********************************************************
                         NOTICE
********************************************************
This document was converted from
WordPerfect to ASCII Text format.
Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page numbers
will not show up in this text version.
All text attributes such as bold, itallic, underlining, etc. from the
original document will not show up in this text version.
Features of the orginal document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.
If you need the complete document, download the
WordPerfect version or Adobe Acrobat version, if available.
***********************************************************
             REPORT ON THE AUDIT OF EMPLOYEE USE OF
            AMERICAN EXPRESS GOVERNMENT CREDIT CARDS
                        Table of Contents
                                                             Page
EXECUTIVE DIGEST ............................................  1
AUDIT OBJECTIVE .............................................  3
AUDIT SCOPE .................................................  3
BACKGROUND ..................................................  3
FINDING - Employees Are Using American Express Government
          Credit Cards For Inappropriate Purchases
          Unrelated To Official Travel
     o  Details of Finding ..................................  5
     o  Recommendation/Management Response ..................  9
APPENDIX A - Memorandum, dated April 15, 1996, from the
             Inspector General to the General Counsel
             entitled "Personal Use of American Express
             Government card by Commission Employees" ....... 11
APPENDIX B - Memorandum, dated May 7, 1996, from the
             General Counsel to the Inspector General
             entitled "Personal Use of American Express
             Government card by Commission Employees" ....... 15
APPENDIX C - Response to the Draft Audit Report ............. 18
EXECUTIVE DIGEST
On November 30, 1993, American Express became the Commission's
credit card provider for all travel expenses.  Under the program,
American Express Government credit cards and bills are provided
directly to employees.  In a departure from their normal
operating procedures, American Express conducts no credit check
before issuing credit cards, does not charge any annual fee, and
does not charge interest or impose late payment charges.
Government cardholders are individually responsible to American
Express for payment of charges made with their American Express
Government cards, and misuse of the cards does not result in
additional costs or liability to the Government.
On February 6, 1996, William F. Clinger, Jr., Chairman, House
Committee on Government Reform and Oversight, sent a letter to
Reed E. Hundt, Chairman, Federal Communications Commission
requesting information about Commission employee use of American
Express Government credit cards.  In the letter, Representative
Clinger stated that "(p)ursuant to its oversight
responsibilities, the Committee is reviewing the personal use of
government credit cards by Federal Communications Commission
employees."  Representative Clinger went on the state that "(t)he
Committee is interested in reviewing any previously prepared
Inspector General reports regarding the personal use of all
government credit cards" and that "(i)f your office has not
previously requested any reviews of the individually-billed
employee accounts ... we request that you direct the Inspector
General to prepare such a report."
The objective of this review was to respond to Representative
Clinger's inquiry by examining the use of the American Express
Government credit cards by Commission employees.  Specific
objectives included: (1) determining if Commission employees were
using the account for personal purposes; (2) examining the
controls in place to manage the account; (3) determining if
management controls were identifying inappropriate charges made
to the account; and (4) examining the steps taken to discipline
employees who were using the account for personal purposes.  To
accomplish these objectives, we discussed the account management
process with program officials, reviewed a variety of reports
generated by American Express detailing account activity, and
selected a sample of specific charges spanning a six-month period
for detailed analysis.
Although there is no evidence of an adverse financial impact to
the Commission (and Government), our review indicates that a
significant number of charges being made to the American Express
Government account by Commission personnel are not related to
official travel.  For example, we identified a substantial number
of charges to local restaurants and area merchants.  We also
identified inappropriate retail purchases, gasoline charges, and
charges for airline tickets.  Furthermore, we determined that,
although monthly reports are reviewed by the Agency Program
Coordinator and forwarded to senior management officials, there
is presently no process to follow-up on misuse.
Although the Commission is not financially liable for personal
charges to the account, unauthorized use of the American Express
Government card negatively effects the Commission.  Section 2635
of title 5 of the Code of Federal Regulations (5 C.F.R. 2635),
entitled "Standards of Ethical Conduct for Employees of the
Executive Branch", establishes basic obligations of public
service.  The regulation recognizes that public service is a
public trust and that "(t)o ensure that every citizen can have
complete confidence in the integrity of the Federal Government,
each employee shall respect and adhere to the ethical conduct set
forth in this section."  In our opinion, unauthorized use of the
American Express Government credit card violates the standards by
which employees are expected to conduct the Commission's
business.  As part of the review, we requested that the Office of
General Counsel review our interpretation of this issue and, in
general, they concurred with our position.
