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95–188 PDF 2004

S. Hrg. 108–580

GOING NOWHERE: DOD WASTES MILLIONS OF

DOLLARS ON UNUSED AIRLINE TICKETS

HEARING

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 9, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

MICHAEL L. STERN, Deputy Staff Director for Investigations 

JASON A. FOSTER, Senior Counsel 

DON BUMGARDNER, Detailee, U.S. General Accounting Office 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

MICHELE STOCKWELL, Minority Professional Staff Member 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1

Senator Lautenberg .......................................................................................... 3

Senator Coleman .............................................................................................. 5

WITNESSES 

WEDNESDAY, JUNE 9, 2004

Hon. Charles E. Grassley, a U.S. Senator from the State of Iowa ...................... 8

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

of Illinois ............................................................................................................... 10

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 .... 12

JoAnn R. Boutelle, Deputy Chief Financial Officer, U.S. Department of Defense, accompanied by Jerry Hinton, Director of Finance, Defense Finance 

and Accounting Service, U.S. Department of Defense ...................................... 15

ALPHABETICAL LIST OF WITNESSES

Boutelle, JoAnn R.: 

Testimony .......................................................................................................... 15

Prepared Statement ......................................................................................... 61

Grassley, Hon. Charles E.: 

Testimony .......................................................................................................... 8

Prepared Statement ......................................................................................... 27

Kutz, Gregory D.: 

Testimony .......................................................................................................... 12

Prepared Statement with attachments ........................................................... 32

Schakowsky, Hon. Janice D.: 

Testimony .......................................................................................................... 10

Prepared Statement ......................................................................................... 30

APPENDIX 

Questions and responses for the Record from: 

Mr. Kutz and Mr. Ryan ................................................................................... 64

Ms. Boutelle ...................................................................................................... 67

(1)

GOING NOWHERE: DOD WASTES MILLIONS OF 

DOLLARS ON UNUSED AIRLINE TICKETS 

WEDNESDAY, JUNE 9, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:04 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Coleman, Lautenberg, and Pryor. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good morning. Today, the Governmental Affairs Committee will 

focus on ways to end mismanagement in the Department of Defense’s travel card program. An important part of this Committee’s 

mandate is to protect the Federal treasury from waste, fraud, and 

abuse. 

At a time of war, when every dollar is needed to support our 

troops and to fight terrorism, this mandate is particularly critical. 

It is very troubling that the Defense Department has wasted millions of dollars in unused airline tickets due to sloppy and inadequate financial controls. Every dollar wasted by the Pentagon is 

a dollar that could be spent on the war against terrorism. 

We will hear testimony that in fiscal years 2001 and 2002, the 

Pentagon paid for more than 41,000 airline tickets that it did not 

use. The Department did not seek and did not obtain refunds for 

these tickets. Those unused tickets cost taxpayers about $17 million. 

During the same 2-year period, the Department also failed to obtain refunds for the unused portions of more than 82,000 additional 

tickets. All in all, the General Accounting Office conservatively estimates that the Defense Department has wasted more than $100 

million in unused airline tickets since 1997. 

This estimate, I would note, does not include millions of additional dollars in travel card waste uncovered by the GAO. For example, the GAO found that some Defense Department employees 

were improperly reimbursed for airline tickets that were originally 

paid for by the Federal Government, not by the individual traveler. 

Thus, the government ended up paying twice for the same ticket. 

This is a clear case of waste and mismanagement, and possibly 

outright fraud. The GAO referred about 27,000 cases of improper 

reimbursement for further investigation. 

2

We, in public service, have an obligation to treat the public’s 

money in the same way that we would treat our own. I cannot 

imagine any responsible person buying an airline ticket out of his 

or her own pocket, then not using it, and then not turning it in for 

a refund. We must demand that Federal employees take that same 

care with the public purse. 

I want to acknowledge the work done in this area by Senator 

Coleman and Senator Levin of this Committee. They have been vigorous in exposing waste, fraud, and abuse in the Federal Government’s purchase and travel card programs. 

I am also very pleased that we are joined this morning by Senator Chuck Grassley, the Chairman of the Senate Finance Committee, and Representative Janice Schakowsky of Illinois, who will 

be our first witnesses. They, too, have been vigorous in requesting 

GAO reports, so I want to thank all of the individuals—Senator 

Coleman, Senator Levin, Senator Grassley, and Representative 

Schakowsky—for their hard work in this area. 

Our second panel of witnesses this morning includes representatives of the General Accounting Office, who will discuss their two 

reports which are being released today. These reports deal with the 

Department of Defense’s use of what are known as centrally-billed 

accounts to purchase airline tickets for its employees. A centrallybilled account is essentially a credit card number that employees 

use to buy airline tickets for official travel. The bill for these 

charges is paid directly by the government. 

In the years audited by the GAO, the Defense Department spent approximately $2.4 billion through centrally-billed accounts. The 

GAO made three key findings that we will hear more about this 

morning. First, it found a lack of Department-wide controls over 

these accounts that allowed the buying of millions of dollars of airlines tickets that were not used and yet were not processed for refunds. It is disturbing to me that the Pentagon was apparently not 

even aware of this problem before the GAO’s investigation. 

The GAO’s second finding was that some airline tickets purchased by the Department through these accounts were improperly 

submitted by the traveler for reimbursement. Again, due to weaknesses in the Department’s financial controls, the Department 

could not consistently detect that the government had already paid 

for these tickets. The GAO found dozens of such cases. 

For example, one traveler, a GS–15 employee, was improperly reimbursed for 13 separate airline tickets purchased during a 10-

month period. The Department paid this employee close to $10,000 

for tickets that the government, not the traveler, had paid for in 

the first place. 

Finally, the GAO found that weaknesses in DOD’s financial systems made its accounts vulnerable to fraud. People with knowledge 

of the system, whether or not they worked for DOD, could exploit 

those weaknesses to obtain fraudulently an airline ticket purchased 

by the Federal Government. The GAO investigators were able to 

demonstrate this weakness by creating a fraudulent travel order 

and, by using this travel order, GAO was able to obtain a very real 

airline ticket and boarding pass. It was alarmingly simple for the 

GAO investigators to secure a boarding pass in a false name at the 

airport. They will explain this morning how they were able to do 

3

so. But this raises concerns about airport security, as well as about 

the financial fraud issues that the GAO set out to investigate. 

Unfortunately, the problems identified by these GAO reports are 

but one aspect of longstanding deficiencies in the Department of 

Defense’s financial management. That is why, since 1995, the Department’s financial management has consistently appeared on the 

GAO’s list of high-risk areas that are vulnerable to waste, fraud, 

and abuse. 

We will also hear this morning from representatives of the Defense Department who will respond to the GAO’s findings and recommendations. I am pleased that the Pentagon has concurred with 

the GAO’s recommendations and has begun the process of seeking 

refunds for the unused tickets identified by the GAO. But even 

more important, I hope that the Department will tell us how it 

plans to fix the flaws not only in its travel card program, but also 

to improve its financial management generally. Nine years on the 

GAO’s high-risk list is far too long for a department responsible for 

a critical mission and hundreds of billions of taxpayer dollars. 

Again, I want to thank all of our witnesses who have come before 

us today, and I look forward to hearing their statements. 

Senator Lautenberg. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thank you, Madam Chairman, for holding 

this hearing today to highlight the waste, fraud, and abuse concerns in the Department of Defense travel system. I am heartened 

that DOD is already taking steps to rectify the problems that the 

General Accounting Office has identified in that system. 

According to GAO investigators, as we have heard from our Chairman, DOD is sitting on $100 million in unused airline tickets 

that date back to 1997. It’s an outrageous condition and it’s completely unacceptable. It’s a large sum. 

But this condition, unfortunately, doesn’t come as a surprise. We 

are aware of other situations that raise questions of even far larger 

magnitude, despite the fact that this is $100 million. For instance, 

the Halliburton Company has a no-bid contract and we haven’t yet 

had a hearing in our Committee on that contract, which was permitted to grow from $50 million to $2.5 billion without competitive 

bidding or accountability. 

One of the concerns raised is that it would duplicate investigations being conducted by the GAO, the Defense Criminal Investigation Service, and the Defense Contract Audit Agency. That 

wouldn’t be unusual because much of what this Committee has already done under the chairmanship of Senator Collins duplicates 

work being done by Executive Branch agencies to be absolutely certain that nothing falls through the cracks. For instance, hearings 

on Enron held by our Committee in 2002 duplicated investigations 

being done by the Securities and Exchange Commission, the Department of Justice, the Internal Revenue Service, the Department 

of Labor, and the Federal Energy Regulatory Agency. 

Hearings on tax shelters, held just last November, paralleled investigations being done by the SEC and the Department of Justice 

and the IRS. In our hearing on abuses, we have been persistent in 

this and the Chairman has shown great leadership on this. 

