Travel Cards
Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse Gao ID: GAO-03-147 December 23, 2002Poor oversight and management of DOD's travel card program has led to high delinquency rates, costing DOD millions in lost rebates and increased ATM fees. As a result, the Congress asked GAO to report on (1) the magnitude, impact, and cause of delinquencies, (2) the types of fraudulent and abusive uses of the travel card, and (3) the effectiveness of internal controls over DOD's travel card program. GAO previously reported on travel card management at the Army. This report focuses on travel card management at the Navy, including the Marine Corps.
As of March 31, 2002, over 8,000 Navy cardholders had $6 million in delinquent debt. For the prior 2 years, the Navy's average delinquency rate of 12 percent was nearly identical to that of the Army, which had the highest federal agency delinquency rate. Since November 1998, Bank of America had charged off nearly 14,000 Navy accounts totaling almost $17 million, and placed many more in a salary offset program similar to garnishment. During the period covered under this review, over 250 Navy personnel might have committed bank fraud by writing three or more nonsufficient fund (NSF) checks to Bank of America. In addition, as shown in the table, many cardholders abusively used the card for inappropriate purchases including prostitution and gambling without Navy management being aware of it. Many of these purchases were made when individuals were not on travel. The Navy's overall delinquency and charge-off problems were primarily associated with lower-paid, low-to midlevel enlisted military personnel. A significant relationship also existed between travel card fraud, abuse, and delinquencies and individuals with substantial credit history problems. For example, some cardholders had accounts placed in collections while others had filed bankruptcies prior to receiving the card. The Navy's practice of authorizing issuance of the travel card to virtually anyone who asked for it compounded these problems. We also found inconsistent documented evidence of disciplinary actions against cardholders who wrote NSF checks, or had their accounts charged off or put in salary offset. Further, almost one-half of these cardholders still had, as of August 2002, active secret or top-secret clearances. Other control breakdowns related to the Navy's failure to provide the necessary staffing and training for effective oversight, and infrequent, or nonexistent, monitoring of travel card activities. As a result of these and similar findings in the Army travel card program, the recently enacted fiscal year 2003 Defense Appropriations Act included provisions requiring the Secretary of Defense to establish guidelines and procedures for disciplinary actions and to deny issuance of the travel card to individuals who are not creditworthy.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-147, Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse
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United States General Accounting Office:
GAO:
Report to Congressional Requesters:
December 2002:
Travel Cards:
Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse:
GAO-03-147:
GAO Highlights:
Highlights of GAO-03-147, a report to Congressional Requesters.
Why GAO Did This Study:
Poor oversight and management of DOD‘s travel card program has led to
high delinquency rates, costing DOD millions in lost rebates and
increased ATM fees. As a result, the Congress asked GAO to report on
(1) the magnitude, impact, and cause of delinquencies, (2) the types of
fraudulent and abusive uses of the travel card, and (3) the
effectiveness of internal controls over DOD‘s travel card program. GAO
previously reported on travel card management at the Army. This report
focuses on travel card management at the Navy, including the Marine
Corps.
What GAO Found:
As of March 31, 2002, over 8,000 Navy cardholders had $6 million in
delinquent debt. For the prior 2 years, the Navy‘s average delinquency
rate of 12 percent was nearly identical to that of the Army, which had
the highest federal agency delinquency rate. Since November 1998, Bank
of America had charged off nearly 14,000 Navy accounts totaling almost
$17 million, and placed many more in a salary offset program similar to
garnishment.
During the period covered under this review, over 250 Navy personnel
might have committed bank fraud by writing three or more nonsufficient
fund (NSF) checks to Bank of America. In addition, as shown in the
table, many cardholders abusively used the card for inappropriate
purchases including prostitution and gambling without Navy management
being aware of it. Many of these purchases were made when individuals
were not on travel.
Table:
Category: Legalized brothels;
Examples of vendors: James Fine Dining, Chicken Ranch;
Number of transactions: 80;
Dollar amount: $13,250.
Category: Jewelry;
Examples of vendors: Kay Jewelers;
Number of transactions: 199;
Dollar amount: $20,800.
Category: Gentlemen's clubs;
Examples of vendors: Spearmint Rhino, Cheetah's Lounge;
Number of transactions: 247
Dollar amount: $28,700.
Category: Gambling;
Examples of vendors: Seinpost Holding;
Number of transactions: 80;
Dollar amount: $34,250.
Category: Cruises;
Examples of vendors: Carnival, Norwegian;
Number of transactions: 72;
Dollar amount: $38,300.
Category: Sports, theater, and
concert tickets;
Examples of vendors: New York Yankees, Ticketmaster;
Number of transactions: 502;
Dollar amount: $71,400.
[End of table]
The Navy‘s overall delinquency and charge-off problems were primarily
associated with lower-paid, low- to midlevel enlisted military
personnel. A significant relationship also existed between travel card
fraud, abuse, and delinquencies and individuals with substantial credit
history problems. For example, some cardholders had accounts placed in
collections while others had filed bankruptcies prior to receiving the
card. The Navy‘s practice of authorizing issuance of the travel card to
virtually anyone who asked for it compounded these problems.
We also found inconsistent documented evidence of disciplinary actions
against cardholders who wrote NSF checks, or had their accounts charged
off or put in salary offset. Further, almost one-half of these
cardholders still had, as of August 2002, active secret or top-secret
clearances. Other control breakdowns related to the Navy‘s failure to
provide the necessary staffing and training for effective oversight,
and infrequent, or nonexistent, monitoring of travel card activities.
As a result of these and similar findings in the Army travel card
program, the recently enacted fiscal year 2003 Defense Appropriations
Act included provisions requiring the Secretary of Defense to establish
guidelines and procedures for disciplinary actions and to deny issuance
of the travel card to individuals who are not creditworthy.
What GAO Recommends:
GAO makes numerous recommendations to the Navy in the areas of card
issuance, account monitoring, and disciplinary actions, including:
* evaluate the feasibility of deactivating all cards when the
cardholders are not on authorized travel;
* review the adequacy of program staffing;
* provide sufficient training to APCs to ensure proper oversight of the
travel card program, including effective monitoring for inappropriate
transactions; and;
* review security clearances of cardholders with financial problems.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-147].
To view the full report, including the scope and methodology, click on
the link above. For more information, contact Gregory Kutz at (202) 512-
9505 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Navy Has High Delinquency and Charge-off Rates but Recent Actions Have
Resulted in Some Improvements:
Potentially Fraudulent and Abusive Travel Card Activity:
Weak Overall Control Environment and Ineffective Travel Card Program
Controls:
Statistical Tests of Key Control Activities:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Background:
Travel Card Program Guidelines:
The Navy Travel Process:
Appendix II: Objectives, Scope, and Methodology:
Appendix III: Navy Major Command Delinquency Rates:
Appendix IV: Navy Personnel Grade, Rank, and Associated Basic Pay
Rates:
Appendix V: Comments from the Department of Defense:
Tables Table 1: Cumulative Charge-offs and Recoveries and Delinquencies
by Military Service:
Table 2: Outstanding Balance and Delinquency Rate as of March 31, 2002,
by Major Navy Commands:
Table 3: Examples of Potentially Fraudulent Activities:
Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001
through March 31, 2002:
Table 5: Examples of Abusive Travel Card Activity Where Accounts Were
Charged Off or Placed in Salary Offset:
Table 6: Examples of Abusive Activity Where the Cardholders Paid the
Bills:
Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at Navy
Sites Audited:
Table 8: Results of Testing of Key Internal Controls:
Table 9: Comparison of Number of Individually Billed Travel Cardholders
and Related Charges for DOD versus Total Federal Government Charges for
Fiscal Year 2001:
Table 10: Population of Fiscal Year 2001 Travel Transactions at Navy
Units Tested:
Table 11: Estimates of Fiscal Year 2001 Transactions That Failed
Control Tests for Approved Travel:
Table 12: Estimates of Fiscal Year 2001 Transactions That Failed
Control Tests for Accurate Travel Voucher Payments:
Table 13: Estimates of Fiscal Year 2001 Transactions That Failed
Control Tests for Timely Submission and Processing of Travel Vouchers:
Table 14: Navy Major Command Delinquency Rates (By Quarter) for the 2
Years Ending March 31, 2002:
Table 15: Navy Military Grades, Ranks, and Associated Average Basic Pay
Rates for Fiscal Year 2001:
Table 16: Marine Corp Military Grades, Ranks, and Associated Basic Pay
Rates for Fiscal Year 2001:
Table 17: Civilian Grades and Associated Basic Pay Rates for Calendar
Year 2001:
Figures:
Figure 1: Navy, Army, Other DOD, and Non-DOD Civilian Agencies Travel
Card Delinquency Rates for the 2-Year Period Ending March 31, 2002:
Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by
Military Grade and Civilian Populations as of September 30, 2001:
Figure 3: Navy Delinquency Rate by Military Grade and Civilian
Populations Compared to Navy‘s Average as of September 30, 2001:
Figure 4: Fiscal Year 2001 Navy Charge-offs by Military Grades and
Total Civilian Populations:
Figure 5: Navy Travel Card Charge-off and Recovery History from October
1, 2000, to March 31, 2002:
Figure 6: Overview Flowchart of the Navy Travel Process:
Figure 7: Travel Card Application:
Figure 8: Required DOD and Bank of America Delinquency Process
Management Actions:
[End of section]
United States General Accounting Office:
Washington, D.C. 20548:
December 23, 2002:
The Honorable Charles E. Grassley:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable Stephen Horn:
Chairman:
The Honorable Janice D. Schakowsky:
Ranking Minority Member:
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations:
Committee on Government Reform:
House of Representatives:
On October 8, 2002, we testified[Footnote 1] before the Subcommittee on
Government Efficiency, Financial Management and Intergovernmental
Relations, House Committee on Government Reform, on the results of our
audit of internal controls over travel activity at the Department of
the Navy (including the United States Marine Corps). During fiscal year
2001, the Navy had about 395,000 individually billed travel card
accounts and $510 million in related travel card charges. In contrast
to the purchase card program, where charges are billed directly to the
government for payment, the individually billed travel cardholder is
directly responsible for all charges incurred on his or her travel card
account and for remitting payments on the monthly bill to the card
issuer, Bank of America. The cardholder is expected to use the
government travel card only for valid expenses related to official
travel and to submit a properly documented voucher to get reimbursed
for valid expenses. The intent of the travel card program was to improve
convenience for the traveler and to reduce the government‘s costs of
administering travel (see app. I for additional background information
on the Navy‘s travel card program). While we support the use of a
travel card program to streamline the administration of official
government travel, it is important that agencies have adequate internal
controls in place to protect the government from fraud, waste, and
abuse.
This work was performed in response to your request for a comprehensive
examination of the Department of Defense‘s (DOD) and the military
services‘ purchase and travel card programs. We have previously reported
on the results of our Army travel card audit[Footnote 2] and will be
reporting on the results of our Air Force travel card audit. This
report provides details and results of our Navy travel card audit,
which was summarized in our recent testimony.
The objectives of our audit of the Navy‘s travel card program were to
determine, for fiscal year 2001 and the first 6 months of fiscal year
2002, (1) the reported magnitude and impact of delinquent and charged-
off Navy travel card accounts, along with an analysis of related causes
and DOD and Navy corrective actions, (2) whether indications existed of
potentially fraudulent and abusive activity [Footnote 3] related to the
Navy travel cards, and (3) the effectiveness of the overall control
environment and key internal controls for the Navy‘s travel program. To
achieve these objectives, we analyzed the Navy‘s account delinquency
and charge-off information and compared it to that of non-Navy DOD
components and other federal agencies. We also used data mining
techniques to review Navy transactions for potential fraud and abuse.
In addition, we evaluated the effectiveness of selected, specific
internal control policies, procedures, and activities at 3 Navy
installations, representing 3 of the Navy‘s 27 major commands.
[Footnote 4]
We selected the three installations we audited based on the relative
amount of travel card activity at the different Navy commands and of the
installations under these commands, the number and percentage of
delinquent accounts, and the number and percentage of charged-off
accounts. For these installations, we tested a statistical sample of
travel card transactions and conducted other audit work to evaluate the
design and implementation of key internal control procedures and
activities. Our statistical sample test results can be projected only
to the individual installations where we performed the testing and
cannot be projected to the command level or to the Navy as a whole.
Through auditing travel card transactions at the three installations
during fiscal year 2001, and data mining of transactions incurred
throughout the Navy during fiscal year 2001 and the first 6 months of
fiscal year 2002, we identified numerous examples of potentially
fraudulent and abusive travel card activity. However, our work was not
designed to identify, and we cannot determine, the extent of
potentially fraudulent and abusive activity. Appendix II provides
details on our scope and methodology.
We conducted our audit work from December 2001 through October 2002
in accordance with U.S. generally accepted government auditing
standards, and we performed our investigative work in accordance with
standards prescribed by the President‘s Council on Integrity and
Efficiency. We received written comments on a draft of this report from
the Under Secretary of Defense (Comptroller) dated December 5, 2002. We
addressed DOD‘s comments in the ’Agency Comments and Our Evaluation“
section and reprinted them in appendix V.
Results in Brief:
For fiscal year 2001, the Navy had significant breakdowns in internal
controls over individually billed travel cards. These breakdowns
contributed to the significant delinquencies and charge-offs of Navy
employee account balances and potentially fraudulent and abusive
activity related to the travel card. The breakdowns resulted primarily
from a weak control environment, flawed policies and procedures, and a
lack of adherence to valid policies and procedures.
Most Navy travel cardholders used the travel cards for authorized
official government travel expenses and paid the amounts owed to Bank of
America promptly. However, the Navy‘s average delinquency rate of about
12 percent over the last 2 years is nearly identical to the Army‘s,
which is the highest delinquency rate in the federal government, and
about 6 percentage points higher than that of federal civilian
agencies. In addition, from November 1998 through March 2002, Bank of
America charged off over 13,800 Navy travel card accounts totaling
about $16.6 million. The Navy‘s delinquency and charge-off problems are
primarily associated with low- to midlevel enlisted military personnel.
These delinquencies and charge-offs have cost the Navy millions of
dollars in lost rebates, higher fees, and substantial resources spent
pursuing and collecting on delinquent accounts. In response, in
November 2001, the Navy and DOD began offsetting wages of certain
military and civilian employees, as well as retirement benefits of
military retirees whose accounts were delinquent or had been charged
off. DOD and the Navy also encouraged increased use of the split
disbursement payment process, in which cardholders elected to have part
or all of their reimbursements sent directly to Bank of America for
payment of their travel card bills. These and other actions have begun
to significantly reduce the number and dollar value of charge-offs
during fiscal year 2002. However, these actions are primarily focused
on treating the symptoms, or ’back-end“ problems, such as delinquencies
and chargeoffs, rather than the ’front-end,“ or preventive controls,
such as the weak overall control environment and specific travel
program control weaknesses.
Our work identified numerous instances of potentially fraudulent and
abusive activity during fiscal year 2001 and the first 6 months of
fiscal year 2002. During this period, more than 250 Navy employees
might have committed bank fraud by writing 3 or more nonsufficient fund
(NSF) checks. In one case, a petty officer wrote 12 NSF checks,
totaling $61,000, to Bank of America. The government cards were also
used for numerous abusive transactions clearly not related to
government travel. As part of our statistical sampling work at three
audit sites, we projected that personal use of the travel cards in
fiscal year 2001 ranged from 7 percent at one Navy installation to 27
percent at another. Government travel cards were used for inappropriate
transactions at legalized brothels, gentlemen‘s clubs, cruise lines,
jewelry stores, and sporting and theatre venues. During the period
under audit, 50 Navy employees purchased more than $13,000 in
prostitution services from two known legalized brothels. An additional
137 individuals charged more than $29,000 at gentlemen‘s clubs, which
provide adult entertainment. Some of these individuals circumvented
their travel card cash limits by converting the card to cash or ’club
cash“ at these adult entertainment establishments and paying a
surcharge that was as high as 10 percent. To illustrate, one cardholder
charged $2,420 at one of these clubs in exchange for $2,200 in cash.
The $2,200 in cash and the 10 percent fee of $220 were processed as a
restaurant charge.
Another frequent form of abuse was the failure to pay the travel card
bill. Many individuals who used the cards for inappropriate purposes
also failed to pay their accounts. Others abused the travel card by
failing to pay charges associated with official government travel, even
though they had been reimbursed. However, we did not find documented
evidence of disciplinary actions against many Navy personnel who abused
the cards. Of the 10 individuals we reviewed who made improper charges
but paid their bills, only 1 had evidence of disciplinary action. In
addition, of the 57 individuals we reviewed who wrote NSF checks or
whose accounts were charged off or put in salary offset, 37 were
apparently not disciplined, and 27 still had active secret or top-
secret clearances as of August 2002. Navy personnel with security
clearances who have financial problems may pose security risks to the
Navy.
Our audit found that weaknesses in the Navy‘s overall control
environment, including a number of specific controls that were either
flawed in their design or in their implementation, are the root causes
of the Navy‘s inability to prevent and/or effectively detect the
numerous instances of potentially fraudulent and abusive travel card
related activity. During fiscal year 2001, management at the three
units we audited was primarily focused on delinquencies and did not
implement sufficient front-end controls to prevent severe credit
problems or promptly detect or prevent potentially fraudulent and
abusive activities. In general, the Navy did not provide an adequate
control infrastructure”primarily in the area of human capital”to manage
its travel card program and effectively prevent or provide for early
detection of travel card misuse. Agency program coordinators (APC), who
have the key responsibility for managing and overseeing travel
cardholders‘ activities, were given little opportunity to succeed. Some
were assigned APC responsibilities as collateral duties, while others
had oversight of a large number of cardholders”for example up to 6,000
cardholders for the APC at one installation. Many did not have adequate
time to follow up with delinquent cardholders and perform detailed
review of transaction activities. Others had not received adequate
training and were not proficient with the tools available for travel
card management. In fact, Bank of America data show that 23 percent of
APCs had never logged on to the Web-based system containing travel card
transaction data. In contrast, proactive actions of the APC at one Navy
site we audited contributed to that site‘s low delinquency rate.
Additionally, critical weaknesses existed in other controls the Navy
relied on to manage its travel card program. For example, many problems
we identified were the results of ineffective controls over issuance of
the travel cards. Although DOD‘s policy allows exemptions from the use
of travel cards for certain groups or individuals, we found that,
without exception, any Navy personnel who requested the card were
authorized to have one, regardless of credit history. We found that
individuals who had histories of prior credit problems tended to be
those who committed travel card fraud and abuse. The prior and current
credit problems we identified for Navy travel cardholders included
charged-off credit cards, bankruptcies, judgments, accounts in
collections, and repeated writing of NSF checks.
As a result of similar findings from our work on the Army and Navy
travel card programs, the Congress has taken actions in the fiscal year
2003 Defense Appropriations Act, Public Law 107-248, to require the
Secretary of Defense to establish guidelines and procedures for
disciplinary actions to be taken against cardholders for improper,
fraudulent, or abusive use of the government travel card and to deny
issuance of government travel cards to individuals who are not
creditworthy. Further, in the Bob Stump National Defense Authorization
Act for Fiscal 2003, (Public Law 107-314), the Congress authorized the
Secretary of Defense to require the split disbursement procedure for
all travel cardholders, and clarified the authority of the Secretary to
offset delinquent travel card debt against the pay or retirement
benefits of DOD civilian and military employees and retirees. In this
report, we provide additional recommendations to the Navy to strengthen
the overall control environment for its travel card program and improve
specific internal controls. Our recommended actions are in the areas of
card issuance, monitoring, review, and travel voucher and payment
processes.
In written comments on a draft of this report, DOD concurred with 21 of
our 23 recommendations and described actions completed, under way, or
planned. DOD partially concurred with our recommendations regarding
(1) establishing Navy-wide procedures requiring that supervisors and
commanding officers notify the APCs of actions taken with respect to
delinquent cardholders and (2) having commanders at each unit identify
causes of the high error rate related to travel voucher review and
provide refresher training to voucher examiners and auditors. However,
DOD‘s planned actions, if effectively implemented, should
satisfactorily address the intent of these two recommendations.
Navy Has High Delinquency and Charge-off Rates but Recent Actions Have
Resulted in Some Improvements:
The Navy‘s delinquency rate[Footnote 5] was slightly lower than the
Army‘s, which is the highest delinquency rate in the federal
government. Cumulative Navy charge-offs since the inception of the Bank
of America travel card program in November 1998 were nearly $16.6
million. As discussed in further details in the following sections of
this report, weaknesses in the Navy‘s overall control environment and a
lack of front-end controls over travel card issuance and use
exacerbated the Navy‘s delinquency problems. Without proper management
control, demographics such as the age and pay rates of Navy personnel
also contributed to delinquencies and charge-offs. These problems have
led to contract modifications with Bank of America that resulted in the
Navy, the federal government, and the taxpayers losing millions of
dollars in rebates, higher fees, and substantial resources spent
pursuing and collecting on past due accounts.
DOD and the Navy have taken a number of positive actions to address the
Navy‘s high delinquency and charge-off rates, and results from the
first half of fiscal year 2002 showed a significant drop in charged-off
accounts. Most of this reduction could be attributed to a salary and
military retirement offset program, which began in November 2001. DOD
and the Navy also encouraged cardholders to voluntarily use the split
disbursement payment process (split disbursements) to direct that a
portion or all of their reimbursements be sent directly to the bank for
payment of their travel card bills. The Navy also increased management
attention and focus on the delinquency issue. However, except for split
disbursements, the Navy‘s actions primarily address the symptoms of
delinquency and charge-offs after they had already occurred. Control
weaknesses remain in the front-end management of the travel card
program, such as issuing the cards and overseeing the proper use of the
cards.
The Navy‘s Delinquencies and Charge-offs:
Over the last 2 years, the Navy‘s delinquency rate fluctuated from 10
to 18 percent and on average was 5.6 percentage points higher than
other non-Army DOD components and 6 percentage points higher than non-
DOD federal civilian agencies. As of March 31, 2002, over 8,000 Navy
cardholders had collectively $6 million in delinquent debt. As discussed
below, the nature of the Navy‘s mission, which requires personnel in
certain Navy commands to travel often for training and preparation for
deployment, contributes, at least in part, to the Navy‘s high
delinquency rate. Figure 1 compares delinquency rates among the Navy,
Army, other DOD, and the 23 largest civilian agencies. [Footnote 6]
Figure 1: Navy, Army, Other DOD, and Non-DOD Civilian Agencies Travel
Card Delinquency Rates for the 2-Year Period Ending March 31, 2002:
[See PDF for image]
This figure is a multiple line graph depicting delinquency rates for
Navy, Army, Other DOD, and Non-DOD civilian agencies.
The lines represent the percentage of delinquency rate for each group
during the time period of third quarter, 2000 through second quarter,
2002.
Source: Bank of America and General Services Administration data.
[End of figure]
Since Bank of America took over the DOD travel card contract on
November 30, 1998, Bank of America has charged off over 13,800 Navy
travel card accounts with nearly $16.6 million of bad debt. Table 1
provides a comparison of cumulative charge-offs, recoveries, [Footnote
7] and delinquencies by military service as of March 31, 2002.
Table 1: Cumulative Charge-offs and Recoveries and Delinquencies by
Military Service (Dollars in millions):
DOD service: Navy;
Cumulative charge-offs[A]: $16.6;
Cumulative recoveries[A]: $6.2;
Net cumulative charge-offs[A]: $10.4;
Delinquencies as of March 31, 2002[B]: $6.0.
