Travel Cards
Control Weaknesses Leave Army Vulnerable to Potential Fraud and Abuse Gao ID: GAO-02-863T July 17, 2002In fiscal year 2001, the Army had 430,000 individually billed travel card accounts, and about $619 million in related charges. Most Army cardholders properly used their travel cards and promptly paid amounts owed. However, the Army's delinquency rate is higher than any other Department of Defense (DOD) component or executive branch agency. GAO also identified numerous instances of potentially fraudulent and abusive activity related to the travel cards. During fiscal year 2001, at least 200 Army employees wrote three or more nonsufficient funds or "bounced" checks to Bank of America as payment for their travel bills--potentially fraudulent acts. GAO found little evidence of documented disciplinary action against Army personnel who misused the card, or that Army travel program managers or supervisors were even aware that travel cards were being used for personal use. For fiscal year 2001, the Army had significant breakdowns in key internal controls over individually billed travel cards that stemmed from a weak overall environment, flawed policies and procedures, and a lack of adherence to valid policies and procedures. These breakdowns contributed to the significant delinquencies and charge-offs of Army employee account balances and potentially fraudulent and abusive activity related to the travel cards. DOD has taken a number of actions focused on reducing delinquencies. As a result of these actions, Army experienced a significant drop in charged-off accounts in the first half of fiscal year 2002.
GAO-02-863T, Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential Fraud and Abuse
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United States General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on Government Efficiency, Financial Management
and Intergovernmental Relations, Committee on Government Reform, House
of Representatives:
For Release on Delivery:
Expected at 2 p.m.
Wednesday, July 17, 2002:
Travel Cards:
Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse:
Statement of Gregory D. Kutz:
Director, Financial Management and Assurance:
John Ryan:
Assistant Director, Office of Special Investigations:
GAO-02-863T:
Mr. Chairman, Members of the Subcommittee, and Senator Grassley:
Thank you for the opportunity to discuss the Army's internal controls
over the government travel card program. This Subcommittee held a
hearing in May 2001 that identified substantial delinquencies and
charge-offs related to the Department of Defense (DOD) travel cards. As
a result of your hearing and our work on internal control over purchase
card transactions at two Navy sites in San Diego, California, [Footnote
1] and continuing concern about fraud, waste, and abuse in DOD's use of
both travel and purchase cards, you requested more comprehensive audits
of both programs. As part of this requested work, this testimony
focuses on the Army travel card program. We plan to issue a detailed
report with recommendations on the results of our audit. In addition,
we will report to you separately on the results of our Navy and Air
Force travel card program audits when completed.
The intent of the travel card program, which is administered by a
contractor (Bank of America), was to improve convenience for the
traveler and to reduce the government's costs of administering travel.
In fiscal year 2001, the Army had about 430,000 individually billed
travel card accounts, and about $619 million in related travel card
charges. [Footnote 2] The individually billed travel card program is
significantly different from the purchase card program in that
cardholders are directly responsible for all charges incurred on their
travel cards and the monthly bill is sent to the cardholder for
payment. The cardholder is responsible for submitting a properly
documented voucher and is reimbursed by the Army for all valid expenses
related to official government travel. In contrast, all purchase card
charges are billed directly to the government for monthly payment.
Today, I will provide my perspectives on (1) the reported magnitude and
impact of delinquent and charged off Army travel card accounts for
fiscal year 2001 and the first 6 months of fiscal year 2002, along with
an analysis of related causes, (2) whether indications existed of
potentially fraudulent and abusive activity related to the Army travel
card during fiscal year 2001, (3) whether abusive activity associated
with the travel card is effectively linked to disciplinary actions and
security clearances, (4) the effectiveness of the overall control
environment and key internal controls for the Army's travel program,
and (5) the status of DOD and Army corrective actions. While our audit
identified examples of potentially fraudulent and abusive travel card
activity, our work was not designed to identify, and we cannot
determine, the extent of potentially fraudulent and abusive activity.
Appendix I provides more detailed information on our scope and
methodology.
Travel Card Delinquencies and Charge-offs:
Most Army cardholders properly used their travel cards and paid amounts
owed to Bank of America promptly. However, we found that the Army's
delinquency rate is higher than any other DOD component or executive
branch agency in the federal government. [Footnote 3] As shown in
figure 1, for the eight quarters ending March 31, 2002, the Army's
delinquency rate fluctuated from 10 to 18 percent, and on average was
about 5 percent higher than the rest of DOD and 7 percent higher than
federal civilian agencies. As of March 31, 2002, over 11,000 Army
cardholders had $8.4 million in delinquent debt.
Figure 1: Army, Non-Army DOD, and Civilian Agency Travel Card
Delinquency Rates for the 2-Year Period Ending March 31, 2002:
[See PDF for image]
This figure is a multiple line graph. The vertical axis of the graph
represents percentage from 0 to 20. The horizontal axis of the graph
represents fiscal year quarters from third quarter, 2000 through second
quarter, 2002. Lines depict delinquency rates for the following:
Governmentwide delinquency rate excluding DOD;
DOD delinquency rate excluding Army;
Army delinquency rate.
Source: General Services Administration data.
[End of figure]
We also found substantial charge-offs of Army travel card accounts.
Since the inception of the travel charge card task order between DOD
and Bank of America on November 30, 1998, Bank of America has charged
off over 23,000 Army travel card accounts with nearly $34 million of
bad debt. As shown in figure 2, the travel cardholder's grade (and
associated pay) is a strong predictor of delinquency problems. We found
that the Army's delinquency and charge-off problems are primarily
associated with young, low- and mid-level enlisted military personnel
with basic pay levels ranging from $11,000 to $26,000. A more detailed
explanation of each of these grades along with their associated basic
pay rates is provided in appendix II.
Figure 2: Army Delinquent and Total Outstanding Travel Card Balances
for Military and Civilian Employees as of September 30, 2001:
[See PDF for image]
This figure is a multiple vertical bar graph. The vertical axis of the
graph represents dollars in millions from 0 to 25. The horizontal axis
of the graph represents eight specific grade/classification. The
following data is approximated from the graph:
Grade/classification: E1-E3;
Delinquent: $0.5 million;
Total outstanding balance: $1.0 million.
Grade/classification: E4-E6;
Delinquent: $5 million;
Total outstanding balance: $20 million.
Grade/classification: E7-E9;
Delinquent: $1 million;
Total outstanding balance: $11 million.
Grade/classification: O1-O3;
Delinquent: $0.5 million;
Total outstanding balance: $5.5 million.
Grade/classification: O4-O6;
Delinquent: $0.25 million;
Total outstanding balance: $5.5 million.
Grade/classification: O7-O10;
Delinquent: less than $0.1 million;
Total outstanding balance: $0.1 million.