4

In the mutual fund industry, we are simultaneous with investigations being done by the SEC, the Department of Justice, GAO, 

the National Association of Securities Dealers, as were hearings 

earlier this year on DOD contractors who don’t pay their taxes by 

the IRS and General Accounting Office. And the hearing held just 

over a month ago on the misuse of government purchase cards, duplicative investigations being done by GAO, the Government Services Administration, etc. Obviously, the history of hearings held in 

this Committee by Chairman Collins confirms the need for accountability, even if other investigations are underway. 

I think this principle should also apply to Halliburton just as it 

did to Enron. Recent revelations make the need for a hearing on 

no-bid contracts critical. According to a recently uncovered Army 

Corps of Engineers E-mail from March, 2003, approval of this nobid contract was coordinated with the Vice President’s office. No accusations here. We don’t know all the details of this coordination. 

But that is why we need a hearing, and what concerns me is that 

this situation may be simply the tip of the iceberg. 

An article in one of my State’s major newspapers, the Asbury 

Park Press, reports that the Halliburton contract is a sign of something more troubling and widespread: The Federal Government’s 

growing tendency to hire companies under a process that has increasingly emphasized speed and efficiency over competition and 

oversight. 

We have seen this in Iraq, where not only food and shelter but 

also some of the security things that used to be handled by the 

military, where some very brave non-military people paid for those 

services with their lives. That was a decision that was made. 

The bottom line is that we appropriated over $20 billion for the 

reconstruction of Iraq, and over $190 million for the overall war, 

and the ongoing expense estimate is about $5 billion per month. 

The reconstruction in Iraq ushered in enormous changes in the way 

that the Federal Government conducts its procurement, and we 

need to review those changes and the many problems they have 

precipitated. 

Madam Chairman, I thank you for opening the door with this 

Committee hearing today.

PREPARED STATEMENT OF SENATOR LAUTENBERG 

Madam Chair: 

I’m glad we are holding this hearing today to highlight waste, fraud,, and abuse

in the Department of Defense’s (DOD) travel system. And I’m heartened that the 

DOD is already taking steps to rectify the problems the General Accounting Office 

(GAO) identified in that system. 

According to GAO investigators, DOD is sitting on 100 million dollars in unused 

airline tickets that date back to 1997. 

This is not an insignificant sum. But I would point out that it amounts to just 

four percent of the value of the no-bid contract awarded to Vice President Cheney’s 

former firm, Halliburton. And yet, this Committee still hasn’t held a single hearing 

to look into that contract, which was permitted to grow from 50 million dollars to 

2.5 billion dollars without competitive bidding or accountability. 

One reason given is that it would ‘‘duplicate’’ investigations being conducted by 

the GAO, the Defense Criminal Investigative Service (DCIS), and the Defense Contract Audit Agency (DCAA). 

That would not be unusual. Much of what this Committee does duplicates work 

being done by executive branch agencies, to be absolutely certain that nothing falls 

through the cracks. 

5

For instance, hearings on Enron held by our committee in 2002 ‘‘duplicated’’ investigations being done by the Securities and Exchange Commission (SEC), the Department of Justice (DOJ), the Internal Revenue Service (IRS), the Department of 

Labor, and the Federal Energy Regulatory Commission. 

Hearings on tax shelters held last November paralleled investigations being done 

by the SEC, the DOJ, and the IRS. 

Our hearing on abuses in the mutual fund industry were simultaneous with investigations being done by the SEC, the DOJ, the GAO, and the National Association of Securities Dealers. 

As were hearings earlier this year on DOD contractors who don’t pay their tax 

by the IRS and GAO. 

And the hearing held just over a month ago on the misuse of ‘‘government purchase cards’’ ‘‘duplicated’’ investigations being done by the GAO, Government Services Administration (GSA), DCIS, and four other DOD agencies. 

Obviously, the history of hearings in this committee by Chairman Collins confirms 

that the need for accountability even if other investigations are underway. That 

principle applies to Halliburton just as it does to Enron. 

Recent revelations make the need for a hearing on Halliburton’s no-bid contract 

critical. According to a recently uncovered Army Corps of Engineers email from 

March 2003, approval of this no-bid contract was coordinated with Vice-President’s 

office. We don’t know all of the details of this ‘‘coordination’’ but that is exactly why 

we need a hearing. 

What concerns me is that Halliburton may just be the ‘‘tip of the iceberg.’’

An article in one of my state’s major newspapers, the Asbury Park Press reports 

that the Halliburton contract ‘‘is a sign of something more troubling and widespread: The Federal Government’s growing tendency to hire companies under a 

process that has increasingly emphasized speed and efficiency over competition and 

oversight’’

The bottom line is that we have appropriated over 20 billion dollars for the reconstruction of Iraq and over 190 billion dollars for the overall war. 

The war and reconstruction in Iraq have ushered in enormous changes in the way 

the Federal Government conducts its procurement. We need to review those changes 

and the many problems they have precipitated. 

Thank you, Madam Chairman.

Chairman COLLINS. Senator Coleman. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Madam Chairman. 

I will bring our focus back to the very important matter that we 

have before us, the issue of wasting millions of dollars of unused 

airline tickets. 

I do want to thank the Chairman for holding this hearing. As one 

of the requesters of the GAO review, about which you shall hear 

today, I share your concerns that the DOD exercise responsible 

stewardship over the taxpayer dollars that are allocated for their 

use. 

I also want to applaud Chairman Grassley and Representative 

Schakowsky for their dogged determination in rooting out fraud 

and abuse. Representative Schakowsky couldn’t be at the last hearing we held that was initiated at her request, along with Chairman 

Grassley, of abuse regarding first class travel, but their determination and focus here really serves the taxpayers of this country well 

and I want to thank them. 

I also want to thank the GAO, which has done extraordinary 

work in focusing on this issue, and the beneficiaries are all the taxpayers. We all suffer and we all hurt when there is waste, fraud, 

and abuse. So for all involved, and certainly the leadership of the 

Chairman, I simply want to say thank you. 

As a previous hearing before the Permanent Subcommittee on Investigations has shown, in addition to having adequate systematic 

6

controls, DOD must hold its employees responsible and accountable 

for individual lapses that have cost the taxpayers hundreds of millions of dollars. The Permanent Subcommittee on Investigations is 

continuing to monitor DOD’s response to the unauthorized use of 

premium travel. Today’s hearing on unused airline travel tickets 

and travel fraud are additional matters that DOD must address. 

Over the past 6 years, the Department of Defense has failed to reclaim over $100 million in unused or partially used airline tickets. Of this amount, at least $80 million has been lost for all time 

because the Department of Defense has not implemented simple 

checks and kept records that are required to obtain refunds from 

the airlines. Further, some Department of Defense travelers have 

defrauded the government by obtaining and reselling airline tickets 

for personal gain, or by claiming reimbursement for airline tickets 

for which they did not pay. As a result, the Department of Defense 

has paid for travel that was not taken by its employees, or has in 

some instances paid twice for the same travel. 

This mismanagement of taxpayer funds is a direct result of the 

Department of Defense’s failure to implement simple checks to ensure that travelers follow prescribed rules and regulations. For example, the Department of Defense requires its travelers to return 

any unused or partially used airline tickets to the issuing contract 

travel agent. But the Department of Defense does not check to see 

if travelers are complying with this requirement. 

The Chairman has identified some specific instances. 

I would close by noting that, in a February hearing before the 

Permanent Subcommittee on Investigations, we learned that DOD 

wasted millions of dollars on unauthorized or unjustified premium 

airline tickets. The continuing waste of Department of Defense 

travel dollars clearly points to the need to reform the travel system 

now, rather than waiting years for an automated system that may 

or may not reform the abusive practices. I look forward to learning 

what the Department of Defense plans to do to avoid these unnecessary losses. 

With that, Madam Chairman, I ask that my full statement be entered into the record. 

Chairman COLLINS. Without objection. And thank you for your 

leadership in this area. 

[The prepared statement of Senator Coleman follows:]

PREPARED STATEMENT OF SENATOR COLEMAN 

I want to thank the chairman for holding this valuable hearing on the Department of Defense’s mismanagement of its travel funds. As one of the requesters of 

the General Accounting Office review about which we shall hear today, I share your 

concerns that DOD exercise responsible stewardship over the taxpayer dollars that 

are allocated for their use. As a previous hearing before the Permanent Subcommittee on Investigations has shown, in addition to having adequate systemic 

controls, DOD must hold its employees responsible and accountable for individual 

lapses that have cost the taxpayer hundreds of millions of dollars. The Permanent 

Subcommittee on Investigations is continuing to monitor DOD’s response to the unauthorized use of premium travel. Today’s hearing on unused airline tickets fraud 

are additional matters that DOD must address. 

