Vendor Payments
Inadequate Management Oversight Hampers the Navy's Ability to Effectively Manage Its Telecommunication Program Gao ID: GAO-04-671 June 14, 2004Problems with management oversight and control of DOD's purchase card program led to concerns that similar issues exist for DOD's vendor payments. As a result, this report focuses on the Navy's telecommunication program and whether (1) the Navy has the basic cost and inventory information needed to oversee and manage these purchases and (2) selected Navy sites have adequate control to provide reasonable assurance that goods and services are purchased cost effectively and payments are made only for valid charges.
The Navy did not know how much it spent on telecommunications and did not have detailed cost and inventory data needed to evaluate spending patterns and to leverage its buying power. Obtaining knowledge of current requirements and usage, as well as developing forecasts of future telecommunication needs, would assist Navy's acquisition planning to ensure future needs were met in a more cost-effective manner. At the four case study sites we audited, management oversight of telecommunication purchases did not provide reasonable assurance that requirements were met in the most cost-effective manner. For local and long-distance services, these sites did not follow policies to biennially review and revalidate these requirements. As a result, they paid for services no longer required. Also, the Navy lacks policies to provide assurance that cell phone requirements are met in the most cost-effective manner. Cell phone usage at three sites was not monitored to determine whether plan minutes met users' needs. Consequently, these sites overpaid for cell phone services. Also, none of the sites had adequate controls over review of invoices to provide assurance of payments for only valid charges. These sites failed to detect erroneous charges and potentially improper use of these services. In addition, the Navy lacks specific policies and processes addressing the administration and management of calling cards. Consequently, some sites did not know they owned and were being billed for calling cards. Other sites allowed calling cards to be shared and were unable to determine the legitimacy of the calls, and thus paid for potentially fraudulent or abusive long-distance charges. On one card alone, in a 3-month period, the Navy paid over $17,000. However, because no one was regularly monitoring the activity on this card, the unit was unaware of potentially fraudulent charges. Not until the vendor's fraud unit raised questions about more than $11,000 in charges incurred during the first 6 days of July 2003 was the card suspended.
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-04-671, Vendor Payments: Inadequate Management Oversight Hampers the Navy's Ability to Effectively Manage Its Telecommunication Program
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Navy's Ability to Effectively Manage Its Telecommunication Program'
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Report to Congressional Requesters:
June 2004:
VENDOR PAYMENTS:
Inadequate Management Oversight Hampers the Navy's Ability to
Effectively Manage Its Telecommunication Program:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-671]:
GAO Highlights:
Highlights of GAO-04-671, a report to the Honorable Janice D.
Schakowsky, House of Representatives:
Why GAO Did This Study:
Problems with management oversight and control of DOD‘s purchase card
program led to concerns that similar issues exist for DOD‘s vendor
payments. As a result, this report focuses on the Navy‘s
telecommunication program and whether (1) the Navy has the basic cost
and inventory information needed to oversee and manage these purchases
and (2) selected Navy sites have adequate control to provide reasonable
assurance that goods and services are purchased cost effectively and
payments are made only for valid charges.
What GAO Found:
The Navy did not know how much it spent on telecommunications and did
not have detailed cost and inventory data needed to evaluate spending
patterns and to leverage its buying power. Obtaining knowledge of
current requirements and usage, as well as developing forecasts of
future telecommunication needs, would assist Navy‘s acquisition
planning to ensure future needs were met in a more cost-effective
manner.
At the four case study sites we audited, management oversight of
telecommunication purchases did not provide reasonable assurance that
requirements were met in the most cost-effective manner. For local and
long-distance services, these sites did not follow policies to
biennially review and revalidate these requirements. As a result, they
paid for services no longer required. Also, the Navy lacks policies to
provide assurance that cell phone requirements are met in the most
cost-effective manner. Cell phone usage at three sites was not
monitored to determine whether plan minutes met users‘ needs.
Consequently, these sites overpaid for cell phone services. Also, none
of the sites had adequate controls over review of invoices to provide
assurance of payments for only valid charges. These sites failed to
detect erroneous charges and potentially improper use of these
services.
In addition, the Navy lacks specific policies and processes addressing
the administration and management of calling cards. Consequently, some
sites did not know they owned and were being billed for calling cards.
Other sites allowed calling cards to be shared and were unable to
determine the legitimacy of the calls, and thus paid for potentially
fraudulent or abusive long-distance charges. On one card alone, in a
3-month period, the Navy paid over $17,000. However, because no one
was regularly monitoring the activity on this card, the unit was
unaware of potentially fraudulent charges. Not until the vendor‘s fraud
unit raised questions about more than $11,000 in charges incurred
during the first 6 days of July 2003 was the card suspended.
Examples of Wasteful Telecommunication Payments:
[See PDF for image]
[End of figure]
What GAO Recommends:
To provide assurance that existing telecommunication policies are
enforced, GAO recommends that the Navy (1) develop and maintain a
complete inventory of services, (2) support DOD‘s efforts to track the
cost of acquiring telecommunication services, and (3) establish
comprehensive policies governing the purchase and use of cell phones
and calling cards. GAO also recommends that the Navy develop a
strategic management framework for improving the acquisition of
telecommunication services. For the selected units audited, GAO made
several recommendations aimed at improving controls over
telecommunication transactions.
In written comments on a draft of this report, DOD agreed with 9 and
partially agreed with the remaining 2 GAO recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-671.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory Kutz, (202)
512-9095 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results In Brief:
Background:
The Navy Lacked Strategic Knowledge of Expenditures to More Efficiently
Purchase Telecommunication Services:
Navy Sites Lacked Controls Needed to Ensure Appropriate Oversight and
Payment of Telecommunication Services:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Tables:
Table 1: Status of Review of Long-Haul Lines at Selected Navy Sites:
Table 2: Summary of Under-and Overutilization of Cellular Plans:
Table 3: Examples of Users Underutilizing Plan Package Minutes:
Table 4: Potentially Improper Long-Distance Calls Approved by NCTAMS
Norfolk:
Table 5: Compromised Calling Cards at Selected Sites:
Table 6: Major Commands and Units Selected for Review:
Figure:
Figure 1: Potential Fraudulent Use of a Comprised Card:
Letter June 14, 2004:
The Honorable Janice D. Schakowsky:
House of Representatives:
Dear Ms. Schakowsky:
As you are aware, we have conducted a series of audits and
investigations of the Department of Defense's (DOD) purchase card
program and found substantial breakdowns in internal controls that
resulted in fraud, waste, and abuse. Concerned that similar problems
may plague DOD's vendor pay processes through which approximately $112
billion was spent and obligated in fiscal year 2003, you asked us to
evaluate the effectiveness of DOD's management oversight and controls
in this area. As agreed with your staff, the scope of our audit
included our assessment of the Navy's oversight and controls over
vendor purchases and payments for telecommunication service--including
local and long-distance services, calling cards, and cellular phone
service.
This report provides you with our assessment of whether (1) the Navy
has the basic cost and inventory information needed to manage and
oversee its purchases from telecommunication vendors and (2) selected
Navy sites have effective internal control to provide reasonable
assurance that telecommunication goods and services are purchased cost
effectively and payments are made only for valid telecommunication
charges. Because the Navy was unable to provide us with a complete
population of telecommunication expenditures from which we could
sample, test, and discuss in this report as being control weaknesses,
as agreed with your staff, we used a case-study approach to assess the
adequacy of internal controls over vendor purchases and payments at
four Navy locations, instead of on a Navy-wide basis. We were unable to
perform statistical testing at these case study locations because the
local databases were often incomplete, or they had insufficient,
inconsistent, or inaccurate data. As a result, we evaluated the design
of controls in place and relied on nonrepresentative selections to
evaluate the effectiveness of case study locations' internal controls
over telecommunication programs.
We were able to evaluate the availability of cost and inventory
information Navy-wide, working at the Defense Information Systems
Agency (DISA) and Naval Network and Space Operations Command (NNSOC),
[Footnote 1] and evaluated the adequacy of the Navy's expenditure
reporting systems. In general, our assessment of purchasing and receipt
and acceptance controls was limited to four Navy units from the
following commands: (1) SPAWAR Systems Center, Charleston, South
Carolina (SPAWAR Charleston); (2) Naval Air Warfare Center Aircraft
Division, Patuxent, Maryland (NAVAIR Patuxent); (3) Naval Surface
Warfare Center, Crane, Indiana (NAVSEA Crane); and (4) Commander-in-
Chief Atlantic Fleet, Norfolk, Virginia (CINCLANTFLT Norfolk). We also
performed limited work at HQ DISA and its major contracting
organization--the Defense Information Technology Contracting
Organization (DITCO Scott), and DISA CONUS (organizational element
functionally responsible for the review and revalidation (R&R)
process), both located at Scott Air Force Base, Illinois, pertaining to
the review and revalidation of telephone services, and at the Naval
Computer and Telecommunication Area Master Station Atlantic (NCTAM,
Norfolk) related to purchasing controls. In addition, we used data-
mining techniques to identify possible control weaknesses associated
with the purchase and use of long-distance calling cards. This data-
mining effort prompted us to audit selected calling card transactions
at seven locations--discussed in detail in our objectives, scope, and
methodology contained in appendix I. We conducted our work from May
2003 through February 2004 in accordance with generally accepted
government auditing standards. We requested comments on a draft of
this report from the Secretary of the Navy or his designee. We received
written comments, which are reprinted in appendix II. In addition, DOD
provided some technical comments, which we incorporated in the report
as appropriate.
Results In Brief:
The Navy lacked the basic cost and inventory information needed to
manage and oversee its purchases from telecommunication vendors.