DOD service: Army;
Cumulative charge-offs[A]: $33.5;
Cumulative recoveries[A]: $12.9;
Net cumulative charge-offs[A]: $20.6;
Delinquencies as of March 31, 2002[B]: $8.4.
DOD service: Air Force;
Cumulative charge-offs[A]: $11.6;
Cumulative recoveries[A]: $4.7;
Net cumulative charge-offs[A]: $6.9;
Delinquencies as of March 31, 2002[B]: $5.0.
Source: GAO analysis of Bank of America and General Services
Administration data.
[A] Cumulative charge-offs and recoveries are for November 1998 through
March 2002.
[B] Delinquencies represent amounts not paid within 60 days of the
travel card monthly statement closing date, which is the cutoff date
for charges to be included in the monthly statement. Under the terms of
the travel cardholder‘s agreement with Bank of America, payment of the
travel card statement is due to Bank of America within 25 to 30 days of
the statement closing date.
Age and Pay Grade Are Correlated to Delinquency and Charge-off
Problems:
Our analysis showed a correlation between certain demographic factors
and high delinquency and charge-off rates. Available data showed that
the travel cardholder‘s rank or grade (and associated pay)[Footnote 8]
is a strong predictor of delinquency problems. As shown in figure 2,
the Navy‘s delinquency and charge-off problems are primarily associated
with low- and mid-level enlisted military personnel grades E-1 to E-6,
with relatively low incomes and little experience in handling personal
finances.
Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by
Military Grade and Civilian Populations as of September 30, 2001:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
approximated data (dollars in millions):
Military grade: E1-3;
Delinquent: approximately $1 million;
Outstanding balance: approximately $2 million.
Military grade: E4-6;
Delinquent: approximately $4 million;
Outstanding balance: approximately $20 million.
Military grade: E7-9;
Delinquent: approximately $1 million;
Outstanding balance: approximately $6 million.
Military grade: W01-05;
Delinquent: approximately 0;
Outstanding balance: approximately $1 million.
Military grade: O1-3;
Delinquent: approximately $0.5 million;
Outstanding balance: approximately $4 million.
Military grade: O4-6;
Delinquent: approximately $.05 million;
Outstanding balance: approximately $6 million.
Military grade: O7-10;
Delinquent: approximately 0;
Outstanding balance: approximately $0.25 million.
Military grade: Civilian;
Delinquent: approximately $1 million;
Outstanding balance: approximately $15 million.
Source: GAO analysis of Bank of American data.
[End of figure]
Available data indicate that military personnel grades E-1 (seaman
recruit in the Navy or private in the Marine Corps) to E-6 (petty
officer first class in the Navy or staff sergeant in the Marine Corps)
account for about 78 percent of all Navy military personnel. These
enlisted military personnel have basic pay levels ranging from $12,000
to $27,000. These individuals were responsible for 40 percent of the
total outstanding Navy travel card balances as of September 30, 2001.
Figure 3 compares the delinquency rates by military rank and civilian
personnel to the Navy‘s average delinquency rate as of September 30,
2001. As shown, the delinquency rates were as high as 34 percent for E-
1 to E-3 military personnel and 20 percent for E-4 to E-6 military
personnel, compared to the Navy‘s overall delinquency rate of 12
percent. These rates were markedly higher than the rates for officers,
which ranged from a low of 1 percent for O-7 to O-10 (admirals in the
Navy or generals in the Marine Corps) to a higher 8 percent for O-1 to
O-3 (ensign to lieutenant in the Navy or second lieutenant to captain
in the Marine Corps). These rates were also substantially higher than
that of Navy civilians, which at 5 percent was comparable with the
federal civilian agencies rate shown in figure 1.
Figure 3: Navy Delinquency Rate by Military Grade and Civilian
Populations Compared to Navy‘s Average as of September 30, 2001:
[See PDF for image]
This figure is a horizontal bar graph depicting the following data:
Rank: O7-10;
Delinquent amount as a percentage of outstanding balance: 1%.
Rank: Civilian;
Delinquent amount as a percentage of outstanding balance: 5%.
Rank: O4-6;
Delinquent amount as a percentage of outstanding balance: 5%.
Rank: O1-3;
Delinquent amount as a percentage of outstanding balance: 8%.
Rank: W01-05;
Delinquent amount as a percentage of outstanding balance: 11%.
Rank: E7-9;
Delinquent amount as a percentage of outstanding balance: 11%.
Rank: Average Navy;
Delinquent amount as a percentage of outstanding balance: 12%;
Rank: E4-6;
Delinquent amount as a percentage of outstanding balance: 20%.
Rank: E1-3;
Delinquent amount as a percentage of outstanding balance: 34%.
Source: GAO analysis of Bank of America data.
[End of figure]
The delinquency rate of military personnel E-4 to E-6 in particular had
an important negative impact on the Navy‘s delinquency rate.
Specifically, these are petty officers in the Navy and corporals to
staff sergeants in the Marine Corps. Pay levels for these personnel,
excluding supplements such as housing, ranged from approximately
$18,000 to $27,000. These individuals also traveled often. As shown by
Bank of America data, personnel E-4 to E-6 accounted for 36 percent of
the total Navy outstanding balance, which was higher than the
outstanding balance of all other military and civilian personnel. This
combination of high outstanding balance and high delinquency rate
largely explained the high Navy delinquency rate.
As shown in figure 4, charged-off amounts for military personnel grades
E-1 to E-6 during fiscal year 2001 totaled more than $3.6 million. This
represented 72 percent of the almost $5 million in total Navy charge-
offs during fiscal year 2001.
Figure 4: Fiscal Year 2001 Navy Charge-offs by Military Grades and
Total Civilian Populations (dollars in millions):
[See PDF for image]
This figure is a vertical bar graph depicting the following
approximated data:
Grade/classification: E1-E3;
Charge-off: approximately $0.8 million.
Grade/classification: E4-E6;
Charge-off: approximately $2.75 million.
Grade/classification: E7-E9;
Charge-off: approximately $0.2 million.
Grade/classification: O1-O10;
Charge-off: approximately $0.1 million.
Grade/classification: WO-1 to WO-5;
Charge-off: approximately $0.025 million.
Grade/classification: Civilian;
Charge-off: approximately $0.5 million.
Source: GAO analysis of Bank of America data.
[End of figure]
According to Navy representatives, these individuals often had little
experience handling personal resources. Although their basic pay rates
are supplemented with housing and food allowances, the low salaries may
not permit payment of excessive personal charges on travel cards. If
these individuals get into financial difficulty, they have fewer
resources at their disposal to pay their travel card balances in full
every month. Also, if cardholders in these lower grade levels do not
receive their travel card reimbursements promptly because of either
delays in filing their vouchers or voucher processing, they may lack
the financial resources to make timely payments on their travel card
accounts. In addition, as discussed later in this report, the Navy did
not exempt personnel with poor credit histories from required use of
travel cards. Consequently, these low- and midlevel enlisted military
personnel are often issued travel cards even though some may already be
in serious financial trouble and, therefore, may not have been
appropriate credit risks. Lack of adequate training and the failure to
adequately monitor travel card use may also have exacerbated the
delinquency rates for these individuals.
Delinquency Rates Vary Across Navy Commands:
Navy delinquency rates also varied widely across commands. Table 2
shows the outstanding balance and delinquency rates of major Navy
commands as of March 31, 2002. As shown, the delinquency rates as of
March 31, 2002, ranged from 22 percent for the Naval Reserve Force to as
low as 2 percent for four commands, including the Naval Air Systems
Command. Table 2 also shows that high credit card activity was not
necessarily associated with high delinquency rates. In fact, some Navy
commands with high credit card activity also had low delinquency rates.
Table 2: Outstanding Balance and Delinquency Rate as of March 31, 2002,
by Major Navy Commands:
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Naval Reserve Force;
Outstanding balance as of 3/31/2002: $9,751,402;
Delinquency rate: 22%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Naval Sea Systems Command;
Outstanding balance as of 3/31/2002: $8,058,740;
Delinquency rate: 3%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: U.S. Atlantic Fleet;
Outstanding balance as of 3/31/2002: $5,447,558;
Delinquency rate: 14%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Naval Air Systems Command;
Outstanding balance as of 3/31/2002: $4,363,939;
Delinquency rate: 2%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: U.S. Pacific Fleet;
Outstanding balance as of 3/31/2002: $4,096,954;
Delinquency rate: 12%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: U.S. Marine Corps Forces Pacific;
Outstanding balance as of 3/31/2002: $2,631,628;
Delinquency rate: 16%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: U.S. Marine Corps Forces Atlantic;
Outstanding balance as of 3/31/2002: $2,330,153;
Delinquency rate: 17%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Chief of Naval Operations[A];
Outstanding balance as of 3/31/2002: $1,944,676;
Delinquency rate: 4%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Space and Naval Warfare Systems Command;
Outstanding balance as of 3/31/2002: $1,726,445;
Delinquency rate: 2%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Marine Forces Reserve;
Outstanding balance as of 3/31/2002: $1,657,040;
Delinquency rate: 18%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Bureau of Medicine and Surgery;
Outstanding balance as of 3/31/2002: $1,452,869;
Delinquency rate: 8%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Chief of Naval Education and Training[A];
Outstanding balance as of 3/31/2002: $1,258,219;
Delinquency rate: 7%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Bureau of Naval Personnel;
Outstanding balance as of 3/31/2002: $1,272,454;
Delinquency rate: 11%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Naval Special Warfare Command;
Outstanding balance as of 3/31/2002: $1,264,380;
Delinquency rate: 9%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Naval Facilities Engineering Command;
Outstanding balance as of 3/31/2002: $1,182,028;
Delinquency rate: 2%.
Major Navy command with outstanding balance of $1 million or over as of
3/31/2002: Office of the Undersecretary of the Navy[A];
Outstanding balance as of 3/31/2002: $1,094,918;
Delinquency rate: 2%.
Source: GAO calculation based on information from Bank of America.
Note: Table shows only commands with outstanding balances greater than
$1 million as of March 31, 2002. Delinquency rates shown represent the
total amount delinquent (amounts not paid within 61 days of the travel
card monthly statement closing date) as a percentage of total amount
outstanding for all travel card accounts in the command at that point
in time.
[A] These units had outstanding balances of $1 million or more, but are
not considered major commands.
[End of table]
The six major commands with the highest delinquency rates”ranging from
22 to 12 percent”as of March 31, 2002, were the Naval Reserve Force, the
U.S. Atlantic Fleet, the U.S. Pacific Fleet, U.S. Marine Corps Forces
Pacific, U.S. Marine Corps Forces Atlantic, and Marine Forces Reserve.
Navy officials expressed the belief that demographics and logistics were
important contributing factors to these high delinquency rates.
According to Navy officials, Atlantic and Pacific fleet personnel, as
well as Marine Corps Forces Atlantic and Pacific, travel frequently for
training and preparation for deployment. Because they are always on the
move, these individuals might not be filing vouchers and making
payments in a timely manner. In addition, fleet personnel often consist
of low- and mid-level recruits, demographics which, as discussed
previously, are a contributing factor to the high delinquency rate.
Navy officials attributed the delinquency problems with the reserve
forces to logistics of a different kind. Reserve forces are spread
throughout the country and report to duty only once a month. Reservists
typically fill out their vouchers when they return home and then mail
them to the processing centers, sometimes weeks after the training.
According to Navy officials, the high delinquency rates in the reserve
forces could be attributed partly to the fact that some had not
received travel reimbursement by the time their bills became
delinquent.
In contrast, some commands, such as Naval Sea Systems Command and
Naval Air Systems Command, had large numbers of travel card accounts
and high travel card activity, yet low delinquency rates. According to
Navy officials, this is because personnel in these commands are
typically civilians, are older and more mature, and therefore are
better at managing their finances. These demographic factors, coupled
with the fact that these sites typically have full-time APCs and a
better control environment, may explain why their delinquency rates are
lower than the Navy average, and sometimes even lower than the average
rate for federal civilian agencies.
The case study sites we audited followed the pattern described above.
For example, at Camp Lejeune, a principal training location for Marine
air and ground forces, over one-half of the cardholders are enlisted
personnel. Representative of the Navy‘s higher delinquency rate, Camp
Lejeune‘s quarterly rates over the 18 months ending March 31, 2002,
averaged over 15 percent. As of March 31, 2002, the delinquency rate at
this site was nearly 10 percent. In contrast, at Puget Sound Naval
Shipyard, where the mission is to repair and modernize Navy ships,
civilian personnel earning more than $38,000 a year made up 84 percent
of total government travel cardholders and accounted for 86 percent of
total fiscal year 2001 travel card transactions. This site‘s
delinquency rate had declined to below 5 percent as of March 31, 2002.
High Delinquency and Charge-off Rates Have Resulted in Increased Costs
to the Government:
High delinquencies and charge-offs have resulted in increased costs to
the Navy. In fiscal year 2001, DOD entered into an agreement with Bank
of America to adjust the terms of its travel card contract. DOD agreed
to increased fees and a change in rebate calculation. These changes
have cost the Navy an estimated $1.5 million in lost rebates on
combined individually and centrally billed accounts in fiscal year 2001
alone and will cost, in addition, about $1.3 million in automated
teller machine (ATM) fees annually. Other costs, such as the
administrative burden of monitoring delinquent accounts, are harder to
measure, but no less real. For example, employees with delinquent
accounts must be identified, counseled, and disciplined, and their
account activity must be closely monitored. In addition, employees with
financial problems who have access to sensitive data may pose a
security risk, as discussed later in this report.
Dispute between Contractor and DOD:
Unexpectedly high defaults by DOD‘s travel cardholders, including the
Navy‘s, resulted in a 5-month legal dispute with Bank of America over
the continuation of the travel card contract. In 1998, under the
provisions of the General Services Administration‘s (GSA) master
contract with Bank of America, DOD entered into a tailored task order
with Bank of America to provide travel card services for a period of 2
years, ending November 29, 2000. Under the terms of the task order, DOD
had three 1-year options to unilaterally renew the contract. On
September 29, 2000, prior to the expiration of the initial task order,
DOD gave notice to Bank of America that it intended to exercise its
option to extend the task order for an additional year. In November
2000, Bank of America contested the provisions of the DOD task order
with the GSA contracting officer. Bank of America claimed that the task
order was unprofitable because of required ’contract and program
management policies and procedures“ associated with higher-than-
anticipated credit losses, because an estimated 43,000 DOD employees
had defaulted on more than $59 million in debts. Consequently, in April
2001, the master contract and the related DOD-tailored task order for
travel card services were renegotiated. Specifically, Bank of America
was able to reduce its financial risk by instituting additional fees,
such as higher cash advance and late payment fees; offsetting credit
losses against rebates, as explained later; facilitating the collection
of delinquent and charged-off amounts through salary and military
retirement pay offset; and participating in split disbursements, in
which the government sends part or all of the travel voucher
reimbursements directly to Bank of America.
Effect of Increased Fees:
One of the terms of the renegotiated task order between Bank of America
and DOD was that, effective August 10, 2001, the travel card cash
advance fee would be increased from 1.9 percent to 3 percent, with a
minimum fee of $2. The Navy reimburses all cash advance fees [Footnote
9] related to authorized cash withdrawals. We estimate that this
contract modification will result in approximately $1.3 million of
increased costs to the Navy each year. Our estimate was made by
applying the new fee structure that went into effect in August 2001 to
cash advances made throughout fiscal year 2001 to ascertain how much
more Bank of America would have charged. Other fee increases agreed to
in the renegotiation, such as the fee for expedited travel card
issuance, will also result in additional costs to the Navy.
Delinquent Account Payment Affects Rebates to the Navy:
The GSA master contract modification also changed the rebate
calculation, making it imperative that the Navy improve its payment
rates to receive the full benefits of the program. Under the GSA master
contract, credit card companies are required to pay a quarterly rebate,
also known as a refund, to agencies and GSA based on the amount charged
to both individually billed and centrally billed cards. The rebate to
the agency is reduced, or eliminated, if significant numbers of an
agency‘s individual cardholders do not pay their accounts on time.
Specifically, credit losses or balances that reach 180 calendar days
past due reduce the rebate amounts. Effective January 2001, the
contract modification changed the way that rebates are calculated and
how credit losses are handled. If the credit loss of an agency‘s
individually billed travel card accounts exceeds 30 basis points” or 30
one-hundredths of a percent (.003)”of net sales[Footnote 10] on the
card, the agency is assessed a credit loss fee, or rebate offset,
against the rebate associated with both individually billed and
centrally billed travel card accounts.
This credit loss fee, or rebate offset, which resulted solely from
individually billed account losses, significantly affected the amount
of rebates that the Navy received as a result of combined individually
and centrally billed net sales in fiscal year 2001. In fiscal year
2000, the Navy received approximately $2.0 million in rebates from the
travel card program. In contrast, in fiscal year 2001, the Navy
collected only about $800,000 of the $2.3 million in rebates that we
estimated it would have received, based on fiscal year 2001 net sales,
had individually billed account payments been timely. This is due to a
contract modification in January 2001, which changed the way rebates
were calculated. In fact, during the first quarter of fiscal year 2001,
the Navy collected almost $470,000 in total rebates from Bank of
America. However, rebates for the last three quarters affected by the
contract change had dwindled to $351,000.
Navy and DOD Have Taken Steps to Reduce Delinquencies and Chargeoffs,
but Additional Actions Are Needed:
The Navy has taken a number of positive actions to address its high
delinquency and charge-off rates, and results from the first half of
fiscal year 2002 showed a significant drop in charged-off accounts.
Most of this reduction may be attributed to a salary and military
retirement payment offset program”similar to garnishment”started in
November 2001. Other Navy actions included increasing the use of split
disbursements, in which Navy disburses a portion of a travel
reimbursement directly to the bank (instead of sending the entire
amount of the reimbursement to the cardholder), and increased
management attention and focus on delinquency. Except for split
disbursements, the actions primarily addressed the symptoms, or back-
end result, of delinquency and chargeoffs after they have already
occurred. As noted in the remaining sections of this report, the Navy
has significant control weaknesses, particularly with respect to the
front-end management of the travel card program, such as issuing the
cards and overseeing their proper use, which it has not yet effectively
addressed.
Charge-offs Have Decreased:
As shown in figure 5, the amount of charge-offs has decreased
substantially at the same time that recoveries have increased. At the
start of fiscal year 2001, the charge-off balance greatly exceeded the
recovery amount. Starting in the third quarter of fiscal year 2001, the
amount charged off started to decline and by the quarter ended December
31, 2001, the amount charged off was about the same as the recovery
amount. By March 31, 2002, recoveries for the first time exceeded the
charged-off amount.
Figure 5: Navy Travel Card Charge-off and Recovery History from October
1, 2000, to March 31, 2002 (Dollars in millions):
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
approximated data:
Fiscal year: 2001, first quarter;
Charge-offs: approximately $1.3 million;
Recoveries: approximately $0.7 million.
Fiscal year: 2001, second quarter;
Charge-offs: approximately $1.5 million;
Recoveries: approximately $0.8 million.
Fiscal year: 2001, third quarter;
Charge-offs: approximately $1.0 million;
Recoveries: approximately $0.7 million.
Fiscal year: 2001, fourth quarter;
Charge-offs: approximately $0.6 million;
Recoveries: approximately $0.4 million.
Fiscal year: 2002, first quarter;
Charge-offs: approximately $0.4 million;
Recoveries: approximately $0.3 million.
Fiscal year: 2002, second quarter;
Charge-offs: approximately $0.1 million;
Recoveries: approximately $0.7 million.
Note: The charge-off and recovery history is for Navy only and does not
include the Marine Corps. The recovery data for the Marine Corps were
not available.
Source: GAO analysis of Bank of America data.
[End of figure]
Salary and Military Retirement Offset Program:
Starting in fiscal year 2002, DOD began to offset the retirement
benefits of military retirees and the salaries of certain civilian and
military employees against the delinquent and charged-off balances on
travel card accounts. The DOD salary offset program[Footnote 11]
implements a provision of the Travel and Transportation Reform Act of
1998 (TTRA) [Footnote 12] that allows any federal agency, upon written
request from the travel card contractor, to collect by deduction from
the amount of pay owed to an employee (or military member) any amount
of funds the employee or military member owes on his or her travel card
as a result of delinquencies not disputed by the employee. [Footnote
13] The salary and military retirement offset program was implemented
DOD-wide.
DOD‘s offset program came into being as part of the task order
modification. From April to August 2001, DOD and Bank of America
worked together to establish program protocols. Starting in August 2001,
Bank of America sent demand letters to cardholders whose accounts were
more than 90 days delinquent. The Defense Finance and Accounting
Service (DFAS) processed the initial offsets of delinquent accounts in
October 2001 in the various DOD pay systems. The first deductions were
made from the November pay period and paid to Bank of America starting
in December 2001. Bank of America can also use the offset program to
recover amounts that were previously charged off. January 2002 was the
first month in which Bank of America requested offsets for accounts that
had already been charged off.
The offset program works as follows. When an account is 90 days
delinquent, Bank of America is to send a demand letter to the individual
cardholder requesting payment in full within 30 days. The demand letter
specifies that salary offsets will be initiated if payment is not made
in full within 30 days. The cardholder may negotiate an installment
agreement or dispute the charges with the bank. The cardholder has a
right to review all records such as invoices and to request a hearing
if the bank‘s disposition of the dispute is not satisfactory.
After the 30 days have elapsed, if payment is not made and the
cardholder does not dispute the debt, the bank includes the account in
the list of accounts requested for offset. Individuals in the following
categories may not be accepted for offset.
* Civilian employees in bargaining units that have not agreed to the
salary offset program cannot be accepted. According to a DFAS official,
as of July 2002, 1,002 of 1,227 DOD bargaining units have agreed to
participate in the program.
* Individuals with debts to the federal government or other garnishments
already being offset at 15 percent of disposable pay are considered to
be in protected status and are not eligible for the offset program.
* Individuals who cannot be located in the various payroll and military
retirement (i.e., active, reserve, retired military, or civilian)
systems cannot be accepted for offset.
* Civilian retirees were not subject to offset during the period
covered by our audit. The authorizing statutes for both the Civil
Service Retirement System [Footnote 14] and the Federal Employees
Retirement System [Footnote 15] specify that retirement benefits may be
offset only to the extent expressly authorized by federal statutes.
TTRA, Section 2, provides authority to offset salaries of ’employees“
of agencies but does not provide such authority for civilian employee
retiree annuitants. However, Public Law 107-314 authorizes the
Secretary of Defense to offset delinquent travel card debt against the
retirement benefits of DOD civilian retirees.
Once an individual is accepted for offset, the related debt is
established in the appropriate pay system and DFAS can deduct up to 15
percent of disposable pay. Disposable pay is defined in GSA‘s Federal
Travel Regulation [Footnote 16] as an employee‘s compensation remaining
after the deduction from an employee‘s earnings of any amounts required
by law to be withheld (e.g., tax withholdings and garnishments). The
amounts collected are paid to the bank monthly for military personnel
and retirees and biweekly for civilian personnel.