Grade/classification: WO1-WO5;
Delinquent: $0.1 million;
Total outstanding balance: $3 million.
Grade/classification: Civilian;
Delinquent: $2 million;
Total outstanding balance: $21 million.
Source: GAO analysis of Bank of America data.
[End of figure]
These delinquencies and charge-offs have cost the Army millions of
dollars in lost rebates, higher fees, and substantial resources spent
pursuing and collecting past-due accounts. For example, we estimated
that in fiscal year 2001, delinquencies and charge-offs cost the Army
$2.4 million in lost rebates, and will cost $1.4 million in increased
automated teller machine (ATM) fees [Footnote 4] annually.
Potentially Fraudulent and Abusive Travel Card Activity:
Our work also identified numerous instances of potentially fraudulent
[Footnote 5] and abusive activity [Footnote 6] related to the travel
card. We found that during fiscal year 2001 at least 200 Army employees
wrote three or more nonsufficient funds (NSF) or ’bounced“ checks to
Bank of America as payment for their travel card bills”a potentially
fraudulent act. [Footnote 7] Appendix III provides a table summarizing
10 examples, along with more detailed descriptions, of cases
in which cardholders wrote three or more NSF checks to Bank of America
and had their travel card accounts subsequently charged off. For
example, in one case, an Army employee from Ft. Jackson, who was
convicted for writing NSF checks prior to receiving the government
travel card, wrote over 86 NSF checks to Bank of America.
Further, we found instances in which cardholders abused their travel
cards by using them to purchase a wide variety of personal goods or
services that were unrelated to official government travel. As shown in
figure 3, government travel cards are clearly marked, ’For Official
Government Travel Only.“
Figure 3: Federal Travel Card:
[See PDF for image]
This figure is a picture of a Federal Travel Card.
[End of figure]
In addition, before receipt of their travel cards, all Army 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 the four sites
we audited, we estimated that personal use of the government travel
card ranged from 15 percent of fiscal year 2001 transactions at one
site to 45 percent at another site. Government travel cards were used
to pay for such diverse goods and services as dating and escort
services; casino and Internet gambling; cruises; tickets to musical and
sporting events; personal clothing; closing costs on a home purchase;
and, in one case, the purchase of a used automobile. For example, we
were able to determine that, during fiscal year 2001, approximately
$45,000 was spent Army-wide to purchase cruise packages or to pay for a
variety of activities or services on cruise ships. We found that
charged-off accounts included both those of (1) cardholders who were
reimbursed by the Army for official travel expenses but failed to pay
Bank of America for the related charges, thus pocketing the
reimbursements, and (2) cardholders who used their travel cards for
personal purchases for which they did not pay Bank of America. Appendix
IV provides a summary table and supporting narrative describing examples
of both types of abusive travel card activity.
As detailed in appendix V, we also found instances in which cardholders
used their travel cards for personal purposes, but paid their travel
card bills when they became due. For example, we found that a
Lieutenant Colonel used his travel card to purchase accommodations and
tickets to attend the Tournament of Roses in Pasadena, California.
These cardholders benefited by, in effect, getting interest-free loans.
Personal use of the cards increases the risk of charge-offs related to
abusive purchases, which are costly to the government and the taxpayer.
We also found several instances of abusive travel card activity where
Army cardholders used their cards at questionable 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“ for a 10 percent fee. For
instance, a cardholder may charge $330 to the government travel card at
one of these clubs and receive $300 in cash. Subsequently, the club
receives payment from Bank of America for a $330 restaurant charge. For
fiscal year 2001, we identified about 200 individuals who charged
almost $38,000 at these establishments. For example, we found that 1
cardholder obtained more than $5,000 in cash from these establishments.
Abusive Travel Card Activity Not Effectively Linked to Disciplinary
Action and Security Clearances:
We found little evidence of documented disciplinary action against Army
personnel who misused the card, or that Army travel program managers or
supervisors were even aware that Army personnel were using their travel
cards for personal use. For example, a civilian employee working at the
Pentagon on a classified program used her travel card for personal
purchases of about $3,600 and subsequently wrote four NSF checks for
over $7,700 to Bank of America. The cardholder's account was
subsequently charged-off when the cardholder failed to pay the bill. The
employee's supervisor was not aware that the employee had any
potentially fraudulent and abusive activity related to the travel card.
In another example, a California National Guardsman with over $5,400 of
charge-offs associated with authorized travel, for which the Army
reimbursed the cardholder, was subsequently promoted from a Major to a
Lieutenant Colonel.
In addition, we found that 38 of 105 travel cardholders we examined that
had their accounts charged-off still had active secret or top-secret
clearances as of June 2002. Some of the Army personnel holding security
clearances who have had difficulty paying their travel card bills may
present security risks to the Army. Army regulations provide that an
individual's finances are one of the key factors to be considered in
whether an individual should continue to be entrusted with a secret or
top-secret clearance. However, we found that Army security officials
were unaware of these financial issues and consequently could not
consider their potential effect on whether these individuals should
continue to receive security clearances.
Key Internal Control Breakdowns:
For fiscal year 2001, the Army had significant breakdowns in key
internal controls over individually billed travel cards. The breakdowns
stemmed from a weak overall control environment, flawed policies and
procedures, and a lack of adherence to valid policies and procedures.
These breakdowns contributed to the significant delinquencies and
charge-offs of Army employee account balances and potentially
fraudulent and abusive activity related to the travel cards.
At the four units we audited, we found management was focused primarily
on delinquencies and often only after severe problems were discovered
and major commands began demanding improved performance in reducing the
amount of such delinquencies. There were few indications that
management placed any emphasis on controls designed to prevent or
provide for early detection of travel card misuse. In addition, we
identified two key overall control environment weaknesses: (1) the lack
of clear, sufficiently detailed policies and procedures and (2) limited
travel card audit and program oversight. First, the units we audited
used DOD's travel management regulations (DOD Financial Management
Regulation, volume 9, chapter 3) as the primary source of policy
guidance for management of Army's travel card program. However, in many
areas, the existing guidance was not sufficiently detailed to provide
clear, consistent travel management procedures to be followed across
all Army units. Second, as recognized in the DOD Inspector General's
March 2002 summary report [Footnote 8] on the DOD travel card program,
’[b]ecause of its dollar magnitude and mandated use, the DOD travel
card program remains an area needing continued emphasis, oversight, and
improvement. Independent internal audits should continue to be an
integral component of management controls.“ However, the DOD Inspector
General report noted that only two internal review reports were issued
from fiscal year 1999 through fiscal year 2001 concerning the Army's
travel card program.
