDA's purchase card guidance, for example, prohibits employees from using their purchase cards to obtain cash advances, bail bonds, personal items, or escort services. Agencies are often able to block merchants of certain categoriesâsuch as cruise lines or casinosâthrough the card-issuing bank. Some merchants, while not prohibited, are considered "questionable" because the items or services they offer may be allowed by agency policies, only if certain conditions are met. A purchase card may be used at a catering company, for example, but only under certain circumstances. Exceptions may be permitted for transactions with prohibited or questionable merchants under limited circumstances, but they must be justified by the cardholder and approved by the AO. The CIGIE analysis found that nearly 8% of high-risk purchases violated agency policies regarding prohibited or questionable merchants. Of those, nearly one-half lacked a written justification and/or authorization from the AO. An IG at one agency found an employee had used his purchase card to lease multiple vehicles at a cost of more than $5,700, and had provided no documentation to support the need and appropriateness of the transaction. In addition, agencies often failed to block merchant categories; one agency permitted transactions at seven types of prohibited businesses. Even when agencies attempted to block certain merchant categories, the technology did not work consistently. The EPA IG found 20 purchase card transactions at merchants who had been blocked by the agencyâthe cards had not been declined at the point of sale. Purchases from Nonmandatory Sources Purchase card holders are required to use mandatory sources to obtain needed supplies, when possible. Cardholders may use other sources only after confirming that the supplies or services they need are not available from a mandatory source. Auditors found, however, that in nearly one out of every five transactions (19.9%), cardholders purchased supplies and services from nonmandatory sources when they could have acquired them from mandatory sources. As a consequence, agencies not only failed to support certain categories of merchants that are mandatory sources, such as people who are blind or severely disabled, but they also may not obtain the best available price and thereby reduce potential cost savings. One cardholder, for example, purchased batteries from a nonmandatory source for $64.49 when they were available from a mandatory source for $11.42âmeaning the agency overpaid by 565%. Similarly, a cardholder at USDA purchased a used Global Positioning System (GPS) device from a nonmandatory source when a new model was available from a mandatory source for 15% less. Purchases from nonmandatory sources may be authorized if a written justification is provided, but cardholders frequently failed to provide one. Auditors at the Department of the Interior (DOI), for example, determined that cardholders had failed to justify purchases from nonmandatory sources 65% of the time. Overall, the CIGIE reported that cardholders provided no justification for a majority of transactions with nonmandatory sources. Other documentation policies were violated as well. The CIGIE data showed that 36% of nonmandatory purchases lacked a requisition request, 32% lacked evidence of receipt, and 6% had no documentation at all. Purchases that Included Sales Tax Generally, federal purchase card transactions are exempt from state and local sales taxes. Cardholders are responsible for ensuring that their transactions do not include sales taxes, and attempting to recover sales taxes if they are paid erroneously. IGs at 20 federal agencies found many instances of purchase card holders paying sales taxesâmore than 5% of the high-risk transactions in the CIGIE study included charges for sales taxes. Of the transactions that included sales tax, 58% lacked a written justification for paying the taxes and 20% of the items may not have been needed by the government. In many cases, agencies did not track whether the sales taxes were recovered. The USDA IG investigated seven transactions that included sales taxes, and none of the cardholders provided any documentation as to whether they attempted to recover the tax charges. An audit of NASA's purchase card transactions found that 7% of all high-risk purchases included sales tax, and that there was no evidence that the cardholders had attempted to reclaim those costs. While sales tax on any single transaction may not be considered significant, the cumulative amount in a fiscal year may total in the hundreds of thousands of dollars. The DOI IG obtained actual tax-paid data from the agency's purchase card program and determined that in the first six months of FY2017, DOI paid $338,212 in sales taxes involving 19,716 transactions. The IG for HUD found the agency expended $42,944 in sales tax on purchase card transactions during FY2018. Purchases that Split Transactions Each purchase card holder is assigned a dollar amount, or threshold, which may not be exceeded on a single transaction. This threshold is known as the single purchase limit. Cardholders may not split a large purchase into smaller ones in order to circumvent the single purchase limit. Auditors typically flag an account that shows multiple purchases from the same vendor on the same day where the total costs exceed the cardholder's single purchase limitâthis pattern is often associated with split transactions. The CIGIE report estimated that 6.6% of all high-risk transactions involved split transactions. The USDA IG, for example, identified a series of transactions on the same day, with the same vendor, for the same product, where the sum of the charges was more than double the cardholder's single purchase limit. Similarly, the NASA IG determined that an employee had tried to circumvent the single transaction limit by making three purchases from the same vendor on the same day. Auditors at the Social Security Administration (SSA) identified split transactions in 6.5% of its sample. The agency suggested that its staff lacked the time to investigate these purchases and determine if they were inappropriate. Implications for Agency Internal Controls Although the CIGIE initiative did not assess the implementation status of every requirement in the Charge Card Act, the IGs' findings indicated weaknesses remain in many agencies' internal controls. In particular, the audit results showed that AOs did not adequately monitor cardholder purchases; employee training on purchase card policies and procedures is insufficient; and agency policies and procedures have gaps. Lack of Adequate Oversight from AOs The Charge Card Act required agencies to strengthen AOs' capacity to monitor cardholder activity. AOs play a central role in preventing and detecting purchase card misuse, as they review cardholder statements to verify any suspicious or questionable transactions. In addition, AOs reconcile transaction records with supporting documentation to ensure that all purchases were appropriate. Audit findings highlighted the ongoing need for AOs to carefully review cardholder transactions. Many transactions that violated agency purchase card policies had not been reviewed and approved by an AO. GAO found that 