According to DFAS, from October 2001 through July 2002, Bank of America
referred 53,462 DOD-wide cases with debt of approximately $77.5 million
to DOD for offset. DOD accepted and started offset for 74 percent of the
cases and 69 percent of the debt amounts referred. The number and debt
amount of Navy-specific cases forwarded by Bank of America were not
available. From November 2001 through July 2002, DFAS collected
approximately $5.2 million from active and retired Navy military
personnel through the offset program. Although DFAS was unable to break
down the amount of civilian offset by military service, the amount
collected from all DOD employees was $1.6 million during the same
period. The salary and retirement offset program is expected to
continue to reduce the amount of accounts that need to be charged off,
at the same time increase the amount of recoveries.
Split Disbursement Payment Process:
DOD has recently encouraged cardholders to make greater use of split
disbursements, a payment method by which cardholders elect to have all
or part of their reimbursement sent directly to Bank of America. A
standard practice in many private sector companies, split disbursements
have the potential to significantly reduce delinquencies. However,
during the period covered by our audit no legislative authority existed
requiring the use of split disbursements by Navy employees. This
practice was voluntary, resulting in a low participation rate. As shown
by Bank of America data, only 14 percent of fiscal year 2001 travel
card payments were made using this method. Although payments made
through split disbursements have increased during the first three
quarters of fiscal year 2002, they made up only 25 percent of all
travel card payments.
Our report on the Army travel card program included a matter for
congressional consideration that would authorize the Secretary of
Defense to require that employees‘ travel allowances be used to pay the
travel card issuers directly for charges incurred using the travel
card. [Footnote 17] We believe that this action would help to reduce
DOD‘s travel card delinquency and chargeoff rates. Public Law 107-314
authorized the Secretary of Defense to require split disbursement for
all DOD travel cardholders.
Management Focus and Attention:
The Navy has also initiated actions to improve the management of travel
card usage. The Navy‘s three-pronged approach to address travel card
issues is as follows: (1) providing clear procedural guidance to APCs
and travelers, available on the Internet, (2) providing regular
training to APCs, and (3) enforcing proper use and oversight of the
travel card through data mining to identify problem areas and abuses.
Noting that the delinquency rates for many Navy commands still exceeded
the Navy‘s established goal of no more than 4 percent, the Assistant
Secretary of the Navy, Financial Management and Comptroller, in April
2002 issued a memorandum on travel card control procedures and
policies. This memorandum addressed a number of travel card issues,
including (1) requiring that the travel card be deactivated when
employees are separated from the service, (2) changing the definition
of infrequent travel to traveling four times or less a year, (3)
lowering the delinquency goal to 4 percent, (4) deactivating all cards
whenever the cardholders are not scheduled for official travel, and (5)
requiring spot checks for travel card abuse. The Assistant Secretary
also required all units with delinquency rates higher than 4 percent to
take immediate actions to lower the delinquency rates and to report on
these results within 30 days of receiving the memorandum.
Further, the DOD Under Secretary of Defense (Comptroller) created a
DOD-wide Charge Card Task Force in March 2002 to address management
issues related to DOD‘s purchase and travel card programs. The task
force issued its final report on June 27, 2002. We have reviewed the
report and believe that many of the actions proposed by the task force
will improve the controls over the travel card program. Important task
force recommendations include canceling inactive accounts and expanding
the salary offset program. However, actions to implement additional
front-end or preventive controls, such as strengthening the critical
role of the APCs and denying cards to individuals with prior credit
problems, were not addressed in the report. We believe that strong
preventive controls will be critical if DOD is to effectively address
the high delinquency rates and charge-offs, as well as the potentially
fraudulent and abusive activity discussed in this report.
Potentially Fraudulent and Abusive Travel Card Activity:
Our review identified numerous instances of potentially fraudulent and
abusive activity associated with the Navy‘s travel card program during
fiscal year 2001 and the first 6 months of fiscal year 2002. For
purposes of this report, cases where cardholders wrote three or more
NSF checks or wrote checks on closed accounts to pay their Bank of
America bill were characterized as potentially fraudulent.
We considered abusive travel card activity to include (1) personal use
of the cards”any use other than for official government
travel”regardless of whether the cardholders paid the bills and (2)
cases in which cardholders were reimbursed for official travel and then
did not pay Bank of America, thus benefiting personally. In addition,
some of the travel card activity that we categorized as abusive may be
fraudulent if it can be established that the cardholders violated any
element of federal or state criminal codes. Failure to implement
controls to reasonably prevent such transactions can increase the
Navy‘s vulnerability to additional delinquencies and chargeoffs.
Potentially Fraudulent Transactions:
Our review identified numerous examples of potentially fraudulent
activity where the cardholders wrote checks against closed checking
accounts or repeatedly wrote NSF, or ’bounced,“ checks as payment for
their travel card accounts. Knowingly writing checks against closed
accounts or writing three or more NSF checks may be bank fraud under 18
U.S.C. 1344. [Footnote 18] Further, it is a violation of the Uniform
Code of Military Justice (UCMJ)[Footnote 19] article 123a when a
soldier makes, draws, or utters (verbally authorizes) a check, draft,
or order without sufficient funds and does so with intent to defraud.
During fiscal year 2001 and the first 6 months of fiscal year 2002, in
total over 5,100 Navy cardholders wrote NSF checks, or made NSF
payments by phone, as payment to Bank of America for their travel card
bills. Of these, over 250[Footnote 20] might have committed bank fraud
by writing three or more NSF checks to Bank of America during either
fiscal year period. Table 3 shows the 10 cases we selected for review
where the cardholders wrote three or more NSF checks to Bank of
America, and their accounts were charged off or placed in salary offset
or another fixed pay agreement due in part to repeated use of NSF
checks. We have referred the cases in which potential bank fraud has
occurred to the Navy Criminal Investigation Service for further review.
Table 3: Examples of Potentially Fraudulent Activities:
Cardholder: 1;
Total amount (number) of NSF checks: $61,004 (12);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): SO – $20,535;
Grade: E-5;
Unit: U.S. Pacific Fleet, Honolulu;
Credit history problems: Multiple bankruptcies and numerous charge-offs
prior to card issuance;
Documented disciplinary action: Administrative counseling/warning.
Cardholder: 2;
Total amount (number) of NSF checks: $37,150 (15);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): FP – $4,094;
Grade: E-6;
Unit: Naval Recruiting, Omaha;
Credit history problems: Multiple judgments and merchandise
repossession prior to card issuance;
Documented disciplinary action: None.
Cardholder: 3;
Total amount (number) of NSF checks: $23,894 (9);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): SO – $11,310;
Grade: E-6;
Unit: U.S. Marine Corps, Marine Aircraft Group 12, Japan;
Credit history problems: Charged-off and referral to collection prior
to card issuance; one account in collection and one charged off prior
to card issuance;
Documented disciplinary action: Dishonorable discharge for misconduct
directly related to travel card misuse.
Cardholder: 4;
Total amount (number) of NSF checks: $22,873 (11);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $2,579;
Grade: E-4;
Unit: U.S. Transportation Command, Illinois;
Credit history problems: None prior to card issuance;
Documented disciplinary action: Prosecution pending for travel card
misuse and absence without leave.
Cardholder: 5;
Total amount (number) of NSF checks: $20,052 (9);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $4,589; account in SO;
Grade: E-5;
Unit: Mobile Inshore Undersea Warfare, San Jose;
Credit history problems: Charged-off account prior to card issuance;
delinquencies since card issuance;
Documented disciplinary action: None; promotion to E-6 after charge-
off; pending investigation for desertion, theft, and issuance of NSF
checks.
Cardholder: 6;
Total amount (number) of NSF checks: $18,148 (13);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $7,229;
Grade: GS-11;
Unit: Navy Inventory Control Point – Mechanicsburg;
Credit history problems: Bankruptcies and charge-offs prior to card
issuance; delinquencies since card issuance;
Documented disciplinary action: None; cardholder retired.
Cardholder: 7;
Total amount (number) of NSF checks: $10,908 (16);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $1,381;
Grade: E-5;
Unit: Navy Seals, San Diego;
Credit history problems: None prior to card issuance; delinquencies
since card issuance;
Documented disciplinary action: Administrative action related to abuse
of the government travel card; honorable discharge.
Cardholder: 8;
Total amount (number) of NSF checks: $8,231 (6);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): SO – $4,530; account paid off Sept. 2002;
Grade: E-8;
Unit: U.S. Marine Corps, Camp Lejeune;
Credit history problems: Charged-off account prior to card issuance;
Documented disciplinary action: Counseling; article 15 pending for
credit card misuse.
Cardholder: 9;
Total amount (number) of NSF checks: $5,785 (4);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $4,923;
Grade: E-4;
Unit: Navy and Marine Corps Reserve Center, Bessemer;
Credit history problems: Bankruptcies and judgment prior to card
issuance; serious delinquencies since card issuance;
Documented disciplinary action: None.
Cardholder: 10;
Total amount (number) of NSF checks: $3,250 (12);
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $5,347; account in FP;
Grade: E-4;
Unit: Naval Air Warfare Center, Patuxent River;
Credit history problems: Bankruptcy and charged-off account prior to
card issuance; delinquencies since card issuance;
Documented disciplinary action: None.
Source: GAO analysis.
Note: NSF includes accounts with nonsufficient funds, closed accounts,
accounts not located, and stop payment orders.
[End of table]
The 10 cardholders in table 3 wrote a total of 107 checks that were
returned by Bank of America because they were NSF, drawn on closed
accounts, and/or had payments stopped for other reasons. These checks
totaled over $211,000. Eight of the 10 cardholders had significant
credit problems prior to card issuance, such as bankruptcies, charged-
off credit card accounts, accounts in collection, and serious
delinquencies. Two of the cardholders did not have credit problems
prior to card issuance; however, one of these two experienced serious
financial problems after issuance of the Bank of America travel card.
The following provides illustrative detailed information on two of
these cases.
* Cardholder #1 was a petty officer second class with the U.S. Pacific
Fleet in Honolulu. The cardholder wrote 12 NSF checks totaling more
than $61,000 for payment on his Bank of America travel card account.
These checks were written partly to cover charges incurred while on
official travel, but records showed that the cardholder made many more
charges at convenience stores, restaurants, gas stations, and travel
agencies in the vicinity of his hometown. An examination of the
cardholder‘s credit history also revealed that, prior to receiving his
government travel card in May 2000, the cardholder had multiple
chargeoffs, in addition to filing personal and business bankruptcies.
Despite his financial history, the cardholder was issued a standard
card, instead of a restricted card with a lower credit limit.
From March 2001 through December 2001, the cardholder wrote about
one NSF check a month, with three of these NSF checks, totaling more
than $12,500, written in the month of December 2001 alone. Financial
industry regulations require that an account be credited immediately
upon receipt of a check. Consequently, when Bank of America posted
the NSF checks, the account appeared to have been paid, which
provided credit to the cardholder to make additional purchases. Thus,
by writing NSF checks, and submitting NSF payments over the phone,
which Bank of America had to credit to his travel card account, the
petty officer was able to, in effect, increase his credit limit to more
than $20,000”a practice known as ’boosting.“ He used each of these
successive increases in his effective credit limit to charge additional
items on his travel card. Thus, despite the repeated NSF checks written
throughout 2001, the individual was able to continue making charges
through December 2001.
The cardholder‘s APC did not know of the NSF check problems until Bank
of America notified him of the fact. Because the cardholder was
considered a good sailor, he was given administrative counseling for
potential fraud and abuses related to his travel card. The terms of the
administrative counseling specified that the cardholder would face an
administrative discharge in case of continued abuse of the credit card
or any other misconduct.
* Cardholder #5 was a petty officer (E-5) assigned to the Naval Reserve
Forces in San Jose, California. Prior to receiving the Bank of America
travel card in June 2000, the individual had a number of unpaid accounts
with other creditors. The individual was given a restricted card, which
should have been issued in ’inactive“ status and only activated when
needed for travel. However, records showed that the cardholder was
able to make about 130 separate purchases and ATM transactions in the
vicinity of his hometown while not on official travel. These
transactions totaled more than $5,000. In addition, from September 2000
through December 2001, the cardholder wrote eight NSF checks and one
stop payment check totaling $20,052 to Bank of America. During fiscal
year 2001, not a single valid payment was made to Bank of America for
this account. The cardholder had an unpaid balance of $4,589 at the
time his account was charged off in July 2002. The cardholder also had
three other unrelated charge-offs to accounts other than the government
travel card in July 2002.
We found no documentation that disciplinary actions had been taken
against the cardholder. The APC assigned to the cardholder told us that
he had received little training for his APC responsibility, which is a
collateral duty. He recalled advising the cardholder once to pay off his
travel card balance. Although a Bank of America official informed us
that access to NSF check information had been available to APCs since
2000, the APC said he was not aware of the NSF checks written by the
cardholder. The APC also informed us that he was not aware that the
cardholder‘s account was charged off until he was notified by Bank of
America. Despite having his Bank of America account charged off and
other financial problems, the cardholder was recently promoted from
petty officer second class (E-5) to petty officer first class (E-6).
[Footnote 21] His account had been referred to salary offset.
Abusive Travel Card Use:
We found instances of abusive travel card activity by Navy cardholders
that covered charges for a wide variety of personal goods and services,
including prostitution, jewelry, gentlemen‘s clubs, gambling, cruises,
and tickets to sporting and other events. Further, we found abusive card
activities where (1) cardholders who were reimbursed for official
travel did not pay Bank of America and (2) cardholders used the card
for personal charges and failed to pay Bank of America.
Abusive Card Activities Related to Inappropriate Purchases:
We found that the government cards were used for numerous abusive
transactions that were clearly not for the purpose of government
travel. As discussed further in appendix II, we used data mining tools
to identify transactions we believed to be potentially fraudulent or
abusive based upon the nature, amount, merchant, and other identifying
characteristics of the transactions. Through this procedure, we
identified thousands of suspect transactions. Government travel cards
were used for purchases in categories as diverse as legalized
prostitution services, jewelry, gentlemen‘s clubs, gambling, cruises,
and tickets to sporting and other events. In addition, we found
evidence that cardholders circumvented prescribed ATM procedures by
obtaining cash at adult entertainment establishments.
Table 4 illustrates a few of the types of abusive transactions and the
amounts charged to the government travel card in fiscal year 2001 and
the first 6 months of fiscal year 2002 that were not for valid
government travel. The number of instances and amount shown include
cases in which the cardholders paid the bills and where they did not
pay the bills.
Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001
through March 31, 2002:
Dollar amount:
Category: Legalized brothels;
Examples of vendors: James Fine Dining, Chicken Ranch;
Number of transactions: 80;
Dollar amount: $13,250.
Category: Jewelry;
Examples of vendors: Kay Jewelers, Zales Jewelers;
Number of transactions: 199;
Dollar amount: $20,800.
Category: Gentlemen's clubs;
Examples of vendors: Spearmint Rhino, Mr. Magoo's Lounge, Cheetah's
Lounge;
Number of transactions: 247;
Dollar amount: $28,700.
Category: Gambling, including Internet;
Examples of vendors: www.proccy2, Seinpost Holding, GCA (cash advance);
Number of transactions: 80;
Dollar amount: $34,250.
Category: Cruises;
Examples of vendors: Carnival, Disney, Norwegian, Princess;
Number of transactions: 72;
Dollar amount: $38,300.
Category: Entertainment (sporting events, theatre, concerts);
Examples of vendors: NY Yankees, LA Lakers, Atlanta Braves, Phantom of
the Opera, other Ticketmaster purchases;
Number of transactions: 502;
Dollar amount: $71,400.
Source: GAO analysis of Bank of America data.
[End of table]
We found that Navy cardholders used their government travel cards to
purchase prostitution services. We arrived at this information by first
identifying that two institutions frequented by Navy cardholders were
legalized brothels in Nevada. Based on a price list provided by one of
the brothels, we eliminated transactions that were most likely for bar
charges and determined that 50 cardholders used their government travel
card to purchase over $13,000 in prostitution services. These charges
were processed by the brothels‘ merchant bank, and authorized by Bank of
America, in part because a control afforded by the merchant category
code (MCC), [Footnote 22] which identifies the nature of the
transactions and is used by DOD and other agencies to block improper
purchases, was circumvented by the establishments. In these cases, the
transactions were coded to appear as restaurant and dining or bar
charges. For example, the merchant James Fine Dining, which actually
operates as a brothel known as Salt Wells Villa, characterizes its
services as restaurant charges, which are allowable and not blocked by
the MCC control. According to one assistant manager at the
establishment, this is done to protect the confidentiality of its
customers. Additionally, the account balances for 11 of the 50
cardholders purchasing services from these establishments were later
charged off or put into salary offset. For example, one sailor, an E-2
seaman apprentice, charged over $2,200 at this brothel during a 30-day
period. The sailor separated from the Navy, and his account balance of
more than $3,600 was eventually charged off.
We also found instances of abusive travel card activity where Navy
cardholders used their cards at establishments such as gentlemen‘s
clubs, which provide adult entertainment. Further, these clubs were
used to convert the travel card to cash by supplying cardholders with
actual cash or ’club cash“ [Footnote 23] for a 10 percent fee. For
example, we found that an E-5 second class petty officer circumvented
ATM cash withdrawal limits [Footnote 24] by charging, in a single
transaction, $2,420 to the government travel card and receiving $2,200
in cash. Subsequently, the club received payment from Bank of America
for a $2,420 restaurant charge. Another cardholder, an E-7 chief petty
officer, obtained more than $7,000 in cash from these establishments.
For fiscal year 2001 and through March 2002, 137 Navy cardholders made
charges totaling almost $29,000 at these establishments.
These transactions represented abusive travel card use that was clearly
unrelated to official government travel. The standard government travel
card used by most Navy personnel is clearly marked ’For Official
Government Travel Only“ on the face of the card. Additionally, upon
receipt of their travel cards, all Navy cardholders are required to
sign a statement of understanding that the card is to be used only for
authorized official government travel expenses. However, as part of our
statistical sampling results at three Navy locations, we estimated that
7 percent of fiscal year 2001 transactions at one site to 27 percent at
another site were for purposes not related to official travel,
[Footnote 25] and therefore, were abusive.
Personal use of the card increases the risk of charge-offs related to
abusive purchases, which are costly to the government and the taxpayer.
Of the 50 cardholders who purchased prostitution services described
above, 11 were later charged off or put into salary offset. As we
discussed earlier in the report, charged-off and delinquent accounts
resulted in contract modifications and other monitoring efforts, which
have cost the Navy millions of dollars.
Travel Card Abuse Due to Failure to Pay Bank of America Charges:
Our work at three case study sites and our Navy-wide data mining
identified numerous examples of abusive travel card use where
cardholders failed to pay their travel card bills. This abusive activity
included (1) authorized transactions incurred in conjunction with
approved travel orders where the cardholders received reimbursement but
did not pay the bills or (2) transactions incurred by cardholders that
were not associated with approved travel orders. These accounts were
subsequently charged off or placed in salary offset or other fixed pay
agreement. In many cases, APCs, commanders, and supervisors did not
effectively monitor travel card usage or take documented disciplinary
actions against cardholders. Table 5 provides specific examples of
cardholders who failed to pay their travel card bills.
Table 5: Examples of Abusive Travel Card Activity Where Accounts Were
Charged Off or Placed in Salary Offset:
Cardholder: 1;
Grade: E-5;
Unit: U.S. Marine Corps Reserve, Camp Lejeune;
Total amount charged off (CO) or in salary offset (SO): CO – $19,971;
Transactions contributing to charge-off or salary offset: Did not use
reimbursement to pay travel card charges; numerous large cash
withdrawals;
Credit history problems: Account charge-offs, referral to collection
agency, and other account
delinquency prior to card issuance;
Documented disciplinary action: None; court-martial being considered.
Cardholder: 2;
Grade: E-7;
Unit: Naval Shore Intermediate Maintenance Activity, Mayport;
Total amount charged off (CO) or in salary offset (SO): SO – $11,190;
Transactions contributing to charge-off or salary offset: ATM
withdrawals totaling $15,000 from October 2000 through July 2001;
nearly $7,000 in cash and other expenses at Platinum Plus and Mr. Magoo
gentlemen‘s clubs;
Credit history problems: Bankruptcy, account charge-offs, and serious
credit card delinquency prior to card issuance;
Documented disciplinary action: None.
Cardholder: 3;
Grade: E-4;
Unit: LeMoore Naval Air Station;
Total amount charged off (CO) or in salary offset (SO): CO – $8,036;
Transactions contributing to charge-off or salary offset: Over $6,250
of computer equipment from Best Buy and other Web sites;
Credit history problems: Numerous unpaid accounts prior to card
issuance and charge-off on the American Express card;
Documented disciplinary action: Administrative discharge in lieu of
court-martial for misuse of the travel card and other offenses.
Cardholder: 4;
Grade: O-5;
Unit: Naval and Marine Corps Reserve Center, Washington, D.C.
Total amount charged off (CO) or in salary offset (SO): SO – $5,678;
Transactions contributing to charge-off or salary offset: Over $700
worth of candles and cookware; over $1,400 charged to D.B.
Entertainment, which owns Baby Dolls and other adult entertainment
clubs;
Credit history problems: Numerous account chargeoffs, delinquencies,
and bankruptcy prior to card
issuance;
Documented disciplinary action: None.
Cardholder: 5;
Grade: E-3;
Unit: Marine Forces Reserve, San Diego;
Total amount charged off (CO) or in salary offset (SO): CO – $4,041;
Transactions contributing to charge-off or salary offset: $3,800 at
local restaurants and $1,400 in ATM withdrawals over a 2-month period;
Credit history problems: Serious delinquencies, unpaid accounts, and
referrals to collection
agencies prior to card issuance;
Documented disciplinary action: Court-martialed for misuse of the
government travel card; appeal ongoing.
Cardholder: 6;
Grade: O-6;
Unit: Naval and Marine Corps Reserve Center, Washington, D.C.
Total amount charged off (CO) or in salary offset (SO): CO – $3,511;
Transactions contributing to charge-off or salary offset: $2,000 in
cash withdrawals and nearly $1,500 at local grocery and drug stores;
Credit history problems: None;
Documented disciplinary action: None.
Cardholder: 7;
Grade: WS-10[A];
Unit: Puget Sound Naval Shipyard, Naval Sea Systems Command;
Total amount charged off (CO) or in salary offset (SO): CO - $3,243;
Transactions contributing to charge-off or salary offset: Numerous
personal charges, including groceries, gasoline, cash advances, and
$150 at Bethel Animal Hospital;
Credit history problems: None prior; serious credit card delinquencies
and mortgage foreclosure in 2001 and 2002;
Documented disciplinary action: Removal from employment due to
unauthorized absence and travel card misuse.
Cardholder: 8;
Grade: GS-12;
Unit: Naval Air Systems Command, Patuxent River;
Total amount charged off (CO) or in salary offset (SO): SO – $1,202;
Transactions contributing to charge-off or salary offset: Airline
tickets totaling $608;
Credit history problems: Serious delinquencies, account charge-offs,
mortgage foreclosure in
2000, bankruptcies prior to and since card issuance;
Documented disciplinary action: None.
Cardholder: 9;
Grade: O-5;
Unit: Marine Forces Reserve, New Orleans;
Total amount charged off (CO) or in salary offset (SO): SO – $1,674;
Transactions contributing to charge-off or salary offset: Car rental
transactions and numerous charges at local restaurants;
Credit history problems: Serious delinquencies prior to and since card
issuance;
Documented disciplinary action: None.
