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IMPLEMENTATION OF THE TRAVEL AND TRANSPORTATION REFORM ACT OF 1998: WHY

HAVEN’T FEDERAL EMPLOYEES BEEN HELD ACCOUNTABLE FOR MILLIONS OF DOLLARS OF

FEDERAL TRAVEL EXPENDITURES?

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

FIRST SESSION

MAY 1, 2001

Serial No. 107–46

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

JOE SCARBOROUGH, Florida

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

——— ———

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

——— ———

——— ———

———

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

DAN MILLER, Florida

DOUG OSE, California

ADAM H. PUTNAM, Florida

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

EARL PIERCE, Professional Staff Member

GRANT NEWMAN, Clerk

MARK STEPHENSON, Minority Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on May 1, 2001 ................................................................................. 1

Statement of:

Anderson, William, deputy chief financial officer, Corporation for National and Community Service .................................................................... 28

Boehm, Alan, assistant inspector general for investigations, Corporation

for National and Community Service .......................................................... 2

English, Patricia, Acting Chief Financial Officer, Federal Emergency

Management Agency, accompanied by James Lucas, Chief, Financial

Policy and Standards Branch; Lorraine Norman, Agency Program Coordinator, Travel Card Program; and Paula Lyons, Agency Program Coordinator, Purchase Card Program ................................................................. 33

Griffin, Michael N., Chief, Division of Planning and Internal Control,

Office of the Chief Financial Officer, U.S. Department of Labor .............. 54

Hinton, Jerry, Director, Finance, Defense Finance and Accounting Service, Department of Defense .......................................................................... 15

Pieroth, Chris, senior vice president, product and marketing, U.S. Bank .. 24

Skelton, Clifford A., senior vice president, BACS government executive,

Bank of America ........................................................................................... 8

Wagner, G. Martin, Associate Administrator, Office of Governmentwide

Policy, General Services Administration, accompanied by Carolyn Alston, Assistant Commissioner, Office of Acquisition, Federal Supply

Service, General Services Administration .................................................. 40

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

Anderson, William, deputy chief financial officer, Corporation for National and Community Service:

Information concerning employee’s OPFs ............................................... 60

Prepared statement of ............................................................................... 30

Boehm, Alan, assistant inspector general for investigations, Corporation

for National and Community Service, prepared statement of .................. 5

English, Patricia, Acting Chief Financial Officer, Federal Emergency

Management Agency:

Information concerning employee’s OPFs ............................................... 58

Prepared statement of ............................................................................... 36

Griffin, Michael N., Chief, Division of Planning and Internal Control,

Office of the Chief Financial Officer, U.S. Department of Labor, information concerning employees OPFs ............................................................ 56

Hinton, Jerry, Director, Finance, Defense Finance and Accounting Service, Department of Defense, prepared statement of ................................... 17

Pieroth, Chris, senior vice president, product and marketing, U.S. Bank,

prepared statement of ................................................................................... 26

Skelton, Clifford A., senior vice president, BACS government executive,

Bank of America, prepared statement of .................................................... 11

Wagner, G. Martin, Associate Administrator, Office of Governmentwide

Policy, General Services Administration, prepared statement of ............. 42

(1)

IMPLEMENTATION OF THE TRAVEL AND

TRANSPORTATION REFORM ACT OF 1998:

WHY HAVEN’T FEDERAL EMPLOYEES BEEN

HELD ACCOUNTABLE FOR MILLIONS OF

DOLLARS OF FEDERAL TRAVEL EXPENDITURES?

TUESDAY, MAY 1, 2001

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT EFFICIENCY, FINANCIAL

MANAGEMENT AND INTERGOVERNMENTAL RELATIONS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:59 a.m., in room

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

Present: Representatives Horn and Putnam.

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

Dianne Guensberg, detailee; Bonnie Heald, director of communications; Earl Pierce, professional staff member; Matthew Ebert, policy advisor; Grant Newman, assistant to the subcommittee;

Michelle Ash, minority counsel; Mark Stephenson, minority professional staff member; and Jean Gosa, minority assistant clerk.

Mr. HORN. The Subcommittee on Government Efficiency, Financial Management and Intergovernmental Relations will come to

order.

Each year the government spends billions of dollars on employee

travel. Accordingly, Congress has long been interested in making

the Federal travel process more efficient and less costly. The Travel

and Transportation Reform Act of 1998, which I sponsored, was enacted to achieve both goals. One provision of the law requires Federal departments and agencies to issue government travel cards to

their employees. These cards, called SmartPay Travel Cards, are to

help agencies verify legitimate travel expenses more accurately and

efficiently. Today’s hearing will focus on the implementation of this

program.

The Travel Reform Act was estimated to save the government

millions of dollars in travel costs each year. However, the subcommittee has learned that lagging agency oversight and employee

misuse of the Travel Card Program is not allowing the government

to maximize this potential savings. In some cases employees are

using the credit cards for personal expenses rather than government travel as was intended. In other cases employees are defaultVerDate 11-MAY-2000 09:56 Apr 29, 2002 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\77576.TXT HGOVREF1 PsN: HGOVREF1
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ing on their payments, costing the government millions of dollars

in potential revenue. Today’s testimony will highlight both of these

problems.

In March the Bank of America reported to the subcommittee that Department of Defense employees have defaulted on more than $50

million in Federal travel expenditures since the program began in

November 1998. Bank of America officials say that each month the

bank writes off more than $2 million in delinquent Federal travel

expenditures. The Bank of America, which processes all Defense

Department travel cards, writes off accounts that are 200 days or

more delinquent. Also in March, the General Services Administration reported that government-wide Federal employees were delinquent in paying more than $25 million charged against their travel

accounts.

In addition to these individual accounts, which are to be repaid

by Federal employees, the subcommittee has learned that some departments and agencies are also in arrears in paying their government-guaranteed travel accounts. In March the General Services

Administration reported that agencies were delinquent in repaying

more than $12 million in travel expenditures.

Today the subcommittee will examine these problems. We want

to learn why agencies are not taking action against employees who

are delinquent in paying their travel card bills, and why the agencies themselves have fallen in arrears. We want to learn whether

banks are providing agencies with the tools to verify their travel

expenditures as they promised, and we finally wonder whether

other types of nongovernment clients are of any difference to the

government clients. Finally, we want to know what Federal agencies are doing to prevent further delinquency. We welcome our witnesses today and look forward to their testimony.

Let me tell you how we conduct these hearings. This is an investigative committee. We ask all of the witnesses to swear an oath

that the truth they’re providing us is the truth, and when we call

on each of you in the order of the agenda, we will put your own

testimony in, it’s been read by all of us, and try to summarize if

you could in the 5 to 8 minutes. And then we will get through this

and get to the questions and answers.

And if you’ll stand and raise your right hands. The clerk will

note, by the way, who’s got the right hand up: 1, 2, 3, 4, 5, 6, 7,

8, 9, 10.

[Witnesses sworn.]

Mr. HORN. The clerk will note that all of those said aye.

We now start with the first panel, and that begins with Alan

Boehm, the Assistant General Inspector for Investigations for the

Corporation for National and Community Service.

STATEMENT OF ALAN BOEHM, ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS, CORPORATION FOR NATIONAL

AND COMMUNITY SERVICE

Mr. BOEHM. Yes, sir. Mr. Chairman, I appreciate the opportunity

to testify on behalf of the Office of Inspector General regarding the

Corporation for National and Community Service’s participation in

the GSA SmartPay Travel Card Program. The Corporation has participated in that Travel Card Program since November 29, 1998.

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The Corporation has 590 employees, and of these employees, 539

were issued the travel card. This is about 91 percent of the work

force. For the past 21⁄2 years, Corporation employees used the trav- el cards to charge almost $3 million.

On August 1, 2000, Corporation management reported to us that a Corporation employee’s travel account was delinquent by $8,603.

We investigated and found that in less than 1 year, this employee

charged $26,500 to his travel card. After examining the employee’s

travel documents, we found that only $4,064 of these charges were

incurred in support of official travel. The remaining $22,442 were

charges for personal expenses, some of which may have been made

by the employee’s roommate.

We began a review of employee travel card accounts based upon

what we saw during this investigation, which indicated to us the

potential for widespread misuse of the travel card. Initially we

were required to request the paper documents from Corporation

management, who, in turn, had to ask for these documents from

the vendor. This was a slow process. In August 2000, we were

granted access to the Electronic Account Government Ledger System [EAGLS]. EAGLS is a secure Web-based system designed to

assist an authorized user in analyzing program activities online.

Access to EAGLS allows us to download——

Mr. HORN. We’re having difficulty hearing. Move that

microphone——

Mr. BOEHM. Oh, sure. Certainly.

Mr. HORN. It’s a horrible microphone. It isn’t your fault. It’s just

we need to get it as close as possible.

Mr. BOEHM. Certainly.

Mr. HORN. That’s fine.

Mr. BOEHM. Access to EAGLS allows us to download online the

individual’s account and then import them into Excel templates we

designed. This streamlined the process and allowed us to review an

employee’s account in almost real-time. Initially we concentrated

on those accounts that were delinquent. Later we expanded our review to include employees who were utilizing their travel cards in

the same general area they were assigned. We felt that the use of

the travel card within the immediate vicinity of an employee’s duty

station was a good indicator of potential misuse, since Federal travel regulations and Corporation policy prohibit this type of use.

Then we compared the employee’s travel and local reimbursement

vouchers to a travel statement to determine what expenses were

incurred as a result of the travel. The personal expenses we saw

included purchases at local restaurants, local bars, gas stations,

travel and personal expenses and ATM withdrawals.

One example, in less than 2 years, one employee made 27 ATM

withdrawals of various amounts up to $180 for a total of $4,389

and never officially traveled once. Another employee admitted

using the travel card for personal expenses for about 2 years,

charging a total of $7,724. He told us he used the card because he

had declared bankruptcy, and it was the only credit card he had.

