Mr. Chairman. Thank you for inviting me to testify at this hearing. As usual, this Subcommittee is performing the very important job of overseeing the workings of the federal government. If only more Committee Chairmen took that part of their job as seriously as you do.
I am the Executive Director of the Project On Government Oversight or POGO. Our organization investigates, exposes, and seeks to remedy systemic abuses of power, mismanagement, and subservience by the federal government to powerful special interests. Founded in 1981, POGO is a politically-independent, nonprofit watchdog that strives to promote a government that is accountable to the citizenry.
Today we are talking about waste, fraud, and abuse at the Department of Defense - the agency that can't account for one in four dollars it spends. I know defenders of DOD accounting procedures claim that this is an unfair criticism - that the missing $1.1 trillion is only a paper transaction. In these days of Arthur Anderson accounting - a firm, I might add that continues to consult for nearly every federal agency - my response is "show me the money." We have found that federal agencies are loathe to admit they're making a mess of things. The Pentagon must be forced to account for its expenditures of taxpayer dollars.
Thanks to the work of Senator Grassley, Chairman Horn, and the GAO, we have been made aware of the abuses of federal purchase cards, one of many federal dollar sinkholes at DOD. The GAO found that these purchase cards have been used to buy pizza, jewelry, personal phone calls, tires, and flowers at two San Diego Navy installations.
Despite the Pentagon's best efforts to pretend these were localized abuses, however, it is clear this is a systemic problem. Across the country, and in a different service - this time the Army - similar abuses have been uncovered. In January 2000, two enterprising reporters at the Fayetteville Observer sent Freedom of Information Act requests for the receipts of more than 330,000 government credit card purchases by Fort Bragg card holders. Among many others, they found charges of $981 for Atlanta Braves baseball tickets, $235 for Six Flags Magic Mountain tickets, and my personal favorite, $111 at Victoria's Secret.
Some may say that those who would commit fraud will do so regardless, but creating a system where the oversight is largely the honor system, is asking for trouble. One cardholder indicted for making over $17,000 in fraudulent personal transactions commented that illegal use of the credit cards was "too easy," and that she was the sole authorizer of card purchases.
We believe that, for the most part, the problem is not created by the existence of the purchase cards themselves, but with the reduced financial oversight that comes with "micropurchases" of $2,500 or less. However, most of these unaccountable micropurchases are made through the use of these credit cards. According to the Federal Acquisition Regulation "micro-purchases may be awarded without soliciting competitive quotations if the contracting officer . . . considers the price to be reasonable." A system that allows for non-competitive purchases without checks and balances is simply a bad idea. Allowing hundreds of thousands of government card holders to make these purchases is lunacy.
In addition to the out-right fraud committed with the use of these purchase cards, a more damaging problem is the overcharging that also flies below the "micropurchasing" radar screen. A 2001 DoD IG audit of micropurchases at the Defense Supply Center in Philadelphia found that overcharging occurred in no fewer than 42% of the audit sample. Among the most egregious cases of overcharging was a $409 sink that should have been purchased for $37. Not surprisingly, both the GAO and the DoD IG have recommended strengthened internal controls to prevent such overcharging and fraud. When Uncle Sam is paying the credit card bill, there are currently far too few deterrents to keep a credit card holder from misusing these purchase cards.
Incredibly, in the face of these findings, another subcommittee of House Government Reform, the Subcommittee on Technology and Procurement Policy, held a hearing just last week on proposed legislation that would increase ten-fold the micro-purchase threshold from $2,500 to $25,000 with no additional financial oversight - section 221 of the Services Acquisition Reform Act. I can imagine the headlines that will soon follow if this bad bill becomes law.
This proposal to increase the government purchase card micropurchasing threshold is simply a continuation of the efforts by acquisition reform lobbyists to reduce financial oversight and limit the ability of competition and free market forces to lead to smarter government spending. We have found that so-called acquisition reforms, which have gained currency in the past decade, have repeatedly been detrimental to oversight and accountability of federal procurement - and have resulted in increased expense to taxpayers. Who benefits? The contractors who have drafted this legislation.
In our recent report "Pick Pocketing the Taxpayer: The Insidious Effects of Acquisition Reform," we cite numerous findings by government auditors that show these reforms have in fact been de-forms which limit competition and pretend prices for government purchases are determined by commercial forces when they are not. Mr. Chairman, I simply do not understand how we have come to a point where the founding principles of the American economy - free-market forces and fair and open competition - are valued only when they don't apply to the government.
The downward spiral away from competitive purchasing and toward more acquisition from the few remaining giant defense contractors is exacerbated by the use of government credit cards. The Office of Advocacy of the U.S. Small Business Administration is currently studying the effects of the use of government credit cards on small businesses. They have already concluded,
"(P)rior to acquisition reform, micro-purchases of $2,500 or less were reserved exclusively for small businesses. Today, these purchases are no longer reserved for small businesses because many of these purchases are being acquired through the use of the government credit card. Nearly one-half million Federal employees may use the government credit card with any authorized merchant. There are few if any acquisition controls on the use of the card. Other than convenience, there is very little data to reveal that the Government is getting the best price with the use of the credit card."
In conclusion, Mr. Chairman, I hope you are successful in persuading your colleagues that reduced procurement and financial oversight at the Pentagon is not in the American public's best interest.