We found that this overall weak control environment contributed to
design flaws and weaknesses in a number of management control areas
needed for an effective travel card program. For example, many problems
we identified were the result of ineffective controls over issuance of
travel cards. Although DOD's policy allows denial of travel cards for
certain groups or individuals with poor credit histories, we found
that, without exception, the Army processed all travel card
applications it received, regardless of an applicant‘s credit history.
For the cases we reviewed, we found a significant correlation between
travel card fraud, abuse, and delinquencies and individuals with
substantial credit history problems. The prior and current credit
problems we identified for Army travel cardholders included charged-off
credit card and automobile loans, defaulted and foreclosed mortgages,
bankruptcies, and convictions for writing NSF checks.
Also, agency program coordinators (APCs), who have the key
responsibility for managing and overseeing travel cardholders'
activities, are essentially set up to fail in their duties because they
are given substantial responsibility for a large number of
cardholders”for example up to 1,000 cardholders per APC”and little time
to do this collateral duty. Military personnel who are responsible for
and rated on other job responsibilities”such as airport security”are
given the APC role as ’other duty as assigned.“ With a high level of
APC turnover (particularly military APCs, which at one of the locations
we audited were reassigned about every 6 months), and only minimal time
allotted to perform this collateral duty, we found that APCs generally
were ineffective in carrying out their key travel card program
management and oversight responsibilities. Table 1 summarizes our
statistical tests of four key control activities related to basic
travel transaction and voucher processing at four Army locations.
Table 1: Results of Testing of Key Internal Controls:
Army unit: Ft. Drum, Forces Command;
Percentage of failure, Travel orders are approved prior to travel: 0;
Percentage of failure, Travel voucher reimbursements are accurate: 10;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 22;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 5.
Army unit: Ft. Bragg, Special Operations Command;
Percentage of failure, Travel orders are approved prior to travel: 3;
Percentage of failure, Travel voucher reimbursements are accurate: 7;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 30;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 7.
Army unit: Ft. Bragg, Forces Command;
Percentage of failure, Travel orders are approved prior to travel: 6;
Percentage of failure, Travel voucher reimbursements are accurate: 19;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 39;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 8.
Army unit: California National Guard;
Percentage of failure, Travel orders are approved prior to travel: 1;
Percentage of failure, Travel voucher reimbursements are accurate: 42;
Percentage of failure, Travel vouchers are submitted within 5 days of
travel completion: 28;
Percentage of failure, Travel vouchers are paid within 30 days of
submission: 61.
Note: The numbers in the table represent point estimate percentages for
the number of failures in the population based on our sampling tests.
The confidence intervals for our sampling estimates are presented in
appendix I of this testimony.
Source: GAO analysis.
[End of table]
Substantial delays in travel voucher reimbursements to cardholders can
have a significant impact on high delinquency rates. For example, such
delays at the California National Guard contributed to the high
delinquency rate for that unit. We found a substantial number of
California National Guard employees and several employees at other
units audited who may have been due payments for late fees because
their reimbursements were late. [Footnote 9] We also found errors in
travel voucher processing that resulted in both overpayment and
underpayment of the amounts that cardholders should have received for
their official travel expenses.
Corrective Actions:
DOD has taken a number of actions focused on reducing delinquencies. In
October 2000, the Vice Chief of Staff of the Army issued a directive to
cut the Army's delinquencies by 50 percent by the end of March 2001.
Further, the Vice Chief of Staff established a goal of a delinquency
rate of no more than 4 percent [Footnote 10] of active cardholders as
soon as possible and ordered commanders throughout the Army to provide
additional attention to the government travel card program. Beginning
in November 2001, DOD began a salary and military retirement offset
program”similar to garnishment. As a result of these actions, Army
experienced a significant drop in charged-off accounts in the first
half of fiscal year 2002. In addition, DOD has encouraged cardholders
to make greater use of split pay disbursements. This payment method, by
which cardholders elect to have all or part of their reimbursement sent
directly to Bank of America, has the potential to significantly reduce
delinquencies. Split disbursements are a standard practice of many
private sector companies. DOD reported that for about 27 percent of the
travel vouchers paid in April 2002 at one of its major disbursing
centers, cardholders elected this payment option.
Further, the DOD Comptroller created a DOD Charge Card Task Force to
address management issues related to DOD's purchase and travel card
programs. We met with the task force in June and provided our
perspectives on both programs. The task force issued its final report on
June 27, 2002. However, we have not yet had an opportunity to review the
report's findings in detail. To date, many of the actions that DOD has
taken primarily address the symptoms or ’back-end“ result of
delinquency and charge-offs after they have already occurred. We are
encouraged by the DOD Comptroller's recent announcement concerning the
cancellation of all travel cards of cardholders who have not been on
official government travel within the last 12 months. Actions to
implement additional ’front end“ or preventive controls will be
critical if DOD is to effectively address the high delinquency rates
and charge-offs, as well as potentially fraudulent and abusive
activity, discussed in this testimony.
To that end, we will be issuing a related report in this area with
specific recommendations, including a number of preventive actions
that, if effectively implemented, should substantially reduce
delinquencies and potentially fraudulent and abusive activity related
to the travel cards. For example, we plan to include recommendations
that will address actions needed in the areas of exempting individuals
with a history of financial problems from the requirement to use a
travel card; providing sufficient infrastructure to effectively manage
and provide day-to-day monitoring of travel card activity related to
the program; deactivating cards when employees are not on official
travel; moving towards mandating use of split disbursements; providing
strong, consistent disciplinary action to employees who commit fraud or
abuse the travel cards; and ensuring that information on any financial
problems related to the travel cards of any cardholders with secret or
top-secret security clearances is provided to appropriate security
officials to consider in determining whether such clearances should be
suspended or revoked.
Mr. Chairman, Members of the Subcommittee, and Senator Grassley, this
concludes my prepared statement. I would be pleased to respond to any
questions that you may have.
Contacts and Acknowledgments:
For future contacts regarding this testimony, 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.
[End of section]
Appendix I: Scope and Methodology:
We used as our primary criteria applicable laws and regulations,
including the Travel and Transportation Reform Act of 1998 (Public Law
105-264), [Footnote 11] the General Services Administration's (GSA)
Federal Travel Regulation, [Footnote 12] 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 13] and our Guide to Evaluating and
Testing Controls Over Sensitive Payments. [Footnote 14] To assess the
management control environment, we applied the fundamental concepts and
standards in the GAO 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 Army's delinquency and charge-off rates to
other DOD services and the other executive branch agencies in the
federal government. 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 Army individually billed travel
card transactions for audit. Our data mining procedures covered the
universe of individually billed Army travel card activity during fiscal
year 2001 and identified transactions that we believed were potentially
fraudulent or abusive. 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 cards.