Complete and accurate cost and inventory information provides a
foundation for evaluating spending patterns on a Navy-wide, Command-
wide, or unit-wide basis. This information in turn would allow the Navy
to leverage its buying power if it chose to employ a more strategic
approach to acquiring telecommunication services based on improved
knowledge of spending, rather than continuing to use a generally
decentralized and fragmented approach to acquiring services to meet
more localized needs. However, we found that the Navy did not know
exactly how much it was spending on telecommunication services nor did
it know much about its telecommunication service vendors. Without this
knowledge, the Navy cannot take steps to leverage its buying power and
achieve significant savings, even though it is a large customer for
telecommunication services. In addition, from an internal control
perspective for assuring appropriate payments to telecommunication
service vendors, the Navy lacked a complete and accurate inventory of
its local and long-distance networks, and some of the Navy locations we
audited did not maintain an accurate inventory of the number of calling
cards and cell phones currently in use or have accurate records as to
whom the cards and phones were issued. Without an accurate inventory of
the telecommunication networks and services currently in operation, the
Navy cannot effectively ensure that it pays only for services it
receives and hold individuals accountable for unauthorized
telecommunication usage.
At the four Navy case study units we audited, management oversight or
controls over the purchase of telecommunication goods and services did
not provide reasonable assurance that telecommunication requirements
were being met in the most cost-effective manner possible. For local
and long-distance services, these units did not follow established
policies to biennially review and revalidate their telecommunication
requirements--in part because they lacked a complete and accurate
inventory of their local and long-distance networks. As a result, the
Navy was paying for telecommunication service it no longer required.
For example, when we asked the four Navy units and DITCO Scott to
review and revalidate 55 long-distance lines that had not been reviewed
in over 2 years, they found that 12 of the 55 lines (22 percent) were
no longer needed. According to Navy and DITCO Scott officials, all 12
lines have since been disconnected, but they were unable to quantify
the total waste associated with paying for these unneeded lines. For 3
of the lines, DITCO Scott officials estimated that $36,000 had been
paid since fiscal year 2000 or 2001, the years the payments should have
stopped.
Further, the Navy had no policies to ensure that cell phone
requirements are met in the most cost-effective manner possible.
Consequently, three of the four sites we audited were paying too much
for these services. In one case, the unit did not take advantage of
lower, prenegotiated rates provided through the General Services
Administration (GSA) and instead paid full retail, which was 12 percent
more than the GSA rate. Further, because cell phone usage was not
monitored to ensure that the plan minutes included in the cell phone
contract cost effectively met the users' needs, we found that many
users were consistently overutilizing or underutilizing their cell
phone plans and paying much more than necessary for these plans. For
example, after our discussions with them, SPAWAR Charleston officials
reassessed usage requirements for 71 of their 1,900 cell phone plans
and determined they could save over $59,000 annually through better
management. They also told us that they intend to reassess the
remaining plans as soon as time permits.
None of the four sites we audited had effectively implemented
established policies governing the receipt and acceptance of
telecommunication goods and services to ensure that payments were made
only for valid telecommunication charges. DOD regulations[Footnote 2]
require that payments on invoices be supported by documentation that
reflects the receipt of services and goods and that those goods and
services conformed to the contractual requirements. For
telecommunication payments, this involves reviewing telecommunication
invoices and reconciling invoice charges with an accurate inventory of
telecommunication lines, circuits, networks, and services currently in
operation and verifying that the billing rates used to calculate the
charges are valid. Based on our audit of selected vendor invoices at
the Navy sites we audited, we found that two of the four sites had
performed little or no review, while the other two sites had controls
in place but were not effectively performing the reviews of invoices
prior to certification of payment. As a result, the reviewing officials
at these sites did not detect erroneous or duplicate telecommunication
charges. For example, one Navy site did not detect charges for
discontinued local service on five different occasions. Because this
site had not consistently implemented controls to detect invalid
charges, it overpaid by $5,600.
Additionally, the Navy did not have specific policies addressing the
administration and management of calling cards; as a result, the Navy
has paid for potentially fraudulent or abusive long-distance charges.
Further, some of the Navy sites we audited did not know they owned and
were being billed for long-distance calling card services. In other
cases, the Navy knew it owned the calling cards but card users in these
units frequently shared the same calling card and personal
identification number (PIN)--resulting in multiple calls being made
throughout the world on the same card at approximately the same time
and preventing the Navy from determining the legitimacy of the phone
calls. According to MCI officials, each calling card with its
respective PIN should be issued to and used only by one individual in
order to assist in monitoring calling card usage. Additionally, calling
cards should be tracked to determine who is accountable for each card's
use and invoices should be reviewed to detect and prevent unauthorized
calling card use. The sharing of calling cards hinders the Navy's
ability to investigate calling card misuse. For example, one account
owner said that he routinely provided the same card number and PIN to
some of his officers, as needed, but did not know how many officers he
had given the numbers to or how many currently had possession of the
numbers. For this card alone, the Navy paid over $17,000 in long-
distance charges for the 3-month period from April to June 2003.
According to Navy officials, the card has been cancelled, but despite
our repeated inquiries, as of the date of this report the Navy had yet
to provide us with the identity of the individuals who were using this
card or assurance as to whether the calls were for a legitimate
purpose.
This report contains 8 recommendations to the Secretary of the Navy and
3 recommendations to the Chief of Naval Operations (CNO) concerning
actions needed to (1) enforce existing policies related to maintaining
accurate inventory data and performing review and revalidation
procedures; (2) develop and enforce comprehensive policies and guidance
governing the purchase, issuance, and use of cell phone and calling
card services; and (3) develop a strategic management framework for
improving the acquisition of telecommunication services by
strengthening the Navy's analysis of telecommunication service
requirements and spending. In written comments on a draft of this
report, DOD concurred with 9 of the 11 recommendations. DOD partially
concurred with the 2 remaining recommendations. Due to the lack of
clarity of the Navy's planned actions on the 2 recommendations, we were
unable to assess the extent to which its actions will comply with the
intent of our recommendations. The department also provided some
technical comments, which we incorporated in the report as appropriate.
Background:
The military services and DOD have long procured and operated multiple
types of telecommunication services to meet their individual mission
needs. DOD guidance[Footnote 3] defines telecommunications as circuits
or equipment used to transmit or receive information via voice, data,
video, integrated telecommunication transmission, wire, or radio.
Telecommunication equipment and services collectively include such
items as telephones, switching systems and circuit termination
equipment. Overall, telecommunications can be thought of broadly in two
categories--base and long-haul telecommunications. Also, DOD has been
using and paying for some special category types of services--cell
phones and calling cards--that can usually be used to access either the
base or long-haul infrastructure or both.
DOD defines base telecommunications as facilities, equipment, and
services used to support the distribution, transmission, or reception
of information via voice, data, video, integrated telecommunications,
wire, or radio within the confines of an area, such as an installation.
This may include local interconnecting lines to the first commercial
central office providing service to the local community and to other
DOD component facilities in the local area. Calls originating and
ending within the local calling area are considered local service calls
and activities pay a flat monthly fee for such service. The fee that is
paid to vendors is based upon the number of circuits billed and not the
number of calls made. DISA does not have direct responsibility for
acquiring and managing base telecommunication equipment and services,
although it does have some oversight responsibilities.
Long-haul telecommunications are the facilities, equipment, and
services (in addition to those described for base telecommunications)
that are used for the transmission or receipt of information that
crosses the boundary of a facility's local calling community. DOD
service components are required to contract for their long-haul
services through DITCO, DISA's contracting organization. DITCO charges
the components the actual costs for the services it provides them, plus
a surcharge (which is currently 2 percent) to cover DITCO's cost of
administering the program.
Cell phones allow DOD personnel, including Navy personnel, to make
official calls when other alternatives are unavailable or are
uneconomical. They can be used to access a local as well as a long-
distance network, but it is generally more economical to use other
service for local service, when possible. Navy activities generally
either contract directly for cellular phone service or procure the
phones under an already established GSA negotiated contract. Vendors
normally offer various service plan packages to their customers with a
range of rates, depending on the types of service and options provided.
Items that can cause rates to vary are geographical location, the
user's calling area, and the number of telephones requested. Cellular
phones differ from conventional telephone systems in the way charges
for calls accrue. For cellular phones, activities are usually charged a
fixed fee for a specific plan package, which includes a limited number
of available minutes. After using all of the available minutes in a
month, activities then pay a per-minute charge for any excess minutes,
not included in the contracted amount. When callers exceed the number
of minutes allowed in the plan package, they generally pay a very high
premium per minute for the minutes in excess of the plan. Generally,
charges for cellular phone services include (1) charges for airtime for
all completed outgoing and incoming calls and (2) charges (known as
roaming charges) for calls made when the caller is outside his or her
home service area. In addition, cellular phones may incur long-distance
charges for calls made where the number called is outside the local
area in which the caller is physically located or if this service is
not included in the service contract.
Calling cards are used to access telecommunication services at a
location where DOD-owned services are unavailable or where it is
desired that the calls be charged to an account other than the one from
which the calls are being made. Navy calling cards are issued to
individual Navy employees for their official use in conducting
government business. The card provides the user with access to the
Federal Telecommunications System (FTS)[Footnote 4] and offers a
variety of available services. Navy activities generally procure the
calling cards through DITCO in bulk and they are stored by the
activities until issued. DITCO obtains the calling cards through a
prenegotiated GSA contract. The cards incur no charges until issued and
activated. The Navy activities are responsible for issuing the cards to
individuals and the individuals activate the cards. Once issued, the
activities are responsible for reviewing and certifying the calling
card charges, just as they are for all other types of telecommunication
service charges.
DOD and its components have long acquired telecommunication systems to
meet their individual mission needs, resulting in a fragmented and
redundant telecommunication environment. To eliminate costly
duplication and improve the effectiveness and efficiency of its
communication services, in 1991 DOD began to plan and implement the
Defense Information Systems Network (DISN) as the common-user, long-
haul telecommunication network for all DOD components.[Footnote 5]
Under the DISN program, DOD's service components and Defense agencies
are still responsible for acquiring local base telecommunication
services for their local bases and installations; however, DISA is to
be the sole provider of long-haul telecommunication services for all
DOD components.
