a

GAO

United States General Accounting Office

Report to Congressional Requesters

December 2002 TRAVEL CARDS

Control Weaknesses 

Leave Navy Vulnerable 

to Fraud and Abuse

GAO-03-147
As of March 31, 2002, over 8,000 Navy cardholders had $6 million in

delinquent debt. For the prior 2 years, the Navy’s average delinquency rate

of 12 percent was nearly identical to that of the Army, which had the highest

federal agency delinquency rate. Since November 1998, Bank of America

had charged off nearly 14,000 Navy accounts totaling almost $17 million, and

placed many more in a salary offset program similar to garnishment.

During the period covered under this review, over 250 Navy personnel might

have committed bank fraud by writing three or more nonsufficient fund

(NSF) checks to Bank of America. In addition, as shown in the table, many

cardholders abusively used the card for inappropriate purchases including

prostitution and gambling without Navy management being aware of it.

Many of these purchases were made when individuals were not on travel.

Category Examples of vendors

Number of

transactions

Dollar

amount

Legalized brothels James Fine Dining, Chicken Ranch 80 $13,250

Jewelry Kay Jewelers 199 20,800

Gentlemen's clubs Spearmint Rhino, Cheetah's Lounge 247 28,700

Gambling Seinpost Holding 80 34,250

Cruises Carnival, Norwegian 72 38,300

Sports, theatre, and

concert tickets New York Yankees, Ticketmaster 502 71,400

The Navy’s overall delinquency and charge-off problems were primarily

associated with lower-paid, low- to midlevel enlisted military personnel. A

significant relationship also existed between travel card fraud, abuse, and

delinquencies and individuals with substantial credit history problems. For

example, some cardholders had accounts placed in collections while others

had filed bankruptcies prior to receiving the card. The Navy’s practice of

authorizing issuance of the travel card to virtually anyone who asked for it

compounded these problems.

We also found inconsistent documented evidence of disciplinary actions

against cardholders who wrote NSF checks, or had their accounts charged

off or put in salary offset. Further, almost one-half of these cardholders still

had, as of August 2002, active secret or top-secret clearances. Other control

breakdowns related to the Navy’s failure to provide the necessary staffing

and training for effective oversight, and infrequent, or nonexistent,

monitoring of travel card activities.

As a result of these and similar findings in the Army travel card program, the

recently enacted fiscal year 2003 Defense Appropriations Act included

provisions requiring the Secretary of Defense to establish guidelines and

procedures for disciplinary actions and to deny issuance of the travel card to

individuals who are not creditworthy.

TRAVEL CARDS

Control Weaknesses Leave Navy

Vulnerable to Fraud and Abuse

www.gao.gov/cgi-bin/getrpt?GAO-03-147.

To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Gregory Kutz at

(202) 512-9505 or kutzg@gao.gov.

Highlights of GAO-03-147, a report to

Congressional Requesters

December 2002

Poor oversight and management of

DOD’s travel card program has led

to high delinquency rates, costing

DOD millions in lost rebates and

increased ATM fees. As a result,

the Congress asked GAO to report

on (1) the magnitude, impact, and

cause of delinquencies, (2) the

types of fraudulent and abusive

uses of the travel card, and (3) the

effectiveness of internal controls

over DOD’s travel card program.

GAO previously reported on travel

card management at the Army.

This report focuses on travel card

management at the Navy, including

the Marine Corps.

GAO makes numerous

recommendations to the Navy in

the areas of card issuance, account

monitoring, and disciplinary

actions, including:

• evaluate the feasibility of

deactivating all cards when the

cardholders are not on

authorized travel;

• review the adequacy of

program staffing;

• provide sufficient training to

APCs to ensure proper

oversight of the travel card

program, including effective

monitoring for inappropriate

transactions; and

• review security clearances of

cardholders with financial

problems.
Page i GAO-03-147 Navy Travel Cards

Contents

Letter 1

Results in Brief 3

Navy Has High Delinquency and Charge-off Rates but Recent 

Actions Have Resulted in Some Improvements 7

Potentially Fraudulent and Abusive Travel Card Activity 23

Weak Overall Control Environment and Ineffective Travel Card 

Program Controls 39

Statistical Tests of Key Control Activities 51

Conclusions 54

Recommendations for Executive Action 55

Agency Comments and Our Evaluation 58

Appendixes

Appendix I: Background 61

Travel Card Program Guidelines 63

The Navy Travel Process 64

Appendix II: Objectives, Scope, and Methodology 74

Appendix III: Navy Major Command Delinquency Rates 81

Appendix IV: Navy Personnel Grade, Rank, and Associated Basic Pay 

Rates 82

Appendix V: Comments from the Department of Defense 84

Tables Table 1: Cumulative Charge-offs and Recoveries and Delinquencies 

by Military Service 9

Table 2: Outstanding Balance and Delinquency Rate as of March 31, 

2002, by Major Navy Commands 14

Table 3: Examples of Potentially Fraudulent Activities 25

Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001 

through March 31, 2002 28

Table 5: Examples of Abusive Travel Card Activity Where Accounts 

Were Charged Off or Placed in Salary Offset 31

Table 6: Examples of Abusive Activity Where the Cardholders Paid 

the Bills 35

Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at 

Navy Sites Audited 45

Table 8: Results of Testing of Key Internal Controls 52
Contents

Page ii GAO-03-147 Navy Travel Cards

Table 9: Comparison of Number of Individually Billed Travel 

Cardholders and Related Charges for DOD versus Total 

Federal Government Charges for Fiscal Year 2001 62

Table 10: Population of Fiscal Year 2001 Travel Transactions at Navy 

Units Tested 77

Table 11: Estimates of Fiscal Year 2001 Transactions That Failed 

Control Tests for Approved Travel 78

Table 12: Estimates of Fiscal Year 2001 Transactions That Failed 

Control Tests for Accurate Travel Voucher Payments 79

Table 13: Estimates of Fiscal Year 2001 Transactions That Failed 

Control Tests for Timely Submission and Processing of 

Travel Vouchers 79

Table 14: Navy Major Command Delinquency Rates (By Quarter) for 

the 2 Years Ending March 31, 2002 81

Table 15: Navy Military Grades, Ranks, and Associated Average 

Basic Pay Rates for Fiscal Year 2001 82

Table 16: Marine Corp Military Grades, Ranks, and Associated Basic 

Pay Rates for Fiscal Year 2001 82

Table 17: Civilian Grades and Associated Basic Pay Rates for 

Calendar Year 2001 83

Figures Figure 1: Navy, Army, Other DOD, and Non-DOD Civilian Agencies 

Travel Card Delinquency Rates for the 2-Year Period 

Ending March 31, 2002 8

Figure 2: Navy Delinquent and Total Outstanding Travel Card 

Balances by Military Grade and Civilian Populations as of 

September 30, 2001 10

Figure 3: Navy Delinquency Rate by Military Grade and Civilian 

Populations Compared to Navy’s Average as of 

September 30, 2001 11

Figure 4: Fiscal Year 2001 Navy Charge-offs by Military Grades and 

Total Civilian Populations 12

Figure 5: Navy Travel Card Charge-off and Recovery History from 

October 1, 2000, to March 31, 2002 19

Figure 6: Overview Flowchart of the Navy Travel Process 65

Figure 7: Travel Card Application 67

Figure 8: Required DOD and Bank of America Delinquency Process 

Management Actions 71
Contents

Page iii GAO-03-147 Navy Travel Cards

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Page 1 GAO-03-147 Navy Travel Cards

United States General Accounting Office

Washington, D.C. 20548

A

December 23, 2002 Letr

The Honorable Charles E. Grassley

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable Stephen Horn 

Chairman

The Honorable Janice D. Schakowsky

Ranking Minority Member 

Subcommittee on Government Efficiency, 

Financial Management and Intergovernmental Relations 

Committee on Government Reform 

House of Representatives 

On October 8, 2002, we testified1 before the Subcommittee on Government 

Efficiency, Financial Management and Intergovernmental Relations, House 

Committee on Government Reform, on the results of our audit of internal 

controls over travel activity at the Department of the Navy (including the 

United States Marine Corps). During fiscal year 2001, the Navy had about 

395,000 individually billed travel card accounts and $510 million in related 

travel card charges. In contrast to the purchase card program, where 

charges are billed directly to the government for payment, the individually 

billed travel cardholder is directly responsible for all charges incurred on 

his or her travel card account and for remitting payments on the monthly 

bill to the card issuer, Bank of America. The cardholder is expected to use 

the government travel card only for valid expenses related to official travel 

and to submit a properly documented voucher to get reimbursed for valid 

expenses. The intent of the travel card program was to improve 

convenience for the traveler and to reduce the government’s costs of 

administering travel (see app. I for additional background information on 

the Navy’s travel card program). While we support the use of a travel card 

program to streamline the administration of official government travel, it is 

important that agencies have adequate internal controls in place to protect 

the government from fraud, waste, and abuse. 

1

U.S. General Accounting Office, Travel Cards: Control Weaknesses Leave Navy Vulnerable 

to Fraud and Abuse, GAO-03-148T (Washington, D.C.: Oct. 8, 2002).
Page 2 GAO-03-147 Navy Travel Cards

This work was performed in response to your request for a comprehensive 

examination of the Department of Defense’s (DOD) and the military 

services’ purchase and travel card programs. We have previously reported 

on the results of our Army travel card audit2

 and will be reporting on the 

results of our Air Force travel card audit. This report provides details and 

results of our Navy travel card audit, which was summarized in our recent 

testimony.

The objectives of our audit of the Navy’s travel card program were to 

determine, for fiscal year 2001 and the first 6 months of fiscal year 2002,

(1) the reported magnitude and impact of delinquent and charged-off Navy 

travel card accounts, along with an analysis of related causes and DOD and 

Navy corrective actions, (2) whether indications existed of potentially 

fraudulent and abusive activity3

 related to the Navy travel cards, and (3) the 

effectiveness of the overall control environment and key internal controls 

for the Navy’s travel program. To achieve these objectives, we analyzed the 

Navy’s account delinquency and charge-off information and compared it to 

that of non-Navy DOD components and other federal agencies. We also 

used data mining techniques to review Navy transactions for potential 

fraud and abuse. In addition, we evaluated the effectiveness of selected, 

specific internal control policies, procedures, and activities at 3 Navy 

installations, representing 3 of the Navy’s 27 major commands.4

2

U.S. General Accounting Office, Travel Cards: Control Weaknesses Leave Army 

Vulnerable to Potential Fraud and Abuse, GAO-03-169 (Washington, D.C.: Oct. 11, 2002). 

3

We defined potentially fraudulent activity as any scheme, or pattern of activity, related to 

the use of a travel card in apparent violation of federal or state criminal code. For purposes 

of this report, we considered as potentially fraudulent cases where cardholders wrote three 

or more nonsufficient fund checks or checks on closed accounts to pay their Bank of 

America bills. We considered abusive travel card activity to include (1) personal use of the 

card—i.e., any use other than for official government travel—regardless of whether the 

cardholder paid the bill and (2) cases in which cardholders were reimbursed for official 

travel and then did not pay Bank of America, and thus benefited personally. Some of the 

travel card activity that we categorized as abusive would be potentially fraudulent if it can 

be established that the cardholders violated any element of federal or state criminal code. 

In both types of activities in which the cardholders did not pay the bills, we considered 

abuses to include cardholders whose accounts were eventually charged off by Bank of 

America or referred to a payment plan by salary offset or other fixed pay agreement.

4

Of the 27 major Navy commands, 13 had outstanding travel card balances of $1 million or 

more as of September 30, 2001. We further considered other factors such as past due and 

charged-off accounts and inclusion of a Marine Corps unit for adequate representation in 

narrowing these 13 commands to the 3 we selected for further audit testing. 
Page 3 GAO-03-147 Navy Travel Cards

We selected the three installations we audited based on the relative amount 

of travel card activity at the different Navy commands and of the 

installations under these commands, the number and percentage of 

delinquent accounts, and the number and percentage of charged-off 

accounts. For these installations, we tested a statistical sample of travel 

card transactions and conducted other audit work to evaluate the design 

and implementation of key internal control procedures and activities. Our 

statistical sample test results can be projected only to the individual 

installations where we performed the testing and cannot be projected to 

the command level or to the Navy as a whole. Through auditing travel card 

transactions at the three installations during fiscal year 2001, and data 

mining of transactions incurred throughout the Navy during fiscal year 

2001 and the first 6 months of fiscal year 2002, we identified numerous 

examples of potentially fraudulent and abusive travel card activity. 

However, our work was not designed to identify, and we cannot determine, 

the extent of potentially fraudulent and abusive activity. Appendix II 

provides details on our scope and methodology.

We conducted our audit work from December 2001 through October 2002 

in accordance with U.S. generally accepted government auditing standards, 

and we performed our investigative work in accordance with standards 

prescribed by the President’s Council on Integrity and Efficiency. We 

received written comments on a draft of this report from the Under 

Secretary of Defense (Comptroller) dated December 5, 2002. We addressed 

DOD’s comments in the “Agency Comments and Our Evaluation” section 

and reprinted them in appendix V. 

Results in Brief For fiscal year 2001, the Navy had significant breakdowns in internal 

controls over individually billed travel cards. These breakdowns 

contributed to the significant delinquencies and charge-offs of Navy 

employee account balances and potentially fraudulent and abusive activity 

related to the travel card. The breakdowns resulted primarily from a weak 

control environment, flawed policies and procedures, and a lack of 

adherence to valid policies and procedures.

Most Navy travel cardholders used the travel cards for authorized official 

government travel expenses and paid the amounts owed to Bank of 

America promptly. However, the Navy’s average delinquency rate of about 

12 percent over the last 2 years is nearly identical to the Army’s, which is 

the highest delinquency rate in the federal government, and about 6 

percentage points higher than that of federal civilian agencies. In addition, 
Page 4 GAO-03-147 Navy Travel Cards

from November 1998 through March 2002, Bank of America charged off 

over 13,800 Navy travel card accounts totaling about $16.6 million. The 

Navy’s delinquency and charge-off problems are primarily associated with 

low- to midlevel enlisted military personnel. These delinquencies and 

charge-offs have cost the Navy millions of dollars in lost rebates, higher 

fees, and substantial resources spent pursuing and collecting on delinquent 

accounts. In response, in November 2001, the Navy and DOD began 

offsetting wages of certain military and civilian employees, as well as 

retirement benefits of military retirees whose accounts were delinquent or 

had been charged off. DOD and the Navy also encouraged increased use of 

the split disbursement payment process, in which cardholders elected to 

have part or all of their reimbursements sent directly to Bank of America 

for payment of their travel card bills. These and other actions have begun 

to significantly reduce the number and dollar value of charge-offs during 

fiscal year 2002. However, these actions are primarily focused on treating 

the symptoms, or “back-end” problems, such as delinquencies and chargeoffs, rather than the “front-end,” or preventive controls, such as the weak 

overall control environment and specific travel program control 

weaknesses.

Our work identified numerous instances of potentially fraudulent and 

abusive activity during fiscal year 2001 and the first 6 months of fiscal year 

2002. During this period, more than 250 Navy employees might have 

committed bank fraud by writing 3 or more nonsufficient fund (NSF) 

checks. In one case, a petty officer wrote 12 NSF checks, totaling $61,000, 

to Bank of America. The government cards were also used for numerous 

abusive transactions clearly not related to government travel. As part of 

our statistical sampling work at three audit sites, we projected that 

personal use of the travel cards in fiscal year 2001 ranged from 7 percent at 

one Navy installation to 27 percent at another. Government travel cards 

were used for inappropriate transactions at legalized brothels, gentlemen’s 

clubs, cruise lines, jewelry stores, and sporting and theatre venues. During 

the period under audit, 50 Navy employees purchased more than $13,000 in 

prostitution services from two known legalized brothels. An additional 137 

individuals charged more than $29,000 at gentlemen’s clubs, which provide 

adult entertainment. Some of these individuals circumvented their travel 

card cash limits by converting the card to cash or “club cash” at these adult 

entertainment establishments and paying a surcharge that was as high as 10 

percent. To illustrate, one cardholder charged $2,420 at one of these clubs 

in exchange for $2,200 in cash. The $2,200 in cash and the 10 percent fee of 

$220 were processed as a restaurant charge. 
Page 5 GAO-03-147 Navy Travel Cards

Another frequent form of abuse was the failure to pay the travel card bill. 

Many individuals who used the cards for inappropriate purposes also failed 

to pay their accounts. Others abused the travel card by failing to pay 

charges associated with official government travel, even though they had 

been reimbursed. However, we did not find documented evidence of 

disciplinary actions against many Navy personnel who abused the cards. 

Of the 10 individuals we reviewed who made improper charges but paid 

their bills, only 1 had evidence of disciplinary action. In addition, of the 57 

individuals we reviewed who wrote NSF checks or whose accounts were 

charged off or put in salary offset, 37 were apparently not disciplined, and 

27 still had active secret or top-secret clearances as of August 2002. Navy 

personnel with security clearances who have financial problems may pose 

security risks to the Navy. 

Our audit found that weaknesses in the Navy’s overall control environment, 

including a number of specific controls that were either flawed in their 

design or in their implementation, are the root causes of the Navy’s inability 

to prevent and/or effectively detect the numerous instances of potentially 

fraudulent and abusive travel card related activity. During fiscal year 2001, 

management at the three units we audited was primarily focused on 

delinquencies and did not implement sufficient front-end controls to 

prevent severe credit problems or promptly detect or prevent potentially 

fraudulent and abusive activities. In general, the Navy did not provide an 

adequate control infrastructure—primarily in the area of human capital—

to manage its travel card program and effectively prevent or provide for 

early detection of travel card misuse. Agency program coordinators (APC), 

who have the key responsibility for managing and overseeing travel 

cardholders’ activities, were given little opportunity to succeed. Some 

were assigned APC responsibilities as collateral duties, while others had 

oversight of a large number of cardholders—for example up to 6,000 

cardholders for the APC at one installation. Many did not have adequate 

time to follow up with delinquent cardholders and perform detailed review 

of transaction activities. Others had not received adequate training and 

were not proficient with the tools available for travel card management. In 

fact, Bank of America data show that 23 percent of APCs had never logged 

on to the Web-based system containing travel card transaction data. In 

contrast, proactive actions of the APC at one Navy site we audited 

contributed to that site’s low delinquency rate. 