To assess the overall control environment for the travel card program
at the Department of the Army, 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 Army; Defense Finance and Accounting
Service (DFAS); Bank of America; and GSA, and reviewing applicable
policies and procedures and program guidance they provided. We visited
four Army units to ’walk through“ the travel process including the
management of travel card usage and delinquency. We visited the DFAS
Orlando location to ’walk through“ the voucher review and payment
process used for two of the four Army locations we tested. We also
assessed actions taken to reduce the severity of travel card
delinquencies and charge-offs. 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 Army 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 preparing travel vouchers, processing and
approving travel vouchers, and certifying travel voucher payments.
To test the implementation of key controls over individually billed Army
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 Army travel card transactions to
review random samples of transactions at four Army 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 four Army units we audited. Each
sampled transaction was subsequently weighted in the analysis to
account statistically for all charged transactions at each of the four
units, including those transactions that were not selected for review
at those locations.
We selected the four Army locations for testing controls over travel
card activity based on the relative size of travel card activity at the
13 Army commands and of the units under these commands, the number and
percentage of delinquent accounts, and the number and percentage of
accounts charged-off. We selected two units from Army's Forces
Command because that command represented approximately 19 percent of
travel card activity, 22 percent of the delinquent accounts, and 28
percent of accounts charged-off during fiscal year 2001 across the
Army. We also selected an Army National Guard location because the Army
National Guard represented 13 percent of the total travel card
activity, 22 percent of the delinquent accounts, and 15 percent of
charge-offs for fiscal year 2001. The Special Operations Command
represents about 6 percent of Army's charge card activity, 5 percent of
the delinquent accounts and 4 percent of Army travel card accounts
charged-off in fiscal year 2001. Each of the units within the commands
was selected because of the relative size of the unit within the
respective command. Table 2 presents the sites selected and the
universe of fiscal year 2001 transactions at each location. [Footnote
15]
Table 2: Universe of Fiscal Year 2001 Travel Transactions at Army Units
Tested:
Army unit tested: Forces Command, Fort Drum;
Number of fiscal year 2001 travel transactions: 109,443;
Dollar value of fiscal year 2001 travel transactions: $7,281,275.
Army unit tested: Forces Command, Fort Bragg;
Number of fiscal year 2001 travel transactions: 128,583;
Dollar value of fiscal year 2001 travel transactions: $10,648,419.
Army unit tested: Special Operations, Fort Bragg;
Number of fiscal year 2001 travel transactions: 35,021;
Dollar value of fiscal year 2001 travel transactions: $5,035,743.
Army unit tested: California National Guard;
Number of fiscal year 2001 travel transactions: 58,797;
Dollar value of fiscal year 2001 travel transactions: $5,035,457.
Note: Transactions represent charges for sales and cash advances and
excludes credits and fees.
Source: GAO analysis based on Bank of America data.
[End of table]
We performed tests on statistical samples of travel card transactions at
each of the four case study sites to assess whether the system of
internal control over the transactions was effective and to provide an
estimate of the percentage of transactions that were not for official
government travel by unit. 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 travel voucher was paid within 30 days of the submission of
an approved voucher. We considered transactions not related to
authorized travel to be abusive 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,
[Footnote 16] 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 Army cardholders.
Table 3 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 3: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests for Approved Travel:
Army unit tested: Forces Command Fort Bragg;
Approved travel order, Number of failed transactions: 6 of 96;
Approved travel order, Estimated failure rate (95% confidence
interval): 6.2% (2.3%, 13.1%).
Army unit tested: Forces Command Fort Drum;
Approved travel order, Number of failed transactions: 0 of 96;
Approved travel order, Estimated failure rate (95% confidence
interval): 0% (0%, 3.8%).
Army unit tested: Special Operations Command, Fort Bragg;
Approved travel order, Number of failed transactions: 3 of 96;
Approved travel order, Estimated failure rate (95% confidence
interval): 3.1% (0.6%, 8.9%).
Army unit tested: California National Guard;
Approved travel order, Number of failed transactions: 1 of 96;
Approved travel order, Estimated failure rate (95% confidence
interval): 1.04% (0.03%, 5.7%).
Source: GAO analysis.
[End of table]
Table 4 shows the results of our test for effectiveness of controls in
place over the accuracy of travel voucher payments.
Table 4: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests for Accurate Travel Voucher Payments:
Army unit tested: Forces Command Fort Bragg;
Effective voucher review and accurate reimbursement to traveler, Number
of failed transactions: 18 of 96;
Effective voucher review and accurate reimbursement to traveler,
Estimated failure rate (95% confidence interval): 18.8% (11.5%,
28.00%).
Army unit tested: Forces Command Fort Drum;
Effective voucher review and accurate reimbursement to traveler, Number
of failed transactions: 10 of 96;
Effective voucher review and accurate reimbursement to traveler,
Estimated failure rate (95% confidence interval): 10.4% (5.1%, 18.3%).
Army unit tested: Special Operations Command, Fort Bragg;
Effective voucher review and accurate reimbursement to traveler, Number
of failed transactions: 7 of 96;
Effective voucher review and accurate reimbursement to traveler,
Estimated failure rate (95% confidence interval): 7.3% (3.0%, 14.4%).
Army unit tested: California National Guard;
Effective voucher review and accurate reimbursement to traveler, Number
of failed transactions: 18 of 96;
Effective voucher review and accurate reimbursement to traveler,
Estimated failure rate (95% confidence interval): 41.9% (27.0%, 57.9%).
Source: GAO analysis.
[End of table]
Table 5 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 5: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests for Timely Submission and Processing of Travel Vouchers:
Army unit tested: Forces Command, Fort Bragg;
Timely voucher submission by traveler (5-day rule), Number of failed
transactions: 37 of 96;
Timely voucher submission by traveler (5-day rule), Estimated failure
rate (95% confidence interval): 38.5% (28.8%, 49.0%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 8 of 96;
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (95% confidence interval): 8.3% (3.7%, 15.8%).
Army unit tested: Forces Command, Fort Drum;
Timely voucher submission by traveler (5-day rule), Number of failed
transactions: 21 of 96;
Timely voucher submission by traveler (5-day rule), Estimated failure
rate (95% confidence interval): 21.9% (14.1%, 31.5%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 5 of 96;
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (95% confidence interval): 5.2% (1.7%, 11.7%).
Army unit tested: Special Operations Command, Fort Bragg;
Timely voucher submission by traveler (5-day rule), Number of failed
transactions: 29 of 96;
Timely voucher submission by traveler (5-day rule), Estimated failure
rate (95% confidence interval): 30.2% (21.2%, 40.4%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 7 of 96;
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (95% confidence interval): 7.3% (3.0%, 14.4%).