Cardholder: 10;
Grade: E-6;
Unit: U.S. Marine Corps, Camp Lejeune;
Total amount charged off (CO) or in salary offset (SO): CO – $672;
Transactions contributing to charge-off or salary offset: Unauthorized
use of card for charges associated with permanent change of station
move;
Credit history problems: Serious delinquency and bad debts at the time
of card issuance;
Documented disciplinary action: None.
Source: GAO analysis.
[A] Wage supervisors designation used to denote supervisory workers on
hourly salary.
[End of table]
Eight of the 10 cardholders included in table 5 had significant credit
problems prior to card issuance, such as charged-off credit card
accounts, mortgage foreclosures, bankruptcies, serious delinquencies,
unpaid accounts, and referrals to collection agencies. One cardholder
had similar problems subsequent to issuance of the Bank of America
travel card. The following provides illustrative detailed information
on abusive activities for three of these cases.
* Cardholder #1 was a sergeant (E-5) with the U.S. Marine Corps Reserve
assigned at Camp Lejeune. Despite a history of credit problems, which
included several charged-off and delinquent commercial credit accounts,
Bank of America issued the cardholder a standard card, with a credit
limit of $10,000, in March 2000. The cardholder was deployed to Europe
in August 2000 and his credit limit was increased to $20,000. Within a
month of his deployment, the cardholder had charged $10,700 to the
card, including $8,500 in ATM withdrawals. Although the cardholder
received reimbursements for his travel expenses, he failed to settle
his account in full. In December 2000, the cardholder informed the APC
that his account was 30 days past due and promised to pay the full
outstanding balance. He again failed to do so and his account balance
of $11,467 went delinquent in January 2001. The APC did not deactivate
the travel card account but put the cardholder in ’mission critical“
status as his tour in Europe was coming to a close. The cardholder‘s
credit limit was then raised to $25,000 to enable the cardholder to
return to the United States. Consequently, when the account was closed
on February 8, 2001, the outstanding balance had increased to $19,971.
The APC admitted to us that he failed to carefully monitor this
account. No disciplinary action was taken against the cardholder, who
had returned to civilian life; however, judicial action against the
cardholder is pending. We have referred this matter to DOD‘s Office of
Inspector General for appropriate action.
In addition, our review indicated that the cardholder might have filed a
fraudulent travel voucher in January 2001. This travel voucher claimed
reimbursement for expenses in Germany over the holiday period from late
December 2000 to early January 2001, allegedly for official purposes.
However, Bank of America data showed that the government travel card
belonging to this cardholder was used to make transactions in the
vicinity of the traveler‘s hometown during this holiday period. It
appeared that the cardholder might have returned to the United States
for the holiday, yet continued to claim expenses as if he was still in
Germany, a potentially fraudulent act.
* Cardholder #3 was a petty officer third class (E-4) assigned to the
LeMoore Naval Air Station in California. Our review indicated that the
cardholder had numerous unpaid cable, medical, and communication
accounts and serious delinquency of more than $5,000 on his personal
credit card account prior to receiving the travel card. The unit to
which the cardholder was assigned had a policy of activating the
government travel card only when a cardholder travels. However, from
February through April 2001, while not on travel, the cardholder
purchased over $6,250 worth of electronic and computer equipment from
Best Buy and various Web sites using the government travel card. The
cardholder did not pay his balance and thus came to the attention of
the APC when his name appeared in the delinquency report. Upon
determining that the cardholder was able to use the card when not on
travel, the APC contacted Bank of America, which was unable to tell the
APC who had activated the account. The cardholder‘s balance of more
than $8,000 was charged off, and he was granted an administrative
separation in lieu of a court-martial for offenses unrelated to the
travel card misuse, including absence without leave, making false
statements, and stealing government property of less than $100.
* Cardholder #4 was a commander (O-5) with the Naval Reserves assigned
to the Naval and Marine Corps Reserve Center in Washington, D.C. Our
review showed that Bank of America issued the cardholder a standard
card in May 2000, although the cardholder‘s credit history indicated
serious financial problems before and at the time of card issuance. For
example, in October 1998, the cardholder filed for Chapter 7 bankruptcy
with only $37,169 in assets against $542,063 in liabilities. Further,
in January 2000, right before the Bank of America card was issued, an
account with a balance of more than $30,000 was charged off. This Navy
commander continued, after the issuance of the government travel card,
a pattern of delinquencies on numerous accounts, and in one instance
had merchandise repossessed for nonpayment.
During fiscal year 2001 and the first 3 months of fiscal year 2002, the
cardholder used the government travel card to make numerous personal
transactions. Transactions included more than $1,400 to D.B.
Entertainment, which owns Baby Dolls Saloon, a gentlemen‘s club in
Dallas, and more than $700 to Wearever cookware and Partylite Gifts, a
manufacturer of candles and candle accessories. A delinquency letter
was sent to the cardholder on August 9, 2002, when the account was 120
days past due; however, no documentation existed to indicate that any
action was taken prior to this date. Although the cardholder had been
placed in salary offset, no other disciplinary action had been taken
against the cardholder.
Travel Card Abuse Where Cardholder Paid Bank of America Charges:
As discussed above, some individuals who used the card for improper
purposes paid their travel card bills when they became due. We
considered these occurrences to be abusive travel card activity because
these cardholders benefited by, in effect, getting interest-free loans.
Personal use of the card increases the risk of charge-offs, which are
costly to the government and the taxpayer. In addition, the high rate
of personal use is indicative of the weak internal control environment
and the failure of APCs to monitor credit card activities, as discussed
later in this report. Table 6 provides examples of the types of abusive
charges we found during our review.
Table 6: Examples of Abusive Activity Where the Cardholders Paid the
Bills:
Cardholder: 1;
Unit: PEO Theatre Air and Surface, Naval Sea Systems Command,
Washington D.C.
Grade: GS-15;
Vendor: Seinpost Holdings;
Amount: Over $23,000 in charges;
Nature of transaction: 35 transactions for Internet gambling;
Documented disciplinary action: Written reprimand.
Cardholder: 2;
Unit: Mobile Inshore Undersea Warfare, Newport;
Grade: E-5;
Vendor: Cardholder‘s own business;
Amount: $8,622;
Nature of transaction: Bogus charges of $7,222 to cardholder‘s own
limousine company;
Documented disciplinary action: None.
Cardholder: 3;
Unit: Portsmouth Naval Shipyard;
Grade: WG-10[A]
Vendor: Herbal Life;
Amount: $6,758;
Nature of transaction: 17 purchases for vitamins and health
supplements;
Documented disciplinary action: None.
Cardholder: 4;
Unit: Naval Undersea Warfare Center, Newport;
Grade: ND-5[B];
Vendor: Carnival Cruise;
Amount: $3,790;
Nature of transaction: Alaskan cruise for two for 7 nights;
Documented disciplinary action: None.
Cardholder: 5;
Unit: U.S. Naval Academy, Annapolis;
Grade: MIDN[C];
Vendor: Best Buy;
Amount: $2,442;
Nature of transaction: Home electronics;
Documented disciplinary action: None.
Cardholder: 6;
Unit: U.S. Marine Corps, Camp Pendleton;
Grade: E-7;
Vendor: United Vacation;
Amount: $1,326;
Nature of transaction: United Airlines plane ticket for cardholder‘s
spouse;
Documented disciplinary action: None.
Cardholder: 7;
Unit: U.S. Marine Corps, Camp Pendleton;
Grade: E-6;
Vendor: DeAngelo Tax Service;
Amount: $800;
Nature of transaction: For preparation of tax returns from 1997-2000;
Documented disciplinary action: None.
Cardholder: 8;
Unit: Naval Reserves Forces Command, Virginia;
Grade: E-7;
Vendor: Ticketmaster;
Amount: $460;
Nature of transaction: Four concert tickets to the Backstreet Boys;
Documented disciplinary action: None.
Cardholder: 9;
Unit: Norfolk Naval Air Station;
Grade: E-4;
Vendor: Fredricks of Hollywood;
Amount: $184;
Nature of transaction: Women‘s lingerie;
Documented disciplinary action: None.
Cardholder: 10;
Unit: Naval Medical Research Center, San Antonio;
Grade: E-4;
Vendor: GTEAir;
Amount: $148;
Nature of transaction: Airplane telephone call;
Documented disciplinary action: None.
Source: GAO analysis.
[A] Wage grade system used for workers who are on hourly salary.
[B] Scientific and engineering career path equivalent to GS-14 to GS-
15.
[C] Midshipmen are cadets in training to become Navy officers. They may
receive stipends while in college.
[End of table]
As shown in table 6, cardholders used their travel cards for a wide
variety of personal goods or services. Some transactions were similar
to the services procured in table 4. The cards were also used to
purchase home electronics, women‘s lingerie, tax services, and in one
instance, to make bogus charges to the cardholder‘s own business. In
this instance, an E-5 second class petty officer reservist, whose
civilian job is with the U.S. Postal Service, admitted making phony
charges of over $7,200 to operate his own limousine service. In these
transactions, the reservist used the travel card to pay for bogus
services from his own limousine company during the first few days of
the card statement cycle. By the second day after the charges were
posted, Bank of America would have deposited funds”available for the
business‘ immediate use”into the limousine business‘ bank account.
Then, just before the travel card bill became due, the limousine
business credited the charge back to the reservist‘s government travel
card and repaid the funds to Bank of America. This series of
transactions had no impact on the travel card balance, yet allowed the
business to have an interest-free loan for a period. This pattern was
continued over several account cycles. Navy officials were unaware of
these transactions until we brought them to their attention and are
currently considering what, if any, action should be taken against the
cardholder.
Few Documented Disciplinary Actions Taken against Cardholders Who
Misused the Travel Card:
It is critical that cardholders who misuse their travel cards are
identified and held accountable for their actions. The DOD Financial
Management Regulation (FMR) states that ’commanders or supervisors
shall not tolerate misuse of the DOD travel cards and cardholders who
do misuse their cards shall be subject to appropriate disciplinary
action.“ However, DOD and Navy policies and procedures do not define
appropriate disciplinary action to help ensure that consistent punitive
actions are taken against cardholders who abuse their travel cards.
Lacking such guidance, disciplinary actions are left solely to the
discretion of commanders and supervisors. As a result, we did not find
documentation indicating that commanders and supervisors took any
disciplinary actions against almost two-thirds of individuals we
reviewed who abused or misused their cards during fiscal year 2001 and
the first 6 months of fiscal year 2002. Failure to identify and
discipline abusive cardholders will likely result in the Navy
continuing to experience the types of potentially fraudulent and abusive
activity identified in our work.
For many cardholders we inquired about, the misuse or abuse of the
travel
card led Navy officials to counsel cardholders on proper use of the
card and the cardholders‘ responsibility for timely payment of travel
card bills. We found only a few cases where the Navy court-martialed or
issued administrative warnings to individuals solely because of card
misuse. More often than not, severe disciplinary actions were taken in
response to travel card abuse in conjunction with other more serious
offenses”such as failing to obey orders or unauthorized absences. In
these instances, documented disciplinary actions included dismissal
from the Navy.
At the sites we audited, the Navy could not provide documentation of
disciplinary actions taken against cardholders in 37 of the 57 NSF check
cases and charged-off or salary offset accounts we reviewed. For
example, cardholder #9 in table 3, whose account was charged off for
more than $4,900, did not receive any disciplinary action. Cardholder
#5 in table 3 was promoted after his unpaid account balance of almost
$4,600 was charged off.
Also, we found little evidence that cardholders faced adverse
consequences for personal use of the card as long as they paid their
travel card bills. Of the 10 cases detailed in table 6, only 1 had
evidence of disciplinary action. We saw few indications that
supervisors were aware that these abusive transactions occurred. To the
extent we found that APCs or supervisors were aware of such travel card
abuse, we saw little evidence of disciplinary actions.
Further, we found that some individuals who abused their travel card
privileges held high-level positions, where they may have been
responsible for taking appropriate disciplinary action in response to
travel card abuse by personnel within their commands. In instances
where these individuals abused the card, they rarely received
disciplinary action. For example, a commander became severely
delinquent in January 2002 after making more than $2,000 in purchases
of inappropriate items such as cookware and adult entertainment.
However, there was no indication that this officer‘s superior was
informed of his delinquency or misuse of the travel card until the
account was at least 120 days past due. Consequently, although the
cardholder‘s account was placed in salary offset, the cardholder was not
disciplined.
We have reported similar problems with the Army travel card program and
in our testimony on the Navy travel card program. As a result, the
fiscal year 2003 Department of Defense Appropriations Act, Public Law
107-248, contains provisions that address this problem. Specifically,
the Act requires the Secretary of Defense to establish guidelines and
procedures for disciplinary actions to be taken against cardholders for
improper, fraudulent, or abusive use of the government travel card.
Cardholders with Credit Problems Continued to Have Active Security
Clearance:
We found that many cardholders who had abused the travel card or been
involved in potentially fraudulent activities continued to have active
security clearances. Both DOD and Navy rules provide that an
individual‘s finances are one of the factors to be considered in
determining whether an individual should be entrusted with a security
clearance. The U.S. Department of the Navy Central Adjudication
Facility (commonly referred to as DON CAF) is responsible for issuing
and updating security clearances for Navy personnel. Secret clearances
are updated every 10 years and top-secret clearances are updated every
5 years. During the interim periods, Navy instructions [Footnote 26]
require commanders of personnel with clearances, such as secret or top
secret, to submit to DON CAF any evidence of financial irresponsibility
on the part of an individual that would affect his or her clearance.
Such evidence would include information on financial impropriety, such
as excessive indebtedness. DON CAF is to evaluate this information and
determine whether to revoke or downgrade the clearance.
We found that commanders responsible for referring evidence of financial
irresponsibility to DON CAF were sometimes not aware of their
subordinates‘ financial problems. Consequently, Navy security officials
might not be in possession of all information necessary to assess an
individual‘s security clearance. Our audit found that 27 of 57 travel
cardholders we examined whose accounts were charged off or placed in
salary offset as of March 2002 still had active secret or top-secret
security clearances in August 2002. These financially troubled
individuals may present security risks to the Navy. We provided the
information we collected on individuals with charged-off accounts to
DON CAF for its consideration in determining whether to revoke, change,
or renew the individuals‘ security clearances.
Further guidance for this procedure is also contained in the fiscal
year 2003 Defense Appropriations Act. In addition to requiring the
Secretary of Defense to establish guidance and procedures for
disciplinary actions, the act states that such actions may include (1)
review of the security clearance of the cardholders in cases of misuse
of the government travel card and (2) modification or revocation of the
security clearance in light of such review.
Weak Overall Control Environment and Ineffective Travel Card Program
Controls:
A weak overall control environment and ineffective internal controls
over the travel card program contributed to the potentially fraudulent
and abusive travel card activity and the Navy‘s high rates of
delinquency and charge-offs. The foundation of all other controls, a
strong control environment provides discipline and structure as well as
the climate that positively influences the quality of internal
controls. Although we observed improvements in the first half of fiscal
year 2002, we identified several factors that contributed to a weak
overall control environment for fiscal year 2001, including, as
discussed previously, few documented disciplinary actions taken against
cardholders who abused their travel cards and a lack of management
attention and focus on establishing and maintaining the organizational
structure and human capital needed to support an effective Navy travel
card management program. We found that this overall weak control
environment contributed to design flaws and weaknesses in six
management control areas needed for an effective travel card program.
Specifically, we identified weaknesses in the Navy travel program
controls related to (1) travel card issuance, (2) cardholders‘
training, (3) APCs‘ capacity to carry out assigned duties, (4)
procedures for limiting card activation to meet travel needs, (5)
procedures for terminating accounts when cardholders leave military
service, and (6) access controls over Bank of America‘s travel card
database.
All six of these areas related to two key overall management weaknesses:
(1) lack of clear, sufficiently detailed Navy policies and procedures
and (2) limited travel card audit and program oversight. First, during
fiscal year 2001, the sites we audited used DOD‘s travel management
regulations DOD FMR (Vol. 9, Ch.3) as the primary source of policy
guidance for management of Navy‘s travel card program. [Footnote 27]
However, in many areas, the existing guidance was not sufficiently
detailed to provide clear, consistent travel management procedures to
be followed across all Navy units. Second, as recognized in the DOD
Inspector General‘s March 2002 summary report[Footnote 28] on the DOD
travel card program, ’because of its dollar magnitude and mandated use,
the DOD travel card program requires continued management emphasis,
oversight, and improvement by the DOD. Independent internal audits
should continue to be an integral component of management controls.“
However, the DOD Inspector General report noted that no internal review
reports were issued from fiscal year 1999 through fiscal year 2001
concerning the Navy‘s travel card program. According to the NAS, no
internal review report related to Navy‘s travel card had been issued
since then.
Ineffective Controls over Issuance of Travel Cards:
The Navy‘s ability to prevent potentially fraudulent and abusive
transactions that can eventually lead to additional delinquencies and
charge-offs is significantly weakened if individuals with histories of
financial irresponsibility are permitted to receive travel cards.
Similar to what we found at Army, the Navy‘s practice is to facilitate
the issuance of travel cards”with few credit restrictions”to all
applicants regardless of whether they have histories of credit
problems. Although the DOD FMR provides that all DOD personnel are to
use the travel card to pay for official business travel, the policy
also provides that exemptions may be granted under a number of
circumstances, including for personnel who are denied travel cards for
financial irresponsibility. However, DOD‘s policy is not clear as to
what level of financial irresponsibility by a travel card applicant
would constitute a basis for such an exemption. We found no evidence
that the Navy exempted any individuals or groups from required
acceptance and use of travel cards, even those with histories of severe
credit problems.
The DOD FMR provides that credit checks be performed on all travel card
applicants, unless an applicant declines the conduct of a credit check.
In July 1999, Bank of America began conducting credit checks on DOD
travel card applicants and used the resulting information as a basis for
determining the type of account”restricted or standard”it would provide
to new DOD travel applicants. While, as mentioned above, DOD FMR would
allow the Navy to exempt individuals with financial irresponsibility
from the use of the government travel card, in practice any applicant
who does not authorize a credit check, has no credit history, or has a
history of credit problems, is issued a restricted travel card with a
$2,500 credit limit. All other applicants are issued standard travel
cards with a $10,000 credit limit. In January 2002, the Navy further
reduced the credit limit on a restricted travel card to $2,000 and the
limit on a standard card to $5,000. However, DOD and Navy policy also
permit APCs to raise the credit and ATM limits of all cards after they
have been issued to meet travel and mission requirements.
As discussed previously, many of the Navy travel cardholders that we
audited who wrote numerous NSF checks, were severely delinquent, or had
their accounts charged off had histories of delinquencies and charge-
offs relating to other credit cards, accounts in collection, and
numerous bankruptcies. Our analysis of credit application scoring
models and credit risk scores used by major credit bureaus confirmed
that applicants with low credit scores due to histories of late
payments are poor credit risks. Credit bureau officials told us that if
their credit rating guidelines for decisions on commercial credit card
application approvals were used to make decisions on travel card
applicants, a significant number of low- and midlevel enlisted Navy
cardholders would not even qualify for the restricted limit cards. A
credit history showing accounts with collection agency action or charge-
offs poses an even higher credit risk. Any of these problems can be a
reason for denying credit in the private sector. However, individuals
with no credit history, or little credit history, are generally issued
cards with lower credit limits, as reflected by current DOD policy.
By authorizing all individuals regardless of past credit history who
apply for cards to get them, the Navy has exposed the government to
increased losses from increased fees and lost rebates associated with
these individuals. Credit industry research and the results of our work
demonstrate that individuals with previous late payments are much more
likely to have payment problems in the future.
Further, as a result of our audit findings and an amendment proposed by
Senators Byrd and Grassley, the fiscal year 2003 Department of Defense
Appropriations Act requires that the Secretary of Defense evaluate
whether an individual is creditworthy[Footnote 29] before authorizing
the issuance of any government travel charge card. An individual found
not to be creditworthy may not be issued a government travel charge
card. Implementing procedures to assess the creditworthiness of an
individual prior to issuing a credit card, and denying a credit card to
anyone found not creditworthy as required by the fiscal year 2003
Department of Defense Appropriations Act, should improve delinquency
rates and reduce fraud and abuse.
Inadequate Cardholder Training:
The DOD FMR requires that APCs provide training to cardholders on the
proper use of the government travel card prior to card issuance. The FMR
also requires DOD components to ensure that current cardholders are
informed of policy and procedure changes to the travel card program.
However, we found that the three case study sites we visited did not
provide consistent and periodic training to cardholders. The APCs we
interviewed generally informed us that they viewed the signature on a
travel card application as indication that the cardholder had read, and
understood, the regulations governing the use of the government travel
card. In addition, the APCs stated that the cardholders also received a
statement of understanding when they were issued a travel card. Only one
APC informed us that she discussed travel card restrictions with
employees at the time they submitted the travel card applications, and
that the fleet support group periodically provided individuals with
briefings on proper travel card use. The failure to provide
standardized, consistent, and periodic training on travel card
procedures might have contributed, in part, to high incidences of
misuse because individuals did not fully understand the rules governing
travel card usage.
Unrealistic APC Performance Expectations:
DOD policy provides that APCs are the primary focal points for day-to-
day management of the travel card program. However, at units with low-
and midlevel military personnel who are often deployed, APC duties are
generally ’other duties as assigned.“ This exacerbated an already
existing disposition towards delinquency of these individuals, as
discussed above.
Further, the sheer number of responsibilities assigned to APCs, coupled
with issues concerning APC span of control and training, greatly
affected the APCs‘ abilities to carry out their critical duties
effectively. Consequently, we found that APCs were generally
ineffective in performing their key travel card program management
oversight duties. However, the proactive measures by a full-time APC
contributed to a low delinquency rate at one installation we audited.
APC Responsibilities:
As prescribed by the DOD FMR, APCs ’are responsible for the day-to-day
operations of the DOD Travel Card Program.“ DOD FMR volume 9, chapter
3, provides that APCs are responsible for a variety of key duties,
including establishing and canceling cardholder accounts, tracking
cardholder transfers and terminations, monitoring and taking
appropriate actions with respect to account delinquencies, interacting
with the bank, and fielding questions about the program from both
cardholders and supervisors. APCs are also required to notify
commanders and supervisors of all travel card misuse so they can take
appropriate actions.
We found distinct differences in how APC duties were assigned at the
three case study sites. At Camp Lejeune, a military installation, the
six APCs that we interviewed were primarily responsible for other
duties. For example, some were assigned duties as personnel officers in
units providing specialized training for infantry and engineering.
These individuals‘ APC responsibilities were ’other duty as assigned,“
and most spent less than 20 percent of their time carrying out these
duties. Additionally, one APC indicated to us that it was a challenge
to keep up with his APC responsibilities, mainly because he was
expected first and foremost to perform his primary duties. In contrast,
at Patuxent River and Puget Sound Naval Shipyard, two installations
with mainly civilian cardholders, the APC role is a full-time post and
therefore the APCs spend all of their time carrying out APC
responsibilities.
Most of the APCs at the case study sites focused monitoring efforts on
delinquencies, and rarely conducted detailed review of charge card
transactions. All APCs have access to account transaction activity
reports and declination reports, which detail activities that were
rejected by Bank of America and thus would be useful in identifying
individuals who might have attempted to misuse the card. One APC
interviewed told us that detailed transaction reviews were too time-
consuming. If she reviewed account activities at all, it was in
conjunction with, and after she had identified delinquent accounts.
