Report 96041 Summary - July 2000
California State University:
While Its System of Direct Vendor Payments Should Continue, Its Credit Card Program Could Benefit From Better Controls
RESULTS IN BRIEF
The State Controller's Office (controller's office) normally handles payments to vendors on behalf of state agencies. However, a state law effective January 1, 1997, permits the California State University (CSU) to pay its vendors directly through December 31, 2001. CSU requested this authority so it could cut costs by reducing the time the controller's office and CSU employees spend preparing and reviewing invoices, taking advantage of prompt-payment discounts, and using vendors that offer better pricing. In its analysis supporting the change in law, CSU estimated that direct payment of vendors would save it approximately $1.2 million annually in better prices and processing costs.
The law that allows CSU to pay its vendors directly also requires the Bureau of State Audits to evaluate CSU's system and report findings and recommendations to the Legislature no later than January 1, 2001. Our review found few problems, all of which were isolated rather than systemic. We reviewed 350 payments made during 1997, 1998, and 1999 and found that overall the payments were appropriate, properly documented, and supported. The most prevalent problem-the use of photocopied invoices rather than originals-occurred in only 8 (2 percent) of the 350 transactions we examined. Although we found few errors with payments made by check, we identified more problems with payments made by state-issued credit cards.
CSU also gives credit cards known as PRO-Cards to certain employees for official purchases. It does this to streamline the procurement process and to purchase low-value items economically. However, due to weak internal controls-specifically, a lack of clear policies and insufficient monitoring and enforcement-cardholders sometimes were able to use the credit cards to make questionable or improper purchases. Inconsistent review of credit card purchases by approving officials and accounting and purchasing staff allowed cardholders, on occasion, to purchase alcohol, flowers for other employees, and other questionable items without consequences. Additionally, there was insufficient documentation to verify that 13 percent of the PRO-Card purchases we reviewed were appropriate. We further observed that some campuses have stronger internal controls for PRO-Card use than other campuses have. The CSU chancellor's office and campuses could learn from each other's best practices.
To ensure that the vendor payment system is efficiently administered, the Legislature should enact legislation that allows CSU to continue to pay its vendors directly rather than requiring it to submit claim schedules to the controller's office for review and payment.
To discourage the purchase of personal or inappropriate items, the chancellor's office and the campuses should prohibit purchases such as alcohol, flowers, or other items that could be used for personal benefit, unless the purchase is preapproved and the cardholder demonstrates it meets CSU's mission.
CSU approving officials should ensure that PRO-Card policies are followed and that card purchases are sufficiently supported. They should take appropriate action when staff violate policies.
To improve the overall quality and consistency of internal controls over PRO-Cards, the chancellor's office and campuses should review and consider implementing each other's best practices.
CSU agrees with our findings and recommendations. However, CSU did not address each of the recommendations, stating only that it is certain that our recommendations will help it to administer the PRO-Card program. Therefore, we look forward to receiving its 60-day, six-month, and one-year responses to the audit to assess steps taken towards implementing our recommendations.