A senior employee admitted spending $9,806 for personal expenses

and did so because, in her words, it was convenient. Another employee at a Corporation State office was using her travel card to

obtain cash at a local bar by signing fraudulent credit slips indicatVerDate 11-MAY-2000 09:56 Apr 29, 2002 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\77576.TXT HGOVREF1 PsN: HGOVREF1
4

ing she was purchasing food and beverages, when, in fact, she was

receiving the amount in cash.

Investigatively, we are treating employee misuse of the travel

card as a violation of the Corporation travel policies, the Federal

travel regulations and standards of ethical conduct for employees.

Thus far, we have investigated 13 employees who have misused

their travel cards, of whom 8 admitted misusing their cards. Two

of these employees were dismissed. Two are pending dismissal. One

resigned. One retired. One received a letter of counseling. One received verbal counseling, and five are pending further action. We

have identified additional employees, approximately 9 percent of

the work force, who appear to have misused their travel cards and

are awaiting receipt of the employees’ travel and local reimbursement vouchers. We have also identified other employees who appear to have misused their travel cards, but to a lesser extent, and

we have referred these employees to the Corporation management

for further consideration.

We believe there’s some contributing factors to the misuse of the

travel cards. One factor is issuance of the travel cards to Corporation employees who have no need to travel. Another factor was a

Corporation travel section not routinely reviewing travel card expenses. After we provided the Corporation with our templates and

instructions for use, the travel section now reviews travel card expenses. Within the last 2 weeks, they have referred two matters to

us that appeared to involve employees misusing their travel card.

We have also found that the Corporation’s supervisors who approve

travel for their subordinates do not have access to EAGLS necessary for them to review their subordinates’ use of the travel card.

This effectively eliminates the first level of oversight.

Mr. Chairman, this concludes my prepared testimony. I thank

you for your time.

Mr. HORN. Thank you. We thank you.

[The prepared statement of Mr. Boehm follows:]

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Mr. HORN. I’m going to call on the gentleman from Florida, Mr.

Putnam.

Mr. PUTNAM. Thank you, Mr. Chairman. I appreciate your indulgence, and I appreciate you holding this hearing. I’m looking forward to hearing the testimony from today’s panel and learning

more about the issues surrounding the implementation of the Travel and Transportation Reform Act of 1998, specifically about

issuing credit cards to government employees for use during official

travel. While this program has proven successful in providing some

savings to the government, it is clear by the reports of improper

card usage, as well as the large number of accounts that are delinquent or written off, that this program is desperately in need of improvement.

I’m very concerned that agency employees and U.S. servicemen

and women are charging expenses on government-issued cards

while traveling on official government business as representatives

of our government and then failing to pay these balances when

due. The failure to pay these balances ultimately reflects badly on

the Federal Government and the taxpayers it represents.

Equally distressing is the fact that government agencies responsible for issuing these cards and ultimately for overseeing their

proper usage are apparently not doing their job. Just as it is incumbent upon the employees to pay the charges they’ve incurred,

individual agencies have a responsibility to see that their employees have fulfilled this obligation. There is no excuse for delinquencies and write-offs of this magnitude to be occurring.

It appears as though the policies and procedures in place within

the agencies are not adequate to monitor this program and ensure

that it is properly implemented. To the extent that the cause of

much of these delinquencies and write-offs are attributable to

fraudulent practices by employees, agencies must do a better job of

curtailing this misuse. To the extent that these delinquencies and

losses are due to distributing these cards to individuals who do not

have the propensity or ability to responsibly handle these cards, it

is important that basic guidelines be established to make this determination prior to the issuance of the cards.

While I seriously question the logic of a financial institution entering into a contract that obligates them to extend credit to individuals based upon no qualification whatsoever, this deficit and financial paralysis does not relieve government agencies and their

employees of the obligation that is thrust upon them.

I hope this hearing provides us valuable insight into these problems, Mr. Chairman, and I look forward to further testimony.

Mr. HORN. I thank the gentleman for his very able statement.

We now go to Mr. Clifford A. Skelton, senior vice president of

BACS Government Executive, Bank of America. I’m not sure what

the BACS is.

Mr. SKELTON. Bank of America Card Services, sir.

Mr. HORN. OK.

STATEMENT OF CLIFFORD A. SKELTON, SENIOR VICE PRESIDENT, BACS GOVERNMENT EXECUTIVE, BANK OF AMERICA

Mr. SKELTON. Good morning Chairman Horn, Representative

Putnam. Thank you for inviting me here today. My name is Cliff

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Skelton. I manage Bank of America’s Government Card Services

Division. I joined the Bank of America team 2 years ago after serving 21 years in the U.S. Navy as a naval aviator. I’ve had the opportunity to serve our country as the commanding officer of an F– 18 squadron with over 200 officers and enlisted men and women.

I was also fortunate to serve as a White House fellow in 1997 and

1998, and I spent a year in the Office of the Secretary of the Navy.

I mention this because I want the subcommittee to know that I

have a deep appreciation for government service, as well as the fine

men and women who serve at the Department of Defense and other

agencies of the government.

Bank of America provides travel and procurement card services

to 42 Federal agencies, with the vast majority of our business unfortunately dedicated to travel, and specifically to DOD travel. Of

the 1.8 million cards we issue, 1.4 million are for DOD employees.

I say that it’s unfortunate that we have mostly travel business because travel-only businesses don’t make money. They lose money.

Procurement card lines of business are generally profitable. If you

look at the distribution of agencies and businesses in the GSA

SmartPay Program, you find my friends here at U.S. Bank with a

ratio of 51 to 1 procurement volume to travel volume, with only $86

million spent by government employees using their travel card per

year; Citibank, with a 5 to 1 procurement-to-travel ratio, with a

travel spend of $1 billion; Bank One, with 2 to 1 procurement-totravel and $263 million in travel spent; while Bank of America has

a procurement-to-travel ratio of 0.5 to 1 and $3.3 billion in travel

spent, due primarily to the Department of Defense.

What this all means is that Bank of America was awarded three

times more unprofitable travel business and one-quarter of the

profitable procurement business when compared to the distribution

of our nearest competitor, Citibank. And this story is true before

ever examining the payment and internal management performance at the Department of Defense.

Now, I would be remiss if I did not acknowledge that Bank of

America did have some startup problems in 1999. Those problems

have long been resolved, and regardless of these problems, the following statistics cannot be overlooked: 40,000 sailors, soldiers, airmen, marines and civilian DOD employees have defaulted on more

than $53 million or 5 times the commercial standard in what is

supposed to be official travel. The cost of service for DOD is 26 percent more expensive than we experience in a commercial portfolio.

Forty percent of the DOD cards have never been used, in total,

while 60 percent do not meet our agreed-upon standard for frequent travelers, thereby increasing bank expense with no offsetting

revenue.

DOD members call our call centers 60 percent more often, and

it takes a considerably longer period of time to solve issues as compared to commercial standards. Error rates for applications and expedited card demands far exceed industry standards or needs. Cash

advances are 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, not to mention the anecdotal evidence.

Having said all this, I am nonetheless pleased to report that just

3 weeks ago, DOD committed to implementing a number of

10

changes through a contract modification. This modification is expected to lower credit losses and hopes to bring cost of services

more in line with those associated with a commercial product. We

believe this is a good start for a partnership; however, it is just

that, a start. It never makes sense for a contractor to lose money

when providing services to our government. It does not produce

winning results, and arrangements such as this tend to end in failure for both parties. Despite these contract changes, our financial

picture still indicates we will continue to lose millions of dollars per

year for the life of the contract, potentially 71⁄2 more years.

I believe the original intent of the Travel and Transportation Act

of 1998 was to create a state-of-the-art program that would streamline travel for employees, increase efficiencies for administrators

and achieve significant savings for the taxpayer. We, as your business partner, cannot satisfy these goals under the current contract.

As the third vendor in a row to lose money providing travel services to the Department of Defense, it appears that either the contracting vehicle for DOD must change or be offset by more profitable lines of business. I offer that you consider outsourcing government travel card service needs as a pay-for-service or cost reimbursement arrangement so that agencies pay for the service and for

the performance.

In conclusion, please understand that while my comments have

been somewhat retrospective in tone, the answer lies ahead of us,

not behind us. While significant changes will still need to take

place if the DOD travel business expects a competitive contractor

market, I believe the Department of Defense is now truly interested in a more partnered relationship. The bank looks forward to

working with the Department of Defense, the General Services Administration, as well as the 41 other government agencies to make

this a viable relationship into the future.

Mr. Chairman, Representative Putnam, thank you for providing

me the opportunity to testify before the subcommittee, and I’ll be

glad to answer any questions that you or other members of the

subcommittee may have when it’s appropriate.

Mr. HORN. Thank you very much, Mr. Skelton. That’s a very

helpful statement.

[The prepared statement of Mr. Skelton follows:]

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Mr. HORN. And now is Mr. Jerry Hinton. He is Director of Finance, Defense Finance and Accounting Service, Department of Defense. Mr. Hinton.

STATEMENT OF JERRY HINTON, DIRECTOR, FINANCE, DEFENSE FINANCE AND ACCOUNTING SERVICE, DEPARTMENT

OF DEFENSE

Mr. HINTON. Good morning, Mr. Chairman and Congressman

Putnam. I’m the Director of Finanance at Defense Finance and Accounting Service. The responsibilities for coordinating the policy

and procedures for the use of the travel card with the bank and

the military services fall under me. It is a pleasure to be here this

morning. Since you have my written statement, with your approval

I will simply summarize the main points.

Overall the Department has benefited from the Travel Card Pro- gram. In fiscal year 2000, we received $5.7 million in volume discount rebates offered by the bank. Both GSA and the Department

have established rules for the travel card as required by the Travel

and Transportation Act. Those rules allow latitude in establishing

exemptions to mandatory card use, which we’ve used to address the

specific needs of the Department.

