U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

87–139 PDF 2003

GOVERNMENT PURCHASE AND TRAVEL CARD

PROGRAMS AT THE DEPARTMENT OF THE ARMY

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,

FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

JULY 17, 2002

Serial No. 107–213

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

BOB BARR, Georgia

DAN MILLER, Florida

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

DAVE WELDON, Florida

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

C.L. ‘‘BUTCH’’ OTTER, Idaho

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

JAMES C. WILSON, Chief Counsel

ROBERT A. BRIGGS, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL MANAGEMENT AND

INTERGOVERNMENTAL RELATIONS

STEPHEN HORN, California, Chairman

RON LEWIS, Kentucky

DOUG OSE, California

ADAM H. PUTNAM, Florida

JOHN SULLIVAN, Oklahoma

JANICE D. SCHAKOWSKY, Illinois

MAJOR R. OWENS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Deputy Staff Director

JUSTIN PAULHAMUS, Clerk

DAVID MCMILLEN, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on July 17, 2002 ............................................................................... 1

Statement of:

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa .............. 5

Kutz, Gregory D., Director, Financial Management and Assurance, U.S.

General Accounting Office, accompanied by Special Agent John Ryan,

Assistant Director, Office of Special Investigations, U.S. General Accounting Office; Major General Thomas W. Eres, Commander, California Army National Guard; Sandra L. Pack, Assistant Secretary of

the Army, Financial Management and Comptroller, Office of the Secretariat; and Jerry S. Hinton, Director for Finance, Defense Finance

and Accounting Service, Department of Defense ....................................... 48

Kutz, Gregory, Director, Financial Management and Assurance, U.S.

General Accounting Office, accompanied by Special Agent John Ryan,

Assistant Director, Office of Special Investigations, U.S. General Accounting Office; James T. Inman, Acting Deputy Assistant Secretary

of the Army for Policy and Procurement; and Diedre A. Lee, Director,

Defense Procurement, Office of the Under Secretary of Defense for

Acquisition, Technology and Logistics, Department of Defense ............... 128

Letters, statements, etc., submitted for the record by:

Eres, Major General Thomas W., Commander, California Army National

Guard, prepared statement of ...................................................................... 83

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa:

Information concerning fraudulent transactions .................................... 120

Prepared statement of ............................................................................... 10

Hinton, Jerry S., Director for Finance, Defense Finance and Accounting

Service, Department of Defense, prepared statement of ........................... 100

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 3

Inman, James T., Acting Deputy Assistant Secretary of the Army for

Policy and Procurement, prepared statement of ........................................ 132

Kutz, Gregory D., Director, Financial Management and Assurance, U.S.

General Accounting Office, prepared statement of .................................... 53

Lee, Diedre A., Director, Defense Procurement, Office of the Under Secretary of Defense for Acquisition, Technology and Logistics, Department of Defense, prepared statement of ..................................................... 141

Pack, Sandra L., Assistant Secretary of the Army, Financial Management

and Comptroller, Office of the Secretariat, prepared statement of .......... 91

Schakowsky, Hon. Janice D., a Representative in Congress from the

State of Illinois, prepared statement of ...................................................... 42

Waxman, Hon. Henry A., a Representative in Congress from the State

of California, prepared statement of ........................................................... 36

(1)

GOVERNMENT PURCHASE AND TRAVEL CARD

PROGRAMS AT THE DEPARTMENT OF THE

ARMY

WEDNESDAY, JULY 17, 2002

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to recess, at 10 a.m., in room

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Schakowsky, Waxman, and Ose.

Staff present: J. Russell George, staff director and chief counsel;

Bonnie Heald, deputy staff director; Justin Paulhamus, clerk; Sterling Bentley, Joey DiSilvio, Freddie Ephraim, Michael Sazonov,

and Yigal Kerszenbaum, interns; Phil Schiliro, minority staff director; Kate Anderson, minority counsel; Karen Lightfoot, minority

senior policy advisor; David McMillen, minority professional staff

member; and Jean Gosa, minority assistant clerk.

Mr. HORN. A quorum being present, this hearing of the Subcommittee on Government Efficiency, Financial Management and

Intergovernmental Relations will come to order.

We are here to continue our examination of two Government

credit card programs within the Department of Defense: the Department of the Army’s travel card program, and its purchase card

program.

We will begin with the Army travel card program. As you will

soon hear, the General Accounting Office has found that these travel cards, which clearly state that they are for ‘‘Official Government

Travel Only’’ have been used for escort services, casino and Internet gambling and at facilities called gentlemen’s clubs; bearing

such names as ‘‘Bottoms Up,’’ ‘‘Cheetah’s Topless Club,’’ and

‘‘Teazers,’’ regardless of whether the cardholder is traveling on official Government business or not.

When first conceived, the Government travel card program was

envisioned as an efficient way to reduce the Government’s costs of

administering travel. The cardholder is reimbursed for the travel

expenses by the Government, and is responsible for paying the

credit card bill.

In most cases, the cardholders pay their bills on time, but in far

too many other cases, they do not. These delinquencies and chargeoffs are costing the Army millions of dollars in lost rebates, higher

2

fees, and time and effort spent attempting to collect the overdue accounts.

At a subcommittee meeting more than a year ago, a representative from the Bank of America, which issues the Defense Department’s travel cards, stated that the bank was writing off more than

$2 million in delinquent travel card charges each month. In addition, cash advances charged to the Defense Department travel card

were twice as likely not to be paid back, when compared to other

card charges, leading one to believe that misuse is routine, if not

rampant.

Ms. Schakowsky and Senator Grassley, who is our first witness

today, joined me in requesting the General Accounting Office to examine the extent of these problems.

This morning, we will focus on the GAO’s investigation of the Department of the Army’s travel card program. At 2 p.m., we will reconvene to examine the Army’s purchase card program. I welcome

our witnesses today, and I hope that we can provide the information we need to correct this egregious situation.

[The prepared statement of Hon. Stephen Horn follows:]

3

4

5

Mr. HORN. Now I am delighted to have with us today, Senator

Grassley, who has been a very patient person, with the rest of us.

We do not like what we see, and we want to solve it. So Senator,

we are delighted to have you with us again.

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR

FROM THE STATE OF IOWA

Senator GRASSLEY. Thank you, Mr. Chairman, and thank you,

most importantly, for your outstanding leadership on the DOD

credit card issue.

We began this oversight investigation more than 2 years ago. We

jumped into this mess, not knowing what we would find. As each

new layer of abuse has been peeled back, we have made new discoveries. You have encouraged us to keep digging, and we are staring, it seems like, into a bottomless pit.

With 2.3 million credit cards at 23 different agencies spawning

expenditures of $20 billion a year, the pit is deep, and it is dark.

Through thick and thin, you, Mr. Chairman, stood like the Rock

of Gibraltar. You have been steadfast and unwavering. You have

provided the venue where we could do oversight without fear of interference. You have created an environment that, quite frankly, is

getting results, and that is what our work should be doing around

here.

Thanks to you, Mr. Chairman, we have the DOD credit card

abuse under the microscope, and we are going to keep it under the

microscope. The General Accounting Office is helping us, and is

doing a great job. It has been an honor and a privilege for me to

participate.

As I said, when I was before your committee in March of this

year, in a place like the Pentagon, the glare of public spotlight is

never welcome, but shedding light on a problem like this one is the

heart and the soul of congressional oversight. Exposure makes good

things happen.

Thanks to you, Mr. Chairman, the spot-light switch is set on full

power. The beam is focused on the problem. Hopefully, we will soon

see the bottom of the pit and know what to do.

Mr. Chairman, we have come a long way. We have seen the

promised land, but we are not there, yet. We have generated pressure for change. The momentum is good, but the outcome is uncertain.

So we have more work to do, and I hope today’s revelations help

us maintain momentum and keep us moving down the field toward

the end zone.

There has been recent progress. For starters, Secretary Rumsfeld

is on our side. He is trying to solve the problem, instead of making

excuses. I find that rare for Secretary’s of Defense that I have

served with in the past.

Secretary Rumsfeld created the Charge Card Task Force to clean

up the mess, and that Task Force is moving in the right direction.

The Office of Management and Budget has just announced a

crackdown on credit card abusers. Salary offsets are working. Travel card charge-offs have stopped; charge-offs are accounts that the

Bank of America had to write off as bad debt, due to non-payment.

6

More than $6 million in outstanding debt has already been recovered, and hopefully more is on the way. The 713 commissioned officers who had defaulted on $1.1 million

in travel card charge are being dragged to the pay window. Half

of those bills have been paid in full. The rest are in salary offsets

or voluntary re-payment plans.

The Department of Defense Inspector General is starting to be

very proactive in this area. So far, the IG has been ‘‘out to lunch’’

on the credit card abuse, but that seems to be changing. The IG

is creating an automated ‘‘data mining’’ capability to police the system and provide real time oversight.

One area still needs dramatic and drastic improvement. That is

the travel voucher turn-around time. It takes far too long to reimburse troops for official travel expenses. This, in turn, is pushing

account delinquencies upward. With a little luck, maybe we may

see reform in our lifetime.

I would like to now look at the situation with the U.S. Army:

Army purchase cards and army travel cards, as you have already

announced. Our first hearing in July 2001 and the second one in

2002 were Navy days. After the first two hearings, our critics complained that somehow Senator Grassley and Congressman Horn

were focusing on a few isolated cases. One rotten apple, we were

told, does not make the whole barrel bad.

Well, today’s hearing will lay the one bad apple theory to rest for

good. This time around, the General Accounting Office visited 13

installations, and tested a much bigger sample. The General Accounting Office used techniques to call several thousand suspicious

transactions for hundreds of thousands of charges. All sorts of stuff

fell out, including 13 purchase card fraud cases, plenty of waste

and abuse, as well, plus a number of potential travel card fraud

cases.

Some are now active criminal investigations. I want to look at

the lack of reliable data on fraud cases. We now know that there

are a lot of bad apples out there, but exactly how many, we do not

know. The GAO says the number is big, like 500-plus. The DOD

IG thinks it is maybe more like 72. Nobody knows for sure.

The General Accounting Office says there are no reliable data on

the total number of cases under active investigation. Somebody

should be able to punch a button and get the number. Lack of data

on fraud cases is product of a ‘‘hear no evil-see no evil’’ kind of

mentality that is too prevalent around here. The Department of

Defense cannot manage effectively, obviously, they do not have information to make management decisions. So reliable data is a

very important thing.

Now I would like to look at fraud and abuse cases. The General

Accounting Office has found everything but the kitchen sink and,

hopefully, that is coming to light. We have Government employees

using their cards to make mortgage payments and closing costs; to

buy cards; to buy engagement rings; racetrack betting; Elvis photos

from Graceland; a framed John Elway jersey; a trip to the Rose

Bowl game; and even Caribbean Cruises. You name it, it seems like

they are being done.

The General Accounting Office found at least 200 individuals

who were using Department of Defense plastic to buy cash in ‘‘genVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
7

tlemen’s clubs’’ like the Bottoms up Lounge that you mentioned,

Mr. Chairman. These are adult entertainment bars that are located

near military bases. They are probably run by the mob. After surrendering their military IDs and credit cards, the soldiers get $500

cash.

They spent the $500 on lap dancing and other forms of entertain- ment. But the amount posted on their account is $550. The extra

$50 covers a 10 percent fee to get the cash.

At the last hearing, I mentioned Pablo Falcon. He ran up a bill of $3,100 at one of these places. Since then, the General Accounting

Office has found many others doing it, too, to the tune of $38,000.

Now I would like to look at bad checks. The General Accounting

Office found 1,200 Department of Defense personnel who wrote

NSF or bad checks, to pay travel card bills. Over 200 are chronic

rubber check writers. Some are commissioned officers. One individual, a Staff Sergeant at Fort Jackson, South Carolina, wrote 86 bad

checks in 2001 alone, totaling $270,000. That was against his unpaid balance of $36,000.

The Staff Sergeant’s 86 bad checks should have come as no surprise. Before receiving his Government card, he had a criminal

record for credit card fraud and bad checks. He had a $115,000 real

estate loan that went bad. He had declared bankruptcy and used

two Social Security numbers to perpetuate crime.

The Staff Sergeant’s 86 bad checks were a boosting operation,

and this is how boosting works. Under industry regulations, a payment check must be credited to an account upon receipt. Once posted, the account appears to have been paid, providing more credit

for more purchases.

By writing successively larger bad checks, at the right moment, the Staff Sergeant succeeded in raising his credit limit to $35,000,

and he charged right up to that limit, Mr. Chairman.

One or two bad checks obviously can happen. I understand that.

But the regular abusers, especially commissioned officers, need to

be held accountable.

Mr. Chairman, I asked the General Accounting Office to transmit

the list of chronic bad check writers to Secretary Rumsfeld and the

Department of Defense IG for further review. Writing a lot of bad

checks and leaving a trail of bad debts are signs of financial irresponsibility. These people, under those circumstances, could be national security risks.

Under the existing Department of Defense rules, a person’s level

of financial responsibility is a key factor in determining whether

that person holds a security clearance and is placed in a sensitive

position.

The General Accounting Office has tested that rule. To do this,

the General Accounting Office culled out the 105 worst or most

abusive travel card cases, and did a match up with clearances.

Among the 105 worst cases, the GAO found 40 cardholders who

hold secret, top secret, or higher clearances. Each of those 40 accounts had to be charged off by the Bank of America as bad debt.

The bad debt on these accounts alone is a staggering $148,430. One

of these individuals, a GS–13 in the Pentagon, wrote four bad

checks worth $77,000, and had accumulated $3,257 in bad debt on

her DOD travel card account. She used it to cover a personal move

8

of $3,600, from her apartment in Virginia to a new home in

Mitchellville, Maryland.

When she applied for a Department of Defense travel card, she

exercised her right. She put an ‘‘X’’ in the no-credit-check box, and

she did this for good reason. She had a bad credit report. She had

defaulted on several charge accounts.

She holds a top secret clearance, and works on a highly classified

project. This case is troublesome, and ought to be for three reasons.

The person’s supervisor was completely unaware of the bad checks

and the bad debt. Second, No discriminatory action has been taken.

Third, on the day she was interviewed by the General Accounting

Office, she paid off her debt to the bank.

The General Accounting Office has referred all these cases to the

Army’s Central Adjudication Facility for review, and the CAF is the

one that grants clearances. The CAF needs to assess the level of

financial irresponsibility, and determine whether any of these

clearances should be pulled.

Now I would like to speak about something I call goodies for everyone, because these are some words used by people in the Defense Department.

‘‘Let us get enough goodies for everyone,’’ it was said. That is a

lofty objective behind a command decision to buy 80 palm pilots for

$30,000. The palm pilots were bought by an office over at the Pentagon, the Office of Assistant Secretary of Defense for Acquisition.

That is the office run by the DOD purchase card czar, Ms. Dee Lee.

Mr. Chairman, those audacious words come right out of her internal memo. I have that memo here, and I would like to have that

placed in the record, if I could.

Mr. HORN. It will be put into the record at this point.

Senator GRASSLEY. So let us get enough goodies for everyone. It

is a product of a culture. It is an attitude nurtured in a place

where there seems to be no restraint. It says, ‘‘We can splurge, at

the taxpayers’ expense and not worry about it.’’

It is unfortunate that such an attitude is being nurtured in the

purchase card czar’s front office. It sends the wrong message to the

troops in the field. The message going out is clear. Abuse is OK.

Everyone deserves to get some goodies.

The General Accounting Office figures Ms. Lee wasted $1,540 on

the palm pilots. She paid top dollar for a rush order that ended up

in the storage cabinet. Maybe the goodies were not needed, after

all. Maybe, in fact, $30,000 was wasted.

Mr. Chairman, we need to answer the question, why are there

so many bad apples in the barrel? The reason can be boiled down

to three words, ‘‘ineffective internal controls.’’

That brings me to my last main point. Weak or nonexisting controls, like the ones in place today, leave the door wide open to theft.

Army internal controls are AWOL. The General Accounting Office

tested Army transactions against a standard set of internal controls. Army failures rate on the control tests were unbelievably

high, across the board; as high as 86 to 87 percent in key areas.

An important part of checking to make sure that you got what

you paid for, obviously, is inventory control; and it is seen as the

Army having none.

9

At Fort Benning, GA, for example, 84 percent of pilferable items

bought with purchase cards were not recorded in the books. So

where is this property today, right now? Letting soldiers keep their

cards when they leave is another kind of control failure.

The General Accounting Office found 317 cardholders at Fort

Hood, Texas, who were allowed to keep their cards when they left

the Army. We know that at least one of these cards was used to

commit fraud. When weak controls and no credit checks are combined with monthly purchase card spending limits of up to $4,100,

fraud is very easy.

Mr. Chairman, weak controls leadeth the dishonest into temptation. Checking credit card transactions is so very simple; just

match receipts with statements. Why is the Army not doing it?

The General Accounting Office says the Army troops are just too

busy with other duties to do it. Being too busy to make routine control checks to protect the taxpayer’s money is not acceptable.

Purchase card accounts are U.S. Treasury accounts. These are

accounts obviously belonging to the taxpayers. Protecting tax

money is not an option. It is mandatory, Mr. Chairman. If the

troops can not do it, then maybe credit cards are not the answer.

So Mr. Chairman, this is what I have to say on your topic this

morning. If I can, I plan to return, as you requested that I do, to

this afternoon’s hearing, to provide an in-depth report on very troublesome fraud cases, and particularly one involving a current Army

employee, Ms. Tanya Mays.

Thank you, Mr. Chairman.

[The prepared statement of Senator Grassley follows:]

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

Mr. HORN. Thank you very much, Senator, for taking this time.

I know you have plenty of business on the other side of the Hill.

So we appreciate you taking this time.

Senator GRASSLEY. And I thank you for letting me in early,

ahead of all your Members’ statements, because we do have a vote

at 10:30. So I appreciate that very much.

Mr. HORN. We have one on our side in 5 minutes.

Senator GRASSLEY. I will leave my statement here for the record.