Over the past six years the Department of Defense has failed to reclaim over $100 

million in unused or partially used airline tickets. Of this amount at least $80 million has been lost for all time because the Department of Defense has not implemented simple checks and kept the records that are required to obtain refunds from 

the airlines. Further, some Department of Defense travelers have defrauded the 

7

government by obtaining and reselling airline tickets for personal gain, or by claiming reimbursement for airline tickets for which they did not pay. As a result, the 

Department of Defense has paid for travel that was not taken by its employees or 

has in some instances paid twice for the same travel. 

This mismanagement of taxpayer funds is the direct result of the Department of 

Defense’s failure to implement simple checks to ensure that travelers follow prescribed rules and regulations. For example, the Department of Defense requires its 

travelers to return any unused or partially used airline tickets to the issuing contract travel agent. But the Department of Defense does not check to see if travelers 

are complying with this requirement. 

One simple check would be to compare the names of travelers who were issued 

tickets against the names of travelers who have submitted claims for reimbursement. This would identify all individuals who were issued tickets and had not filed 

a reimbursement claim. It is possible that they may not have undertaken the 

planned travel, and thus may have an unused ticket or they could be late in filing 

their claim. This could be determined by contacting the individual. 

A partially used ticket could potentially be identified by comparing a traveler’s 

itinerary against their reimbursement claim. If, for example, the itinerary indicated 

that the travel was going to two cities and the reimbursement claim requested reimbursement for lodging in only one city it would be possible that one leg of the travel 

was not used. This also could be resolved by contacting the individual. However, the 

Department of Defense does not require its contract travel agents to make these 

comparisons. As a result, unused and partially used tickets are not identified for 

reimbursement by the airlines. 

Ninety-three Department of Defense employees submitted 125 reimbursement 

claims for airline tickets that had already been paid for by the Department. Let me 

outline some of the more egregious abuses that have occurred:

• A GS–15 claimed and was reimbursed $9,700 for 13 airline tickets that were 

paid by the Department of Defense’s contract travel agent and not by the 

traveler. The traveler stated that he did not notice the additional $9,700 in 

his checking account.

• A GS–13 was denied reimbursement for airline tickets on 6 travel vouchers 

and was advised that the claim was denied because he had not paid for the 

ticket. In spite of the warning, the traveler submitted 6 additional claims for 

reimbursement of airline tickets and was reimbursed $3,600 for 6 airline tickets that were paid by the Department of Defense’s contract travel agent and 

not by the traveler. This particular traveler also rented luxury automobiles 

while on official travel without the authorization to do so. The traveler 

claimed these were honest mistakes.

• An O–5 claimed and was reimbursed $1,600 for 5 airline tickets that were 

paid by the Department of Defense’s contract travel agent and not by the 

traveler. The traveler said that she did not notice the improper payment and 

made full restitution.

A simple check of a traveler’s reimbursement claim that contains the cost of an 

airline ticket against the list of tickets purchased with a centrally billed account can 

disallow these improper and potentially fraudulent claims altogether. 

Given the simplicity of the checks that should be performed against the potential 

loss of $20 million taxpayer dollars per year, there is no justification for not fully 

implementing these checks. 

In a February hearing before the Permanent Subcommittee on Investigations, we 

learned that DOD wasted millions of dollars on unauthorized unjustified premium 

airline tickets. The continuing waste of DOD’s travel dollars clearly points to the 

need to reform the travel system now rather than waiting years for an automated 

system that may or may not reform these abusive practices. I look forward to learning what the Department of Defense plans to do to avoid these unnecessary losses.

Chairman COLLINS. Senator Pryor. 

Senator PRYOR. Madam Chairman, thank you. I don’t have any 

opening statement and I would like to hear from these two very 

distinguished witnesses. 

I must say that I have been waiting for a long time to get Senator Grassley under oath. [Laughter.] 

Chairman COLLINS. I’m not going to allow you to question him 

then. I’m going to protect the Chairman. 

8

1The prepared statement of Senator Grassley appears in the Appendix on page 27. 

We are very pleased and honored to have both Senator Grassley 

and Representative Schakowsky with us. As I noted in my opening 

statement, and as Senator Coleman noted as well, they have been 

true leaders on this issue. 

Senator Grassley. 

TESTIMONY OF HON. CHARLES E. GRASSLEY,1 A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. Thank you very much. And I’m going to tell 

Senator Pryor’s dad on him. [Laughter.] 

I have crossed out a lot because I have listened to these three 

statements and you have covered a lot of ground that I was going 

to cover, so I would like to have my entire statement put in the 

record and hopefully make it much shorter. 

Chairman COLLINS. Without objection. 

Senator GRASSLEY. Obviously, thank you for holding this hearing. Just as a reminder of my participation, I started investigating 

the breakdown in financial controls in the Department of Defense 

credit card program several years ago. I started out that work with 

the General Accounting Office and then Chairman Horn, who was 

then in the House and chairman of a House subcommittee. 

Centrally-billed accounts are another way of paying for travel 

costs, where tickets are purchased using a centrally accountable 

paying system and paid directly by our government. This is done 

instead of using an individually billed card for which the traveler 

would be reimbursed. This method of paying for travel is intended 

to be more convenient and cost effective. However, not surprisingly, 

the way it is being administered, or maybe you could say nonadministered, has opened the door to waste, fraud, and abuse. 

The first General Accounting Office report released today revealed an appalling level of waste in the form of unused airline 

tickets to the tune of $100 million since 1997. Imagine if you would 

purchase a fully refundable airline ticket for $600 or $700 and 

didn’t use it, would you just put it in your dresser drawer and forget about it? Of course, you would not. 

Well, that is exactly what the Defense Department had done, except that they have done it many times over with millions of dollars of taxpayers’ money. 

Federal agencies are authorized to recover payments from these 

airlines, as you said, Madam Chairman, for 6 years, and under 

some conditions, up to 10 years. Given the large amount of travel 

throughout the Department of Defense, it is inevitable that plans 

will change at the last minute and people reschedule their trips or 

cancel, for whatever reason. That leaves an unused ticket that can 

be fully refundable. 

When government employees pay for anything on their individually billed travel cards, the employees then either submit a voucher to be reimbursed or apply for a refund for an unused ticket. 

However, a great many tickets are paid for using the centrallybilled account system where the agency is responsible. This leaves 

no personal incentive for a traveler to seek a refund. Yet, this is 

precisely who the Department of Defense has relied upon to see 

9

that tickets are refunded. As a result, the Department of Defense 

sometimes gets a refund for those unused tickets, and sometimes 

not. 

The problem is there are really no controls in place to see that 

the Department of Defense systematically gets its money back for 

tickets that are not used. This has resulted in at least $100 million 

of taxpayer money that is essentially just sitting in a dresser drawer. The American taxpayers deserve better than to have their hard 

earned income squandered, particularly when we ought to be putting every last dime we can into winning the war on terrorism. I 

can’t believe that the Department of Defense can’t find a better use 

of the $100 million than just, in a sense, to let it sit there unclaimed. The time value of money is a common sense rationale for 

putting good controls in place. 

Now, the good news is that the Department of Defense, as we 

have said, can reclaim this money. The bad news is that before the 

General Accounting Office brought this issue to light, the Department of Defense had no idea that these millions of dollars in unused airline tickets were just sitting out there. Since the Department of Defense kept no records of unused airline tickets, the General Accounting Office made this discovery by combing through 

data that was provided not by the Department of Defense but by 

the airlines. In many cases, the airlines’ data was incomplete and 

it becomes more difficult to acquire, of course, the further back in 

time you go. Clearly, the Department of Defense will never collect 

all the money that could potentially be recouped from these unused 

tickets, but it would have recovered no money at all if the General 

Accounting Office hadn’t been there helping us in Congress. This 

is yet another example where, if the Department of Defense simply 

had a system of effective controls, a considerable amount of money 

would be saved. 

The first of the General Accounting Office reports on problems 

with the DOD centrally-billed accounts dealt with waste. The second is about fraud and abuse. I have several examples, and some 

of them you have already given, that I am going to skip over. 

There is one person, like a Mr. Johnson, who referred to these 

attempts of his billing for things that were centrally paid for, which 

obviously is fraudulent, as somehow ‘‘honest mistakes.’’ These honest mistakes apparently also include improperly approving his own 

travel voucher, improperly renting luxury vehicles while on travel, 

improperly purchasing airline tickets for family members with a 

government rate, and using his individual travel card for personal 

items, like monthly rental fees for musical instruments. The General Accounting Office has referred these cases, of course, to the 

DOD Inspector General. 

Still, before we celebrate another congressional oversight success 

story, we should remind ourselves that this should never have been 

allowed to happen in the first place, and will happen again unless 

the Department of Defense gets serious about establishing these internal controls. Even when the presence of some controls highlights 

potentially fraudulent activity, as is sometimes the case with stolen 

centrally-billed account numbers mentioned later in the report, the 

Department of Defense does not always follow through to investigate and avoid paying fraudulent charges. 