Additionally, critical weaknesses existed in other controls the Navy relied 

on to manage its travel card program. For example, many problems we 

identified were the results of ineffective controls over issuance of the travel 
Page 6 GAO-03-147 Navy Travel Cards

cards. Although DOD’s policy allows exemptions from the use of travel 

cards for certain groups or individuals, we found that, without exception, 

any Navy personnel who requested the card were authorized to have one, 

regardless of credit history. We found that individuals who had histories of 

prior credit problems tended to be those who committed travel card fraud 

and abuse. The prior and current credit problems we identified for Navy 

travel cardholders included charged-off credit cards, bankruptcies, 

judgments, accounts in collections, and repeated writing of NSF checks.

As a result of similar findings from our work on the Army and Navy travel 

card programs, the Congress has taken actions in the fiscal year 2003 

Defense Appropriations Act, Public Law 107-248, to require the Secretary of 

Defense to establish guidelines and procedures for disciplinary actions to 

be taken against cardholders for improper, fraudulent, or abusive use of the 

government travel card and to deny issuance of government travel cards to 

individuals who are not creditworthy. Further, in the Bob Stump National 

Defense Authorization Act for Fiscal 2003, (Public Law 107-314), the 

Congress authorized the Secretary of Defense to require the split 

disbursement procedure for all travel cardholders, and clarified the 

authority of the Secretary to offset delinquent travel card debt against the 

pay or retirement benefits of DOD civilian and military employees and 

retirees. In this report, we provide additional recommendations to the 

Navy to strengthen the overall control environment for its travel card 

program and improve specific internal controls. Our recommended actions 

are in the areas of card issuance, monitoring, review, and travel voucher 

and payment processes.

In written comments on a draft of this report, DOD concurred with 21 of 

our 23 recommendations and described actions completed, under way, or 

planned. DOD partially concurred with our recommendations regarding 

(1) establishing Navy-wide procedures requiring that supervisors and 

commanding officers notify the APCs of actions taken with respect to 

delinquent cardholders and (2) having commanders at each unit identify 

causes of the high error rate related to travel voucher review and provide 

refresher training to voucher examiners and auditors. However, DOD’s 

planned actions, if effectively implemented, should satisfactorily address 

the intent of these two recommendations.
Page 7 GAO-03-147 Navy Travel Cards

Navy Has High 

Delinquency and 

Charge-off Rates but 

Recent Actions Have 

Resulted in Some 

Improvements 

The Navy’s delinquency rate5 was slightly lower than the Army’s, which is 

the highest delinquency rate in the federal government. Cumulative Navy 

charge-offs since the inception of the Bank of America travel card program 

in November 1998 were nearly $16.6 million. As discussed in further details 

in the following sections of this report, weaknesses in the Navy’s overall 

control environment and a lack of front-end controls over travel card 

issuance and use exacerbated the Navy’s delinquency problems. Without 

proper management control, demographics such as the age and pay rates of 

Navy personnel also contributed to delinquencies and charge-offs. These 

problems have led to contract modifications with Bank of America that 

resulted in the Navy, the federal government, and the taxpayers losing 

millions of dollars in rebates, higher fees, and substantial resources spent 

pursuing and collecting on past due accounts.

DOD and the Navy have taken a number of positive actions to address the 

Navy’s high delinquency and charge-off rates, and results from the first half 

of fiscal year 2002 showed a significant drop in charged-off accounts. Most 

of this reduction could be attributed to a salary and military retirement 

offset program, which began in November 2001. DOD and the Navy also 

encouraged cardholders to voluntarily use the split disbursement payment 

process (split disbursements) to direct that a portion or all of their 

reimbursements be sent directly to the bank for payment of their travel 

card bills. The Navy also increased management attention and focus on the 

delinquency issue. However, except for split disbursements, the Navy’s 

actions primarily address the symptoms of delinquency and charge-offs 

after they had already occurred. Control weaknesses remain in the frontend management of the travel card program, such as issuing the cards and 

overseeing the proper use of the cards.

5

Throughout this report, we calculated delinquency rates using the proportion of dollars of 

accounts delinquent to the total dollars of accounts outstanding according to industry 

standards set by the Federal Financial Institutions Examination Council.
Page 8 GAO-03-147 Navy Travel Cards

The Navy’s Delinquencies 

and Charge-offs

Over the last 2 years, the Navy’s delinquency rate fluctuated from 10 to 18 

percent and on average was 5.6 percentage points higher than other nonArmy DOD components and 6 percentage points higher than non-DOD 

federal civilian agencies. As of March 31, 2002, over 8,000 Navy 

cardholders had collectively $6 million in delinquent debt. As discussed 

below, the nature of the Navy’s mission, which requires personnel in certain 

Navy commands to travel often for training and preparation for 

deployment, contributes, at least in part, to the Navy’s high delinquency 

rate. Figure 1 compares delinquency rates among the Navy, Army, other 

DOD, and the 23 largest civilian agencies.6

 

Figure 1: Navy, Army, Other DOD, and Non-DOD Civilian Agencies Travel Card 

Delinquency Rates for the 2-Year Period Ending March 31, 2002 

6

The civilian agencies included in our analysis are the 23 executive branch agencies (other 

than DOD) covered by the Chief Financial Officers Act, as amended by the Government 

Management Reform Act.

0

2

4

6

8

10

12

14

16

18

20

2000 

3rd qtr.

2000 

4th qtr.

2001 

1st qtr.

2001 

2nd qtr.

2001 

3rd qtr.

2001 

4th qtr.

2002 

1st qtr.

2002 

2nd qtr.

Army

Navy

Other DOD

Non-DOD civilian agencies

100 Percentage

Fiscal year

Source: Bank of America and General Services Administration data.
Page 9 GAO-03-147 Navy Travel Cards

Since Bank of America took over the DOD travel card contract on 

November 30, 1998, Bank of America has charged off over 13,800 Navy 

travel card accounts with nearly $16.6 million of bad debt. Table 1 provides 

a comparison of cumulative charge-offs, recoveries,7

 and delinquencies by 

military service as of March 31, 2002.

Table 1: Cumulative Charge-offs and Recoveries and Delinquencies by Military 

Service 

Source: GAO analysis of Bank of America and General Services Administration data. 

a

Cumulative charge-offs and recoveries are for November 1998 through March 2002.

b

Delinquencies represent amounts not paid within 60 days of the travel card monthly statement closing 

date, which is the cutoff date for charges to be included in the monthly statement. Under the terms of 

the travel cardholder’s agreement with Bank of America, payment of the travel card statement is due to 

Bank of America within 25 to 30 days of the statement closing date.

Age and Pay Grade Are 

Correlated to Delinquency 

and Charge-off Problems

Our analysis showed a correlation between certain demographic factors 

and high delinquency and charge-off rates. Available data showed that the 

travel cardholder’s rank or grade (and associated pay)8

 is a strong predictor 

of delinquency problems. As shown in figure 2, the Navy’s delinquency and 

charge-off problems are primarily associated with low- and midlevel 

enlisted military personnel grades E-1 to E-6, with relatively low incomes 

and little experience in handling personal finances. 

7

Recoveries represent amounts recovered through collection actions, which include salary 

offsets on accounts previously charged off. 

Dollars in millions

DOD service

Cumulative

charge-offsa

Cumulative 

recoveriesa

Net 

cumulative 

charge-offsa

Delinquencies 

as of March 31, 

2002b

Navy $16.6 $6.2 $10.4 $6.0

Army $33.5 $12.9 $20.6 $8.4

Air Force $11.6 $4.7 $6.9 $5.0

8

App. IV provides a description of each of these military grades and their associated military 

rankings and pay, along with corresponding civilian grade and pay data.
Page 10 GAO-03-147 Navy Travel Cards

Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by Military 

Grade and Civilian Populations as of September 30, 2001 

Available data indicate that military personnel grades E-1 (seaman recruit 

in the Navy or private in the Marine Corps) to E-6 (petty officer first class in 

the Navy or staff sergeant in the Marine Corps) account for about 78 

percent of all Navy military personnel. These enlisted military personnel 

have basic pay levels ranging from $12,000 to $27,000. These individuals 

were responsible for 40 percent of the total outstanding Navy travel card 

balances as of September 30, 2001. 

Figure 3 compares the delinquency rates by military rank and civilian 

personnel to the Navy’s average delinquency rate as of September 30, 2001. 

As shown, the delinquency rates were as high as 34 percent for E-1 to E-3 

military personnel and 20 percent for E-4 to E-6 military personnel, 

compared to the Navy’s overall delinquency rate of 12 percent. These rates 

were markedly higher than the rates for officers, which ranged from a low 

of 1 percent for O-7 to O-10 (admirals in the Navy or generals in the Marine 

Corps) to a higher 8 percent for O-1 to O-3 (ensign to lieutenant in the Navy 

or second lieutenant to captain in the Marine Corps). These rates were also 

0

5

10

15

20

25

E1-3 E4-6 E7-9 W01-05 O1-3 O4-6 O7-10 Civilian

Dollars in millions

Delinquent

Outstanding balance

Source: GAO analysis of Bank of America data.
Page 11 GAO-03-147 Navy Travel Cards

substantially higher than that of Navy civilians, which at 5 percent was 

comparable with the federal civilian agencies rate shown in figure 1. 

Figure 3: Navy Delinquency Rate by Military Grade and Civilian Populations 

Compared to Navy’s Average as of September 30, 2001

The delinquency rate of military personnel E-4 to E-6 in particular had an 

important negative impact on the Navy’s delinquency rate. Specifically, 

these are petty officers in the Navy and corporals to staff sergeants in the 

Marine Corps. Pay levels for these personnel, excluding supplements such 

as housing, ranged from approximately $18,000 to $27,000. These 

individuals also traveled often. As shown by Bank of America data, 

personnel E-4 to E-6 accounted for 36 percent of the total Navy outstanding 

Source: GAO analysis of Bank of America data.

34

20

12

11

11

8

5

5

1

0 5 10 15 20 25 30 35 40

E1-3

E4-6

Average

Navy

E7-9

W01-05

O1-3

O4-6

Civilian

O7-10

Rank

Delinquent amount as a percentage of outstanding balance
Page 12 GAO-03-147 Navy Travel Cards

balance, which was higher than the outstanding balance of all other 

military and civilian personnel. This combination of high outstanding 

balance and high delinquency rate largely explained the high Navy 

delinquency rate. 

As shown in figure 4, charged-off amounts for military personnel grades E-1 

to E-6 during fiscal year 2001 totaled more than $3.6 million. This 

represented 72 percent of the almost $5 million in total Navy charge-offs 

during fiscal year 2001.

Figure 4: Fiscal Year 2001 Navy Charge-offs by Military Grades and Total Civilian 

Populations

According to Navy representatives, these individuals often had little 

experience handling personal resources. Although their basic pay rates are 

supplemented with housing and food allowances, the low salaries may not 

permit payment of excessive personal charges on travel cards. If these 

individuals get into financial difficulty, they have fewer resources at their 

disposal to pay their travel card balances in full every month. Also, if 

cardholders in these lower grade levels do not receive their travel card 

reimbursements promptly because of either delays in filing their vouchers 

E1-E3 E4-E6 E7-E9 O-1 to 

O-10

WO-1 to 

WO-5

Civilian

Grade/classification

Source: GAO analysis of Bank of America data.

0

0.5

1.0

1.5

2.0

2.5

3.0 Dollars in millions
Page 13 GAO-03-147 Navy Travel Cards

or voucher processing, they may lack the financial resources to make 

timely payments on their travel card accounts. In addition, as discussed 

later in this report, the Navy did not exempt personnel with poor credit 

histories from required use of travel cards. Consequently, these low- and 

midlevel enlisted military personnel are often issued travel cards even 

though some may already be in serious financial trouble and, therefore, 

may not have been appropriate credit risks. Lack of adequate training and 

the failure to adequately monitor travel card use may also have 

exacerbated the delinquency rates for these individuals. 

Delinquency Rates Vary 

Across Navy Commands

Navy delinquency rates also varied widely across commands. Table 2 

shows the outstanding balance and delinquency rates of major Navy 

commands as of March 31, 2002. As shown, the delinquency rates as of 

March 31, 2002, ranged from 22 percent for the Naval Reserve Force to as 

low as 2 percent for four commands, including the Naval Air Systems 

Command. Table 2 also shows that high credit card activity was not 

necessarily associated with high delinquency rates. In fact, some Navy 

commands with high credit card activity also had low delinquency rates. 
Page 14 GAO-03-147 Navy Travel Cards

Table 2: Outstanding Balance and Delinquency Rate as of March 31, 2002, by Major 

Navy Commands 

Source: GAO calculation based on information from Bank of America.

Note: Table shows only commands with outstanding balances greater than $1 million as of March 31, 

2002. Delinquency rates shown represent the total amount delinquent (amounts not paid within 61 

days of the travel card monthly statement closing date) as a percentage of total amount outstanding for 

all travel card accounts in the command at that point in time.

a

These units had outstanding balances of $1 million or more, but are not considered major commands. 

The six major commands with the highest delinquency rates—ranging from 

22 to 12 percent—as of March 31, 2002, were the Naval Reserve Force, the 

U.S. Atlantic Fleet, the U.S. Pacific Fleet, U.S. Marine Corps Forces Pacific, 

U.S. Marine Corps Forces Atlantic, and Marine Forces Reserve. Navy 

officials expressed the belief that demographics and logistics were 

important contributing factors to these high delinquency rates. According 

to Navy officials, Atlantic and Pacific fleet personnel, as well as Marine 

Corps Forces Atlantic and Pacific, travel frequently for training and 

preparation for deployment. Because they are always on the move, these 

individuals might not be filing vouchers and making payments in a timely 

manner. In addition, fleet personnel often consist of low- and midlevel 

Major Navy command with outstanding balance of 

$1 million or over as of 3/31/2002 

Outstanding 

balance as of 

3/31/2002

Delinquency 

rate

Naval Reserve Force $9,751,402 22%

Naval Sea Systems Command 8,058,740 3%

U.S. Atlantic Fleet 5,447,558 14%

Naval Air Systems Command 4,363,939 2%

U.S. Pacific Fleet 4,096,954 12%

U.S. Marine Corps Forces Pacific 2,631,628 16%

U.S. Marine Corps Forces Atlantic 2,330,153 17%

Chief of Naval Operationsa 1,944,676 4%

Space and Naval Warfare Systems Command 1,726,445 2%

Marine Forces Reserve 1,657,040 18%

Bureau of Medicine and Surgery 1,452,869 8%

Chief of Naval Education and Traininga 1,258,219 7%

Bureau of Naval Personnel 1,272,454 11%

Naval Special Warfare Command 1,264,380 9%

Naval Facilities Engineering Command 1,182,028 2%

Office of the Undersecretary of the Navya 1,094,918 2%
Page 15 GAO-03-147 Navy Travel Cards

recruits, demographics which, as discussed previously, are a contributing 

factor to the high delinquency rate. 

Navy officials attributed the delinquency problems with the reserve forces 

to logistics of a different kind. Reserve forces are spread throughout the 

country and report to duty only once a month. Reservists typically fill out 

their vouchers when they return home and then mail them to the 

processing centers, sometimes weeks after the training. According to Navy 

officials, the high delinquency rates in the reserve forces could be 

attributed partly to the fact that some had not received travel 

reimbursement by the time their bills became delinquent. 

In contrast, some commands, such as Naval Sea Systems Command and 

Naval Air Systems Command, had large numbers of travel card accounts 

and high travel card activity, yet low delinquency rates. According to Navy 

officials, this is because personnel in these commands are typically 

civilians, are older and more mature, and therefore are better at managing 

their finances. These demographic factors, coupled with the fact that these 

sites typically have full-time APCs and a better control environment, may 

explain why their delinquency rates are lower than the Navy average, and 

sometimes even lower than the average rate for federal civilian agencies.

The case study sites we audited followed the pattern described above. For 

example, at Camp Lejeune, a principal training location for Marine air and 

ground forces, over one-half of the cardholders are enlisted personnel. 

Representative of the Navy’s higher delinquency rate, Camp Lejeune’s 

quarterly rates over the 18 months ending March 31, 2002, averaged over 15 

percent. As of March 31, 2002, the delinquency rate at this site was nearly 

10 percent. In contrast, at Puget Sound Naval Shipyard, where the mission 

is to repair and modernize Navy ships, civilian personnel earning more than 

$38,000 a year made up 84 percent of total government travel cardholders 

and accounted for 86 percent of total fiscal year 2001 travel card 

transactions. This site’s delinquency rate had declined to below 5 percent 

as of March 31, 2002. 

High Delinquency and 

Charge-off Rates Have 

Resulted in Increased Costs 

to the Government

High delinquencies and charge-offs have resulted in increased costs to the 

Navy. In fiscal year 2001, DOD entered into an agreement with Bank of 

America to adjust the terms of its travel card contract. DOD agreed to 

increased fees and a change in rebate calculation. These changes have cost 

the Navy an estimated $1.5 million in lost rebates on combined individually 

and centrally billed accounts in fiscal year 2001 alone and will cost, in 
Page 16 GAO-03-147 Navy Travel Cards

addition, about $1.3 million in automated teller machine (ATM) fees 

annually. Other costs, such as the administrative burden of monitoring 

delinquent accounts, are harder to measure, but no less real. For example, 

employees with delinquent accounts must be identified, counseled, and 

disciplined, and their account activity must be closely monitored. In 

addition, employees with financial problems who have access to sensitive 

data may pose a security risk, as discussed later in this report. 