The DOD Travel Card Program includes both centrally billed accounts [CBAs], held by the unit or office and individually billed accounts [IBAs], issued to individual travelers. Centrally billed accounts are primarily used for airline tickets. These charges are included in the computation of rebates paid to the Department by the

bank. Interest and penalties accrue on any invoice paid 31 or more

days after the date of the invoice, pursuant to the Prompt Pay Act.

We are working with the bank to refine travel invoice reconciliation

processes, and with the military services on the delinquencies for

these accounts. Recently monthly reports indicate that progress is

being made, and we are paying the bills more promptly and thus

reducing the interest that we pay.

For individual travelers, the use of the travel card has reduced

the need to process travel advances. The volume of charges on individual cards is also factored into the rebates offered by the bank.

We recognize there have been challenges associated with implementation of the mandatory use of the travel card, and we are

working with the Military Services and the Defense Agencies to

take corrective steps.

We also recognize the added expense that the high number of delinquencies pose to the bank. We have worked hard to ensure that

travelers receive their reimbursements in a timely manner. So far

this year, the Defense Finance and Accounting Service has settled

about 99 percent of the claims submitted within 9 days.

We have and continue to work with the bank and the Military

Services to refine the information provided to unit commanders so

that they may take appropriate administrative actions to counsel

and to hold individuals accountable for their payments. Recognizing the bank’s concern, we began discussions several months ago

on the Travel Card Program. Those discussions led to an agreement we signed just a few weeks ago on April 11th that extend the

task order for the travel card program through November 29, 2001.

That agreement adds risk mitigation features, including increased

16

command management attention on individual delinquencies, deactivation or cancellation of cards issued to infrequent travelers, deductions from salaries for accounts that are over 120 days past due,

the use of split disbursements allowing a traveler to have portions

of their expenses charged paid directly to the bank. The modification also lowers cash and cash limits of individual cards. It allows

for higher ATM and late fees—late payment fees.

In conclusion, I can assure you, Mr. Chairman, Mr. Putnam, the

leadership in DOD is engaged. We believe that the changes that

have been implemented will be successful in resolving the problems

with delinquent accounts, and we continue to work with the bank

to address areas of concern. The Travel Card Program is important

to the Department, and we will work to keep it successful.

That concludes my remarks, and I’ll be happy to address any

questions that you have.

Mr. HORN. Thank you very much, Mr. Hinton.

[The prepared statement of Mr. Hinton follows:]

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Mr. HORN. We now move to Mr. Chris Pieroth, the senior vice

president, product and marketing for the U.S. Bank.

STATEMENT OF CHRIS PIEROTH, SENIOR VICE PRESIDENT,

PRODUCT AND MARKETING, U.S. BANK

Mr. PIEROTH. Thank you, Mr. Chairman, members of the committee.

Travel cards have been marketed as a convenient and cost-effective replacement to cash advances, as well as a means of consolidating spending data for better vendor negotiations. The use of

travel cards has been a standard best practice for managing travel

expenses for over 15 years.

In order to maximize the benefits offered by travel cards, organizations implementing such programs will normally mandate the

use of the card by all travelers. This allows for the complete elimination of costly cash advances and maximizes the capture of spending data. Organizations also do not generally accept liability for

travel cards issued to individual employees.

The issuance of travel cards to employees is based on organizational authorization and is not contingent upon individual employees passing credit checks. While basic credit screening is done for

the purpose of risk assessment and account monitoring, the results

do not prevent the initial issuance of a travel card to an authorized

employee.

Issuers of travel cards manage risk in a number of ways. First,

the organization itself must undergo a credit check to ensure that

the organization is financially stable and is able to properly reimburse employees for travel expenses. Second, upon issuance of a

travel card, a basic credit screen is done for the purpose of risk assessment and account monitoring. Accounts that are deemed to

present a higher-risk are more closely monitored for delinquency

and unusual spending activity; third, delinquency reports provided

to organizational program managers to assist in collection activities; and finally, financial incentives are provided to organizations

for faster payment and lower-than-anticipated credit losses.

The effectiveness with which a card issuer is able to perform

these functions has a significant impact on delinquency and writeoff rates. Experience is also very important. Travel card portfolios

behave differently than other card portfolios. Additionally, travel

card portfolios belonging to different customer channels, such as

large market, midmarket, and government customers, also behave

differently. A slow and controlled entry into each customer channel

to ensure a proper understanding of portfolio behavior and development of proper risk mitigation strategies is also very important.

Entering a new customer channel too quickly can result in higher

delinquency rates and larger-than-anticipated write-offs.

Mandating the use of travel cards by Federal employees was simply an adoption of a longstanding private sector best practice.

While there have been delinquency and write-off issues associated

with the GSA SmartPay Program, U.S. Bank does not believe these

issues were made worse by mandating the use of travel cards by

Federal employees. From U.S. Bank’s perspective, the GSA and the

agencies participating in the SmartPay Program have consistently

demonstrated a willingness to work cooperatively to address the

25

resolution of delinquency and write-off issues. U.S. Bank believes

this will continue to be the best method for handling such issues

in the future. And that concludes our testimony.

Mr. HORN. Well, we thank you for that approach.

[The prepared statement of Mr. Pieroth follows:]

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Mr. HORN. Mr. William Anderson, deputy chief financial officer

for the Corporation for National and Community Service. Glad to

have you here.

STATEMENT OF WILLIAM ANDERSON, DEPUTY CHIEF FINANCIAL OFFICER, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

Mr. ANDERSON. Good morning, Mr. Chairman, and members of

the subcommittee. My name is Bill Anderson, and I am the deputy

chief financial officer for the Corporation for National Service.

Thank you for inviting me to testify on the Corporation’s participation in the GSA SmartPay Travel Card Program. I ask that my full

statement be included in the record.

Mr. HORN. Yes. All of them are automatically.

Mr. ANDERSON. The Travel Card Program has significant benefits that allow the Corporation to carry out necessary travel effectively and efficiently. We have issued management policies governing the proper use of the travel card, and that policy has been

widely disseminated throughout the organization. We have had

some continuing issues relating to travel payments billed to the

Corporation’s central account and for travel billed to individuals

that I will focus on today.

First, I want to note that we have no delinquent balances in our

active account. The Corporation does have an unresolved balance

of $275,000 related entirely to a centrally billed account that was

closed over a year ago. At the time the account was closed, the balance was $1.3 million. When we first implemented the SmartPay

Program, our charge card vendor, NationsBank, now Bank of

America, did not bill the Corporation properly for travel charged to

the Corporation’s centrally billed account. When we tried to resolve

these charges, the bank was unable to provide us with the information we needed to sort out which subaccounts had unpaid balances.

As a result, the central account balance grew. When we closed that

central account, it had a balance of $1.3 million.

Working closely with Bank of America to resolve this matter, we

have reduced the unresolved balance in the closed centrally billed

account to $275,000. To date, we have determined that about $1

million of the $1.3 million had already been paid by the Corporation, but had been misapplied by the bank. We expect to complete

our work on the remaining discrepancy within 60 days. We also

have a new account structure with Bank of America, and all those

accounts are current and working properly.

The second matter I will discuss is the Corporation’s actions relating to the delinquency and use of the travel cards billed directly

to individuals. About 6 months ago, Corporation travel unit staff

began obtaining all outstanding balances for Corporation travel

cardholders. The report is reviewed to identify all employees with

accounts reported 60 days past due. Each delinquent cardholder is

contacted to determine why they have not paid their balance. Letters are sent to the employee and the employees’ supervisor, notifying them that the account is delinquent and reminding them of

their responsibility to pay all travel card balances in a timely manner. In most cases this action is all that is necessary to get the account current. Our current delinquency rate is less than 4 percent.

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It’s about $5,000, within the average governmentwide performance

in this area.

In addition to reviewing for delinquencies, the Corporation currently reviews a detailed transaction listing from the Electronic Account Government Ledger System [EAGLS], for certain cardholders. Cardholders may be selected for a detailed review either

randomly or based on perceived risk, such as a large delinquent

balance. The transaction detail is reviewed to determine whether

or not the charges were appropriate and related to official travel.

If the Corporation determines that the charges were not for authorized purposes, the Corporation will take appropriate disciplinary

action, including removing the employee from Federal service. The

Corporation has taken such actions in the past.

Mr. Chairman, the Corporation takes the misuse of Federal cards

very seriously. We have issued guidance to employees on their obligations with respect to the use of the cards and have plans to take

additional steps that will help minimize the likelihood of abuse.

These steps include revisiting how the Corporation determines who

gets a card and the credit limit on individual cards. In addition, the

monthly delinquency report will be provided to the Corporation’s

chief operating officer for review.

In addition to these actions, we have worked closely with the

Corporation’s Office of the Inspector General on this issue. That office also obtains information from EAGLS and reviews staff usage

of the travel card. When problems are identified, we receive reports

from the inspector general and take appropriate action.

Mr. Chairman, the Corporation has been working diligently to

resolve the outstanding matters with our delinquent accounts and

ensuring proper use of the SmartPay Program by our employees.

Thank you again for inviting me to testify on behalf of the Corporation. I would be happy to answer any of your questions.

Mr. HORN. Thank you very much, Mr. Anderson.

[The prepared statement of Mr. Anderson follows:]

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Mr. HORN. And we now move to Ms. Patricia English, Acting

Chief Financial Officer for the Federal Emergency Management

Agency.