To improve the interoperability of DOD's long-haul telecommunication
networks and service as well as to reduce costs, the Assistant
Secretary of Defense for Command, Control, Communications, and
Intelligence (ASD/C3I)[Footnote 6]established policies and procedures
that (1) directed DOD components to develop comprehensive inventories
of their own long-haul telecommunication networks and directed DISA to
develop a Defense-wide inventory of long-haul networks; (2) directed
DISA to report annually on telecommunication services, acquisitions,
trends, and associated costs; (3) mandated components to use common-
user networks such as DISN or FTS 2000 for long-haul communications;
(4) directed DISA to establish a waiver process to let components
procure independent networks when their telecommunication needs could
not be met by common-user networks; and (5) directed DOD components to
periodically review and revalidate their long-haul telecommunication
requirements. In a previous review of the DISN program,[Footnote 7] and
during our work on this audit, we found that DOD had not effectively
implemented any of these directives. In response, DOD agreed to address
our concerns and to implement these policies and procedures. However,
as discussed in this report, the Navy has not yet established an
accurate and complete telecommunication inventory or created a database
of information on acquisition, trends, and associated costs, which are
necessary to plan for future growth and cost effectively purchase new
telecommunication equipment and services.
The Navy Lacked Strategic Knowledge of Expenditures to More Efficiently
Purchase Telecommunication Services:
The Navy did not know exactly how much it was spending on
telecommunication services nor did it know much about its
telecommunication service vendors. The Navy's lack of detailed cost
data prevented us from analyzing its telecommunication expenditures on
an aggregate level. For this reason, we were unable to comprehensively
sample and test the adequacy of the Navy's controls or perform
effective data mining of its telecommunication expenditures. More
importantly, this lack of adequate information also prevented the Navy
from obtaining the knowledge needed to take steps to leverage its
buying power, even though it is a large customer for telecommunication
services. Moreover, obtaining knowledge of current requirements and
usage, as well as developing forecasts of users' future
telecommunication needs, would assist Navy acquisition planning to
ensure those future needs can be met in a more cost-effective manner.
Our past work has identified specific practices that can be employed by
DOD agencies to manage services acquisitions--including
telecommunication services--from a more strategic perspective, thereby
enabling DOD organizations to leverage buying power and achieve
significant savings.[Footnote 8] These include establishing a central
agent or manager for acquiring services, gaining visibility over
spending, and revising business processes to enable the organization to
leverage its buying power. Our past work showed that leading
organizations that applied a strategic approach to their purchases of
services found it necessary to develop new "spend analysis" information
systems that could provide them with reliable data in a timely fashion.
Spend analysis is a tool that answers basic questions about how much is
being spent for what goods and services and helps to identify both
buyers and suppliers, as well as opportunities to leverage buying, save
money, and improve performance.
Having the type of information discussed above would enable the Navy to
perform spend analysis on the purchase and use of its telecommunication
assets, which would provide the Navy with a complete picture of what is
being spent on telecommunications--the cornerstone to identifying what
can be done to improve the purchasing process and to leverage the
Navy's buying power. The task of gaining accurate visibility over
spending will be difficult for the Navy given the lack of information
systems available to provide spending data and the magnitude, breadth,
and complexity of spending involved with multiple types and sources of
telecommunication services. However, leading companies we studied that
developed formal, centralized spend analysis programs found that they
could overcome similar difficulties of piecing together incomplete and
inaccurate data from various information systems through the use of key
processes involving automating, extracting, supplementing, organizing,
and analyzing data.[Footnote 9] Currently, the Navy lacks the needed
information to perform effective cost/spend analysis.
Recognizing that the best practices experiences of leading companies
could help improve the cost effectiveness of DOD's acquisition of
services, Congress included[Footnote 10] provisions in the National
Defense Authorization Act for Fiscal Year 2002[Footnote 11] that
require, among other things, that DOD establish an automated system to
collect and analyze data to support management decisions in contracting
for services. The provisions were intended to put DOD in a position to
gain visibility over services contract spending and more effectively
leverage its buying power, thus (1) improving the performance of its
service contractors, (2) organizing its supplier base, and (3)
achieving significant savings and ensuring that its dollars are used
more effectively.[Footnote 12] Although DOD is in the early stages of
responding to these legislative requirements, DOD has a departmentwide
spend analysis pilot underway and has called on agencies to embrace a
strategic approach for acquiring services.[Footnote 13] Based on our
assessment of the Navy's payment and expenditure reporting systems, the
Navy's current process for acquiring telecommunication services is not
strategic and its ability to use spend analysis to support a strategic
approach is hampered by the lack of centrally available and detailed
telecommunications expenditure data. Because the Navy does not budget
or account for telecommunication requirements separately from other
nontelecommunication requirements, the Navy's automated systems are not
designed to track the cost associated with purchasing telecommunication
services in total or by network or by type of service provided.
Consequently, the Navy is unable to perform the kind of meaningful
spend analysis envisioned by the act.
The Navy has yet to take steps to perform the kind of meaningful spend
analysis employed by leading companies to better manage its purchasing
of telecommunication services. Much earlier, in 1991, DOD directed DISA
to establish a central inventory of all long-haul telecommunication
equipment and services and directed the heads of DOD components to
establish and maintain an inventory of all base telecommunication
equipment and services. However, we found in several instances that
DISA's long-haul database was incomplete and contained numerous errors
and that the Navy had yet to establish a base communications database
as directed. Specifically, we found that (1) the DISA database did not
track long-haul equipment and services that were purchased outside of
DISA channels, (2) networks and services were still reflected in the
DISA database long after they had been discontinued, and (3) point of
contact or ownership information often had not been updated in years.
In addition, some of the Navy locations we audited did not maintain an
accurate inventory of the number of calling cards and cell phones
currently in use or maintain adequate records of to whom the cards and
phones were issued. As discussed later, our case-study work at four
Navy locations demonstrated that this lack of reliable inventory data
combined with other breakdowns in basic controls creates a fertile
environment for fraud, waste, and abuse.
Navy Sites Lacked Controls Needed to Ensure Appropriate Oversight and
Payment of Telecommunication Services:
Although DOD established a policy in 1991 requiring that DOD components
biennially review and revalidate their local and long-distance
telecommunication requirements, none of the four Navy locations we
visited or DITCO Scott had established effective review and
revalidation programs to ensure that they were not paying for capacity
or services they no longer needed or they were not paying too much for
the needed services used. In addition, the Navy did not have policies
to ensure the cost-effective purchase and use of cell phone services.
Consequently, we found that the four Navy sites we audited had
established their own policies for the procurement and management of
cellular services and equipment. These policies varied greatly, due to
the differences in size, capability, and requirements of the cellular
program at each site, which resulted in some of these sites paying more
for these equipment and services than was necessary. Further, although
DOD financial management regulations require proper receipt and
acceptance of goods and services and the reconciliation of bills prior
to payment, we found that the Navy activities we visited were
improperly approving payments for telecommunication services without
appropriate review. Failure to properly reconcile the bills has allowed
payment to be made for inappropriate and irregular local and long-
distance charges and has allowed the activities to improperly make
overpayments and duplicate payment to telecommunication vendors.
Finally, we found that the Navy does not have policies addressing the
administration and management of calling cards. This has resulted in
either inconsistent policies or a total lack of policies from one
command to the next. Because of this lack of control, we identified
several instances where the Navy had paid bills for calling card
services that appeared to us to be potentially fraudulent or abusive, a
situation that will likely be repeated unless changes are made.
Navy Sites Were Not Performing Effective Review and Revalidation of
Local and Long-Distance Requirements:
The review and revalidation process is important because it enables an
activity to determine, based on empirical data, whether it is meeting
its local and long-distance telecommunication needs in the most cost-
effective means possible. According to DOD instructions[Footnote 14]
this involves (1) assessing telecommunication traffic or usage to
determine whether telecommunication services are still needed, (2)
conducting market surveys to determine if current telecommunication
contracts provide the most cost-effective solution for satisfying usage
requirements, and (3) updating the appropriate inventory database to
indicate that the requirement for the local and long-distance lines has
been revalidated. It is particularly important that Navy personnel
routinely review and revalidate their needs for the local and long-
distance services they currently have and are paying for, and that they
promptly cancel any unnecessary lines to avoid paying monthly usage
fees for unneeded services. Activities are assessed fees for a line
based either on the usage, a flat rate regardless of usage, or a
combination of both. Therefore, if lines are not promptly canceled and
if they have a monthly charge, the Navy will continue to receive and
pay for these services indefinitely until they are canceled.
None of the Navy sites we visited or DITCO Scott had effectively
implemented existing policies to perform all three of the review and
revalidation procedures mentioned earlier. At NAVSEA Crane, officials
had recently assessed their telecommunication traffic to determine
whether the services for which they were currently contracted were
still needed. However, they had not conducted a market survey and,
therefore, had no assurance that they were meeting their
telecommunication needs in the most economical way possible. Two other
sites, NAVAIR Patuxent and SPAWAR Charleston, had assessed their
telecommunication traffic and performed a market survey but had failed
to update the database to reflect that they had taken the required
actions. As mentioned previously, these failures undermine DISA's
ability to monitor and effectively manage the DISN program and to
maintain the quality of the database. For example, according to DISA's
long-haul database, as of February 17, 2004, approximately 3,100 of the
Navy's 26,000 long-haul lines had either not been revalidated in over 2
years or had not been properly updated. Some of these records indicated
that the lines had been past due for revalidation for decades--in one
case since March 1969. According to agency officials, as a result of
our review, both NAVAIR Patuxent and SPAWAR Charleston have implemented
corrective actions to ensure that the appropriate inventory database is
updated whenever they revalidate their local and long-distance lines.
As shown in table 1, at two of the four sites, we identified 37 long-
distance lines that had not been reviewed and revalidated in over 2
years. When we asked the appropriate Navy personnel to review these 37
long-distance lines to determine if they were still needed, they found
that 8 of the 37 lines for which they had been paying a total monthly
usage fee of $4,969 were no longer needed. We relied on the accuracy of
their responses and did not perform an independent review to determine
their validity.