11% of all the transactions it sampled from FY2014 had not been reviewed and approved by an AO. Similarly, the CIGIE report found that 44% of the transactions involving questionable or prohibited sources and 38% of split transactions had not been reviewed by the AO. These charges may have been questioned had the AOs thoroughly reviewed the purchases. In many cases, AOs approved transactions that lacked complete supporting documentation. GAO estimated that 22% of all purchase card transactions in FY2014 lacked complete documentation. IGs reported that 59% of the purchases that violated agency policies on the use of mandatory sources lacked written justification, as did 58% of the purchases that violated policies prohibiting the payment of sales taxes. In many cases, AOs approved transactions where there was no documentation that the goods or services had been received. The CIGIE report estimated that of the total number of transactions that violated an agency purchase card policy, 27% were approved without a receipt. Lack of Proper Training The Charge Card Act specifies that agencies are to ensure that cardholders and AOs receive appropriate training on their duties. IGs found that at many agencies, purchase card training programs did not cover some policies or refresher training had not occurred within the past three yearsâconditions which are inconsistent with OMB training requirements. Auditors considered the lack of proper training to be a significant weakness with wide-ranging effects. As the EPA IG's office wrote, "cardholder noncompliance primarily resulted from ineffective training and/or a lack of monitoring and control activities." The CIGIE report found, for example, that agency training programs often lacked adequate explanations of the rules governing split transactions, which meant that AOs did not know how to properly identify such purchases and cardholders were unaware that split purchases were violations of policy. The NASA IG recommended that the agency revise its purchase card training program to emphasize minimum documentation requirements, which constituted NASA's largest category of policy violations. Multiple agencies were unable to provide complete training records. The HUD IG found, for example, that the agency had not maintained records of the cardholders and managers who had completed the required training, as did the IG at the Small Business Administration (SBA). Lack of Clear and Complete Policies Agencies develop their own policies to implement government-wide and agency-specific purchase card requirements. The CIGIE report found that agency guidance was often unclear. Consequently, cardholders and managers did not always understand and properly follow purchase card policies. The IG at the Department of State recommended that the agency reissue its purchase card guidance to specify the frequency with which "refresher training" must be completedâa policy which was inconsistently represented at different components. The NASA IG linked one particular weaknessâthe absence of supporting documents for purchase card transactionsâto agency guidance, which was unclear about the document requirements for purchases below $500. The EPA IG recommended that the agency revise its guidance on the use of mandatory sources to make it easier to understand. More than 39% of EPA's noncompliant transactions were related to the inappropriate use of nonmandatory sources. In some cases, agency policies did not provide sufficient information about purchase card requirements. GAO found that several agencies did not require someone other than the cardholder to receive purchases. In addition, the CIGIE report found that while split transactions were a common violation, many agencies "lacked the policies necessary to identify split purchases." The USDA IG identified 1,410 transactions in FY2018 where the agency paid sales taxes and could not determine if any efforts had been made to recover those charges. The IG wrote that This occurred because USDA does not have a policy requiring cardholders to document reasons for paying or attempting to recover sales tax, such as documenting on the receipt or using the AXOL system to describe the transaction. As a result, cardholders are improperly paying sales tax and not documenting why sales taxes were paid or if recovered, making it difficult for approving officials to determine why State and local sales taxes were paid or if any recovery was attempted. Auditors at EPA determined that the agency did not have adequate controls over its purchase card program, in part because the agency lacked a specific policy for the appropriate number of cardholders needed to make purchases at its various components. Concluding Observations Oversight of agency purchase card programs is limited by the availability of data. While the CIGIE report identified areas where implementation of the Charge Card Act is incomplete, not all agencies had provided data and the data provided did not reflect or represent all of the law's requirements. Moreover, implementation of the Charge Card Act is ongoing and some agencies may have already addressed the weaknesses identified in the CIGIE initiative, which analyzed FY2017 data. Going forward, Congress has the option of requesting a study of the implementation of the Charge Chard Act. If GAO were to examine implementation of the Charge Card Act, it would possibly be able to use more recent data and it could target agencies with the highest risk of card misuse, as determined by dollar volume or history of violations, among other criteria. GAO might be asked to evaluate specific requirements, particularly in areas that were cited by auditors prior to the Charge Card Act. Have agencies implemented policies that require separation of duties? Have agencies established appropriate dollar thresholds for various categories of cardholders? Are agencies invalidating purchase cards when an employee terminates employment or is transferred to another component? The CIGIE report noted another potential weaknessâapproximately 8.6% of the high-risk transactions sampled involved purchase card activity on closed accounts. The extent of agency compliance with these and other purchase card requirements will not be known without additional, timely information. In addition to agency efforts, an evaluation of the effectiveness of SmartPay bank services and tools might be useful. As noted, agencies have reported that merchant block codes do not always prevent transactions from being approved at prohibited merchants. In addition, GAO found that SmartPay banks did not always retain records for the amount of time required by their contracts, in part due to confusion over which records were considered part of the transaction. An evaluation of bank services might identify additional issues that need to be addressed. It also might include a comparison of the technologies different agencies utilize and discuss what benefits they have realized. Given the potential for technology to enhance oversight, reduce administrative burden, and mitigate the risk of improper purchases, an assessment of SmartPay bank services may help agencies identify potentially useful technologies they have not yet incorporated into their charge card programs.