STATEMENT OF PATRICIA ENGLISH, ACTING CHIEF FINANCIAL OFFICER, FEDERAL EMERGENCY MANAGEMENT AGENCY, ACCOMPANIED BY JAMES LUCAS, CHIEF, FINANCIAL

POLICY AND STANDARDS BRANCH; LORRAINE NORMAN,

AGENCY PROGRAM COORDINATOR, TRAVEL CARD PROGRAM; AND PAULA LYONS, AGENCY PROGRAM COORDINATOR, PURCHASE CARD PROGRAM

Ms. ENGLISH. Good morning, Mr. Chairman and members of

the——

Mr. HORN. You’re going to need to get the mic right up to you.

Ms. ENGLISH. Good morning, Mr. Chairman, and members of the

subcommittee.

Mr. HORN. Let’s see. Is there a switch on there?

Ms. ENGLISH. It’s green.

Mr. HORN. You got it? Just take the other one. Thank you.

Ms. ENGLISH. I’ll try again.

Good morning, Mr. Chairman, and members of the subcommittee. I am Pat English, Acting Chief Financial Officer for the Federal Emergency Management Agency. I am pleased to appear before you today to discuss FEMA’s participation in the GSA

SmartPay Travel Card Program. I would also like to introduce Mr.

James Lucas, who is the Chief, Financial Policy and Standards

Branch; Ms. Lorraine Norman, who is the Agency Program Coordinator for the Travel Card Program; and Ms. Paula Lyons, who is

the Agency Program Coordinator for the Purchase Card Program.

Mr. Lucas is responsible for managing the development of

FEMA’s policies and procedures for implementing the Travel and

Transportation Act of 1998 and the GSA SmartPay Travel Card

Program. Ms. Norman and Ms. Lyons are responsible for managing

the day-to-day operations of the GSA SmartPay card for travel and

purchase programs respectively. We welcome the opportunity to

come before this subcommittee to discuss FEMA’s efforts to implement the act and the actions taken to improve the operational effectiveness and efficiency of the contractor-issued charge card.

As you are aware, the act requires that all travelers use the travel card to pay for travel expenses. FEMA recognizes the significant

benefits that the Travel Card Program provides to the government

and to the traveler, and we have taken steps to fully realize these

benefits. As a matter of fact, in 1993, FEMA issued a travel directive maximizing the use of the contractor-issued travel card for official authorized travel. Employees who are frequent travelers were

issued a travel card. We eliminated the use of the imprest funds

and began using ATMs for travel cash advances. We replaced the

government travel request [GTR] to purchase common carrier

transportation with the individually or centrally billed travel card.

Implementation of an aggressive travel card program has had its

challenges. Prior to the implementation of the current GSA

SmartCard Program, FEMA had one of the highest delinquency

rates, approximately 20 percent, for individually billed travel card

accounts in the Federal Government. We recognized the need to

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improve the management of delinquencies; however, making

progress is very difficult. In selecting our current card traveler vendor, Citibank, we saw this as an opportunity to create a new partnership. We turned our attention to improving the overall management of the program. After overcoming initial startup problems, we

started to see once again the delinquency problem developing.

Prior to it getting out of hand, I met with Citibank officials to

discuss our delinquency rate, and they were able to raise my level

of awareness of the tools available to address our delinquencies. I

met with my staff. An action plan was developed which identified

tasks, accountable organizations and/or individuals with milestones

for completion.

The plan raised the level of awareness throughout FEMA. Today,

about 12 months later, FEMA has one of the lowest delinquency

rates for these accounts in the Federal Government. I attribute our

success to the support given to me by other FEMA senior managers

and my staff. My staff developed a written policy for the SmartPay

Card Program. We consulted with management and labor representatives when developing our policy and discussed the reason

for the changes. We conducted an extensive education campaign to

communicate the policy to all FEMA cardholders. Office program

coordinators were trained to manage the program in their respective organizations. Sufficient resources were committed to manage

the program so that we can maintain an OPC-to-cardholder ratio

of 1 to 100 to ensure proper oversight of the program. Progressive

disciplinary guidelines ranging from reprimand to dismissal are applied when the card is used for unauthorized travel expenses. Managers and cardholders are held accountable for their performance

in the program. Working as a team, we continue to communicate

our message to assure that everyone clearly understands the policies and procedures governing the use of the program.

A strong partnership has been formed with Citibank to improve

the management of the program. We meet regularly with the

Citibank staff to review the performance and identify opportunities

for improvement. We decreased spending limits and have expanded

the use of merchant category code restrictions. FEMA actively participates in GSA/Citibank-sponsored workshops and training seminars. GSA’s best practice guide reflects many of FEMA’s policies.

Citibank has invested time to learn about FEMA’s program and

understand our charge card needs. Citibank client account specialists provide invaluable assistance to our OPCs in managing the

day-to-day operation of the program. Citibank—excuse me,

CitiDirect, the Citibank Internet-based management information

system, is used to review cardholder account activity online.

I am proud of FEMA’s efforts to improve the management of the

SmartCard Program. We make sure that our employees are reimbursed for their travel expenses on time. Cardholders are paid

within 3 to 5 working days after submission of travel vouchers;

therefore, timely reimbursement of the employee for travel expenses is not an issue.

This summer we will begin to deduct from cardholder salaries

past-due amounts owed to Citibank. We plan to develop and implement a split payment system in the near future to pay Citibank directly for transportation, lodging and rental car expenses charged

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to the cardholders’ accounts. FEMA’s delinquency rate for March

2001 for accounts past due 61 days plus is 2 percent for individually billed cards, zero percent for centrally billed cards, zero percent for purchase account cards, compared to governmentwide averages of 7, 5 and 3 percent respectively.

Mr. Chairman, this concludes my prepared remarks for this

morning. I will be happy to now answer any questions that you or

members of the subcommittee may have. Thank you very much.

Mr. HORN. Well, thank you, Ms. English.

[The prepared statement of Ms. English follows:]

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Mr. HORN. Now we have Mr. G. Martin Wagner, Associate Administrator, Office of Governmentwide Policy for the General Services Administration.

STATEMENT OF G. MARTIN WAGNER, ASSOCIATE ADMINISTRATOR, OFFICE OF GOVERNMENTWIDE POLICY, GENERAL

SERVICES ADMINISTRATION, ACCOMPANIED BY CAROLYN

ALSTON, ASSISTANT COMMISSIONER, OFFICE OF ACQUISITION, FEDERAL SUPPLY SERVICE, GENERAL SERVICES ADMINISTRATION

Mr. WAGNER. Good morning, Mr. Chairman. I would also like to

introduce—I have with me Carolyn Alston, Assistant Commissioner

of the Office of Acquisition within GSA’s Federal Supply Service.

Ms. Alston’s office developed and manages the GSA SmartPay contract.

But before I actually get into the prepared remarks, I’d like to

mention to the subcommittee that at this very moment, the Third

Annual Miles Romney Award in Personal Property Management is

being presented. Miles was a tremendous asset to the Hill, worked

for many years for the subcommittee, and we really appreciated his

help, as is illustrated by the fact that we named one of our awards

after him. I’m afraid it has nothing to do with this hearing, but I

thought I would mention it.

Mr. HORN. Well, I thank you for mentioning it, though. Miles

Romney was a legend around here for decades. He helped both the

minority and the majority, Democrats and Republicans, and he was

a very skilled, fine public servant.

Mr. WAGNER. We really appreciated the chance to work with

him.

But to return to the question at hand, I am pleased to appear

before the subcommittee to discuss the Travel and Transportation

Reform Act of 1998. The act capitalizes on card technology as a

mechanism that could be merged with other technology advances

to make a more efficient and better-run government. In particular,

the act recognized that appropriate use of commercial card solutions for ordering and paying for travel services would be more efficient and effective than a government-developed solution, and that

a common approach using cards for an agency as a whole would

work better than a multiple approach based on individuals using

their own cards.

We believe that the use of charge cards offers an opportunity for

government to better leverage industry best practices. The ability

to eliminate or greatly reduce travel advances, to gather essential

management data and to capitalize on industry trends all involve

the use of charge cards. This subcommittee recognized that and

gave us both the structure and the flexibility in the act to take advantage of current technology and position ourselves to be ready for

future changes. For that we thank the subcommittee.

Now let me discuss the Travel Card Program. The final implementing regulation for the program was issued March 30, 2000,

and effective already for travel on or after May 1, 2000.

With expenditures of $4.7 billion in fiscal year 2000, the GSA

SmartPay contract is the single largest corporate travel card program in the world. The program provides a charge card that is uniVerDate 11-MAY-2000 09:56 Apr 29, 2002 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 C:\DOCS\77576.TXT HGOVREF1 PsN: HGOVREF1
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versally accepted, improves government cash management and significantly reduces the need to provide travel advances. It also provides the opportunity to reduce our administrative costs for making

travel payments and to obtain data on travel spending to negotiate

better discounts.

Finally, the program provides agencies the opportunity to earn

refunds on their travel payments if they reimburse the card companies on a timely basis. Refund payments are influenced by two factors, volume of expenditures and payment performance. Several

agencies have taken advantage of this opportunity, and overall

GSA’s SmartPay refunds for travel purchase and fleet increased from $55 million in fiscal year 1999 to $65 million in fiscal year

2000. I need to emphasize that is all charge card contracts—or

charge card vehicles under the contract.

Our partners have also expressed concerns with cardholder delinquency, inactive accounts and write-offs on individually billed accounts. GSA is working closely with our customers and our card

providers to develop a host of delinquency controls. We believe that

agency efforts are working, as we have seen a decline in delinquency rates. For example, delinquency rates for March 2001 were

7 percent for the individual billed accounts and 5 percent for the

centrally billed accounts, a 50 percent decline for March 2000. Good

progress, but not enough. In addition, GSA has recently made some

contract modifications to encourage agencies to reduce the writeoffs to a more acceptable level.

While program performance continues to improve, the government needs to do better. The card providers and the agencies can

work together and are working together to make this an even better program.

Mr. Chairman, that concludes my oral statement.

Mr. HORN. Thank you. Well, thank you very much.