Dispute between Contractor and 

DOD 

Unexpectedly high defaults by DOD’s travel cardholders, including the 

Navy’s, resulted in a 5-month legal dispute with Bank of America over the 

continuation of the travel card contract. In 1998, under the provisions of 

the General Services Administration’s (GSA) master contract with Bank of 

America, DOD entered into a tailored task order with Bank of America to 

provide travel card services for a period of 2 years, ending November 29, 

2000. Under the terms of the task order, DOD had three 1-year options to 

unilaterally renew the contract. On September 29, 2000, prior to the 

expiration of the initial task order, DOD gave notice to Bank of America 

that it intended to exercise its option to extend the task order for an 

additional year. In November 2000, Bank of America contested the 

provisions of the DOD task order with the GSA contracting officer. Bank of 

America claimed that the task order was unprofitable because of required 

“contract and program management policies and procedures” associated 

with higher-than-anticipated credit losses, because an estimated 43,000 

DOD employees had defaulted on more than $59 million in debts. 

Consequently, in April 2001, the master contract and the related DODtailored task order for travel card services were renegotiated. Specifically, 

Bank of America was able to reduce its financial risk by instituting 

additional fees, such as higher cash advance and late payment fees; 

offsetting credit losses against rebates, as explained later; facilitating the 

collection of delinquent and charged-off amounts through salary and 

military retirement pay offset; and participating in split disbursements, in 

which the government sends part or all of the travel voucher 

reimbursements directly to Bank of America.
Page 17 GAO-03-147 Navy Travel Cards

Effect of Increased Fees One of the terms of the renegotiated task order between Bank of America 

and DOD was that, effective August 10, 2001, the travel card cash advance 

fee would be increased from 1.9 percent to 3 percent, with a minimum fee 

of $2. The Navy reimburses all cash advance fees9

 related to authorized 

cash withdrawals. We estimate that this contract modification will result in 

approximately $1.3 million of increased costs to the Navy each year. Our 

estimate was made by applying the new fee structure that went into effect 

in August 2001 to cash advances made throughout fiscal year 2001 to 

ascertain how much more Bank of America would have charged. Other fee 

increases agreed to in the renegotiation, such as the fee for expedited 

travel card issuance, will also result in additional costs to the Navy.

Delinquent Account Payment 

Affects Rebates to the Navy 

The GSA master contract modification also changed the rebate calculation, 

making it imperative that the Navy improve its payment rates to receive the 

full benefits of the program. Under the GSA master contract, credit card 

companies are required to pay a quarterly rebate, also known as a refund, 

to agencies and GSA based on the amount charged to both individually 

billed and centrally billed cards. The rebate to the agency is reduced, or 

eliminated, if significant numbers of an agency’s individual cardholders do 

not pay their accounts on time. Specifically, credit losses or balances that 

reach 180 calendar days past due reduce the rebate amounts. Effective 

January 2001, the contract modification changed the way that rebates are 

calculated and how credit losses are handled. If the credit loss of an 

agency’s individually billed travel card accounts exceeds 30 basis points—

or 30 one-hundredths of a percent (.003)—of net sales10 on the card, the 

agency is assessed a credit loss fee, or rebate offset, against the rebate 

associated with both individually billed and centrally billed travel card 

accounts.

This credit loss fee, or rebate offset, which resulted solely from individually 

billed account losses, significantly affected the amount of rebates that the 

Navy received as a result of combined individually and centrally billed net 

sales in fiscal year 2001. In fiscal year 2000, the Navy received 

approximately $2.0 million in rebates from the travel card program. In 

9

Cash advance fees are also referred to as ATM fees. ATMs allow cardholders to withdraw 

cash with a travel card. For each cash advance withdrawal, cardholders are charged either 

a set amount or a percentage of the amount of the withdrawal.

10Net sales consists of all purchases and other charges less any credits, such as returns, 

other than payments to the accounts. Other charges include ATM use, traveler’s checks, and 

any other fees.
Page 18 GAO-03-147 Navy Travel Cards

contrast, in fiscal year 2001, the Navy collected only about $800,000 of the 

$2.3 million in rebates that we estimated it would have received, based on 

fiscal year 2001 net sales, had individually billed account payments been 

timely. This is due to a contract modification in January 2001, which 

changed the way rebates were calculated. In fact, during the first quarter of 

fiscal year 2001, the Navy collected almost $470,000 in total rebates from 

Bank of America. However, rebates for the last three quarters affected by 

the contract change had dwindled to $351,000. 

Navy and DOD Have Taken 

Steps to Reduce 

Delinquencies and Chargeoffs, but Additional Actions 

Are Needed

The Navy has taken a number of positive actions to address its high 

delinquency and charge-off rates, and results from the first half of fiscal 

year 2002 showed a significant drop in charged-off accounts. Most of this 

reduction may be attributed to a salary and military retirement payment 

offset program—similar to garnishment—started in November 2001. Other 

Navy actions included increasing the use of split disbursements, in which 

Navy disburses a portion of a travel reimbursement directly to the bank 

(instead of sending the entire amount of the reimbursement to the 

cardholder), and increased management attention and focus on 

delinquency. Except for split disbursements, the actions primarily 

addressed the symptoms, or back-end result, of delinquency and chargeoffs after they have already occurred. As noted in the remaining sections of 

this report, the Navy has significant control weaknesses, particularly with 

respect to the front-end management of the travel card program, such as 

issuing the cards and overseeing their proper use, which it has not yet 

effectively addressed.

Charge-offs Have Decreased As shown in figure 5, the amount of charge-offs has decreased substantially 

at the same time that recoveries have increased. At the start of fiscal year 

2001, the charge-off balance greatly exceeded the recovery amount. 

Starting in the third quarter of fiscal year 2001, the amount charged off 

started to decline and by the quarter ended December 31, 2001, the amount 

charged off was about the same as the recovery amount. By March 31, 

2002, recoveries for the first time exceeded the charged-off amount. 
Page 19 GAO-03-147 Navy Travel Cards

Figure 5: Navy Travel Card Charge-off and Recovery History from October 1, 2000, to 

March 31, 2002

Note: The charge-off and recovery history is for Navy only and does not include the Marine Corps. The 

recovery data for the Marine Corps were not available.

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2001 

1st qtr.

2001 

2nd qtr.

2001 

3rd qtr.

2001 

4th qtr.

2002 

1st qtr.

2002 

2nd qtr.

Fiscal year

Dollars in millions

Charge-offs

Recoveries

Source: GAO analysis of Bank of America data.
Page 20 GAO-03-147 Navy Travel Cards

Salary and Military Retirement 

Offset Program

Starting in fiscal year 2002, DOD began to offset the retirement benefits of 

military retirees and the salaries of certain civilian and military employees 

against the delinquent and charged-off balances on travel card accounts. 

The DOD salary offset program11 implements a provision of the Travel and 

Transportation Reform Act of 1998 (TTRA)12 that allows any federal agency, 

upon written request from the travel card contractor, to collect by 

deduction from the amount of pay owed to an employee (or military 

member) any amount of funds the employee or military member owes on 

his or her travel card as a result of delinquencies not disputed by the 

employee.13 The salary and military retirement offset program was 

implemented DOD-wide.

DOD’s offset program came into being as part of the task order 

modification. From April to August 2001, DOD and Bank of America 

worked together to establish program protocols. Starting in August 2001, 

Bank of America sent demand letters to cardholders whose accounts were 

more than 90 days delinquent. The Defense Finance and Accounting 

Service (DFAS) processed the initial offsets of delinquent accounts in 

October 2001 in the various DOD pay systems. The first deductions were 

made from the November pay period and paid to Bank of America starting 

in December 2001. Bank of America can also use the offset program to 

recover amounts that were previously charged off. January 2002 was the 

first month in which Bank of America requested offsets for accounts that 

had already been charged off. 

The offset program works as follows. When an account is 90 days 

delinquent, Bank of America is to send a demand letter to the individual 

cardholder requesting payment in full within 30 days. The demand letter 

specifies that salary offsets will be initiated if payment is not made in full 

within 30 days. The cardholder may negotiate an installment agreement or 

dispute the charges with the bank. The cardholder has a right to review all 

records such as invoices and to request a hearing if the bank’s disposition 

of the dispute is not satisfactory.

11DOD’s salary offset program includes individuals’ salaries paid by DOD through its active 

duty, reserve, and civilian pay systems, and retirement benefits paid through its military 

retirement pay system.

12Sec. 2(d), Public Law 105-264, 112 Stat. 2350 (5 U.S.C. 5701 note).

13Cardholder debts to Bank of America are not subject to the Debt Collection Improvement 

Act of 1996, which is limited to the collection of certain debts owed to the federal 

government. 
Page 21 GAO-03-147 Navy Travel Cards

After the 30 days have elapsed, if payment is not made and the cardholder 

does not dispute the debt, the bank includes the account in the list of 

accounts requested for offset. Individuals in the following categories may 

not be accepted for offset.

• Civilian employees in bargaining units that have not agreed to the salary 

offset program cannot be accepted. According to a DFAS official, as of 

July 2002, 1,002 of 1,227 DOD bargaining units have agreed to participate 

in the program.

• Individuals with debts to the federal government or other garnishments 

already being offset at 15 percent of disposable pay are considered to be 

in protected status and are not eligible for the offset program. 

• Individuals who cannot be located in the various payroll and military 

retirement (i.e., active, reserve, retired military, or civilian) systems 

cannot be accepted for offset.

• Civilian retirees were not subject to offset during the period covered by 

our audit. The authorizing statutes for both the Civil Service Retirement 

System14 and the Federal Employees Retirement System15 specify that 

retirement benefits may be offset only to the extent expressly 

authorized by federal statutes. TTRA, Section 2, provides authority to 

offset salaries of “employees” of agencies but does not provide such 

authority for civilian employee retiree annuitants. However, Public Law 

107-314 authorizes the Secretary of Defense to offset delinquent travel 

card debt against the retirement benefits of DOD civilian retirees.

Once an individual is accepted for offset, the related debt is established in 

the appropriate pay system and DFAS can deduct up to 15 percent of 

disposable pay. Disposable pay is defined in GSA’s Federal Travel 

Regulation16 as an employee’s compensation remaining after the deduction 

from an employee’s earnings of any amounts required by law to be withheld 

(e.g., tax withholdings and garnishments). The amounts collected are paid 

to the bank monthly for military personnel and retirees and biweekly for 

civilian personnel. 

145 U.S.C. section 8346.

155 U.S.C. section 8470.

1641 C.F.R. section 301-54.2.
Page 22 GAO-03-147 Navy Travel Cards

According to DFAS, from October 2001 through July 2002, Bank of America 

referred 53,462 DOD-wide cases with debt of approximately $77.5 million 

to DOD for offset. DOD accepted and started offset for 74 percent of the 

cases and 69 percent of the debt amounts referred. The number and debt 

amount of Navy-specific cases forwarded by Bank of America were not 

available. From November 2001 through July 2002, DFAS collected 

approximately $5.2 million from active and retired Navy military personnel 

through the offset program. Although DFAS was unable to break down the 

amount of civilian offset by military service, the amount collected from all 

DOD employees was $1.6 million during the same period. The salary and 

retirement offset program is expected to continue to reduce the amount of 

accounts that need to be charged off, at the same time increase the amount 

of recoveries. 

Split Disbursement Payment 

Process

DOD has recently encouraged cardholders to make greater use of split 

disbursements, a payment method by which cardholders elect to have all or 

part of their reimbursement sent directly to Bank of America. A standard 

practice in many private sector companies, split disbursements have the 

potential to significantly reduce delinquencies. However, during the period 

covered by our audit no legislative authority existed requiring the use of 

split disbursements by Navy employees. This practice was voluntary, 

resulting in a low participation rate. As shown by Bank of America data, 

only 14 percent of fiscal year 2001 travel card payments were made using 

this method. Although payments made through split disbursements have 

increased during the first three quarters of fiscal year 2002, they made up 

only 25 percent of all travel card payments. 

Our report on the Army travel card program included a matter for 

congressional consideration that would authorize the Secretary of Defense 

to require that employees’ travel allowances be used to pay the travel card 

issuers directly for charges incurred using the travel card.17 We believe that 

this action would help to reduce DOD’s travel card delinquency and chargeoff rates. Public Law 107-314 authorized the Secretary of Defense to 

require split disbursement for all DOD travel cardholders.

Management Focus and 

Attention

The Navy has also initiated actions to improve the management of travel 

card usage. The Navy’s three-pronged approach to address travel card 

issues is as follows: (1) providing clear procedural guidance to APCs and 

17GAO-03-169.
Page 23 GAO-03-147 Navy Travel Cards

travelers, available on the Internet, (2) providing regular training to APCs, 

and (3) enforcing proper use and oversight of the travel card through data 

mining to identify problem areas and abuses. Noting that the delinquency 

rates for many Navy commands still exceeded the Navy’s established goal 

of no more than 4 percent, the Assistant Secretary of the Navy, Financial 

Management and Comptroller, in April 2002 issued a memorandum on 

travel card control procedures and policies. This memorandum addressed 

a number of travel card issues, including (1) requiring that the travel card 

be deactivated when employees are separated from the service, (2) 

changing the definition of infrequent travel to traveling four times or less a 

year, (3) lowering the delinquency goal to 4 percent, (4) deactivating all 

cards whenever the cardholders are not scheduled for official travel, and 

(5) requiring spot checks for travel card abuse. The Assistant Secretary 

also required all units with delinquency rates higher than 4 percent to take 

immediate actions to lower the delinquency rates and to report on these 

results within 30 days of receiving the memorandum. 

Further, the DOD Under Secretary of Defense (Comptroller) created a 

DOD-wide Charge Card Task Force in March 2002 to address management 

issues related to DOD’s purchase and travel card programs. The task force 

issued its final report on June 27, 2002. We have reviewed the report and 

believe that many of the actions proposed by the task force will improve 

the controls over the travel card program. Important task force 

recommendations include canceling inactive accounts and expanding the 

salary offset program. However, actions to implement additional front-end 

or preventive controls, such as strengthening the critical role of the APCs 

and denying cards to individuals with prior credit problems, were not 

addressed in the report. We believe that strong preventive controls will be 

critical if DOD is to effectively address the high delinquency rates and 

charge-offs, as well as the potentially fraudulent and abusive activity 

discussed in this report. 

Potentially Fraudulent 

and Abusive Travel 

Card Activity

Our review identified numerous instances of potentially fraudulent and 

abusive activity associated with the Navy’s travel card program during 

fiscal year 2001 and the first 6 months of fiscal year 2002. For purposes of 

this report, cases where cardholders wrote three or more NSF checks or 

wrote checks on closed accounts to pay their Bank of America bill were 

characterized as potentially fraudulent.

We considered abusive travel card activity to include (1) personal use of 

the cards—any use other than for official government travel—regardless of 
Page 24 GAO-03-147 Navy Travel Cards

whether the cardholders paid the bills and (2) cases in which cardholders 

were reimbursed for official travel and then did not pay Bank of America, 

thus benefiting personally. In addition, some of the travel card activity that 

we categorized as abusive may be fraudulent if it can be established that 

the cardholders violated any element of federal or state criminal codes. 

Failure to implement controls to reasonably prevent such transactions can 

increase the Navy’s vulnerability to additional delinquencies and chargeoffs. 

Potentially Fraudulent 

Transactions

Our review identified numerous examples of potentially fraudulent activity 

where the cardholders wrote checks against closed checking accounts or 

repeatedly wrote NSF, or “bounced,” checks as payment for their travel 

card accounts. Knowingly writing checks against closed accounts or 

writing three or more NSF checks may be bank fraud under 18 U.S.C. 

1344.18 Further, it is a violation of the Uniform Code of Military Justice 

(UCMJ)19 article 123a when a soldier makes, draws, or utters (verbally 

authorizes) a check, draft, or order without sufficient funds and does so 

with intent to defraud. During fiscal year 2001 and the first 6 months of 

fiscal year 2002, in total over 5,100 Navy cardholders wrote NSF checks, or 

made NSF payments by phone, as payment to Bank of America for their 

travel card bills. Of these, over 25020 might have committed bank fraud by 

writing three or more NSF checks to Bank of America during either fiscal 

year period. Table 3 shows the 10 cases we selected for review where the 

cardholders wrote three or more NSF checks to Bank of America, and their 

accounts were charged off or placed in salary offset or another fixed pay 

agreement due in part to repeated use of NSF checks. We have referred the 

cases in which potential bank fraud has occurred to the Navy Criminal 

Investigation Service for further review.

18Bank fraud is defined by 18 U.S.C. 1344 as any execution of, or attempt to execute, a 

scheme or artifice to defraud a financial institution or to obtain any of the moneys, funds, 

credits, assets, securities, or other assets owned by, or under the custody or control of, a 

financial institution, by means of false or fraudulent pretenses, representations, or 

promises. 

19UCMJ is a federal law enacted by the Congress. UCMJ articles 77-134 are known as 

“punitive offenses,” that is, specific offenses which, if violated, can result in punishment by 

court-martial.

20Of the over 250 cardholders who wrote three or more NSF checks, 100 had accounts that 

were eventually charged off or put in salary offset. 
Page 25 GAO-03-147 Navy Travel Cards

Table 3: Examples of Potentially Fraudulent Activities 

Source: GAO analysis.

Note: NSF includes accounts with nonsufficient funds, closed accounts, accounts not located, and stop 

payment orders.