AUDIT OBJECTIVE
The objective of this review was to examine the use of the
American Express Government credit card by Commission employees
in response to Representative Clinger's inquiry.  Specific
objectives included: (1) determining if Commission employees were
using the account for personal purposes; (2) examining the
controls in place to manage the account; (3) determining if
management controls were identifying inappropriate charges made
to the account; and (4) examining the steps taken to discipline
employees who were using the account for personal purposes.
AUDIT SCOPE
The audit was conducted in accordance with Generally Accepted
Government Auditing Standards, and included such analysis,
interviews and testing as required to support the audit findings.
The scope of this audit included only a limited number of
interviews with specific employees selected during our detailed
analysis of charges.  In addition, our review did not include an
assessment of internal controls associated with the management of
official travel records.
Audit fieldwork was primarily performed within the Office of the
Managing Director (OMD) from April 1996 through June 1996.
BACKGROUND
On November 30, 1993, American Express became the Commission's
credit card provider for all travel expenses.  Under the program,
American Express Government credit cards and bills are provided
directly to employees.  American Express conducts no credit check
before issuing credit cards, does not charge any annual fee, and
does not charge interest or impose late payment charges.
Government cardholders are individually responsible to American
Express for payment of charges made with their American Express
Government cards, and misuse of the cards does not result in
additional costs or liability to the Government.
On February 6, 1996, William F. Clinger, Jr., Chairman, House
Committee on Government Reform and Oversight, sent a letter to
Reed E. Hundt, Chairman, Federal Communications Commission
requesting information about Commission employee use of American
Express Government credit cards.  In the letter, Representative
Clinger stated that "(p)ursuant to its oversight
responsibilities, the Committee is reviewing the personal use of
government credit cards by Federal Communications Commission
employees."  Representative Clinger went on the state that "(t)he
Committee is interested in reviewing any previously prepared
Inspector General reports regarding the personal use of all
government credit cards" and that "(i)f your office has not
previously requested any reviews of the individually-billed
employee accounts ... we request that you direct the Inspector
General to prepare such a report."  Letters such as that received
by Chairman Hundt were sent to many cabinet-level and independent
agencies.
On March 13, 1996, representatives from the Inspectors General
community met with members of Representative Clinger's staff to
discuss the specific parameters of the requested review.  Among
those parameters established was a statement that "(t)he CFO, or
their counterparts in non-CFO agencies, will provide the
committee with a report describing the processes used to manage
individual American Express card usage ... (t)his report could
include information on oversight of card usage, management of
delinquencies and misuse and special features such as use of
"Retail Block."  On April 15, 1996, the Managing Director sent a
copy of a report describing FCC management practices and
forwarded a copy to our office.  Feedback from the meeting also
noted that the "(m)ajor focus will be on the misuse of American
Express cards issued to Federal Government employees."  In
addition, the meeting established that the period covered by the
review will be that last six months of Fiscal Year 1995 and that
valid statistical sampling may be used.
Finding - Employees Are Using American Express Government
          Credit Cards For Inappropriate Purchases
          Unrelated To Official Travel
The Federal Communications Commission (FCC) uses American Express
as the credit card provider for all travel expenses.  As of March
1996, the FCC account had five-hundred seven (507) active
accounts.  For the period April 1995 through September 1995, the
account averaged approximately four-hundred forty-five (445)
transactions per month with an average Commission-wide monthly
billed value of $83,351.  We selected a series of transactions
from this period for detailed review.  Our review indicates that
a significant number of charges made to this account were not
related to official travel and were not incurred while on
approved travel.  In fact, of the three-hundred nine (309)
transactions we selected for detailed review, two-hundred
nineteen (219) were inappropriate.  Inappropriate use of the
American Express Government credit card represents a violation of
the standards of ethical conduct and could result in the erosion
of public confidence in the Commission's integrity.
Appropriate Use Of The American Express Government Credit Card Is
Well Established In Government And Commission Regulations
The appropriate use of the American Express Government credit
card is well established in both Federal and Commission
regulations.  In addition, information about appropriate use is
routinely communicated to cardholders.  Federal travel
regulations are codified in of Title 41 of the Code of Federal
Regulation (C.F.R.).  Subtitle F, entitled "Federal Travel
Regulation System", defines requirements for all aspects of
official federal travel.  Part 301-15.44 of the regulation system
(41 C.F.R.  301-15.44) establishes requirements for individual
employee charge cards.  This regulation states that "(t)he
employee shall use the charge card issued under this program only
to charge expenses incurred in connection with official travel or
to obtain authorized ATM withdrawals" (emphasis added).  The
regulation goes on to state that, with respect to authorized ATM
withdrawals, "(a)n employee may not withdraw any amount unless
authorized to do so" and "withdrawals may not exceed any
limitations on advances stated on the employee's travel
authorization."