Mr. HORN. Thank you. Well, let us swear in everybody, and then

I will yield to Ms. Schakowsky as the ranking member.

Mr. Waxman.

Mr. WAXMAN. Mr. Chairman, may I request that I be allowed to

give an opening statement right away, because I am called to another committee?

Mr. HORN. Sure.

Mr. WAXMAN. Thank you very much.

We are going to hear today yet again about the financial mismanagement of the Department of Defense. Americans have been

hearing a lot about financial mismanagement lately. Revelations

about corporate misdeeds in companies like Enron and

WorldComm fill the headlines on a daily basis.

The public is growing increasingly concerned, and this concern is

spreading to how the Federal Government manages its money.

We, in Congress, have a responsibility to ensure that the Federal

Government’s accounts are honest. That is why today’s hearing is

so important, and I want to thank the chairman for calling it.

I also want to thank my colleague, Representative Schakowsky

for her vigilance in pursuing this issue. I am pleased to work with

her to hold the Defense Department accountable.

Today, she and I will send a letter to Secretary Rumsfeld, urging

him to address the problems of financial mismanagement, found by

GAO’s investigations.

As GAO’s testimony and report reveal, this mismanagement is

rampant. GAO found widespread abuse of Government travel cards

and purchase cards. Both of these cards are intended to increase

convenience for Government employees.

The travel cards are designed to make it easier for Government

employees to pay for official travel, and the purchase cards are designed to make it easier to buy needed items. Both cards are specifically intended for official business.

But we will hear today that these cards were frequently used,

not for official business, but instead for private pleasure. For instance, GAO found that at one site, 45 percent of the purchases on

the travel card were for personal use.

For example, one use of these travel cards was at strip clubs.

Army personnel would use these cards to obtain cash or sometimes

‘‘club cash’’ from the strip club, often at 10 percent fee. GAO identified about 200 individuals who were charged almost $38,000 at

these establishments. One cardholder alone obtained more than

$5,000 in cash.

But that is not the only disturbing example. GAO found that

these travel cards were being used to pay for everything from dating and escort services, to casino and Internet gambling, to cruises.

35

GAO’s findings on purchase cards, which the committee will hear

about today are similarly troubling.

For instance, these cards were also used to purchase escort serv- ices. In another example, GAO estimates that $100,000 was spent

on various items, including a computer game station, digital camera, and a surround sound system. In another case, $30,000 was

spent on items that included clothing from Victoria’s Secrets.

These abuses are unacceptable, and it is even more unacceptable

that the Defense Department has not done more to stop them. GAO

reported on these problems last year, yet the department failed to

correct them.

It is common sense that the use of these cards require proper

oversight. No Government agency should give its employees a

blank check, and not watch to see how the money is spent. Yet,

that is effectively what the department has done with these cards.

GAO found that a weak overall control environment, and breakdowns in key internal control activities leave the Army vulnerable

to potentially fraudulent, improper, and abusive purchases. It is

past time for our Government to get its books in order.

Thank you very much, Mr. Chairman.

[The prepared statement of Mr. Waxman follows:]

36

37

38

39

40

Mr. HORN. Thank you.

Would you like, Ms. Schakowsky, to add anything at this point?

Ms. SCHAKOWSKY. How were you going to do this?

Mr. HORN. I am going to swear in the witnesses, and I would just

as soon have you do it now, and then they will be here.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman, for calling these

hearings today. I appreciate your separating the travel card and

purchase card issues, so we can focus on the unique aspects of

each.

Mr. Waxman referred to the letter that he and I now have authored to Secretary Rumsfeld today, urging that there be a consistent and effective effort to solve the financial management problems

at the Defense Department.

The primary issue before us today is the failure of financial management at the Department of Defense. Last year, the Inspector

General reported that the Defense Department had $1.2 trillion in

expenditures that could not be properly accounted for in the annual

audit.

The GAO has repeatedly testified that the failure of the Defense

Department to be able to audit its books is what is keeping the entire Government from being able to have a clean audit.

Today, we will hear several examples of misuse of Government

credit cards. I am sure that tomorrow’s news stories will focus on

the most outrageous of these examples, as they should.

However, we will not solve this problem by only focusing on

these examples, and only singling out the individuals, because it

will not reveal the true problem facing our oversight role; which is

the department.

As Senator Grassley stated, we are talking about having to

change the culture, a culture of abuse, a culture of no accountability that is in the Department of Defense right now. Government

travel and purchase cards were instituted to save money for the

Government.

However, we have gone from a system of Byzantine chains of review for small purchases or day trips, to no management at all.

The span of control in many of the agencies reviewed by GAO is

absurd. We see purchases made on Government cards for personal

use. We see individuals defaulting on large sums owed for Government travel; travel for which the individual was reimbursed, and

then the person is promoted. Where is the management oversight?

Again and again, whether it is procurement, travel cards, purchase cards, or contract management, the story is the same. DOD

management is not just bad, it is atrocious.

Last week was one of the worst weeks on Wall Street in Wall

Street history, because the public has lost confidence in corporate

financial management.

What is clear from our testimony today is that the financial management at DOD, at the Department of Defense is as bad or worse

as Enron, WorldComm, Xerox, or any other corporations that have

misled the public.

I want to say that again, because I think the American people

should be shocked that financial management in our own U.S. Government of Defense is as bad or worse as Enron, WorldComm,

41

Xerox, in my opinion, or any of the other corporations that have

misled the public.

At a time when allegations of wrongdoing, about business executives and high ranking Government officials are dominating the

news, we must demand that our agencies set a good example.

The President ran on the idea that Government should be run

more like business. Well, it looks like one should be careful what

one wishes for.

Our former colleague, Senator Proxmire used to give out the

Golden Fleece Award, which often went to some unit within the

Defense Department. Perhaps it is time that we brought that back.

I am dismayed at the number of hearings that we have had that

highlight the failure of financial management at DOD, and yet

nothing has happened.

Some, I am sure, will complain that we should not be distracting

the military from its primary mission, as we fight terrorism. But

it is scandalous that the Department of Defense management is

permitted to squander funds that could be spent protecting our

home front, and those serving on the front line.

Thank you, Mr. Chairman.

[The prepared statement of Ms. Schakowsky follows:]

42

43

44

45

46

47

48

Mr. HORN. Thank you. We will now ask panel two to come forward. Gregory Kutz is Director, Financial Management and Assurance, U.S. General Accounting Office. He is accompanied by Special

Agent John Ryan, Assistant Director, Office of Special Investigations in the U.S. General Accounting Office.

Then we have Major General Thomas Eres. He is Commander of

the California Army National Guard. Sandra L. Pack is the Assistant Secretary of the Army, Financial Management and Controller,

Office of the Secretariat; and Jerry Hinton, Director for Finance,

Defense Finance and Accounting Service, Department of Defense.

Now we want not just you, but we want all your assistants that

are going to give you testimony or whisper in your ear or whatever

it is. The clerk will take down the names and put in those people,

the staff back-up, and they will be in the record at this point.

So if you will all come and raise your right hand. Let us see, we

have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, it looks like.

[Witnesses sworn.]

Mr. HORN. The clerk will note that all have affirmed the oath.

We have now a vote on the floor. Please be seated. We are going

to come, as fast as we can, back off the floor, and then come back

here. So we are in recess now.

[Recess.]

Mr. HORN. The recess is over at seven before the time. So we

now will have Greg Kutz, Director of Financial Management and

Assurance, U.S. General Accounting Office. You have spent a lot of

time with this, so give us the best you can think of, in terms of

the summary.

STATEMENTS OF GREGORY D. KUTZ, DIRECTOR, FINANCIAL

MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY SPECIAL AGENT JOHN

RYAN, ASSISTANT DIRECTOR, OFFICE OF SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE; MAJOR

GENERAL THOMAS W. ERES, COMMANDER, CALIFORNIA

ARMY NATIONAL GUARD; SANDRA L. PACK, ASSISTANT SECRETARY OF THE ARMY, FINANCIAL MANAGEMENT AND

COMPTROLLER, OFFICE OF THE SECRETARIAT; AND JERRY

S. HINTON, DIRECTOR FOR FINANCE, DEFENSE FINANCE

AND ACCOUNTING SERVICE, DEPARTMENT OF DEFENSE

Mr. KUTZ. Thank you, Mr. Chairman. It is a pleasure to be here

to discuss our audit of the Army Travel Program. With me is Special Agent John Ryan from our Office of Special Investigations, who

is an expert in credit card fraud and abuse.

I have in my hand a travel card, and it is also shown on the

monitor, for those in the audience. As you can see, it looks like a

normal credit card. The card used by the Army is a Bank of America Master Card, and can generally be used wherever Master Card

is accepted. However, notice that it says, ‘‘For Official Government

Travel Only.’’

Travel card charges are billed to and paid for directly by the

cardholder, unlike the purchase card, where they are billed to the

Government and paid by the Government.

Travel cards were introduced to the Government to improve efficiency and reduce the cost of operations. The Department of DeVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
49

fense individually billed travel card activity was over $2 billion in

fiscal year 2001.

With 1.4 million travel cards in the hands of DOD employees, effective internal controls are necessary to prevent fraud and abuse.

Today, I will discuss our audit of the Army travel program for

fiscal year 2001. This is the first in a series of audits on the Department of Defense travel programs. We plan to issue the results

of our Navy and Air Force audits in the next several months.

I also want to thank the Army for their cooperation in our audit.

The recent success of our forces in Afghanistan has again demonstrated that our military forces are second to none.

The bottom line of my testimony is that the Army had significant

breakdowns in internal controls over the travel program. These

breakdowns contributed to significant delinquencies and chargeoffs, and fraudulent and abusive activity.

My testimony has three parts. First, delinquencies and chargeoffs; second, fraudulent and abusive activity; and third, the effectiveness of internal controls.

First, we found substantial delinquencies in charge-offs of Army

travel card accounts. Most Army employees used their card appropriately and paid the bank on time. However, as shown on the

posterboard, we found that the Army has the highest delinquency

rate in the Federal Government.

For the 2-years ending March 31, 2002, the Army’s delinquency

rate fluctuated between 10 and 18 percent. this was about 5 percentage points higher than the rest of DOD and 7 percentage

points higher than Federal civilian agencies. In addition since

1999, nearly $34 million of Army accounts have been charged-off.

These delinquencies and charge-offs have cost the Army millions

of dollars in lost rebates, higher fees, and substantial resources

spent pursuing and collecting past-due accounts.

We found that the Army’s delinquency and charge-off problems

relate primarily to young, low and mid-level enlisted military personnel. Specifically, this is privates to staff sergeants, with basic

pay ranging from $11,000 to $26,000.

The Army and DOD have taken action to improve management

attention on delinquent accounts. In addition, beginning November

2001, DOD began offsetting military and civilian employee wages

and retirement payments. These and other actions have significantly reduced charge-offs and increased recoveries in fiscal year

2002.

My second point relates to our findings of numerous instances of

potentially fraudulent and abusive activity. Fraud and abuse were

substantial in fiscal year 2001. Since 1999, 23,000 Army accounts

were charged off, while thousands more have been delinquent.

In addition, we estimate that 15 to 45 percent of 2001 travel card

transactions at the four installations that we audited were for personal charges.

The instances of potential fraud we found related to individuals

who wrote three or more NSF or ‘‘bounced’’ checks to the Bank of

America. During fiscal year 2001, over 4,000 Army personnel wrote

NSF or bounced checks to the bank. More than 200 of these cardholders, all having their accounts charged-off, may have committed

bank fraud by writing three or more NSF checks to the bank.

50

One cardholder, as Senator Grassley mentioned, from Fort Jackson, wrote 86 NSF checks to the bank, for about $270,000. This

cardholder was convicted of writing NSF checks, prior to getting a

Government travel card.

This cardholder was able to boost his credit limit from $10,000

to $35,000, by writing these NSF checks. As of late May, this cardholder was being court martialed.

We also identified substantial abuse of the travel card. Abuse

due to failure to pay Bank of America included both cardholders

that were reimbursed for official travel, and those that used the

card for personal charges.

The posterboard shows examples of abuse, resulting in chargedoff accounts, including: the purchase of a used car from Budget

Rent-A-Car; adult entertainment charges, including gentlemen’s

clubs, such as the Spearmint Rhino Adult Cabaret; Internet and

casino gambling, including a Pennsylvania National Guard solder,

who charged nearly $14,000 for his Black Jack gambling habit; and

use of reimbursed travel money to pay for the closing costs on a

home purchase.

We found that having the travel card was like having cash. Specifically, cardholders abused the travel card by improperly obtaining cash at gentlemen’s clubs.

These clubs, which provide adult entertainment, supplied cardholders with actual cash or ‘‘club’’ cash for a 10 percent fee. For example, a cardholder wanting $300 of cash would be provided $300

and billed $330. These transactions appeared on the monthly credit

card bill as restaurant or bar charges.

One cardholder, who was on official travel, obtained $5,000 in

cash at two gentlemen’s clubs, in Columbia, South Carolina, called

Bottoms Up and Platinum Plus. This cardholder told us that the

ability to obtain cash at these clubs was common knowledge among

military members.

We also found abusive charges that were personal use, but where

the cardholder ultimately paid the Bank of America. These cardholders benefited by effectively getting an interest-free loan. These

purchases included cruises, a package for the Rose Bowl, sports

and theater tickets, insurance, and women’s lingerie.

In addition, it was troubling to see little evidence of disciplinary

action against travel card abusers. In the rare cases where severe

disciplinary action was taken, it was often done in conjunction with

other problems such as drug abuse.

We even found that a California National Guard employee was

promoted from Major to Lieutenant Colonel, after having her

$5,000 account balance charged-off.

In addition, we found that 38 of 105 severe travel card abusers

from our testing have active, secret, or top secret clearances. An individual’s finances are one of the key factors used in determining

whether a clearance is granted.

We found that the Army does not link fraudulent or abusive use

of the travel card to the maintenance of security clearances.

In addition to travel card abuse, many of these 38 individuals

had other financial problems, such as bankruptcy, foreclosed home

mortgages, and repossessed automobiles. Let me repeat, the people

51

with these financial problems had secret and top secret clearances

in June 2002.

Mr. Chairman, as you, Representative Schakowsky, and Senator

Grassley requested, we have provided the DOD with a list of these

individuals to reevaluate the security clearances.

My third point relates to weaknesses in internal controls.

Mr. HORN. Let me just interrupt on that. We sent over to the

Secretary about 800 names on that, and I think they came from

you. So I just wanted to know where that is.

Mr. KUTZ. That is a different list. This is a list of people with

active, secret, and top secret clearances that abused their travel

card.

Mr. HORN. And they have matched that against that?

Mr. KUTZ. We had matched that.

Mr. HORN. You matched that?

Mr. KUTZ. Yes, we did the matching.

Mr. HORN. OK.

Mr. KUTZ. My last point relates to weaknesses in internal controls. A weak control environment, compounded by instances of

delays in processing travel reimbursements, contributed to the

Army’s high delinquency rates.

Army management has not provided for an effective infrastructure, primarily human capital related, to effectively manage this

program.

For example, agency program coordinators, who oversee travel

cardholders’ activities, are often military personnel, who are rated

primarily on other job responsibilities, such as airport security.

The APC role is an ‘‘other duty as assigned.’’ Many of these APCs

are set up to fail in their duties, because they are given a substantial span of control, in one instance, up to 1,000 cardholders, and

virtually no time to do this collateral duty.

Many problems related to the Army issuing travel cards to individuals, regardless of their prior credit history. We found a significant correlation between travel card abuse, fraud, and delinquencies, and prior credit problems.

Prior problems included defaulted credit cards, automobile loans

and home mortgages, bankruptcies, and prior convictions for writing bad checks.

Delays in processing travel reimbursements, particularly at the

California National Guard, contributed to the high delinquency

rate for that unit. We found a substantial number of California

Guard, and several employees at other units, that should have

been reimbursed for interest and late fees.

In summary, a weak internal control environment has resulted

in a travel program with substantial fraud and abuse, and a significant level of delinquencies and charge-offs. DOD and the Army

have taken positive steps to improve the delinquencies and chargeoffs.

However, we believe that the Army actions to date have focused

primarily on treating the symptoms of the problems, the delinquencies and charge-offs, rather than the causes.

Preventive solutions include mandatory splitting of disbursements; exempting individuals with financial problems from receivVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
52

ing a card; deactivating cards when employees are not on official

travel; and a strong, consistent disciplinary policy.

We will followup on this testimony with a report with recommendations. We plan to work closely with the Army and the

Charge Card Task Force to implement these recommendations.

Mr. Chairman, that ends my statement. Agent Ryan and I would

be happy to answer questions when the others have done their

statements.

[The prepared statement of Mr. Kutz follows:]

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

Mr. HORN. Let us start now with Mr. Ryan. Is there anything

that you would like to add?

Mr. RYAN. Not at this time, Mr. Chairman.

Mr. HORN. All right, we will go to Major General Eres, Commander of the California Army National Guard. We will go ahead

with your testimony, General.

General ERES. Good morning, Mr. Chairman, thank you for the

opportunity to be here representing the California Army National

Guard. Recently I assumed a new position in homeland security/

homeland defense.

I am here representing Major General Paul D. Monroe, the Adjutant General of the State of California. We have prepared remarks

that have been submitted to your our committee, which are quite

extensive and comprehensive.

My remarks here will be identified in those areas that I think

need particular attention from our standpoint. I would like to

thank the GAO and this committee for commissioning them to

come to California, because you do not know what you do not know;

and GAO has given us a basis within which to get a good sense

of the people component of trying to manage this program, with all

of the technology that we have in existence.

I believe that a little bit of context for the National Guard in

California is important. It is about 16,450 in size, about 2,000 of

which are full-time, 14,000 of which would be traditional guard,

which means they have other employment and other jobs.

We have a full-time manning challenge out in California, in that

we actually have personnel full-time at about 43 percent of what

we have authorized. What that means is, 43 percent of the individuals who are necessary are actually doing the job.

That is an environmental point only, for purposes of the context

within the management challenges created by the travel card program are presented.