Cardholder

Total 

amount 

(number) of 

NSF checks 

Total amount 

charged off (CO), 

in salary offset 

(SO), or 

voluntary fixed 

pay (FP) Grade Unit Credit history problems 

Documented 

disciplinary

action

1

$61,004

(12)

 SO – 

$20,535

E-5 U.S. Pacific Fleet, 

Honolulu

Multiple bankruptcies and 

numerous charge-offs prior to card 

issuance

Administrative 

counseling/warning 

2

37,150

(15)

 FP –

4,094

E-6 Naval Recruiting, 

Omaha

Multiple judgments and 

merchandise repossession prior to 

card issuance 

None

3

23,894

(9)

 SO –

11,310

E-6 U.S. Marine 

Corps, Marine 

Aircraft Group 12, 

Japan

Charged-off and referral to 

collection prior to card issuance; 

one account in collection and one 

charged off prior to card issuance 

Dishonorable discharge 

for misconduct directly 

related to travel card 

misuse

4

22,873 

(11)

 CO –

2,579

E-4 U.S. 

Transportation 

Command, Illinois 

None prior to card issuance Prosecution pending for 

travel card misuse and 

absence without leave

5

20,052

(9)

 CO –

4,589;

 account in SO 

E-5 Mobile Inshore 

Undersea Warfare, 

San Jose 

Charged-off account prior to card 

issuance; delinquencies since card 

issuance

None; promotion to E-6 

after charge-off; 

pending investigation for 

desertion, theft, and 

issuance of NSF checks

6

18,148

(13)

 CO –

7,229

GS-11 Navy Inventory 

Control Point – 

Mechanicsburg 

Bankruptcies and charge-offs prior 

to card issuance; delinquencies 

since card issuance 

None; cardholder retired

7

10,908

(16)

 CO –

1,381

E-5 Navy Seals, San 

Diego 

None prior to card issuance; 

delinquencies since card issuance

Administrative action 

related to abuse of the 

government travel card; 

honorable discharge 

8

8,231

(6)

 SO –

4,530;

account paid off 

Sept. 2002 

E-8 U.S. Marine 

Corps, Camp 

Lejeune

Charged-off account prior to card 

issuance

Counseling; article 15 

pending for credit card 

misuse

9

5,785

(4)

 CO –

4,923

E-4 Navy and Marine 

Corps Reserve 

Center, Bessemer

Bankruptcies and judgment prior to 

card issuance; serious 

delinquencies since card issuance

None

10

3,250

(12)

 CO –

5,347; 

account in FP 

E-4 Naval Air Warfare 

Center, Patuxent 

River

Bankruptcy and charged-off 

account prior to card issuance; 

delinquencies since card issuance 

None
Page 26 GAO-03-147 Navy Travel Cards

The 10 cardholders in table 3 wrote a total of 107 checks that were returned 

by Bank of America because they were NSF, drawn on closed accounts, 

and/or had payments stopped for other reasons. These checks totaled over 

$211,000. Eight of the 10 cardholders had significant credit problems prior 

to card issuance, such as bankruptcies, charged-off credit card accounts, 

accounts in collection, and serious delinquencies. Two of the cardholders 

did not have credit problems prior to card issuance; however, one of these 

two experienced serious financial problems after issuance of the Bank of 

America travel card. The following provides illustrative detailed 

information on two of these cases. 

• Cardholder #1 was a petty officer second class with the U.S. Pacific 

Fleet in Honolulu. The cardholder wrote 12 NSF checks totaling more 

than $61,000 for payment on his Bank of America travel card account. 

These checks were written partly to cover charges incurred while on 

official travel, but records showed that the cardholder made many more 

charges at convenience stores, restaurants, gas stations, and travel 

agencies in the vicinity of his hometown. An examination of the 

cardholder’s credit history also revealed that, prior to receiving his 

government travel card in May 2000, the cardholder had multiple chargeoffs, in addition to filing personal and business bankruptcies. Despite 

his financial history, the cardholder was issued a standard card, instead 

of a restricted card with a lower credit limit. 

From March 2001 through December 2001, the cardholder wrote about 

one NSF check a month, with three of these NSF checks, totaling more 

than $12,500, written in the month of December 2001 alone. Financial 

industry regulations require that an account be credited immediately 

upon receipt of a check. Consequently, when Bank of America posted 

the NSF checks, the account appeared to have been paid, which 

provided credit to the cardholder to make additional purchases. Thus, 

by writing NSF checks, and submitting NSF payments over the phone, 

which Bank of America had to credit to his travel card account, the 

petty officer was able to, in effect, increase his credit limit to more than 

$20,000—a practice known as “boosting.” He used each of these 

successive increases in his effective credit limit to charge additional 

items on his travel card. Thus, despite the repeated NSF checks written 

throughout 2001, the individual was able to continue making charges 

through December 2001. 

The cardholder’s APC did not know of the NSF check problems until 

Bank of America notified him of the fact. Because the cardholder was 
Page 27 GAO-03-147 Navy Travel Cards

considered a good sailor, he was given administrative counseling for 

potential fraud and abuses related to his travel card. The terms of the 

administrative counseling specified that the cardholder would face an 

administrative discharge in case of continued abuse of the credit card 

or any other misconduct. 

• Cardholder #5 was a petty officer (E-5) assigned to the Naval Reserve 

Forces in San Jose, California. Prior to receiving the Bank of America 

travel card in June 2000, the individual had a number of unpaid accounts 

with other creditors. The individual was given a restricted card, which 

should have been issued in “inactive” status and only activated when 

needed for travel. However, records showed that the cardholder was 

able to make about 130 separate purchases and ATM transactions in the 

vicinity of his hometown while not on official travel. These transactions 

totaled more than $5,000. In addition, from September 2000 through 

December 2001, the cardholder wrote eight NSF checks and one stop 

payment check totaling $20,052 to Bank of America. During fiscal year 

2001, not a single valid payment was made to Bank of America for this 

account. The cardholder had an unpaid balance of $4,589 at the time his 

account was charged off in July 2002. The cardholder also had three 

other unrelated charge-offs to accounts other than the government 

travel card in July 2002. 

We found no documentation that disciplinary actions had been taken 

against the cardholder. The APC assigned to the cardholder told us that 

he had received little training for his APC responsibility, which is a 

collateral duty. He recalled advising the cardholder once to pay off his 

travel card balance. Although a Bank of America official informed us 

that access to NSF check information had been available to APCs since 

2000, the APC said he was not aware of the NSF checks written by the 

cardholder. The APC also informed us that he was not aware that the 

cardholder’s account was charged off until he was notified by Bank of 

America. Despite having his Bank of America account charged off and 

other financial problems, the cardholder was recently promoted from 

petty officer second class (E-5) to petty officer first class (E-6).21 His 

account had been referred to salary offset.

21Subsequent to his promotion, the cardholder did not report to duty. His command is taking 

action to declare him a deserter. He is also a subject of law enforcement agencies’ 

investigations.
Page 28 GAO-03-147 Navy Travel Cards

Abusive Travel Card Use We found instances of abusive travel card activity by Navy cardholders that 

covered charges for a wide variety of personal goods and services, 

including prostitution, jewelry, gentlemen’s clubs, gambling, cruises, and 

tickets to sporting and other events. Further, we found abusive card 

activities where (1) cardholders who were reimbursed for official travel did 

not pay Bank of America and (2) cardholders used the card for personal 

charges and failed to pay Bank of America.

Abusive Card Activities Related 

to Inappropriate Purchases

We found that the government cards were used for numerous abusive 

transactions that were clearly not for the purpose of government travel. As 

discussed further in appendix II, we used data mining tools to identify 

transactions we believed to be potentially fraudulent or abusive based 

upon the nature, amount, merchant, and other identifying characteristics of 

the transactions. Through this procedure, we identified thousands of 

suspect transactions. Government travel cards were used for purchases in 

categories as diverse as legalized prostitution services, jewelry, gentlemen’s 

clubs, gambling, cruises, and tickets to sporting and other events. In 

addition, we found evidence that cardholders circumvented prescribed 

ATM procedures by obtaining cash at adult entertainment establishments. 

Table 4 illustrates a few of the types of abusive transactions and the 

amounts charged to the government travel card in fiscal year 2001 and the 

first 6 months of fiscal year 2002 that were not for valid government travel. 

The number of instances and amount shown include cases in which the 

cardholders paid the bills and where they did not pay the bills. 

Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001 through March 

31, 2002

Category Examples of vendors 

Number of 

transactions

Dollar 

amount

Legalized 

brothels 

James Fine Dining, Chicken Ranch 

80 $13,250

Jewelry Kay Jewelers, Zales Jewelers 199 20,800

Gentlemen's 

clubs 

Spearmint Rhino, Mr. Magoo's 

Lounge, Cheetah's Lounge 247 28,700

Gambling, 

including Internet

www.proccy2, Seinpost Holding, GCA 

(cash advance) 80 34,250
Page 29 GAO-03-147 Navy Travel Cards

Source: GAO analysis of Bank of America data. 

We found that Navy cardholders used their government travel cards to 

purchase prostitution services. We arrived at this information by first 

identifying that two institutions frequented by Navy cardholders were 

legalized brothels in Nevada. Based on a price list provided by one of the 

brothels, we eliminated transactions that were most likely for bar charges 

and determined that 50 cardholders used their government travel card to 

purchase over $13,000 in prostitution services. These charges were 

processed by the brothels’ merchant bank, and authorized by Bank of 

America, in part because a control afforded by the merchant category code 

(MCC),22 which identifies the nature of the transactions and is used by DOD 

and other agencies to block improper purchases, was circumvented by the 

establishments. In these cases, the transactions were coded to appear as 

restaurant and dining or bar charges. For example, the merchant James 

Fine Dining, which actually operates as a brothel known as Salt Wells Villa, 

characterizes its services as restaurant charges, which are allowable and 

not blocked by the MCC control. According to one assistant manager at the 

establishment, this is done to protect the confidentiality of its customers. 

Additionally, the account balances for 11 of the 50 cardholders purchasing 

services from these establishments were later charged off or put into salary 

offset. For example, one sailor, an E-2 seaman apprentice, charged over 

$2,200 at this brothel during a 30-day period. The sailor separated from the 

Navy, and his account balance of more than $3,600 was eventually charged 

off.

Cruises Carnival, Disney, Norwegian, Princess 

72 38,300

Entertainment 

(sporting events, 

theatre, concerts) 

NY Yankees, LA Lakers, Atlanta 

Braves, Phantom of the Opera, other 

Ticketmaster purchases

502 71,400

22MCCs are established by the banking industry for commercial and consumer reporting 

purposes. Currently, about 800 category codes are used to identify the nature of the 

merchants’ businesses or trades, such as airlines, hotels, ATMs, jewelry stores, casinos, 

gentlemen’s clubs, and theatres.

(Continued From Previous Page)

Category Examples of vendors 

Number of 

transactions

Dollar 

amount
Page 30 GAO-03-147 Navy Travel Cards

We also found instances of abusive travel card activity where Navy 

cardholders used their cards at establishments such as gentlemen’s clubs, 

which provide adult entertainment. Further, these clubs were used to 

convert the travel card to cash by supplying cardholders with actual cash 

or “club cash”23 for a 10 percent fee. For example, we found that an E-5 

second class petty officer circumvented ATM cash withdrawal limits24 by 

charging, in a single transaction, $2,420 to the government travel card and 

receiving $2,200 in cash. Subsequently, the club received payment from 

Bank of America for a $2,420 restaurant charge. Another cardholder, an E7 chief petty officer, obtained more than $7,000 in cash from these 

establishments. For fiscal year 2001 and through March 2002, 137 Navy 

cardholders made charges totaling almost $29,000 at these establishments. 

These transactions represented abusive travel card use that was clearly 

unrelated to official government travel. The standard government travel 

card used by most Navy personnel is clearly marked “For Official 

Government Travel Only” on the face of the card. Additionally, upon 

receipt of their travel cards, all Navy cardholders are required to sign a 

statement of understanding that the card is to be used only for authorized 

official government travel expenses. However, as part of our statistical 

sampling results at three Navy locations, we estimated that 7 percent of 

fiscal year 2001 transactions at one site to 27 percent at another site were 

for purposes not related to official travel,25 and therefore, were abusive. 

Personal use of the card increases the risk of charge-offs related to abusive 

purchases, which are costly to the government and the taxpayer. Of the 50 

cardholders who purchased prostitution services described above, 11 were 

later charged off or put into salary offset. As we discussed earlier in the 

report, charged-off and delinquent accounts resulted in contract 

23Club cash is used to tip dancers, waitresses, and bartenders, but cannot be exchanged for 

currency.

24Typically, the ATM limit for a 1-month cycle is set at $500 for a standard card and $200 for a 

restricted card. 

25We considered personal use to include (1) any transaction charged to the government 

travel card that was not supported by a valid travel order and (2) any transaction for which 

the Navy was unable to provide supporting documentation. The following are the personal 

use estimates for the three case study locations: Camp Lejeune, U.S. Marine Forces Atlantic, 

26.6 percent; Patuxent River, Air Systems Command, 10.8 percent; and Puget Sound Naval 

Shipyard, Sea Systems Command, 6.6 percent. 
Page 31 GAO-03-147 Navy Travel Cards

modifications and other monitoring efforts, which have cost the Navy 

millions of dollars. 

Travel Card Abuse Due to Failure 

to Pay Bank of America Charges

Our work at three case study sites and our Navy-wide data mining 

identified numerous examples of abusive travel card use where 

cardholders failed to pay their travel card bills. This abusive activity 

included (1) authorized transactions incurred in conjunction with approved 

travel orders where the cardholders received reimbursement but did not 

pay the bills or (2) transactions incurred by cardholders that were not 

associated with approved travel orders. These accounts were subsequently 

charged off or placed in salary offset or other fixed pay agreement. In 

many cases, APCs, commanders, and supervisors did not effectively 

monitor travel card usage or take documented disciplinary actions against 

cardholders. Table 5 provides specific examples of cardholders who failed 

to pay their travel card bills.

Table 5: Examples of Abusive Travel Card Activity Where Accounts Were Charged Off or Placed in Salary Offset 

Cardholder Grade Unit 

Total amount 

charged off 

(CO) or in 

salary offset 

(SO)

Transactions contributing to 

charge-off or salary offset Credit history problems 

Documented 

disciplinary 

action

1 E-5 U.S. Marine 

Corps 

Reserve, 

Camp Lejeune

CO – 

$19,971

Did not use reimbursement to 

pay travel card charges; 

numerous large cash 

withdrawals

Account charge-offs, 

referral to collection 

agency, and other account 

delinquency prior to card 

issuance

None; court-martial 

being considered

2 E-7 Naval Shore 

Intermediate 

Maintenance 

Activity, 

Mayport

SO – 

11,190

ATM withdrawals totaling 

$15,000 from October 2000 

through July 2001; nearly 

$7,000 in cash and other 

expenses at Platinum Plus and 

Mr. Magoo gentlemen’s clubs

Bankruptcy, account 

charge-offs, and serious 

credit card delinquency 

prior to card issuance

None

3 E-4 LeMoore 

Naval Air 

Station

CO – 

8,036

Over $6,250 of computer 

equipment from Best Buy and 

other Web sites

Numerous unpaid 

accounts prior to card 

issuance and charge-off on 

the American Express card

Administrative 

discharge in lieu of 

court-martial for 

misuse of the travel 

card and other 

offenses
Page 32 GAO-03-147 Navy Travel Cards

Source: GAO analysis.

a Wage supervisors designation used to denote supervisory workers on hourly salary. 

Eight of the 10 cardholders included in table 5 had significant credit 

problems prior to card issuance, such as charged-off credit card accounts, 

mortgage foreclosures, bankruptcies, serious delinquencies, unpaid 

accounts, and referrals to collection agencies. One cardholder had similar 

problems subsequent to issuance of the Bank of America travel card. The 

4 O-5 Naval and 

Marine Corps 

Reserve 

Center, 

Washington, 

D.C. 

SO – 

5,678

Over $700 worth of candles 

and cookware; over $1,400 

charged to D.B. Entertainment, 

which owns Baby Dolls and 

other adult entertainment 

clubs

Numerous account chargeoffs, delinquencies, and 

bankruptcy prior to card 

issuance 

None 

5 E-3 Marine Forces 

Reserve, San 

Diego

CO – 

4,041

$3,800 at local restaurants and 

$1,400 in ATM withdrawals 

over a 2-month period

Serious delinquencies, 

unpaid accounts, and 

referrals to collection 

agencies prior to card 

issuance

Court-martialed for 

misuse of the 

government travel 

card; appeal 

ongoing

6 O-6 Naval and 

Marine Corps 

Reserve 

Center, 

Washington, 

D.C.

CO – 

3,511

$2,000 in cash withdrawals 

and nearly $1,500 at local 

grocery and drug stores 

None None

7 WS-10a Puget Sound 

Naval 

Shipyard, 

Naval Sea 

Systems 

Command 

CO -

3,243

Numerous personal charges, 

including groceries, gasoline, 

cash advances, and $150 at 

Bethel Animal Hospital

None prior; serious credit 

card delinquencies and 

mortgage foreclosure in 

2001 and 2002

Removal from 

employment due to 

unauthorized 

absence and travel 

card misuse 

8 GS-12 Naval Air 

Systems 

Command, 

Patuxent River

SO – 

1,202

Airline tickets totaling $608 Serious delinquencies, 

account charge-offs, 

mortgage foreclosure in 

2000, bankruptcies prior to 

and since card issuance

None

9 O-5 Marine Forces 

Reserve, New 

Orleans

SO – 

1,674

Car rental transactions and 

numerous charges at local 

restaurants 

Serious delinquencies prior 

to and since card issuance 

None

10 E-6 U.S. Marine 

Corps, Camp 

Lejeune

CO – 

672

Unauthorized use of card for 

charges associated with 

permanent change of station 

move

Serious delinquency and 

bad debts at the time of 

card issuance

None 

(Continued From Previous Page)

Cardholder Grade Unit 

Total amount 

charged off 

(CO) or in 

salary offset 

(SO)

Transactions contributing to 

charge-off or salary offset Credit history problems 

Documented 

disciplinary 

action
Page 33 GAO-03-147 Navy Travel Cards

following provides illustrative detailed information on abusive activities for 

three of these cases. 