Failure to systematically and regularly review transaction activities
meant that most APCs were not able to promptly detect, and therefore
take further actions to prevent, abusive travel card activity. This is
illustrated by the fact that personal use of the card was estimated to
be 27 percent at one site we audited.
In contrast, the APC at another case study site informed us that she
reviewed delinquency reports several times a month to identify and
promptly notify supervisors about the status of delinquent accounts. She
also told us that, in addition, she monitored transactions in the Bank
of America database for improper and abusive uses of the card monthly,
and sent out notices to the cardholders and the cardholder supervisors
if such transactions were identified. We believe these proactive actions
contributed to that site‘s low delinquency rate and fewer incidences of
personal use.
Failure to review cardholder transactions and take action to address
inappropriate card usage can lead to delinquencies and account
chargeoffs. For example, one APC was not aware that a cardholder within
her sphere of responsibility made 17 personal use transactions to
Herbalife International, as shown in table 6, from January 2001 to May
2001 until the cardholder became delinquent in August 2001. By that
time, the cardholder had charged over $6,750 to the vitamin company. In
another example, an APC did not detect that a cardholder had misused
his card to purchase over $6,250 in electronic and computer equipment
until he appeared in the delinquency report. His account balance of
more than $8,000 was subsequently charged off.
APC Span of Control:
The DOD‘s FMR guidance does not address the appropriate span of control
for an APC”the number of cardholders that an APC should be responsible
for managing and overseeing. A reasonable span of control is critical
for effective management and proper travel program oversight. In
addition, because APC duties often are assigned as collateral duties,
the span of control should be commensurate with the time available to
carry out APC responsibilities effectively. As shown in table 7, at the
three sites we audited, the average ratio of cardholders to APCs ranged
from 214 to 1 to 5,984 to 1.
Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at Navy
Sites Audited:
Span of control: Number of cardholders;
Camp LeJeune, U.S. Marine Forces Atlantic: 1,713;
Patuxent River, Naval Air Systems Command: 8,804;
Puget Sound Naval Shipyard, Sea Systems Command: 5,984.
Span of control: Number of APCs;
Camp LeJeune, U.S. Marine Forces Atlantic: 8;
Patuxent River, Naval Air Systems Command: 2;
Puget Sound Naval Shipyard, Sea Systems Command: 1.
Span of control: Average ratio of cardholders to APCs;
Camp LeJeune, U.S. Marine Forces Atlantic: 214:1;
Patuxent River, Naval Air Systems Command: 4,402:1;
Puget Sound Naval Shipyard, Sea Systems Command: 5,984:1.
Source: GAO analysis of Bank of America data.
[End of table]
While table 7 shows the average span of control, the actual span of
control for the APCs at the three sites we audited ranged from a low of
25 to about 6,000 cardholders. Bank of America guidance provides that
an optimal span of control is 100 cardholders per APC. While we did not
evaluate the guidance provided by Bank of America, we believe that one
APC cannot effectively carry out all management and oversight
responsibilities discussed previously if he or she, even working full
time, has responsibility for hundreds or thousands of cardholders. In
fact, the supervisor of one APC with about 6,000 cardholders informed
us that the APC simply did not have time to systematically perform
other types of monitoring beyond identifying and notifying supervisors
and commanders of delinquent accounts.
Decisions on the optimal span of control must take into account not only
the number of accounts for which the APC has direct responsibility, but
also the number of accounts for which a lower-level APC has direct
responsibility.[Footnote 30] For example, an APC at Patuxent River had
direct responsibility for 2,244 cardholders and oversight
responsibility for another 5,560 cardholders.
APC Training:
Our internal control standards state that management‘s commitment to
competence and good human capital practices are key factors in
establishing and maintaining a strong internal control environment.
Specifically, our standards provide that management identify appropriate
knowledge and skills required for various jobs and provide needed
training. They also state that establishing appropriate human capital
practices, including hiring, training, evaluating, counseling, and
disciplining personnel, is another critical environmental factor.
DOD policy provides that travel card training materials are to be
distributed throughout the department and that APCs are to be informed
of policy and procedural changes relating to the travel card program.
However, neither DOD nor Navy procedures detail requirements for the
extent, timing, and documentation of travel program training for APCs.
APCs are not required to receive training on the duties of the position
or on how to use available Web-based tools and reports from Bank of
America before they assume their APC duties.
We found that APC training had not been considered a priority. Of the
nine APCs we spoke to, only one had received official APC training. The
other eight told us they relied heavily upon on-the-job learning, trial
and error, or other program coordinators for advice on how to carry out
their duties when they assumed their APC responsibilities. One full-
time APC had been in her position for more than 2 years but had not
attended formal Bank of America training, even though training seminars
are offered annually. Some APCs we interviewed indicated that they were
not proficient in using the tools available through the Bank of America
Web-based system containing travel card transaction data”Electronic
Account Government Ledger System (EAGLS)”to monitor cardholders‘ travel
activities. The lack of emphasis on training could negatively affect
APCs‘ ability to monitor delinquencies and promptly detect and prevent
potentially fraudulent and abusive activities. According to data
provided by Bank of America, as of May 2002 about 23 percent of the
Navy‘s APCs had never logged on to EAGLS.
Controls over Activating/Deactivating Travel Cards to Meet Travel
Needs:
Allowing Navy travel cardholders to maintain accounts in an active
status when not needed for government travel unnecessarily increases
the risk of misuse”through cardholders either mistakenly or
intentionally using the card for personal purposes. DOD‘s FMR provides
that restricted cards are issued to cardholders in an ’inactive“ status
and initially activated only when the cardholders have authorized
government travel needs. Standard cards, however, are ’active“ when
they are issued to cardholders. DOD policy guidance does not address
deactivating restricted and standard travel cards when not needed for
official purposes.
Lacking overall policy and procedural guidance in this area, we found
instances in which individual commands or sites established their own
practices for deactivating restricted cards when individuals were not on
travel. In fact, APCs at the case study sites we audited informed us
that they generally deactivated restricted cards when individuals were
not on travel. In contrast, during fiscal year 2001 and most of fiscal
year 2002, the standard cards were issued in an ’active“ status, and
remained active when individuals were not traveling. Leaving cards in
active status increased the risk of misuse, as supported by our
statistical sampling work, which showed that most improper use occurred
while the individuals were not on official travel. Recognizing this
internal control weakness, the Navy issued a directive in April 2002
requiring that the U.S. Marine Corps, which continued to have a high
delinquency rate, deactivate cards for all personnel not scheduled for
official travel. The directive also required that, once activated for
official travel, the cards be deactivated immediately upon the
conclusion of official travel.
Exit Control Procedures for Separating Employees:
We found that the Navy lacks clear, sufficiently detailed procedures
that would ensure that travel cards are deactivated or terminated when
cardholders leave the Navy. DOD‘s FMR provides that APCs are
responsible for terminating travel cards when cardholders retire,
separate, or are dismissed from DOD. Operating procedures established by
individual Navy commands and installations to notify APCs in the case of
retirement or separation of employees were neither consistent nor
effective. Controls were also ineffective in ensuring that prompt
actions were taken to deactivate or terminate cards even when the APC
is notified. Consequently, some cardholders‘ accounts remained active,
creating an opportunity for abuse.
In general, the three case study sites had standard exit procedures,
which required a signature from the APC, or the unit where the APC
worked, before individuals could complete outprocessing. The purpose of
such procedures is to ensure that travel cards are promptly deactivated
or closed. However, our work found that these procedures were not always
followed. For example, at one case study site, the APC is a checkpoint
on the checkout list, and cardholders are expected to obtain the APC‘s
signature before completing outprocessing. However, there was no
control at the unit where the cardholder turned in the checkout list to
ensure that the list was complete. Consequently, the APC informed us
that exit procedures were not effective.
We also found that the Navy did not have procedures requiring periodic
comparisons between active travel card accounts and their employees to
ensure that accounts of separated or retired employees were closed. All
three case study sites we visited maintained databases of their active
employees. However, the APCs at these locations generally did not
compare these records against the list of active travel card accounts to
identify accounts that should have been deactivated and/or closed but
remained open. Periodic reconciliation of the two lists would have
enabled these units to identify separated cardholders with active
accounts so that appropriate, timely actions could be taken.
Ineffective exit procedures and the inability to effectively identify
and terminate travel cards of individuals no longer in the Navy led to
numerous travel card abuses and charge-offs. These separated Navy
employees benefited by using the travel cards to purchase a variety of
goods and services, possibly at discounted government rates. Some did
not pay their monthly bills, thereby essentially obtaining the personal
items for no cost.
The following cases are examples of what can happen when travel cards
are not effectively deactivated or closed upon separation.
* In one Navy unit, a cardholder died in October 1999. However,
ineffective controls over the notification process resulted in the APC
not being aware that this had occurred. Therefore, the APC did not take
actions to close this individual‘s government travel card account.
Consequently, in October 2000, when the old card was about to expire,
Bank of America mailed a new card to the address of record. When the
card was returned with a forwarding address, the bank remailed the
card and the personal identification number, which is used to activate
the card, to the new address without performing other verification
procedures. The card was activated in mid-December 2000, and within a
month, 81 fraudulent transactions for hotel, food, and gas totaling
about $3,600 were charged to the card. In January 2001, in the course
of her monthly travel card monitoring, the APC noticed suspicious
charges in the vicinity of the cardholder‘s previous post-of-duty. The
APC took immediate action to deactivate the card, thus preventing
additional charges from occurring. Upon finally learning of the
cardholder‘s death from the cardholder‘s unit, the APC immediately
reported the case to a Bank of America fraud investigator.
Investigations indicated that a family member of the cardholder might
have made these charges. No payment was ever made on this account, and
the entire amount was subsequently charged off. We referred this case
to the U.S. Secret Service Credit Card Task Force for further
investigation and potential prosecution.
* A chief warrant officer (W-3) at Naval Air Force, U.S. Atlantic Fleet,
repeatedly used his travel card after his retirement on December 1,
2000. The cardholder currently works for a private company. He used the
government travel card since his retirement to make charges totaling
more than $41,000 for hotels, car rentals, restaurants, and airline
tickets for personal and business purposes. In a number of instances,
the cardholder was able to obtain the government rate”which can be
substantially lower than the commercial rate”for lodging in San Diego,
Philadelphia, and Cincinnati. Because the Navy does not routinely
monitor cardholder transactions for abusive activity and because this
particular account was always paid in full, abusive activity was not
detected. Bank of America data showed that the cardholder‘s account was
still open in early September 2002 and thus available for further
charges.
* In another instance, a mechanic trainee at the Puget Sound Naval
Shipyard was convicted of a felony for illegal possession of a firearm
in October 2000 and placed on indefinite suspension by his employer in
November 2000. However, neither the security office, which took action
against the employee, nor the office where the individual worked
notified the APC to cancel or deactivate the cardholder‘s government
travel card account. Following his suspension, the cardholder used the
government travel card to make numerous cash withdrawals and purchases
totaling almost $4,700. The APC was not aware of these abusive charges
until the monthly delinquency review identified the account as
delinquent. The account balance of $1,600 was subsequently charged off
in January 2002. Although security officers at the Puget Sound Naval
Shipyard referred the case to DON CAF in October 2000, our work
indicated that the employee, who was still in suspended status as of
August 2002, continued to maintain a secret clearance, despite the
travel card charge-off and felony conviction.
We also found instances where the APC did not promptly deactivate or
terminate the travel card upon being notified of an employee‘s death,
retirement, dismissal, or separation from the Navy. At one case study
site, we audited 10 accounts of employees who died, retired, separated,
or were otherwise removed since November 2000. Of the 10, 4 cardholders
obtained signatures from the travel branch, where the APC works, upon
leaving the unit. However, 3 of these 4 accounts were not deactivated or
terminated in a timely manner. In one case, a cardholder continued to
use the card to make numerous charges totaling $4,900 for more than 9
months following separation. The cardholder failed to make timely
payments on her account and became delinquent in September 2001. The
APC did not report this cardholder‘s delinquent status to the
appropriate unit supervisor until the account was 90 days past due. The
supervisor stated that she took actions to have the card deactivated
immediately upon learning of the delinquency. The individual‘s account
was charged off on November 27, 2001, and as of July 13, 2002, had a
remaining balance of $4,800. Available data also indicated that another
cardholder who retired in August 2001 continued to maintain possession
of an active card until September 2002, although he did not use the
card. Failure to promptly deactivate or terminate travel card accounts
of individuals no longer with the Navy increases the risk of
delinquencies and charge-offs and can lead to increased cost to the
Navy.
Access Controls over Bank of America‘s Travel Card System:
Thousands of Bank of America and DOD employees have access to Bank of
America‘s travel card transaction data system, known as EAGLS. Computer
system access controls are intended to permit authorized users to
access the system to perform their assigned duties and preclude
unauthorized persons from gaining access to sensitive information.
Access to EAGLS is intended to be limited to authorized users to meet
their information needs and organizational responsibilities. Authorized
EAGLS users access levels include customer-level access (APCs requiring
access to travel data for cardholders under their purview and
individual travelers requiring access to their own travel transaction
histories) and bank employee-level access (Bank of America employees
may be granted one of five different levels of access depending on
their assigned duties). The highest level of Bank of America employee
access to EAGLS is the ’super user“ level. According to Bank of America
security officials, this level of access”which provides users the
ability to add, delete, or modify anything in the system, including
creating accounts and editing transaction data in the system”should be
granted to as few individuals as possible.
We found that 1,127 Bank of America employees had some level of access
to the EAGLS system, including 285 with super-user-level access. After
we brought this matter to the attention of Bank of America security
officials, they reviewed employee access and deactivated access for 655
employees that they determined should not have had any level of access.
This included 22 employees with super-user access. Further, Bank of
America has since initiated periodic reviews to ensure that it
maintains appropriate levels of employee access.
In addition, DOD employees retained APC access to EAGLS after
relinquishing their APC duties or after they may have been transferred
or terminated. In a 2000 survey of 4,952 individuals with APC-level
access to EAGLS, DOD found that approximately 10 percent could not be
located and may have been transferred or terminated or no longer had APC
responsibilities. Because of concern that many of these accounts should
be deactivated, Bank of America has begun a review to determine if DOD
employees with APC-level access no longer have APC responsibilities or
have left the service.
Statistical Tests of Key Control Activities:
With the weak control environment and related program control
weaknesses we identified, it is not surprising that we found weaknesses
in the implementation of selected key control activities we
statistically tested at the three Navy sites we audited. We selected
four key control activities to test related to basic travel transaction
and voucher processing. As discussed previously, for the three
locations, we estimate that the percentage of transactions during
fiscal year 2001 that represented personal use varied from 7 percent at
one location to 27 percent at another location.
We tested the implementation of the following internal control
activities for a statistically valid sample of travel card
transactions.
* Was there a travel order associated with the transaction that was
approved prior to the start of travel?
* Was there a travel voucher associated with the transaction that was
properly reviewed to ensure that payment was accurate and properly
supported?
* Did the traveler submit a travel voucher associated with the
transaction to the installation travel office for processing within 5
days of completion of travel, as required by government travel
regulations?
* In accordance with TTRA and the DOD FMR, was the traveler paid within
30 days of the date a properly approved travel voucher associated with
the transaction was submitted for payment?
Table 8 shows the results of our statistical samples. Appendix II
includes the specific criteria we used to assess the effectiveness of
these controls.
Table 8: Results of Testing of Key Internal Controls:
Navy unit: Camp Lejeune;
Percentage of failure, Travel orders are approved prior to travel:
11.5%;
Percentage of failure, Travel voucher reimbursements are accurate:
32.6%;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 11.5%;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 3.1%.
Navy unit: Patuxent River;
Percentage of failure, Travel orders are approved prior to travel:
3.1%;
Percentage of failure, Travel voucher reimbursements are accurate:
35.4%;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 36.5%;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 1.0%.
Navy unit: Puget Sound Naval Shipyard;
Percentage of failure, Travel orders are approved prior to travel:
49.0%[A];
Percentage of failure, Travel voucher reimbursements are accurate:
39.6%;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 34.4%;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 1.0%.
Source: GAO analysis.
Note: The numbers in the table represent point estimates of the
percentage of failure in the population based on our sampling tests.
The confidence intervals for our sampling estimates are presented in
app. II.
[A] The high failure rate is attributable to management‘s failure to
maintain copies of the original signed travel orders, which were sent
to the travelers.
[End of table]
Controls over Travel Order Approval:
Timely approval of the travel orders is the first step in ensuring that
travel is authorized. At one of the three installations we audited,
Patuxent River, the controls over travel order approval were partially
effective. In contrast, Puget Sound Naval Shipyard, which had a failure
rate of 49 percent, had ineffective controls over travel order
approval. At Puget Sound, the high failure rate was primarily
attributable to travel personnel not consistently ensuring that all
copies of the six-part travel orders used in fiscal year 2001 were
signed before sending the originals to the travelers. Consequently,
this unit was unable to provide us with signed copies of the travel
orders. Puget Sound Naval Shipyard management informed us that it had
recently instituted procedures that require signed copies of travel
orders be maintained by the unit.
Controls over Travel Voucher Review and Accuracy Were Not Effective:
Once travel is completed, the traveler is required to submit a voucher
for all reimbursable expenses and must include receipts for certain
claimed amounts. The voucher review process is intended to ensure that
only authorized, properly supported travel charges are reimbursed and
that the amounts are accurately calculated. All three case study sites
we audited had ineffective controls to ensure that travel orders were
properly reviewed for accuracy and support. The estimated failure rates
during fiscal year 2001 for the three case study sites ranged from 33
to 40 percent.
Travel voucher errors resulted in both over- and underpayments to the
traveler and created an additional administrative burden for the Navy,
which had to take additional actions to recover overpayments or make
payments on previous underpayments. Travel voucher errors were
attributed to ineffective review and audit of travel vouchers. At one
case study site we audited, a communication breakdown had occurred
between the office that helped travelers prepare vouchers and the
office that entered voucher data into the automated system used to
record relevant travel voucher data so that payment could be made by
DFAS.[Footnote 31] At this site, each office thought that the other was
responsible for reviewing the vouchers for accuracy. As a result, the
vouchers were not consistently reviewed to ensure that they were filed
in accordance with travel regulations. In addition, we found that the
voucher auditing process was not effective, resulting in payment errors
that should have been detected.
In our samples, we found that most errors were in the following
categories.
* Missing or inconclusive receipts – We found instances in which
voucher packages did not include all receipts required to support
claims, as required by DOD and Navy regulations, yet payments were
made. For example, a cardholder at Puget Sound Naval Shipyard who
claimed cell phone charges totaling more than $1,000 on several partial
vouchers did not submit a detailed breakdown of these phone charges.
As a result, there was no indication that all of the charges were for
official use. However, the voucher was processed and full payment was
made to the traveler.
* Errors in calculating amounts paid – We found instances in which the
voucher processing units paid for lodging expenses not incurred and
made other errors in calculating incidental expenses, resulting in both
over- and underpayments to the traveler. At Patuxent River, one traveler
was reimbursed $395 in lodging expenses and $33 in lodging taxes;
however, the hotel receipt for this travel claim indicated lodging
expenses of $316 and lodging taxes of $24. Thus, the traveler was
overpaid a total of $88. Other errors related to the reimbursement of
telephone calls and car mileage, and the failure to pay excess baggage
fees expressly authorized in the travel order. Other errors related to
the transposition of numbers. Most of these errors were relatively
small in terms of dollar amounts.
However, we found errors that were significant in comparison to the
travel voucher amount. For example, at one case study site a traveler
claimed an ATM fee of $17.25 on a voucher totaling less than $1,000, but
the amount was entered into the travel reimbursement system as $1,725.
As a result, the cardholder was overpaid by more than $1,700. Although
this voucher was audited by the voucher processing unit, the error was
not detected. As a result of our audit, the Navy unit has taken actions
to recover this and other overpayments.
Conclusions:
The intent of the travel card program was to improve convenience for the
traveler and to reduce the government‘s costs of administering travel.
However, when the Navy implemented the travel card as part of its travel
program, it did not provide the control infrastructure”primarily human
capital”necessary to manage and oversee the use of government travel
cards. Consequently, a weak internal control environment in the travel
card program has resulted in a significant level of delinquencies and
charge-offs of bad debts, as well as travel card fraud and abuse. This
has resulted in millions of dollars of costs to the Navy, including
higher fees, lost rebates, and substantial time pursuing and collecting
delinquent travel card accounts.
DOD and the Navy have taken positive steps to reduce the delinquencies
and charge-offs, including establishing a system of wage and retirement
payment offset for many employees, encouraging the use of split
disbursements where travel reimbursements are sent directly to the bank
rather than the employee, and making management of the travel program a
priority for the Navy commands. These actions have resulted in
significant collections of previously charged-off and delinquent
accounts. DOD and the Navy have also proposed additional steps as
reported in the June 27, 2002, DOD Charge Card Task Force report to
improve the controls over the travel card program. However, these Navy
and DOD actions have primarily addressed the symptoms rather than the
underlying causes of the problems with the program. Specifically,
actions to date have focused on dealing with accounts that are
seriously delinquent, which are back-end or detective controls rather
than preventive controls. To effectively reform the travel program, DOD
and the Navy will need to work to prevent potentially fraudulent and
abusive activity and severe credit problems with the travel card. The
fiscal year 2003 Department of Defense Appropriations Act requires the
Secretary of Defense to establish guidelines and procedures for
disciplinary actions to be taken against cardholders for improper,
fraudulent, or abusive use of the government travel card and to deny
issuance of the government travel card to individuals who are not
creditworthy. Further, the Bob Stump National Defense Authorization Act
for Fiscal Year 2003 provides authority for the Secretary of Defense to
require (1) use of the split disbursement payment process, where any
part of a DOD employee‘s or service member‘s travel reimbursement is
paid directly to the travel card-issuing bank, and (2) deductions of
prescribed amounts from salary and retirement pay of DOD employees or
service members, including civilian and military retirees, who have
delinquent travel card balances and payment of those amounts to the
travel card-issuing bank.
Recommendations for Executive Action:
To strengthen the overall control environment and improve internal
control for the Navy‘s travel card program, we recommend that the
Secretary of the Navy take the following actions. We also recommend
that the Under Secretary of Defense (Comptroller) assess the following
recommendations and, where applicable, incorporate them into or
supplement the DOD Charge Card Task Force recommendations to improve
travel card policies and procedures throughout DOD.
Travel Card Issuance:
We recommend that the Secretary of the Navy establish specific policies
and procedures governing the issuance of individual travel cards to
military and civilian employees, including the following:
* Provide individuals with no prior credit histories with ’restricted“
travel cards with low credit and ATM limits.
* Develop procedures to periodically evaluate frequency of card usage to
identify accounts of infrequent travelers.
* Cancel accounts for current infrequent travelers, as noted in the
Charge Card Task Force report, in order to minimize exposure to fraud
and abuse.
* Evaluate the feasibility of activating and deactivating all cards,
regardless of whether they are standard or restricted cards, so that
cards are available for use only during the periods authorized by the
cardholders‘ travel orders. At a minimum, this policy should focus on
controlling travel card use by ’high-risk“ enlisted military personnel
in the E-1 to E-6 grades.