10

1The prepared statement of Ms. Schakowsky appears in the Appendix on page 30. 

The Department of Defense must set to work immediately to establish a positive control environment throughout the agency which 

will involve a change in culture. It is becoming almost routine for 

Congress, working with the GAO, to uncover a breakdown of controls in one aspect of the Department of Defense leading to waste, 

fraud, and abuse. We hold hearings at which officials from the Department of Defense come with their tails between their legs admitting that they could do better and will fix the specific problem. 

What I would like to start hearing is how the Department of Defense is going to fix its culture of indifference to internal controls 

and lack of respect for the American taxpayers. Thank you. 

Chairman COLLINS. Thank you, Mr. Chairman. Representative 

Schakowsky. 

TESTIMONY OF HON. JAN SCHAKOWSKY,1 A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF ILLINOIS 

Ms. SCHAKOWSKY. Thank you, Madam Chairman, and Senators 

Coleman, Lautenberg, and Pryor. I really appreciate your holding 

this important hearing today and for the opportunity to testify before you, and for your leadership on this important issue. 

I especially want to thank Senator Grassley, who has been such 

a strong leader on government accountability issues. It has been a 

real pleasure to work with him toward accomplishing our mutual 

goal of rooting out waste, fraud, and abuse in the Federal Government. 

As we will hear today, the GAO’s latest investigation into the 

epidemic of waste, fraud, and abuse at the Pentagon has uncovered 

more of the same. Because of a culture, as Senator Grassley said, 

at the Department of Defense that seems to persistently tolerate 

abuse of public dollars and public trust, precious taxpayer funds 

continue to be wasted. Meanwhile, the Congress is providing DOD 

with increased budgets at record levels. With all of the new homeland security needs our Nation is facing, we cannot afford to waste 

a single penny that might otherwise be making America safer. 

The GAO estimates potential losses valuing at least $100 million 

as a result of unused and unclaimed airline travel tickets by DOD 

employees. And after reviewing just a few years of data, GAO 

found that DOD employees wasted over $21 million by failing to 

use or claim 58,000 airline tickets. Some of those tickets were for 

first and business class travel and cost DOD and taxpayers as 

much as $9,800 a piece. Eighty-one-thousand tickets were partially 

unused by DOD employees, and the price of those tickets equaled 

$62 million. 

Madam Chairman, while we should, as you indicated, expect individual employees to take responsibility, it is also indicative of 

what the GAO in its typically understated way calls weak controls 

on the part of DOD. It is the responsibility of the Department of 

Defense to detect unused tickets and the GAO has made important 

systemic recommendations. 

In addition to wasted taxpayer dollars, GAO uncovered fraud and 

abuse of the DOD travel system. DOD employees were improperly 

reimbursed for air travel tickets that they did not purchase. ExamVerDate 0ct 09 2002 13:58 Aug 31, 2004 Jkt 095188 PO 00000 Frm 00014 Fmt 6633 Sfmt 6601 C:\DOCS\95188.TXT SAFFAIRS PsN: PHOGAN
11

ples include employees receiving improper and unjustified reimbursements of as much as $1,000, $3,600, and $10,000 each. In violation of the rules, some DOD employees even approved their own 

travel and reimbursement forms and billed the government for 

rental of luxury cars. One employee had the nerve to sell tickets 

that DOD had paid for to third parties, making a personal profit. 

These are just a few examples of the mismanagement and abuse 

that is ongoing at the Pentagon. To my knowledge, none of the perpetrators have been disciplined and DOD has yet to put in place 

the system-wide changes necessary to prevent future abuse. 

The GAO also discovered a potentially major security flaw in 

DOD’s travel system. Working undercover, GAO personnel were 

able to obtain tickets based on a fictitious travel order, fake identification, and an unnamed DOD office. GAO’s undercover agents 

would have been able to travel on major U.S. airlines for free, 

under fake identification. This could have been any criminal, even 

a terrorist, utilizing fake identification. This raises serious concerns 

for our air travel industry and our national security. Not only can 

individuals travel under fake ID, but the DOD, which is supposed 

to protect us, may actually be unknowingly facilitating criminal activity that could endanger the American public. 

Enough is enough. Whenever Congress shines the light on any 

aspect of the Department of Defense’s financial management, we 

uncover more waste, fraud, and abuse that are costing taxpayers 

billions of dollars. The abuses continue to exist and thrive and 

come on top of the fact that the Department of Defense already, according to its own Inspector General, cannot account for $1.2 trillion—that’s $1.2 trillion—in financial transactions. 

At a time when our soldiers are patrolling the streets of Iraq in 

unarmored Humvees, when critical domestic programs are being 

cut, and when the administration is asking for record defense 

spending, hundreds of millions of dollars that could be used to protect our troops and our country are going to waste. 

We have known for some time that DOD’s financial management 

is atrocious. These latest GAO reports show that it is not only irresponsible but dangerous for our country to have the Defense Department continue business as usual. I share Senator Grassley’s 

concern over the inexcusable behavior of individual employees, and 

I think they should be appropriately disciplined. But again, we 

need to also change the culture at the Pentagon. Our Pentagon 

leaders need to fix the problems that persist. If they cannot, or will 

not, President Bush should replace them. 

At a time when Americans are being asked to sacrifice so much 

in terms of lives, resources, and our economy, the administration 

has a particular duty to protect taxpayer dollars from any further 

waste, fraud, and abuse and the security threats that we are facing 

as a result. 

I want to thank our GAO witnesses and all of those at the General Accounting Office who worked so hard on these reports. They 

have done yet another great service to the Congress and to the 

American public. I just hope those of us here in Washington will 

now exercise our oversight responsibilities and demand changes 

from the Pentagon. 

12

1The prepared statement of Mr. Kutz appears in the Appendix on page 32. 

Again, Madam Chairman, and Members of the Committee, I 

thank you for the opportunity to testify. 

Chairman COLLINS. Thank you. Senator Grassley. 

Senator GRASSLEY. Could I make a clarification, please? 

Chairman COLLINS. Certainly. 

Senator GRASSLEY. Although it would be correct in my written 

testimony that I submitted in full, I did attribute about the honest 

mistakes to the wrong person. The two examples I used was a Mr. 

Joseph Johnson and a Mr. Robert Carter. The honest mistake thing 

was attributed to Mr. Johnson and it should have been attributed 

to Mr. Carter. 

Chairman COLLINS. Thank you for that clarification. 

I know both of you have very busy schedules today, so I am going 

to allow you to depart without being subjected to Senator Pryor’s 

questions. [Laughter.] 

Senator GRASSLEY. Thank you. I will owe you a lot. 

Chairman COLLINS. And I’ll collect on that. Thank you both for 

your testimony. 

I would now like to call our next panel forward. We will hear testimony from Greg Kutz, the Director of Financial Management and 

Assurance Group at the U.S. General Accounting Office. He is responsible for financial management issues related to the Defense 

Department, NASA, the State Department, and USAID. Accompanying Mr. Kutz is Special Agent John Ryan from the GAO’s Office of Special Investigations. 

These two gentlemen have teamed up numerous times to conduct 

excellent investigations and audits. They have particularly worked 

on travel and purchase card waste, fraud, and abuse, and have testified previously before this Committee. We are very pleased to welcome you back and look forward to your statements. 

We will then hear from JoAnn Boutelle, the Deputy Chief Financial Officer for the Department of Defense. She is responsible for 

developing, implementing, and overseeing Department-wide finance 

accounting and general financial management policies. Ms. 

Boutelle is accompanied by Jerry Hinton, the Director of Finance 

for the Defense Finance and Accounting Service, known as DFAS. 

I am very familiar with DFAS because there is a great DFAS center in northern Maine. 

Mr. Hinton is responsible for the Department’s policy and oversight for vendor and travel pay, as well as for cash and debt management, and we appreciate your joining us, also. 

Mr. Kutz, we will begin with you. 

TESTIMONY OF GREGORY D. KUTZ,1 DIRECTOR, FINANCIAL 

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

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

Mr. KUTZ. Chairman Collins and Members of the Committee, 

thank you for the opportunity to discuss DOD’s centrally-billed 

travel accounts. 

13

1The chart referred to appears in the Appendix on page 60. 

This is a continuation of our series of audits of DOD’s $10 billion 

credit card program. We previously testified that DOD used these 

accounts to improperly purchase first and business class airline 

tickets. Today, we will discuss additional issues of fraud and waste 

related to these accounts. 

My statement has three parts: First, unused airline tickets; second, improper and potentially fraudulent payments to DOD employees; and third, as mentioned earlier, security issues. 