As part of credit card issuance, a document entitled "Agreement
Between Agency/Organization Employee and American Express Travel
Related Services Company, Inc." is provided to each cardholder.
This document establishes the specific terms of the cardholder
agreement (e.g., purpose of card, renewal and replacement,
payment, etc.) and states that "(b)y either signing, using or
accepting the Government Card, you will be agreeing with us to
everything written here."  The agreement states that "(y)ou agree
to use the Government card only for official travel and official
travel related expenses away from your official station/duty
station" and that "(y)ou understand that the Card and the Account
are not to be used for personal purposes (emphasis added)."  The
agreement goes on to note that "(s)uch charges shall be
considered as unauthorized charges but you will nevertheless be
personally liable to us for them."
Information about the appropriate use of the American Express
Government card is also routinely distributed by the Office of
the Managing Director (OMD) to Commission cardholders.  As part
of our review we obtained copies of travel bulletins and messages
periodically distributed to Commission personnel regarding travel
regulations.  Several of the bulletins we obtained provided
reminders to Commission personnel about the appropriate use of
credit cards.
Commission Discontinued Monitoring Employee Account Activity
The Commission established an American Express monitoring program
which was codified by OMD in the "Procedures Used to Manage
Individual American Express Card Usage."  The procedures
recognized that "(a)n integral part of the American Express Card
Program is the monitoring of cardholder's use of their cards to
ensure that they are complying with the terms of the contract."
The procedures go on to state "(t)his monitoring activity is
accomplished by the agency program coordinator and upper level
management reviewing the account activity report."  As part of
our review, we conducted a detailed analysis of charges for the
period of April through September 1995.  During that period, we
obtained evidence that OMD did monitor employee credit card
purchases for charges incurred during July and September.  The
records reflect that OMD officials, on a selective basis,
transmitted letters to FCC employees who used their American
Express cards to make retail purchases.
The process of transmitting letters to FCC employees was
discontinued by program officials as it was viewed as resource
intensive, unproductive and a source of friction between the
monitoring office, OMD, and other respective bureaus and offices.
Additionally, in suspending the employee notification program,
officials stated that "retail charges did not provide adequate
information to determine whether the charge was official or
personal."  Furthermore, we were informed by the Deputy Associate
Managing Director - Operations that American Express card abuse
was contractually a matter between American Express and the
cardholder and that, as such, no contractual provisions existed
between the parties to require the FCC perform an analysis of
billing records as a means of isolating deviations from
appropriate card usage.Employees Are Using American Express Government Credit Cards For
Inappropriate Purchases Unrelated To Official Travel
As of March 1996, the FCC account had five-hundred seven (507)
active accounts.  For the period April 1995 through September
1995, the account averaged approximately four-hundred forty-five
(445) transactions per month with an average monthly billed value
of $83,351.  As part of our review, we selected a series of
transactions from this period for detailed review.  Selections
were made using judgmental and statistical sampling techniques.
A judgmental sample of two-hundred fifty-one (251) transactions
was selected using the following criteria:
     *    charges to restaurants within the greater Washington DC
          metropolitan area (including a reasonable commuting
          area);
     *    retail charges;
     *    charges for returned checks; and
     *    charges for cash advances.
From the remaining charges, we used statistical sampling
techniques to make fifty-eight (58) additional selections.
Selections were based on a confidence level of ninety-five
percent (95%) and a desired risk factor of five percent (5%).
Using both judgmental and statistical sampling techniques, we
selected a total of three-hundred and nine (309) transactions for
detailed review.  For each specific charge selected, we reviewed
Fiscal Year (FY) 1995 employee travel folders and, where
available, we copied travel documents which supported selected
charges.  Based upon our review of official travel records, we
classified each selected charge as being: (1) incurred on
official travel and directly related to official travel (e.g.,
lodging); (2) incurred while on official travel but not directly
related to official travel (e.g., retail purchase); or (3) not
incurred while on official travel (e.g., local restaurants and
services).
