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Fiscal Waste? Priceless

Citing disaster relief, the limit on thousands of federal charge cards has been raised to $250,000 per purchase.

September 14, 2005|Steven L. Schooner | STEVEN L. SCHOONER is co-director of the government procurement law program at George Washington University Law School.

IMAGINE A charge card that permitted you to spend up to $250,000 per transaction, and you never see the bill. Sound exciting? Congress just put such cards into the pockets of government employees. That's not just foolish, it's irresponsible.

In last week's $51.8-billion emergency appropriation, Congress quietly raised the "micro-purchase threshold" to $250,000 for purchases relating to relief and recovery from Hurricane Katrina. That's a 100-fold increase on the typical $2,500 limit and a completely different animal from the $15,000 limit previously in place for disaster relief efforts. And don't assume that Congress intended this to help the government's professional buyers. The warranted, trained officials authorized to bind the government in contracts already enjoy the authority to make expedited purchases up to $250,000. Instead, the micro-purchase authority permits agencies to designate any employee, including, all too often, administrative support staff, to carry a government charge card.

To understand how cavalierly the government dispenses these cards, consider that, in fiscal year 2000, the number of government charge cards approached 700,000. Under congressional pressure, the government started cutting up cards. Yet, in fiscal year 2004, more than 300,000 government purchase cards remained in use.

Congress apparently assumed that agencies know how to ensure that these mega-cards would only be used for Katrina-related purchases, and the Office of Management and Budget has promised that agencies would use the cards responsibly.

How naive. A mountain of inspector general reports, Government Accountability Office studies and congressional hearings demonstrate that the government's management of its charge cards is abysmal. For the last decade, government agencies blindly chased rebates while ignoring the best practices of corporate charge card programs. Agencies affirmatively resisted investing in smart card technologies and transaction data mining.

Not surprisingly, numerous government employees misused their cards. At $250,000 a pop, the temptation may prove overwhelming. Moreover, this initiative's timing is shocking. Just last month, the White House issued long-overdue guidance titled "Improving the Management of Government Charge Card Programs." The guidance, effective beginning in the next fiscal year, mandates fundamental training and card-management policies, which should have been instituted long before the government issued hundreds of thousands of cards in the 1990s.

The stakes are high. During fiscal year 2003, with a micro-purchase limit of $2,500, the government's 26 million purchase card transactions cost more than $16 billion. Procurements between $2,500 and $25,000 accounted for another 10.5 million transactions worth $15 billion.

Rep. Henry Waxman (D-Los Angeles) estimates that, each year, up to $150 billion, and possibly $200 billion, worth of purchases could be swallowed by this authority. That might overstate the risk, but the potential is enormous.

In addition, the effect of this expanded purchasing authority on small businesses will be devastating. Small business currently receives slightly more than 20% of total federal procurement dollars, but the rate is much higher for smaller contracts. Paul Murphy of Eagle Eye, which tracks federal spending trends, estimates that small businesses receive between 60% and 65% of the federal procurement dollars awarded through contracts of less than $250,000. But the micro-purchase authority permits buyers to ignore small businesses. Anecdotal information and experience suggests that the lion's share of purchase card transactions benefit large businesses. That's not surprising, given the convenience offered by stores such as Wal-Mart, Staples, Home Depot and Best Buy. With the new threshold, maybe CarMax and Tiffany will join the club.

It's convenient to blame poor government performance on the procurement process. But it's just a scapegoat. Haste makes waste, and a charge card spending spree won't substitute for careful, thoughtful planning. Apparently we learned nothing from the Iraq procurement experience. No matter how fast we spend the money, a poorly planned reconstruction effort -- whether foreign or domestic -- won't get us our money's worth.

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