Army unit tested: California National Guard;
Timely voucher submission by traveler (5-day rule), Number of failed
transactions: 12 of 43;
Timely voucher submission by traveler (5-day rule), Estimated failure
rate (95% confidence interval): 27.9% (15.3%, 43.7%);
Timely reimbursement to the traveler (30-day rule), Number of failed
transactions: 26 of 43;
Timely reimbursement to the traveler (30-day rule), Estimated failure
rate (95% confidence interval): 60.5% (44.4%, 75.0%).
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 DOD managers, including officials in DOD's Defense Finance
and Accounting Service, and Army Managers including Assistant Secretary
of the Army (Financial Management and Comptroller) officials, Army
Forces Command and Special Operations Command Unit Commanders,
unit-level APCs, and Army National Guard Bureau management and the
California National Guard Adjutant General, and Bank of America
officials on the details of our review, including our objectives,
scope, and methodology and our findings and conclusions. We
incorporated their comments where appropriate. With the exception of
our limited review of access controls at the California National Guard,
we did not review the general or application controls associated with
the electronic data processing of Army travel card transactions. We
conducted our audit work from December 2001 through July 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.
Following this testimony, we plan to issue a report, which will include
recommendations to DOD and the Army for improving internal controls
over travel card activity.
[End of section]
Appendix II: Army Personnel Grade, Rank, and Associated Basic Pay
Rates:
Tables 6 and 7 show the grade, rank (where relevant), and the associated
basic pay rates for 2001 for the Army's military and civilian personnel,
respectively.
Table 6: Army Military Grades, Ranks, and Associated Basic Pay Rates
for 2001:
Military grade, Enlisted personnel, E-1 to E-3:
Military rank: Private;
Basic pay: $11,033 to $14,449.
Military grade, Enlisted personnel, E-4 to E-6:
Military rank: Corporal to staff sergeant;
Basic pay: $17,739 to $26,253.
Military grade, Enlisted personnel, E-7 to E-9:
Military rank: Platoon sergeant to sergeant major;
Basic pay: $31,563 to $46,445.
Military grade, Officers[A], WO-1 to WO-5:
Military rank: Warrant officer;
Basic pay: $29,302 to $60,152.
Military grade, Officers[A], O-1 to O-3:
Military rank: First lieutenant, second lieutenant, captain;
Basic pay: $26,731 to $45,339.
Military grade, Officers[A], O-4 to O-6:
Military rank: Major, lieutenant colonel, colonel;
Basic pay: $56,635 to $84,317.
Military grade, Officers[A], O-7 to O-10:
Military rank: General;
Basic pay: $98,860 to $132,826.
[A] Officer's rank includes warrant officers (denoted by WO) and
commissioned officers (denoted by O).
Source: U.S. Army.
[End of table]
Table 7: Army Civilian Grades and Associated Basic Pay Rates for 2001:
Civilian grade, General Schedule employees: GS-1 to GS-3;
Basic pay: $16,032 to $19,832.
Civilian grade, General Schedule employees: GS-4 to GS-5;
Basic pay: $22,559 to $25,241.
Civilian grade, General Schedule employees: GS-6 to GS-8;
Basic pay: $28,126 to $34,625.
Civilian grade, General Schedule employees: GS-9 to GS-12;
Basic pay: $38,240 to $55,455.
Civilian grade, General Schedule employees: GS-13 to GS-15;
Basic pay: $65,949 to $91,667.
Civilian grade, Senior Executive Service: ES-01 to ES-05;
Basic pay: $111,650 to $125,700.
Source: Office of Personnel Management.
[End of table]
[End of section]
Appendix III: Nonsufficient Fund Checks Written to Bank of America:
Table 8: Examples of Cases in Which Cardholders Wrote Three or More
Nonsufficient Fund Checks to Bank of America and Account Subsequently
Charged Off:
Cardholder: 1;
Total amount (number) of NSF checks in FY 2001: $269,301 (86);
Total amount charged off: $35,883;
Grade: E-6;
Unit: Ft. Jackson;
Credit history/problems: Criminal conviction for writing NSF checks and
serious credit card delinquency[A] prior to card issuance;
Documented disciplinary action: Undergoing court martial.
Cardholder: 2;
Total amount (number) of NSF checks in FY 2001: $12,327 (8);
Total amount charged off: $7,942.
Grade: O-3;
Unit: Ft. Hood;
Credit history/problems: None;
Documented disciplinary action: None.
Cardholder: 3;
Total amount (number) of NSF checks in FY 2001: $7,737 (4);
Total amount charged off: $3,257;
Grade: GS-13;
Unit: Pentagon;
Credit history/problems: Charge-offs and referrals to collection
agencies[B] and serious credit card delinquencies prior to card
issuance;
Documented disciplinary action: None. Bank of America account paid in
full after it was identified by GAO as a charge-off.
Cardholder: 4;
Total amount (number) of NSF checks in FY 2001: $6,099 (3);
Total amount charged off: $7,373;
Grade: GS-12;
Unit: Ft. McPherson;
Credit history/problems: Serious credit card delinquencies prior to
card issuance. Mortgage foreclosure, other charge-offs and referrals to
collection agencies since card issuance;
Documented disciplinary action: Counseled. Salary offset program.
Cardholder: 5;
Total amount (number) of NSF checks in FY 2001: $3,995 (3);
Total amount charged off: $5,259;
Grade: E-7;
Unit: West Virginia ROTC;
Credit history/problems: Bankruptcy, judgment, automobile repossession
and serious delinquencies prior to card issuance;
Documented disciplinary action: Letter of reprimand. Salary offset
program.
Cardholder: 6;
Total amount (number) of NSF checks in FY 2001: $4,845 (11);
Total amount charged off: $3,380;
Grade: E-6;
Unit: Ft. Hood;
Credit history/problems: Referrals to collection agencies prior to card
issuance;
Documented disciplinary action: None.
Cardholder: 7;
Total amount (number) of NSF checks in FY 2001: $2,709 (3);
Total amount charged off: $7,846;
Grade: E-4;
Unit: Ft. Drum/Ft. Lewis;
Credit history/problems: Prior charge-off and referral to collection
agency;
Documented disciplinary action: Administrative discharge for misconduct
directly related to misuse of the travel card.
Cardholder: 8;
Total amount (number) of NSF checks in FY 2001: $900 (5);
Total amount charged off: $3,104;
Grade: E-3;
Unit: Ft. Drum;
Credit history/problems: None prior to travel card issuance. Automobile
repossession and delinquencies since 2000;
Documented disciplinary action: None. Honorable Discharge.
Cardholder: 9;
Total amount (number) of NSF checks in FY 2001: $840 (3);
Total amount charged off: $2,137;
Grade: E-7;
Unit: Army National Guard Utah;
Credit history/problems: Serious delinquencies prior to card issuance;
Documented disciplinary action: None. Salary offset program.