This is a people world. This is a people business that we are

dealing with in credit management. One of the cotter-pins for that

is the Agency Program Coordinator has been identified by GAO out

in California. We use this position as an additional duty.

It is clear from the audit and clear from our review, this must

change. This must be a high priority, dedicated assignment, with

responsibility and authority commensurate with it. That will require a readjustment of priorities of the limited full-time personnel,

but that is something that will need to be reviewed carefully by the

Adjutant General, and those adjustments made.

Included in that would be reducing the span of control; as was

mentioned, something more modest, down to perhaps 300 to one.

We also believe that about 90 percent of the problem that we are

dealing with here is in the area of communication. As I mentioned,

this is a people business. Perhaps we should look more at a partnership-type thinking, in terms of the players and principles we

are dealing with, from the Bank of America, the Department of Defense, the National Guard and its chain of command, the individual

soldier, and ultimately, the merchant that accepts the card.

I am intrigued by, for example, the nature of the look of the card.

It looks very clear up on the screen, but when you look at the card

directly, it is very hard to discern it from any other credit card.

81

I believe merchants, if they were to see a card that had something more like a chartreuse color, with very bold ‘‘United States

Federal Government, For Official Use’’ would be more questioning

in terms of swiping that card, when someone is purchasing tickets

to Disneyland, when they are supposed to be on travel.

These are some of the suggestions that we have been looking at,

to try to make the culture a little bit more attuned to the responsibilities that we have with respect to managing this program.

One of the things that we have found is that we need better systems integration. If we can get the systems integrated, then we can

have better synchronization as relates to trying to manage the program.

As has been noted, we had a situation where an individual was

promoted, and how could that happen when they have a deficient

credit card?

It happens because of stovepipes, and we have to find a better

way of integrating between those stovepipes their information, in

a way that we can better synchronize those actions necessary to

identify an individual and their file, and any personnel actions that

may be in the pipeline, so that, in fact, these can be reconciled.

Administratively, we are in the process of trying to better tune

the time delay between processing travel vouchers, so that the individual solder gets, in a timely fashion, a reimbursement of that

travel voucher. So, in fact, they have the capability to pay that

credit card bill.

Internal controls are very important to us. We believe that we

have now a better handle in terms of segregating responsibility

within USPFO, the APCs and the chain of command.

We believe that GAO hit the nail on the head with respect to the

fact that you need to have that independence, that check and balance, and the chain of command has to be intimately involved, in

terms of making sure that the right people, the supervisorial chain,

get the right information at the right time, that is accurate; so in

fact, they can post their chain of command, and take those actions

that are necessary.

We think that the notion of a split disbursement is a very good

notion. It is voluntary at the moment, but we think perhaps some

legislative change there to make it mandatory would be appropriate; that, in effect, when you use your travel card on official

business, it is for official business.

Therefore, the reimbursement should go to the Bank of America

for those direct costs that the card was used for; incidental expenses, of course, going to the individual soldier.

We also think that the notion of the offset is important, and we

think that is a good idea. We also think the idea of interest charges

and the notion of late fees are also important.

One of the things, though, that we need to do is to be preemptive

in our educational process with the soldier. We need to have an

early warning system that allows the bank to integrate with our

system, in terms of when that soldier goes on orders, so that travel

card is activated at that moment, and when that soldier comes off

of orders, it is de-activated; and then internally within that timeframe of active duty or, if you will, on travel.

82

Any kind of a transaction that appears to be out of the ordinary

creates a flag with respect to the reporting of that transaction. So

before the travel voucher is even submitted, we are already alerted

that there is a potential transaction that appears to be inappropriate, in terms of that travel.

We think this would be an additional way to try to find, at the

front end, an opportunity to find out if there is a problem, and do

the reconciliation before 60, 90, 120, or 180 days pass. At that

stage of the game, the ship has sailed and we are fighting, in effect,

a backfire.

Again, I thank you for the opportunity to make these preliminary

remarks in support of the written statements that we have prepared, and I am available to answer any questions you might have,

sir.

[The prepared statement of General Eres follows:]

83

84

85

86

87

88

Mr. HORN. Thank you, General; you made some suggestions that

need to be implemented.

Sandra Pack is the Assistant Secretary of the Army, Financial

Management and Comptroller. Please proceed.

Ms. PACK. Good morning, Mr. Chairman; I am pleased to appear

before the committee today to talk about the Army’s travel card

program.

Given the scope and the complexity of the U.S. Army, we face

daunting challenges, any time we undertake significant change.

That certainly was the case in November 1998, when we began implementing the Army’s travel card program.

We did this as a result of the Travel and Transportation Reform

Act of 1998, which stipulates that the Government-sponsored, contractor-issued travel card be used by all Government employees, to

pay for official business travel costs.

Despite initial implementation problems, including inadequate

software, on-line management system deficiencies, and insufficient

training for our personnel, the Army has succeeded in implementing a stable travel card program.

The travel card program provides many benefits to the Army. It

meets our travel and transportation needs, and provides an effective, convenient method for Army travelers to pay official travel expenses, and moreover, the travel card program improves the

Army’s cash management and provides cost savings.

For example, the Army received $2.7 million in travel card rebates during fiscal year 2000. In fiscal year 2001, the Army saved

over $73 million in administrative processing and accounting costs,

because the travel card greatly reduced the need for travel advances.

The Army has two kinds of travel card accounts: individually

billed accounts where the individual cardholder is liable for payment; and centrally billed accounts, where the Government is liable

for payment.

Given the current delinquency rate of less than 1 percent for the

centrally billed accounts, we believe that the Army has established

and is maintaining adequate oversight and internal controls for

these accounts. Hence my comments today will not focus on centrally billed accounts.

Managing the delinquency rates for the Army’s individually

billed accounts, however, has proven significantly more difficult.

This is the area where we are focusing our attention.

The Army currently has approximately 420,000 individually

billed account cardholders. In any given month, approximately

115,000 Army travelers satisfy their travel needs with this card,

and over 92 percent pay their bills on time So it is fair to say that

the vast majority of Army travel card users are following the rules.

In October 2000, the Army’s Vice Chief of Staff established a delinquency goal of not more than 4 percent, which is consistent with

the three to 5 percent delinquency rate experienced by the private

sector. By May 2001, the delinquency rate for individually billed

accounts had dropped from 11 percent to 5.6 percent. Since then,

the delinquency rate has fluctuated and now stands at about 8 percent.

89

As of June 2002, most Army commands had met or were within

2 percentage points of the 4-percent goal. We are now concentrating on bringing those few remaining commands in line with our 4

percent delinquency goal. I will elaborate on some of the challenges

that we face in accomplishing this goal.

As you know, the nature of the Army’s mission involves destinations, durations, and circumstances that are not comparable with

others in the Federal Government and, therefore, may not have

been envisioned in the original contract.

While the travel card has proven to be a valuable tool for the majority of the Army’s personnel, it frequently is not useful for travelers in remote locations or on deployments.

In addition, our experience has been that the majority of our delinquent cardholders are lower grade, enlisted soldiers, who tend to

be inexperienced in personal finance and in the use of charge cards.

These 130,000 cardholders represent 30 percent of the cards

issued, and only 15 percent of the Army’s total spending, but they

are responsible for 59 percent of the delinquencies and bank writeoffs.

The Army leadership is engaged and committed to solving these

travel card problems. For example, the Secretary of the Army has

authorized, and we now post on the Army’s senior leadership

intranet site, the delinquency statistics for our commands.

We provide Army senior leaders and major commands monthly

delinquency reports that permit them to compare their performance with other commands and subordinate units. We conduct biweekly teleconferences between our Army travel card program

manager and his counterparts in the field.

In addition, the Army is working closely with the Department of

Defense to remedy its travel card problems. We were actively involved in the Department of Defense’s recent effort to re-negotiate

the contracting bank’s task order.

These contract modifications include key provisions that help reduce travel card delinquencies, including: a salary offset program

that allows delinquent account balances to be collected from the

cardholder’s pay; increased cardholder fees for late payments and

back checks; and a significant reduction in the number of travel

cards issued to infrequent travelers. As a result, the Army has canceled or de-activated over 60,000 travel card accounts.

The Army also is an active participant on the Department of Defense Charge Card Task Force. In conjunction with this effort, the

Army has taken a number of actions, including: providing additional training for cardholders and unit travel card program coordinators; working closely with the bank to resolve problems of cardholders who are misplaced in the Army account structure; expanding the use of split disbursement and salary offset; closing inactive

accounts; assessing alternative travel card products, such as debit

cards and smart cards; working closely with the Army investigative

community to ensure that relevant findings of cardholder delinquency are promptly coordinated with security administration personnel and the cardholder’s supervisor; and using the Travel and

Transportation Reform Act exemption for en-route expenses associated with mission deployments.

90

In addition we are making changes in the Army’s travel card policy, including: prohibiting travel card use for permanent change of

station moves; encouraging the commands to use the training request form or the purchase card to pay advance conference and registration fees; including the unit travel card program coordinator as

a mandatory step in the in-and-out processing procedures; and reducing the number of cardholder accounts for which each unit travel card program coordinator is responsible.

In short, the Army believes that the travel card program is

worthwhile. It is an effective tool for meeting the Army’s travel and

transportation needs, and for reducing administrative and support

function costs. We are committed to reducing our travel card problems, and we strongly support initiatives to improve the program.

We have made good progress in reducing delinquencies and misuse, and we believe that our continued efforts will result in continued improvements in the future.

Mr. Chairman, that concludes my statement. I will be happy to

take any questions.

[The prepared statement of Ms. Pack follows:]

91

92

93

94

95

96

97

98

Mr. HORN. Thank you very much for your testimony.

We now move to Jerry S. Hinton, Director for Finance, Defense

Finance and Accounting Service.

Mr. HINTON. Good morning, Mr. Chairman, thanks; I am pleased

to be here today to discuss the Department’s travel card program.

The travel card program falls within my responsibilities. The

travel card program provides savings to the Department, and has

helped to streamline our operations, and the cards offer convenience to those who travel on official business.

The Department’s senior leadership is seriously concerned about

the operational shortcomings, the delinquencies and abuses that

are the focus of this hearing. the failure to fulfill the job responsibilities and observe appropriate standards of conduct will not be

tolerated.

Mr. Chairman, when I appeared before this subcommittee in

May of last year, I noted that the Department was working to address delinquencies and improve the travel card program.

Since last year, we have reduced the Department’s centrally

billed travel card account delinquency rate from 14 percent in January 2001, to less than 2 percent in May 2002. The June report,

which we received Monday, shows it is now approximately 1 percent.

We also modified the task order terms to eliminate the automatic

billing cycle credit replenishment feature for standard and restricted accounts.

We canceled approximately 115,000 cards, and deactivated another 112,000 belonging to infrequent travelers.

We implemented salary offset that has significantly reduced the number of accounts written off by the bank. As of May 2002, $15.1

million had been collected and paid to the card-issuing bank, Bank

of America. Again, our general report this week shows over $17

million has now been collected.

Accountability is a major focus within the Department. Component heads have been directed to report on the actions taken to resolve current cases of charge card misuse, abuse, delinquencies,

and to preclude future such instances.

Improved internal controls and process re-engineering are important to the Department. The Under Secretary of Defense Comptroller, Dr. Zakheem, established a task force in March to investigate

the Department’s charge card programs and to propose ways to

strengthen them.

The task force report, issued on June 27, 2002, included findings

and observations similar to those of GAO, and 16 of those recommendations address the travel card program.

Those recommendations fall into three areas: one, management

emphasis and organizational culture; No. 2, process and work force

development; and three, compliance. The specific recommendations

related to the travel card program are summarized in my statement, and we are working their implementation.

99

Mr. Chairman, the senior leaders in the Department are engaged

in ensuring the travel card program is properly administered and

successful.

That concludes my remarks, and I will be pleased to answer any

questions you may have.

[The prepared statement of Mr. Hinton follows:]

100

101

102

103

104

105

Mr. HORN. Thank you, and we now will recognize the gentleman

from California, Mr. Ose, for 5 minutes of questioning, and then

the ranking member next.

Mr. OSE. Thank you, Mr. Chairman; I regret I was late. It is not

often that someone sneaks something by me, but when I got back

to my office this morning, I discovered, much to my chagrin, that

somebody had snuck one by this morning.

In watching the television and noting the introduction of one of

our witnesses today, I am not sure that we did quite enough justice

to him; that being Major General Eres, who is a resident of Sacramento.

Frankly, he is too humble. But I will tell you for a fact, that in

my community, there are people who do and there are people who

talk; and this gentlemen is a man who does. He has for many

years.

He is a past President of the Sacramento Metropolitan Chamber

of Commerce. He has been in Rotary. He has got four wonderful

kids. His wife is actually the General in the household.

I will tell you, he has a long history in Sacramento business enterprise, also. He has served in any number of roles, one of which

has been as counsel to my family. It is a distinct pleasure to have

him join us here today.

I am sorry I was not here for his remarks or his first introduction, but I did want to get here and thank him. Because he is one

of those people that make Sacramento a great place to live. So,

General, thank you for coming.

General ERES. Thank you.

Mr. OSE. My questions really devolve around to the issues that

you put on the table, and I am not going to speak to a chartreuse

card, at the moment. I will get back to that.

The question I do have, I mean your testimony is very telling.

What General Eres brought up was the issue of, if somebody is deployed, and they have a claim for reimbursement, as is his want,

he is always worried about the people who are actually out in the

field.

What happens when someone who is deployed makes a reimbursement request, and it takes longer than 30 days for that person to recover their funds, and what is the consequence there?

General ERES. The consequence that we have found is that a vast

majority of the cards have been issued to people in the lower ranking positions, both enlisted, warrant, and in the officer core. So

these are people that are usually pretty tight, in terms of the

amount of cash-flow that they have available to them.

The primary resource then, for repayment of the card, would be

the reimbursement that they get from the voucher that is processed. Depending upon the timeframe within the bank, it goes from

a card that is delinquent to one that is seriously heading toward

a potential for a charge-off or potentially would be a candidate for

an offset or a garnishment, if you will.

It is a timeframe that can be influenced by a delay in processing

that travel voucher. We believe, in California, from the National

Guard’s perspective, we have taken strong efforts to try to augment

the actual staff that are going to be processing these cards. We

think that we can do a much better job than we have been doing.

106

The requirement is that the individual, after leaving that travel

status, has 5 days to turn their report in, or their travel request

in. That should be processed, and they should have a check on the

way in approximately 30 days.

If the system is working, that money ought to be applied to the

travel card and clear the account. In an abundance of caution, I

think, though, under the notion that has been suggested as a split

disbursement perhaps, in my view that, and I believe for General

Monroe, is a very positive step.

So, in fact, those charges legitimately on that card for travel are

bifurcated, and the check is paid directly to the Bank of America,

with the incidental payments going directly to the soldier.

Mr. OSE. Would you recommend doing that electronically, for instance, to the card provider?

General ERES. I really do. I think that in this paperless information technology, there is much more we can do to interface between

the Bank of America and its systems, our systems and the National

Guard called aft-costs, and in the processing that we do through

the U.S. Property and Fiscal Office, and the oversight that can be

provided by the APCs. I think we have the capability to integrate

and synchronize those activities by using technology.

Mr. OSE. Does the Guard in California bifurcate these payments,

or follow the system you have just described?

General ERES. They do only on a voluntary basis, on this split

disbursement. We really favor that the notion be mandatory. We do

not know of any reason why it should not.

In the old days, and I will show my age here, when you went and

obtained a vehicle for military travel, you got what was called a log

book. When you got the log book, you signed for that vehicle. There

was a gas card in it. You went on your travel. You turned the card

and the log book in and logged out. That is a system that ought

to fit nicely within the use of the travel card, we think.

Mr. OSE. I regret my time is expired, Mr. Chairman.

Mr. HORN. Well, we will get back to that. Let me just say, to followup on one question, you mentioned the Bank of America. Could

they not match their particular knowledge of either people that had

accounts, or where you can get from any place, I guess, and what

do you think about them? Do they ever look to see if this is a person that is a deadbeat; and if not, why not?

General ERES. One of the suggestions from the General Accounting Office was to take a look at the pre-qualification of those soldiers who are given the card. That is, in effect, a manifestation of

trust in the soldier.

To the extent those cards are being given to those who already

have a credit history that is not supported in the private sector for

a card, it is something that we should ensnare at the front end of

this process.

The difficulty we have is that a number of the individuals, this

is their first card, their first exposure to credit. We have a larger

job to do, as basically credit managers, to educate, train, and oversee those who are given that trust, and may not use it expeditiously or responsibly.

As relates to the Bank of America, I am not familiar with their

capabilities and capacities, in terms of managing these accounts. I

107

believe their Eagle system is a good start, and I believe it gives an

opportunity for the electronic interface, the integration and synchronization I mentioned, to alleviate a great deal of the challenge.

Because if we do not have timely, accurate information on the

transaction itself, we are behind the power curve.

Mr. KUTZ. Mr. Chairman, let me add to that. Because we would

distinguish, as the General did, between people with bad credit and

no credit. A lot of the young people coming into the military have

no credit. We are not suggesting in our recommendations that they

not be provided a card. They should be provided what is called a

restricted card, which has a lower credit limit and has tighter controls.

But what we did find was a significant correlation between the

abusers of the travel card and those that had prior credit problems.

One of our recommendations is going to be that they deny travel

cards to people with prior significant credit problems.

Mr. HORN. I now yield 5 minutes to Mrs. Schakowsky, the ranking member on this subcommittee.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman.

Mr. Kutz, you have testified in the last year on a number of instances of fraud, waste, and abuse, including purchase card fraud

and abuse at the Navy, chem-bio suits that were being sold on the

Internet for less than $3, while DOD is buying them for over $200

each.

DOD is spending $17 per line to process a purchase card bill; and

Army purchase card fraud and abuse, and Army travel card delinquencies, charge-offs, fraud, and abuse, it seems like even more

than that.

Given your broad perspective, can you tell me why the Department of Defense continues to have billions of dollars in waste,

fraud, and abuse?