[The prepared statement of Mr. Wagner follows:]

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Mr. HORN. Now, Carolyn Alston is the Assistant Commissioner

for the Office of Acquisitions for the General Services Administration, and Mr. Wagner noted that she was accompanying you.

Is there anything you would like to add to the testimony from

the General Services Administration?

Ms. ALSTON. No. There’s nothing I’d like to add. I will assist Mr.

Wagner in answering questions.

Mr. HORN. All right. We then move to the last presenter, and

then we’ll get down to questions.

Mr. Michael N. Griffin is the Chief of the Division of Planning

and Internal Control, Office of the Chief Financial Officer, U.S. Department of Labor.

STATEMENT OF MICHAEL N. GRIFFIN, CHIEF, DIVISION OF

PLANNING AND INTERNAL CONTROL, OFFICE OF THE CHIEF

FINANCIAL OFFICER, U.S. DEPARTMENT OF LABOR

Mr. GRIFFIN. Yes. Thank you, Mr. Chairman. I appreciate the opportunity to appear before you today to brief you on the Department of Labor’s implementation of the Travel and Transportation

Reform Act of 1998 and our participation in the GSA SmartPay

Travel Card Program.

The Department, under the auspices of the General Services Administration’s SmartPay Program, entered into a contract with

Citibank for its government-sponsored travel card on November 30,

1998. The travel in the Department is an important part of our

mission, and the Travel Card Program has served us well by giving

us a number of benefits, including streamlined administrative processes, elimination of costly paperwork, and improved cash management through the reduction of travel cash advances.

The Department currently has approximately 13,000 individually

billed travel accounts and 140 centrally billed accounts, with an

employment base of about 16,000. This number of cards is fairly

representative of the number of employees traveling on behalf of

the government and reflects our response to the requirements for

mandatory use of the card.

My office, the Office of the Chief Financial Officer, has primary

responsibility for overseeing and coordinating the Travel Card Program throughout the Department. Since the inception of this program years ago, we’ve established travel card coordinators in each

Department of Labor agency and each region to ensure program

execution and monitoring of employees’ cards.

My office acts as a liaison with GSA, the bank, and the travel

card coordinators to communicate policies, procedures, and ensure

that proper financial business practices are followed. This infrastructure has generally worked well for us in the past.

We consistently monitor the Department’s travel card payment

performance. When problems are detected, we work with the travel

card coordinators to administer corrective actions and to minimize

delinquent debts on individually and centrally billed accounts. Our

performance has generally been pretty good, but requires a lot of

hard work in terms of monitoring performance.

Recently, we had a problem that resulted in increased late payments over the past 12 months in our centrally billed accounts. The

problem resulted from a misunderstanding with the charge card

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bank on our centrally billed accounts. A number of payments were

misapplied and required some intercession with the bank to get the

payments properly applied to the Department of Labor.

We’ve recently discussed with Citibank and reached agreement

on implementation of a salary offset program on disputed delinquent individually billed travel card accounts. We’ve lowered card

spending limits and have conducted more training jointly with the

bank and our travel card coordinators to ensure that the card program operations are clearly understood. We work closely with regions and with our coordinators to resolve problems. Every 6

months we issue reminders to our employees from the Chief Financial Officer on cardholder’s conduct and responsibilities. We inform

the employees of the bank card suspension, cancellation and reinstatement policies and procedures’ and, in monitoring the program,

do occasionally have to cancel cards.

Payment performance on our centrally billed accounts has generally been pretty good. This is not reflected in the recent spike in

our delinquencies, but we’ve addressed that problem and are confident that the problem will be eliminated.

Mr. Chairman, the SmartPay Travel Card Program has worked

well for us. We are building a better partnership with Citibank. It’s

taken us quite some time to get management reporting, but an online system that is now available will help us better monitor the

program.

I thank you for giving me the opportunity to share our program

experiences with you, and will be happy to answer any questions.

Mr. HORN. Well, thank you very much, Mr. Griffin.

We’ll now go to questions and answers, and before I yield to Mr.

Putnam, I have two questions.

Mr. Hinton, a lot of the problems have come in the Department

of the Army, I believe, and my question is very simple. Is the idea

of defaulting on a loan—is that in anywhere, in either the civilian

side, military side, that would be a debt to the individual? And I’m

talking now in terms of the morality of it all, and people, it seems

to me, in responsible positions and responsibility should be held to

an accountable standard. What do you think? And why wasn’t the

Department of Defense—why didn’t it just say, hey, we’ve got a

problem here, and let’s get a tough master sergeant to see what he

can do with the troops?

Mr. HINTON. Yes, sir. What I’d like to say, first of all, in the article that was published in the Army Times on April 2nd, recognized

that you mentioned the Army. It was the Army Times talking

about the Army. They started off saying that they had problems,

and they know they needed to do better. The Army has moved their

delinquency down from a high of—I think it was 18 percent or so,

and they are about half of that, and they——

Mr. HORN. You’re saying 9 percent default?

Mr. HINTON. It was about 9 percent.

Mr. HORN. Well, you said 18 percent, and then you’ve moved

down.

Mr. HINTON. Yes.

Mr. HORN. And I take it that’s 9 percent then.

Mr. HINTON. Yes, sir.

Mr. HORN. OK.

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Mr. HINTON. But the Army, as well as the Department, feel that

the modification that we’ve just worked out with the bank, part of

that is working through all the processes. We have a number of

cards, as the bank just mentioned, that are not being used. We

want to take those cards away, and we started several months ago

to reduce those. We also—with our new folks that are coming in,

mostly junior folks, as well as the civilians, we are giving them additional training and financial training on the card. We also are

holding folks accountable. We give them opportunities to pay their

card and work with the bank, and we have taken some disciplinary

actions as well. Senior leadership in the Department is very serious

about this.

Going back to that same article, it talks about the Secretary of

the Army issuing guidance to his four-star Commanders, and even

today, General Keane has issued that as a part of the reporting

that comes to him in the morning, that he holds his officers accountable, as well as the civilians. And I think that started over

the fall, and we are seeing results as we speak now.

Overall for the Department, for IBAs, we had a percentage in

January of 18 percent—I think 18.55 or something close to that,

and we are down to, for the Department, 8.85. We have a target,

as soon as possible, to get down to 4. We’re going to continue to

work with the bank to reduce that even more.

Mr. HORN. Well, you’re saying that they are taking it seriously

in terms of personnel records; is that correct?

Mr. HINTON. Yes, sir.

Mr. HORN. So on their personnel jacket or whatever you want to

call it, does it note so and so defaulted on loan, or are they afraid

to do that?

Mr. HINTON. It’s not across—I can’t say across the board, and I

don’t have all the stats, but I know in some cases some of those

things have happened, but I can’t say if it’s across the board. I can

provide additional information on that one.

Mr. HORN. Now, Mr. Griffin, how about the Department of

Labor? If there’s defaults, does that go into the personnel jacket?

Mr. GRIFFIN. I would have to check for you, Mr. Chairman.

Mr. HORN. Would you?

Mr. GRIFFIN. Yes.

[The information referred to follows:]

The Department of Labor (DOL) does not routinely place a statement in an employee’s personnel file to indicate that the employee defaulted on his or her travel

card account or used the card for unauthorized purchases. However, if a payment

default or other misuse results in disciplinary action against the employee, e.g. a

letter of reprimand or adverse action, DOL does document the disciplinary action

in the employee’s Office Personnel File (OPF). Letters of reprimand are placed in

the OPFs for finite periods of time, usually for one to three years, and then removed. Adverse actions, such as suspension or removal for cause, are documented

in the OPF and become a permanent part of employee’s record. DOL’s personnel action tracking system reflects several cases where disciplinary action was taken

based on cardholder impropriety.

Mr. HORN. At this point, without objection, it will be in the

record.

Ms. English, the same for FEMA, Federal Emergency Management Agency, does a default go into the personnel file, so if someVerDate 11-MAY-2000 09:56 Apr 29, 2002 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 C:\DOCS\77576.TXT HGOVREF1 PsN: HGOVREF1
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body is up for a promotion sometime, that could make them a little,

perhaps, more conscious earlier in their career—— Ms. ENGLISH. I’ll have to check—— Mr. HORN [continuing]. So they don’t default?

Ms. ENGLISH. I’ll have to check on that and get back to you.

Mr. HORN. OK. And at this point we’ll put in a statement from

the Federal Emergency Management Agency.

[The information referred to follows:]

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Mr. HORN. And let me ask Mr. Skelton, on the records that reflect the Army’s improvement, does the Bank of America see

changes in the Army’s improvement?

Mr. SKELTON. Mr. Chairman, we do see some pretty significant

changes. I will tell you that you have to be careful how you analyze

progress. I do believe there has been significant progress, but we

have to be careful that they’re still in the millions per month being

charged off by OCC regulation at 180 days past due, 210 past billing, we must write off those accounts. So while we do see significant improvement, we do see performance well beyond what we

would ever imagine in any other commercial relationship. But I

must admit there is very good performance in terms of improvement.

Mr. HORN. Let me just ask one more agency that’s before us, and

that’s the Corporation for the National Community Service. Have

we got anything that ties down the records, Mr. Boehm? And we

also had Mr. Anderson. What’s happening in that agency?

Mr. ANDERSON. In respect to defaults?

Mr. HORN. Right. Defaults. And is it in the personnel record?

Mr. ANDERSON. I can’t say specifically if somebody defaults on

their charge card debt, if it goes into their personnel file at this

time. In the past 21⁄2 years under the SmartPay Program, I believe

we have had seven instances where somebody’s debt has been

charged off by the bank. The total amount of that debt is approximately $15,600. Of these seven individuals, six are no longer with

the Corporation. The other individual has disciplinary action pending against him.