Cardholder: 10;
Total amount (number) of NSF checks in FY 2001: $263 (3);
Total amount charged off: $2,763;
Grade: GS-5;
Unit: U.S. Army Europe;
Credit history/problems: Referral to collection agency and serious
delinquency before card issuance;
Documented disciplinary action: Counseled. Salary offset program.
[A] Serious deliquency is defined as 90 days or more past due on
payment submission.
[B] Referrals to collection agencies for unpaid bills from utility
companies, medical offices, cable companies, and department stores.
Source: GAO analysis.
[End of table]
Eight of the ten cardholders included in table 8 had significant credit
problems prior to card issuance, such as charged-off credit card
accounts and automobile loans; mortgage foreclosures; bankruptcies;
serious delinquencies; referrals to collection agencies for unpaid
utility bills, medical fees, and department store accounts; and, in one
case, prior criminal convictions for writing NSF checks. The remaining
two cardholders had similar credit problems subsequent to issuance of
the Bank of America travel cards. The following provides detailed
information on some of these cases.
* Cardholder #1 was a staff sergeant who wrote 86 NSF checks totaling
almost $270,000 for payment on his Bank of America travel card account
for charges incurred when the cardholder was not on official
government travel. This cardholder had a previous criminal record for
writing NSF checks. The cardholder also had numerous other financial
problems, including mortgage foreclosure and claims discharged in
December 2001 for Chapter 7 bankruptcy. Among the claims discharged
in bankruptcy was a $2,199 claim on the cardholder's previous
government travel card issued by American Express and a $114,750 real
estate loan. This cardholder applied and received a new social security
number when he legally changed his name in 1998, and since then has
had two social security numbers”one under each name. The individual
authorized a credit check at the time of his application for a
government travel card from Bank of America. However, it appeared that
the credit check was not performed and the individual was issued a
standard card with a $10,000 limit in April 1999, instead of a
restricted card with a $2,500 credit limit.
Between July 1999 and November 2000, the cardholder wrote approximately
86 NSF checks”some on closed or invalid accounts”to Bank of America.
Industry regulations require that an account be credited immediately
upon receipt of a check. Consequently, when Bank of America posted the
NSF checks, the accounts appeared to have been paid, which provided
credit to the cardholder to make additional purchases. Thus, by writing
successively larger NSF checks, which Bank of America credited to his
travel card account, the staff sergeant was able to, in effect,
successively increase his credit limit to over $35,000”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.
Despite the 86 NSF checks and associated increases in the cumulative
unpaid balance on the cardholder's government travel card account,
records we obtained indicate that the Bank of America did not close
this individual's account until February 2001, when the account was
charged off. The cardholder was undergoing court martial in late May
2002 for NSF checks related to his Bank of America account as well as
to the Army and Air Force Exchange Services. Bank of America
acknowledged that it erred in not closing this account sooner. This has
resulted in the bank changing its policy to require accounts to be
closed when a cardholder has written three NSF checks.
* Cardholder #3 currently works at the Pentagon as a GS-13 employee on
a classified program. Because of her position, the cardholder has a top
secret clearance. Prior to applying for the Bank of America travel card,
the employee had credit problems, including several charged-off
accounts. Because the employee did not authorize a credit check on her
travel card application, she was given a restricted card with a credit
limit of $2,500, which should have been issued in ’inactive“ status and
only activated when needed for travel. However, Bank of America records
showed that in July 2000, immediately after receiving the travel card,
the employee used the card to pay for a personal move and other charges
totaling more than $3,600”more than $1,000 in excess of the credit
limit on restricted travel cards. The cognizant APC told us that while
a credit check authorization should have been done for the cardholder
to exceed the $2,500 credit limit, she could not confirm that one was
done in this case.
In addition, between October 2000 and September 2001, the employee
wrote four NSF checks totaling more than $7,700 to the Bank of America.
The cardholder's account had an unpaid balance of $3,257 at the time it
was charged off in September 2001. Shortly after our investigators
contacted this cardholder, she paid her account balance in full.
We also found that no disciplinary action has been taken against this
individual. The two APCs responsible for this cardholder's account were
not aware that the employee had problems with her account, much less
that the account was charged-off, until contacted by our investigators.
The APCs told us they had little time to devote to reviewing individual
accounts because they have oversight responsibilities for over 500
cardholders assigned as a collateral duty. In addition, while,
according to a Bank of America official, APCs have had access to NSF
check information in its database since 2000, one of the APCs told us
she only recently received training on how to use the Bank of America's
database.
* Cardholder #6 exhibited a pattern of writing NSF checks about once a
month. During fiscal year 2001, the cardholder wrote 11 NSF checks to
Bank of America that ranged from $250 to $630. Some checks were written
to pay charges that appeared to be for personal travel. The
cardholder's account balance of $3,380 was charged off in February
2002. Further, when the cardholder was assigned from Ft. Hood, Texas,
to the U.S. Army Recruiting Command in Tampa, Florida, her travel card
account was not transferred and assigned to the APC responsible for
travel card oversight in her new unit. Consequently, the APC in Florida
was not aware of the cardholder's problems because the cardholder did
not appear in any of the Recruiting Command's delinquency reports.
[End of section]
Appendix IV: Abusive Travel Card Activity Where Accounts Were Charged
Off:
Table 9: Examples of Abusive Travel Card Activity Where Accounts Were
Charged Off:
Cardholder: 1[A];
Grade: GS-12;
Unit: Ft. McPherson;
Total charged-off amount: $7,373;
Transactions contributing to charge-off: Used reimbursed travel money
for closing costs on a house. Wrote NSF checks.
Credit history/problems: Serious credit card delinquencies prior to
travel card issuance; mortgage foreclosure, other charge-offs, and
referrals to collection agencies since 2000;
Documented follow-up/disciplinary action: Counseled; salary offset.
Cardholder: 2[B];
Grade: E-7;
Unit: West Virginia ROTC;
Total charged-off amount: $5,259;
Transactions contributing to charge-off: $4,100 to Budget-Rent-A-Car
for purchase of a used automobile;
Credit history/problems: Bankruptcy judgment, automobile repossession,
and serious delinquencies prior to travel card issuance;
Documented follow-up/disciplinary action: Letter of reprimand. Salary
offset.
Cardholder: 3;
Grade: E-6;
Unit: Army Forces Command;
Total charged-off amount: $2,278;
Transactions contributing to charge-off: $110 in ’club“ cash from
Spearmint Rhino Adult Cabaret;
Credit history/problems: Serious credit card and other delinquencies
prior to travel card issuance;
Documented follow-up/disciplinary action: None.