* Develop comprehensive, consistent Navy-wide initial training and
periodic refresher training for travel cardholders, focused on the
purpose of the program and appropriate uses of the card. The training
should emphasize the prohibitions on personal use of the card, including
gambling, personal travel, and adult entertainment. Such training
should also address the policies and procedures of the travel order,
voucher, and payment processes. For entry-level personnel, the training
should also include information on basic personal financial management
techniques to help avoid financial problems that could affect an
individual‘s ability to pay his or her travel card bill.
Monitoring, Review, and Disciplinary Actions:
We recommend that the Secretary of the Navy establish the following
specific policies and procedures to strengthen controls and disciplinary
actions for improper use of the travel card:
* Establish guidance regarding the knowledge, skills, and abilities
required to carry out APC responsibilities effectively.
* Establish guidance on APC span-of-control responsibilities so that
such responsibilities are properly aligned with time available to ensure
effective performance. Determine whether certain APC positions should
be staffed on a full-time basis rather than as collateral duties.
* Establish Navy-wide procedures to provide assurance that APCs receive
training on their APC responsibilities. The training should include how
to use EAGLS transaction reports and other available data to monitor
cardholder use of the travel card”for example, reviewing account
transaction histories to ascertain whether transactions are incurred
during periods of authorized travel and appear to be appropriate travel
expenses and are from approved MCCs.
* Establish guidance requiring APCs to review EAGLS reports to identify
cardholders who have written NSF checks for payment of their account
balances, and refer these employees for counseling or disciplinary
action.
* Investigate and, if warranted, take appropriate disciplinary actions
against cardholders who wrote three or more NSF checks to Bank of
America.
* Establish Navy procedures to develop a data mining program to further
facilitate APCs‘ ability to identify potentially inappropriate
transactions for further review.
* Establish Navy-wide procedures requiring that supervisors and
commanders notify APCs of actions taken with respect to delinquent
cardholders.
* Establish a Navy requirement for cognizant APCs to retain records
documenting cardholders‘ fraudulent or abusive use of the travel card.
* Establish appropriate, consistent Navy-wide procedures as a guide for
taking disciplinary actions with respect to fraudulent and abusive
activity and delinquency related to the travel card.
* Review records of individuals whose accounts have been charged off or
placed in salary offset to determine whether they have been referred to
DON CAF for security reviews.
* Strengthen procedures used to process employees separating from the
service to ensure that all accounts are deactivated or closed, and
repayment of any outstanding debts is arranged.
* Perform periodic review of exit procedures to determine that accounts
of separated cardholders are deactivated or closed in a timely manner.
* Develop procedures to identify active cards of separated cardholders,
including comparing cardholder and payroll data.
* Review, in conjunction with Bank of America, individuals with APC-
level access to EAGLS to limit such access to only those with current
APC duties.
* Develop a management plan to ensure that audits of the Navy travel
card program are conducted regularly, and the results are reported to
senior management.
Voucher and Payment Processes:
To improve travel voucher accuracy, we recommend that commanders at
each unit identify causes of the high error rates related to travel
voucher review and provide refresher training to ensure that voucher
examiners and auditors are informed and can accurately apply travel
regulations and updates.
To ensure that travel vouchers are consistently reviewed prior to
processing, we recommend that the Commander of Puget Sound Naval
Shipyard take the following actions:
* Issue procedures to clearly assign responsibilities for reviewing the
accuracy of the travel vouchers.
* Conduct periodic review to assess the effectiveness of the new
procedures in reducing the frequency and amount of voucher errors.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, which are reprinted in
appendix V, DOD concurred with 21 of 23 recommendations and partially
concurred with the remaining 2 recommendations. DOD partially concurred
with our recommendations regarding (1) establishing Navy-wide
procedures requiring that supervisors and commanding officers notify the
APCs of actions taken with respect to delinquent cardholders and
(2) having commanders at each unit identify causes of the high error
rates related to travel voucher review and provide refresher training
to voucher examiners and auditors. We believe that DOD‘s planned
actions for these two areas, if effectively implemented, will address
the intent of our recommendations.
Concerning our recommendation that APCs be notified of actions by
supervisors with respect to delinquent cardholders, DOD responded that
providing this type of sensitive information to APCs is not appropriate.
DOD considers it to be more appropriate that actions taken with respect
to delinquent cardholders be reported up the chain of command and that
the department decide at what level and at what frequency this reporting
occur. Our recommendation did not contemplate that APCs would
necessarily need details of disciplinary action, only that the APCs be
informed that actions have been taken and by whom. Often the actions
taken include verbal counseling. The written documentation maintained
by the APC, which should refer to the official from whom authorized
personnel may obtain details of the disciplinary actions, will provide a
record that actions were taken and be a source for new
commanders/supervisors in identifying people with previous credit card
problems.
Regarding having commanders identify causes of the high error rate
related to travel voucher review and provide refresher training, DOD
has requested that NAS conduct a review of the department‘s end-to-end
travel process and make recommendations to improve accountability and
efficiency. Upon completion of the NAS review, DOD said it will
distribute the appropriate guidance to all major commands. We agree
that it would be beneficial for NAS to perform a comprehensive review
of the travel process. In addition, to ensure immediate results, we
believe that commanders, who are ultimately responsible and are more
involved in the day-to-day operations, should take proactive steps in
reviewing and correcting the weaknesses identified in this report.
In addition, although DOD concurred with our recommendations to
establish policies and procedures governing the issuance of individual
travel cards to military and civilian employees, its response regarding
employees with no prior credit history indicated that some may be issued
cards with ’—higher than …restricted‘ limits to accomplish their
mission.“ While this may be required on a case-by-case basis, we
believe that additional preventive managerial oversight to monitor
these accounts would be beneficial. Management should also consider
lowering the limit to established restricted levels once the mission is
completed.
As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute this report until 30 days from
its date. At that time, we will send copies of this report to
interested congressional committees, the Secretary of Defense, the
Under Secretary of Defense (Comptroller), the Secretary of the Navy,
and the Director of the Office of Management and Budget. We will make
copies available to others upon request. In addition, the report will
be available at no charge on the GAO Web site at [hyperlink,
http://www.gao.gov].
Please contact Gregory D. Kutz at (202) 512-9095 or kutzg@gao.gov or
John J. Ryan at (202) 512-9587 or ryanj@gao.gov if you or your staffs
have any questions concerning this report.
Signed by:
Gregory D. Kutz:
Director:
Financial Management and Assurance:
Signed by:
Robert J. Cramer:
Managing Director:
Office of Special Investigations:
[End of section]
Appendix I: Background:
In 1983, the General Services Administration (GSA) awarded a
governmentwide master contract with a private company to provide
government-sponsored, contractor-issued travel cards to federal
employees to be used to pay for costs incurred on official business
travel. The intent of the travel card program was to provide increased
convenience to the traveler and lower the government‘s cost of travel by
reducing the need for cash advances to the traveler and the
administrative workload associated with processing and reconciling
travel advances. The travel card program includes both individually
billed accounts”accounts held and paid by individual cardholders”and
centrally billed accounts that are used to purchase transportation or
for the travel expenses of a unit and are paid directly by the
government. As of the end of fiscal year 2001, over 2.1 million
individually billed travel cards were issued to federal government
travelers. These travel cardholders charged $3.6 billion in the same
fiscal year.
Under the current GSA master contract, the Department of Defense
entered into a tailored task order with Bank of America[Footnote 32] to
provide travel card services to DOD and the military services,
including the Navy. Table 9 provides the number of individually billed
travel cards outstanding and related dollar amount of travel card
charges by DOD and its components in relation to the total federal
government.
Table 9: Comparison of Number of Individually Billed Travel Cardholders
and Related Charges for DOD versus Total Federal Government Charges for
Fiscal Year 2001:
Entity: Navy (includes Marine Corps);
Number of individually billed travel cardholders as of September 30,
2001: 394,952;
Fiscal year 2001 individually billed travel card charges (dollars in
millions): $510.
Entity: Army;
Number of individually billed travel cardholders as of September 30,
2001: 432,460;
Fiscal year 2001 individually billed travel card charges (dollars in
millions): $619.
Entity: Air Force;
Number of individually billed travel cardholders as of September 30,
2001: 501,306;
Fiscal year 2001 individually billed travel card charges (dollars in
millions): $831.
Entity: Other DOD;
Number of individually billed travel cardholders as of September 30,
2001: 86,922
Fiscal year 2001 individually billed travel card charges (dollars in
millions): $174.
Entity: Total DOD;
Number of individually billed travel cardholders as of September 30,
2001: 1,415,640
Fiscal year 2001 individually billed travel card charges (dollars in
millions): $2,134.
Entity: Total federal government;
Number of individually billed travel cardholders as of September 30,
2001: 2,132,031;
Fiscal year 2001 individually billed travel card charges (dollars in
millions): $3,634.
Entity: DOD percentage of total government;;
Number of individually billed travel cardholders as of September 30,
2001: 66%;
Fiscal year 2001 individually billed travel card charges (dollars in
millions): 59%.
Source: Bank of America.
[End of table]
As shown in table 9, DOD accounts for about 1.4 million, or 66 percent,
of the total number of the individually billed travel cards issued by
the entire federal government and DOD‘s cardholders charged about $2.1
billion, or about 59 percent of the federal government‘s travel card
charges during fiscal year 2001. Table 9 also shows that the Navy
provided about 395,000 individually billed cards to its civilian and
military employees as of September 2001. These cardholders charged an
estimated $510 million to their travel cards during fiscal year 2001.
Travel Card Program Guidelines:
The Travel and Transportation Reform Act of 1998 (Public Law 105-264)
expanded the use of government travel cards by mandating the use of the
cards for all official travel unless specifically exempted. The act is
intended to reduce the overall cost of travel to the federal government
through reduced administrative costs and by taking advantage of rebates
from the travel card contractor. These rebates are based on the volume
of transactions incurred on the card and cardholders paying their
monthly travel card bills on time. To help timely payments, the act
requires that agencies reimburse cardholders for proper travel claims
within 30 days of submission of approved travel vouchers by the
cardholders.[Footnote 33] Further, the act allows, but does not
require, agencies to offset a cardholder‘s pay for amounts the
cardholder owes to the travel card contractor as a result of travel
card delinquencies not disputed by the cardholder. The act calls for
GSA to issue regulations incorporating the requirements of the act.
GSA incorporated the act‘s requirements into the Federal Travel
Regulation. The Federal Travel Regulation governs travel and
transportation and relocation allowances for all federal government
employees, including overall policies and procedures governing the use
of government travel cards. Agencies are required to follow the
requirements of GSA‘s Federal Travel Regulation, but can augment these
regulations with their own implementing regulations.
DOD issued its Financial Management Regulations (FMR), Volume 9,
Chapter 3, Travel Policies and Procedures to supplement GSA‘s travel
regulations. DOD‘s Joint Travel Regulations, Volume 1 (for Uniformed
Service Members), and Volume 2 (for Civilian Personnel) refer to the FMR
as the controlling regulation for DOD‘s travel cards. Further, in
January 2002, the Navy eBusiness Operations Office issued Instruction
4650.1, Policies and Procedures for the Implementation and Use of the
Government Travel Charge Card to supplement the FMR. In addition, some
of the Navy‘s individual commands and units have issued their own
instructions supplementing GSA and DOD guidelines.
The Navy Travel Process:
As shown in figure 6, the Navy‘s travel card management program for
individually billed travel card accounts encompasses card issuance,
travel authorization, cardholders charging goods and services on their
travel cards, travel voucher processing and payment, and managing
travel card usage and delinquencies.
Figure 6: Overview Flowchart of the Navy Travel Process:
[See PDF for image]
The flowchart depicts the following information:
1) Traveler requests travel card;
2) Agency Program Coordinator (APC) processes travel card application
approved by supervisor and controls credit limits;
3) Bank issues travel card;
4) Official government travel authorized (travel order);
5) Traveler charges goods and services on travel card;
* APC monitors card usage and delinquencies[B] by accessing
EAGLS;
- Bank credit card data in EAGLS[C];
* Merchant (e.g., rental car co.) provides goods/services and charges
travel card;
* Bank processes card charges, pays merchant bank, and bills traveler;
- Bank credit card data in EAGLS[C];
* Merchant bank accepts transaction deposit slips and transfers
payment;
6) Traveler prepares voucher and provides to supervisor for review and
submission to voucher processing unit;
7) Installation voucher processing unit processes voucher and submits
to DFAS;
8) DFAS pays[A] voucher;
9) Traveler leaves services or moves;
10) APC terminates or suspends card for traveler leaving Navy or
moving.
Source: GAO analysis.
[A] The Defense Finance and Accounting Service allows travelers to
direct a portion, or all, of their voucher reimbursement to Bank of
America.
[B] See figure 8 for specific actions to be taken by the Agency Program
Coordinator.
[C] Electronic Account Government Ledger System.
Source: GAO analysis.
[End of figure]
Travel Card Issuance and Termination:
When a Navy civilian or military employee or the employee‘s supervisor
determines that he or she will need a travel card, the employee
contacts the unit‘s travel card agency program coordinator (APC) to
complete an individually billed card account application form. As shown
in figure 7, the application requires the applicant to provide
pertinent information, including full name and social security number,
and indicate whether he or she is an active, reserve, or a civilian
employee of the Navy. The applicant is also required to initial a
statement on the application acknowledging that he or she has read and
understands the terms of the travel card agreement and agrees to be
bound by these terms, including a provision acknowledging that the card
will be used only for official travel. The APC is required to complete
the portion of the member‘s application concerning who will be
responsible for managing the use and delinquencies related to the card.
Bank of America is required to issue a travel card to all applicants
for whom it receives completed applications signed by the applicants,
the applicants‘ supervisors, and the APCs.
Figure 7: Travel Card Application:
[See PDF for image]
This figure is a copy of the Bank of America travel card application
form.
Source: Department of Defense.
[End of figure]
Bank of America issues travel cards with either a standard or restricted
credit limit. If an employee has little or no credit history or poor
credit based on a credit check performed by Bank of America, it will
suggest to the service that the applicant receive a restricted credit
limit of $2,500 instead of the standard credit limit of $10,000.
[Footnote 34] However, as shown in figure 7, the application allows the
employee to withhold permission for Bank of America to obtain credit
reports. If this option is selected, Bank of America automatically
issues a restricted credit limit card to the applicant.
When cardholders leave the Navy, they are required to contact their APCs
and notify them of their planned departure. Based on this notification
from the cardholders, the APCs are to deactivate or terminate the
cardholders‘ accounts.
Travel Authorization:
When a cardholder is required to travel for official government
purposes, he or she is issued a travel order authorizing travel. The
travel order is required to specify the timing and purpose of the
travel authorized. For example, the travel order is to authorize the
mode of transportation, the duration and points of the travel, and the
amounts of per diem and any cash advances. Further, the Navy can limit
the amount of authorized reimbursement to military members based on the
availability of lodging and dining facilities at military
installations.
Using the Travel Card for Official Travel Expenses:
For authorized travel, travelers must use their cards to pay for
allowable expenses such as hotels and rental cars. The Navy generally
uses a centrally billed transportation account to pay for air and rail
transportation. Also, some units utilize unit cards, a form of
centrally billed account, in lieu of travel charge cards for
individually billed accounts for meals and lodging for group trips.
When the travel card is submitted to a merchant, the merchant will
process the charge through its banking institution, which in turn
charges Bank of America. At the end of each banking cycle (once each
month), Bank of America prepares a billing statement that is mailed to
the cardholder for the amounts charged to the card. The statement also
reflects all payments and credits made to the cardholder‘s account.
Bank of America requires that the cardholder make payment on the
account in full within 30 days of the statement closing date. If the
cardholder does not pay his or her monthly billing statement in full,
and does not dispute the charges within 60 days of the statement
closing date, the account is considered delinquent.
Travel Voucher Submission and Processing:
Within 5 working days of return from travel, the cardholder is required
to submit a travel voucher claiming legitimate and allowable expenses
incurred while on travel. Further, the standard is for the cardholder to
submit an interim voucher every 30 days for extended travel of more than
45 days. The amount that cardholders are reimbursed for their meals and
incidental expenses and hotels is limited by geographical rates
established by GSA.
Upon submission of a proper voucher by the cardholder, the Navy has 30
days in which to make reimbursement without incurring late payment fees.
Cardholders are required to submit their travel vouchers to their
supervisors or other designated approving officials who must review the
vouchers and approve them for payment. If the review finds an omission
or error in a voucher or its required supporting documentation, the
approving official must inform the traveler of the error or omission.
If the payment of the approved proper voucher takes longer than 30
days, the Navy is required to pay the cardholder a late payment fee
plus an amount equal to the amount Bank of America would have been
entitled to charge the cardholder had the cardholder not paid the bill
by the due date.
After the supervisor approves a cardholder‘s travel voucher package for
payment, it is processed by a voucher processing unit at the location to
which the cardholder is assigned. The voucher processing unit enters
travel information from the approved voucher into DOD‘s Integrated
Automated Travel System (IATS). IATS calculates the amount of per diem
authorized in the travel order and voucher and the amount of mileage, if
any, claimed by the cardholder. In addition, any other expenses claimed
and approved are entered into IATS. Once the travel information from the
voucher has been entered into IATS, the voucher may be selected for
further review or ’audit.“ IATS selects 10 percent of vouchers under
$2,500 and all vouchers $2,500 or greater for audits. If problems with
the voucher are found during the initial entry of the information into
IATS or during the audit of the information, the transaction can be
rejected and returned to the cardholder for correction. Once the
vouchers are processed and audited, they are sent to DFAS for payment
to the cardholder or to Bank of America and the cardholder, if the
cardholder elected split disbursements whereby part of the DFAS
reimbursement is sent to Bank of America.
Monitoring Travel Card Transaction Activity:
In addition to controlling the issuance and credit limits related to
the travel card, APCs are also responsible for monitoring the use of and
delinquencies related to travel card accounts for which they have been
assigned management responsibility. Bank of America‘s Web-based
Electronic Account Government Ledger System (EAGLS) provides on-line
tools that are intended to assist APCs in monitoring travel card
activity and related delinquencies. Specifically, APCs can access EAGLS
to monitor and extract reports on their cardholders‘ travel card
transaction activity and related payment histories.
Managing Delinquent Cardholder Accounts:
Both the Navy and Bank of America have a role in managing travel card
delinquencies under GSA‘s master contract. While APCs are responsible
for monitoring cardholders‘ accounts and for working with cardholders‘
supervisors to address any travel card payment delinquencies, Bank of
America is required to use EAGLS to notify the designated APCs if any of
their cardholders‘ accounts are in danger of suspension or cancellation.
When Bank of America has not received a required payment on any travel
cardholder‘s account within 60 days of the billing statement closing
date, it is considered delinquent. As summarized in figure 8, there are
specific actions required by both DOD and Bank of America based on the
number of days a cardholder‘s account is past due.
Figure 8: Required DOD and Bank of America Delinquency Process
Management Actions:
[See PDF for image]
This figure is an illustration that depicts the required DOD and Bank
of America delinquency process management actions, as follows:
Statement date:
DOD actions: None.
Bank of America actions: Sends statement to cardholder.
45 days:
DOD actions: None.
Bank of America actions: Sends a delinquency reminder to cardholder.
55 days:
DOD actions: None.
Bank of America actions: Sends a presuspension letter to the
cardholder.
60 days:
DOD actions: Agency Program Coordinator (APC) issues 60-day delinquency
notification memorandum to the cardholder and immediate supervisor.
Supervisor investigates and takes appropriate disciplinary action;
Bank of America actions: Suspends the account prohibiting purchases.
Mails suspension letter to cardholder.
75 days:
DOD actions: None;
Bank of America actions: Assesses late fee every 30 days.
90 days:
DOD actions: APC issues 90-day delinquency notification memorandum to
the cardholder, immediate supervisor, and the company commander who
investigates and takes appropriate disciplinary action;
Bank of America actions: Sends 90-day letter to cardholder Sends letter
to cardholder of intent to initiate salary offset.
120 days:
DOD actions: APC issues a 120-day delinquency notification memorandum
to the company commander. The company commander investigates and takes
appropriate disciplinary action;
Bank of America actions: Sends a precancellation letter to the
cardholder. Requests Defense Finance and Accounting Service (DFAS) to
offset salary.
126 days:
DOD actions: None;
Bank of America actions: Closes account, mails notice of cancellation
letter to cardholder.
150 days:
DOD actions: DFAS offsets salary;
Bank of America actions: None.
180 days:
DOD actions: None.
Bank of America actions: Mails a precharge-off letter to the cardholders
for accounts not in salary offset or other payment agreements.
210 days:
DOD actions: None.
Bank of America actions: Charges off account for which no payments were
being made.
Source: GAO analysis.
Note: Starting in fiscal year 2002, DOD began to offset the salaries of
certain civilian employees and military and retired military members
from all services including the Navy, for the amounts delinquent or
charged off on travel card accounts.
[End of figure]
The following is a more detailed explanation of the required actions by
DOD and/or Bank of America with respect to delinquent travel card
accounts.
* 45 days past due”Bank of America is to send a letter to the cardholder
requesting payment. Bank of America has the option to call the
cardholder with a reminder that payment is past due and to advise the
cardholder that the account will be suspended if it becomes 60 days past
due.
* 55 days past due”Bank of America is to send the cardholder a
presuspension letter warning that Bank of America will suspend the
account if it is not paid. If Bank of America suspends an account, the
card cannot be used until the account is paid.
* 60 days past due”The APC is to issue a 60-day delinquency notification
memorandum to the cardholder and to the cardholder‘s immediate
supervisor, informing them that the cardholder‘s account has been
suspended due to nonpayment. The next day, a suspension letter is to
be sent by Bank of America to the cardholder providing notice that the
card has been suspended until payment is received.
* 75 days past due”Bank of America is to assess the account a late fee.
The late fee charged by Bank of America was $20 through August 9, 2001.
Effective August 10, 2001, Bank of America increased the late fee to
$29 under the terms of the contract modification between Bank of
America and DOD. Bank of America is allowed to assess an additional
late fee every 30 days until the account is made current or charged
off.
* 90 days past due”The APC is to issue a 90-day delinquency
notification memorandum to the cardholder, the cardholder‘s immediate
supervisor, and the company commander (or unit director). The company
commander is to initiate an investigation into the delinquency and take
appropriate action, at the company commander‘s discretion. At the same
time, Bank of America is to send a ’due process letter“ to the
cardholder providing notice that the account will be canceled if
payment is not received within 30 days unless he or she enters into a
payment plan, disputes the charge(s) in question, or declares
bankruptcy.
* 120 days past due”The APC is to issue a 120-day delinquency
notification memorandum to the cardholder‘s commanding officer. At 126
days past due, the account is to be canceled by Bank of America.
Beginning in October 2001, once accounts were 120 days past due, Bank
of America began sending files to DFAS listing these accounts for salary
offset.
* 180 days past due”Bank of America is to send ’precharge-off“ or last
call letters to cardholders whose accounts were not put in salary offset
informing them that Bank of America will charge off their accounts and
report them to a credit bureau if payment is not received. A credit
bureau is a service that reports the credit history of an individual.
Banks and other businesses assess the creditworthiness of an individual
using credit bureau reports.
* 210 days past due”Bank of America is to chargeoff any delinquent
account that it was unable to put in the offset program and, if the
balance is $50 or greater, report it to a credit bureau, unless another
form of payments was forthcoming.