Table 1: Status of Review of Long-Haul Lines at Selected Navy Sites:
Unit: SPAWAR Charleston;
Number of lines reviewed within 2-year period: 60 of 84;
Number of lines the Navy determined should be disconnected: 0;
Monthly charges for unneeded lines: N/A.
Unit: NAVAIR Patuxent;
Number of lines reviewed within 2-year period: 136 of 136;
Number of lines the Navy determined should be disconnected: N/A;
Monthly charges for unneeded lines: N/A.
Unit: NAVSEA Crane;
Number of lines reviewed within 2-year period: 20 of 20;
Number of lines the Navy determined should be disconnected: N/A;
Monthly charges for unneeded lines: N/A.
Unit: CINCLANFLT Norfolk;
Number of lines reviewed within 2-year period: 12 of 25;
Number of lines the Navy determined should be disconnected: 8;
Monthly charges for unneeded lines: $4,969.
Unit: Total;
Number of lines reviewed within 2-year period: 228 of 265 (37 lines
had not been reviewed in over 2 years);
Number of lines the Navy determined should be disconnected: 8;
Monthly charges for unneeded lines: $4,969.
Source: GAO's calculation using DISA's long-haul database.
[End of table]
Subsequent to our inquiry, Navy officials told us that the 8 lines
shown in table 1 have now been disconnected. For these 8 lines, they
were unable to quantify the total unnecessary cost that had been
incurred to operate them because they were unable to determine exactly
how long the lines had been operating without a valid need. To further
demonstrate the risk of not promptly reviewing and revalidating
existing lines, DITCO Scott officials were able to tell us that 4 of
their 18 past-due lines for revalidation should have been discontinued
in fiscal year 2000 or 2001. Instead, they continued to incur and pay
monthly charges of $917 for 3 of these lines for about 3 years--
incurring about $36,000 in unnecessary charges--until we raised the
issue in fiscal year 2003 and the lines were discontinued. For the
fourth line, DITCO was unable to quantify the cost for unnecessary
usage.
Similarly, two of the four Navy sites we audited had not reviewed or
revalidated their base communication networks as required; however, the
immediate financial impact of not doing so is not as evident. Base
telecommunication networks are the equipment or services used to
support the transmission of data within the confines of an
installation. According to a Navy official, because a unit is not
charged specifically for individual base communication lines, there are
no unit cost savings associated with the deletion of a few unused
individual lines. However, over time, the number of unused lines may
become significant enough to warrant resizing a unit's base
communication network. For this reason, it is important that the Navy
also implement an effective review and revalidation program for its
base as well as its long-distance telecommunications. When we asked
Navy officials at the two sites why they were not routinely reviewing
and revalidating their telecommunication needs, we found that they were
not aware of the requirement or did not see it as a top priority. The
remaining two locations, NAVSEA Crane and NAVAIR Patuxent, had reviewed
and revalidated their base communication network as required.
The Navy Lacked Policies for the Cost-Effective Purchase and Usage of
Cell Phone Services:
The Navy's use of cell phones has increased dramatically in recent
years, allowing Navy personnel to make official calls when other
alternatives are unavailable or uneconomical. In 1997, on the basis of
a recommendation of the Naval Audit Service, NCTC, in conjunction with
the Chief of Navy Operations, agreed to develop and issue specific
guidelines and procedures relating to acquisition, accountability, and
use of cellular phones. However, at the time we did our work for this
assignment, neither DOD nor the Navy had taken the required actions to
establish comprehensive policies or guidance governing the purchase and
use of cell phone services, including guidance on (1) using
prenegotiated or centrally negotiated rates or (2) requiring periodic
assessment of cell phone usage to determine if plan packages provide
the most cost-effective means to satisfy its usage requirements.
Consequently, three of the four sites we audited were either paying
retail prices for their cell phones when lower prenegotiated rates were
available or were paying too much for cell phone services because they
were not monitoring the use and thus had no basis for aligning the
contracts with expected use.
In the absence of DOD-and Navy-wide policies and procedures for the
purchase of cell phones, individual Navy units have had to develop
their own approaches for the procurement and management of cellular
services and equipment. While three of the four sites we visited made a
concerted effort to either (1) purchase cell phones at the GSA-
negotiated rate--currently 12 percent discount off retail--or (2)
establish their own negotiated contract with local cellular service
providers, the remaining location, NAVSEA Crane, did neither. Instead,
at NAVSEA Crane, individuals responsible for the procurement as well as
cell phone users themselves bought their cell phones directly from
retail sources using their purchase cards. As a result, NAVSEA Crane in
some instances was paying a higher rate for cell phones--12 percent
higher--than that established by GSA and in some cases paying taxes
that should not be paid by government entities.
In contrast, CINCLANFLT Norfolk negotiated a contract with one vendor
using a shared minute plan, which allows multiple individuals to be on
the same plan using an allocated number of minutes. The advantage of
this plan is that if one individual goes over his or her allocated
number of minutes and another individual uses fewer than his or her
allotted number of minutes, charges for additional usage are not
incurred. As a result of this plan, excess minutes were eliminated and
CINCLANFLT Norfolk's monthly access charges were reduced from $45.65 to
$33.19. To take it one step further, the NAVAIR Command was able to
achieve a large saving for all seven of its subcommands because it
leveraged its buying power as a command to negotiate a better deal with
a single service provider. Under this contract, NAVAIR Patuxent, a
participating subcommand, received a 23 percent discount off retail--
almost twice the amount of the GSA-negotiated discount rate--and free
standard cell phones. NAVAIR Command was able to negotiate such a
favorable contract because it had the information it needed on its cell
phone users, allowing it to negotiate with different local vendors and
select the vendor with the best rate. This information included such
factors as the number of cell phone users, the total number of plan
minutes used, and the amount spent annually for cell phone equipment
and services. As a result of the negotiated contract, NAVAIR Patuxent
estimated that it saved approximately $110,000 in fiscal year 2003 and
projects that it will save over $200,000 in fiscal year 2004 for its
cell phone services and equipment requirements. The differences in the
three procurement methods illustrated show that even on a small level,
information consolidation and centralization is the foundation for
implementing cost-effective methods for procuring cell phones and
related services. Realizing this, NAVSEA Crane is currently developing
a centralized procurement contract with a local vendor.
In addition, three of the four Navy locations we audited paid too much
for cell phone services because they were not monitoring individual
plan usage. As shown in table 2, we identified selected cases at three
of the four sites we audited where cell phone users were either (1)
consistently exceeding their monthly allotment of minutes, thus
incurring excessive charges for extra minutes (overutilization); or (2)
consistently using only a small portion of their allotted minutes, thus
incurring high charges per minute actually used because they contracted
for substantially more minutes than needed (underutilization). At the
fourth location, as previously mentioned, CINCLANFLT Norfolk negotiated
a contract with one vendor using the shared minute plan, which allows
multiple individuals to be on the same plan using an allocated amount
of minutes--eliminating their charges for over-and underutilization of
cellular plans.
Table 2: Summary of Under-and Overutilization of Cellular Plans:
Units: SPAWAR Charleston;
Number of: plans tested: 54;
Number of plans overutilized in fiscal year 2002: 12;
Number of Plans underutilized in fiscal year 2002: 4;
Percentage of over-or underutilized plans: 30%.
Units: NAVAIR Patuxent;
Number of: plans tested: 14;
Number of plans overutilized in fiscal year 2002: 3;
Number of Plans underutilized in fiscal year 2002: 3;
Percentage of over-or underutilized plans: 43%.
Units: NAVSEA Crane;
Number of: plans tested: 28;
Number of plans overutilized in fiscal year 2002: 0;
Number of Plans underutilized in fiscal year 2002: 5;
Percentage of over-or underutilized plans: 18%.
Units: CINCLANFLT Norfolk;
Number of: plans tested: N/A;
Number of plans overutilized in fiscal year 2002: N/A;
Number of Plans underutilized in fiscal year 2002: N/A;
Percentage of over-or underutilized plans: N/A.
Total;
Number of: plans tested: 96;
Number of plans overutilized in fiscal year 2002: 15;
Number of Plans underutilized in fiscal year 2002: 12;
Percentage of over-or underutilized plans: 28%.
Source: GAO's calculation using unit-provided data.
Note: Overutilized: Individuals who exceeded their plans 5 months or
more in a year. Underutilized: Individuals who consistently used less
than 30 percent of their plan for the year.
[End of table]
Overutilization of cellular plans can result in considerable additional
costs to the government. We found that management personnel at these
sites were not routinely comparing cell phone plans and usage to
identify possible savings. For example, we found at one unit listed in
table 2 that for some cellular plans, excess minute charges ranged from
20 to 35 cents per minute. This is more than twice the cost of the
plans' allowable per minute charges, which ranged from 7 to 15 cents
per minute. For the 15 overutilized plans, these two sites incurred
over $34,000 in excess minute charges in fiscal year 2002. Officials at
NAVAIR Patuxent, concerned over our finding regarding the
overutilization of cellular plans at their site, implemented a
quarterly review process where they monitor cell phone usage with
respect to allotted minutes and modify individual cell phone plans to
achieve maximum cost effectiveness. According to these officials, for
the first quarter of fiscal year 2004, NAVAIR Patuxent saw a reduction
of 39 percent in its excess minute costs. Similarly, SPAWAR Charleston
is in the process of negotiating a contract with a vendor for shared
pool minutes to reduce its excess minute costs.
While the monetary impact of underutilizing cell phone minutes is not
as significant as consistently exceeding plan minutes, at one site in
particular--NAVSEA Crane--using data-mining techniques[Footnote 15] on
vendor invoices, we found instances where cell phone users were paying
$95 per month for service plans in which they were using less than an
average of 2 percent of their allotted monthly minutes for fiscal year
2002. As shown in table 3, the average cost per minute on these
underutilized cell phone plans was extremely high.