• Cardholder #1 was a sergeant (E-5) with the U.S. Marine Corps Reserve 

assigned at Camp Lejeune. Despite a history of credit problems, which 

included several charged-off and delinquent commercial credit 

accounts, Bank of America issued the cardholder a standard card, with a 

credit limit of $10,000, in March 2000. The cardholder was deployed to 

Europe in August 2000 and his credit limit was increased to $20,000. 

Within a month of his deployment, the cardholder had charged $10,700 

to the card, including $8,500 in ATM withdrawals. Although the 

cardholder received reimbursements for his travel expenses, he failed to 

settle his account in full. In December 2000, the cardholder informed 

the APC that his account was 30 days past due and promised to pay the 

full outstanding balance. He again failed to do so and his account 

balance of $11,467 went delinquent in January 2001. The APC did not 

deactivate the travel card account but put the cardholder in “mission 

critical” status as his tour in Europe was coming to a close. The 

cardholder’s credit limit was then raised to $25,000 to enable the 

cardholder to return to the United States. Consequently, when the 

account was closed on February 8, 2001, the outstanding balance had 

increased to $19,971. The APC admitted to us that he failed to carefully 

monitor this account. No disciplinary action was taken against the 

cardholder, who had returned to civilian life; however, judicial action 

against the cardholder is pending. We have referred this matter to 

DOD’s Office of Inspector General for appropriate action.

In addition, our review indicated that the cardholder might have filed a 

fraudulent travel voucher in January 2001. This travel voucher claimed 

reimbursement for expenses in Germany over the holiday period from 

late December 2000 to early January 2001, allegedly for official 

purposes. However, Bank of America data showed that the government 

travel card belonging to this cardholder was used to make transactions 

in the vicinity of the traveler’s hometown during this holiday period. It 

appeared that the cardholder might have returned to the United States 

for the holiday, yet continued to claim expenses as if he was still in 

Germany, a potentially fraudulent act.

• Cardholder #3 was a petty officer third class (E-4) assigned to the 

LeMoore Naval Air Station in California. Our review indicated that the 

cardholder had numerous unpaid cable, medical, and communication 

accounts and serious delinquency of more than $5,000 on his personal 
Page 34 GAO-03-147 Navy Travel Cards

credit card account prior to receiving the travel card. The unit to which 

the cardholder was assigned had a policy of activating the government 

travel card only when a cardholder travels. However, from February 

through April 2001, while not on travel, the cardholder purchased over 

$6,250 worth of electronic and computer equipment from Best Buy and 

various Web sites using the government travel card. The cardholder did 

not pay his balance and thus came to the attention of the APC when his 

name appeared in the delinquency report. Upon determining that the 

cardholder was able to use the card when not on travel, the APC 

contacted Bank of America, which was unable to tell the APC who had 

activated the account. The cardholder’s balance of more than $8,000 

was charged off, and he was granted an administrative separation in lieu 

of a court-martial for offenses unrelated to the travel card misuse, 

including absence without leave, making false statements, and stealing 

government property of less than $100. 

• Cardholder #4 was a commander (O-5) with the Naval Reserves 

assigned to the Naval and Marine Corps Reserve Center in Washington, 

D.C. Our review showed that Bank of America issued the cardholder a 

standard card in May 2000, although the cardholder’s credit history 

indicated serious financial problems before and at the time of card 

issuance. For example, in October 1998, the cardholder filed for 

Chapter 7 bankruptcy with only $37,169 in assets against $542,063 in 

liabilities. Further, in January 2000, right before the Bank of America 

card was issued, an account with a balance of more than $30,000 was 

charged off. This Navy commander continued, after the issuance of the 

government travel card, a pattern of delinquencies on numerous 

accounts, and in one instance had merchandise repossessed for 

nonpayment. 

During fiscal year 2001 and the first 3 months of fiscal year 2002, the 

cardholder used the government travel card to make numerous 

personal transactions. Transactions included more than $1,400 to D.B. 

Entertainment, which owns Baby Dolls Saloon, a gentlemen’s club in 

Dallas, and more than $700 to Wearever cookware and Partylite Gifts, a 

manufacturer of candles and candle accessories. A delinquency letter 

was sent to the cardholder on August 9, 2002, when the account was 

120 days past due; however, no documentation existed to indicate that 

any action was taken prior to this date. Although the cardholder had 

been placed in salary offset, no other disciplinary action had been taken 

against the cardholder. 
Page 35 GAO-03-147 Navy Travel Cards

Travel Card Abuse Where 

Cardholder Paid Bank of 

America Charges 

As discussed above, some individuals who used the card for improper 

purposes paid their travel card bills when they became due. We considered 

these occurrences to be abusive travel card activity because these 

cardholders benefited by, in effect, getting interest-free loans. Personal use 

of the card increases the risk of charge-offs, which are costly to the 

government and the taxpayer. In addition, the high rate of personal use is 

indicative of the weak internal control environment and the failure of APCs 

to monitor credit card activities, as discussed later in this report. 

Table 6 provides examples of the types of abusive charges we found during 

our review. 

Table 6: Examples of Abusive Activity Where the Cardholders Paid the Bills

Source: GAO analysis.

a

Wage grade system used for workers who are on hourly salary.

b

Scientific and engineering career path equivalent to GS-14 to GS-15. 

c

Midshipmen are cadets in training to become Navy officers. They may receive stipends while in 

college.

Cardholder Unit Grade Vendor Amount Nature of transaction

Documented

disciplinary 

action

1 PEO Theatre Air and 

Surface, Naval Sea 

Systems Command, 

Washington D.C.

GS-15 Seinpost 

Holdings Over 

$23,000 

in charges

35 transactions for Internet gambling Written 

reprimand

2 Mobile Inshore Undersea 

Warfare, Newport

E-5 Cardholder’s 

own business $8,622

Bogus charges of $7,222 to 

cardholder’s own limousine company

None

3 Portsmouth Naval Shipyard WG-10a Herbal Life

6,758

17 purchases for vitamins and health 

supplements

None

4 Naval Undersea Warfare 

Center, Newport

ND-5b Carnival Cruise 

3,790

Alaskan cruise for two for 7 nights None

5 U.S. Naval Academy, 

Annapolis

MIDNc Best Buy

2,442

Home electronics None

6 U.S. Marine Corps, Camp 

Pendleton

E-7 United Vacation

1,326

United Airlines plane ticket for 

cardholder’s spouse

None

7 U.S. Marine Corps, Camp 

Pendleton 

E-6 DeAngelo Tax 

Service 800

For preparation of tax returns from 

1997-2000

None

8 Naval Reserves Forces 

Command, Virginia

E-7 Ticketmaster

460

Four concert tickets to the Backstreet 

Boys 

None

9 Norfolk Naval Air Station E-4 Fredricks of 

Hollywood 184

Women’s lingerie None

10 Naval Medical Research 

Center, San Antonio

E-4 GTEAir

148

Airplane telephone call None
Page 36 GAO-03-147 Navy Travel Cards

As shown in table 6, cardholders used their travel cards for a wide variety 

of personal goods or services. Some transactions were similar to the 

services procured in table 4. The cards were also used to purchase home 

electronics, women’s lingerie, tax services, and in one instance, to make 

bogus charges to the cardholder’s own business. In this instance, an E-5 

second class petty officer reservist, whose civilian job is with the U.S. 

Postal Service, admitted making phony charges of over $7,200 to operate 

his own limousine service. In these transactions, the reservist used the 

travel card to pay for bogus services from his own limousine company 

during the first few days of the card statement cycle. By the second day 

after the charges were posted, Bank of America would have deposited 

funds—available for the business’ immediate use—into the limousine 

business’ bank account. Then, just before the travel card bill became due, 

the limousine business credited the charge back to the reservist’s 

government travel card and repaid the funds to Bank of America. This 

series of transactions had no impact on the travel card balance, yet allowed 

the business to have an interest-free loan for a period. This pattern was 

continued over several account cycles. Navy officials were unaware of 

these transactions until we brought them to their attention and are 

currently considering what, if any, action should be taken against the 

cardholder.

Few Documented 

Disciplinary Actions Taken 

against Cardholders Who 

Misused the Travel Card 

It is critical that cardholders who misuse their travel cards are identified 

and held accountable for their actions. The DOD Financial Management 

Regulation (FMR) states that “commanders or supervisors shall not 

tolerate misuse of the DOD travel cards and cardholders who do misuse 

their cards shall be subject to appropriate disciplinary action.” However, 

DOD and Navy policies and procedures do not define appropriate 

disciplinary action to help ensure that consistent punitive actions are taken 

against cardholders who abuse their travel cards. Lacking such guidance, 

disciplinary actions are left solely to the discretion of commanders and 

supervisors. As a result, we did not find documentation indicating that 

commanders and supervisors took any disciplinary actions against almost 

two-thirds of individuals we reviewed who abused or misused their cards 

during fiscal year 2001 and the first 6 months of fiscal year 2002. Failure to 

identify and discipline abusive cardholders will likely result in the Navy 

continuing to experience the types of potentially fraudulent and abusive 

activity identified in our work. 

For many cardholders we inquired about, the misue or abuse of the travel 

card led Navy officials to counsel cardholders on proper use of the card 
Page 37 GAO-03-147 Navy Travel Cards

and the cardholders’ responsibility for timely payment of travel card bills. 

We found only a few cases where the Navy court-martialed or issued 

administrative warnings to individuals solely because of card misuse. More 

often than not, severe disciplinary actions were taken in response to travel 

card abuse in conjunction with other more serious offenses—such as 

failing to obey orders or unauthorized absences. In these instances, 

documented disciplinary actions included dismissal from the Navy. 

At the sites we audited, the Navy could not provide documentation of 

disciplinary actions taken against cardholders in 37 of the 57 NSF check 

cases and charged-off or salary offset accounts we reviewed. For example, 

cardholder #9 in table 3, whose account was charged off for more than 

$4,900, did not receive any disciplinary action. Cardholder #5 in table 3 was 

promoted after his unpaid account balance of almost $4,600 was charged 

off. 

Also, we found little evidence that cardholders faced adverse 

consequences for personal use of the card as long as they paid their travel 

card bills. Of the 10 cases detailed in table 6, only 1 had evidence of 

disciplinary action. We saw few indications that supervisors were aware 

that these abusive transactions occurred. To the extent we found that 

APCs or supervisors were aware of such travel card abuse, we saw little 

evidence of disciplinary actions. 

Further, we found that some individuals who abused their travel card 

privileges held high-level positions, where they may have been responsible 

for taking appropriate disciplinary action in response to travel card abuse 

by personnel within their commands. In instances where these individuals 

abused the card, they rarely received disciplinary action. For example, a 

commander became severely delinquent in January 2002 after making more 

than $2,000 in purchases of inappropriate items such as cookware and 

adult entertainment. However, there was no indication that this officer’s 

superior was informed of his delinquency or misuse of the travel card until 

the account was at least 120 days past due. Consequently, although the 

cardholder’s account was placed in salary offset, the cardholder was not 

disciplined. 

We have reported similar problems with the Army travel card program and 

in our testimony on the Navy travel card program. As a result, the fiscal 

year 2003 Department of Defense Appropriations Act, Public Law 107-248, 

contains provisions that address this problem. Specifically, the Act 

requires the Secretary of Defense to establish guidelines and procedures 
Page 38 GAO-03-147 Navy Travel Cards

for disciplinary actions to be taken against cardholders for improper, 

fraudulent, or abusive use of the government travel card. 

Cardholders with Credit 

Problems Continued to 

Have Active Security 

Clearance 

We found that many cardholders who had abused the travel card or been 

involved in potentially fraudulent activities continued to have active 

security clearances. Both DOD and Navy rules provide that an individual’s 

finances are one of the factors to be considered in determining whether an 

individual should be entrusted with a security clearance. The U.S. 

Department of the Navy Central Adjudication Facility (commonly referred 

to as DON CAF) is responsible for issuing and updating security clearances 

for Navy personnel. Secret clearances are updated every 10 years and topsecret clearances are updated every 5 years. During the interim periods, 

Navy instructions26 require commanders of personnel with clearances, such 

as secret or top secret, to submit to DON CAF any evidence of financial 

irresponsibility on the part of an individual that would affect his or her 

clearance. Such evidence would include information on financial 

impropriety, such as excessive indebtedness. DON CAF is to evaluate this 

information and determine whether to revoke or downgrade the clearance. 

We found that commanders responsible for referring evidence of financial 

irresponsibility to DON CAF were sometimes not aware of their 

subordinates’ financial problems. Consequently, Navy security officials 

might not be in possession of all information necessary to assess an 

individual’s security clearance. Our audit found that 27 of 57 travel 

cardholders we examined whose accounts were charged off or placed in 

salary offset as of March 2002 still had active secret or top-secret security 

clearances in August 2002. These financially troubled individuals may 

present security risks to the Navy. We provided the information we 

collected on individuals with charged-off accounts to DON CAF for its 

consideration in determining whether to revoke, change, or renew the 

individuals’ security clearances. 

Further guidance for this procedure is also contained in the fiscal year 2003 

Defense Appropriations Act. In addition to requiring the Secretary of 

Defense to establish guidance and procedures for disciplinary actions, the 

act states that such actions may include (1) review of the security 

clearance of the cardholders in cases of misuse of the government travel 

26Secretary of the Navy Instruction 5510.30A, Department of the Navy Personnel Security 

Program, dated March 10, 1999, Chapter 10, Appendix F, Personnel Security Standards.
Page 39 GAO-03-147 Navy Travel Cards

card and (2) modification or revocation of the security clearance in light of 

such review.

Weak Overall Control 

Environment and 

Ineffective Travel Card 

Program Controls

A weak overall control environment and ineffective internal controls over 

the travel card program contributed to the potentially fraudulent and 

abusive travel card activity and the Navy’s high rates of delinquency and 

charge-offs. The foundation of all other controls, a strong control 

environment provides discipline and structure as well as the climate that 

positively influences the quality of internal controls. Although we observed 

improvements in the first half of fiscal year 2002, we identified several 

factors that contributed to a weak overall control environment for fiscal 

year 2001, including, as discussed previously, few documented disciplinary 

actions taken against cardholders who abused their travel cards and a lack 

of management attention and focus on establishing and maintaining the 

organizational structure and human capital needed to support an effective 

Navy travel card management program. We found that this overall weak 

control environment contributed to design flaws and weaknesses in six 

management control areas needed for an effective travel card program. 

Specifically, we identified weaknesses in the Navy travel program controls 

related to (1) travel card issuance, (2) cardholders’ training, (3) APCs’ 

capacity to carry out assigned duties, (4) procedures for limiting card 

activation to meet travel needs, (5) procedures for terminating accounts 

when cardholders leave military service, and (6) access controls over Bank 

of America’s travel card database.
Page 40 GAO-03-147 Navy Travel Cards

All six of these areas related to two key overall management weaknesses: 

(1) lack of clear, sufficiently detailed Navy policies and procedures and 

(2) limited travel card audit and program oversight. First, during fiscal year 

2001, the sites we audited used DOD’s travel management regulations DOD 

FMR (Vol. 9, Ch.3) as the primary source of policy guidance for 

management of Navy’s travel card program.27 However, in many areas, the 

existing guidance was not sufficiently detailed to provide clear, consistent 

travel management procedures to be followed across all Navy units. 

Second, as recognized in the DOD Inspector General’s March 2002 

summary report28 on the DOD travel card program, “[b]ecause of its dollar 

magnitude and mandated use, the DOD travel card program requires 

continued management emphasis, oversight, and improvement by the 

DOD. Independent internal audits should continue to be an integral 

component of management controls.” However, the DOD Inspector 

General report noted that no internal review reports were issued from 

fiscal year 1999 through fiscal year 2001 concerning the Navy’s travel card 

program. According to the NAS, no internal review report related to Navy’s 

travel card had been issued since then. 

Ineffective Controls over 

Issuance of Travel Cards

The Navy’s ability to prevent potentially fraudulent and abusive 

transactions that can eventually lead to additional delinquencies and 

charge-offs is significantly weakened if individuals with histories of 

financial irresponsibility are permitted to receive travel cards. Similar to 

what we found at Army, the Navy’s practice is to facilitate the issuance of 

travel cards—with few credit restrictions—to all applicants regardless of 

whether they have histories of credit problems. Although the DOD FMR 

provides that all DOD personnel are to use the travel card to pay for official 

business travel, the policy also provides that exemptions may be granted 

under a number of circumstances, including for personnel who are denied 

travel cards for financial irresponsibility. However, DOD’s policy is not 

clear as to what level of financial irresponsibility by a travel card applicant 

would constitute a basis for such an exemption. We found no evidence that 

the Navy exempted any individuals or groups from required acceptance 

and use of travel cards, even those with histories of severe credit problems. 

27During fiscal year 2002, the Navy’s eBusiness Operations Office issued Navy-specific 

guidance for the management of the travel card program.

28 Department of Defense Office of Inspector General, Acquisition: Summary of DOD 

Travel Card Program Audit Coverage, D-2002-065 (Washington, D.C.: Mar. 18, 2002).
Page 41 GAO-03-147 Navy Travel Cards

The DOD FMR provides that credit checks be performed on all travel card 

applicants, unless an applicant declines the conduct of a credit check. In 

July 1999, Bank of America began conducting credit checks on DOD travel 

card applicants and used the resulting information as a basis for 

determining the type of account—restricted or standard—it would provide 

to new DOD travel applicants. While, as mentioned above, DOD FMR 

would allow the Navy to exempt individuals with financial irresponsibility 

from the use of the government travel card, in practice any applicant who 

does not authorize a credit check, has no credit history, or has a history of 

credit problems, is issued a restricted travel card with a $2,500 credit limit. 

All other applicants are issued standard travel cards with a $10,000 credit 

limit. In January 2002, the Navy further reduced the credit limit on a 

restricted travel card to $2,000 and the limit on a standard card to $5,000. 