Cardholder: 4;
Grade: E-4;
Unit: Army Reserve Command;
Total charged-off amount: $1,253;
Transactions contributing to charge-off: $500 to Cryptologic, Inc. by
spouse for Internet gambling;
Credit history/problems: Numerous referrals to collection agencies
prior to travel card issuance;
Documented follow-up/disciplinary action: None.
Cardholder: 5;
Grade: O-5;
Unit: California National Guard;
Total charged-off amount: $5,419;
Transactions contributing to charge-off: Did not use reimbursement to
pay travel card charges;
Credit history/problems: Serious delinquencies, including delinquency
on the American Express government travel card, prior to travel card
issuance;
Documented follow-up/disciplinary action: Promotion to lieutenant
colonel. Salary offset.
Cardholder: 6;
Grade: E-8;
Unit: Ft. Bragg Special Operations;
Total charged-off amount: $4,704;
Transactions contributing to charge-off: ATM withdrawals in hometown
area without travel order;
Credit history/problems: Serious delinquency prior to travel card
issuance;
Documented follow-up/disciplinary action: Verbal counseling.
Cardholder: 7;
Grade: E-4;
Unit: Ft. Bragg Forces Command;
Total charged-off amount: $8,709;
Transactions contributing to charge-off: Numerous charges at Wal-Mart
Supercenter;
Credit history/problems: Serious delinquency prior to travel card
issuance;
Documented follow-up/disciplinary action: None.
Cardholder: 8;
Grade: E-3;
Unit: Ft. Drum Forces Command;
Total charged-off amount: $1,058;
Transactions contributing to charge-off: Cash from Dream Girls Escort
Service;
Credit history/problems: None prior. Serious credit card delinquencies
in 2002;
Documented follow-up/disciplinary action: None.
Cardholder: 9;
Grade: E-4;
Unit: Ft. Drum Forces Command;
Total charged-off amount: $10,029;
Transactions contributing to charge-off: Numerous personal charges,
including casino gambling;
Credit history/problems: Referral to collection agency prior to travel
card issuance;
Documented follow-up/disciplinary action: None.
Cardholder: 10;
Grade: E-4;
Unit: Ft. Drum Forces Command;
Total charged-off amount: $7,643;
Transactions contributing to charge-off: Numerous charges at local
restaurants, gas stations, grocery stores, and hotels in vicinity of
Ft. Drum;
Credit history/problems: Referrals to collection agencies prior to
travel card issuance;
Documented follow-up/disciplinary action: None.
[A] Same as NSF case #4.
[B] Same as NSF case #5.
Source: GAO analysis.
[End of table]
The following include details of some of the example cases summarized in
table 9.
* Cardholder #1 was a GS-12 employee in Army Forces Command at Ft.
McPherson, Georgia. In August 2000, the cardholder used the card to pay
for authorized charges associated with a permanent change of station
move from Qatar to Fort McPherson. The cardholder did not elect split
disbursement of his travel reimbursement between himself and Bank of
America when filing travel vouchers. Thus, the entire reimbursement for
travel expenses was electronically deposited in the cardholder's own
checking account. The cardholder did not pay his travel card bill, but
instead used the reimbursement to, among other things, pay the closing
costs on the purchase of a home. The cardholder was counseled by the
APC and his supervisors after his travel card account became
delinquent, but no disciplinary action was taken. The cardholder is now
in the salary offset program. The cardholder informed us that he was
briefed, at the time of card issuance, of his responsibility to make
timely payments to Bank of America in payment of expenses claimed on
approved travel vouchers.
* Cardholder #2 was a sergeant first class with the West Virginia Army
Reserve Officers' Training Corps. Army investigative records showed
that in January 2001, the cardholder's spouse used his government travel
card to make two payments of $2,050 each to Budget-Rent-A-Car for the
purchase of a used automobile. In addition, several ATM withdrawals
were made using the card at times when the sergeant was not on official
travel status. The cardholder received a letter of reprimand and
subsequently retired. In February 2002, after his account was charged
off, the cardholder's account was put into the offset program and a
portion of his annuity automatically withheld for repayment to Bank of
America.
* Cardholder #9 was an Army specialist (E-4) at Ft. Drum and received a
total of three travel card accounts. According to the cardholder,
shortly after receiving his first card, he incurred over $5,000 in
personal charges, including charges for casino gambling. He then
notified Bank of America that his wallet, which contained his
government travel card and driver's license, was stolen and that the
charges on the card were not made by him and therefore were fraudulent
charges. Bank of America closed this account, wrote off the amount as a
fraud loss, and issued the soldier a second card. The soldier then
incurred over $4,000 in personal charges for casino gambling and
notified Bank of America that this card was also lost. Bank of America
closed this account and issued a third card to the soldier. The soldier
incurred approximately $4,000 in personal charges on this account,
including charges for casino gambling. Bank of America personnel began
to question the soldier regarding the transactions made on all three
accounts because the accounts showed transactions at the same casino
and the signatures on the charge receipts were similar to the soldier's
signature.
As of April 17, 2002, the soldier's travel card account was in charge-
off status, with an unpaid balance of $10,029. The soldier told us that
he falsified the report to Bank of America, claiming that his first
card was stolen because he could not pay the bill. He also told us that
he falsely reported his second card lost again because he could not pay
the bill. In addition, the soldier stated that he made personal charges
on the third card, including charges for casino gambling, in hopes of
winning enough to pay the bill. In October 2000, the soldier received
an Article 15 (non-judicial punishment) for misusing his travel cards.
He received a reduction in grade from an E-4 to an E-1, forfeited a
half-month's pay, and was to serve 45 days of extra duty beyond his
November 30, 2000, discharge date. The soldier informed us that his
commander waived the 45 days and allowed him to receive a honorable
discharge as an E-4. The soldier is currently an E-5 with the
Pennsylvania National Guard. According to the National Guard, the
Army's official personnel file for this soldier contains no information
concerning any adverse action. In February 2002, the Army enrolled this
soldier in the salary-offset program.
* Cardholder #10, another Army specialist (E-4) at Ft. Drum, used his
government travel card to make numerous purchases of personal items
totaling $2,841 over a 3-month period from May 2000 through July 2000.
The personal items included 38 restaurant charges, 37 charges at gas
stations, 14 charges at grocery stores, and 5 hotel charges in the
vicinity of Ft. Drum. The specialist, who had received a $10,000 credit
limit on his government travel card, had an unpaid balance of $7,643 as
of December 11, 2000. As of April 17, 2002, the travel card was in
charge-off status and the specialist no longer worked for the Army. Our
review of the soldier's credit report showed that he received his
government travel card from Bank of America in May 1999. Since that
time the soldier opened numerous credit card and other consumer
accounts with other vendors, almost all of which had unpaid balances
and were in collection status or had been charged off. We found no
evidence that the APC detected the soldier's personal use of the
government travel card. As a result, the Army could not take timely
action to cancel or suspend the soldier's travel card account. We also
found no evidence that disciplinary action was taken to address
personal use of the travel card or the unpaid debt once the Army became
aware of the problem.