Table 3: Examples of Users Underutilizing Plan Package Minutes:
Number of months plans were underutilized: 12;
Cost of plan: $95.00;
Plan monthly: allowed minutes: 650;
Average monthly minute usage for fiscal year 2002: 1.23 minutes;
Average cost per minute (rounded to the nearest dollar): $76.00.
Number of months plans were underutilized: 12;
Cost of plan: $95.00;
Plan monthly: allowed minutes: 650;
Average monthly minute usage for fiscal year 2002: 22.17 minutes;
Average cost per minute (rounded to the nearest dollar): $4.00.
Number of months plans were underutilized: 10;
Cost of plan: $95.00;
Plan monthly: allowed minutes: 650;
Average monthly minute usage for fiscal year 2002: 9.1 minutes;
Average cost per minute (rounded to the nearest dollar): $10.00.
Source: GAO calculation using units' vendor invoices for fiscal year
2002.
[End of table]
When we saw similar issues at SPAWAR Charleston, officials reviewed the
usage requirements for 71 of their 1,900 cell phone users and
determined that these users had either significant over-or
underutilization. They further determined that they could save over
$59,000 annually on these 71 plans alone if they changed the individual
users to plans that more accurately matched their actual usage.
According to these officials, they intended to review the remaining
plans to achieve additional savings.
Vendor Payments Approved Without Appropriate Review:
None of the four sites we audited had consistently implemented
procedures that complied with DOD policies regarding reconciliation of
telecommunication invoices. DOD regulations[Footnote 16] require that
payments on invoices be supported by documentation that reflects the
receipt of services and goods and that those goods and services conform
to the contractual requirements. These documents must be reconciled
prior to payment unless special circumstances warrant otherwise. For
telecommunication, this reconciliation process involves reviewing
telecommunication invoices and reconciling invoice charges with an
accurate inventory of telecommunication lines, circuits, networks, and
services currently in operation and verifying that the billing rates
used to calculate the charges are valid. However, we found that two of
the Navy sites we audited had few or no controls in place, while the
other two sites were not consistently implementing their established
controls to review vendor invoices prior to certification of payment.
Consequently, approving officials at these sites failed to detect
inappropriate and irregular telecommunication charges, which allowed
overpayments and duplicate payments to be made to vendors.
Two of the four sites we audited had few or no controls in place to
review and reconcile vendor invoices prior to certification of payment.
At NAVSEA Crane, we reviewed the payment information for fiscal year
2002 and the first 6 months of fiscal year 2003 and found that
officials reviewed the total amount billed per invoice and did not
review specific charges to determine whether the charges were valid.
Consequently, NAVSEA Crane paid almost $1,700 in vendor-assessed late
fees. According to agency officials, only DFAS can approve late fees
for past due Navy payments, and therefore NAVSEA Crane failed to ensure
that any review of late fees was completed prior to payment. The other
site, CINCLANFLT Norfolk, which procured its local and long-distance
services via NCTAMS, had its invoices certified for payment by NCTAMS
for more than 1 year without proper review. This occurred because
CINCLANFLT Norfolk had not received billing information from NCTAMS
that would allow it to review and reconcile its detailed charges with
the services currently in operation.
According to NCTAMS officials, billing information, such as service
charges and long-distance call details, is e-mailed to the respective
units' contact point using the same e-mail address used by the vendor.
However, NCTAMS officials did not confirm that the units were receiving
the billing information or if the e-mail address was correct. Instead,
these officials stated that they assumed the billing information was
correct unless they were contacted by the activity within 15 days.
However, relying on negative assurance prevents these sites from
properly reviewing and reconciling invoices in accordance with DOD
policies. For example, at NCTAMS, we found 52 long-distance calls on a
July 2003 invoice that were 24 hours or over in length. These calls
included 4-day, 10-day, and 12-day phone calls, which all originated
from different phone numbers at different times. The length of these
calls alone should have prompted further investigation but, because the
invoice was never properly reviewed, the billing errors went unnoticed
until we called the issue to the attention of NCTAMS officials. As
shown in table 4, we further investigated 10 of the 52 calls to
determine what caused the apparent billing errors. In 7 of the 10
cases, NCTAMS officials who approved the invoices could neither provide
us with an explanation for the length of the calls nor could they
provide us with valid points of contact for the activities responsible
for the calls.
Table 4: Potentially Improper Long-Distance Calls Approved by NCTAMS
Norfolk:
Date (2003): July 15;
Destination of call: Richmond, Va;
Total consecutive minutes: 18,282;
Total hours: 304;
Cost of call: $414;
Explanation provided by installation: The lengthy duration of the call
was due to a circuit malfunction. The installation asked the vendor
for a refund after our inquiry.
Date (2003): July 09;
Destination of call: Richmond, Va;
Total consecutive minutes: 6,201;
Total hours: 103;
Cost of call: $140;
Explanation provided by installation: The lengthy duration of the call
was due to a circuit malfunction. The installation asked the vendor for
a refund after our inquiry.
Date (2003): July 24;
Destination of call: Elizabeth City, N.C;
Total consecutive minutes: 6,338;
Total hours: 106;
Cost of call: $214;
Explanation provided by installation: Navy official indicated that the
call was valid and was made to provide support for testing research
and development programs.
Date (2003): July 15;
Destination of call: Norfolk, Va;
Total consecutive minutes: 14,648;
Total hours: 244;
Cost of call: $440;
Explanation provided by installation: No explanation provided.
Date (2003): July 25;
Destination of call: Herndon, Va;
Total consecutive minutes: 6 separate 4,269 minute calls;
Total hours: 71;
Cost of call: $580;
Explanation provided by installation: No explanations provided.
Sources: GAO calculation using NCTAM-provided data.
[End of table]
The other two sites, SPAWAR Charleston and NAVAIR Patuxent, had
procedures in place to review and reconcile telecommunication invoices
prior to payment, but these procedures were not consistently
implemented. As a result, we found these reviewing officials had not
detected irregular charges, which resulted in overpayments and
duplicate payments being made to vendors. For example, at SPAWAR
Charleston, officials paid $5,600 over a 5-month period for services
that had been discontinued. Further, we found that both SPAWAR
Charleston and NAVAIR Patuxent had made duplicate payments on invoices
because they did not follow the procedures in place to pay only the
current charges on an invoice. Instead, on two occasions, these units
paid the total balance due. As a result, officials at both of these two
sites paid a total of $17,855 (SPAWAR, Charleston--$17,382 and NAVAIR
Patuxent--$473) in duplicate payments for prior months' charges, which
had been previously paid. If SPAWAR Charleston and NAVAIR Patuxent had
consistently followed their procedures for reviewing and reconciling
telecommunication invoices, the overpayments would not have occurred.
These examples illustrate the types of potential billing errors that
telecommunication managers should be able to avoid with more detailed
reviews of invoices. According to some Navy officials, reviewing and
reconciling detailed telecommunication charges each month is time-
consuming and impractical given the number of telecommunication local
and long-distance transactions occurring monthly. In addition, they
stated that the rate structures used to calculate the invoice charges
were often so complex that they were unable to determine how the final
charges were calculated or whether they were, in fact, correct.
Controls over Issuance and Use of Calling Cards Were Inadequate:
As part of their long-haul service contract provided through DISA, DOD
components may also order and receive long-distance calling card
services. Long-distance calling card charges are then billed, along
with other long-haul services, on the components' monthly invoices.
According to an MCI official, each calling card with its respective PIN
should be issued to and used only by one individual in order to assist
in monitoring calling card usage. Additionally, calling cards should be
tracked to determine who is accountable for each card's usage, and
invoices should be reviewed to detect and prevent unauthorized calling
card use. However, some of the Navy sites we audited were unaware they
owned calling cards. Furthermore, neither DOD nor the Navy had specific
policies addressing the administration and management of calling cards.
This lack of policies, combined with the ineffective controls over
payments to telecommunication vendors, discussed previously, creates a
fertile environment for fraud, waste, and abuse.
To identify possible calling card misuse, we analyzed 3 months of the
Navy's calling card activity and used data-mining techniques to select
seven calling card accounts from seven Navy activities that had either
overlapping calls (two or more calls occurring at the same time with
different originating numbers) or calls originating from different
geographic locations at approximately the same time--using the same
calling card number. Such cases would indicate calling cards that were
being shared and/or compromised. As shown in table 5, five of the seven
cards had been compromised.
Table 5: Compromised Calling Cards at Selected Sites:
Unit: NACTAMS Norfolk;
Description of suspicious calling card activity at selected sites: On
June 15, 2003, calls made from Arkansas, Puerto Rico, and Ecuador
within 2 hours of each other;
Control breakdown: Not aware of calling card;
Did not review invoices;
Unit's response as a result of the identified suspicious activity:
Based on our inquiry, unit canceled 35 cards including selected card
in December 2003;
Calling card vendor (MCI) actions: None.
Unit: NCTSSD;
Description of suspicious calling card activity at selected sites: On
May 19, 2003, calls made from Hawaii and Japan within 3 hours of each
other;
Control breakdown: Not aware of calling card;
Did not receive or review invoices;
Unit's response as a result of the identified suspicious activity:
Based on our inquiry, unit canceled 5 cards including selected card in
February 2004;
Calling card vendor (MCI) actions: MCI's fraud detection unit
suspended use of the card on July 26, 2003, due to simultaneous usage.
Unit: MCB Camp Pendleton;
Description of suspicious calling card activity at selected sites: On
May 25, 2003, calls made from Florida and Virginia within hours from
each other;
Control breakdown: Not aware of calling card;
Did not receive or review invoices;
Unit's response as a result of the identified suspicious activity:
Based on our inquiry, unit canceled 13 cards including selected card
in September 2003;
Calling card vendor (MCI) actions: MCI's fraud detection unit
suspended use of the card on July 7, 2003, due to simultaneous usage.