First, we found that DOD paid for airline tickets that were not 

used and not processed for refund. Unlike non-refundable airline 

tickets purchased by most taxpayers, government tickets are generally refundable. Unused tickets occur when a traveler cancels 

their trip or uses only one leg of an airline ticket. The airlines provided us with limited data for 2001 and 2002, showing that DOD 

spent $21 million on 58,000 unused airline tickets. Our most conservative analysis shows that, for 1997 to 2003, DOD spent over 

$115 million for unused airline tickets. In effect, taxpayers have 

been providing the airline industry with an unintentional subsidy 

costing tens of millions of dollars annually. 

Although the vast majority of unused tickets were coach class, 

we found several egregious examples of waste related to first and 

business class tickets. As you can see on the poster board,1 DOD 

paid as much as $9,800 for airline tickets without receiving any 

benefits. This waste occurred because of the lack of integrated travel systems and ineffective compensating processes and controls. 

Second, we found that DOD sometimes paid twice for the same 

airline ticket, first to the Bank of America as part of the monthly 

credit card bill, and second, to the traveler, who was reimbursed 

for the same ticket. Based on our receipt of limited data, the potential magnitude of these improper payments was 27,000 tickets costing over $8 million. For example, the Navy paid a GS–15 $10,000 

for 13 tickets he did not purchase. In another case, despite five improper claims that were caught by the Defense Finance and Accounting Service, an Army GS–13 continued to file improper claims 

and was paid $3,600. This individual also falsified approval of their 

own travel voucher, abused their government travel card, and 

rented luxury vehicles such as a Mercedes and Lincoln Navigator 

while on official government travel. We have referred both of these 

cases, as mentioned earlier, to DOD for criminal investigation. 

Over the last several years, we have referred thousands of cases 

to DOD of fraud and misuse related to government credit cards. 

Cases include potential bank fraud, improper first and business 

class travel, and today, thousands of cases of potential false claims 

and theft of government property. 

Very few at DOD have been prosecuted, and few, if any, face significant administrative actions. If DOD is serious about addressing 

its significant problems with fraud and waste, then swift, decisive 

action must be taken against employees that misuse government 

funds. 

Third, inadequate security over the centrally-billed accounts increase the risk of fraud and abuse. For example, DOD issued and 

paid for airline tickets without checking the validity of the travel 

14

1The chart referred to appears in the Appendix on page 57. 

order. To test the system, we used an undercover operation to show 

that an unauthorized individual could obtain an airline ticket from 

DOD using a fictitious travel order. 

The poster board shows the results of our undercover operation—

the boarding pass from Reagan National to Atlanta that was paid 

for by DOD.1 Specifically, DOD issued us a round trip ticket to Atlanta based on a fictitious travel order that we created. We simply 

picked up this boarding pass at National, using a credit card under 

a bogus name. DOD obtained a refund for this ticket 2 months 

later, after we informed them of our operation. 

We also found that live credit card numbers were printed on 

traveler’s itineraries. This led to several military servicemembers 

fraudulently using the centrally-billed accounts for personal gain. 

For example, one individual used DOD accounts for a 6-month period to purchase 70 tickets, costing $60,000, that he resold to 

friends and family. 

These fraudulent transactions were later identified, disputed, 

and were not paid for by the government. However, many DOD locations did not file disputes for unauthorized tickets. As a result, 

DOD is vulnerable to the fraudulent usage of compromised accounts. 

To its credit, DOD has concurred with all 31 of our recommendations to improve management of the centrally-billed accounts and 

has taken action. DOD also has issued claim letters to the five airlines requesting repayment of the $21 million of unused tickets 

previously discussed. 

We are not aware of any collections to date. However, based on 

our experience with these airlines, and their serious financial problems, it is unlikely they will willingly refund DOD what could be 

over $115 million for unused tickets. 

In conclusion, our testimony provides a small example of the billions of dollars of waste and inefficiency at the Department of Defense. It also shows, as you mentioned, why DOD is on our list of 

high-risk areas, highly vulnerable to fraud, waste and abuse. With 

the significant fiscal challenges facing our Nation, it is important 

that DOD successfully address the issues discussed today. We look 

forward to continuing to work with this Committee to improve the 

economy and efficiency of the government’s operations. 

This ends my statement. Special Agent Ryan and I will be happy 

to answer your questions. 

Chairman COLLINS. Thank you very much. 

Mr. Ryan, it is my understanding that you don’t have a formal 

statement but will be here to answer questions, is that correct? 

Mr. RYAN. That’s correct. 

Chairman COLLINS. Ms. Boutelle. Thank you for being here. 

15

1The prepared statement of Ms. Boutelle appears in the Appendix on page 61. 

TESTIMONY OF JOANN R. BOUTELLE,1 DEPUTY CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF DEFENSE, ACCOMPANIED BY JERRY HINTON, DIRECTOR OF FINANCE, 

DEFENSE FINANCE AND ACCOUNTING SERVICE, U.S. DEPARTMENT OF DEFENSE 

Ms. BOUTELLE. Madam Chairman, I have submitted a longer 

statement that I would like submitted for the record, but I will be 

brief in my oral testimony so that it allows more time for your 

questions. 

Chairman COLLINS. Without objection, all statements will be submitted in full. 

Ms. BOUTELLE. OK. Thank you. 

Again, Madam Chairman, and Members of the Committee, I am 

here to discuss with you the actions the Department of Defense has 

taken and will take to correct weaknesses identified by the General 

Accounting Office in the DOD’s centrally-billed travel card program. 

At the outset, I want to underscore the resolve of the Department’s leadership to continue progress towards improving DOD financial management. We are determined to complete our overhaul 

of our financial processes and systems, which will dramatically improve our ability to ensure strong internal controls and prevent the 

kinds of problems identified by the General Accounting Office. 

The General Accounting Office reports on unused tickets and improper payments demonstrate the value of having automated data 

to analyze and review for anomalies. It also demonstrates the 

weaknesses inherent in manual systems and the many legacy systems still being used by the Department. 

As the Department transforms its financial management systems, we will do a better job of detecting and addressing the kinds 

of problems identified in these reports. In the meantime, we will 

work hard to correct the policies and procedures that contributed 

to the problems identified by the GAO while we work on the automated solutions. 

I want to emphasize that the Department has made significant 

progress in improving the performance of the individually-billed 

travel cards through implementation of policy changes, such as 

split disbursement and salary offset, through actions to reduce risk, 

such as closing unused accounts and reviews to identify where individuals have separated without properly clearing out and having 

their account closed. 

The types of problems highlighted in these GAO reports underscore the importance of transforming how DOD does business. Over 

the past 2 years, the Department has undertaken a massive overhaul of its management and support activities. Ultimately, we 

want to implement a cohesive, comprehensive management information system that will enable the DOD to track transactions, 

strengthen our controls, and prevent abuses. 

I assure this Committee that we will continue our close working 

relationship with the GAO as we correct the problems identified 

and monitor the corrective actions to ensure their effectiveness. 

16

I have with me, as you noted, Jerry Hinton, who is the program 

manager for the travel card program, and also Earl Boyanton, who 

is the Assistant Deputy Under Secretary for Transportation Policy, 

so that if you get into questions more related to the transportation 

side and how the central transportation offices and the airlines 

work, Mr. Boyanton is the expert on that policy. 

That concludes my oral testimony and we will be happy to answer any questions. 

Chairman COLLINS. Thank you. 

Mr. Hinton, it is my understanding that your situation is similar 

to Mr. Ryan, that you’re available for questions. But do you have 

any comments you would like to make first? 

Mr. HINTON. No, ma’am. I’m here to answer questions. 

Chairman COLLINS. Thank you. 

Mr. Kutz, you have indicated in your testimony that the potential unused tickets could total more than $100 million since 1997, 

and you described that as a conservative estimate. I understand 

that you chose a statistical sample from five of the largest DOD installations and that you also did not survey all of the airlines. 

Could you give us some idea, if you took the percentage of unused tickets found in your sample, what you believe the actual 

level of unused tickets may be? 

Mr. KUTZ. Yes. We did—a random attribute sample is what it’s 

called—using a 95 percent confidence level, the interval of the unused tickets of the population that we identified for five of the largest CBO locations was .65 percent to 8.9 percent. Our point estimate was 3.1 percent. So if you applied the 3.1 percent to the entire $8 billion that was spent on centrally-billed accounts from 1997 

to 2003, that would indicate almost a quarter of a billion dollars. Our estimate, again, the $115 million, we thought was a conservative estimate, which was based on the data that the airlines gave 

us, which was different than our independent, randomly done sample of the populations of the five locations. 

Chairman COLLINS. Arguably, the airlines are not eager to refund millions of dollars to the Department of Defense, particularly 

airline tickets that may go back a considerable amount of time. So 

do you believe the information that you received from the airlines 

was complete? 

