2015-01 Performance Audit Report: County of Hawai'i's Purchasing Card (pCard) Program

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In Brief Background In 2001, the State of Hawai`i's State Procurement Office (SPO) established the Purchasing Card Program (pCard program) to improve efficiency, flexibility, and convenience when buying goods and services. The County of Hawaii adopted the State's program in 2003 and it is administered by the County's Department of Finance and coordinated with the State Procurement Office. Both state and county policies limit types of purchases paid with a pCard. In calendar year 2014, the County of Hawaii used approximately 236 purchase cards spending $1.15 million. We initially reviewed 570 transactions totaling $94,036.42 from 2014. During the course of our audit, we identified transactions that required us to expand our initial audit testing to include an additional 362 transactions totaling $68,576.71 from 2009-2015. Why we did this audit This performance audit was undertaken to evaluate if the program's internal controls were adequate to reduce the risk of fraud and misuse of purchasing cards and to identify potential areas for improvement. The audit also looked at pCard transactions to see if they were in compliance with county and state laws and regulations, county policies, and industry best practices. We initiated the audit, as we believe purchase cards are an inherently high-risk method for purchasing, due to the highly decentralized nature of the transactions, the number of active cardholders, and the amount of annual activity. EMM What we found The County of Hawai`i's pCard program includes several industry best practices. This design has resulted in the program generally being used appropriately. The majority of the departments we reviewed clearly demonstrated the legitimate department purpose of the pCard transactions and the benefit to the County and taxpayers. However, our audit did identify 164 transactions totaling $29,961.41 that did not follow county policy, had a questionable public purpose, and may have violated state law. Furthermore, some transactions were not reimbursed timely. Gaps in existing policy and procedures should be addressed and program oversight could be improved to help prevent and detect any future inappropriate transactions. Management has generally agreed with the recommendations in this report. Their complete response to this audit can be found on pages 18- 22: Management's Comments. The recommendations identify improvements for management to increase internal controls for County -issued purchasing cards. Our audit report offers recommendations designed to address these issues through: • Updating the County Code; • Treating all employees and departments fairly and equitably; • Updating pCard Policy and Procedures; • Strengthening monitoring practices to ensure expenditures are for a legitimate public purpose and demonstrate a clear benefit to the County and taxpayers; • Providing on-going training to departments; and • Using available technology from the card issuer to improve monitoring practices.