Mr. HORN. Without objection, we’ll preserve a space in the record

for what’s the status of personnel use for people that default, and

are they doing it; not just a big song and dance about, well, we’ll

think about it, just are they doing it, because we’re going to come

back to this a few months from now just to see how this thing is

going.

[The information referred to follows:]

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Mr. HORN. So my last question before Mr. Putnam is to the General Services Administration, Mr. Wagner. Can you walk us

through the monthly performance report for March 2001?

Mr. WAGNER. I think I’ll have Ms. Alston walk us through that

one here. Thanks.

Ms. ALSTON. OK. The—— Mr. HORN. It’s a little hard to see that, but—— Ms. ALSTON. It’s harder for me to see this. OK. The monthly report is information concerning the agencies that are on the CFO

Council, the Chief Financial Officer’s Council, and the report shows

at the bottom the total delinquencies for the government for both

individually billed accounts and for centrally billed accounts. And

if you can see—— Mr. HORN. Now, I take it that category is headed overall 60 plus

days; is that correct? It says 2 months default—— Ms. ALSTON. This is 61 plus days of total outstanding IBA, and

at the bottom you can see that the government’s rate for March

was 7.23 percent. OK, if you continue over—— Mr. HORN. Well, it is an average at the bottom, or is it a—— Ms. ALSTON. Yes, that’s the average for these agencies shown.

Mr. HORN. Right.

Ms. ALSTON. But there—— Mr. HORN. So you’ve got the Corporation for National Service at

38 percent defaults. So that certainly would run it up a little, and

we have—the Department of Education is 18 percent. Is that generally student loans? It seems to me we aren’t giving them these.

So it’s the staff that’s getting them, and it’s 18 percent, which is

pretty sad, because we’re asking testing for students, and we need

testing for bureaucrats.

Ms. ALSTON. Mr. Chairman, I think we may be looking at different reports. Do you have the report that’s March 2001?

Mr. HORN. That’s what I got, 60-plus-day delinquencies, and you

say it’s 4.8 percent, which—yeah. Let’s just go down the line at the

top here. Travel individually billed accounts, balance due, and you

can see there in the case of the Department of Defense, we’re talking about $17.1 million.

Ms. ALSTON. Yes.

Mr. HORN. We get to Justice, $1.8 million. We get to Transpor- tation, $1.7 or $1.8 million, and then the total of that is simply

travel, individually billed accounts, that are over 2 months or 60

days, however you count it—— Ms. ALSTON. That’s correct.

Mr. HORN [continuing]. At $25 million. Then we’ve got the outstanding ones to the tune of $347 million.

And, again, Defense has $195 million involved. And then we’ve

got a whole series of things here, but in a nutshell, it boils down

that there is, say, a few big defaults and there’s some that are in

the 1 or 2 percent. But the big ones are, of course, as I said earlier,

Corporation for National Service, 38 percent, and then the Department of Defense, 18 percent. And that’s a big number any way you

look at it.

So is that unusual or is that—is there a trend line here is what

I’m after? Is this the worst or the best? Are we improving in March

or not improving?

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Ms. ALSTON. Actually we have improved considerably. This number, the overall percentage for the government is down from last

month. It was 11 percent and now it’s down to 7.23. And if you look

at the very bottom of the chart, it will show you the numbers in

the far right corner, it shows you March 2000, and individually

billed debt over 60 days was at 14 percent. Now it’s down to 7. So

we see that the trend is for the delinquency rates to come down.

Mr. HORN. I now yield to Mr. Putnam for the purpose of questioning.

Mr. PUTNAM. Thank you, Mr. Chairman. First of all, for Mr. Hinton, I am most concerned about a department whose culture is defined by discipline, by the chain of command, by authority, responsibility and 40,000 soldiers and sailors and employees in the Department of Defense have accumulated $50 billion in defaults.

Now, are some branches in worse shape than others by nature

of the deployment? Are there trends within the Department of Defense? Are civilian rates higher than non civilian rates? Could you

give us some insight into that and elaborate on that a little bit for

us.

Mr. HINTON. Yes, sir, be glad to. As I mentioned earlier, we have

been working with the bank over the last several months very, very

hard. And we signed an agreement on April 11th to a number of

things to help better manage this problem. One of the things that

are coming—and I’ll get back to in a little bit—but I just wanted

to lay out that we are implementing, for instance, deductions from

salaries, meaning that after 120 days, the bank will be able to

come to us, after due process, and we will take money out of the

particular member’s salary.

Mr. PUTNAM. When will that be implemented?

Mr. HINTON. It will be implemented by October 11th, 6 months

from now. It’s not only the current debt, but they can demand the

part that has been written off as well. So we are retrospectively

going back to try to eliminate or to reduce the burden to the bank.

And that was signed, again, on April 11th.

As far as the particular military department or civilian in the

military, we see a trend kind of in the junior ranks, but junior

ranks in civilian as well as military. What we are trying to do is

we are giving more training. We are counseling the folks. We are

trying to be proactive. We don’t want to solve the problem at the

end, we want to, you know, help work with them before things get

out of hand.

For instance, the stats that I can recall, I think the Army has—

the chairman has mentioned, and in the article that I mentioned,

the Army talked about some of those issues in the article on April

2nd from the Army Times some of the leadership in the Army—

about the cards being issued to some of the junior folk, civilian and

military. They are addressing that.

Mr. PUTNAM. But you don’t know if there is a bigger problem in

the Army or the Navy, or if the nature of the deployment of the

Marines makes their situation worse or better than the Coast

Guard, meaning——

Mr. HINTON. In the article in the Army—April 2nd Army Times,

the Army did mention that it was—the deployments of the soldiers,

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it was talked about. So I would say I think it’s probably the Army,

based on that article and my understanding of it.

Mr. PUTNAM. Now, the other agencies, FEMA and National Service and Labor, you indicated that you did not know whether notes

were made in the personnel file. What action is taken when these

situations occur? What disciplinary action does take place?

Mr. ANDERSON. If I may go first, Congressman. Can I first clarify

something regarding Congressman Horn’s, the 38 percent related

to the Corporation’s rate? I just wanted to point out that 38 percent is not for our individually billed travel accounts. We have $4,700

in those delinquencies. Almost the entire amount of delinquencies

reported for the Corporation for National Service relates to a

closed, centrally billed account.

In my view, probably none of that is really delinquent. We had

some difficulties with Nations Bank, and now Bank of America is

getting the exact amount of billing and payments that we’ve made

to the bank addressed. Almost the entire amount is things where

we’ve actually made the payment, it’s just showing up in a dif- ferent account. Most recently we determined that of the $424,000

that is there, approximately $165,000 of that was for payments we

had made on our travel card that they had inadvertently applied

to our purchase card.

As far as what happens with people when they become delinquent on their debt or if they default, the Corporation does review

and take seriously any instances of misuse with the card. We’ve

had 13 instances over the last 21⁄2 years where people have been

identified as having some sort of abuse with the card. That abuse

ranges from an innocent inappropriate charge on a card that the

employee caught themselves, had reversed off of the card and applied to their own personal credit card when they were on the travel status, and then they were identified in a followup review because the charge is on their card, to the more egregious abuses

identified in the Inspector General’s report.

Our penalties and/or our disciplinary action related to those activities range anywhere from in the first instance to a reprimand

to the person, or basically telling them you got to be more careful

with the card. It was an innocent use, but you still need to be careful, to the most egregious actions where we terminated the employee.

Mr. HORN. Just, if I might followup, since you opened it, I notice

in the GSA report under the Corporation for National Service,

which is 38 percent overall, and it says ‘‘asterisk, data under review.’’ Does that mean you got some phony numbers from the people at the Corporation?

Mr. ANDERSON. No. The data is under review because we had difficulties when we first implemented the SmartPay program, the

bank was to provide us with certain information so that payments

to our centrally billed accounts could be applied properly, where

the funds are controlled, and where the money is obligated. The

bank was unable to provide us with that information. When we

began—we were making payments on our bills, but the bills were

not showing up as being paid.

The problem continually grew until approximately a year ago, in

cooperation and coordination with Bank of America, we basically

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closed all the old accounts and set up new accounts. The new accounts are working properly. The old accounts still have open balances related to them in some instances.

It was $1.3 million. We have it down to $275,000 as of today. Of that $1.3 million, over $1 million had been paid to the bank by the

Corporation, only it hadn’t shown up as being applied to our accounts. So it was not that we were delinquent on the debt, it was

just that the particular account was showing that it had not been

paid, when in fact it had been paid.

Mr. PUTNAM. Does your agency garnish wages?

Mr. ANDERSON. To date, we have not garnished anybody’s wages.

Mr. PUTNAM. Thank you. Ms. English, does your agency garnish

wages in these situations?

Ms. ENGLISH. No, not to date we haven’t.

Mr. PUTNAM. Mr. Wagner.

Mr. WAGNER. Yes, GSA does.

Mr. PUTNAM. Mr. Hinton.

Mr. HINTON. No, sir.

Mr. PUTNAM. You said that you were going to begin.

Mr. HINTON. Deduction from salary, yes, sir.

Mr. PUTNAM. So of all the agencies in government, how many are

actually taking advantage of the law which allows them to garnish

wages? Does anybody know the answer to that?

Ms. ALSTON. Well, we know of only three that are actually doing

it now. And there are three other agencies that we believe are implementing it.

Mr. PUTNAM. Who are the three that are currently doing that.

Ms. ALSTON. GSA, Department of Interior, and the Social Security Administration.

Mr. PUTNAM. Of all agencies in the government, only three are

taking advantage of the law which would presumably prevent the

types of defaults that Mr. Skelton’s industry faces. And that’s on

the individual side.

Now, the part that concerns me probably more than the individual side, even though it’s a smaller number is, is the central billing

problem, which there conceivably should be no excuse for.

Now, if 4 percent of $11⁄2 billion in outstanding balance are 60

days old or more. Could someone please share with me what circumstances would allow that type of situation to occur in these

agencies that have internal accounting departments, that have finance departments? Why can’t the government pay its bills on

time?