Mr. KUTZ. We don’t know if it was complete. We relied pretty 

much on what they gave us. What we did, though, to identify the 

unused tickets was we matched exactly the information that they 

gave us to the Bank of America information, including the ticket 

number, and if anything didn’t match what they gave us, we kicked 

out. So the $21 million that we did identify related directly to what 

we could match to Bank of America’s information. 

But as you said, their incentive was not to give us the data. In 

fact, some of them, when we first contacted them, said we would 

need a subpoena before you’ll even get that data from us. American 

Airlines was the one who gave us the data after 2 weeks. The rest 

of them, it took 6 to 8 months after letters from Members of Congress to get the information. 

Chairman COLLINS. I think that’s an important point, because while the $100 million estimate is an alarming one, it is also a very 

conservative one. If you apply the statistic that you explained from 

17

your sample, the actual number may be as much as $240 million. 

Is that correct? 

Mr. KUTZ. It’s possible. Again, our sample was not designed to 

project numbers, but once the airlines responded back, we decided 

we would at least talk about that today, because we did do a random sample for those five locations. You would have to assume that 

those five locations are representative of all the locations across 

DOD and other things. 

Again, I think it indicates that this is statistically significant. 

That’s what that sample would indicate. 

Chairman COLLINS. Mr. Ryan, it concerns me that we have these 

cases that appear to be outright fraud—and we talked about this 

during the purchase card hearing—and yet, very little action seems 

to be taken against the individual employee. 

Was that the case with the individual case studies that you undertook in this analysis? 

Mr. RYAN. In this particular situation, we conducted the investigations based on the data provided to us by Greg’s group. We conducted the investigations, we determined that certain cases needed 

to be referred for criminal investigations to the Executive agencies. 

In the cases that we looked at here, the two that Senator Grassley specifically mentioned, we did send those to the appropriate investigative agencies to conduct. We know that on one of the gentlemen the investigation has been completed by the Army CID and 

the case has been presented to the U.S. Attorney’s office. In the 

other case, we’re not aware of any action that has been taken 

against him in regards to the $10,000. 

But the cases we have referred, we have asked DOD to get back 

to us in 60 days. We have sent the referrals and we’re getting close 

to the 60 days. 

I think it’s important for the Committee to realize that since 

June 2002, we have sent well over 130 individual referrals. Now, 

those referrals could be one person or, as Senator Coleman mentioned, we sent 44,000 names over to DOD to do investigations. 

They’re seeming to be finding like a black hole, because of the 

130 individual referrals we sent over, over 124 of those, no action 

has been taken. We have not received any notification of what action has been taken, neither criminally or administratively. So I 

guess, after a while, you get hit in the head with a brick and you 

realize you have to change the way you do business. 

I think what we’re going to try to do now is to get this information to the investigative units as expeditiously as possible so that 

we can start these investigations and get some type of action 

against these employees. If you realize between the unused business and first class tickets and the potential of the 27,000 transactions associated with this case, we’re talking well over 50,000 

people within DOD that some action needs to be taken. We just 

don’t seem to be able to get a response. 

I guess that’s a long answer to your question, but I can’t really 

give you an answer because I don’t know what DOD has done with 

these employees. Maybe Ms. Boutelle can give us an update on the 

two individuals that Senator Grassley spoke to, but I don’t have 

the latest information. 

18

Chairman COLLINS. I will be asking for that, but I am going to 

honor the time restrictions and call on my colleagues. 

I would note to my colleagues that I am going to enforce the time 

restrictions on questions, and we will do a second round, so don’t 

feel that you won’t have another opportunity. 

Senator Lautenberg. 

Senator LAUTENBERG. Thank you, Madam Chairman. Even if we 

occasionally differ, I never accuse you of being unfair. I am delighted to hear the testimony of our witnesses. 

I have a personal question to put first to Mr. Hinton. Do you 

have family in Patterson, New Jersey by any chance? 

Mr. HINTON. No, sir, I do not, Senator. 

Senator LAUTENBERG. Well, I went to high school with several 

good friends, and someone I see even occasionally now. I was just 

curious about that. Now I don’t have to be nice to you. 

Mr. HINTON. I hope that was the right answer. [Laughter.] 

Chairman COLLINS. I would have answered that ‘‘yes’’ had I been 

you, regardless. [Laughter.] 

Mr. HINTON. I wanted to be honest. 

Senator LAUTENBERG. Thanks anyway. They were a very distinguished family. 

I would like to ask this question, Ms. Boutelle. I commend you 

for the search you’re on for better systems and trying to get hold 

of this. You have an enormous responsibility. I don’t know what the 

size of the search is for flaws in the process, but the volume of 

transactions is enormous, when I hear that 50,000 individuals were 

referred for review. 

I come out of the computer business. I am considered a pioneer 

in the field. As a matter of fact, I’m such a pioneer that I don’t 

know what’s happening any more. 

As you look at things and the process of audit, would you also 

be looking beyond raw numbers for the systems that got us to 

where we are? Are they under review as well, rather than drawing 

your conclusions from numbers that don’t quite stand up to scrutiny? 

Have I made it clear? It’s not simply an audit function, the traditional function of auditing, but rather an examination of internal 

procedures. 

Ms. BOUTELLE. We are actually doing a few things. The overarching process that we have in place is called the Business Management Modernization Program, where we are trying to build an 

architecture of our end to end processes, to truly look at the processes and build them in a way to where they’re integrated with 

controls. What we have done in the past has been—and why we 

have all these stand-alone systems—if I can use a simple example 

of buying something, we have an acquisition system that stands 

alone. We have then——

Senator LAUTENBERG. A purchasing system? 

Ms. BOUTELLE. A purchasing system, yes. So it’s a system that 

issues contracts that doesn’t go over and check with the accounting 

system first to make sure funds are available. They have a piece 

of paper that someone has signed saying funds are available, but 

they don’t do that check the way the systems are designed. 

19

Then you move on to receiving whatever it was that you bought. 

Again, we do not have an integration of systems that says, ‘‘gee, 

let me call up that purchase order and make sure that I’m receiving in what I bought.’’ So we are looking at developing the processes from end to end, from the start of a transaction through finalizing it, after paying for it or issuing whatever it is, building that 

type of an overarching process. 

Senator LAUTENBERG. Not to cut you off, because what I’m looking for is to understand whether or not a no-bid contract, a commitment made—I don’t know how that’s verified. Are there letters that 

say, OK, here’s what we want you to do? Do you look at no-bid contracts? Are you aware of contracts given without a bidding process 

that might run, say, over $100 million? Does that catch your eye? 

Ms. BOUTELLE. Under my area of responsibility, I would have to 

say that how the acquisition folks went about awarding a contract 

I am not privy to. Once a contract has been awarded, then, of 

course, I want to make sure the obligation is recorded in the accounting system. 

Senator LAUTENBERG. How, then, can you check and see whether 

a commitment by the Defense Department has not gone awry if you 

have no guide as to what the magnitude of the expense might be? 

How do you check that? 

Ms. BOUTELLE. I’m going to attempt to answer what I think 

you’re asking me. 

If someone was getting ready to do some type of a contract, they 

would have to go to the resource manager and obtain approval that 

funds were available, thus a commitment of funds, to go to the contracting officer so that there is a reservation of those funds prior 

to doing an award of a contract. 

Now, whatever part of the Department would be awarding that 

contract, there should be a record of that reservation of funds. 

Senator LAUTENBERG. I don’t see the clock, Madam Chairman, 

but I’m trying to behave here, honestly. 

Chairman COLLINS. You have 14 seconds. [Laughter.] 

Senator LAUTENBERG. Very quickly, then—thank you. I will stop 

here, with the promise I will get another turn. Thank you very 

much. 

Chairman COLLINS. Thank you. Senator Pryor. 

Senator PRYOR. Thank you, Madam Chairman. 

Mr. Kutz, I’m curious about how the Department of Defense compares to other agencies when it comes to reimbursable travel. 

Could you comment on that? 

Mr. KUTZ. Are you talking from a volume perspective? 

Senator PRYOR. Well, from volume, and a quality control perspective. 

Mr. KUTZ. We haven’t audited particular travel at other agencies 

that I’m aware of, but I think from a volume standpoint, DOD is 

enormous. For centrally-billed accounts in the government, DOD is 

over half of the several billion dollars a year that is spent on that. 

From a financial management perspective, from a broader perspective that’s been discussed here, DOD financial management is 

one of four agencies that are on our high-risk list, so they are one 

of the ones that face the most significant challenges. 

20

I would say that the degree of difficulty that they face compared 

to any other agency in the government, and possibly any other organization in the world, is much more significant. But they have 

probably the most challenging environment and potentially the biggest problem with fraud, waste and abuse. 

Senator PRYOR. Is it your view that the problems at DOD are related to lack of proper controls within the agency, or is it because 

DOD is such a large agency that it’s next to impossible to manage? 