[End of section]
Appendix V: Abusive Travel Card Activity Where Cardholders Paid the
Bill:
Table 10: Examples of Abusive Activity Where the Cardholders Paid the
Bill:
Cardholder: 1;
Unit: U.S. Army Element Allied Command;
Grade: E-5;
Vendor: Celebrity Cruises;
Amount: $5,192;
Nature of transaction: Reservations for four on the Millennium cruise
ship which sails to the Bahamas and Caribbean;
Documented disciplinary action: None.
Cardholder: 2;
Unit: U.S. Army Reserve Command;
Grade: O-5;
Vendor: Purdue University Rose Bowl Tour;
Amount: $3,998
Nature of transaction: Accommodations for 2 for 4 nights during the
Rose Bowl. Package included a pep rally, New Year's Eve event, and
premium seats to the parade;
Documented disciplinary action: None.
Cardholder: 3;
Unit: U.S. Army Reserve Command;
Grade: O-2;
Vendor: Louisiana Superdome;
Amount: $1,395;
Nature of transaction: 45 tickets to the Essence Music festival on July
5, 2001;
Documented disciplinary action: None.
Cardholder: 4;
Unit: Army Corps of Engineers;
Grade: GM-15[A];
Vendor: Georgetown Prep Tennis Club;
Amount: $826;
Nature of transaction: Tennis club membership;
Documented disciplinary action: None.
Cardholder: 5;
Unit: California National Guard;
Grade: E-4;
Vendor: GEICO;
Amount: $491;
Nature of transaction: Automobile insurance;
Documented disciplinary action: None.
Cardholder: 6;
Unit: Ft. Bragg Special Operations;
Grade: E-7;
Vendor: Russell's For Men;
Amount: $191;
Nature of transaction: Purchases made through a toll-free number for
’fine gifts for men“;
Documented disciplinary action: None.
Cardholder: 7;
Unit: Ft. Bragg Forces Command;
Grade: E-5;
Vendor: Victoria's Secret;
Amount: $172;
Nature of transaction: Women's lingerie;
Documented disciplinary action: None.
Cardholder: 8;
Unit: Ft. Bragg Forces Command;
Grade: E-4;
Vendor: 1-800-Contacts;
Amount: $80;
Nature of transaction: Contacts and contact solutions;
Documented disciplinary action: None.
Cardholder: 9;
Unit: Ft. Drum Forces Command;
Grade: E-5;
Vendor: Gateway Direct;
Amount: $329;
Nature of transaction: Computer equipment;
Documented disciplinary action: None.
Cardholder: 10;
Unit: Ft. Drum Forces Command;
Grade: E-6;
Vendor: Sunshine Entertainment;
Amount: $275;
Nature of transaction: Personal escort service;
Documented disciplinary action: None.
[A] Equivalent to GS-15.
Source: GAO analysis.
[End of section]
Footnotes:
1] U.S. General Accounting Office, Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-01-995T
(Washington, D.C.: July 30, 2001); Purchase Cards: Control Weaknesses
Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-32
(Washington, D.C.: Nov. 30, 2001); and Purchase Cards: Continued
Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse,
GAO-02-506T (Washington, D.C.: Mar. 13, 2002).
[2] The travel card program includes both individually billed
accounts”that is, accounts held by and paid by individual cardholders
based on reimbursement of expenses incurred while on official
government travel”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. This testimony covers transactions
charged to individually billed accounts only.
[3] 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.
[4] For each cash withdrawal at ATMs, cardholders are charged a fee of
set amount or percentage of the amount of the withdrawal.
[5] We considered any scheme or pattern of activity related to the use
of the travel card, in apparent violation of federal or state criminal
code, as a potentially fraudulent activity.
[6] We considered abusive travel card activity to include (1) personal
use of the card”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, thus benefiting personally.
[7] Knowingly writing checks against closed accounts or writing three
or more NSF checks is potential bank fraud under 18 U.S.C. 1344.
Further, it is a violation of the Uniform Code of Military Justice
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.
[8] 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).
[9] The Defense Finance and Accounting Service does not have the
systems in place to identify late payments and thus reported that it
made no late fee payments for fiscal year 2001.
[10] For this delinquency rate calculation, the Army is using the
number of delinquent accounts compared to the total number of active
accounts. The dollar amount method we used to calculate delinquency
rates is the industry standard and was also used by the DOD Charge Card
Task Force.
[11] Travel and Transportation Reform Act of 1998 (Public Law 105-264,
October 19, 1998) includes requirements that, unless specifically
exempted, (1) call for federal employees to use federal travel cards
for paying all expenses of official government travel, (2) provide that
and employee be reimbursed within 30 days of submitting a proper
voucher, and (3) allow for offsetting an employee's pay with undisputed
travel card charge delinquencies for an amount up to 15 percent of the
amount of the employee's disposable pay for a pay period.
[12] The Federal Travel Regulation, 41 CFR chapters 300-304, issued by
the Administrator of General Services, governs travel and
transportation allowances and relocation allowances for federal
civilian employees.
[13] Our Standards for Internal Control in Federal Government (GAO/AIMD-
00-21.3.1, November 2000) was prepared to fulfill our statutory
requirement under 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.
[14] Our Guide to Evaluating and Testing Controls Over Sensitive
Payments (GAO/AFMD-8.1.2, May 1993) provides a framework for evaluating
and testing the effectiveness of internal controls that have been
established in various sensitive payment areas.
[15] 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 tests of travel order, voucher, and payment process controls.
However, we included such transactions in our projections of the
percentage of personal use transactions.
[16] At Ft. Bragg Forces Command, we found that 85 of 189 transactions
appeared to be personal (projecting to an estimated 45 percent with a
95 percent confidence interval from 37.8 percent to 52.4 percent). At
Ft. Drum Forces Command, we found 17 of 115 transactions appeared to be
personal (projecting to an estimated 14.8 percent with a 95 percent
confidence interval from 8.9 percent to 22.6 percent). At Ft. Bragg
Special Operations, we found 21 of 117 transactions appeared to be
personal (projecting to an estimated 18 percent with a 95 percent
confidence interval from 11.5 percent to 26.1 percent). At the
California National Guard, we found 49 of 166 transactions appeared to
be personal (projecting to an estimated 29.5 percent with a 95 percent
confidence interval from 22.7 percent to 37.1 percent).
[End of section]
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