Some accounts are pursued for collection by Bank of America‘s recovery
department, while others are sent to attorneys or collection agencies
for recovery. The delinquency management process can be suspended when a
cardholder‘s APC informs Bank of America that the cardholder is on
official travel, but is unable to submit vouchers and make timely
payments on his or her account, through no fault of his or her own.
Under such circumstances, the APC is to notify Bank of America that the
cardholder is in ’mission-critical“ status. By activating this status,
Bank of America is precluded from identifying the cardholder‘s account
as delinquent until 45 days after such time as the APC determines the
cardholder is to be removed from mission-critical status. According to
Bank of America, approximately 800 to 1,000 cardholders throughout DOD
were in this status at any given time throughout fiscal year 2001.
[End of section]
Appendix II: Objectives, Scope, and Methodology:
Pursuant to a joint request by the Chairman and Ranking Minority Member
of the Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations, House Committee on Government Reform, and
the Ranking Minority Member of the Senate Committee on Finance, we
audited the controls over the issuance, use, and monitoring of
individually billed travel cards and associated travel processing and
management for the Department of the Navy. Our assessment covered:
* the reported magnitude and impact of delinquent and charged-off Navy
travel card accounts for fiscal year 2001 and the first 6 months of
fiscal year 2002, along with an analysis of causes and related
corrective actions;
* an analysis of the universe of Navy travel card transactions during
fiscal year 2001 and the first 6 months of fiscal year 2002 to identify
potentially fraudulent and abusive activity related to the travel card;
* the Navy‘s overall management control environment and the design of
selected Navy travel program management controls, including controls
over (1) travel card issuance, (2) APCs‘ capacity to carry out assigned
duties, (3) limiting card activation to meet travel needs, (4)
transferred and ’orphan“ accounts, (5) procedures for terminating
accounts when cardholders leave military service, and (6) access for
Bank of America‘s travel card database; and;
* tests of statistical samples of transactions to assess the
implementation of key management controls and processes for three Navy
units‘ travel activity including (1) travel order approval, (2)
accuracy of travel voucher payments, (3) the timely submission of
travel vouchers by travelers to the approving officials, and (4) the
timely processing and reimbursement of travel vouchers by the Navy and
DOD.
We used as our primary criteria applicable laws and regulations,
including the Travel and Transportation Reform Act of 1998 (Public Law
105-264),[Footnote 35] the General Services Administration‘s (GSA)
Federal Travel Regulation,[Footnote 36] and the Department of Defense
Financial Management Regulations, Volume 9, Travel Policies and
Procedures. We also used as criteria our Standards for Internal Control
in Federal Government[Footnote 37] and our Guide to Evaluating and
Testing Controls Over Sensitive Payments.[Footnote 38] To assess the
management control environment, we applied the fundamental concepts and
standards in our internal control standards to the practices followed
by management in the six areas reviewed.
To assess the magnitude and impact of delinquent and charged-off
accounts, we compared the Navy‘s delinquency and charge-off rates to
other DOD services and federal agencies. We did not verify the accuracy
of the data provided to us by Bank of America and GSA. We also analyzed
the trends in the delinquency and charge-off data from fiscal year 2000
through the first half of fiscal year 2002.
We also used data mining to identify Navy travel card transactions for
individually billed accounts for audit. Our data mining procedures
covered the universe of individually billed Navy travel card activity
during fiscal year 2001 and the first 6 months of fiscal year 2002 and
identified transactions that we believed were potentially fraudulent or
abusive based upon the nature, amount, merchant, and other identifying
characteristics of the transaction. However, our work was not designed
to identify, and we did not determine, the extent of any potentially
fraudulent or abusive activity related to the travel card.
To assess the overall control environment for the travel card program
at the Department of the Navy, we obtained an understanding of the
travel process, including travel card management and oversight, by
interviewing officials from the Office of the Undersecretary of
Defense, Comptroller; Department of the Navy; Defense Finance and
Accounting Service (DFAS); Bank of America; and GSA. We reviewed
applicable policies and procedures and program guidance they provided.
We visited three Navy units to ’walk through“ the travel process
including the management of travel card usage and delinquency. Further,
we contacted one of the three largest U.S. credit bureaus to obtain
credit history data and information on how credit scoring models are
developed and used by the credit industry for credit reporting.
At each of the Navy locations we audited, we also used our review of
policies and procedures and the results of our ’walk-throughs“ of travel
processes and other observations to assess the effectiveness of controls
over segregation of duties among persons responsible for issuing travel
orders, preparing travel vouchers, processing and approving travel
vouchers, and certifying travel voucher payments.
We also reviewed computer system access controls for Electronic Account
Government Ledger System (EAGLS)”the system used by Bank of America to
maintain DOD travel card data. To determine whether these controls over
EAGLS were effective, we interviewed Bank of America officials and
observed EAGLS functions and capabilities.
To test the implementation of key controls over individually billed Navy
travel card transactions processed through the travel system”including
the travel order, travel voucher, and payment processes”we obtained and
used the database of fiscal year 2001 Navy travel card transactions to
review random samples of transactions at three Navy locations. Because
our objective was to test controls over travel card expenses, we
excluded credits and miscellaneous debits (such as fees) from the
population of transactions used to select random samples of travel card
transactions to review at each of the three Navy units we audited. Each
sampled transaction was subsequently weighted in the analysis to account
statistically for all charged transactions at each of the three units,
including those transactions that were not selected.
We selected three Navy locations for testing controls over travel card
activity based on the relative size of travel card activity at the 27
Navy commands and of the units under these commands, the number and
percentage of delinquent accounts, and the number and percentage of
accounts written off. We selected one unit from the Naval Sea Systems
Command because that command represented 19 percent of the total travel
card activity, 9 percent of past due accounts, and 7 percent of accounts
charged off during fiscal year 2001. We also selected one unit from
Naval Air Systems Command because that command represented approximately
12 percent of travel card activity, 4 percent of past due accounts, and
4 percent of accounts charged off during fiscal year 2001 across the
Navy. We also selected U.S. Marine Corps Forces Atlantic because this
command represented about 24 percent of Corps charge card activity, 23
percent of accounts past due, and 26 percent of accounts charged off.
Each of the units within the commands was selected because of the
relative size of the unit within the respective command. Table 10
presents the sites selected and the number of fiscal year 2001
transactions at each location.[Footnote 39]
Table 10: Population of Fiscal Year 2001 Travel Transactions at Navy
Units Tested:
Navy unit tested: Camp Lejeune;
Number of fiscal year 2001 travel transactions[A]: 14,209;
Dollar value of fiscal year 2001 travel transactions[A]: $1,747,316.
Navy unit tested: Patuxent River;
Number of fiscal year 2001 travel transactions[A]: 179,547;
Dollar value of fiscal year 2001 travel transactions[A]: $20,335,864.
Navy unit tested: Puget Sound Naval Shipyard;
Number of fiscal year 2001 travel transactions[A]: 80,583;
Dollar value of fiscal year 2001 travel transactions[A]: $11,025,669 .
Source: GAO analysis based on Bank of America data.
[A] Transactions represent charges for sales and cash advances and
exclude credits and fees.
[End of table]
We performed tests on statistical samples of travel card transactions at
each of the three case study sites to assess whether the system of
internal controls over the transactions was effective, as well as to
provide an estimate of the percentage of transactions by unit that were
not for official government travel. For each transaction in our
statistical sample, we assessed whether (1) there was an approved
travel order prior to the trip, (2) the travel voucher payment was
accurate, (3) the travel voucher was submitted within 5 days of the
completion of travel, and (4) the traveler was paid within 30 days of
the submission of an approved travel voucher. We considered
transactions not related to authorized travel to be abuse and incurred
for personal purposes. The results of the samples of these control
attributes, as well as the estimate for personal use”or abuse”related to
travel card activity, can be projected to the population of
transactions at the respective test case study site only, not to the
population of travel card transactions for all Navy cardholders.
We concluded that a control was effective if both the projected point
estimate of the failure rate and the upper bound of a one-sided 95
percent confidence interval associated with the estimate were no more
than 5 percent. We concluded that a control was ineffective if both the
point estimate of the failure rate and the lower bound of a one-sided
95 percent confidence interval associated with the estimate were
greater than 10 percent. Otherwise, we concluded that the control was
partially effective. Tables 11 through 13 show (1) the results of our
tests of key attributes, (2) the point estimates of the failure rates
for the attributes, and (3) the two-sided 95 percent confidence
intervals for the failure rates for each attribute. Table 11 shows the
results of our test of the key control related to the authorization of
travel”(approved travel orders were prepared prior to dates of travel).
Table 11: Estimates of Fiscal Year 2001 Transactions That Failed
Control Tests for Approved Travel:
Navy unit tested: Camp Lejeune
Number of failed transactions: 11 of 96;
Estimated failure rate (2-sided 95% confidence interval): 11.5%;
(5.9%, 19.6%).
Navy unit tested: Patuxent River
Number of failed transactions: 3 of 96;
Estimated failure rate (2-sided 95% confidence interval): 3.1%;
(0.6%, 8.9%).
Navy unit tested: Puget Sound Naval Shipyard
Number of failed transactions: 47 of 96;
Estimated failure rate (2-sided 95% confidence interval): 49.0%;
(38.6%, 59.4%).
Source: GAO analysis.
[End of table]
Table 12 shows the results of our test for effectiveness of controls in
place over the accuracy of travel voucher payments.
Table 12: Estimates of Fiscal Year 2001 Transactions That Failed
Control Tests for Accurate Travel Voucher Payments:
Navy unit tested: Camp Lejeune;
Number of failed transactions: 14 of 43;
Estimated failure rate (2-sided 95% confidence interval): 32.6%;
(19.1%, 48.5%).
Navy unit tested: Patuxent River;
Number of failed transactions: 34 of 96;
Estimated failure rate (2-sided 95% confidence interval): 35.4%;
(25.9%, 45.8%).
Navy unit tested: Puget Sound Naval Shipyard;
Number of failed transactions: 38 of 96;
Estimated failure rate (2-sided 95% confidence interval): 39.6%;
(29.8%, 50.1%).
Source: GAO analysis.
[End of table]
Table 13 shows the results of our tests of two key controls related to
timely processing of claims for reimbursement of expenses related to
government travel”timely submission of the travel voucher by the
employee and timely approval and payment processing.
Table 13: Estimates of Fiscal Year 2001 Transactions That Failed
Control Tests for Timely Submission and Processing of Travel Vouchers:
Navy unit tested: Camp Lejeune
Timely voucher submission by employee (5-day rule), Number of failed
transactions: 11 of 96;
Timely voucher submission by employee (5-day rule), Estimated failure
rate (2-sided 95% confidence interval): 11.5% (5.9%, 19.6%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 3 of 96
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (2-sided 95% confidence interval): 3.1% (0.6%, 8.9%).
Navy unit tested: Patuxent River
Timely voucher submission by employee (5-day rule), Number of failed
transactions: 35 of 96;
Timely voucher submission by employee (5-day rule), Estimated failure
rate (2-sided 95% confidence interval): 36.5% (26.9%, 46.9%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 1 of 96
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (2-sided 95% confidence interval): 1.0% (0.03%, 5.7%).
Navy unit tested: Puget Sound Naval Shipyard
Timely voucher submission by employee (5-day rule), Number of failed
transactions: 33 of 96;
Timely voucher submission by employee (5-day rule), Estimated failure
rate (2-sided 95% confidence interval): 34.4% (25.0%, 44.8%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 1 of 96
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (2-sided 95% confidence interval): 1.0% (0.03%, 5.7%).
Source: GAO analysis.
[End of table]
To determine if cardholders were reimbursed within 30 days, we used
payment dates provided by DFAS. We did not independently validate the
accuracy of these reported payment dates.
We briefed Navy managers, including Assistant Secretary of the Navy
(Financial Management and Comptroller) officials; and unit commanders
and APCs of the details of our audit, including our findings and their
implications. We incorporated their comments where appropriate. We
conducted our audit work from December 2001 through October 2002 in
accordance with generally accepted government auditing standards, and
we performed our investigative work in accordance with standards
prescribed by the President‘s Council on Integrity and Efficiency. We
received DOD comments on a draft of this report from the Under Secretary
of Defense (Comptroller) dated December 5, 2002, and have reprinted
those comments in appendix V.
[End of section]
Appendix III: Navy Major Command Delinquency Rates:
Table 14 shows the travel card delinquency rates for Navy‘s major
commands (and other Navy organizational units at a comparable level)
that had outstanding balances over $1 million as of March 31, 2002.
Commands with a March 31, 2002, balance outstanding under $1 million
have been combined into "other." The Navy‘s commands and other units
are listed in descending order based on their respective delinquency
rates as of March 31, 2002. The delinquency rates shown represent the
total amount delinquent (amounts not paid within 61 days of the travel
card monthly statement closing date) as a percentage of total amount
owed by the command‘s travel cardholders at the end of each quarter.
Table 14: Navy Major Command Delinquency Rates[A] (By Quarter) for the
2 Years Ending March 31, 2002:
Major Command: Naval Reserve Forces;
June 2000: 14%;
September 2000: 18%;
December 2000: 42%;
March 2001: 17%;
June 2001: 14%;
September 2001: 15%;
December 2001: 30%;
March 2002: 22%.
Major Command: Marine Reserve Forces;
June 2000: 15%;
September 2000: 21%;
December 2000: 30%;
March 2001: 15%;
June 2001: 16%;
September 2001: 24%;
December 2001: 26%;
March 2002: 18%.
Major Command: U.S. Marine Forces Atlantic;
June 2000: 16%
September 2000: 17%
December 2000: 25%
March 2001: 13%
June 2001: 14%
September 2001: 19%
December 2001: 26%
March 2002: 17%
Major Command: U.S. Marine Forces Pacific;
June 2000: 16%;
September 2000: 18%;
December 2000: 26%;
March 2001: 12%;
June 2001: 16%;
September 2001: 16%;
December 2001: 25%;
March 2002: 16%.
Major Command: U.S. Atlantic Fleet;
June 2000: 18%
September 2000: 21%
December 2000: 20%
March 2001: 15%
June 2001: 14%
September 2001: 19%
December 2001: 17%
March 2002: 14%
Major Command: U.S. Pacific Fleet;
June 2000: 17%;
September 2000: 18%;
December 2000: 17%;
March 2001: 12%;
June 2001: 13%;
September 2001: 15%;
December 2001: 16%;
March 2002: 12%.
Major Command: Bureau of Naval Personnel;
June 2000: 15%;
September 2000: 14%;
December 2000: 15%;
March 2001: 10%;
June 2001: 12%;
September 2001: 12%;
December 2001: 14%;
March 2002: 11%,
Major Command: Naval Special Warfare Command;
June 2000: 14%;
September 2000: 16%;
December 2000: 17%;
March 2001: 11%[B];
June 2001: 12%;
September 2001: 11%;
December 2001: 13%;
March 2002: 9%.
Major Command: Bureau of Medicine and Surgery;
8%
June 2000: 11%
September 2000: 13%
December 2000: 16%
March 2001: 9%
June 2001: 9%
September 2001: 13%
December 2001: 12%
March 2002: 8%
Major Command: Chief of Naval Education and Training;
June 2000: 9%;
September 2000: 12%;
December 2000: 14%;
March 2001: 10%;
June 2001: 9%;
September 2001: 14%;
December 2001: 12%;
March 2002: 7%.
Major Command: Chief of Naval Operations;
June 2000: 6%;
September 2000: 8%;
December 2000: 11%;
March 2001: 5%;
June 2001: 5%;
September 2001: 7%;
December 2001: 7%;
March 2002: 4%.
Major Command: Naval Sea Systems Command;
June 2000: 6%;
September 2000: 7%;
December 2000: 8%;
March 2001: 4%;
June 2001: 5%;
September 2001: 6%;
December 2001: 4%;
March 2002: 3%.
Major Command: Office of the Undersecretary of the Navy;
June 2000: 5%;
September 2000: 6%;
December 2000: 7%;
March 2001: 3%;
June 2001: 3%;
September 2001: 5%;
December 2001: 3%;
March 2002: 2%.
Major Command: Space and Naval Warfare Systems Command;
June 2000: 4%;
September 2000: 4%;
December 2000: 6%;
March 2001: 3%;
June 2001: 4%;
September 2001: 4%;
December 2001: 2%;
March 2002: 2%.
Major Command: Naval Air Systems Command;
June 2000: 6%;
September 2000: 7%;
December 2000: 9%;
March 2001: 4%;
June 2001: 4%;
September 2001: 5%;
December 2001: 4%;
March 2002: 2%.
Major Command: Naval Facilities Engineering Command;
June 2000: 5%;
September 2000: 5%;
December 2000: 7%;
March 2001: 3%;
June 2001: 4%;
September 2001: 5%;
December 2001: 3%;
March 2002: 2%.
Major Command: All other commands combined;
June 2000: 9%;
September 2000: 10%;
December 2000: 14%;
March 2001: 7%;
June 2001: 8%;
September 2001: 9%;
December 2001: 11%;
March 2002: 7%.
Major Command: Navy Wide;
June 2000: 11%;
September 2000: 13%;
December 2000: 18%;
March 2001: 10%;
June 2001: 10%;
September 2001: 12%;
December 2001: 15%;
March 2002: 11%.
Source: GAO calculation based on information provided by Bank of
America.
[A] The delinquency rates shown represent the total amount delinquent
(amounts not paid within 61 days of the travel card monthly statement
closing date) as a percentage of total amounts owed by the command‘s
travel cardholders at a point in time.
[B] The negative delinquency rate was caused by the correction of a
$2.3 million posting error by Bank of America. The rate adjusted to
remove the effect of the error is 10 percent.
[End of table]
[End of section]
Appendix IV: Navy Personnel Grade, Rank, and Associated Basic Pay
Rates:
Tables 15, 16, and 17 show the grade, rank (where relevant), and the
associated basic pay rates for 2001 for Navy‘s and Marine Corps‘
military personnel and civilians. The basic 2001 pay rates shown
exclude other considerations such as locality pay and any allowances
for housing or cost of living.
Table 15: Navy Military Grades, Ranks, and Associated Average Basic Pay
Rates for Fiscal Year 2001:
Military grade, Enlisted personnel: E-1 to E-3;
Military rank: Seaman recruit to seaman;
2001 Pay: $11,976 to $14,973.
Military grade, Enlisted personnel: E-4 to E-6;
Military rank: Petty officer 3rd class to 1st class;
2001 Pay: $17,931 to $26,860.
Military grade, Enlisted personnel: E-7 to E-9;
Military rank: Chief petty officer to master chief petty officer;
2001 Pay: $31,739 to $45,514.
Military grade, Officers[A]: WO-2 to WO-4;
Military rank: Warrant officer;
2001 Pay: $37,722 to $53,514.
Military grade, Officers[A]: O-1 to O-3;
Military rank: Ensign to lieutenant;
2001 Pay: $27,398 to $44,649.
Military grade, Officers[A]: O-4 to O-6;
Military rank: Lieutenant commander to captain;
2001 Pay: $54,476 to $83,982.
Military grade, Officers[A]: O-7 to O-10;
Military rank: Admiral;
2001 Pay: $98,257 to $127,695.
Source: U.S. Navy.
[A] Officers‘ ranks include warrant officers (denoted by WO) and
commissioned officers (denoted by O).
[End of table]
Table 16: Marine Corp Military Grades, Ranks, and Associated Basic Pay
Rates for Fiscal Year 2001:
Military grade, Enlisted personnel: E-1 to E-3;
Military rank: Private to lance corporal;
2001 pay: $11,871 to $15,093.
Military grade, Enlisted personnel: E-4 to E-6;
Military rank: Corporal to staff sergeant;
2001 pay: $17,675 to $26,018.
Military grade, Enlisted personnel: E-7 to E-9;
Military rank: Gunnery sergeant to sergeant major or master gunnery
sergeant;
2001 pay: $31,533 to $46,646.
Military grade, Officers[A]: WO-1 to WO-5;
Warrant officer;
2001 pay: $32,098 to $59,587.
Military grade, Officers[A]: O-1 to O-3;
Military rank: 2nd Lieutenant to captain;
2001 pay: $25,653 to $45,120.
Military grade, Officers[A]: O-4 to O-6;
Military rank: Major, lieutenant colonel, colonel;
2001 pay: $56,951 to $85,628.
Military grade, Officers[A]: O-7 to O-10;
General;
2001 pay: $98,484 to $130,200.
Source: U.S. Navy.
[A] Officer‘s rank includes warrant officers (denoted by WO) and
commissioned officers (denoted by O).
[End of table]
Table 17: Civilian Grades and Associated Basic Pay Rates for Calendar
Year 2001:
Civilian grade, General Schedule employees: GS-1 to GS-3;
2001 pay: $14,244 to $22,712.
Civilian grade, General Schedule employees: GS-4 to GS-5;
2001 pay: $19,616 to $28,535.
Civilian grade, General Schedule employees: GS-6 to GS-8;
2001 pay: $24,463 to $39,143.
Civilian grade, General Schedule employees: GS-9 to GS-12;
2001 pay: $33,254 to $62,686.
Civilian grade, General Schedule employees: GS-13 to GS-15;
2001 pay: $57,345 to $103,623.
Civilian grade, Senior Executive Service: ES-01 to ES-06;
2001 pay: $109,100 to $125,700.
Source: Office of Personnel Management.
[End of table]
[End of section]
Appendix V: Comments from the Department of Defense:
Under Secretary Of Defense:
Comptroller:
1100 Defense Pentagon:
Washington, DC 20301-1100:
December 5, 2002:
Mr. Gregory D. Kutz:
Director:
Financial Management and Assurance:
U.S. General Accounting Office:
Washington, DC 20548
Dear Mr. Kutz:
This is the Department of Defense (DoD) response to the General
Accounting Office (GAO) draft report, "Travel Cards: Control Weaknesses
Leave Navy Vulnerable to Fraud and Abuse," dated September 1, 2002,
(GAO Code 192064/GAO-03-147).
The Department reviewed the draft report and recognizes the intent of
the recommendations. The Department takes travel card abuse and misuse
very seriously. The DoD Task Force, which I established, developed a
full range of reforms. The Department has implemented many of these
reforms and others are in the process. For example, in September and
October 2002, approximately 330,000 inactive travel card accounts were
cancelled. The Department also implemented salary-offset procedures and
consequently has recovered most of the delinquent debts from the
cardholders' payroll checks.
We are also taking actions to strengthen and enforce internal controls
and increase the tools available to managers for enforcing those
controls. These include employing data mining technologies to detect
fraudulent or abusive charge card transactions. We are also increasing
management emphasis and personal accountability, enhancing the
capability of the workforce to accomplish assigned charge card
responsibilities to include training and recommending minimum skills
required for performing essential charge card management tools.
Regarding the specific report on the Navy's Travel Card program, the
Department concurs with four recommendations and partially concurs with
GAO's other two recommendations. As stated previously, many actions
have already been taken or will soon be taken to implement a number of
recommendations. The enclosure includes detailed comments on the
recommendations contained in the report.
The Department appreciates the opportunity to comment on the draft
report. My staff point of contact is Ms. Jacqueline Jenkins. She may be
reached by email: jenkinsj2@osd.pentagon.mil or by telephone at (703)
697-8282.