Mr. KUTZ. I think this gets into your initial opening statement

with respect to, this is a financial management problem. The Department has been unable to reform its business processes.

You have issues such as culture, which we have talked about at

many of these hearings, being a common theme throughout these

different types of problems that we find.

You find lack of sustained leadership over periods of time. This

credit card problem that we have here is not something that a task

force report or a quick hit is going to fix. It is going to take sustained leadership and time to deal with this.

Then I believe that things oftentimes revert back to their norm.

If you do not stay on top of this over a period of time, it could revert back to the way it is.

The other thing that we see here is the issue with disciplinary

action and accountability, and who is responsible for this program?

I think that is something the Department often has trouble with,

with respect to the Office of the Secretary of Defense versus the

Army here. Whose program is this? Who is the point person?

Who can you actually go out and touch and say, you are responsible, and you are the one who is going to fix this program? That

is a common theme, I think, we have seen with all the things we

have testified before you.

108

Ms. SCHAKOWSKY. Well, let me followup on that then with the

General. Because we have a case where a California National

Guard cardholder was actually promoted after charge-offs.

I am just trying to understand how we can establish the right

culture, the right atmosphere, the right accountability and controls,

when we find that those individuals, rather than being punished,

in fact, in some instances, are promoted.

General ERES. Yes, ma’am, the particular case that you are referring to, I have become very familiar with. I mentioned in my opening remarks the challenge we have with what we call stovepipes

or parallel systems.

So it is entirely possible that you could have a member of the

National Guard, who has a full-time position within the National

Guard, but also has a position within a chain of command that is

the military chain of command.

It may be that the abuse of the credit card was something that

was handled by the immediate supervisor on the full-time side of

that pipeline; whereas, the chain of command on the miliary unit

side was not aware that was even a problem.

What we have done to take corrective action on that is to integrate those two stovepipes. We have also integrated the security

check, the classified process by which we have security clearances

for our personnel.

So at the minimum, the immediate action we have taken is to

link not only the full-time military system with the military unit

system, with the security system, and to be in a position where we

have any indication that there has been a default or a deficiency

on the travel account that, I will use the term descriptively, flags

that particular individual across all of those stovepipes.

So you do not have a promotion or an award or send somebody

off to school or other training, when you have that kind of an incident or a flag, if I could use that phrase.

Ms. SCHAKOWSKY. So do you feel confident that kind of problem

will not surface again?

General ERES. I feel confident, ma’am, that purposes if we have

accurate information that drives the flagging process, and again, I

am using that descriptively, we can do that.

What I am not confident in is, do we get accurate, timely information of the condition of the account soon enough, so that those

flags will be effective.

As I mentioned earlier, I think this is where the technology between the Bank of America and its Eagle system and our pay system will help us flag, very early, immediately when that account

becomes deficient; or, I do not whether the term is slow pay or no

pay.

Ms. SCHAKOWSKY. Well, let me ask you this, General, because in

the GAO report, we are talking about, and I do not know if this

is the full extent of it, the delinquencies and charge-offs cost the

Army $2.4 million, estimates the GAO, in lost rebates, and will cost

$1.4 million.

You know, in every case, we are talking about millions and millions of dollars. Do you feel confident that we are not going to have

the same hearing a year from now? Let us start with 6 months

109

from now. Do you feel confident we are not going to find the same

thing, 6 months from now?

General ERES. In the context of the California Army National

Guard, I am confident that we have a very good data base on the

problems that you are addressing, and that we have meaningful solutions.

I would be more than willing to submit it to another look-see,

whether it is by GAO, or I can assure you internally within our

own system, we will have our own audit, to make sure that we are

benchmarked, and that we are not going to be back here in 6

months having the discussion because those systems, those stovepipes, are not communicating and are not integrated.

Ms. SCHAKOWSKY. Mr. Ryan, did you want to say something? Do

you mind, Mr. Chairman? Mr. Ryan wanted to respond.

Mr. HORN. Go ahead, Mr. Ryan.

Mr. RYAN. I think in response to what the General is saying, a

lot if it ties in on how much the Army is committed to bring in fulltime APCs. These APCs are front line. They identify potential problems. They can notify commands of problems.

If we have APCs that are doing part-time work, they cannot do

both jobs. We talked to one APC that had over 1,000 cardholders

to manage. The only thing that he did at the end of the months

was to try to look at delinquencies, and keep his Commander out

of trouble.

If we have full-time APCs that, on a daily basis, are looking at

the transactions, that are looking at the delinquencies, I think that

you will find that overall there will be a better management of the

program.

But the Army has to commit to this. They have to commit to fulltime people to do this job. We have a lot of money invested in this,

and I think that we need full-time people to monitor the program.

Ms. SCHAKOWSKY. And is there a commitment to do that?

Mr. RYAN. I think you need to ask the Army.

General ERES. I will pass that on to the Army. I am sure they

are pleased to get it. But I can tell you that in the National Guard,

we are staffed at 43 percent of authorized, required full-time.

So the National Guard gets the resources that we are assigned.

We utilize those, and as Mr. Ryan has indicated, that means our

APCs are duo-hatted, triple-hatted, or even more.

What we are talking about here is if the program is important

enough, what we need to do is to look at how you can re-prioritize

resources in order to have more and dedicated personnel in this

area. Because we are in a sub-optimum environment, in terms of

resource allocations.

Mr. KUTZ. Representative Schakowsky, I would like to add one

thing to that, quickly. We also saw, at some of the different units

than the California National Guard, that the military APCs turned

over every 6 months or so.

One of the other things that we are going to be recommending

is that the Army look at having more civilians, if possible, to act

in the APC role. Because what we found was that APC’s were in

the position for 2 or more years and you need some continuity in

that position to have it be effective.

Ms. SCHAKOWSKY. Thank you.

110

Mr. HORN. I think the answer to your question is one, for the Assistant Secretary of the Army, Ms. Pack, what can you do in answering Mrs. Schakowsky’s question, which is a very important

question; and what is the Army doing about it?

Ms. PACK. Mr. Chairman, I became aware of these problems in

preparing for this hearing today. What I would say about that is,

the Army, like any other institution, has to make tradeoffs with resources.

From the GAO report, which I found very beneficial—and I am

an accountant by trade, so I believe audits are good—we have

learned that, basically, we have an oversight problem. The way to

fix that is to put human capital against that and, of course, that

costs money.

Ms. SCHAKOWSKY. Excuse me, but we are talking about huge

sums of money that is just falling away like sand through our fingers; huge sums of money that should be used to protect our homeland, to take care of our men and women in uniform.

I understand that we are going to have to put more money into

it. But this cavalier attitude that I find that, well, you know, we

are like any other organization, and we have to have the resources,

this is a crisis worth billions of dollars.

I think it is absolutely equal to the Enrons and the

WorldComms, with our own Department of Defense; and it requires

a much more aggressive attitude than what I am hearing from you

and that what we have heard, time and time again, at hearing

after hearing.

We are talking billions. We are talking about trillions, $1.2 trillion, that we do not know where it is or how it is accounted for.

This is not just a nickel and dime kind of operation, a couple of

guys going to a strip club. We are talking about a culture, a systematic problem within this department. We are talking about

being in deficit spending right now. We are talking about $48 billion more for the Department of Defense to do its job.

So I think that we ought to find the money to do it, because we

are going to save, hopefully, billions and billions of taxpayer dollars. They deserve no less, Ms. Pack.

Ms. PACK. Yes, ma’am, I agree with everything you have said. I

have been in this position for 8 months. I have just now come to

understand the scope of this and the complexity of this. Believe me,

I take this personally. I believe this is my personal responsibility

to correct. So do not take me wrong in saying that there are tradeoffs.

What we need to do, and you are right, we can save billions of

dollars, by adding people. One of the things that I had asked my

staff before I came over here this week is, I need to know what it

would take to get the right people in the right places to take care

of this?

What is the dollar figure we are talking about, so that we can

take this to the leadership and say, here is what we need to do.

This is the solution. If we do this, yes, it will cost something, but

the savings will far outweigh that.

Mr. HORN. Well, I would like to add to that, when did you first

learn of this situation? You have been here 8 months, and when

did you first learn of this?

111

Ms. PACK. When I first learned of this, I believe, was in the

March timeframe, when these hearings were being held earlier.

Mr. HORN. OK, well, when you heard that, what did you and the

various civilian officers in the Army do? Did anything happen?

Ms. PACK. Well, we became part of this task force, the DOD

Charge Card Task Force, and we started looking at this program

in detail to see where are the problems. That is why I say, the

GAO report was especially helpful, because it looked at specific

places, specific problems, and gave us the details on where the

problems lie.

In my line of work, credit problems are a security risk, and you

do not get hired if you have those problems. So I take those very

seriously.

The thing that is frustrating to me is, these kinds of problems

are manageable. It just simply takes somebody at the monitor,

looking at this. We simply do not have the people doing that.

Therein lies the major problem.

Mr. HORN. Well, I guess what I asked, when this first came to

my attention, months ago, was where are the Master Sergeants;

where are the people that know what is going on?

Ms. PACK. The chain of command; I agree.

Mr. HORN. The officers often do not know what is going on.

Ms. PACK. That is right.

Mr. HORN. New lieutenants and everybody that ever was in the

Army or any of our services; woe be the person that thinks they

know everything out of the Academies or everything out of the

technical this or that.

Get a good Chief Petty Officer for the Navy and a good Master

Sergeant for the Army; now can they not do that and say, you

know, go down the command bit, where you have got the problems,

and assign a few people to that to say, straighten it up. Then I

think it would be straightened up.

Ms. PACK. Absolutely, sir, and let me just add, the supervisor

cannot do anything about a problem of which he knows nothing.

That is where the program coordinators come in. If you do not have

somebody watching this to spot the problems, then no action will

be taken.

Mr. HORN. Yes.

Ms. SCHAKOWSKY. Are you saying to us that we will be back here

in 6 months or a year, if we do not get more personnel there? There

is really virtually nothing you can do if there are not more people

to straighten out these problems?

Ms. PACK. No, I am not saying that, ma’am. What I am saying

is, give me 6 months, and let us see what we can do about this.

I am engaged on this, and we will work on this. I know at the outset, one of the problems we have is oversight, and we have got to

solve that.

So let me work on this, and let me come back to you in 6 months

and tell you what we have been able to accomplish. This is fixable.

Ms. SCHAKOWSKY. Mr. Chairman, how many hearings over how

many years have you had on this?

Mr. HORN. On this one, alone?

Ms. SCHAKOWSKY. Not just this one alone; on the problems at

DOD? We hear the same thing.

112

Mr. OSE. Mr. Chairman, if I might?

Mr. HORN. Yes, the gentleman from California.

Mr. OSE. Ms. Pack.

Ms. PACK. Yes.

Mr. OSE. With the problems that you have discovered in the payment systems that we are talking about here today, I mean, I think

Mrs. Schakowsky raises an interesting question. How long have

they been going on?

Ms. PACK. I am sorry, I did not understand your question.

Mr. OSE. How long have the payment or credit issue problems

that you are dealing with been going on, that Mrs. Schakowsky has

very eloquently brought up?

Ms. PACK. With this program, I am aware of the program starting in 1998. There were immense problems in the first year, implementation problems, because the on-line system was not available.

It did not work.

So, once the bank got that program working, and we finally had

the detail that we could look at, we had a back log to get through.

So many of the specific problems that had been mentioned in early

testimony, we were completely unaware of, because we had no way

to see them.

So what I would say to you is, the problem was that, and this

goes to the culture, it gave the impression that no one was watching, and no one was. It gave the impression that no one cared. That

is hard to negate, once you have established that.

Mr. OSE. Was the program set up by virtue of a congressional

mandate?

Ms. PACK. I believe so; yes, sir.

Mr. OSE. So somewhere in legislation, it was specified that this

system will be implemented?

Ms. PACK. What was specified was that an official travel card be

used for all travel, and that all Federal employees use that.

Mr. OSE. All right, as it relates to this particular branch of this

particular system, what you are pointing out is that, frankly, whoever set it up really did not understand checks and balances, in

terms of how it gets implemented. Is that what you are saying?

Ms. PACK. I would say it was not ready for implementation. The

systems were not there in the first year. So it took that long just

to get them, so that we had the visibility of the accounts.

Mr. OSE. And the system of checks and balances, I mean, I understand credits and debits and all that. It is not a very complicated thing. I mean, banks do it all the time.

Ms. PACK. I agree. I agree.

Mr. OSE. So is there some reason it has not been done, to date?

Ms. PACK. Sir, I am not sure what you are asking me.

Mr. HORN. I think what he is saying, if I might add to it, because

we are all feeling that way, that you are a newcomer, and thank

heavens they get newcomers, because that is what we need to turn

some of these systems around; and I am sure you will be handling

this as best you can.

But the problem is that they have not really got it yet, and that

is what gets us, I think. Every time they come in, they take the

oath and all this, and we are saying, hey, what have you done? Mr.

Hinton, we asked him, the last time, what are you going to do?

113

I mean, the problem is, when people go in with the services, they

run them around to facilities, and they have a lot of flags and all

the rest of it, to keep you from doing the real work that you have

got to do. Where do you get the people and at what point are supervisory going?

We ought to change a lot of civilians in a lot of these major bureaucracies. Some of those people have very good skills, and they

would know how to solve this. It is just that we get a feeling that,

well, here they are again and, you know, let us just wear them out

for a month or two.

Well, we are not going to end this, I mean, this afternoon. We

are going to see a few cases due for the fraud people; namely, the

U.S. attorneys.

Ms. PACK. Sir, I agree with you, and if I were in your shoes, I

would be enormously frustrated. I cannot speak for the performance of my predecessors. I can speak for myself, and I am a person

who understands the meaning of commitment.

I am committed to fixing this. This is not going to lose my attention, when I walk out this door. I commit to staying on top of this,

as long as I am serving in this position.

Mr. HORN. Yes, the gentlewoman from Illinois?

Ms. SCHAKOWSKY. I wanted to ask about training. The General

was talking about young people sometimes, who do not have a lot

of experience.

And when I look at the Army delinquent and total outstanding

travel card balances that are in the GAO report, you find that the

single largest bulk is E–1 to E–3s and E–4 to E–6. We are talking

about people who earn between $11,000 and $26,000. It is not all

that surprising that at the end of the month, they do not have

money to pay those.

What are we doing to help train these young people. Often, they

are 18 or 20-year-olds, who may not have had any experience or

any credit, as was pointed out, in how to handle this? We all know,

those of us who have kids that have gone to college understand the

problem, you know.

Ms. PACK. Right.

Ms. SCHAKOWSKY. You give a kid a credit card and things happen. So we have to train them on how to responsively use those.

When we are distributing them wholesale throughout a huge system like this, what are we doing?

Ms. PACK. Well, you make very good points, ma’am. I mean,

training is absolutely essential. The other thing is just mass distribution. Do not give the cards to people unless they truly need

them. Then before you give them the cards, make sure they have

the training.

So one of the things I have requested from our field, is for them

to send in all of the training materials they have come up with, so

that we can compile these and come up with a standard training

package that we make available on the Internet; and that we get

back to the Commands and ask them to use in training these people.

That is one point. We do not have one specific training package

now. So that is one of the things I have already ordered. Let us

call it all in from the field, just take the best of it, compile it, deVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
114

velop a standard package that will address this and address it effectively.

Ms. SCHAKOWSKY. Also, Mr. Kutz said that we could set lower

credit limits.

Ms. PACK. Yes.

Ms. SCHAKOWSKY. I think we could turn cards on, when an individual is on travel and off, at other times. I mean, it seems that

there are lots of management tools that could be applied to this

kind of situation.

Ms. PACK. I agree with you. Those are great ideas. But keep in

mind, that type of management is contemporaneous. That means,

you have to have people dedicated to that job, who are dedicated

to knowing when people are going on travel and when they are

coming off, so that you are activating and inactivating correctly.

If we do not have the people now, after the fact, looking at the

transactions, after they have already been made, obviously, we do

not have the people who can do that in advance, or be there contemporaneously.

Ms. SCHAKOWSKY. I guess, I mean, credit limits are credit limits.

Ms. PACK. That is true. That is true. Keep in mind also, there

are two parties to this, and that is what complicates it, in the sense

that the bank, itself, I do not think was prepared for the volume

of transactions it was going to get on this.

Hence, transactions have come through that should not have, because someone was over their credit limit. Transactions have come

through from merchant codes that should not be allowed. Both parties on this have had to work together to get to where we are

today.

Ms. SCHAKOWSKY. Which is in a mess.

Ms. PACK. Well, it is not what it needs to be, absolutely. But if

you look at it from the standpoint that 92 percent of the cardholders are following the rules, we have come a long way.

Ms. SCHAKOWSKY. Well, let me ask you this. What would the

Army do, and what would it cost, if Congress canceled the travel

card program?

Ms. PACK. The Army would have to go back to doing travel advances, which would then raise our bill with the DFAS folks quite

a bit. It would be $24 per transaction, I believe.

So the savings, you would be throwing the baby out with the

bath water. We would go back to a cumbersome system that required a lot of accounting support and would be expensive. We

would be going backward if we did that.

Ms. SCHAKOWSKY. I am a little concerned, though, that then we

have a cost benefit ratio, that it is better to let all these abuses go

on, because in the end, it is cheaper than, you know, taking away

the travel cards.

Ms. PACK. No, ma’am, we would not look at it that way. I mean,

we want no abuses. It is an imperfect world. I am sure we will not

ever get to 100 percent, but we can do a lot better than we are

doing.

Ms. SCHAKOWSKY. I hope so.

Mr. HORN. Well, on that point, and you have obviously started

on this, the General Services Administration has a number of

training programs on line. Is the Army making use of those tools?

115

Ms. PACK. I am not sure the awareness is what it should be.

That is another thing that we are going to do, to make sure that

people in the field are aware that is there and available to them.

Of course, having it available is not necessarily the whole answer, either. These people need to have the time to do the training.

Mr. HORN. Well, General Eres has, I think, some good suggestions on a change in the travel card’s appearance and a kind of reduction, really, in that card, and the changing of it. What do you

think of that? Have you had a discussion with either the Command

you are in or with the Army, in itself, in the Pentagon? What is

the best way to do it, General?