However, DOD and Navy policy also permit APCs to raise the credit and 

ATM limits of all cards after they have been issued to meet travel and 

mission requirements.

As discussed previously, many of the Navy travel cardholders that we 

audited who wrote numerous NSF checks, were severely delinquent, or had 

their accounts charged off had histories of delinquencies and charge-offs 

relating to other credit cards, accounts in collection, and numerous 

bankruptcies. Our analysis of credit application scoring models and credit 

risk scores used by major credit bureaus confirmed that applicants with 

low credit scores due to histories of late payments are poor credit risks. 

Credit bureau officials told us that if their credit rating guidelines for 

decisions on commercial credit card application approvals were used to 

make decisions on travel card applicants, a significant number of low- and 

midlevel enlisted Navy cardholders would not even qualify for the 

restricted limit cards. A credit history showing accounts with collection 

agency action or charge-offs poses an even higher credit risk. Any of these 

problems can be a reason for denying credit in the private sector. However, 

individuals with no credit history, or little credit history, are generally 

issued cards with lower credit limits, as reflected by current DOD policy.

By authorizing all individuals regardless of past credit history who apply 

for cards to get them, the Navy has exposed the government to increased 

losses from increased fees and lost rebates associated with these 

individuals. Credit industry research and the results of our work 

demonstrate that individuals with previous late payments are much more 

likely to have payment problems in the future. 
Page 42 GAO-03-147 Navy Travel Cards

Further, as a result of our audit findings and an amendment proposed by 

Senators Byrd and Grassley, the fiscal year 2003 Department of Defense 

Appropriations Act requires that the Secretary of Defense evaluate whether 

an individual is creditworthy29 before authorizing the issuance of any 

government travel charge card. An individual found not to be creditworthy 

may not be issued a government travel charge card. Implementing 

procedures to assess the creditworthiness of an individual prior to issuing a 

credit card, and denying a credit card to anyone found not creditworthy as 

required by the fiscal year 2003 Department of Defense Appropriations Act, 

should improve delinquency rates and reduce fraud and abuse. 

Inadequate Cardholder 

Training

The DOD FMR requires that APCs provide training to cardholders on the 

proper use of the government travel card prior to card issuance. The FMR 

also requires DOD components to ensure that current cardholders are 

informed of policy and procedure changes to the travel card program. 

However, we found that the three case study sites we visited did not 

provide consistent and periodic training to cardholders. The APCs we 

interviewed generally informed us that they viewed the signature on a 

travel card application as indication that the cardholder had read, and 

understood, the regulations governing the use of the government travel 

card. In addition, the APCs stated that the cardholders also received a 

statement of understanding when they were issued a travel card. Only one 

APC informed us that she discussed travel card restrictions with employees 

at the time they submitted the travel card applications, and that the fleet 

support group periodically provided individuals with briefings on proper 

travel card use. The failure to provide standardized, consistent, and 

periodic training on travel card procedures might have contributed, in part, 

to high incidences of misuse because individuals did not fully understand 

the rules governing travel card usage. 

Unrealistic APC 

Performance Expectations

DOD policy provides that APCs are the primary focal points for day-to-day 

management of the travel card program. However, at units with low- and 

midlevel military personnel who are often deployed, APC duties are 

generally “other duties as assigned.” This exacerbated an already existing 

disposition towards delinquency of these individuals, as discussed above. 

29The statutory provision does not define the term creditworthy. However, the conferees on 

the DOD appropriations act expressed their view that the statutory prohibition would 

permit "an individual with no credit history to be issued a restricted-use charge . . . card." 
Page 43 GAO-03-147 Navy Travel Cards

Further, the sheer number of responsibilities assigned to APCs, coupled 

with issues concerning APC span of control and training, greatly affected 

the APCs’ abilities to carry out their critical duties effectively. 

Consequently, we found that APCs were generally ineffective in performing 

their key travel card program management oversight duties. However, the 

proactive measures by a full-time APC contributed to a low delinquency 

rate at one installation we audited. 

APC Responsibilities As prescribed by the DOD FMR, APCs “are responsible for the day-to-day 

operations of the DOD Travel Card Program.” DOD FMR volume 9, chapter 

3, provides that APCs are responsible for a variety of key duties, including 

establishing and canceling cardholder accounts, tracking cardholder 

transfers and terminations, monitoring and taking appropriate actions with 

respect to account delinquencies, interacting with the bank, and fielding 

questions about the program from both cardholders and supervisors. APCs 

are also required to notify commanders and supervisors of all travel card 

misuse so they can take appropriate actions. 

We found distinct differences in how APC duties were assigned at the three 

case study sites. At Camp Lejeune, a military installation, the six APCs that 

we interviewed were primarily responsible for other duties. For example, 

some were assigned duties as personnel officers in units providing 

specialized training for infantry and engineering. These individuals’ APC 

responsibilities were “other duty as assigned,” and most spent less than 20 

percent of their time carrying out these duties. Additionally, one APC 

indicated to us that it was a challenge to keep up with his APC 

responsibilities, mainly because he was expected first and foremost to 

perform his primary duties. In contrast, at Patuxent River and Puget Sound 

Naval Shipyard, two installations with mainly civilian cardholders, the APC 

role is a full-time post and therefore the APCs spend all of their time 

carrying out APC responsibilities.

Most of the APCs at the case study sites focused monitoring efforts on 

delinquencies, and rarely conducted detailed review of charge card 

transactions. All APCs have access to account transaction activity reports 

and declination reports, which detail activities that were rejected by Bank 

of America and thus would be useful in identifying individuals who might 

have attempted to misuse the card. One APC interviewed told us that 

detailed transaction reviews were too time-consuming. If she reviewed 

account activities at all, it was in conjunction with, and after she had 

identified delinquent accounts. Failure to systematically and regularly 

review transaction activities meant that most APCs were not able to 
Page 44 GAO-03-147 Navy Travel Cards

promptly detect, and therefore take further actions to prevent, abusive 

travel card activity. This is illustrated by the fact that personal use of the 

card was estimated to be 27 percent at one site we audited. 

In contrast, the APC at another case study site informed us that she 

reviewed delinquency reports several times a month to identify and 

promptly notify supervisors about the status of delinquent accounts. She 

also told us that, in addition, she monitored transactions in the Bank of 

America database for improper and abusive uses of the card monthly, and 

sent out notices to the cardholders and the cardholder supervisors if such 

transactions were identified. We believe these proactive actions 

contributed to that site’s low delinquency rate and fewer incidences of 

personal use.

Failure to review cardholder transactions and take action to address 

inappropriate card usage can lead to delinquencies and account chargeoffs. For example, one APC was not aware that a cardholder within her 

sphere of responsibility made 17 personal use transactions to Herbalife 

International, as shown in table 6, from January 2001 to May 2001 until the 

cardholder became delinquent in August 2001. By that time, the cardholder 

had charged over $6,750 to the vitamin company. In another example, an 

APC did not detect that a cardholder had misused his card to purchase over 

$6,250 in electronic and computer equipment until he appeared in the 

delinquency report. His account balance of more than $8,000 was 

subsequently charged off.

APC Span of Control The DOD’s FMR guidance does not address the appropriate span of control 

for an APC—the number of cardholders that an APC should be responsible 

for managing and overseeing. A reasonable span of control is critical for 

effective management and proper travel program oversight. In addition, 

because APC duties often are assigned as collateral duties, the span of 

control should be commensurate with the time available to carry out APC 

responsibilities effectively. As shown in table 7, at the three sites we 

audited, the average ratio of cardholders to APCs ranged from 214 to 1 to 

5,984 to 1. 
Page 45 GAO-03-147 Navy Travel Cards

Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at Navy Sites 

Audited 

Source: GAO analysis of Bank of America data.

While table 7 shows the average span of control, the actual span of control 

for the APCs at the three sites we audited ranged from a low of 25 to about 

6,000 cardholders. Bank of America guidance provides that an optimal 

span of control is 100 cardholders per APC. While we did not evaluate the 

guidance provided by Bank of America, we believe that one APC cannot 

effectively carry out all management and oversight responsibilities 

discussed previously if he or she, even working full time, has responsibility 

for hundreds or thousands of cardholders. In fact, the supervisor of one 

APC with about 6,000 cardholders informed us that the APC simply did not 

have time to systematically perform other types of monitoring beyond 

identifying and notifying supervisors and commanders of delinquent 

accounts. 

Decisions on the optimal span of control must take into account not only 

the number of accounts for which the APC has direct responsibility, but 

also the number of accounts for which a lower-level APC has direct 

responsibility.30 For example, an APC at Patuxent River had direct 

responsibility for 2,244 cardholders and oversight responsibility for 

another 5,560 cardholders. 

Span of control

Camp LeJeune, 

U.S. Marine 

Forces Atlantic

Patuxent River, 

Naval Air Systems 

Command

Puget Sound Naval 

Shipyard, Sea 

Systems 

Command

Number of cardholders 1,713 8,804 5,984

Number of APCs 8 2 1

Average ratio of 

cardholders to APCs 214:1 4,402:1 5,984:1

30APC responsibilities vary depending on the APC’s level in the Navy’s organizational 

hierarchy from headquarters down through the Navy’s organizational chain of command to 

the individual Navy unit level. That is, individuals with APC responsibilities at the Navy unit 

level have direct responsibility for monitoring cardholder account activity whereas 

individuals at higher levels in the Navy’s organizational hierarchy may have responsibility 

for overseeing the activities of one or more APCs as well as direct responsibility for 

monitoring the account activity of a number of cardholders. 
Page 46 GAO-03-147 Navy Travel Cards

APC Training Our internal control standards state that management’s commitment to 

competence and good human capital practices are key factors in 

establishing and maintaining a strong internal control environment. 

Specifically, our standards provide that management identify appropriate 

knowledge and skills required for various jobs and provide needed training. 

They also state that establishing appropriate human capital practices, 

including hiring, training, evaluating, counseling, and disciplining 

personnel, is another critical environmental factor.

DOD policy provides that travel card training materials are to be 

distributed throughout the department and that APCs are to be informed of 

policy and procedural changes relating to the travel card program. 

However, neither DOD nor Navy procedures detail requirements for the 

extent, timing, and documentation of travel program training for APCs. 

APCs are not required to receive training on the duties of the position or on 

how to use available Web-based tools and reports from Bank of America 

before they assume their APC duties. 

We found that APC training had not been considered a priority. Of the nine 

APCs we spoke to, only one had received official APC training. The other 

eight told us they relied heavily upon on-the-job learning, trial and error, or 

other program coordinators for advice on how to carry out their duties 

when they assumed their APC responsibilities. One full-time APC had been 

in her position for more than 2 years but had not attended formal Bank of 

America training, even though training seminars are offered annually. 

Some APCs we interviewed indicated that they were not proficient in using 

the tools available through the Bank of America Web-based system 

containing travel card transaction data—Electronic Account Government 

Ledger System (EAGLS)—to monitor cardholders’ travel activities. The 

lack of emphasis on training could negatively affect APCs’ ability to 

monitor delinquencies and promptly detect and prevent potentially 

fraudulent and abusive activities. According to data provided by Bank of 

America, as of May 2002 about 23 percent of the Navy’s APCs had never 

logged on to EAGLS. 

Controls over 

Activating/Deactivating 

Travel Cards to Meet Travel 

Needs

Allowing Navy travel cardholders to maintain accounts in an active status 

when not needed for government travel unnecessarily increases the risk of 

misuse—through cardholders either mistakenly or intentionally using the 

card for personal purposes. DOD’s FMR provides that restricted cards are 

issued to cardholders in an “inactive” status and initially activated only 

when the cardholders have authorized government travel needs. Standard 
Page 47 GAO-03-147 Navy Travel Cards

cards, however, are “active” when they are issued to cardholders. DOD 

policy guidance does not address deactivating restricted and standard 

travel cards when not needed for official purposes. 

Lacking overall policy and procedural guidance in this area, we found 

instances in which individual commands or sites established their own 

practices for deactivating restricted cards when individuals were not on 

travel. In fact, APCs at the case study sites we audited informed us that 

they generally deactivated restricted cards when individuals were not on 

travel. In contrast, during fiscal year 2001 and most of fiscal year 2002, the 

standard cards were issued in an “active” status, and remained active when 

individuals were not traveling. Leaving cards in active status increased the 

risk of misuse, as supported by our statistical sampling work, which 

showed that most improper use occurred while the individuals were not on 

official travel. Recognizing this internal control weakness, the Navy issued 

a directive in April 2002 requiring that the U.S. Marine Corps, which 

continued to have a high delinquency rate, deactivate cards for all 

personnel not scheduled for official travel. The directive also required that, 

once activated for official travel, the cards be deactivated immediately 

upon the conclusion of official travel. 

Exit Control Procedures for 

Separating Employees

We found that the Navy lacks clear, sufficiently detailed procedures that 

would ensure that travel cards are deactivated or terminated when 

cardholders leave the Navy. DOD’s FMR provides that APCs are 

responsible for terminating travel cards when cardholders retire, separate, 

or are dismissed from DOD. Operating procedures established by 

individual Navy commands and installations to notify APCs in the case of 

retirement or separation of employees were neither consistent nor 

effective. Controls were also ineffective in ensuring that prompt actions 

were taken to deactivate or terminate cards even when the APC is notified. 

Consequently, some cardholders’ accounts remained active, creating an 

opportunity for abuse. 

In general, the three case study sites had standard exit procedures, which 

required a signature from the APC, or the unit where the APC worked, 

before individuals could complete outprocessing. The purpose of such 

procedures is to ensure that travel cards are promptly deactivated or 

closed. However, our work found that these procedures were not always 

followed. For example, at one case study site, the APC is a checkpoint on 

the checkout list, and cardholders are expected to obtain the APC’s 

signature before completing outprocessing. However, there was no control 
Page 48 GAO-03-147 Navy Travel Cards

at the unit where the cardholder turned in the checkout list to ensure that 

the list was complete. Consequently, the APC informed us that exit 

procedures were not effective. 

We also found that the Navy did not have procedures requiring periodic 

comparisons between active travel card accounts and their employees to 

ensure that accounts of separated or retired employees were closed. All 

three case study sites we visited maintained databases of their active 

employees. However, the APCs at these locations generally did not 

compare these records against the list of active travel card accounts to 

identify accounts that should have been deactivated and/or closed but 

remained open. Periodic reconciliation of the two lists would have enabled 

these units to identify separated cardholders with active accounts so that 

appropriate, timely actions could be taken.

Ineffective exit procedures and the inability to effectively identify and 

terminate travel cards of individuals no longer in the Navy led to numerous 

travel card abuses and charge-offs. These separated Navy employees 

benefited by using the travel cards to purchase a variety of goods and 

services, possibly at discounted government rates. Some did not pay their 

monthly bills, thereby essentially obtaining the personal items for no cost. 

The following cases are examples of what can happen when travel cards 

are not effectively deactivated or closed upon separation.

• In one Navy unit, a cardholder died in October 1999. However, 

ineffective controls over the notification process resulted in the APC not 

being aware that this had occurred. Therefore, the APC did not take 

actions to close this individual’s government travel card account. 

Consequently, in October 2000, when the old card was about to expire, 

Bank of America mailed a new card to the address of record. When the 

card was returned with a forwarding address, the bank remailed the 

card and the personal identification number, which is used to activate 

the card, to the new address without performing other verification 

procedures. The card was activated in mid-December 2000, and within a 

month, 81 fraudulent transactions for hotel, food, and gas totaling about 

$3,600 were charged to the card. In January 2001, in the course of her 

monthly travel card monitoring, the APC noticed suspicious charges in 

the vicinity of the cardholder’s previous post-of-duty. The APC took 

immediate action to deactivate the card, thus preventing additional 

charges from occurring. Upon finally learning of the cardholder’s death 

from the cardholder’s unit, the APC immediately reported the case to a 

Bank of America fraud investigator. Investigations indicated that a 
Page 49 GAO-03-147 Navy Travel Cards

family member of the cardholder might have made these charges. No 

payment was ever made on this account, and the entire amount was 

subsequently charged off. We referred this case to the U.S. Secret 

Service Credit Card Task Force for further investigation and potential 

prosecution. 

• A chief warrant officer (W-3) at Naval Air Force, U.S. Atlantic Fleet, 

repeatedly used his travel card after his retirement on December 1, 2000. 

The cardholder currently works for a private company. He used the 

government travel card since his retirement to make charges totaling 

more than $41,000 for hotels, car rentals, restaurants, and airline tickets 

for personal and business purposes. In a number of instances, the 

cardholder was able to obtain the government rate—which can be 

substantially lower than the commercial rate—for lodging in San Diego, 

Philadelphia, and Cincinnati. Because the Navy does not routinely 

monitor cardholder transactions for abusive activity and because this 

particular account was always paid in full, abusive activity was not 

detected. Bank of America data showed that the cardholder’s account 

was still open in early September 2002 and thus available for further 

charges. 

• In another instance, a mechanic trainee at the Puget Sound Naval 

Shipyard was convicted of a felony for illegal possession of a firearm in 

October 2000 and placed on indefinite suspension by his employer in 

November 2000. However, neither the security office, which took action 

against the employee, nor the office where the individual worked 

notified the APC to cancel or deactivate the cardholder’s government 

travel card account. Following his suspension, the cardholder used the 

government travel card to make numerous cash withdrawals and 

purchases totaling almost $4,700. The APC was not aware of these 

abusive charges until the monthly delinquency review identified the 

account as delinquent. The account balance of $1,600 was subsequently 

charged off in January 2002. Although security officers at the Puget 

Sound Naval Shipyard referred the case to DON CAF in October 2000, 

our work indicated that the employee, who was still in suspended status 

as of August 2002, continued to maintain a secret clearance, despite the 

travel card charge-off and felony conviction. 