Unit: USS Mitscher;
Description of suspicious calling card activity at selected sites: On
May 17, 2003, calls occurred at the same time from New York and
Virginia;
Control breakdown: Not aware of calling card; Did not receive or review
invoices;
Unit's response as a result of the identified suspicious activity: Due
to the vendor's alert, unit canceled calling card in July 2003;
Calling card vendor (MCI) actions: As a result of MCI's fraud detection
unit alert for suspected fraud use, unit cancelled the card on July 7,
2003.
Unit: NAVAIR Lakehurst;
Description of suspicious calling card activity at selected sites: On
April 1, 2003, calls occurred at the same time from New York and
Puerto Rico;
Control breakdown: Unit identified control breakdown through review of
its vendor invoices and determined that the card had been stolen;
Unit's response as a result of the identified suspicious activity:
Unit conducted an investigation and determined that the card number
had been stolen and therefore canceled the card;
Calling card vendor (MCI) actions: None.
Source: DISA/DITCO Columbus calling card transactional database from
April through June 2003.
[End of table]
When we contacted the Navy officials and account owners responsible for
managing and reviewing telecommunication invoices, we found that for
four of the five calling cards shown in table 5, they were unaware that
their unit owned or used calling cards. Further, according to these
officials, they had not receive detailed information on calling card
charges from either the vendor or from NACTAMS and therefore did not
know that they were paying for these charges. Consequently, these
officials could not determine if the calling cards had been compromised
because they did not know who had possession of the cards and many did
not have documentation supporting the use of these cards for the time
period in question. Also, NCTSSD and MCB Camp Pendleton were unaware
that in July 2003 the vendor's fraud detection unit had suspended the
calling cards we reviewed. As a result of our review, NCTAMS Norfolk,
NCTSSD, and MCB Camp Pendleton identified and cancelled a total of 52
calling cards, including the 3 we selected, which they were unaware
that they owned. However, neither MCI nor DISA was able to tell us how
many dollars of charges had been made on these 52 calling cards since
the cards had been activated. The remaining two units either canceled
their card due to an MCI fraud alert as mentioned above or an internal
investigation.
Although the account owners for the two remaining calling card accounts
we audited were aware that their unit owned and used calling cards,
they did not have policies restricting the sharing of the cards. In
many cases, card users within the same units shared the same calling
cards and PIN. For example, at NAVAIR Patuxent, officials told us that
they believed the selected card's transactions were due to shared use
and as a result of our review have changed their local calling card
policies to prevent the sharing of calling cards in the future and to
hold individuals accountable if unauthorized usage is found. At BCO
Philadelphia, agency officials told us that the cards were shared
because the unit's cell phones were down. However, after the cell
phones were reactivated, the sharing of calling cards was discontinued.
As a result of the sharing of calling cards, officials at both of these
locations could not subsequently determine whether these two calling
cards were used for legitimate business reasons and whether all the
charges were accurate. Further, because these cards were shared and
thus the numbers compromised, these officials could not identify the
responsible party for the questionable calls.
Overall, these seven units lacked effective management oversight and
adequate internal controls, which left them vulnerable to potential
fraudulent and abusive calling card transactions. For example, an
official at the USS Mitscher said that he routinely provided the same
card number and PIN to several of his officers, as needed, but he did
not know how many officers he had given the numbers to or how many
currently had possession of the numbers. For this one card alone,
between April and June of 2003, the Navy paid over $17,000 in long-
distance charges. However, because no one was monitoring the activity
on this card regularly, the unit was unaware of the excessive charges.
Instead, it was not until the vendor's fraud unit raised questions
about more than $11,000 in charges during the first 6 days of July 2003
that the card was suspended. As shown in figure 1, on July 6, 2003, the
card had 189 calls that originated from 12 different cities in five
different states and Canada to 12 different countries for a total of
over $5,000. In this 24-hour period, the card incurred over 55 hours of
calling card charges.
Figure 1: Potential Fraudulent Use of a Comprised Card:
[See PDF for image]
[End of figure]
Conclusion:
The lack of management oversight and accountability combined with
inadequate internal controls over payments to telecommunication vendors
has created an environment that is vulnerable to fraud, waste, and
abuse. Until the Navy enforces existing policies related to maintaining
accurate inventory data and designs automated systems capable of
tracking cost data, the Navy has no assurance that telecommunication
goods and services are purchased in the most cost-effective way
possible. Further, the failure of the units we audited to follow
existing policies related to reviewing and revalidating
telecommunication requirements and performing adequate receipt and
acceptance procedures puts these units at risk of making payments for
erroneous or improper telecommunication charges. Finally, although we
performed audit work only at selected units, the Navy's lack of
comprehensive policies and guidance governing the purchase, issuance,
and use of cell phone and calling card services increases the
likelihood that the problems we identified at these units may exist
elsewhere within the Navy.
Recommendations for Executive Action:
To improve the Navy's management oversight of its telecommunication
program, we recommend that the Secretary of the Navy take eight
corrective actions and the CNO take three corrective actions.
We recommend that the Secretary of the Navy direct the CNO to ensure
that existing policies are enforced. Specifically, the CNO should
ensure that the Navy:
* develops and maintains a comprehensive inventory of the Navy's base
telecommunication equipment and services;
* supports DISA efforts to track acquisitions of telecommunication
services throughout DOD, actual costs of those services, and trends in
usage (that is, the volume and types of traffic that networks carry).
We further recommend that the Secretary of the Navy direct the CNO to
establish comprehensive policies and guidance governing the purchase
and use of:
* cell phone services, which should include (1) the use of
prenegotiated or centrally negotiated rates and (2) periodic assessment
of cell phone usage to determine if plan packages provide the most
cost-effective means to satisfy the Navy's usage requirements; and:
* calling card services, which should include policies about
accountability, the proper review of invoices, and the prohibition of
sharing of calling cards.
To strengthen the Navy's ability to acquire telecommunication services
effectively and efficiently, we recommend that the Secretary of the
Navy direct the CNO to develop, in coordination with the Navy commands,
a strategic management framework for improving the acquisition of
telecommunication services. This framework should include provisions
for:
* inventorying current and potential users of telecommunication
services to determine existing and future requirements;
* identifying and exploiting opportunities to consolidate requirements
among Navy commands; and:
* adopting, when appropriate, commonly used commercial practices, such
as conducting spend analyses and competing and negotiating pricing
discounts based on overall Navy volume, to strengthen the Navy's
bargaining position in acquiring telecommunication services.
To ensure the successful implementation of this strategic management
framework and to better leverage Navy buying power, we recommend that
the Secretary of the Navy direct the CNO to strengthen analysis of
telecommunication service requirements, spending, and the capabilities
of telecommunication service providers by enhancing core internal
technical expertise and information systems.
At the selected units that we audited, we recommend that the CNO direct
the commanders to provide assurance that existing policies are enforced
and fully evaluate the internal controls over the:
* review and revalidation of telecommunication requirements,
* reconciliation of telecommunication invoices with a current inventory
of telecommunication equipment and services, and:
* distribution and use of calling cards and cancellation of cards that
are not properly controlled.
Agency Comments and Our Evaluation:
DOD provided written comments on a draft of this report, which are
reprinted in appendix II.
DOD concurred with 9 of our 11 recommendations and partially concurred
with the remaining 2 recommendations. These latter recommendations were
that the Navy (1) support DISA efforts to track acquisitions of
telecommunication services, the actual cost of those services, and
trends in usage of telecommunication services throughout DOD; and (2)
strengthen the analysis of telecommunication services requirements,
spending, and the capabilities of telecommunication service providers
by enhancing core internal technical expertise and information systems.
Although the Navy said it plans to take actions on these 2
recommendations, it was unclear whether these planned actions will
satisfy our recommendations. The department also provided technical
comments, which we have incorporated in the report as appropriate.
Concerning Navy support of DISA efforts to track acquisition of
telecommunication services throughout DOD, the actual costs of those
services, and trends in usage, DOD responded that the Secretary of the
Navy will direct cognizant senior Department of the Navy officials to
support DISA tracking efforts to the maximum extent practicable. Such
measures are an important aspect of the management of telecommunication
programs and appear to be responsive to our recommendation. However,
since we are uncertain of the meaning of "maximum extent practicable",
we cannot evaluate the extent to which DOD plans to implement this
recommendation. We continue to strongly encourage the Navy to track all
acquisitions of telecommunication equipment and services in order to
enable it, in conjunction with DISA, to successfully develop an
enterprisewide governance process for telecommunication, meet DOD
expectations for major management reform, and obtain the maximum
savings in its procurement services.
Regarding the Navy enhancing core internal technical expertise and
information systems, DOD stated that requirements would be analyzed and
considered as part of DOD's efforts to develop a management framework
for improving the efficiency of the Navy's acquisition and use of
telecommunication services. Although it appears the DOD's response may
address the intent of this recommendation, the extent of its efforts is
unclear. We continue to believe that the Navy could benefit from a
strengthened analysis of its telecommunication service requirements,
spending, and the capabilities of its service providers, which could be
aided by enhancing its core technical expertise and information
systems.
As agreed with your office, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its
issuance date. At that time, we will send copies of this report to
other interested congressional committees, the Secretary of the Navy,
the Chief of Naval Operations, and the Assistant Secretary for
Financial Management (Comptroller) for the Navy. Copies will be made
available to others upon request.
Please contact me at (202) 512-9505 or [Hyperlink, kutzg@gao.gov]
if you or your staffs have any questions about this report. Other GAO
contacts and key contributors to this report are listed in appendix
III.
Sincerely yours,
Signed by:
Gregory D. Kutz:
Director, Financial Management and Assurance:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
We reviewed selected aspects of DOD's and the Navy's management of
their telecommunication programs. We modified the scope of our work, in
process, because in some cases the information needed to perform
comprehensive analyses was lacking and in other cases the data were so
fragmented that they could not be analyzed in the aggregate. Thus, in
many cases, we had to rely on case studies and nonrepresentative
selections of transactions to illustrate the internal control problems
we identified.