General ERES. I do not want to go way out of my pay grade. I

am just a poor country General from California. [Laughter.]

The notion, from my standpoint, was looking at ‘‘Private Snuffy’’

in the foxhole out in the State of California.

What sorts of things can we do to help change the culture, and

particularly when we are dealing with that 18 year old that you

are referring to, that will help at least alert the fact that if they

pull that card out of their billfold, and it gives enough distinction

to it, just maybe there is a little bit of a reminder that this is for

official use only? I think, from that standpoint, that may be a first

step.

I do believe that we owe the solders in the system a better system of education and training. I think that in much of that, it befalls the chain of command to do that; those Master Sergeants that

you are referring to; that particularly in a high risk group, that we

do not just have a CD, or we have simply a canned briefing that

they get once year.

But there should be something a little more hands-on to that,

that is going to help make them more responsible for a lifetime; not

just simply the time that they are in the military.

I think this is an opportunity, and I welcome the institutionalized education and training materials that might come to us. But

I am also reminded that making the training available will not

work if we do not have the execution of the actual training. That

means, again, that Master Sergeant, one on one, with those youngsters, those young soldiers.

Mr. HORN. Well, I would think, either at reveille or whatever,

that it ought to be that finance does matter. Granted, they are

there for fighting. Obviously, we do not want to disturb that.

But we need to have some point of key enlisted or commissioned

people on regiments and battalions and the company, right down

to the platoon, that this is your chance. If you mess it up, you

might lose your credit, in terms of the civilian area. We want you

to be people that are good citizens, and you are going to have to

do this, this, and this.

If you say it enough, they ought to be well put, I would think,

by a few people, out in the range and in the forts and in the camps,

and so forth. But it has got to be right down there. I cannot be in

the Pentagon, although they have sure abused it, also. But you

need to do all of those things.

Mr. Ryan, as a good investigator, tell me what would you do, if

you were put over in the Army, and they said, look, clean this up?

Mr. RYAN. That is a tall order, Mr. Chairman.

116

First of all, I truly believe that if the Army Command, at Ms.

Pack’s and levels comparable to her, pay attention to this issue, I

think the delinquency rates and the charge-offs can come way

down.

I think that will affect the Government going back in and renegotiating with Bank of America to lower some of these fees. We are

paying a lot in regards to fees.

I think also, by putting what I call the ‘‘Cop on the Watch,’’ the

APC, getting someone in there at a grade level that is not going

to take any guff from any of these people when they talk to them,

and also using them as an educational tool, a teacher, they are

going to be in contact with these soldiers. They are going to be the

person who is going to push the buttons and talk to their commanders. I think that we can start at that level.

I think also we need to make the security clearances directly tied

in to the fact that these accounts and these soldiers are chargingoff accounts.

We have some soldiers that absolutely have committed crimes by

writing bad checks. They have a pattern of writing bad checks.

They have a pattern of boosting their own accounts.

This all has to be taken into consideration. We need to start

making people responsible, and we start, as the General says, getting away from the stovepipes and crossing the responsibilities.

It all starts at the top. If you cannot get the people at the top

to emphasize the importance of the issue, then we are at a loss,

and we will be back here again in 6 months.

From the perspective of an investigator, I think the most important tool that we can use is the ‘‘Cop on the Beat,’’ the APC, who

can use the Eagle system to help monitor and find out exactly what

is going on.

In regards to the General’s chartreuse color card, I think it is a

good idea. People cannot use as an excuse, I pulled the wrong card

out of my wallet.

But on the other hand, there has to be some responsibility put

on the merchants that accept it. We have deceptive transactions

taking place between cardholders and the vendors of these adult

entertainment facilities.

We have, in my opinion, them making false statements to financial institutions. They are selling money, and they are disguising

it under bar and restaurant charges.

This is something that also has to be looked at. DOD does not

necessarily have visibility over that, because as business goes on,

these vendors are changing their names.

We have institutions, Crazy Horse II, is doing business as the

Power Co. It is hard to figure out what the Power Co. is. From an

APC’s perspective, if they are in the full-time, they are going to

gather intelligence information in regards to doing their job.

So again, the APC, I think, Mr. Chairman, to me, is the most important person to help with this problem.

Mr. HORN. Any other advice?

Mr. KUTZ. I would say, on the issue that was discussed earlier

with Congressman Ose, the issue of splitting of disbursements, that

would be probably our No. 1 recommendation, to have the DepartVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00120 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
117

ment work with the Congress to mandate that; not only probably

for DOD, but possibly Government-wide.

You could potentially drive down all of the delinquency rates

across the Government by mandating the splitting of disbursements. That is something that we have found is also used in the

private sector by large corporations, which has kept their delinquency rates low.

Mr. HORN. In my remaining months in Congress, I am committed

to reviewing the implementation of this legislation, and see it moving through the subcommittee.

The travel card and the purchase card program that we have

talked about today were the result of legislation that I pushed

through Congress. My intent was to reduce the transactional costs

for the Government’s performing basic functions.

The abuses described today are very troubling. I am encouraged

by the steps taken by Secretary Rumsfeld to address this issue, but

more must be done, and it must be done more.

Let me assure you that you will be back before us in the Fall,

and I hope we want to hear better news, and make sure that it is

just another game and we want action, in brief.

So with that, we are going out of this particular one, into the 2

one this afternoon. It will be at 2, and we are thanking the people

here that put all this together. So we will combine all of this, and

we will now adjourn this. We will see you at 2.

[Recess.]

Mr. HORN. The Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations will have this

oversight hearing. It goes over from the morning and this is ‘‘Government Purchase and Travel Card Programs at the Department

of the Army.’’

We are glad to have the number of people that know what can

be done and we hope this is the last time we have to ask the very

bright officials to come here and still not have served the thing.

A quorum being present, we will continue our examination of

government credit card programs at the Department of Defense focusing on the Department of the Army’s Purchase Card Program.

Last year, I was joined by Ms. Schakowsky and Senator Grassley

in requesting that the General Accounting Office examine the purchase card programs at two naval facilities in San Diego, California. At a subcommittee hearing held on July 30, 2001, the General

Accounting Office reported it found serious abuse and fraudulent

use of these government guaranteed credit cards. Purchases were

made for personal items, including clothing, luggage, designer

briefcases and the taxpayers paid the bills.

At the time, we did not know whether these abuses were unique

to these two facilities or whether they were symbolic of a much

broader problem. Now, the General Accounting Office has found

similar examples of waste, fraud and abuse of credit cards at the

Department of the Army, including extravagant purchases and

items for personal use. Once again, no one is minding the store at

the Department of Defense. I realize well that you have a major

war going on and there are many things to do, but we also have

people in finance over there and they ought to be doing the right

thing and not just letting it sit there.

118

I welcome this panel of witnesses and I want to know what is

being done to ensure this appalling waste of taxpayers’ money is

stopped. We will probably have to swear in some because you

weren’t here. Let us have those who did not take the oath this

morning.

[Witnesses sworn.]

Mr. HORN. The clerk will note that seven have affirmed and Senator Grassley, I am told, is here. We will start with Senator Grassley and then we will go to the panel.

Senator GRASSLEY. I had an opportunity to thank you for your

leadership and I appreciate that very much, and the hard work you

do in this area.

At the last hearing, I shed some light on a particularly troublesome fraud case involving a current Army employee, Ms. Tanya

Mays. I would like to revisit the case and give you some new information.

The alleged fraud occurred while she was employed by the Navy

Department in San Diego. She is now in charge of what they call

cash integration in the Army’s financial management organization

in the Pentagon. Since our March meeting, her case has disappeared off the radar screen and by raising this troublesome matter in March, I had hoped someone in the Pentagon with some

clout would hear me and do something about the case.

Secretary Rumsfeld’s Charge Card Task Force came to my office

on May 16 to provide a briefing on the plans for cleaning up the

credit card mess. The Task Force doesn’t seem to care a hoot about

Tanya Mays’ case though. I hope this is not a bad omen. The Task

Force brushed off questions I had about the Mays’ case and when

I asked about it, the Task Force provided kind of a candid response, something about the Navy got the money back, consequently problem solved. That response really bothers me, it just

doesn’t seem to cut it.

Mr. Chairman, getting the money back is a red warning flag. It

should also trigger a followup action like criminal investigation.

The General Accounting Office’s Office of Special Investigations examined Tanya Mays’ case and here are the facts as we know them.

Ms. Mays’ purchase card allegedly went Christmas shopping in

December 1999 and in a few short days ran up $12,000 of bills. It

was used to buy seven gift certificates worth $7,500, a Compaq

computer, an Amana range, groceries, gas, clothing. You name it,

it seems like they got it, and all expensive stuff and all at taxpayers’ expense. The Citibank statement for December 1999’s shopping spree is dated January 21, 2000. All purchases were made

over a 6-day period from December 20 through December 26 for a

grand total of $12,550.24.

The Christmas shopping spree prompted the bank to suspend the

account. Ms. Mays got the bad news when she attempted to use the

card on December 27. When confronted with the suspicious transaction, she told the bank she lost the card. Two days later, she was

issued a new one. In late January 2000, she presented the

$12,550.24 bill to her Navy superior for approval. Her signature

appears at the bottom of the statement. Her signature signifies

that she accepted the charges as her own. According to the superVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00122 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
119

visor, she said she needed it approved in a big hurry because she

had already been late in submitting it.

If she questioned the charges, she was required to attach a dispute form to the January 2000 statement. No dispute form was attached, there were no complaints and no story about losing the

card. The supervisor then rubber stamped it, approved, without reviewing it. Once she got the skids greased and the payment ball

rolling, she claimed once again the charges were not her’s. She said

she kept the card in her office desk drawer and somebody took it

for a few days. She told that story on January 31, 2000 but the bill

got paid in full anyway.

At this point, Citibank gave her a dispute form but for reasons

yet to be explained, she waited 13 months until February 2001 to

file a sworn affidavit disputing charges. By then the evidence trail

was cold. When Ms. Mays left the Public Works Department in

June 2000 for another Navy office in San Diego, she did not surrender her card. She was allowed to keep it and that was contrary to

regulations. She abused it again. This time for a personal car rental on June 18, 2000 for $357.95. Public Works gladly paid this bill

as well. Ms. Mays also used her official travel card in mid-1999 to

buy three airline tickets for her son. They cost around $722. The

grand total on Ms. Mays’ government card was $13,630.19.

Mr. Chairman, I ask unanimous consent to have these documents and statements of January 2000 printed in the record.

Mr. HORN. Without objection, this will be in the record at this

point.

[The information referred to follows:]

120

121

122

123

124

Senator GRASSLEY. The handwriting on Ms. Mays’ purchase card

receipt has been subjected to analysis by the U.S. Secret Service

Forensic Division. These experts have concluded that someone

other than Ms. Mays actually signed the receipts but all appeared

to have been signed by the same person. The Amana range, for instance, was bought with a gift certificate made out to Ms. Mays’

ex-boyfriend’s mother. The boyfriend in question resided at Ms.

Mays’ address at the time the fraudulent purchases were made.

Mr. Chairman, her ex-boyfriend has a long criminal record; he is

considered a real pro at committing fraud.

This new information seems to raise the possibility that the boyfriend used the card without Ms. Mays’ knowledge or approval.

Most of the experts who have investigated this case don’t buy that

theory. However, they believe that Ms. Mays did not make the purchases but that she knows who did. Ms. Mays needs to come clean;

there are too many unanswered questions.

If someone stole her credit card and used it between December

20 and December 26, 1999 as she claims, how did she happen to

have it yet again on December 27 when she tried unsuccessfully to

use it? Why didn’t Ms. Mays examine her January 2000 bill before

presenting it to her naval superior? Did she check it and reconcile

charges with her receipts? Why did she sign the January 2000

statement signifying that the charges were her’s? Why didn’t she

attach the required dispute form to her January 2000 statement?

Why did it take her 14 months to give a sworn affidavit disputing

the charges? Why did she abuse her purchase card again in June

2000?

When she handed the January 2000 statement to her supervisor,

it seems to me that she had to know the score. These charges were

incurred on her credit card account, they appeared on her statement. She endorsed that statement. She submitted it and she demanded immediate payment. She now needs to accept responsibility for the charges that appeared on her statement.

It is true that the Navy eventually got the money back in April

2001. That is good news. The taxpayers’ losses were recovered. Getting the money back is a powerful indictment at the same time. It

seems that Citibank and/or the Navy came to the conclusion that

the charges on Ms. Mays’ account were fraudulent. Mr. Chairman,

why can’t Mr. Rumsfeld’s task force see the handwriting on the

wall? Why didn’t the Navy Criminal Investigation Unit get on the

stick and attack this case in January 2000? The Naval Criminal Investigative Service seems to have dropped the ball. That brings us

back to Ms. Mays. Ms. Tanya Mays and/or her associates have the

stolen goods. That means the bank gets left holding the bag. The

bank gets busted and the criminals skate. That is not right.

There are other signs that Ms. Mays was not acting in good

faith. The $357.95 personal car rental charge she incurred was also

reversed through a credit from Citibank. Again, the Navy got the

money back, Ms. Mays agreed to repay the bank but she hadn’t

done that. Ms. Mays has just repaid Bank of America the money

she owed for her son’s airline tickets she initially paid the bank

$343.21 on that bill but $378.79 was left unpaid for 3 years until

recently when we started cranking up the pressure. In February

2002 after being grilled by the General Accounting Office investigaVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00128 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
125

tors, she finally paid off that balance. The account was closed and

not reissued.

Mr. Chairman, Ms. Mays’ credit record is a trail of bad debt. It

is scandalous, she should never have been issued a government

credit card. She had a long history of personal credit card abuse.

She had at least 12 accounts that went bad. Whoever gave her government credit cards, should have had their head examined, quite

frankly. The bottom line again is lack of accountability.

Based on the General Accounting Office’s work so far, I would

have to say the Army is tougher on credit card crime than the

Navy. We found an Army female sergeant who was court martialed

in April 2002 and sentenced to 18 months incarceration for $30,000

in fraudulent purposes. The Army Staff Sergeant who wrote 86 bad

checks was court martialed and is now confined. The Navy is at the

zero end of the scale. The Mays case is a combined Army-Navy

case. To my knowledge, no disciplinary action has been taken

against Ms. Tanya Mays. She seems to be working her way up the

promotion ladder like nothing has ever happened. As I understand

it, she was moved into a bigger job and given a promotion in October 2001, 21 months after the alleged Christmas shopping spree.

I am told the Navy helped put her on the fast track for the Army

job. The Navy gave her glowing recommendations when she applied

for her current position with the Army. That seems to be an old

bureaucratic trick, sprinkle some perfume on tarnished goods and

pass it on to the other service. This case obviously sets a terrible

example. It symbolizes all that is wrong with the Department of

Defense Credit Card Program. Ms. Mays must be held accountable

for the purchases that appear on her government credit card. If

someone else committed these alleged crimes, then she obviously

needs to spill the beans.

I want this matter investigated and I think by investigating it,

the matter would be solved, at least based on what I know. Right

now, the prospects for accountability look dim. No one wants to

touch this case seemingly with a ten foot pole. The U.S. attorney

has repeatedly declined to prosecute because the amount stolen is

too small.

Mr. HORN. Which U.S. attorney, San Diego or here?

Senator GRASSLEY. I will have to get that information and insert

it in the record because I don’t know.

Mr. HORN. Does Mr. Kutz with the GAO team know? Mr. Ryan.

Senator GRASSLEY. We will have the information for you in the

next panel.

The Navy refuses to pursue the case because Ms. Mays is no

longer employed by that department. Her current employer, the

U.S. Army, refuses to take action because the alleged crimes were

committed while she was employed by the Navy, and the Tanya

Mays case seems to be falling through cracks.

However, there are two new developments. First, I am told the

Department of Defense IG opened an active investigation on June

3. Second, Ms. Mays holds a security clearance. As I explained this

morning, a person’s level of financial responsibility is a key factor

in granting clearances. On June 12, I asked the Assistant Secretary

of the Navy to review her credit history and determine whether she

has the requisite level of financial responsibility to hold a clearVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00129 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
126

ance. On July 1, I was informed that her security clearance has

been, in their words, informally suspended pending further review.

If the Department of Defense is unable to resolve this matter in

a way that is fair and just for Mays but also in the case of

Citibank, then all the promises about credit card reform are nothing but empty promises. Accountability and reform go hand in

hand. Without accountability, it doesn’t seem to me that you can

have reform. Tanya Mays is a good place to start, and that is

where the rubber meets the road.

I spent my time on just one case, but I think it is an example

of a culture that if we focus more light on a few of these very egregious cases and get action on them, that consequently we will be

able to continue on the positive approach that I expressed in my

statement this morning.

That is the end of my comments, Mr. Chairman.

Mr. HORN. Thank you very much for digging into this. I was worried about that the last time and you have broadened out a lot

more than we knew at that time. If we knew it, why can’t the legal

enforcement of the executive branch deal with these matters? Is

someone up high protecting her or what? This is just idiocy.

Senator GRASSLEY. Obviously your question is a legitimate one

and maybe time will prove we will get a positive response from the

people concerned. In the meantime, I guess we just raised questions.

Mr. HORN. So the Inspector General over there now has this

case?

Senator GRASSLEY. Starting June 2 with some preliminary reports, July 1.

Mr. HORN. Is that Army or Defense IG?

Senator GRASSLEY. I think it is the Department of Defense.

Mr. HORN. We need to get into that.

Senator GRASSLEY. Thanks a lot, Mr. Chairman.

Mr. HORN. Thank you. You have done a lot of work and it is well

done.

We will now move to Panel Two, Gregory Kutz, Director, Financial Management and Assurance, U.S. General Accounting Office;

Special Agent John Ryan, Assistant Director, Office of Special Investigations, U.S. General Accounting Office; James T. Inman, Acting Deputy Assistant Secretary of the Army for Policy and Procurement; and Diedre A. Lee, Director, Defense Procurement, Office of

the Under Secretary of Defense for Acquisition, Technology and Logistics, Department of Defense.