We also found instances where the APC did not promptly deactivate or 

terminate the travel card upon being notified of an employee’s death, 

retirement, dismissal, or separation from the Navy. At one case study site, 

we audited 10 accounts of employees who died, retired, separated, or were 
Page 50 GAO-03-147 Navy Travel Cards

otherwise removed since November 2000. Of the 10, 4 cardholders 

obtained signatures from the travel branch, where the APC works, upon 

leaving the unit. However, 3 of these 4 accounts were not deactivated or 

terminated in a timely manner. In one case, a cardholder continued to use 

the card to make numerous charges totaling $4,900 for more than 9 months 

following separation. The cardholder failed to make timely payments on 

her account and became delinquent in September 2001. The APC did not 

report this cardholder’s delinquent status to the appropriate unit supervisor 

until the account was 90 days past due. The supervisor stated that she took 

actions to have the card deactivated immediately upon learning of the 

delinquency. The individual’s account was charged off on November 27, 

2001, and as of July 13, 2002, had a remaining balance of $4,800. Available 

data also indicated that another cardholder who retired in August 2001 

continued to maintain possession of an active card until September 2002, 

although he did not use the card. Failure to promptly deactivate or 

terminate travel card accounts of individuals no longer with the Navy 

increases the risk of delinquencies and charge-offs and can lead to 

increased cost to the Navy.

Access Controls over Bank 

of America’s Travel Card 

System

Thousands of Bank of America and DOD employees have access to Bank of 

America’s travel card transaction data system, known as EAGLS. 

Computer system access controls are intended to permit authorized users 

to access the system to perform their assigned duties and preclude 

unauthorized persons from gaining access to sensitive information. Access 

to EAGLS is intended to be limited to authorized users to meet their 

information needs and organizational responsibilities. Authorized EAGLS 

users access levels include customer-level access (APCs requiring access to 

travel data for cardholders under their purview and individual travelers 

requiring access to their own travel transaction histories) and bank 

employee-level access (Bank of America employees may be granted one of 

five different levels of access depending on their assigned duties). The 

highest level of Bank of America employee access to EAGLS is the “super 

user” level. According to Bank of America security officials, this level of 

access—which provides users the ability to add, delete, or modify anything 

in the system, including creating accounts and editing transaction data in 

the system—should be granted to as few individuals as possible.

We found that 1,127 Bank of America employees had some level of access 

to the EAGLS system, including 285 with super-user-level access. After we 

brought this matter to the attention of Bank of America security officials, 

they reviewed employee access and deactivated access for 655 employees 
Page 51 GAO-03-147 Navy Travel Cards

that they determined should not have had any level of access. This 

included 22 employees with super-user access. Further, Bank of America 

has since initiated periodic reviews to ensure that it maintains appropriate 

levels of employee access.

In addition, DOD employees retained APC access to EAGLS after 

relinquishing their APC duties or after they may have been transferred or 

terminated. In a 2000 survey of 4,952 individuals with APC-level access to 

EAGLS, DOD found that approximately 10 percent could not be located 

and may have been transferred or terminated or no longer had APC 

responsibilities. Because of concern that many of these accounts should 

be deactivated, Bank of America has begun a review to determine if DOD 

employees with APC-level access no longer have APC responsibilities or 

have left the service.

Statistical Tests of Key 

Control Activities 

With the weak control environment and related program control 

weaknesses we identified, it is not surprising that we found weaknesses in 

the implementation of selected key control activities we statistically tested 

at the three Navy sites we audited. We selected four key control activities 

to test related to basic travel transaction and voucher processing. As 

discussed previously, for the three locations, we estimate that the 

percentage of transactions during fiscal year 2001 that represented 

personal use varied from 7 percent at one location to 27 percent at another 

location.

We tested the implementation of the following internal control activities for 

a statistically valid sample of travel card transactions.

• Was there a travel order associated with the transaction that was 

approved prior to the start of travel?

• Was there a travel voucher associated with the transaction that was 

properly reviewed to ensure that payment was accurate and properly 

supported?

• Did the traveler submit a travel voucher associated with the transaction 

to the installation travel office for processing within 5 days of 

completion of travel, as required by government travel regulations?
Page 52 GAO-03-147 Navy Travel Cards

• In accordance with TTRA and the DOD FMR, was the traveler paid 

within 30 days of the date a properly approved travel voucher associated 

with the transaction was submitted for payment? 

Table 8 shows the results of our statistical samples. Appendix II includes 

the specific criteria we used to assess the effectiveness of these controls.

Table 8: Results of Testing of Key Internal Controls

Source: GAO analysis.

Note: The numbers in the table represent point estimates of the percentage of failure in the population 

based on our sampling tests. The confidence intervals for our sampling estimates are presented in 

app. II.

a

The high failure rate is attributable to management’s failure to maintain copies of the original signed 

travel orders, which were sent to the travelers.

Controls over Travel Order 

Approval 

Timely approval of the travel orders is the first step in ensuring that travel 

is authorized. At one of the three installations we audited, Patuxent River, 

the controls over travel order approval were partially effective. In contrast, 

Puget Sound Naval Shipyard, which had a failure rate of 49 percent, had 

ineffective controls over travel order approval. At Puget Sound, the high 

failure rate was primarily attributable to travel personnel not consistently 

ensuring that all copies of the six-part travel orders used in fiscal year 2001 

were signed before sending the originals to the travelers. Consequently, 

this unit was unable to provide us with signed copies of the travel orders. 

Puget Sound Naval Shipyard management informed us that it had recently 

instituted procedures that require signed copies of travel orders be 

maintained by the unit. 

Percentage of failure

Navy unit

Travel 

orders are 

approved 

prior to 

travel 

Travel 

voucher 

reimbursements are 

accurate

Travel vouchers 

are submitted 

within 5 days 

of travel 

completion

Travel 

vouchers are 

paid within 

30 days of 

submission

Camp Lejeune 11.5 32.6 11.5 3.1

Patuxent River 3.1 35.4 36.5 1.0

Puget Sound Naval 

Shipyard 49.0a 39.6 34.4 1.0
Page 53 GAO-03-147 Navy Travel Cards

Controls over Travel 

Voucher Review and 

Accuracy Were Not 

Effective

Once travel is completed, the traveler is required to submit a voucher for all 

reimbursable expenses and must include receipts for certain claimed 

amounts. The voucher review process is intended to ensure that only 

authorized, properly supported travel charges are reimbursed and that the 

amounts are accurately calculated. All three case study sites we audited 

had ineffective controls to ensure that travel orders were properly 

reviewed for accuracy and support. The estimated failure rates during 

fiscal year 2001 for the three case study sites ranged from 33 to 40 percent. 

Travel voucher errors resulted in both over- and underpayments to the 

traveler and created an additional administrative burden for the Navy, 

which had to take additional actions to recover overpayments or make 

payments on previous underpayments. Travel voucher errors were 

attributed to ineffective review and audit of travel vouchers. At one case 

study site we audited, a communication breakdown had occurred between 

the office that helped travelers prepare vouchers and the office that 

entered voucher data into the automated system used to record relevant 

travel voucher data so that payment could be made by DFAS.31 At this site, 

each office thought that the other was responsible for reviewing the 

vouchers for accuracy. As a result, the vouchers were not consistently 

reviewed to ensure that they were filed in accordance with travel 

regulations. In addition, we found that the voucher auditing process was 

not effective, resulting in payment errors that should have been detected. 

In our samples, we found that most errors were in the following categories.

• Missing or inconclusive receipts – We found instances in which 

voucher packages did not include all receipts required to support 

claims, as required by DOD and Navy regulations, yet payments were 

made. For example, a cardholder at Puget Sound Naval Shipyard who 

claimed cell phone charges totaling more than $1,000 on several partial 

vouchers did not submit a detailed breakdown of these phone charges. 

As a result, there was no indication that all of the charges were for 

official use. However, the voucher was processed and full payment was 

made to the traveler.

• Errors in calculating amounts paid – We found instances in which the 

voucher processing units paid for lodging expenses not incurred and 

31DFAS is responsible for disbursing payments to the travelers after voucher data have been 

entered, reviewed, and audited by the voucher processing offices at Navy installations.
Page 54 GAO-03-147 Navy Travel Cards

made other errors in calculating incidental expenses, resulting in both 

over- and underpayments to the traveler. At Patuxent River, one traveler 

was reimbursed $395 in lodging expenses and $33 in lodging taxes; 

however, the hotel receipt for this travel claim indicated lodging 

expenses of $316 and lodging taxes of $24. Thus, the traveler was 

overpaid a total of $88. Other errors related to the reimbursement of 

telephone calls and car mileage, and the failure to pay excess baggage 

fees expressly authorized in the travel order. Other errors related to the 

transposition of numbers. Most of these errors were relatively small in 

terms of dollar amounts.

However, we found errors that were significant in comparison to the 

travel voucher amount. For example, at one case study site a traveler 

claimed an ATM fee of $17.25 on a voucher totaling less than $1,000, but 

the amount was entered into the travel reimbursement system as 

$1,725. As a result, the cardholder was overpaid by more than $1,700. 

Although this voucher was audited by the voucher processing unit, the 

error was not detected. As a result of our audit, the Navy unit has taken 

actions to recover this and other overpayments.

Conclusions The intent of the travel card program was to improve convenience for the 

traveler and to reduce the government’s costs of administering travel. 

However, when the Navy implemented the travel card as part of its travel 

program, it did not provide the control infrastructure—primarily human 

capital—necessary to manage and oversee the use of government travel 

cards. Consequently, a weak internal control environment in the travel 

card program has resulted in a significant level of delinquencies and 

charge-offs of bad debts, as well as travel card fraud and abuse. This has 

resulted in millions of dollars of costs to the Navy, including higher fees, 

lost rebates, and substantial time pursuing and collecting delinquent travel 

card accounts.

DOD and the Navy have taken positive steps to reduce the delinquencies 

and charge-offs, including establishing a system of wage and retirement 

payment offset for many employees, encouraging the use of split 

disbursements where travel reimbursements are sent directly to the bank 

rather than the employee, and making management of the travel program a 

priority for the Navy commands. These actions have resulted in significant 

collections of previously charged-off and delinquent accounts. DOD and 

the Navy have also proposed additional steps as reported in the June 27, 

2002, DOD Charge Card Task Force report to improve the controls over the 
Page 55 GAO-03-147 Navy Travel Cards

travel card program. However, these Navy and DOD actions have primarily 

addressed the symptoms rather than the underlying causes of the problems 

with the program. Specifically, actions to date have focused on dealing 

with accounts that are seriously delinquent, which are back-end or 

detective controls rather than preventive controls. To effectively reform 

the travel program, DOD and the Navy will need to work to prevent 

potentially fraudulent and abusive activity and severe credit problems with 

the travel card. The fiscal year 2003 Department of Defense Appropriations 

Act requires the Secretary of Defense to establish guidelines and 

procedures for disciplinary actions to be taken against cardholders for 

improper, fraudulent, or abusive use of the government travel card and to 

deny issuance of the government travel card to individuals who are not 

creditworthy. Further, the Bob Stump National Defense Authorization Act 

for Fiscal Year 2003 provides authority for the Secretary of Defense to 

require (1) use of the split disbursement payment process, where any part 

of a DOD employee’s or service member’s travel reimbursement is paid 

directly to the travel card-issuing bank, and (2) deductions of prescribed 

amounts from salary and retirement pay of DOD employees or service 

members, including civilian and military retirees, who have delinquent 

travel card balances and payment of those amounts to the travel cardissuing bank.

Recommendations for 

Executive Action

To strengthen the overall control environment and improve internal control 

for the Navy’s travel card program, we recommend that the Secretary of the 

Navy take the following actions. We also recommend that the Under 

Secretary of Defense (Comptroller) assess the following recommendations 

and, where applicable, incorporate them into or supplement the DOD 

Charge Card Task Force recommendations to improve travel card policies 

and procedures throughout DOD.

Travel Card Issuance We recommend that the Secretary of the Navy establish specific policies 

and procedures governing the issuance of individual travel cards to military 

and civilian employees, including the following: 

• Provide individuals with no prior credit histories with “restricted” travel 

cards with low credit and ATM limits.

• Develop procedures to periodically evaluate frequency of card usage to 

identify accounts of infrequent travelers. 
Page 56 GAO-03-147 Navy Travel Cards

• Cancel accounts for current infrequent travelers, as noted in the Charge 

Card Task Force report, in order to minimize exposure to fraud and 

abuse.

• Evaluate the feasibility of activating and deactivating all cards, 

regardless of whether they are standard or restricted cards, so that 

cards are available for use only during the periods authorized by the 

cardholders’ travel orders. At a minimum, this policy should focus on 

controlling travel card use by “high-risk” enlisted military personnel in 

the E-1 to E-6 grades.

• Develop comprehensive, consistent Navy-wide initial training and 

periodic refresher training for travel cardholders, focused on the 

purpose of the program and appropriate uses of the card. The training 

should emphasize the prohibitions on personal use of the card, including 

gambling, personal travel, and adult entertainment. Such training 

should also address the policies and procedures of the travel order, 

voucher, and payment processes. For entry-level personnel, the training 

should also include information on basic personal financial 

management techniques to help avoid financial problems that could 

affect an individual’s ability to pay his or her travel card bill. 

Monitoring, Review, and 

Disciplinary Actions

We recommend that the Secretary of the Navy establish the following 

specific policies and procedures to strengthen controls and disciplinary 

actions for improper use of the travel card:

• Establish guidance regarding the knowledge, skills, and abilities 

required to carry out APC responsibilities effectively. 

• Establish guidance on APC span-of-control responsibilities so that such 

responsibilities are properly aligned with time available to ensure 

effective performance. Determine whether certain APC positions 

should be staffed on a full-time basis rather than as collateral duties.

• Establish Navy-wide procedures to provide assurance that APCs receive 

training on their APC responsibilities. The training should include how 

to use EAGLS transaction reports and other available data to monitor 

cardholder use of the travel card—for example, reviewing account 

transaction histories to ascertain whether transactions are incurred 

during periods of authorized travel and appear to be appropriate travel 

expenses and are from approved MCCs. 
Page 57 GAO-03-147 Navy Travel Cards

• Establish guidance requiring APCs to review EAGLS reports to identify 

cardholders who have written NSF checks for payment of their account 

balances, and refer these employees for counseling or disciplinary 

action. 

• Investigate and, if warranted, take appropriate disciplinary actions 

against cardholders who wrote three or more NSF checks to Bank of 

America. 

• Establish Navy procedures to develop a data mining program to further 

facilitate APCs’ ability to identify potentially inappropriate transactions 

for further review.

• Establish Navy-wide procedures requiring that supervisors and 

commanders notify APCs of actions taken with respect to delinquent 

cardholders. 

• Establish a Navy requirement for cognizant APCs to retain records 

documenting cardholders’ fraudulent or abusive use of the travel card.

• Establish appropriate, consistent Navy-wide procedures as a guide for 

taking disciplinary actions with respect to fraudulent and abusive 

activity and delinquency related to the travel card.

• Review records of individuals whose accounts have been charged off or 

placed in salary offset to determine whether they have been referred to 

DON CAF for security reviews. 

• Strengthen procedures used to process employees separating from the 

service to ensure that all accounts are deactivated or closed, and 

repayment of any outstanding debts is arranged. 

• Perform periodic review of exit procedures to determine that accounts 

of separated cardholders are deactivated or closed in a timely manner.

• Develop procedures to identify active cards of separated cardholders, 

including comparing cardholder and payroll data.

• Review, in conjunction with Bank of America, individuals with APClevel access to EAGLS to limit such access to only those with current 

APC duties.
Page 58 GAO-03-147 Navy Travel Cards

• Develop a management plan to ensure that audits of the Navy travel 

card program are conducted regularly, and the results are reported to 

senior management.

Voucher and Payment 

Processes

To improve travel voucher accuracy, we recommend that commanders at 

each unit identify causes of the high error rates related to travel voucher 

review and provide refresher training to ensure that voucher examiners 

and auditors are informed and can accurately apply travel regulations and 

updates. 

To ensure that travel vouchers are consistently reviewed prior to 

processing, we recommend that the Commander of Puget Sound Naval 

Shipyard take the following actions:

• Issue procedures to clearly assign responsibilities for reviewing the 

accuracy of the travel vouchers.

• Conduct periodic review to assess the effectiveness of the new 

procedures in reducing the frequency and amount of voucher errors.

Agency Comments and 

Our Evaluation

In written comments on a draft of this report, which are reprinted in 

appendix V, DOD concurred with 21 of 23 recommendations and partially 

concurred with the remaining 2 recommendations. DOD partially 

concurred with our recommendations regarding (1) establishing Navy-wide 

procedures requiring that supervisors and commanding officers notify the 

APCs of actions taken with respect to delinquent cardholders and 

(2) having commanders at each unit identify causes of the high error rates 

related to travel voucher review and provide refresher training to voucher 

examiners and auditors. We believe that DOD’s planned actions for these 

two areas, if effectively implemented, will address the intent of our 

recommendations.

Concerning our recommendation that APCs be notified of actions by 

supervisors with respect to delinquent cardholders, DOD responded that 

providing this type of sensitive information to APCs is not appropriate. 

DOD considers it to be more appropriate that actions taken with respect to 

delinquent cardholders be reported up the chain of command and that the 

department decide at what level and at what frequency this reporting 

occur. Our recommendation did not contemplate that APCs would 
Page 59 GAO-03-147 Navy Travel Cards

necessarily need details of disciplinary action, only that the APCs be 

informed that actions have been taken and by whom. Often the actions 

taken include verbal counseling. The written documentation maintained 

by the APC, which should refer to the official from whom authorized 

personnel may obtain details of the disciplinary actions, will provide a 

record that actions were taken and be a source for new 

commanders/supervisors in identifying people with previous credit card 

problems. 

Regarding having commanders identify causes of the high error rate related 

to travel voucher review and provide refresher training, DOD has requested 

that NAS conduct a review of the department’s end-to-end travel process 

and make recommendations to improve accountability and efficiency. 