This assignment originated because of congressional concerns that DOD's
vendor pay process, which accounted for approximately $112 billion in
fiscal year 2003, might suffer from many of the same types of pervasive
problems that we uncovered during our previous work on DOD's purchase
card program. Specifically, we were asked to evaluate the effectiveness
of DOD's management oversight and controls of payments to its vendors.
Initially, we intended to assess DOD's oversight and controls over
vendor purchases and payments for telecommunication goods and services-
-including local and long-distance services, calling cards, and
cellular phone services. However, because it was not feasible to
provide a comprehensive assessment of the adequacy of all 17 of DOD's
vendor payment systems or the multitude of varying controls and
processes over the telecommunication purchases and processes that we
encountered, we subsequently focused our effort primarily on the Navy.
Then, because the Navy was unable to provide us with a complete
population of telecommunication expenditures from which to perform
statistical sampling and testing of transactions, we used a case-study
approach to assess the adequacy of management oversight and internal
controls. This lack of information with which to do statistical
sampling and testing applied at all levels, including the unit level.
Even at the case study locations selected, we were unable to perform
statistical testing because the local databases were often incomplete,
or they had insufficient, inconsistent, or inaccurate data. Because of
this, we evaluated the design of controls in place and relied on
nonrepresentative selections to evaluate the effectiveness of the case
study locations' internal controls of their telecommunication programs.
Consequently, we were unable to gauge the extent of the problem from a
DOD, Navy, or even unit perspective.
Our objectives were to determine (1) whether the Navy has the basic
cost and inventory information needed to oversee and manage its
purchases from telecommunication vendors and (2) whether selected Navy
sites have adequate controls to provide reasonable assurance that
telecommunication goods and services are purchased cost effectively and
payments are made only for valid telecommunication charges. We reviewed
current DOD and Navy guidance contained in applicable regulations,
directives, instructions, or other guidance concerning the procurement,
management, and use of common-user networks. We also reviewed our own
prior reports as well as prior DOD Inspector General and other DOD
military audit services' reports. We met and had numerous discussions
with officials from DISA--DOD's major telecommunication manager--and at
DITCO Scott, the primary contracting organization in DISA.
To determine whether the Navy's controls of expenditures are adequate
to provide reasonable assurance that telecommunication goods and
services are purchased cost effectively and that payments are made only
for valid transactions, we audited the effectiveness of the Navy's
internal controls over its fiscal year 2002 telecommunication
transactions at selected sites. Because the Navy lacked a consolidated
source for telecommunication data, we were unable to obtain complete
and accurate information for telecommunication disbursements Navy-
wide. Instead, we identified the approximate amount spent by the Navy
on telecommunications for fiscal year 2002 by manually identifying
known telecommunication vendors and matching this list against the
information contained in the Standard Accounting and Reporting System
(STARS), the Financial Accounting Budget System (FABS), and the
purchase card accounting database.
Using these three databases, we were able to determine that the Navy
paid at least $271 million to telecommunication vendors in 2002.
Because the STARS database contained the highest dollar amount of
telecommunication payments, we summarized the STARS payments by the
Authorized Accounting Activity (AAA) code to identify the organizations
having responsibility for providing the funding for the payments.
However, these accounting organizations were not necessarily the users
of the goods and services for which they made payments. Using the
information developed from this methodology, we identified the four
major commands having the largest telecommunication payments in 2002.
They were the Space and Naval Warfare Systems Command (SPAWAR), the
Naval Network and Space Operations Command (NNSOC),[Footnote 17] the
Naval Air Systems Command (NAVAIR), and the Naval Sea Systems Command
(NAVSEA). We then selected one activity (or subactivity, if necessary)
within each command at which to do further detailed work. Using our
methodology, the four major commands selected accounted for about $114
million of the Navy's total $271 million in telecommunication payments,
or 42 percent of fiscal year 2002 Navy telecommunication payments.
(These amounts may include tactical and nontactical telecommunication.)
The four activities selected accounted for $63 million of the $114
million (55 percent) of the total for the four commands.
Table 6: Major Commands and Units Selected for Review:
Dollars in millions.
SPAWAR;
Total fiscal year 2002 telecommunication disbursements: $24;
Selected unit: SPAWAR Charleston;
Total fiscal year 2002 telecommunication disbursements: $13.
NAVAIR;
Total fiscal year 2002 telecommunication disbursements: $20;
Selected unit: NAVAIR Patuxent;
Total fiscal year 2002 telecommunication disbursements: $14.
NAVSEA;
Total fiscal year 2002 telecommunication disbursements: $21;
Selected unit: NSWC Crane;
Total fiscal year 2002 telecommunication disbursements: $4.
NNSOC;
Total fiscal year 2002 telecommunication disbursements: $49;
Selected unit: NCTAMSLANT (including CINCLANTFLT Norfolk);
Total fiscal year 2002 telecommunication disbursements: $32[A].
Total;
Total fiscal year 2002 telecommunication disbursements: $114;
Total fiscal year 2002 telecommunication disbursements: $63.
Source: GAO calculations of the Navy's fiscal year 2002 vendor pay
systems.
[A] NCTAMSLANT fiscal year 2002 disbursement included $243,000 for
CINCLANFLT Norfolk.
[End of table]
At the four navy activities, we used a case study approach. At the
sites, we obtained and reviewed information from directives, policies,
and procedures governing their telecommunication programs. We evaluated
the documentation provided and had numerous meetings and follow-up
discussions with personnel responsible for various aspects of the
telecommunication programs at the sites we visited as well as at remote
locations, if applicable.
To assess the overall control environment governing telecommunications
to determine if it provides reasonable assurance that telecommunication
goods and services are purchased and paid for cost effectively, the
primary criteria we used were applicable laws and regulations; our
Standards for Internal Control in Federal Government (G [Hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1] AO/AIMD-00-
21.3.1, November 1999); and our Internal Control Standards: Internal
Control Management and Evaluation Tool (G [Hyperlink, http://
www.gao.gov/cgi-bin/getrpt?GAO-01-1008G] AO-01-1008G, August 2001). To
assess the management control environment, we evaluated DOD and Navy
management practices using the fundamental concepts and standards
contained in GAO's Internal Control Standards. To test the
implementation of key control activities during fiscal year 2002 at the
four installations we audited, we performed the following detailed
testing.
* Base Communications--At each site visited, we obtained a database or
list of base (local service) circuits. For each base circuit, we
requested information such as the installation date, the validation
date, the service end date, and the discontinue date (if applicable),
the physical location of the circuit (building), the responsible point
of contact and organization, the vendor, and billing information for
fiscal year 2002 and the first 6 months of fiscal year 2003. From each
local database, we selected nonrepresentative selections of base
circuits to test for compliance with DOD, Navy, and local policies. For
each selected transaction, we compared the total number of circuits and
total disbursements for selected months in order to perform a
reconciliation of the invoice totals. For months in which the totals
did not agree, we analyzed detailed information in the reconciliation
and invoices to test for (1) inaccuracy of data, (2) payment for items
not currently owned or being used, (3) differences in invoice amounts
versus reconciliation and database amounts, and (4) payments for excess
lines. We also analyzed invoices after circuits had been discontinued
to determine whether the vendor was still charging for disconnected
circuits, and we analyzed selected invoices to determine if the vendor
had assessed late fees and whether those late fees had been certified
for payment by the selected case study sites.
* Long-Haul Communications--Using the DISA[Footnote 18] database, we
obtained a list of circuits with past due validation dates as of July
9, 2003, for the activities and major commands. We compared the long-
haul inventory information in DISA's database to the installation's
long-haul inventory information in order to determine (1) if long-haul
circuits were being reviewed and revalidated every 2 years, as required
by regulation; (2) the accuracy of DITCO's long-haul inventory
information; and (3) whether the installations had procured long-haul
services or equipment without going through DITCO. We spoke with
numerous agency officials on site and in follow-up discussions in order
to try to resolve any discrepancies.
* Cell Phones--Further, at three of the four case study sites,[Footnote
19] we determined if cell phones were monitored to detect significant
over-or underuse of plan minutes and for compliance with DOD, Navy, and
local policies. To determine if cell phones were being monitored for
over-or underuse of plan minutes, we first obtained a list of cell
phone users. Next, we obtained detailed monthly billing for each user
selected for fiscal year 2002 and May 2003 and through data mining
compared the monthly minutes used to cell plan minutes to identify if
the cellular plan was being under-or over utilized. To test for
compliance, we selected a nonrepresentative selection of cell phone
transactions (request for service, authorization, receipt and
acceptance, and payment) and compared the transactions against DOD,
Navy, and local policies.
* Calling Cards--We analyzed the DISA/DITCO Columbus calling card
transactional database, which contained DOD's calling card transactions
from April through June 2003. However, due to the scope of our audit,
we focused our review only on the Navy's calling card transactions.
Through data mining, we identified Navy calling card numbers that (1)
had overlapping calls or calls from different geographical areas within
an hour. From this population, we selected seven calling card accounts
and spoke with officials from the following seven activities and the
telecommunication vendor, MCI, to determine why there were overlapping
calls or calls placed from different geographical areas. The seven
activities were (1) NCTAMS Norfolk, (2) Base Communications Office
(BCO) Philadelphia, (3) Naval Computer and Telecommunication Station
San Diego (NCTSSD), (4) Marine Corps Base (MCB) Camp Pendleton, (5) USS
Mitscher, (6) Naval Air Lakehurst, and (7) NAWCAD Patuxent. At these
locations, we spoke with Navy officials and their telecommunications
vendor, MCI, to determine why there were overlapping calls or calls
placed from different geographical areas at almost the same time.
We requested comments on a draft of this report from the Secretary of
the Navy or his designee. DOD provided written comments, which are
presented and evaluated in the "Agency Comments and Our Evaluation"
section and are reprinted in appendix II. We conducted our work from
May 2003 through February 2004 in accordance with generally accepted
government auditing standards.