Ms. SCHAKOWSKY. I would like to give my opening statement

now.

Mr. HORN. Fine.

Ms. SCHAKOWSKY. Thank you for allowing me to give my opening

statement at this point before we hear the witnesses. I appreciate

once again your holding this hearing.

As I said this morning, I am deeply disturbed by the record of

financial mismanagement at the Department of Defense, and I am

not encouraged by anything I have heard so far today. I look forward to Secretary Rumsfeld’s response to the letter that Representative Waxman and I sent this morning asking how he was going

127

to address the financial mismanagement problems at the Defense

Department.

The abuse of purchase cards, even more than the problems with

travel cards, is simply bad management. There are too many cards.

There is too little oversight. There is no accountability.

This morning, we heard about a National Guard officer who defaulted on $5,400 of travel charges and then was promoted. At the

last hearing, I made the comment that nothing happens to people

who abuse the privileges they have and I was corrected by, oh, yes,

something happens, they get promoted.

Earlier this year, we were told about a Navy employee who purchased $800 worth of luggage supposedly to transport computer

equipment and then left the luggage behind when he returned to

San Diego. This afternoon, we will hear more examples of egregious

behavior by Defense Department employees. Where and when will

it end?

The Purchase Card Program may have been a promising idea

when it was devised, and I know it was devised in good faith, but

the management at the Defense Department has turned it upside

down. A program that was designed to save money has instead

made it easier to abuse the purchasing system. A program that was

designed to streamline bureaucracy has made it easier for an employee to buy personal items and on the Federal Government’s tab.

I am anxious to see the results of the study I requested from the

GAO that compares the price paid on these purchase cards to the

price of the same item on the GSA schedule. I have little doubt now

what it will show. Any of these abuses could have been stopped if

management was managing, and it was not.

The abuses of financial management do not stop at credit cards.

Last month we heard about DOD selling chemical protective suits

on the Web for pennies on the dollar. Last year we heard there was

over $1 trillion on the DOD books that could not be properly accounted for. Two years ago, GAO included financial management of

the Defense Department on its high risk list and it will be there

again next January. First it was $600 hammers and $3,000 toilet

seats, and now it is escort services and plastic surgery. Leadership

must come from the top and this pattern of abuse at the Defense

Department must come to an end.

At a time when the deficit is growing and the Government must

meet the new challenges of terrorism, the Department of Defense

must become a partner in improving Government accountability

and not the poster child for fiscal irresponsibility.

Thank you, Mr. Chairman.

Mr. HORN. Thank you. You have hit a lot of the hot spots.

Let us start now with Mr. Kutz. Do you want to give us a summary of the purchase card problem?

128

STATEMENTS OF GREGORY KUTZ, DIRECTOR, FINANCIAL

MANAGEMENT AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY SPECIAL AGENT JOHN

RYAN, ASSISTANT DIRECTOR, OFFICE OF SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE; JAMES T.

INMAN, ACTING DEPUTY ASSISTANT SECRETARY OF THE

ARMY FOR POLICY AND PROCUREMENT; AND DIEDRE A.

LEE, DIRECTOR, DEFENSE PROCUREMENT, OFFICE OF THE

UNDER SECRETARY OF DEFENSE FOR ACQUISITION, TECHNOLOGY AND LOGISTICS, DEPARTMENT OF DEFENSE

Mr. KUTZ. It is a pleasure to be here again this afternoon to discuss our audit of Army purchase cards. With me again this afternoon is Special Agent John Ryan from our Office of Special Investigations.

I have in my hand a purchase card. It is also shown on the monitor. As you can see, similar to the travel card, this looks like a normal credit card. The card used by the U.S. Army is a U.S. Bank

Visa card and can generally be used wherever Visa is accepted.

However, notice this says ‘‘For official U.S. Government purchases

only.’’ The Army has about 100,000 of these purchase cards and

spent about $2.4 billion in fiscal year 2001. Unlike the travel card,

purchase card charges are billed to the Government and paid directly by the Government.

Today, I will discuss our third in a series of audits of purchase

cards at the Department of Defense. I have testified twice before

the subcommittee on purchase card usage at two Navy units in the

San Diego area. Today, I will discuss Army purchase cards and in

the next several months, we will be releasing reports on Air Force

and Navy purchase cards.

I want to thank the Army for their cooperation in the audit. As

I mentioned this morning, the recent success of our forces in Afghanistan has shown once again that our military forces are second

to none. Also, I want to make clear that our audit of the purchase

card was looking at implementation, not design. Used and controlled appropriately, the purchase card can benefit the Federal

Government.

The bottom line of my testimony is that for fiscal year 2001, we

found significant breakdowns in purchase card controls. These

breakdowns contributed to fraudulent, improper and abusive purchases and theft and misuse of government property. My testimony

has three parts: first, the overall purchase card control environment; second, the effectiveness of key internal controls; and third,

examples of fraudulent, improper and abusive charges.

First, our work has shown that the lack of a strong internal control environment leads to the risk of improper behavior. We found

that Army management has focused primarily on maximizing the

use of purchase cards and paying the bills quickly. However, the

Army has not provided for adequate infrastructure for management

of the program. Specific weaknesses in the control environment related to operating procedures, management over the number of

cardholders, spending limits, program coordinator oversight, and

span of control for approving officials.

One effect of the weak control environment was ineffective control over canceling accounts of departed cardholders. For example,

129

Fort Hood had a substantial problem with termination of purchase

cards. Data show that over 300 active cardholders at Fort Hood

were no longer assigned to the units that issued their card. One of

these purchase cards was used to make undetected fraudulent purchase at the Sunglass Hut and the Discovery Channel Store. These

fraudulent purchases were not identified until we informed Fort

Hood officials about them.

Second, with Army’s weak overall control environment, it is not

surprising we found controls were ineffective at all five of the case

study installations that we audited. The control activities we tested

in aggregate are intended to provide reasonable assurance that

purchases are for valid, authorized government needs.

Based on statistical sampling, we found key internal controls

failed from 25 to 87 percent of the time. In addition, the installations could not provide supporting invoices for 7 to 26 percent of

the transactions we tested. For example, for many of the fraud

cases, the certification of the monthly bill by the approving official

was nothing more than a rubber stamp. Further, the job of approving official is a collateral duty with insufficient time available for

effective performance.

Third, given the weak control environment, it is also not surprising that we found potentially fraudulent, improper and abusive

purchase card transactions for 2001. Based on our limited testing,

we identified or became aware of 13 fraud cases. Seven of the 13

cases were at two locations, Eisenhower Medical Center and Fort

Benning. As shown on the poster board, three large fraud cases

were at Eisenhower. Fraudulent purchases included computers,

digital cameras, women’s lingerie, jewelry, car repairs and clothing.

As shown on the next poster board, four of the fraud cases were

at Fort Benning. Fraudulent purchases there included DVD players, cruises, a trip to Las Vegas, and food. One cardholder made

178 criminal charges for $30,000 both before and after he retired.

These charges were made over the period of 2 years and the approving official did not verify the purchases. Another cardholder, a

Chapel fund manager, used the purchase card to pay for escort

services in New Jersey. Funds used to pay for the purchase card

bill for these services came from the Chapel offering. This individual was demoted and required to repay the funds.

In addition to fraudulent purchases, we also identified a significant number of improper or abusive purchases. Examples, as

shown on the poster board, include $16,000 of executive office furniture, including elegant desks, chairs and a conference table,

leather bomber jackets from Sky Mall, wasteful and abusive cell

phone usage at Fort Hood, a $500 Bose radio purchased by an individual to listen to music in his office, designer day planners costing

up to $250 each, as the Senator mentioned this morning, 80 palm

pilots for Pentagon officials, fine china and crystal from Royal

Daulton and Lenox that was used for culinary arts competition, 30

sunglasses purchased from the Sun Glass Hut for the Golden

Knights Parachute Team, and a damaged $2,250 tree to plant in

celebration of Earth Day. For these purchases, we generally found

no documented justification. Rather, Army often provided us with

after the fact rationalization for the purchases. With 100,000 Army

purchase cards, there are many people making daily decisions

130

about how to spend the Government’s money. However, the abusive

and wasteful purchases I just described raise questions that go far

beyond the confines of the Purchase Card Program.

In summary, our testimony shows some real consequences of ineffective financial management and internal controls. We support

the use of a well controlled Purchase Card Program. However, as

implemented by the Army, this program is highly vulnerable to

fraud, waste and abuse. As reflected by our recommendations, we

believe the keys to reforming Army’s Purchase Card Program include well designed, Armywide operating procedures and controls,

effective program coordinators and approving officials, reducing the

number of purchase cards to the minimum number necessary, developing clear, detailed guidance in the appropriate usage of the

purchase card, and establishing proper incentives, accountability

and consequences for all personnel involved in the program.

The Army has reacted in a positive manner to all of our recommendations. We plan to continue working constructively with

the Army and the DOD Charge Card Task Force to implement

these recommendations.

Mr. Chairman, this concludes my testimony. Agent Ryan and I

would be happy to answer your questions.

Mr. HORN. Thank you very much.

We will now move to James T. Inman, Acting Deputy Assistant

Secretary of the Army for Policy and Procurement. To start with,

Mr. Inman, how did they get you into this situation?

Mr. INMAN. I was drafted. Dr. Oscar left and he asked if I would

be willing to sit in the hot seat and I said I would do whatever he

wanted me to do. So I am here, sir.

Mr. HORN. Army Policy and Procurement, this falls in that rubric

then?

Mr. INMAN. Yes, sir. We are the established executive agency for

the Army’s program in the new Army Acquisition Contracting

agency but I answer to Mr. Bolton and Mr. Bolton does not like unanswered questions, so that falls within my purview.

Mr. HORN. Tell us what you know.

Mr. INMAN. I am Jim Inman, the Acting Deputy Assistant Secretary of the Army for Policy and Procurement.

I have submitted testimony for the record and with your permission, I would like to summarize that testimony.

Mr. HORN. Thank you.

Mr. INMAN. I feel strongly, first of all, about the Purchase Card

Program. It is contributing significant savings to the Department

and I firmly believe that we cannot go back to the old way of doing

business. Before I continue, however, I want to thank the Government Accounting Office for the assistance they have rendered us in

defining the scope of our program’s shortcomings. I do know that

we have shortcomings and I affirm to you that we are committed

at the very highest levels of the Army to correcting our programmatic weaknesses to ensure the continuance of the public

trust. That is critical to our existence as an organization.

The Army experienced a rapid growth in the use of the purchase

card between 1995 and 1999. At the same time, we were dramatically reducing the population of the acquisition community, the

functional element responsible for the administration of the proVerDate 11-MAY-2000 07:37 Jun 17, 2003 Jkt 000000 PO 00000 Frm 00134 Fmt 6633 Sfmt 6633 D:\DOCS\87139.TXT HGOVREF1 PsN: HGOVREF1
131

gram. We are taking steps to respond to the GAO’s findings that

the Army has not devoted adequate manpower to the program. We

recognize that these shortages have contributed to an overall weak

internal control environment. This has made the Army program

vulnerable to fraud, waste and abuse.

Recently, the Department of Defense Charge Card Task Force

identified several best practice workload matrices. On July 8, 2002,

our Vice Chief of Staff tasked the Army to ‘‘comply with the recommended ratios and monitor the Purchase Card Program to eliminate the weaknesses noted in the GAO audit.’’ He reiterated the

need to develop and maintain a system of strong internal controls

to ensure we are proper stewards of the taxpayers’ dollars.

The Army is also pursuing other measures to improve our effectiveness. We are completing a standard operating procedure [SOP]

to standardize and tighten purchase card procedures. The SOP will

address weaknesses identified by the GAO, as well as those uncovered by the Department of Defense Inspector General. These weaknesses include controls over the issuance and assessment of the ongoing need for cards; cancellation of cards when appropriate; span

of control of the approving official and their respective cardholders;

and appropriate cardholder spending limits.

The Army Standard Operating Procedure will also include checklists as part of its oversight system for program coordinators to use

in performance of program reviews as well as for the approving officials’ reviews of their respective cardholders. In addition, we have

requested that the bank assist us in developing standard data base

queries that our program coordinators can use in reviewing transactions to evaluate our own program performance.

In conclusion, I will tell you that the Purchase Card Program is

critically important to the Army. We recognize that we need to

make changes. We are aggressively correcting weaknesses and implementing across the board standard practices. We are determined, and I think I speak for Mr. White when I say this, to make

this the most effective and efficient system possible.

This concludes my testimony. I am prepared to respond to any

questions you or members of the subcommittee may have.

[The prepared statement of Mr. Inman follows:]

132

133

134

135

136

137

138

139

Mr. HORN. Thank you very much.

We have to go into recess and we will be back. We will be in recess now and will be back at 2:55 p.m.

[Recess.]

Mr. HORN. Sorry it is so late but we had three votes that were

very complicated. We won most of them.

It is now 3:20 p.m., and we will pick up where we left off. Mr.

Inman.

Mr. INMAN. I believe I concluded my remarks and said I would

be glad to answer any questions.

Mr. HORN. OK. Now we will go with Ms. Lee.

Ms LEE. I appear before you today to discuss the Department of

Defense’s implementation of the governmentwide Purchase Card

Program and corrective actions we are taking to correct the problems identified by our own internal reviews and the General Accounting Office.

I would like to echo what Mr. Inman said about the importance

of the purchase cards to the Department of Defense. We do use the

cards to streamline process and we do save a good amount of

money on administrative process. However, I would also like to

echo what Mr. Inman and Mr. Kutz said. It is absolutely unacceptable that we have abuse or misuse of these cards and we have a

lot of work to do to ensure that we rebuild your confidence and that

of the taxpayer and make sure our people understand the obligations and the responsibilities we expect for them to deliver on.

As you know, we established a task force in response to your request and the concerns of your subcommittee and the concerns of

the GAO. I have a copy of that Task Force report and I know we

previously furnished it to you. I would like to mention a few things

in the report. The thing that particularly catches my attention and

I think one of the most important for all of us to emphasize is that

the recommendations note that the tone at the top or leadership is

absolutely essential for a successful purchase card program.

We have heard you loud and clear. We absolutely agree and we

are aggressively pursuing to ensure that everyone knows the importance of the proper use of these cards.

I am going to focus on three areas today that are contained in

the Credit Card Task Force report. The first one is management

emphasis and organizational culture. As I mention there, we need

to focus on leadership. At the Department, we have made sure we

have emphasized that. The Deputy Secretary signed a letter on the

21st of June to all the Service components and defense agencies explaining to them the importance of proper use of the card and requiring them to come back and tell him if they had any actions and

corrective actions they were taking within their service. We will be

acting promptly and vigorously on those issues.

As well, I personally made some visits to some areas where we

have had concern and I have talked with service acquisition executives, my boss, Mr. Wynn and we have even had some meetings in

the purchasing areas to make sure everyone realizes the importance of that.

Another key area that the Task Force emphasizes is the process.

We have a concept of operations which is here. The concept actually goes into quite a bit of detail, including flowcharts on how to

140

do everything through the program from set up and approval of

purchase card officials, how to train them, what to do. It is true

we haven’t had that guidance as concise and clear in the past as

we should have, so we are now working on that.

In meeting with the GAO, we talked a little about do these

things, if implemented properly, will they help with the answers.

The answer is absolutely yes.

Mr. HORN. What is the title of that document?

Ms. LEE. This is called ‘‘The Government Purchase Card Concept

of Operations.’’ We have it in draft and are going to finish it probably within the next month or so.

Mr. HORN. That is the DOD version?

Ms. LEE. Yes, sir.

Mr. HORN. Not GSA?

Ms. LEE. No, sir. This is the DOD version.

Mr. HORN. We would like that put in the record at this point.

Ms. LEE. Will do.

The third thing I would like to mention beyond process is basically people. As you and I have discussed, this is all about paying

attention. We need to make sure we have not only the right people

but we have them appropriately trained and we have emphasized

the right oversight for this program. Those are some areas we are

also going to focus on.

We have talked about internal controls and the issues that have

been brought up here today. I do want to give a few examples. We

are looking at making sure the approving official has a reasonable

span of control. We said the maximum of 300 cardholders but that

could vary if you have people with a lot of charges. Perhaps the

number should be less and we have a method for monitoring that.

We also have a way we are going to use data mining. We used

to call it mongoose but it actually is an electronic method where

we go in and look at the purchases and certain things cause a blip,

and then we further investigate. For example, certain purchases

around a holiday might show us something we need to go further

and investigate into that. We are working on that with the GAO

and our own IG to make sure we aggressively pursue any questionable transactions.

Last but not least, we are stressing to our folks not only the importance of the card but the remedies for misuse. We are processing an additional FAR case, a defense acquisition regulations case,

which will go out for public comment but it very clearly delineates

the Uniform Code of Military Justice could be applied for misuse

and what the civilian remedies are for anyone who misuses their

card.

I agree wholeheartedly that we need to focus and make sure we

are using these cards properly. They are a good tool. The majority

of our people are great folks who are using the cards properly. We

do have some misuse and we are going to aggressively pursue that

and correct it.

I would be happy to answer any questions you may have.

[The prepared statement of Ms. Lee follows:]

141

142

143

144

145

146

147

148

149

Mr. HORN. Let us start.

Ms. SCHAKOWSKY. This is our second hearing of the day on

waste, fraud and abuse, travel cards this morning and purchase

cards this afternoon. As I said this morning, I think the overall picture of financial mismanagement at the Department of Defense is

really equal to the problems we are seeing at Enron, at World Com,

etc. and worthy of equal attention because we are talking about billions of taxpayer dollars once you go through all these problems we

have, and over $1 trillion that cannot be accounted for.

I was happy, Ms. Lee, to hear you talk about culture, solving the

problem comes from the top, but I want to tell you that I come here

today even more skeptical than I have been in the past because if

you look at the top of the Army, at the Secretary of the Army, you

find the Secretary of the Army, Thomas White, is under FBI investigation for possible insider trading for sale of Enron stock, being

one of Enron’s top executives and Enron employees have said that

he knew about accounting practices and inflated revenues.