I would like to hear your thoughts on what the cause of this is. 

Mr. KUTZ. I would say today indicates clearly, and all the other 

testimonies that Special Agent Ryan and I do on this, that there 

is a combination of human capital problems, breakdowns in the 

processes and controls, and the lack of effective automated systems. 

They all contribute. 

The questions from Senator Lautenberg to Ms. Boutelle talked 

about the automated systems not being integrated, making manual 

workarounds necessary and compensating controls necessary, to 

identify things like unused tickets and duplicate payments to employees. Effectively, both break down here. You have the systems 

that can’t identify it, and then when you have the controls in place, 

the people aren’t effectively following them, so the tickets don’t get 

identified. 

Senator PRYOR. In listening to all of this, I’m trying to think of 

a private sector example where a large company out there has the 

same type of problems. I’m not aware of one, and I don’t think the 

stockholders would stand for it, and I don’t think the taxpayers in 

our country should stand for this. 

I would like to ask Mr. Ryan something, a comment you made 

a few moments ago—if I can put it in my own words—it sounded 

like the DOD had been unresponsive to a number of complaints or 

files or cases that you had sent over. Could you comment on that 

further? I’m curious about DOD’s attitude toward this. 

Mr. RYAN. Senator, I think you’re correct. I don’t believe that 

much time is given to thinking about how they’re going to handle 

punishment in DOD, either administratively or criminally. I know 

from my previous life as an agent in the Federal Government, 

when we identified employees that were committing these types of 

crimes in the private industry we were asked to investigate, the 

first thing that was done was the employee was fired. The money 

was withheld or some type of administrative action was done. 

In the case that Senator Coleman spoke about in his statement, 

of the 44,000 employees—I believe it was some 9 months ago when 

we had that hearing—no one has told me what has happened. I 

know that Colonel Kelly, who has testified before this Committee, 

has called me on several occasions trying to get data, but it didn’t 

seem that the information was being passed down to managers in 

units and commands to do anything about these employees. There 

just didn’t seem to be an urgency in trying to get to the root of the 

problem. 

In the case of one of the individuals that Senator Grassley spoke 

about, his supervisor didn’t even know the employee was turning 

the vouchers in. He was not aware of when the employee was traveling, which allowed—I think oversight being the problem—it just 

allowed it to continue. It just continues. 

21

Senator PRYOR. Ms. Boutelle, let me ask you a question—and I 

don’t want this to be impertinent at all. It’s just a matter of curiosity. 

I see you have a very thick three-ring binder in front of you, 

about four inches thick it looks like. What is that? Is that the DOD 

way? 

Ms. BOUTELLE. Actually, I have been on travel for the last 2 

weeks, so I came back in on Friday and, in preparation for this 

hearing, all of the good folks that are the subject matter experts, 

attempted to give me something to study, so that I would have the 

latest information to try to answer your questions. That’s what this 

book is. 

Senator PRYOR. I’m almost out of time here, but let me ask one 

last question just for general consideration. 

If you have an Army colonel, let’s say, at Fort Knox, and he 

needs to fly to the West Coast on official business, what does he 

have to go through to get that ticket, to get there and back and 

make all those arrangements? What does he have to go through? 

What does he do? 

Ms. BOUTELLE. He has to go to his supervisor and request to 

travel. His supervisor has to approve the travel and identify the 

funding. Then the orders are used to obtain—Jerry, you correct me 

if I’m wrong on any of this—then his orders are used with the commercial travel office to obtain transportation for him. He has to 

make hotel reservations and whatever else he needs to do, and 

then a copy of his travel orders, of course, are sent to the transportation office. 

Most of the travel today is done on electronic ticketing. He gets 

an itinerary back from the transportation office. He shows up at 

the airport to get his ticket. He travels, he returns, and he files a 

settlement voucher to be reimbursed. It then has to go to his supervisor to be approved. It goes to whatever office is paying. If it is 

the Army, it would be DFAS, which computes the payment. If it’s 

the Navy or Air Force, they have their own. 

Somebody at those locations would then do the review, compute 

the payment and disburse it, either completely to his account or a 

split disbursement, with part to the travel card account and part 

to the individual. 

That’s kind of a quick summary. I don’t know if I’m getting to 

whatever part of the process you’re concerned about. 

Senator PRYOR. That’s great. 

Madam Chairman, that’s all I have right now. 

Chairman COLLINS. Thank you, Senator. 

Ms. Boutelle, when we see the size of that notebook now, I feel 

like we have a lot of unanswered questions that you have the answers for. [Laughter.] 

Ms. BOUTELLE. I thought you were going to feel sorry for me 

reading this all weekend. 

Chairman COLLINS. I do. 

I do want to follow up on Mr. Ryan’s comments about the lack 

of disciplinary action that appears to be a pattern in cases where 

DOD employees are suspected of committing fraud against the Department. 

22

Do you know what happened in the two cases that we have specifically discussed this morning? 

Ms. BOUTELLE. I can share with you the updates that I was 

given. 

I am told in the Mr. Johnson case that they have finished the 

investigation and that it has gone to the Navy, the Navy management folks, and they will be making a decision on what to do. 

I am told that in the Mr. Carter situation that he is being 

charged with five counts of embezzlement of public money, three 

counts of attempt to embezzle, eight counts of making false demands against the government, and that this is being sent to the 

U.S. Attorney for action. That is what I am told. 

Chairman COLLINS. Thank you. I would ask that you keep the 

Committee informed of subsequent actions in those two cases. 

It is my understanding, Ms. Boutelle, that the vast majority of 

the Department’s airline tickets are electronic; they are what are 

known as e-tickets. Shouldn’t e-tickets provide an opportunity to 

receive automatic credits for unused tickets, and isn’t there also a 

possibility that the Department could institute some sort of policy 

that automatically cancels unused e-tickets after a certain period 

of time? It seems to me that would allow for recovery of refunds 

in a very pragmatic, straightforward way. 

Ms. BOUTELLE. You’re absolutely correct. The fact that the vast 

majority are electronic tickets, there is the capability, I am told, by 

most of the commercial travel offices, to pull a report of unused 

electronic tickets, which we were not requiring through the contracts with those contractors in the past. 

Since GAO identified this, and we’ve been looking at it, we have 

issued a letter out of Mr. Boyanton’s area, that Mr. Wynne has 

signed, requesting that the components modify those contracts to, 

in fact, have those reports pulled. 

We also had the Comptroller issue a letter that requires the components and the Defense agencies to cancel any ticket that is unused after 30 days from the last leg of the travel, so after that date 

has passed 30 days and they haven’t traveled, to cancel that ticket 

also. So we are doing those things now. 

Chairman COLLINS. I think those are excellent reforms that really would make a difference. 

Mr. Ryan, I want to return to you and ask you more about GAO’s 

undercover operation in which you were able to get an airline ticket based on a fake travel order. I recognize that there are certain 

details of this operation that you don’t want to reveal, so if you believe any of my questions would compromise your ability to conduct 

future undercover operations, please feel free to just state that for 

the record. 

Could we start by your explaining who did you contact to get the 

ticket? 

Mr. RYAN. We contacted the commercial travel office, informed 

them we were a new employee in DOD with special project, and 

that we didn’t have anything set up yet, but could they arrange for 

us to get an airline ticket. They were very accommodating. 

Again, as you have said in the past, you make business decisions 

over security decisions. We believe that this is where you can get 

the best bang for your buck when you’re doing an undercover deal. 

23

So we made the phone call and they went ahead and made the airline arrangements and told us that we needed to fill out the proper 

travel authorization. 

Chairman COLLINS. Where did you find the form that you needed? 

Mr. RYAN. Everything that we needed is on DOD’s web-site. 

Chairman COLLINS. So it’s right on line, accessible to everyone? 

Mr. RYAN. Yes, and they actually give you instructions on how 

to create your own appropriation number. So that’s what we did. 

By using everything that you can get off the website, we were able 

to do exactly what you guys all asked us to do. 

Chairman COLLINS. Did they ask you where your unit was located? 

Mr. RYAN. Ours was a special unit. We really couldn’t tell them, 

so we told them it was black project. 

Chairman COLLINS. So you told them it was a classified unit, 

much too secret for you to reveal that information? 

Mr. RYAN. Yes, and we were new employees, so there was no real 

data on us yet. 

Chairman COLLINS. Did you just make up the names of the traveler and the approving official, or were they the names of actual 

DOD employees? 

Mr. RYAN. There’s a lot of DOD employees, but I can assure you 

that——

Chairman COLLINS. As far as you know, did you make up the 

names? 

Mr. RYAN. We have a series of names that we use for operations, 

and we just happened to use one of the names that was part of a 

package that we were using on another job. So that’s what we did. 