Mr. Wagner, we’ll let you take a crack at that one.

Mr. WAGNER. OK. I’m operating on a theoretical basis here, but

I am aware in general that when you work with the folks doing financial systems, and I’m not a financial person, that one of the

very difficult problems is reconciliation. And so we have many legacy systems that make it quite difficult to match up exactly which

disbursement goes in the right bucket. And I think that we just

heard a discussion of that where you’re trying to reconcile between

a bank system and an internal system and work that out.

And I only know from theoretical knowledge that is what a lot

of the financial community has been working hard to make better.

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provement. And what you’re seeing here is evidence of the difficulties people are having in the centrally billed accounts. But I must

confess I’m operating on theoretical rather than empirical knowledge here. Others may know this problem more closely than me.

Mr. PUTNAM. Mr. Skelton, have you been given any reasons why

the government is incapable of paying their bills in less than 2

months?

Mr. SKELTON. Yes, sir. Typically what we see is an agency requirement where reconciliation is required internally prior to submitting payment or posting payment. Some agencies interpret that

rule or perceived regulation differently. At Department of Interior,

for example, we’re paid, and then reconciliation takes place afterwards and reimbursements are placed if any payments were in

error.

And let me say, with respect to Mr. Anderson’s comment, that

there are errors from time to time. The errors are well shared, both

within Bank of America and within the agencies. Often we get payments with the wrong account number on them, with no account

number at all, etc. But those are on the margins. Frankly, the

problem is the reconciliation requirement and the interpretation of

that preceived requirement. In agencies where they don’t perceive

that requirement to reconcile before paying we have absolutely no

issue on timeliness of payments.

Mr. PUTNAM. Mr. Pieroth would you take a crack at this one?

Mr. PIEROTH. Certainly Congressman. Our experience has been

that the majority of agencies at the time an employee goes on travel and has elected to charge their transportation to a centrally

billed account, those agencies issue a travel authorization number.

And that authorization number is critical to getting back to the

original appropriation to actually pay for that travel when the bill

comes in.

Due to limitations within the airline industry, even though the

travel agency that books the travel is able to capture that travel

authorization number, there is currently no mechanism in the infrastructure to pass that travel authorization number on to the

banks. And as a result, in many cases, there’s a requirement for

the bank to deliver a reconciliation file to the travel agency, who

in turn must then append the data with his travel authorization

number and then pass on either a written report or a data file to

the agency for payment. And our experience has been that process

is difficult and has been fraught with problems.

Mr. PUTNAM. Thank you. To all of our Federal witnesses, we

have heard testimony that only three of the agencies actually take

advantage of the opportunity that the law allows to garnish wages.

Should the ‘‘may garnish wages’’ in the law be changed to a ‘‘must’’

in your opinion?

Mr. Wagner.

Mr. WAGNER. I guess I would have to say I’m a ‘‘don’t know’’ on

that. I think that one of the issues that people get into with garnishing wages is often the situation is there’s nothing left to garnish, the people who get into these problems already have other financial problems. So the garnishment tool is less strong than it

might be. And we would also want to look at the managing of how

these cards are issued in the first place. It certainly appears, based

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on the first year’s experience, that we need to put more attention

on who we issue those cards to so we never even get into the situation of garnishing.

Mr. PUTNAM. Thank you. Yes, ma’am.

Ms. ALSTON. May I add that there are other tools that agencies

have to manage delinquencies that are also set forth in the contract. So salary offset or garnishment is just one of those tools.

Agencies can also do things, like set credit limits for their travelers. They can block merchant categories. What we’ve tried to do is

give agencies a package of alternatives that they can use in helping

to bring down the delinquencies.

Mr. PUTNAM. Mr. Wagner.

Mr. WAGNER. As I think about it a little more, our position on

a lot of the way we look across the government as a whole is not

so much to tell people how, but to tell people what. And that we

would view this—well, we do view this as a management issue in

that the problem is for the agencies that have this problem to deal

with it as a management problem and work with it in whatever internal context they might have, the type of employee, the union,

etc. So I would be hesitant to mandate any specific way of doing

it, but more, focus on what are the results we want which is certainly a lot fewer and a lot lower balances in the central billed accounts. Thank you.

Mr. PUTNAM. Thank you. And ordinarily I would agree with you,

but only you and two other agencies are planning to take control

of this problem. It would appear that the Congress, in developing

the law attempted to do just that, to build some discretion in, to

build some management opportunities in there and look where it

got us.

Let me ask what I think is what, to me, is the core of the issue.

Can anyone answer how much we have saved by moving to this

new system? How much government agencies have earned or accrued in these rebate programs, and how much these agencies have

had to pay out additionally or have lost as a result of the consequence of the payment loss? So what’s the net gain or loss to the

taxpayer as a result of this legislation? Staff tells me, Mr. Wagner,

that’s your department, too.

Mr. WAGNER. I’m actually looking for the piece of paper that

pulls out the travel refunds specifically. And I think it probably

would be better for Ms. Alston to explain that. I also would caution

you on these figures we keep—we will answer the question, but I

think if we also submitted some more specific background.

Mr. PUTNAM. Please.

Mr. WAGNER. Because you end up with different contracts, different basis points and it would be—but Carolyn, if you have the

refunds.

Ms. ALSTON. Can I say that if you look at the agencies, your

issue of what agencies are actually managing, even though you

know we’ve said there are only three agencies that I know of that

have implemented salary offset, that and three others that are implementing agencies using other tools to bring down their delinquencies. If you look at the March report, you’ll see that there are

a number of agencies that are at zero delinquencies on their debt

that is over 60 days for centrally billed, and on the IBA, the indiVerDate 11-MAY-2000 09:56 Apr 29, 2002 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6633 C:\DOCS\77576.TXT HGOVREF1 PsN: HGOVREF1
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vidually billed accounts, there are a number of agencies that are

at 1 and 2 percent, which I think would compare very favorably to

similar commercial accounts.

The answer on the savings is that really it’s too early to tell. We

really have, for comparison data, only two quarters of this year

that we can compare to the period prior to the mandatory use of

the credit card.

For those two quarters, we’re showing—and this is just raw data

so there has been no analysis—for the same period last year, the refund was $4.7 million and for this year it’s been $4.8. I think

that part of the reasons why the refund didn’t go up more is the

volume was up, but the payment performance was not where we

wanted to see it. I think that the act gives the potential for greater

savings, but we’re going to have to see some of the initiatives that

bring down the delinquencies actually have an impact. And also

we’re going to have to look at our next quarter, which is generally

our higher spend period.

Mr. PUTNAM. Thank you. And I stand corrected, I appreciate you

clarifying the point about the different agencies and I look forward

to seeing the more detailed data. I yield back to the Chair.

Mr. HORN. Thank the gentleman. And as I look at this chart, the

Office of Personnel Management, which is supposed to, throughout

the executive branch, have sensible personnel policies, and they’re

in 11 percent in the individual accounts over 60 days. Now, the

other administrative agency that is not in the executive office of

the President is the General Services Administration. So sort of tell

me who you have to consult with when you’re putting out a policy

on a program like this? Do you have to consult to the Office of Personnel Management? And did you? Or are they just out of existence

and have a title?

Mr. WAGNER. Generally when we do any policy in GSA, we consult with as many people as possible. We found that a collaborative

policy development model is the way to go. So we would certainly,

and I’m certain, did consult with Office of Personnel Management,

Office of Management and Budget, the banks as well, and anyone

we could work with in developing the policy. So yes, OPM would

have been a player.

Mr. HORN. How about the Office of Management and Budget?

Were they a player?

Mr. WAGNER. Very definitely.

Mr. HORN. What part of the Office was involved in this policy?

Mr. WAGNER. Well, I think as a technical matter, it goes through

the Office of Information and Regulatory Affairs. But we actually

have a very close working relationship with essentially all parts of

OMB that work management issues so that it would cut across in

other areas. For example, the financial management side of OMB

we talk to them, which is why I have theoretical but not empirical

knowledge of the reconciliation issues. So sort of all parts of OMB

involved in management issues would be the folks we deal with.

Mr. HORN. When this policy went out, was the Deputy Director

for Management at OMB, or was that a vacancy?

Mr. WAGNER. I think we definitely had Deputy Directors for

Management at OMB, at least on an acting basis. Whether any of

the individuals were personally involved, I don’t think so.

68

Mr. HORN. So up to 1998 was Koskinen and then DeSeve and so

forth.

Mr. WAGNER. We’ve talked to John Koskinen and DeSeve and

Sally Katzen on a regular basis. I am not sure I remember—I know

John Koskinen was very involved in earlier travel reform issues. I

think by the time this came about, John was working on the— maybe he was still doing that.

Mr. HORN. Well, he was retired as of, I think January—it would

be around 1998 or so. And then he came out of retirement.

Mr. WAGNER. To do Y2K.

Mr. HORN. Mr. Putnam is correct here, we ought to get people’s

attention that we just aren’t going to let this go unraveled. And

what we knew—need to do is talk about delinquencies and does it

affect people, why should we promote anybody that doesn’t pay

their bills? I realize it’s tough for a lot of families. But a lot of these

people are not families on food stamps, which we often hear about.

Some people I suspect are at least over GS–5s or 7s. It would be

fascinating to know what’s happening there, if you want to put that

in one of your columns, that might be very revealing.

And I guess I would ask the banks present what are the demographics of the Federal employee most likely to default on their

travel card account?

Mr. Skelton.

Mr. SKELTON. Mr. Chairman, I can speak specifically for DOD.

And what we find, just to answer that, as well as one of Representative Putnam’s questions, is that Army is the worst, Air Force is

the best in this IBA payment situation. And what we find is 70

percent of what we charge off or write off the books in the way of

individually billed payments are from the E–1 through E–6 junior

enlisted category, and that category actually recommends about 25

percent of the spend or the amount of charges. So we find a significantly bigger issue in the junior enlisted personnel area. And that

is germane.