I think we are talking about culture and creating a culture of

honesty where people aren’t fast and loose, cooking the books, they

feel that financial management is really important, that being a

guardian of the money is really important. I think it ought to start

with replacing the Secretary of the Army if we want to create a culture that really demands accountability and financial management

that is appropriate.

I think what the Department does in terms of its inability to

pass an audit and therefore making it impossible for the whole

Government to have a clean audit, should be laid at the feet of the

people at the top. The people at the top right now are under a

cloud and I think should not be there.

I want to change tones here because I think there has been this

task force, you do have the report, you have some plan for how to

get there. When do you think you can come back and tell us about

concrete improvements that have been made so that we don’t have

to come back here again in 6 months as we have over and over and

find the same problems existing?

Ms. LEE. I will be happy to come back at any time. We do have

specific dates in our report by which things are due and are just

working them off one by one, including additional direction and additional training. At any time, I would be happy to come and discuss any and all points in the report or any other issues that concern you.

Ms. SCHAKOWSKY. When is the next date when you measure the

success of your reform efforts?

Ms. LEE. Probably the next really upon us date is the responses

to the Deputy Secretary’s letter, how the services responded and

what corrective action and in turn, what do we need to do to make

sure we accomplish that and support it. That is the next pending

date which will be the end of this week or early next week we

should see those results.

Mr. INMAN. Let me add I have seen Mr. White’s draft response

and I think it is pretty substantial.

Ms. SCHAKOWSKY. Mr. Kutz, at the end of your testimony you

listed some specific recommendations of things that could be done

150

in terms of these credit cards. Would you tic through them once

again, setting limits on the amount of credit, etc?

Mr. KUTZ. I had five bullets at the end which highlight some of

the major recommendations we have made both to the Navy and

the Army. One for the Army was to develop Armywide operating

procedures, which they do not have, but which have been underway

for quite some time. I believe that is one thing that is going to be

done here. Reducing the number of cards, since we had our first

Navy hearing, Navy has taken substantial action. They have gone

from 58,000 cards to 26,000 cards, so they have made significant

improvements in that area. I believe Army is working toward the

same type of situation, although they still have 100,000 cards. I

think probably Army needs to do a scrub of cardholders.

Again, accountability, infrastructure and I think at the first two

hearings we talked about some sort of guidelines that lay out what

is or isn’t an appropriate use of the purchase card with probably

some specific examples of things that are prohibited because we

have seen in the Army and the Navy some similarities in the types

of things that are being purchased that shouldn’t be.

Ms. SCHAKOWSKY. Ms. Lee, do you feel all of those are adequately responded to in your plan?

Ms. LEE. Yes, ma’am. We have addressed those issues, including

special approvals and things in the back of the concept of operations and a list of things that are inappropriate. I would emphasize that anything that is not government official is a inappropriate

purchase.

Mr. INMAN. I would like to add that in the Army’s Standard Operating Procedure we have addressed all those issues, working with

the GAO. I am very pleased with the help we have gotten from the

Joint Program Office in helping us come to grips with trying to put

out unified guidance on this. Just this week, we canceled 1,700 accounts. We put out guidance in February, followed up in March,

twice in June. People didn’t want to play, we said OK, game is

over, goodbye.

Mr. HORN. Is there a policy that when a person leaves the Government, the Military, the Department of Defense, whatever, they

get their credit cards cut just as we do when we get a new one from

some credit card company? What is the policy on that where you

can say, you are leaving, so we want the card back?

Mr. INMAN. It has been a while since I have cleared post but

when I used to clear post, I would get a sheet of places I had to

go and things I had to do and the people I had to clear with would

signoff or initial that. I would take that piece of paper to the final

clearing place and the person would make sure there were initials

in the correct blocks, nice to know you, goodbye. I expect that is

still the process but there is nothing to prevent forged initials and

signatures. That is one of the things.

Mr. HORN. Say if you are on a base, that is usually where that

happens, maybe it is with civilians, I don’t know, but that is when

you see they are going, you need to ask for the government credit

card. Is there a place there? Do you have a government credit card?

At that point, you say we want it.

Mr. INMAN. I am told there is APC clearance, the person in

charge of the program at the installation has to be cleared so that

151

everyone has to stop by there to make sure their credit card is

turned in.

Mr. KUTZ. The place we found that was the biggest issue was at

Fort Hood with respect to purchase cards. We found there were

about 300 cards for people that had left that were still active.

There was at least one, maybe two of those cases where we identified fraud. In my oral statement, I mentioned the Sun Glass Hut

and the Discovery Channel Store. That was one of those examples.

Since we have been at Fort Hood they have canceled those cards,

but what they have done to change the policy and make sure it

happens again, we are not sure. I believe there are policies to check

out your card at these installations. It is a matter of if they are

being enforced and if the APCs are actually involved in that policy

to be notified that someone with a card is actually leaving. So there

may be policies in place but either the policies need to be beefed

up and/or there needs to be something done to ensure the policies

are actually being followed.

Mr. HORN. Did you see beyond the various military facilities and

deal with some of the civilian part of the military?

Mr. KUTZ. Some of these were civilians at Fort Hood but it was

primarily military. Again, it was something we saw in the Army

Travel Program where there were people who had left or retired

who had kept their travel card and were still using the card. Some

of the chargeoffs for travel cards were people that had used a card

after leaving the service.

Mr. HORN. When a thief in this country sees a Master card, they

simply use it over the phone and here is my number and so forth.

Meanwhile, they are long gone with the goods or whatever or it is

done by mail. What do you have as a thought as to how we deal

with this?

Mr. KUTZ. With respect to canceling cards, I think they could

also have a back-up policy. You can use the data to bump active

cardholders against active employees. That would be a failsafe

back-up policy they could have to make sure there aren’t any people who have active credit cards that aren’t on the current payroll.

That would be something we probably would recommend they consider as a back-up policy.

Mr. HORN. That would mean that they hadn’t paid all their obligations and you could take it out of the payroll or what?

Mr. RYAN. In the case you are talking about with these purchase

cards, the Government is paying the bill. The cardholders are the

agents of the Government. One of the things we have to consider

is when they do leave, that the approving official can contact the

issuing bank and have the card canceled. Therefore, it can’t be

used outside of their employment. That is kind of the best way to

try to approach that from a backup standpoint.

Mr. KUTZ. What happens with the purchase card and the examples we found was the people who had left were gone, so they were

no longer on the payroll, they were using the purchase card because nobody was reviewing the monthly bill, charges were going

through and being paid for people who no longer worked at the

Army. So once you are gone, there is nothing you can do to actually

offset wages. It is too late at that point.

152

Mr. HORN. That is also our problem with the IRS, I might add,

on some of these questions.

The GAO report contains an expansive list of recommendations.

What are the most important actions the Army needs to take?

Mr. KUTZ. I believe reducing the number of cards to the minimum number necessary to complete the mission. I think Mr.

Inman said they are working hard to reduce the number of cards.

That is a critical element as is making sure the agency program

coordinators and the approving officials are sufficiently trained. For

example, the approving officials are given sufficient time and are

rated on their job as approving official. Right now, those are collateral duties, they are not rated on that, it is not important and if

they don’t do it, there are no consequences.

Mr. HORN. Obviously, Senator Grassley and I care about the

problems of fraud, waste and abuse. If the Army effectively implements some of their recommendations, will fraud, waste and abuse

be reduced?

Mr. KUTZ. It would be reduced but there is no way you can eliminate fraud. Wherever there is money, as Mr. Ryan has taught me,

there is fraud. Certainly if you put a reasonable set of controls in

place, which are the kinds of controls we talked about, advance approval, approving official review, and independent receipt and acceptance, if you have a group of those controls in place and they

are consistently being followed, it is much more difficult for fraud

to be committed. That doesn’t prevent you from having fraud such

as collusion or kickbacks with vendors which are some of the fraud

cases we found here. Again, it makes it much more difficult for

someone to actually perpetrate and get away with the fraud.

Mr. RYAN. I would also like to add that the better job that we

can do identifying the government agent, the individual who is

holding the card, both financially, criminally and mentally, we can

better identify the individual when we know what type of individual we are giving the card to. We found situations, as Senator

Grassley mentioned, where an individual had poor credit. That is

another example in which we have given this person, an agent of

the government, the power to spend the taxpayers’ money. We need

to do a better job in identifying who those agents are going to be

and we need to be doing the proper background checks. We are

never going to eliminate fraud, but at least try to curtail it.

Mr. HORN. The Department of Defense Comptroller is Dov

Zakheim and he announced the establishment of a Charge Card

Task Force to deal with the problems. They issued a report on June

27. Is that part of what you have Ms. Lee?

Ms. LEE. That is the report right there.

Mr. HORN. Let us get that. We want to see what happens between there and then. We will put this in the hearing record also

and we will also look at it.

[NOTE.—The report entitled, ‘‘Department of Defense Charge

Card Task Force Final Report,’’ may be found in subcommittee

files.]

Mr. HORN. What are your views on the Task Force because the

Army is taking it in the head now for what they had to say about

the Purchase Card Program, I assume not just for the Army but

for all the services, or was this focus strictly for the Army?

153

Ms. LEE. No, this task force was DOD-wide, looking at appropriate use of the purchase card and the travel card. There are separate recommendations for travel card versus purchase card. I had

a brief discussion with Mr. Kutz and asked him, what do you think

about our recommendations. I will let him answer that.

Mr. KUTZ. For the purchase card, we thought the task force report was complete in describing the issue and in the types of recommendations and that the recommendations they had were consistent with the ones we had issued for the Navy reports and also

for the Army.

With respect to travel, we did find that the report had a lot more

holes in it with respect to some of the issues we talked about this

morning. For the Purchase Card Program, it appeared to be reasonably complete with respect to the types of issues we had seen

in those two. We haven’t completed our work Navy-wide or Air

Force-wide to know if our recommendations are complete but assuming what we found so far, they would address those if implemented as Ms. Lee said across the Department of Defense.

Mr. HORN. Would this be simply the tip of the iceberg or do we

see something under the water?

Mr. KUTZ. With respect to fraud, we found that the Department

does not know how much there is out there with respect to purchase card. They do not have a system that tracks the kinds of

cases. The 13 cases we either identified or became aware of, if you

wanted to roll that up for the Army, you couldn’t because there

isn’t a data base, so they don’t know what they know. They also

don’t know what they don’t know because there is a lot of fraud out

there that does not get identified, especially with the kind of control environment we have identified and talked about this morning

and this afternoon.

So we don’t know whether it is the tip of the iceberg necessarily

but what we do know is that the Department needs to start keeping track of these fraud cases and learning from them, knowing

where they are and trying to identify the types of things that are

happening so they can try to prevent them from happening in the

future.

MR. HOGAN: For example, apparently, Mr. Kutz, on questionable purchases you mentioned, there was a damaged tree plant on

Earth Day. The Army paid $2,250 for the tree. I don’t know if that

is good or bad. I happen to like trees. Maybe whoever the officer

was liked trees too. What do you conclude from all that?

Mr. KUTZ. We concluded that was an abusive purchase, not only

because they didn’t need to buy a $2,200 tree to plant in the middle

of a courtyard with a bunch of other trees but as it turned out, this

tree was damaged. It had 50 holes, it was leaking sap, there appeared that woodpeckers had been at the tree basically. By the

time they actually tried to return it to the vendor, the vendor said

it is too late, it is your tree. So the Government was stuck with a

$2,250 damaged tree.

Mr. HORN. Was that a nursery?

Mr. KUTZ. Yes, it was a nursery they bought it from.

Mr. HORN. Can we just say, folks, that will be the last thing we

buy from you if you don’t take this back?

154

Mr. KUTZ. Hopefully, that is what happened. What we do know

is they did plant another tree for Earth Day this year and they

spent $500 this year, so they didn’t need a $2,250 tree.

Mr. HORN. Mr. Ryan, the GAO’s report includes dollar amounts

of some fraud cases. Is that the total amount of money involved in

these cases of fraudulent purchases? How much have we got in

some chart?

Mr. RYAN. We have no idea. I don’t think DOD has any idea. In

regards to keeping track of the number of fraud cases both for purchase and travel, there doesn’t seem to be a system in which you

can push a button and get data back. We asked, in some cases they

did worse searches. They ran credit card, travel card, purchase

card, impact card and then they combined that information and

said, this might be what we have. We can’t tell you they are fraud

cases but this is the result of our inquiry.

As a criminal investigator and a supervisor in my former Secret

Service life, we were able to identify the number of cases by assigning a specific administrative number to a type of case. So when we

needed data to determine what the trends were, where we need to

put our resources, and I might also add the amount of training that

is needed for investigators. We talk about a lot of training for people that handle the system, but what about the people responsible

for doing the investigations? All this data needs to be gathered and

needs to be at someone’s fingertips.

It also maybe should be considered that when we are awarding

these contracts to these banks, we put a condition in there that the

banks have to train our investigators, give them the latest investigative information, the tactics, make it a responsibility of the financial institutions that we contract with to provide training to the

investigators, to bring in the best investigators we can to work on

financial crimes.

Mr. HORN. Mr. Ryan, do vendors contribute to the defrauding of

the Army purchase card program, and if so, please explain and give

us some examples?

Mr. RYAN. When looking at vendor fraud, I think it is important

to recognize that we have learned the cardholders are turning over

their account numbers to the vendors. The vendors have a data

base of our government purchase card numbers. As a direct result,

a vendor can then submit the purchase card number to the merchant bank for the transaction that maybe was done correctly and

then they could just keep adding transaction after transaction. So

it is a vehicle for them to get money.

If we have cardholders and approving officials that are asleep at

the switch, and have no idea what they are approving or what they

are not approving, yes, the vendor is going to make money on submitted transactions. That is the way vendor fraud can work.

Mr. HORN. Does the DOD have the resources it needs to identify

and investigate financial crimes involved in these credit card programs, or can you move around people to solve the problem, at

least so you can build a decent culture there? Where do you get the

personnel to do this because somebody will whine about that and

say, ‘‘we can’t do that, we have this great burden.’’ For heavens

sake, right down at the field, they ought to have somebody. They

ought to make that in the office’s analysis when they get a chance

155

to go from a lieutenant to captain, captain to major and so on, and

when you have civil servants and they go for the senior class and

so forth, it seems to me like the people above them, they ought to

have something in the file to say that person didn’t have one idea

in America on this thing, they just don’t seem to care.

Mr. RYAN. I can talk about it from an investigator’s point of view.

I think the investigators in the military services are good, hardworking investigators. Fraud investigations sometimes turn out to

be a complicated issue because of the mechanics of a credit card

transaction or a bank transaction. I would like to emphasize again

the importance of providing enough training to the investigators to

make them the best they can be. We can use them to learn when

they do an investigation, they can bring back what the systemic

problem was within that so we can pass that on to the appropriate

management people so if adjustments need to be made, they can

be made.

Investigators can provide a lot of information if they are taught

correctly how to do the investigations. I would like to emphasize

again that if we could tie it into a contract where the banks have

to provide some training to our investigators, I think it will be a

benefit for the military services to use the resources of those investigators.

Mr. HORN. I now yield to Ms. Schakowsky.

Ms. SCHAKOWSKY. Ms. Lee, at our March hearing, we learned

from the GAO—I believe you were here and corroborated this—that

the Navy had a policy of not putting on its inventory items that

were easily pilfered. We just don’t list those in our inventory. I am

wondering, that was March, this is July, what the Defense Department has done now to change that policy?

Ms. LEE. The concept of operations talks about the importance

of having recordable property. There is also some dual receipt

matching and guidance on how to do that. The Navy specifically

suspended almost all their cards where they had a very small

amount and they have had a very aggressive reinstatement program with letters from the Admiral telling people who are reinstated and are quite aggressively trying to correct some of those

issues but we are focusing on it DOD-wide as well.

Ms. SCHAKOWSKY. So you have changed your policy on that?

Ms. LEE. The policy was always that sensitive property should be

recorded and tracked. For some reason or other, some of the items,

the Navy was not doing that, so we have reemphasized that requirement.

Ms. SCHAKOWSKY. You have reemphasized it but do you know

now that it is being done? Let me ask the GAO if you know if there

has been a change now?

Mr. KUTZ. In the Army, four of the five installations we audited

had difficulty finding property. For Army, I think the policy generally was to record pilferable property in the records. In some

cases, the issue becomes what is pilferable property, so they would

tend to err on the side of not recording it rather than recording it.

With the Navy units in San Diego, they interpreted guidance

from the Navy to mean they did not have to put it on the records.

Whether that issue has been cleared up, I don’t know, but they had

156

interpreted the guidance they were getting from the Navy to mean

they did not have to account for any pilferable property.

Ms. SCHAKOWSKY. Which is different from what you just said,

that it was always the rule. They interpreted the rule to mean they

didn’t have to so that is the way they were executing.

Ms. LEE. The Navy interpreted the rule differently. We have

clarified to them that their interpretation is not correct.

Ms. SCHAKOWSKY. I wanted to ask about training. In the earlier

hearing, we were dealing with people who use travel cards who are

often young people who have no credit history, no experience in

using credit cards. Here, we are dealing with individuals, all of

whom have been assigned actually to make purchases; but is there

some kind of built in retraining program so that these people understand, not just for the people supervising them, but for the people who have the cards in their hands? Is there some kind of staff

training going on?

Ms. LEE. Yes, we are putting in place right now a new electronic

training process which will be housed in Defense Acquisition University, will be required for people to take it before they are allowed to have a card and to have refresher training. It includes basics about how to use your card. It also includes some specific instruction from the government because as you know, for example,

before you purchase, if it is a certain item, it should be purchased

from JWOD or Javitz Wagner O’Day or blinded, handicapped people, or certain products have certain requirements. Certain hazardous materials, you have to have a special approval before you can

purchase it even if it is available on the purchase card. So we train

people in all those processes as well as what they can buy and how

it has to be approved, how they have to reconcile their statements,

what their limitations of time are and what happens if you don’t

do what you are supposed to do.