Chairman COLLINS. You have done a lot of undercover work. We 

have worked with you before on a lot of different projects. It sounds 

to me like this was pretty easy to pull off. Is that a fair assessment? 

Mr. RYAN. It is a fair assessment. It is. Quite honestly, of all the 

stuff that the Committee has asked us to do, this was one of the 

easiest that we were able to do. 

Chairman COLLINS. What does that tell us then about the vulnerability of the DOD travel system? 

Mr. RYAN. I think that in working with Greg and his group, and 

John Kelly, who really was very instrumental in helping pull this 

together, too, it shows that DOD’s travel system is vulnerable, not 

only vulnerable to a person who is creating a fictitious travel order, 

but as Mr. Kutz mentioned earlier, the fact that when there are 

discrepancies, no one is following up on those discrepancies. 

In this particular case, it was done for three reasons: One, to see 

if we could create the travel authorization, which we did; two, to 

see if we could travel—actually, there was a fourth reason—the 

third, to see if DOD would pay for it, because really, there was no 

obligation set aside to pay for this, so as it went through the cycle, 

they even paid for the ticket. They didn’t know, until we told them. 

And the fourth element of this was to actually look to see if they 

would try to collect on the unused ticket because we had already 

told them in December about unused tickets. They actually didn’t 

24

collect on the unused ticket. So it completed the circle of what we 

were trying to do. 

Mr. KUTZ. I would add to that, Senator, that even when they did 

identify things in DOD—for example, I mentioned in my opening 

statement traveler No. 2 that Ms. Boutelle discussed, five times 

they were caught basically trying to put their airline ticket on their 

voucher and it got rejected. So there was clearly a pattern there 

of someone trying to get paid for something that they shouldn’t 

have been paid for. The next seven that they filed, DOD paid them. 

So again, there was the situation where DOD identified five cases 

in a row and they sent it back and rejected the claim, and the next 

seven were paid. 

Chairman COLLINS. Did DOD explain why the next seven were 

paid? 

Mr. KUTZ. I can’t explain it. I don’t know if Ms. Boutelle can, but 

I think some of them got caught as part of the voucher review process at Defense, and some didn’t. But again, you had a pattern there 

that certainly should have raised—and maybe there are so many 

different people working these vouchers that they don’t necessarily 

identify these suspicious activities for purposes of looking for fraud. 

Chairman COLLINS. Senator Lautenberg. 

Senator LAUTENBERG. Thank you, Madam Chairman. 

First I would like to ask you if we can keep the file open for a 

couple of days so that we can submit questions for the record. 

Chairman COLLINS. The record will be open for 15 days. 

Senator LAUTENBERG. Fine. Thank you. 

Couldn’t there be a more positive identification for someone 

using a ticket? I mean, we now have identification developing even 

more skills for identifying terrorists. We ought to be able to identify who it is that is coming up with a ticket, as to whether or not 

they were the person for whom the ticket was really issued. I’m not 

talking about fingerprinting, but there are relatively simple systems. I’m surprised that we are not able to implement something 

like that. I don’t know if there is so much movement of people 

around that it’s impossible. 

Suppose there was a system—and the Chairman identified that, 

the fact that we should be able to have in place a routine examination of unused tickets. With the technology we have available now, 

it could be run once a week, identifying how many weeks behind 

since the ticket was issued where it has not been used. It’s possible 

there’s a legitimate reason, where someone may be doing some 

world travel on behalf of the Defense Department and they haven’t 

gotten to the last leg of the journey for 3 months. But it would 

seem to me a very easy thing to highlight this and say here’s a 

ticket that was supposed to be used on June 10, and here we are 

at June 17 and the ticket hasn’t been used, and the next week, 

June 24, etc. It’s such a simple system. 

I would suggest this. What would happen if we had a system of 

chargebacks, if a receipt was not turned in for that trip? That employee would then have to pay it back if they didn’t have a receipt, 

as we all get when we take an airline trip in particular. You get 

a receipt. Either you turn that back or you turn in the cash. I think 

that’s fairly simple. Would that sound like a decent idea? 

25

Mr. KUTZ. From the standpoint of automatically identifying etickets that are unused—and I think Ms. Boutelle addressed that—

there is the technology now to do that on a routine basis and not 

have to go through this refund process 6 months or a year after the 

fact. So hopefully the Department, working with the travel offices, 

will do that. 

With respect to the chargebacks, that’s more of a Department 

policy. What we have seen, though, in the past, when employees 

have wasted government resources, we have never seen the Department ever require someone to pay a dime back. That’s been our 

experience. 

Senator LAUTENBERG. But this is property that was obtained 

under a pledge that the employee automatically makes when they 

go to work for the Federal Government. 

By the way, Ms. Boutelle, is this auditing strictly related to employees of the Defense Department? How about employees of contractors? Do those bills, those requests, come under your jurisdiction? 

Ms. BOUTELLE. No, sir. Again, if a contractor employee was traveling, I believe the process is that it would be bought through the 

contractor, would be billed to us on the contract. So no, I would not 

be looking at that. 

Senator LAUTENBERG. So we have employees, and if an employee 

steals a chair or a computer from the government, that’s a felony. 

I’m not saying there should be felonious processing if someone 

didn’t turn in their voucher, but if they paid for it, I think that 

would sure get their attention. It’s turn in the receipt or turn in 

the cash. It’s pretty basic. 

I would ask another question, if I may. If there is a no-bid contract, or cost-plus contract, how do you monitor that? If it’s a nobid contract, assuming it’s a contract, but there is no bid, no formal 

arrangement, how do you know whether it’s fair or unfair, appropriate or not? 

Ms. BOUTELLE. I wish I could answer that question. I’m not an 

expert in that area. We could certainly go back to our acquisition 

folks and take that question to them on how they oversee those 

types of contracts. 

Senator LAUTENBERG. Mr. Kutz. 

Mr. KUTZ. No, I’m not that familiar with it. I believe that, again, 

without being an expert, there are certain procedures you have to 

go through for a no-bid that would have to be documented a certain 

way, so there should be a trail of documentation supporting a nobid scenario, but it would not necessarily be a routine situation. 

Senator LAUTENBERG. I think Chairman Collins is absolutely correct, identifying this as a telltale about something going on, as I 

mentioned in this significant New Jersey newspaper. Can we assume it’s a tip of the iceberg kind of thing? Is that a fair assumption, Mr. Ryan? 

Mr. RYAN. Senator, without looking at the details, and without 

getting involved in the case, it’s hard to comment in generalities. 

I haven’t done any work in that particular area, but until you actually pull back the layers, you ask the questions, look at the documents, that’s when you find your answer. In all honesty, sir, I 

wouldn’t want to make a comment because I don’t have the facts. 

26

Senator LAUTENBERG. Fair enough. That doesn’t prevent us in 

the Senate from answering those questions. [Laughter.] 

Chairman COLLINS. Senator Lautenberg, excuse me for interrupting, but the Majority Leader has just sent a note requesting 

that we be in our seats for the 11:30 vote. I just wanted to alert 

you both to that in case you want to comply with that request. 

Senator LAUTENBERG. I will do that, and I thank you, Madam 

Chairman. 

Chairman COLLINS. Senator Pryor. 

Senator PRYOR. Madam Chairman, under those circumstances, 

maybe I should just submit my questions for the record and allow 

us to wrap up and get over there. 

Chairman COLLINS. Thank you. 

I do apologize to our witnesses. I did not realize that the vote 

was going to be a vote where we were supposed to be in our seats. 

That is an unusual situation, but certainly appropriate given the 

resolution that we’re voting on. 

Ms. Boutelle, I’m going to ask you for the record to outline what 

steps DOD is taking to ensure that travel orders are valid, given 

the success of the GAO’s undercover effort, and I will ask you to 

submit that for the record. 

Just one very quick question for Agent Ryan. Did DOD get a refund for the unused ticket that you bought? 

Mr. RYAN. Yes, after we told them. 

Chairman COLLINS. So you did bring it to their attention? 

Mr. RYAN. Yes, we did. 

Chairman COLLINS. Good. 

I want to thank our witnesses for being with us. I apologize that 

we weren’t able to get to all of the questions because of the vote. 

That probably disappoints some of you and makes others of you 

happy. [Laughter.] 

Again, I want to commend GAO for its excellent work in this 

area. I think it is really important that we have an obligation to 

the taxpayers—and I know the DOD employees and officials agree 

with that—to make sure we’re not wasting dollars. The work that 

you do is just critical to highlighting vulnerabilities in the system 

so that we can act to correct them. So thank you for your good 

work. We look forward to working with DOD to correct these problems and to strengthen the Department’s financial management. 

The hearing record will be held open for 15 days. I want to thank 

my staff for their excellent work, also. This hearing is now adjourned. 

[Whereupon, at 11:27 a.m., the Committee adjourned.] 

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