And then finally, quickly, he had asked about rebates, we paid

$8 million to the Department of Defense in the way of rebates, $5

million more could have been achieved.

Mr. HORN. Do the corporate travel cards produce revenue for the

banks?

Mr. SKELTON. In this particular—travel-only corporate travel

card relationships not offset by procurement business do not

achieve industry-wide profit for the banks, specifically egregious in

our case with the Department of Defense.

Mr. HORN. Now, Mr. Pieroth of the U.S. Bank, what would your

answer be to the question that was posed to Mr. Skelton?

Mr. PIEROTH. I would also have a similar response that the demographics of employees that will tend to have delinquency problems are those that are of a lower grade level, receive less compensation, and as a result, are more likely to find themselves in a

financial difficulty.

If I may, I would also like to point out one area that I do not

believe we have touched on yet, but at least from the perspective

of U.S. Bank we believe was critical to this issue. If you take a look

at delinquency, there are really two major contributors: The first

is personal use of the card for non-travel expenses. That tends to

69

be the smaller of the two. And generally can be managed by associating appropriate credit limits based on anticipated travel, putting

appropriate limits on cash access and also blocking the use of the

card at establishments that would not normally be related to travel. And I believe that those tools can be effectively deployed to

bring that risk down to an acceptable level.

The second and by far largest contributor to delinquency is cases

in which the employee has been reimbursed for business or government travel, and then elects not to pay the card issuer. And while

we can talk about how we might be able to garnish or punish the

employee, we firmly believe that the most proactive solution is to

ensure that the employee is never put in that position. And one of

the commercial best practices that is deployed by a majority of our

commercial customers is the institution makes payment directly to

the card issuer for those charges that were actually put on the

card. And in some cases, agencies have deployed these split disbursement systems. We have also heard that some agencies believe

there are various reasons why they could not implement such a

system. But we believe that it, in and of itself, would be the biggest

improvement that could take place in terms of managing delinquency.

Mr. HORN. Any other comments the banks want to make that

they feel might be helpful to solving this problem?

Mr. SKELTON. Mr. Chairman, I would agree with Mr. Pieroth on

his comments with regards to what is usually classified as split disbursement or direct payment to the bank. If possible, I would argue

that you could take that a step further, and for those that actually

still don’t manage or it still doesn’t manage to work properly, it’s

my belief that for official government travel, the government

should assume responsibility, like corporations do in nearly every

other corporate relationship we have for delinquencies that go beyond a certain point. We have, by and large, no other relationships

in a commercial card whereby the corporation is not liable for those

charges. And in this case, it doesn’t exist that way.

Mr. HORN. Any other thoughts on that, Mr. Pieroth, besides this?

Mr. PIEROTH. No, Mr. Chairman.

Mr. HORN. Any comments from the Federal executives as to what

you see as a better way to go about this? We’d like to hear it. Any

thoughts on that we haven’t already gotten into? Anything else

from the Federal group?

Section 2, the first major provision of the Travel Reform Act, provides agencies with authority to exempt personnel from the law.

Why wasn’t this provision used to a better end by your agencies?

Defense?

Mr. Hinton.

Mr. HINTON. Mr. Chairman, we followed, we believe, the intent

of the law. We have added some additional exemptions from personnel. We have, after signing the agreement that I always come

back to from April 11th, we are going back there to take a look at

the people that we have issued cards, I think, I believe the bank

said about 40 percent. I cannot agree with that, but I know there

are cards out there that we need to pull back. And before we issue

cards, we will proactively look at accounts and the other information related to issuing a card.

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Mr. HORN. And I gather, see if there is true from either U.S.

Bank or Bank of America, how does the delinquency rate on a government credit card compare with the delinquency rate on commercial credit card?

Mr. SKELTON. Profoundly higher on the government card.

Mr. HORN. Is there something you’re doing with your commercial

accounts that you don’t do with the government accounts?

Mr. SKELTON. First and foremost, Mr. Chairman, what I would

say is what I said previously, and that in a commercial relationship

the corporation is typically accountable, almost always accountable

for those charges. And the policy, for example, in our corporation,

is we are as well accountable if the employee is fired when it gets

to a point of significant delinquency. So the bottom line is we need

accountability from within the government for charges for official

travel. And that’s the main differential that I see, as well as who

we have to issue the cards to. We would not issue many of the

cards we issue today to the Department of Defense if we were allowed to follow the standards we use in our commercial practice.

Mr. HORN. Mr. Pieroth, U.S. Bank.

Mr. PIEROTH. Our experience has been that our delinquency

rates on government accounts are approximately three times higher than those that we see on commercial accounts. Although we do

not have an expectation that the government will be able to match

commercial delinquency rates, we do think the current rate can

probably be improved.

From a commercial perspective, we do issue accounts with individual liability. As a matter of fact, the majority of our accounts

are issued in that manner. The primary differences between our

commercial customers and our government customers is one, our

commercial customers are able to implement more stringent policies, including termination in the event of misuse of the card.

The majority of them, as I had mentioned earlier, also deploy the

split disbursement systems to ensure that payment is made directly to us rather than to the employee for charges that have occurred on a card and are legitimate travel expenses. And then,

third, our financial incentives are based on the overall profitability

of the relationships. So to the extent that the delinquency and credit losses make the account unprofitable, we do not pay any financial incentives to our commercial customers until that condition is

rectified.

Mr. HORN. Well, those make sense to me. Mr. Wagner, should

the agencies assume liability for these accounts, and wouldn’t that

result in an immediate improvement?

Mr. WAGNER. I guess I don’t know. I hate to admit that, but the

problem we would get into is if you set up—it’s a very different

scheme than we have developed over many years. I think we actually have some flexibility under the laws, opportunities for experimental situations, and we could explore that using, if some agency

wished to, look at how that traded off. I do agree that tools like

split disbursement and more effective management of our employees have a lot of value.

Ms. ALSTON. We have found that there are some differences— variations in the commercial models among the banks. We’ve engaged in an independent contractor to document what the commerVerDate 11-MAY-2000 09:56 Apr 29, 2002 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 C:\DOCS\77576.TXT HGOVREF1 PsN: HGOVREF1
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cial model is, what their costs are, and what their revenue streams

are, and to help us design a model that we can use to assess

whether our model is financially viable from the bank’s standpoint.

We hope to use the information that we gather from that to assess

whether we need to make further improvements on the model that

we’re using today.

Mr. HORN. OK. Anybody have a last word on this before I get a

last word? You can even have the last word off that.

Mr. SKELTON. Sir, if I might, I just wanted to point out that

within the Department of Defense, one of the issues, policy issues

we have is the use of cash, is significant by requirement, and I

don’t question the fact that DOD interprets it that way, the cash

and fixed rate per diem by city is necessary. But what we find in

performance is that 21 percent of the charges on the card in the

DOD portfolio are for cash, and what we find in our other agencies

is that about 12 percent is used for cash. And we also find that

cash is twice as likely to go through the delinquency process to

charge off. So we either think that there is a misuse issue, but we

also believe that the policy surrounding the need for cash are a significant part of the problem here.

Mr. HORN. Any other thoughts?

Mr. Hinton.

Mr. HINTON. Not really, sir. But I will mention that we are looking at, again, the number of cards that are out there and again,

the bank has mentioned 40,000. I think if we start by controlling

those cards, I think it’s going to help with that percentage. Thanks.

Mr. HORN. Any other thoughts on this?

OK. Let me thank the staff that prepared this hearing, and then

I have a closing statement. My left, your right is the staff director

and chief counsel of the subcommittee, J. Russell George; detailee

from the General Accounting Office, Diane Guensberg. Bonnie

Heald is the director of communications and professional staff; and

the very able clerk, Grant Newman, assistant to the committee,

and Earl Pierce is the professional staff member. Matthew Ebert

is the policy advisor, lead staff member on this, and I must say

congratulations to Mrs. Ebert, it’s an 8-pound baby boy on Sunday.

We are human and we still work on these things.

The minority staff, Michelle Ash, professional staff;, Jean Gosa

over there in the corner, and the ranking member, the gentlewoman from Illinois, wants a statement entered into the record,

and without objection, that will be put into the record after Mr.

Putnam’s remarks. The court reporters, Michelle Bulkley and Julie

Thomas, we thank you also.

I would like to thank each of our witnesses for their insightful

testimony. This is a very difficult situation. I must note, however,

that although deputies and agencies have made headway over the

last few weeks in improving their delinquency rates, much more

must be done. Whether this hearing inspired such action or not,

this improvement demonstrates what agencies request accomplish,

if given the proper incentive. Mr. Wagner, we would like to request

that GSA continue providing the subcommittee with monthly statistics on the travel card program. In addition, we’d like you to submit any legislative remedies that would help resolve this difficult

problem. So I don’t expect that just from the Federal officials. If

72

those of you that are on the commercial side of banking, we’d welcome your ideas on how to solve some of this and make it a little

more effective than it seems to be. So if you have any point on this,

we would welcome them.

Mr. Skelton, any thoughts on this?

Mr. SKELTON. I think we need to continue to examine this, Mr.

Chairman, and I do believe that any sort of ongoing continued

oversight that you can provide will help us to keep our finger on

that one, and continue to operate in cooperation to bring some best

practice advice back to the government. We intend to try and do

that.

Mr. HORN. Good.

Mr. Pieroth.

Mr. PIEROTH. No, Mr. Chairman we don’t have any other points

other than those we’ve already made.

Mr. HORN. OK. Any thoughts? Well, we thank you all for coming.

And we appreciate your testimony. With that, we’re adjourned.

[Whereupon, at 11:42 a.m., the subcommittee was adjourned.]

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