Ms. SCHAKOWSKY. I want to get to that. I think the two things

that the American people would care about are restitution, the people pay back the money they have stolen from the taxpayers and

punishment, and that there actually is some consequence to having

done that. If you could address that? With Tanya Mays, it is still

unclear that we actually got the money back that she probably

stole, so I want to know about restitution and punishment.

Ms. LEE. Mr. Inman has a list here. We do have examples where

people have been prosecuted, they have made restitution, they are

serving jail time.

Ms. SCHAKOWSKY. We also have examples of people who have

been promoted, so it is not just a matter of examples, it is policies

and the norm now.

Ms. LEE. The policy is to take the appropriate action and to recover the money for the taxpayer. We do give people due process,

so we do give them an opportunity to respond but yes, we are taking corrective action.

Ms. SCHAKOWSKY. If 6 months from now this purchase card problem is not resolved, will you be held accountable?

Ms. LEE. Yes, ma’am.

Ms. SCHAKOWSKY. What does that mean?

Ms. LEE. Obviously I will be explaining to you, as well as my

bosses, what the issues were, what we need to continue to do, and

157

what I have done to make that improvement. I unfortunately do

not think we can totally eliminate it. We need to make sure when

we discover a misuse of the card, that we take prompt and meaningful action.

Ms. SCHAKOWSKY. Let me ask another question. Mr. Ryan was

just asked a question to quantify the problem, he said, I don’t

know. Maybe you can answer Mr. Inman. I don’t think DOD

knows, I don’t think the Army knows. Who knows? Are we going

to have the data so that we know, so these questions can be answered in a meaningful way to anyone?

Ms. LEE. Yes. We have gone to our Inspector General for the Department of Defense who is the focal point for all DOD audits and

asked them to assume the oversight, an additional oversight of the

Purchase Card Program. They are making sure all the audits conducted by the IG, whether the Army IG, the Air Force IG, the Navy

IG, that they have a broad oversight from that standpoint. I did

go back to them and say, what is our accounting method, how do

we record them and report back.

Ms. SCHAKOWSKY. It sounded like Mr. Kutz said this is kind of

a no-brainer, that these are coded in a special way so that you can

actually retrieve them from a data base in some orderly fashion.

I don’t think you have to be a management mavin to imagine that

would be a smart idea. Is that kind of thing happening?

Ms. LEE. I am not familiar with the IG’s accounting system and

I will certainly get an answer for you on that.

Ms. SCHAKOWSKY. Mr. Ryan.

Mr. RYAN. I think it is important to recognize the difference between the audit responsibilities and investigative responsibilities.

We are looking to identify systemic problems to help curtail the

purchase card fraud. We are going to do that by learning from our

investigations. We found there is no centralized data base to record

the number of investigations that the DOD IG is doing in the area

of purchase card fraud.

My suggestion is, like a lot of other Federal agencies, they should

have a data base that when an office in California, New Orleans

or whatever opens a credit card case, there is a central data base

that says, in New Orleans we have 14 credit card cases open. Right

now, unless you specifically go to the people in that office, management can’t really tell. It is a great tool to be able to see where you

have your problems and maybe you can use your investigative

cases in conjunction with trying to do audits in those particular

areas. I have talked to some of the IG people and I believe they

are headed in that direction. They just need a central data base to

record their investigations.

Ms. SCHAKOWSKY. The need for clear and comprehensive guidance for purchase card operations through DOD, you said there

needed to be some standards concerning what could be purchased,

what was right and you identified that as an essential element of

the reform efforts.

My understanding was DOD itself is reluctant to take direct action to establish those guidelines but rather rely on the individual

services to establish those guidelines and the components of those.

Is that not the responsibility of DOD?

158

Ms. LEE. It is a shared responsibility. We set the general parameters and the services have the implementation. As well, I also do

the Defense Acquisition Regulation which is a departmentwide regulation which tells people the parameters under which the program

operates. They do have some flexibility in their implementation in

that the Department of Defense doesn’t appoint the cardholders,

that flows down through the individual organizations because we

feel they are best equipped to identify the people who need to do

it for their job and are qualified. We set the general policy and then

the services implement.

Ms. SCHAKOWSKY. We have talked about vendor fraud, which we

haven’t really had a hearing about. Is there anything about getting

a rein on these purchase cards? Have you dealt at all with vendor

fraud at DOD and where are we with that?

Ms. LEE. If properly implemented, if people are paying attention—if a vendor did have your card, if you pick up the phone and

make a transaction, they have your number. In any of those cases,

a vendor could choose to misuse your card, my personal card, my

government card.

Ms. SCHAKOWSKY. But much more likely is a situation where

they think that money is going to get paid without scrutiny.

Ms. LEE. Correct. If we are not paying attention, it certainly can

happen. If you are paying attention and you have used your card

for one tree and all of a sudden you get billed for ten and you know

you didn’t get 10 trees, the system works and people would dispute

it and we would go back. So paying attention will help us, will

make the difference.

Ms. SCHAKOWSKY. It seems to me vendor fraud could really

mount to a lot of money. Where are we in understanding the extent

of this?

Mr. KUTZ. With respect to the biggest fraud case in our report,

the $100,000 case at Eisenhower, there was vendor fraud involved

in there. There were kickbacks and there was a combination of collusion between the cardholder, approving official and some vendors,

so there were a number of parties involved in that. Again, $100,000

is what they know about. When we first looked at the case and

picked some of the cardholders from that in our samples, it was

$20,000, so it grew to $100,000. It is still ongoing at this point, so

it could be larger than that. That was an example where there was

vendor fraud involved.

Ms. SCHAKOWSKY. One vendor, right?

Mr. KUTZ. One vendor, I believe. There were other smaller instances of single purchases where there were charges with no support. The Army went back to the vendor who said, oops, we really

didn’t give you anything. Whether it was fraud or not, or an unintentional billing, we don’t know, but there were several cases like

that of transactions we selected for say $500 or something like that

where there was no support, the Army had paid the bill, and when

they went back to the vendor they got their money back.

Ms. SCHAKOWSKY. I have a real bad feeling we are talking about

large amounts of money when you think of all the vendors that are

involved in this. Have we asked for a systematic look at vendor

fraud overall?

159

Mr. KUTZ. Not as a separate study. We are looking at it on the

Air Force and the Navy-wide audits but that is something that

could be looked at with a sharper focus solely on that if that is

something you would be interested in. We are looking at that as

part of a broader study of those two but we haven’t focused just

on that.

Ms. SCHAKOWSKY. Let me end with this. I am tired of the product always being just a report. Reports fill up shelves, etc. I am not

saying this report won’t turn into action, but if it doesn’t, it is not

worth the paper it is printed on. I think it is real important this

not be put on a shelf somewhere and viewed as, yes, we are doing

something, and I can show you on page 42 that we are really doing

it. No. We have to come back with some evidence that this kind of

financial mismanagement is under control. I look forward to that

hearing.

Mr. HORN. The Defense Department keeps saying the cases of

purchase card fraud are isolated. However, the General Accounting

Office found 13 cases in the Army with only limited testing. The

GAO also reported the Army does not know the number of fraud

cases under investigation. Of course nobody knows how much unidentified fraud there is.

Given all this, how can the Department of Defense continue to

maintain there is not much fraud in the program?

Ms. LEE. Those numbers are troubling and those instances are troubling but we have also spent over $6 billion this past year and

had 10 million transactions. I realize it is a limited sample but it

is a sample that identified 13. We have good people in the Department, the majority use the cards properly. We do have some who

either through intention or not who have misused the card. We

need to go after those aggressively but I do recognize we have a

lot of good people who use the cards properly and have confidence

they will continue to do so.

Mr. HORN. Mr. Inman, based on the GAO report, immediate actions are needed to improve control over the Army’s Purchase Card

Program. What in your view are the most important actions that

need to be taken to improve the program?

Mr. INMAN. We have taken some actions. The Vice Chief of Staff

of the Army has sent a memorandum to the Army saying do this,

do it right now, or else. We are looking to respond very quickly

over Mr. White’s signature. The Army’s Standard Operating Procedure is due to be signed off by the end of this month, I am told,

which will pull guidance that is admittedly in diverse locations into

one location to address each and every one of the GAO recommendations.

The things we are really focusing on are controls over the

issuance and assessment of the ongoing need for cards or cancellations of cards where appropriate. I would like to reiterate this week

alone, we canceled 1,700 accounts because they were not in compliance with our guidance. I don’t know what the total is to date but

it is a lot because I know the program manager and he doesn’t take

many prisoners. He is very serious about his job.

The span of control of the approving official and the respective

cardholders—we want our billing officials to manage not more than

seven cardholders and our APCs to have responsibility for not more

160

than 300 cardholders. The Vice Chief of Staff put out in his memorandum that he wants the agency program coordinators to be General Schedule 11 graded personnel, the equivalent of a captain in

the Army, the position requiring in-depth skills in financial and

contacting policy and procedures with strong verbal communication

capability.

We are also looking at policies directing Army activities to ensure adequate resources by number and grade are committed to

make this program work the way you intended for it to work when

you passed the legislation.

Mr. HORN. Could you tell me who that individual is that takes

no prisoners in this thing?

Mr. INMAN. My very dear friend, Mr. Bruce Sullivan. He is sitting behind me. He is a first round draft choice on anybody’s team.

Mr. HORN. Is he a senior member in the civil service?

Mr. INMAN. Unfortunately not, sir. We are going to lose him very

quickly, I am also sad to say.

Mr. HORN. If he is the solution to getting a solution, I would

hope the powers that be over there give him a decent place to work

and let him go. Mr. Sullivan, we would like to make sure you really

are going to go after these people. Mr. Ryan is a good companion

in this regard. He knows all the different things they can do.

The Army has taken exception to the General Accounting Office

recommendations that two control activities, advance approval and

independent receiving and acceptance, should be included in the

Army’s Standard Appropriating Procedures governing the Purchase

Card Program. Would you explain why the Army is taking that position? Is this out of the Vice Chief?

Mr. INMAN. No, that was our response to the GAO audit. We felt

for the majority of purchases, it was not necessary to have advance

approval if we had properly trained and motivated personnel. I operate from very wide point of view. Obviously I get caught up short

from time to time but I tend to trust my employees to do those

things which I ask them to do. So I do not think it is necessary

to have advance approval in most cases. If there is any question,

either don’t do it or ask permission.

The second thing was?

Mr. HORN. The Army takes exception to the GAO’s recommendation that two control activities, advance approval and independent

receiving and acceptance, should be included in the Army’s Standard Operating Procedures governing the Purchase Card Program.

Mr. Kutz, was that a response to the GAO audit?

Mr. KUTZ. As I recall, we had a lot of recommendations and they

did agree with everything except in some respects those. I would

agree with respect to advance approval. We would not expect it for

every type of purchase. I don’t know if I would say most shouldn’t

have necessarily, but certainly routine purchases within the normal scope of someone’s operating responsibility don’t necessarily

need to have advance approval.

We are looking at some of the questionable type items we are

talking about at the hearing today, that those should have advance

approval. I guess we thought in a lot of instances that those with

advance approval got bought anyway but there were a lot that

didn’t have advance approval or documented justification as to why

161

they were buying them. I would agree to some extent with the comment on that one.

Mr. HORN. Mr. Inman, in your civilian authority, when you are

dealing with both senior military leaders and civilian managers in

eliminating fraud, waste and abuse, what are the items that have

been done and what the ones you want to do?

Mr. INMAN. One of the things we want to do is unify the guidance for the Purchase Card Program within the Department of the

Army. That is being done and will be signed out under the Standard Operating Procedure this month I am told.

Mr. HORN. That goes through the Vice Chief of Staff?

Mr. INMAN. That will be signed out by the Director of the U.S.

Army Contracting Agency who is executive agent for the program

with the Army. I guarantee you that General Keane will know

about this. I got a call at noon. There was an article in the Early

Bird that talked about—there was an early release on our hearing,

he hadn’t heard about it and he was interested so I had an opportunity to explain.

Mr. HORN. I haven’t seen it either.

Mr. INMAN. He is interested. I can assure you that General

Shinseki is interested; my boss, Mr. Bolton, is quite interested, as

is my Military Deputy, General Caldwell. We will put the guidance

out, we know we have to come to grips with the idea that intent

doesn’t bring home the bacon. We are going to have to do more

than ‘‘intend to do well,’’ we are going to have to do well and we

have to prove ourselves to you because we owe that.

Our focus is the 20 year old kid who is turning over rocks killing

bad guys, that is our focus. We don’t want anything to detract from

what it is you ask us to do on behalf of the Republic. We will do

everything we can to get the focus off the things we have not done

properly to get it back on the kids doing the job for the country.

Mr. HORN. Let us see what happens over the next 2 months. Do

you think all this can be done in 2 months, 1 month, what, getting

all this moving?

Mr. INMAN. If I get the Standard Operating Procedure signed off

this month, I would think we should have some good information.

Mr. Sullivan advised me part of what we have to do is realign the

resources and he would think we should show some measurable results within 3 months from the time the Standard Operating Procedure is signed off.

Mr. HORN. Around the Christmas season.

Mr. INMAN. Or shortly thereafter when things are settled down.

Mr. HORN. I just wonder if they will use their cards more likely

in December.

Mr. INMAN. I think you sent us a very clear message and we will

be watching those very closely.

Mr. HORN. Ms. Lee, could you explain your office’s purchase of

palm pilots mentioned in the GAO’s report?

Ms. LEE. That was covered in the earlier hearing. That was the

Office of Acquisition and Technology and Logistics and the e-mail

I saw and the little I know about it, I would need to get you more

information for the record. It appears there was a purchase made

to support the office. I am not familiar with the specifics and I

would be happy to get that information for you.

162

Mr. HORN. As I remember, either you or somebody in your office

said, gee, those are goodies, we are going to have them all out. How

do you know they need to have the goodies?

Ms. LEE. I did see a copy of the e-mail, somebody provided it to

me. I think that was misstated. I am not listed on the e-mail, nor

did I participate in the purchase.

Mr. HORN. That is why I don’t have e-mail. After going through

the White House under Mr. Clinton and seeing the silliest things

I have ever seen in my life in their e-mails, I decided I don’t need

that. If you want to see me, bring a candle.

Ms. SCHAKOWSKY. Let me followup on the palm pilot. You did

read the GAO report, right?

Ms. LEE. Yes, I did.

Ms. SCHAKOWSKY. And it is in there?

Ms. LEE. Yes.

Ms. SCHAKOWSKY. So you knew about the palm pilot? I am confused as to why you can’t respond to that since it was in the GAO

report.

Ms. LEE. There is a line in the report that says these are some

of the findings that we found and we are looking into those but I

don’t have the specifics on that at this moment.

Ms. SCHAKOWSKY. Let me reiterate that it is time for us to have

a totally different set of hearings, ones where we come in with real

progress reports, real changes where we can measure from what

was to show what is and there has been measurable progress. If

3 months is what it takes, then I think we should reconvene in 3

months and show the American people we are serious about good

financial management at the Department of Defense and within

our government.

Mr. HORN. We used to do that under the Y2K thing. Does OMB

know about all these things going on and do they worry about it

or have they ever said anything about it?

Ms. LEE. Yes. OMB is very concerned. They have tasked us all

governmentwide to look at our purchase card programs and to give

them a plan. We all submitted plans for improvement to the Office

of Management and Budget.

Mr. HORN. How about GAO, Mr. Kutz, anybody talk to GSA because that was most of it originally I believe, for the Government

generally.

Mr. KUTZ. Are you asking if we have talked to GSA?

Mr. HORN. Yes.

Mr. KUTZ. We talked to GSA as part of understanding what the

guidances they have issued are. We have not spoken to OMB about

anything, they have not contacted us but I know they have read

our reports and I believe OMB was at a hearing one of my counterparts, Linda Calbom, back in May about purchase cards. I know an

OMB representative was there expressing concern for the administration with the problems identified in the purchase card program.

Mr. HORN. It is a good idea because I would think it has spread

a bit around the civilian part and we haven’t looked at that.

Mr. KUTZ. Yes, there are problems beyond the Department of Defense with the usage of purchase cards other agencies. That is why

OMB has gotten involved, they are now seeing this as a governmentwide issue, not a DOD issue.

163

Mr. HORN. I thank you all for these interesting questions and interesting answers. Let us hope next time there is some real difference. I hope those of you here now know we really will become

very tired of having to deal with this if no progress is being made.

I am looking especially to the political employees that get the thing

moving and get the services moving. It looks like you are doing it.

Let us hope we can get that done. I am glad the Vice Chief of the

Army is taking it seriously.

I am not quite clear, you have a Defense IG and civilian IGs and

don’t we still have service IGs from the services. What are they

doing on this?

Mr. INMAN. We intend to use the Department of the Army IG

and the Army Audit Agency as co-helpers in doing a perennial review of the things we have put in place. I have been talking to Mr.

Sullivan about how we might best do that. We are not going to let

people rest on their laurels even if they improve.

Mr. HORN. Because they are generally going to be the ones out

in the facilities, not sitting around in the Pentagon. That is where

if you can head it off at the pass, we are in better shape that we

don’t get in the way of the IGs and really direct them in that.

Often it isn’t something like credit cards they are worried about,

they have a long line of what they worry about. It would be good

to see what they say when they go to various forts and camps and

hospitals and all the rest.

With that, we thank you and I thank those that put together this

hearing: J. Russell, Staff Director, Chief Counsel; and Bonnie

Heald, to my left, Deputy Staff Director; Justin Paulhamus, the

Clerk; Chris Barkley, the assistant to the subcommittee; Sterling

Bentley, Intern; and Joey DiSilvio, Intern; Freddy Emphraim, Intern; Michael Sazanov, Intern; and Yigal Kerszenbaum, Intern; and

Senator Grassley’s staff, Charlie Murphy; David McMillen, professional staff, along with Jean Gosa, the minority clerk for Ms.

Schakowsky and Mr. Waxman. The court reporter is Mel Jones.

Thank you. We appreciate it.

With that, we are adjourned.

[Whereupon, at 4:20 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

Æ