Sincerely,
Signed by:
Dov S. Zakheim:
Enclosure:
GAO Draft Report, GAO-03-147/Code 192064:
"Travel Cards: Control Weaknesses Leave Navy Vulnerable To Fraud And
Abuse,"
November 1, 2002:
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommended that the Secretary of the Navy
establish policies and procedures governing the issuance of individual
travel cards to military and civilian employees including the
following:
* Provide individuals with no prior credit histories with "restricted"
travel cards with low credit and ATM limits.
* Develop procedures to periodically evaluate frequency of card usage
to identify accounts of infrequent travelers.
* Cancel accounts for current infrequent travelers as noted in the
Charge Card Task Force report in order to minimize exposure to fraud
and abuse.
* Evaluate the feasibility of activating and deactivating all cards,
regardless of whether they are standard or restricted cards, so that
cards are available for use only during the period authorized by the
cardholders' travel orders. At a minimum, this policy should focus on
controlling travel card use by "high-risk" enlisted military personnel
in E-1 to E-6 grades.
* Develop comprehensive, consistent Navy-wide initial training and
periodic refresher training for travel cardholders, focused on the
purpose of the program and appropriate uses of the card. The training
should emphasize the prohibition on personal use of the card, including
for gambling, personal travel, and adult entertainment. Such training
should also address the policies and procedures of the travel order,
voucher, and payment processes. For entry-level personnel, the training
should also include information on basic personal financial management
techniques to help avoid financial problems that could affect an
individual's ability to pay his or her travel card bill.
DoD Response: Concur. The Department of the Navy (DON) has either
implemented or will soon take action to implement most of the
recommended actions.
* The Department concurs with the recommendation to provide individuals
with no prior credit histories with "restricted" travel cards with low
credit and ATM limits, as is typically the current practice. However,
the DON's position is that some applicants with no prior credit history
may need a standard card or a card with higher than "restricted" limits
to accomplish their mission. The DON will work with the card contractor
and the Department of Defense in implementing the provisions contained
in the Fiscal Year 2003 Department of Defense Appropriations Act
(Public Law 107-248) which requires the Secretary of Defense to
evaluate the credit worthiness of individual travel card applicants.
* In accordance with the procedures outlined in the Under Secretary of
Defense (Comptroller), July 19, 2002, guidance, the DON will conduct
semiannual reviews of card usage and close the accounts of infrequent
travelers.
* In accordance with the recommendations of the Charge Card Task Force,
96,000 Navy and Marine Corps infrequent traveler accounts were
cancelled as of September 2002.
* The DON established an internal delinquency metric in April 2002. Any
command not meeting the metric must deactivate cards for all personnel,
regardless of grade, that are not scheduled for official travel.
Additionally, cards cannot be activated until 10 days before official
travel is scheduled to begin, and cards must be immediately deactivated
at the conclusion of the travel. Also, one of the recommendations from
the DoD Charge Card Task Force Final Report was to evaluate whether
additional travel card control mechanisms can be incorporated into the
Defense Travel System. The feasibility of automatic activation and
deactivation of travel charge cards to correspond with travel order
approval in the Defense Travel System is a part of the evaluation.
* The Department of the Navy is currently developing a comprehensive
computer-based training (CBT) program. The CBT is designed to explain
the requirements of the travel card program for cardholders, Agency
Program Coordinators (APCs), supervisors, and commanding officers.
Specifically, the CBT will address prohibitions for personal use as
well as the policies and procedures for processing individual travel
orders, vouchers, and reimbursements. Also, in August 2002, the DON
prepared and distributed a brochure to cardholders with policy
guidelines. Additionally, in October 2002, a video tele-training
program was initiated that provided training for cardholders, APCs,
supervisors, and commanding officers at various locations. Training
topics included delinquency management, recognizing card misuse, and
using the EAGLS reporting tools. Subject training will be available
throughout fiscal year 2003. The DON also provides all Navy military
recruits, between their basic and advanced training sessions, a
personal financial management training course. This 2-day course covers
topics that include banking and financial management services,
checkbook management, the essentials of credit, financial planning and
deployment, and official government travel.
Recommendation 2: The GAO recommended that the Secretary of the Navy
establish the following specific policies and procedures to strengthen
controls and disciplinary actions for improper use of the travel card:
* Establish guidance regarding the knowledge, skills, and abilities
required to carry out APC responsibilities effectively.
* Establish guidance on APC span of control responsibilities so that
such responsibilities are properly aligned with time available to
ensure effective performance. Determine whether certain APC positions
should be staffed on a full-time basis rather than as collateral
duties.
* Establish Navy-wide procedures to provide assurance that APCs receive
training on their APC responsibilities. The training should include how
to use EAGLS transaction reports and other available data to monitor
cardholder use of the travel card - for example, reviewing account
transactional histories to ascertain whether transactions are incurred
during periods of authorized travel and appear to be appropriate travel
expenses and from approved MCCs.
* Establish guidance requiring APCs to review EAGLS reports to identify
cardholders who have written NSF checks for payment of their account
balances, and refer these employees for counseling or disciplinary
action.
* Investigate and, if warranted, take appropriate disciplinary actions
against the cardholders that wrote three or more NSF checks to Bank of
America.
* Establish Navy procedures to develop a data mining program to further
facilitate APCs' ability to identify potentially inappropriate
transactions for further review.
* Establish Navy-wide procedures requiring that supervisors and
commanders notify APCs of actions taken with respect to delinquent
cardholders.
* Establish a Navy requirement for cognizant APCs to retain records
documenting cardholder's fraudulent or abusive usage of the travel
card.
* Establish appropriate, consistent Navy-wide procedures as a guide for
taking disciplinary actions with respect to fraudulent and abusive
activity and delinquency related to the travel card.
* Review records of individual whose accounts have been charged off or
placed in salary offset to determine whether they have been referred to
the DON CAF for a security review.
* Strengthen procedures used to process employees discharging from the
Service to ensure that all accounts are deactivated or closed, and
repayment of any outstanding debts is arranged.
* Perform periodic review of exit procedures to determine that accounts
of departed cardholders are deactivated or closed in a timely manner.
* Develop procedures to identify active cards of separated cardholders,
including comparing cardholder and payroll data.
* Review, in conjunction with Bank of America, individuals with APC-
level access to EAGLS to limit such access to only those with current
APC duties.
* Develop a management plan to ensure that audits of the Navy travel
card program are conducted on a regular basis, and the results reported
to senior management.
DoD Response: Partially concur. The DON has either implemented or will
soon take action to implement most of the recommended actions. However,
the Department has concerns with the recommendation to establish Navy-
wide procedures requiring that supervisors and commanding officers
notify the APCs of actions taken with respect to delinquent
cardholders.
* The Office of the Under Secretary of Defense (Comptroller), the
Travel Card Program Management Office, and the Component Program
Managers will be tasked to develop the necessary revisions to the
"DoDFMR" by March 31, 2003, to establish guidance regarding the
knowledge, skills, and abilities required to carry out APC
responsibilities. Also, both the Navy and the Marine Corps have issued
internal instructions that more clearly define the responsibilities of
the APC position and provide commanders with guidelines on the
appointment of APCs.
* The Office of the Under Secretary of Defense (Comptroller), the
Travel Card Program Management Office, and the Component Program
Managers will be tasked to develop the necessary revisions to the
"DoDFMR" by March 31, 2003, to establish guidelines on APC span of
control responsibilities. Also, the DON has highlighted the importance
of the government travel card program to senior management within the
Department. Consequently, this increased focus on the travel card
program has resulted in a reassessment by commands and activities on
the level of personnel and the time they require to manage subject
program effectively. This reassessment will be an ongoing effort as
attention continues to be focused on the program.
* In May and November 2002, the Navy held APC symposiums. The
symposiums consisted of an overview of the travel card program,
including the regulations and policies governing the program, and
information regarding various tools available to allow APCs to
effectively manage the travel card program. The November 2002 symposium
included sessions specifically covering the EAGLS reporting tool and
the use of the EAGLS reports.
* The DON will issue guidance requiring that APCs review EAGLS reports
to identify cardholders who write NSF checks, and that they provide
subject information to the individual's supervisor/commander for
appropriate action.
* The Naval Criminal Investigative Service is currently reviewing a
list provided by the General Accounting Office of personnel who wrote
three or more NSF checks since the inception of the program with Bank
of America.
* In June 2002, the Navy began a pilot program to identify potential
misuse by monitoring unusual activity. Accounts identified for
potential misuse are immediately deactivated until APCs or the
cardholders are contacted to confirm the transactions. The process
identifies known key card risk factors such as high cash usage, excess
or specific retail card usage, and large dollar-value transactions. To
further automate this process, the Navy has procured the same software
used by the GAO to conduct such data mining effort and is currently
negotiating with the card contractor to obtain transaction-level
information.
* Partially concur with the recommendation to establish Navy-wide
procedures requiring that supervisors and commanding officers notify
APCs of actions taken with respect to delinquent cardholders. The DON's
position is that providing this type of sensitive information to APCs
is not appropriate. The DON considers it to be more appropriate that
actions taken with respect to delinquent cardholders be reported up the
chain of command. The DON will decide at what level and at what
frequency subject reporting should occur.
* The "DoDFMR," Volume 9, Chapter 3, requires APCs to retain
documentation of all delinquency notifications sent to a delinquent
cardholder's supervisor. The DON, in conjunction with DoD, will issue
guidance requiring cognizant APCs to also retain records documenting
fraud and abuse.
* The Fiscal Year 2003 Department of Defense Appropriations Act (Public
Law 107-248) requires that the Secretary of Defense establish
guidelines and procedures for disciplinary actions to be taken against
cardholders for improper, fraudulent, or abusive use of government
charge cards. The DON will work with the cognizant DoD staff with
respect to this provision.
* The DON will work with the DON Central Adjudication Facility to
determine the number of accounts referred to them for review.
* In April 2002, the DON directed that APCs must be included as part of
the check-in and check-out process. Upon change of duty stations, the
DON policy requires the losing activity to deactivate the travel cards
of all departing personnel.
* The DON will direct commands to perform a periodic review to ensure
that accounts of departed cardholders are deactivated or closed in a
timely manner.
* The DoD periodically receives information from the Defense Manpower
Data Center identifying employees that are separated, retired, or
deceased. The DON will distribute this information to APCs to compare
records and close accounts, as required.
* The DON is in the process of reviewing current APC listings and will
delete access for individuals who no longer perform APC duties.
* The DON will develop a plan to ensure that audits of the Navy travel
card program are conducted on a regular basis and that the results are
reported to senior management.
Recommendation 3: The GAO recommended that commanders at each unit
identify causes of the high error rate related to travel voucher review
and provide refresher training to ensure that voucher examiners and
auditors are informed and can accurately apply travel regulations and
updates.
DoD Response: Partially concur. The DON has requested the Navy Audit
Service to conduct a review of the Department's end-to-end travel
process and make recommendations to improve accountability and
efficiency. Upon completion of subject review, the DON will distribute
the appropriate guidance to all major commands.
Recommendation 4: The GAO recommended that the Commander of Puget Sound
Naval Shipyard issue procedures to clearly assign the responsibilities
for reviewing the accuracy of the travel vouchers.
DoD Response: Concur. In accordance with the "DoDFMR," Volume 9,
Chapter 3, the Puget Sound Naval Shipyard's Central Travel Office (CTO)
has been assigned responsibility for review of travel vouchers for
completeness, accuracy, and validity. To enhance the performance of
this function, the CTO staff has been attending formal Joint Travel
Regulation training during fiscal years 2002 and 2003. It is
anticipated that the entire staff will have completed subject training
by spring 2003. In the interim, Personnel Support Detachment Bremerton
has agreed to conduct secondary reviews of travel vouchers before
disbursement until the occurrences or errors have diminished.
Recommendation 5: The GAO recommended that the Commander of Puget Sound
Naval Shipyard conduct periodic review to assess the effectiveness of
the new procedures in reducing the frequency and amount of voucher
errors.
DoD Response: Concur. The Puget Sound Naval Shipyard's CTO, with the
assistance of their Command Evaluation and Review Office, will conduct
random sampling of completed travel vouchers packages every 6 months to
determine improvement in the percentage of (both frequency and amount)
voucher errors.
Recommendation 6: The GAO recommended that the Under Secretary of
Defense (Comptroller) assess the recommendations and, where applicable,
incorporate them into or supplement the DoD Charge Card Task Force
recommendations to improve travel card policies and procedures
throughout DoD.
DoD Response: Concur. The Department concurs with the recommendation
and has already taken action in a number of areas consistent with the
GAO's recommendations for the Department of the Navy. Specifically, the
Department has taken the following actions:
* The Under Secretary of Defense (Comptroller) directed the
cancellation of charge cards that had not been used within the prior 12
months. That action resulted in the reduction of approximately 330,000
cards in September and October 2002. The Department is currently
conducting another review of accounts and has agreed with the Bank of
America to regular, periodic review of such accounts.
* The Under Secretary of Defense (Comptroller) approved a request from
the Department of the Navy to allow the definition of infrequent
traveler to be raised to four or less trips per year as opposed to two
or fewer, as determined appropriate by the Navy.
* One of the DoD Charge Card Task Force recommendations was to review
the travel voucher settlement processes. The Navy and the Air Force
Audit Agencies and the DFAS Internal Review Office have been requested
to review the settlement processes in place for each Military Service
and provide recommendations. Note: The DFAS processes travel settlement
vouchers for the Army and other DoD agencies.
* The Defense Manpower Data Center is beginning to provide the DoD
Travel Card Program Management Office with monthly comparisons of
separated, deceased, and retired members processed through the
personnel systems with active Bank of America travel card accounts.
Subject information will be forwarded to each of the Military Services
for dissemination to the appropriate APCs. While subject information is
not current, it will help reduce the risk of continued use of travel
cards after separation, retirement, and/or death. Automatic
deactivation of travel cards as individuals are removed from the
Defense Travel System is also being evaluated.
* The Department has requested that the Bank of the America assist in
identifying charges made on merchant category codes that are blocked.
Bank of America has provided transaction data, previously provided to
the GAO, in order to allow the Office of the DoD Inspector General to
begin preliminary data mining work on the individual travel cards. The
Department also requested the assistance of VISA in developing a
separate merchant category code for establishments that provide adult
entertainment along with food and beverages. Feedback thus far has been
that establishing a separate code for subject establishments is
unlikely. The Department is continuing to work with both Bank of
America and VISA to try to identify methods of prevention or early
detection of misuse of the travel card.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Travel Cards: Control Weaknesses
Leave Navy Vulnerable to Fraud and Abuse, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-03-148T] (Washington, D.C.: Oct.
8, 2002).
[2] U.S. General Accounting Office, Travel Cards: Control Weaknesses
Leave Army Vulnerable to Potential Fraud and Abuse, [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-03-169] (Washington, D.C.: Oct.
11, 2002).
[3] We defined potentially fraudulent activity as any scheme, or
pattern of activity, related to the use of a travel card in apparent
violation of federal or state criminal code. For purposes of this
report, we considered as potentially fraudulent cases where cardholders
wrote three or more nonsufficient fund checks or checks on closed
accounts to pay their Bank of America bills. We considered abusive
travel card activity to include (1) personal use of the card”i.e., any
use other than for official government travel”regardless of whether the
cardholder paid the bill and (2) cases in which cardholders were
reimbursed for official travel and then did not pay Bank of America,
and thus benefited personally. Some of the travel card activity that we
categorized as abusive would be potentially fraudulent if it can be
established that the cardholders violated any element of federal or
state criminal code. In both types of activities in which the
cardholders did not pay the bills, we considered abuses to include
cardholders whose accounts were eventually charged off by Bank of
America or referred to a payment plan by salary offset or other fixed
pay agreement.
[4] Of the 27 major Navy commands, 13 had outstanding travel card
balances of $1 million or more as of September 30, 2001. We further
considered other factors such as past due and charged-off accounts and
inclusion of a Marine Corps unit for adequate representation in
narrowing these 13 commands to the 3 we selected for further audit
testing.
[5] Throughout this report, we calculated delinquency rates using the
proportion of dollars of accounts delinquent to the total dollars of
accounts outstanding according to industry standards set by the Federal
Financial Institutions Examination Council.
[6] The civilian agencies included in our analysis are the 23 executive
branch agencies (other than DOD) covered by the Chief Financial
Officers Act, as amended by the Government Management Reform Act.
[7] Recoveries represent amounts recovered through collection actions,
which include salary offsets on accounts previously charged off.
[8] App. IV provides a description of each of these military grades and
their associated military rankings and pay, along with corresponding
civilian grade and pay data.
[9] Cash advance fees are also referred to as ATM fees. ATMs allow
cardholders to withdraw cash with a travel card. For each cash advance
withdrawal, cardholders are charged either a set amount or a percentage
of the amount of the withdrawal.
[10] Net sales consists of all purchases and other charges less any
credits, such as returns, other than payments to the accounts. Other
charges include ATM use, traveler‘s checks, and any other fees.
[11] DOD‘s salary offset program includes individuals‘ salaries paid by
DOD through its active duty, reserve, and civilian pay systems, and
retirement benefits paid through its military retirement pay system.
[12] Sec. 2(d), Public Law 105-264, 112 Stat. 2350 (5 U.S.C. 5701
note).
[13] Cardholder debts to Bank of America are not subject to the Debt
Collection Improvement Act of 1996, which is limited to the collection
of certain debts owed to the federal government.
[14] 5 U.S.C. section 8346.
[15] 5 U.S.C. section 8470.
[16] 41 C.F.R. section 301-54.2.
[17] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-169].
[18] Bank fraud is defined by 18 U.S.C. 1344 as any execution of, or
attempt to execute, a scheme or artifice to defraud a financial
institution or to obtain any of the moneys, funds, credits, assets,
securities, or other assets owned by, or under the custody or control
of, a financial institution, by means of false or fraudulent pretenses,
representations, or promises.
[19] UCMJ is a federal law enacted by the Congress. UCMJ articles 77-
134 are known as ’punitive offenses,“ that is, specific offenses which,
if violated, can result in punishment by court-martial.
[20] Of the over 250 cardholders who wrote three or more NSF checks,
100 had accounts that were eventually charged off or put in salary
offset.
[21] Subsequent to his promotion, the cardholder did not report to
duty. His command is taking action to declare him a deserter. He is
also a subject of law enforcement agencies‘ investigations.
[22] MCCs are established by the banking industry for commercial and
consumer reporting purposes. Currently, about 800 category codes are
used to identify the nature of the merchants‘ businesses or trades,
such as airlines, hotels, ATMs, jewelry stores, casinos, gentlemen‘s
clubs, and theatres.
[23] Club cash is used to tip dancers, waitresses, and bartenders, but
cannot be exchanged for currency.
[24] Typically, the ATM limit for a 1-month cycle is set at $500 for a
standard card and $200 for a restricted card.
[25] We considered personal use to include (1) any transaction charged
to the government travel card that was not supported by a valid travel
order and (2) any transaction for which the Navy was unable to provide
supporting documentation. The following are the personal use estimates
for the three case study locations: Camp Lejeune, U.S. Marine Forces
Atlantic, 26.6 percent; Patuxent River, Air Systems Command, 10.8
percent; and Puget Sound Naval Shipyard, Sea Systems Command, 6.6
percent.
[26] Secretary of the Navy Instruction 5510.30A, Department of the Navy
Personnel Security Program, dated March 10, 1999, Chapter 10, Appendix
F, Personnel Security Standards.
[27] During fiscal year 2002, the Navy‘s eBusiness Operations Office
issued Navy-specific guidance for the management of the travel card
program.
[28] Department of Defense Office of Inspector General, Acquisition:
Summary of DOD Travel Card Program Audit Coverage, D-2002-065
(Washington, D.C.: Mar. 18, 2002).
[29] The statutory provision does not define the term creditworthy.
However, the conferees on the DOD appropriations act expressed their
view that the statutory prohibition would permit "an individual with no
credit history to be issued a restricted-use charge...card."
[30] APC responsibilities vary depending on the APC‘s level in the
Navy‘s organizational hierarchy from headquarters down through the
Navy‘s organizational chain of command to the individual Navy unit
level. That is, individuals with APC responsibilities at the Navy unit
level have direct responsibility for monitoring cardholder account
activity whereas individuals at higher levels in the Navy‘s
organizational hierarchy may have responsibility for overseeing the
activities of one or more APCs as well as direct responsibility for
monitoring the account activity of a number of cardholders.
[31] DFAS is responsible for disbursing payments to the travelers after
voucher data have been entered, reviewed, and audited by the voucher
processing offices at Navy installations.
[32] The Department of Defense contracted with NationsBank of Delaware,
N.A., which subsequently merged into the Bank of America, N.A., under a
Tailored Task Order under the GSA Master Contract Award for the travel
card program. The period of performance under the task order was
November 30, 1998, through November 29, 2000, with three 1-year
options. The task order also allowed for five additional 1-year options
under the GSA master contract renewal provisions.
[33] The act also requires agencies to pay cardholders a late payment
fee if they do not reimburse cardholders within the 30-day period
allowed. Specifically, Federal Travel Regulations prescribed by the
Administrator of General Services require agencies to either (1)
calculate late payment fees using the prevailing Prompt Payment
Interest Rate beginning the 31st day after submission of a proper
travel claim and ending on the date on which payment is made or (2)
reimburse the traveler a flat fee of not less than the prompt pay
amount, based on an agencywide average of travel claim payments. In
addition to the fee required in the items above, the agency must also
pay the traveler an amount equivalent to any late payment charge that
the card contractor would have been able to charge the traveler had the
traveler not paid the bill. 41 C.F.R. Section 301-52.20.
[34] Starting January 2002, the standard and restricted credit limits
were reduced to $5,000 and $2,000, respectively, per instructions
issued by the Navy‘s eBusiness Operations Office.
[35] Travel and Transportation Reform Act of 1998 (Public Law 105-264,
Oct. 19, 1998) includes requirements that federal employees use federal
travel charge cards for all payments of expenses of official government
travel, requires the government to reimburse employees who have
submitted proper vouchers within 30 days of submission of the vouchers,
and allows for the offset of pay for employees with undisputed travel
card charge delinquencies in an amount up to 15 percent of the amount
of disposable pay of the employee for a pay period.
[36] Federal Travel Regulation, 41 (C.F.R.) chapters 300-304, issued by
the Administrator of General Services, governs travel and
transportation allowances and relocation allowances for federal
civilian employees.
[37] U.S. General Accounting Office, Standards for Internal Control in
the Federal Government, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-00-21.3.1] (Washington, D.C.: November 1999). This
document was prepared to fulfill our statutory requirement under 31
U.S.C. 3512 (c), (d), the Federal Managers‘ Financial Integrity Act, to
issue standards that provide the overall framework for
establishing and maintaining internal control and for identifying and
addressing major performance and management challenges and areas at
greatest risk of fraud waste, abuse, and mismanagement.
[38] U.S. General Accounting Office, Guide to Evaluating and Testing
Controls Over Sensitive Payments, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AFMD-8.1.2] (Washington, D.C.: May 1993), provides a
framework for evaluating and testing the effectiveness of internal
controls that have been established in various sensitive payment areas.
[39] The populations from which we selected our samples included some
transactions that were not supported by travel orders or vouchers, such
as personal charges made by a cardholder. We excluded such transactions
from our assessment of the effectiveness of controls over the travel
order, voucher, and payment processes. However, we included such
transactions in order to project the percentage of personal use
transactions.
[End of section]
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