[End of section]
Appendix II: Comments from the Department of Defense:
ACQUISITION, TECHNOLOGY AND LOGISTICS:
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
3000 DEFENSE PENTAGON
WASHINGTON, DC 20301-3000:
DPAP/P:
MAY 24 2004:
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 GAO draft
report, (04-671), "VENDOR PAYMENTS: Inadequate Management Oversight
Hampers the Navy's Ability to Effectively Management Its
Telecommunication Program," dated April 20, 2004 (GAO Code 192079)."
My point of contact is Mr. Mike Canales and he can be reached at (703)
695-8571 or via e-mail at michael.canales@osd.mil. Please contact Pat
Christensen of the Navy for any follow-up action at 703-601-0230, or
via e-mail at patriciaxhristensen@navy.mil.
Sincerely,
Signed by:
Deidre A. Lee:
Director, Defense Procurement and Acquisition Policy:
Enclosure: As stated:
GAO DRAFT REPORT DATED APRIL 20, 2004 GAO-04-671 (GAO CODE 192079)
"VENDOR PAYMENTS: INADEQUATE MANAGEMENT OVERSIGHT HAMPERS THE NAVY'S
ABILITY TO EFFECTIVELY MANAGE ITS TELECOMMUNICATION PROGRAM":
DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of the Navy
direct the CNO to develop and maintain a comprehensive inventory of the
Navy's base telecommunications equipment and services. (p. 27/GAO Draft
Report)
DOD RESPONSE: Concur. The Navy has already initiated efforts to develop
an enterprise-wide governance process for telecommunications and
recognizes that the effectiveness of this process is dependent on
managers having an accurate understanding of the Navy's inventory of
telecommunications equipment and services.
RECOMMENDATION 2: The GAO recommended that the Secretary of the Navy
direct the CNO to support DISA efforts to track acquisitions of
telecommunication services throughout DOD, the actual costs of those
services, and trends in usage (that is, the volume and types of traffic
that networks carry). (p. 27/GAO Draft Report)
DOD RESPONSE: Partially concur. The Secretary of the Navy will direct
cognizant senior Department of the Navy officials to support DISA
tracking efforts to the maximum extent practicable.
RECOMMENDATION 3: The GAO recommended that the Secretary of the Navy
direct the CNO to establish comprehensive policies and guidance
governing the purchase and use of cell phone services that should
include (a) the use of pre-negotiated or centrally negotiated rates and
(b) the periodic assessment of cell phone usage to determine if plan
packages provide the most cost-effective means to satisfy the Navy's
usage requirements. (p. 27/GAO Draft Report)
DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant
senior Department of the Navy officials to establish policies and
guidance governing the purchase and use of cell phone services.
Enclosure:
RECOMMENDATION 4: The GAO recommended that the Secretary of the Navy
direct the CNO to establish comprehensive policies and guidance
governing the purchase and use of calling card services, which should
include policies about accountability, the proper review of invoices,
and the prohibition of sharing of calling cards. (p. 27/GAO Draft
Report)
DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant
senior Department of the Navy officials to establish policies and
guidance governing the purchase and use of calling card services.
RECOMMENDATION 5: The GAO recommended that the Secretary of the Navy
direct the CNO to develop, in coordination with Navy commands, a
strategic management framework for improving inventorying current and
potential users of telecommunication services to determine existing and
future requirements. (p. 27/GAO Draft Report)
DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant
senior Department of the Navy officials to develop a strategic
management framework to improve the effectiveness/efficiency of Navy
oversight, management and acquisition of telecommunications services
and business operations.
RECOMMENDATION 6: The GAO recommended that the Secretary of the Navy
direct the CNO to develop, in coordination with Navy commands, a
strategic management framework for identifying and exploiting
opportunities to consolidate requirements among Navy commands. (p. 27/
GAO Draft Report)
DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant
senior Department of the Navy officials to develop a strategic
management framework to improve the effectiveness/efficiency of Navy
oversight, management and acquisition of telecommunications services
and business operations.
RECOMMENDATION 7: The GAO recommended that the Secretary of the Navy
direct the CNO to develop, in coordination with Navy commands, a
strategic management framework for adopting, when appropriate, commonly
used commercial practices, such as conducting spend analyses and
competing and negotiating pricing discounts based on overall Navy
volume, to strengthen Navy bargaining position in acquiring
telecommunication services. (p. 27/GAO Draft Report)
DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant
senior Department of the Navy officials to develop a strategic
management framework to improve the effectiveness/efficiency of Navy
oversight, management and acquisition of telecommunications services
and business operations. Where appropriate this will involve the
adoption of best commercial practices.
RECOMMENDATION 8: The GAO recommended that the Secretary of the Navy
direct the CNO to strengthen analysis of telecommunications services
requirements, spending, and the capabilities of telecommunication
service providers by enhancing core internal technical expertise and
information systems. (p. 28/GAO Draft Report)
DOD RESPONSE: Partially Concur. The requirement for enhanced core
internal technical expertise and information systems will be analyzed
and considered as part of the Navy's efforts to develop a management
framework for improving the efficiency of the Navy's acquisition and
use of telecommunications services.
RECOMMENDATION 9: The GAO recommended that the CNO direct the
commanders to provide assurance that existing policies are enforced and
fully evaluate the internal controls over the review and revalidation
of telecommunication requirements. (p. 28/GAO Draft Report)
DOD RESPONSE: Concur.
RECOMMENDATION 10: The GAO recommended that the CNO direct the
commanders to provide assurance that existing policies are enforced and
fully evaluate the internal controls over the reconciling of
telecommunication invoices with a current inventory of
telecommunication equipment and services. (p. 28/GAO Draft Report)
DOD RESPONSE: Concur. In consonance with the Navy's efforts to develop
an accurate understanding of the Navy's inventory of telecommunications
equipment and services as discussed in response to GAO recommendation
1.
RECOMMENDATION 11: The GAO recommended that the CNO direct the
commanders to provide assurance that existing policies are enforced and
fully evaluate the internal controls over the distribution and use of
calling cards and take further actions to discontinue cards that are
not properly controlled. (p. 28/GAO Draft Report)
DOD RESPONSE: Concur.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Diane Handley, (404) 679-1986 Rathi Bose, (404) 679-1996:
Acknowledgments:
In addition to those named above, Art Brouk, Michael Chambless,
Francine DelVecchio, Johnny Clark, Carmen Harris, John Ledford, and
John Ryan made key contributions to this report.
(192097):
FOOTNOTES
[1] NNSOC is the major command over the regional Naval Computer and
Telecommunications Area Master Stations (NCTAM). Prior to July 2001,
NNSOC was referred to as the Naval Computer and Telecommunications
Command (NCTC).
[2] DOD 7000.14-R, Financial Management Regulation, Volume 10, Chapter
1, March 2002, and Chapters 7, 9, February 1996.
[3] Department of Defense Instruction 4640.14, Base and Long-Haul
Telecommunications Equipment and Services, December 6, 1991.
[4] FTS is a long-distance telecommunication service available for use
by U.S. government agencies. GSA currently provides services through
contracts designated by the title 'FTS2001'.
[5] A common-user long-haul network is one that provides long-distance
communication service to a large, general population of users, rather
than being dedicated to a small and specialized community.
[6] This organization has been renamed and is now called the Assistant
Secretary of Defense (Networks and Information Integration), (ASD
(NII))/Chief Information Officer.
[7] U.S. General Accounting Office, Defense Networks: Management
Information Shortfalls Hinder Defense Efforts to Meet DISN Goals, GAO/
AIMD-98-202 (Washington, D.C.: July 1998).
[8] U.S. General Accounting Office, Best Practices: Taking a Strategic
Approach Could Improve DOD's Acquisition of Services, GAO-02-230
(Washington, D.C.: January 2002); Best Practices: Improved Knowledge of
DOD Service Contracts Could Reveal Significant Savings, GAO-03-661
(Washington, D.C.: June 2003); and Contract Management: High-Level
Attention Needed to Transform DOD Services Acquisition, GAO-03-935
(Washington, D.C.: September 2003).
[9] GAO-03-661.
[10] S. Rep. No. 107-62, at 325-27 (2001); H.R. Conf. Rep. No. 107-333,
at 687-88 (2001).
[11] National Defense Authorization Act for Fiscal Year 2002, Pub. L.
No. 107-107, §§ 801, 802, 115 Stat. 1174-78 (December 28, 2001)
(codified at 10 U.S.C. §§ 2330, 2330a, and 2331, and 2330 Note).
Congress expressed a preference for a single system to collect data on
purchase of both services and information technology in excess of the
simplified acquisition threshold. 10 U.S.C. § 2330a(c).
[12] GAO-03-935.
[13] GAO-03-661, GAO-03-935.
[14] Department of Defense Instruction 4640.14, Base and Long-Haul
Telecommunications Equipment and Services, December 6, 1991, and
Department of Defense Directive 4640.13, Management of Base and Long-
Haul Telecommunications Equipment and Services, December 5, 1991.
[15] Data mining involved the manual or electronic sorting of vendor
invoice data to identify and select for further follow-up and analysis
transactions with unusual or questionable characteristics.
[16] DOD 7000.14-R, Financial Management Regulation, Volume 10, Chapter
1, March 2002, and Chapters 7-9, February 1996.
[17] To get to the user level at NNSOC, we visited Naval Computer and
Telecommunications Area Master Station Atlantic-Virginia (NCTAMSLANT).
We obtained a list of member activities within the command, which
NCTAMSLANT has responsibility for making payments for telecommunication
services and equipment. From this list we chose to do further work at
the Commander-in-Chief US Atlantic Fleet (CINCLANTFLT), primarily based
on the variety of telecommunication services being paid for.
[18] DISA, through an organization located at Scott Air Force Base,
Illinois, maintains DOD's long-haul database.
[19] We were unable to perform any testing at CINCLANTFLT to determine
if individuals were under-or overutilizing their plans because
CINCLANTFLT uses the shared minute cellular plans.
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