Our review of detailed charges indicates that a significant
number of charges being made to American Express Government
credit cards by Commission employees are not appropriate.  Based
on our review, we identified the following overall conditions:
          For those two-hundred fifty-one (251) transactions that
          were judgmentally selected, one-hundred eighty-eight
          (188), representing 75% of the transactions and 54% of
          the dollars reviewed, were not incurred while on
          official travel.  An additional eighteen (18)
          transactions, representing an additional 7% of the
          transactions and 6% of the dollars reviewed, were
          incurred while on official travel but were not official
          travel expenses (i.e., were not claimed as reimbursable
          expenses).
          For those fifty-eight (58) transactions that were
          randomly selected, we determined that thirteen (13),
          representing 22% of the transactions and 25% of dollars
          reviewed, were not incurred while on official travel.
Further analysis identified the following conditions related to
specific types of charges:
          Four of the nine airline charges selected in our
          review, representing 44% of the transactions, were not
          associated with official travel.
          One-hundred thirty-one (131) of the one-hundred sixty-
          six (166) restaurant charges selected, representing 79%
          of restaurant transactions, were not associated with
          official travel.  These transactions had a total dollar
          value of $5,132.  Most of the inappropriate charges
          identified were incurred at restaurants on the
          Washington, DC metropolitan area by employees stationed
          at headquarters.
          Fifty-eight (58) retail charges, representing 68% of
          the retail charges selected, were not associated with
          official travel.  An additional eighteen (18) retail
          charges were incurred while on official travel but were
          not related to official travel.
Furthermore, we observed that, in general, the vast majority of
inappropriate charges were made by a limited number of employees.
Our sample included charges made by one-hundred different
Commission cardholders.  One-hundred twenty-two (122) of the two-
hundred thirty-two charges (232) we determined to be
inappropriate, representing 58% of all inappropriate charges
identified, were incurred by only seven employees.  Two employees
alone accounted for fifty-nine inappropriate charges.
Abuse Of Privileges Associated With Official Position Violates
Standards Of Ethical Conduct And Erodes Public Trust
Section 2635 of title 5 of the Code of Federal Regulations (5
C.F.R. 2635), entitled "Standards of Ethical Conduct for
Employees of the Executive Branch", establishes basic obligations
of public service.  The regulation recognizes that public service
is a public trust and that "(t)o ensure that every citizen can
have complete confidence in the integrity of the Federal
Government, each employee shall respect and adhere to the ethical
conduct set forth in this section."  In our opinion, unauthorized
use of the American Express Government credit card violates the
standards by which employees are expected to conduct the
Commission's business.  In addition, abuse of privileges
associated with Government employment may erode taxpayer
confidence in public officials.
On April 15, 1996, the Inspector General sent a memorandum to the
Commission's General Counsel requesting of review of this issue
as it relates to the Standards of Ethical Conduct for Employees
of the Executive Branch (please refer to Appendix A).  On May 7,
1996, the General Counsel provided a response to our request
(please refer to Appendix B).  In that response, the General
Counsel stated the following:
     "(s)ince employees obtain American Express Government Cards
     based on their Government employment status, thereby
     avoiding both the credit checks normally associated with
     credit card applications and the annual fees charged by the
     American Express Company to holders of its individual charge
     cards, the unauthorized personal use of such cards might be
     considered technically a violation of 2635.701."  This
     section of 5 C.F.R. 2635 provides that "(a)n employee shall
     not use his public office for his own private gain."
The General Counsel went on to state that they "informally
coordinated this position with attorneys at the Office of
Government Ethics" and that they "agreed that 2635.702 could
cover this situation."  They also stated that "an agency taking
action against an employee for this activity need not cite a
particular section of the Standards, but rather should simply
describe the employee's conduct in detail and proceed on that
basis that such conduct is contrary to the agency's interests."
Recommendation for Corrective Action 1 of 1
The Managing Director and General Counsel establish a coordinated
program for the periodic review of American Express Government
credit card charges and resolution of instances of unauthorized
personal use.  The program should include procedures for: (1)
notifying employees of the ethical consequences of inappropriate
use of the credit cards; (2) targeting high risk charges (e.g.,
retail, cash advances, local restaurants, etc.); (3) counseling
employees who use the card to make unauthorized personal charges;
and (4) referring employees who abuse the program to the Office
of Inspector General and the Designated Agency Ethics Official
for investigation and disciplinary action.
Management Response
The Managing Director and General Counsel concurred with our
recommendation and stated that "the initial coordination of this
process has already taken place."  The response stated that
"(t)he Office of General Counsel (OGC) has agreed to issue a
memorandum to all employees explaining the ethical consequences
of inappropriate use of the credit card by August 30, 1996."  In
addition, the Financial Operations Division has drafted
procedures for review and coordination with OGC.