Upon completion of the NAS review, DOD said it will distribute the 

appropriate guidance to all major commands. We agree that it would be 

beneficial for NAS to perform a comprehensive review of the travel 

process. In addition, to ensure immediate results, we believe that 

commanders, who are ultimately responsible and are more involved in the 

day-to-day operations, should take proactive steps in reviewing and 

correcting the weaknesses identified in this report.

In addition, although DOD concurred with our recommendations to 

establish policies and procedures governing the issuance of individual 

travel cards to military and civilian employees, its response regarding 

employees with no prior credit history indicated that some may be issued 

cards with “...higher than ‘restricted’ limits to accomplish their mission.” 

While this may be required on a case-by-case basis, we believe that 

additional preventive managerial oversight to monitor these accounts 

would be beneficial. Management should also consider lowering the limit 

to established restricted levels once the mission is completed. 

As agreed with your offices, unless you announce the contents of this 

report earlier, we will not distribute this report until 30 days from its date. 

At that time, we will send copies of this report to interested congressional 

committees, the Secretary of Defense, the Under Secretary of Defense 

(Comptroller), the Secretary of the Navy, and the Director of the Office of 

Management and Budget. We will make copies available to others upon 

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov.
Page 60 GAO-03-147 Navy Travel Cards

Please contact Gregory D. Kutz at (202) 512-9095 or kutzg@gao.gov or John 

J. Ryan at (202) 512-9587 or ryanj@gao.gov if you or your staffs have any 

questions concerning this report.

Gregory D. Kutz

Director

Financial Management and Assurance

Robert J. Cramer

Managing Director

Office of Special Investigations
Page 61 GAO-03-147 Navy Travel Cards

Appendix I

Background AAppenednxidexiIs

In 1983, the General Services Administration (GSA) awarded a 

governmentwide master contract with a private company to provide 

government-sponsored, contractor-issued travel cards to federal 

employees to be used to pay for costs incurred on official business travel. 

The intent of the travel card program was to provide increased 

convenience to the traveler and lower the government’s cost of travel by 

reducing the need for cash advances to the traveler and the administrative 

workload associated with processing and reconciling travel advances. The 

travel card program includes both individually billed accounts—accounts 

held and paid by individual cardholders—and centrally billed accounts that 

are used to purchase transportation or for the travel expenses of a unit and 

are paid directly by the government. As of the end of fiscal year 2001, over 

2.1 million individually billed travel cards were issued to federal 

government travelers. These travel cardholders charged $3.6 billion in the 

same fiscal year. 

Under the current GSA master contract, the Department of Defense 

entered into a tailored task order with Bank of America32 to provide travel 

card services to DOD and the military services, including the Navy. Table 9 

provides the number of individually billed travel cards outstanding and 

related dollar amount of travel card charges by DOD and its components in 

relation to the total federal government.

32The Department of Defense contracted with NationsBank of Delaware, N.A., which 

subsequently merged into the Bank of America, N.A., under a Tailored Task Order under the 

GSA Master Contract Award for the travel card program. The period of performance under 

the task order was November 30, 1998, through November 29, 2000, with three 1-year 

options. The task order also allowed for five additional 1-year options under the GSA 

master contract renewal provisions.
Appendix I

Background

Page 62 GAO-03-147 Navy Travel Cards

Table 9: Comparison of Number of Individually Billed Travel Cardholders and 

Related Charges for DOD versus Total Federal Government Charges for Fiscal Year 

2001 

Source: Bank of America.

As shown in table 9, DOD accounts for about 1.4 million, or 66 percent, of 

the total number of the individually billed travel cards issued by the entire 

federal government and DOD’s cardholders charged about $2.1 billion, or 

about 59 percent of the federal government’s travel card charges during 

fiscal year 2001. Table 9 also shows that the Navy provided about 395,000 

individually billed cards to its civilian and military employees as of 

September 2001. These cardholders charged an estimated $510 million to 

their travel cards during fiscal year 2001.

Entity

Number of individually 

billed travel cardholders 

as of September 30, 2001

Fiscal year 2001 

individually billed travel 

card charges

(dollars in millions)

Navy (includes Marine Corps) 394,952 $510

Army 432,460 $619

Air Force 501,306 $831

Other DOD 86,922 $174

Total DOD 1,415,640 $2,134

Total federal government 2,132,031 $3,634

DOD percentage of total 

government 66% 59%
Appendix I

Background

Page 63 GAO-03-147 Navy Travel Cards

Travel Card Program 

Guidelines

The Travel and Transportation Reform Act of 1998 (Public Law 105-264) 

expanded the use of government travel cards by mandating the use of the 

cards for all official travel unless specifically exempted. The act is 

intended to reduce the overall cost of travel to the federal government 

through reduced administrative costs and by taking advantage of rebates 

from the travel card contractor. These rebates are based on the volume of 

transactions incurred on the card and cardholders paying their monthly 

travel card bills on time. To help timely payments, the act requires that 

agencies reimburse cardholders for proper travel claims within 30 days of 

submission of approved travel vouchers by the cardholders.33 Further, the 

act allows, but does not require, agencies to offset a cardholder’s pay for 

amounts the cardholder owes to the travel card contractor as a result of 

travel card delinquencies not disputed by the cardholder. The act calls for 

GSA to issue regulations incorporating the requirements of the act.

GSA incorporated the act’s requirements into the Federal Travel 

Regulation. The Federal Travel Regulation governs travel and 

transportation and relocation allowances for all federal government 

employees, including overall policies and procedures governing the use of 

government travel cards. Agencies are required to follow the requirements 

of GSA’s Federal Travel Regulation, but can augment these regulations 

with their own implementing regulations.

DOD issued its Financial Management Regulations (FMR), Volume 9, 

Chapter 3, Travel Policies and Procedures to supplement GSA’s travel 

regulations. DOD’s Joint Travel Regulations, Volume 1 (for Uniformed 

Service Members), and Volume 2 (for Civilian Personnel) refer to the FMR 

as the controlling regulation for DOD’s travel cards. Further, in January 

2002, the Navy eBusiness Operations Office issued Instruction 4650.1, 

Policies and Procedures for the Implementation and Use of the 

Government Travel Charge Card to supplement the FMR. In addition, 

33The act also requires agencies to pay cardholders a late payment fee if they do not 

reimburse cardholders within the 30-day period allowed. Specifically, Federal Travel 

Regulations prescribed by the Administrator of General Services require agencies to either 

(1) calculate late payment fees using the prevailing Prompt Payment Interest Rate beginning 

the 31st day after submission of a proper travel claim and ending on the date on which 

payment is made or (2) reimburse the traveler a flat fee of not less than the prompt pay 

amount, based on an agencywide average of travel claim payments. In addition to the fee 

required in the items above, the agency must also pay the traveler an amount equivalent to 

any late payment charge that the card contractor would have been able to charge the 

traveler had the traveler not paid the bill. 41 C.F.R. Section 301-52.20. 
Appendix I

Background

Page 64 GAO-03-147 Navy Travel Cards

some of the Navy’s individual commands and units have issued their own 

instructions supplementing GSA and DOD guidelines.

The Navy Travel 

Process

As shown in figure 6, the Navy’s travel card management program for 

individually billed travel card accounts encompasses card issuance, travel 

authorization, cardholders charging goods and services on their travel 

cards, travel voucher processing and payment, and managing travel card 

usage and delinquencies. 
Appendix I

Background

Page 65 GAO-03-147 Navy Travel Cards

Figure 6: Overview Flowchart of the Navy Travel Process

a

 The Defense Finance and Accounting Service allows travelers to direct a portion, or all, of their 

voucher reimbursement to Bank of America. 

b

 See figure 8 for specific actions to be taken by the Agency Program Coordinator.

c Electronic Account Government Ledger System

Bank issues travel card

Bank credit card data in EAGLSc

DFAS paysa voucher

Traveler requests travel card

Payment

Payment

Payment

Billing

information

Billing

Source: GAO analysis.

APC monitors card usage and 

delinquenciesb by accessing 

EAGLS

Agency Program Coordinator (APC) 

processes travel card application 

approved by supervisor and controls 

credit limits

Merchant (e.g., rental car co.)

provides goods/services and 

charges travel card

Merchant bank accepts 

transaction deposit slips and 

transfers payment

Bank processes card 

charges, pays merchant

bank, and bills traveler

Official government travel 

authorized (travel order)

Traveler charges goods 

and services on travel card

Traveler prepares voucher 

and provides to supervisor 

for review and submission to 

voucher processing unit

Installation voucher processing 

unit processes voucher and 

submits to DFAS

APC terminates or suspends card

for traveler leaving Navy or moving

Traveler leaves services 

or moves
Appendix I

Background

Page 66 GAO-03-147 Navy Travel Cards

Travel Card Issuance and 

Termination

When a Navy civilian or military employee or the employee’s supervisor 

determines that he or she will need a travel card, the employee contacts the 

unit’s travel card agency program coordinator (APC) to complete an 

individually billed card account application form. As shown in figure 7, the 

application requires the applicant to provide pertinent information, 

including full name and social security number, and indicate whether he or 

she is an active, reserve, or a civilian employee of the Navy. The applicant 

is also required to initial a statement on the application acknowledging that 

he or she has read and understands the terms of the travel card agreement 

and agrees to be bound by these terms, including a provision 

acknowledging that the card will be used only for official travel. The APC 

is required to complete the portion of the member’s application concerning 

who will be responsible for managing the use and delinquencies related to 

the card. Bank of America is required to issue a travel card to all applicants 

for whom it receives completed applications signed by the applicants, the 

applicants’ supervisors, and the APCs.
Appendix I

Background

Page 67 GAO-03-147 Navy Travel Cards

Figure 7: Travel Card Application

Source: Department of Defense.

Form: S02D0400/OC R 24000 Revised: 05/29/01

PART 1: TO BE COMPLETED BY EMPLOYEE (Optional fields are italicized and noted by an asterisk) PLEASE TYPE OR PRINT ALL INFORMATION 

Cardholder name as it should appear on the card (First Name , Middle Name or Middle Initial and Last Name):

Social Security Number: Employment Status: 

— — Active Reserve Guard Civilian 

Military Rank and Pay Grade/Civilian Pay Grade (example: E-05, O-03, GS-09, WG-07, etc.): 

Military Rank: Military Pay Grade: – Civilian Pay Grade: – 

Commercial Office Phone: Home Phone: 

Statement Mailing Address: (Indicate Street or P.O. Box) Card Mailing Address*: (if different from statement address)

City or APO/FPO: State: City or APO/FPO*: State*: 

Zip/Postal Code: Country: Zip/Postal Code*: Country*: 

E-mail Address*:

Card Delivery*: The card will arrive approximately 10 to 14 business days after Bank of America receives the application. Expedited card delivery is available, 

however, the applicant will be charged $20. Is expedited card delivery needed? Yes No . 

Signature and Agreement: After reading the attached Agreement between Department of Defense Employee and Bank of America, N.A. (USA) 

(“Agreement”): 1. Initial either A or B below; 2. Sign; 3. Obtain your supervisor’s approval; and 4. Forward the completed form to your APC.

 A. ____ By signing below, I acknowledge that I have read and 

understand, and agree to be bound by, the terms and conditions of 

the Agreement including Bank of America’s right to obtain credit 

reports as described in the Agreement. I attest to the best of my 

knowledge, that the information I have provided herein is true and 

correct. 

B. ____ By signing below, I acknowledge that I have read and understand, and 

agree to be bound by, the terms and conditions of the Agreement; however, I do 

not authorize Bank of America to obtain credit reports and therefore I will not be 

eligible for a standard account. I attest to the best of my knowledge, that the 

information I have provided herein is true and correct. 

This application is for a Government Card Account, which may be standard or restricted, as described in the attached Agreement. I expressly 

agree to accept whichever type of account is established.

Applicant’s Signature: Date: 

Supervisor’s Approval Signature: Date: 

PART 2: TO BE COMPLETED BY AGENCY PROGRAM COORDINATOR (APC) PLEASE TYPE OR PRINT ALL INFORMATION 

(Optional fields are italicized and noted by an asterisk)

Central Account No. 4 4 8 6 — 1 2 — — 

Account Hierarchy: Specify the complete Hierarchy Level (HL) number that pertains to your organization. For example, 0000001 2000005 3012345.

HL1 HL2 HL3 HL4 HL5 HL6 HL7 HL8 

0000001 

Organization/Unit Name: 

FIPS Code: Is the applicant eligible to obtain Contract City Pair airline fares?* +If eligible, participation is*: 

 Yes+ No Mandatory Non-mandatory 

Account Type*: (Check one. If the applicant initialed B in the above Signature and Agreement section, then only a restricted card may be issued. For a restricted card, if no 

activation/deactivation dates are provided below, the card will issued in a deactivated status and can only be activated by the APC.)

Standard Restricted If Restricted, Date to Activate: Month Day Year 

 Date to Deactivate: Month Day Year 

Card Design Type*: Cash Access* : Authorized to Receive Travelers Checks*: 

Standard Quasi-Generic Yes No Yes No 

By signing below, I hereby authorize, on behalf of the Agency/Organization indicated above, that a Government Card be issued to the employee named above. PLEASE RETAIN COPY

FOR YOUR RECORDS. Return copy to: Bank of America, Attn: GCSU, P.O. Box 52304, Phoenix, AZ, 85072-9419, Facsimile: 1.877.217.1033 or 1.888.698.5631

APC: Date: 

 

Name & Title/Rank (Please print) Signature 

Address Line 1: City: State: 

Address Line 2*: Zip Code: Country: 

Address Line 3*: Commercial Telephone: 

Individually Billed Card Account Setup/Application Form

(Department of Defense Travel Card Program) 
Appendix I

Background

Page 68 GAO-03-147 Navy Travel Cards

Bank of America issues travel cards with either a standard or restricted 

credit limit. If an employee has little or no credit history or poor credit 

based on a credit check performed by Bank of America, it will suggest to 

the service that the applicant receive a restricted credit limit of $2,500 

instead of the standard credit limit of $10,000.34 However, as shown in 

figure 7, the application allows the employee to withhold permission for 

Bank of America to obtain credit reports. If this option is selected, Bank of 

America automatically issues a restricted credit limit card to the applicant. 

When cardholders leave the Navy, they are required to contact their APCs 

and notify them of their planned departure. Based on this notification from 

the cardholders, the APCs are to deactivate or terminate the cardholders’ 

accounts. 

Travel Authorization When a cardholder is required to travel for official government purposes, 

he or she is issued a travel order authorizing travel. The travel order is 

required to specify the timing and purpose of the travel authorized. For 

example, the travel order is to authorize the mode of transportation, the 

duration and points of the travel, and the amounts of per diem and any cash 

advances. Further, the Navy can limit the amount of authorized 

reimbursement to military members based on the availability of lodging 

and dining facilities at military installations.

Using the Travel Card for Official 

Travel Expenses

For authorized travel, travelers must use their cards to pay for allowable 

expenses such as hotels and rental cars. The Navy generally uses a 

centrally billed transportation account to pay for air and rail 

transportation. Also, some units utilize unit cards, a form of centrally billed 

account, in lieu of travel charge cards for individually billed accounts for 

meals and lodging for group trips. 

When the travel card is submitted to a merchant, the merchant will process 

the charge through its banking institution, which in turn charges Bank of 

America. At the end of each banking cycle (once each month), Bank of 

America prepares a billing statement that is mailed to the cardholder for 

the amounts charged to the card. The statement also reflects all payments 

and credits made to the cardholder’s account. Bank of America requires 

that the cardholder make payment on the account in full within 30 days of 

the statement closing date. If the cardholder does not pay his or her 

34Starting January 2002, the standard and restricted credit limits were reduced to $5,000 and 

$2,000, respectively, per instructions issued by the Navy’s eBusiness Operations Office.
Appendix I

Background

Page 69 GAO-03-147 Navy Travel Cards

monthly billing statement in full, and does not dispute the charges within 

60 days of the statement closing date, the account is considered delinquent.

Travel Voucher Submission and 

Processing

Within 5 working days of return from travel, the cardholder is required to 

submit a travel voucher claiming legitimate and allowable expenses 

incurred while on travel. Further, the standard is for the cardholder to 

submit an interim voucher every 30 days for extended travel of more than 

45 days. The amount that cardholders are reimbursed for their meals and 

incidental expenses and hotels is limited by geographical rates established 

by GSA. 

Upon submission of a proper voucher by the cardholder, the Navy has 30 

days in which to make reimbursement without incurring late payment fees. 

Cardholders are required to submit their travel vouchers to their 

supervisors or other designated approving officials who must review the 

vouchers and approve them for payment. If the review finds an omission or 

error in a voucher or its required supporting documentation, the approving 

official must inform the traveler of the error or omission. If the payment of 

the approved proper voucher takes longer than 30 days, the Navy is 

required to pay the cardholder a late payment fee plus an amount equal to 

the amount Bank of America would have been entitled to charge the 

cardholder had the cardholder not paid the bill by the due date.

After the supervisor approves a cardholder’s travel voucher package for 

payment, it is processed by a voucher processing unit at the location to 

which the cardholder is assigned. The voucher processing unit enters 

travel information from the approved voucher into DOD’s Integrated 

Automated Travel System (IATS). IATS calculates the amount of per diem 

authorized in the travel order and voucher and the amount of mileage, if 

any, claimed by the cardholder. In addition, any other expenses claimed 

and approved are entered into IATS. Once the travel information from the 

voucher has been entered into IATS, the voucher may be selected for 

further review or “audit.” IATS selects 10 percent of vouchers under $2,500 

and all vouchers $2,500 or greater for audits. If problems with the voucher 

are found during the initial entry of the information into IATS or during the 

audit of the information, the transaction can be rejected and returned to 

the cardholder for correction. Once the vouchers are processed and 

audited, they are sent to DFAS for payment to the cardholder or to Bank of 

America and the cardholder, if the cardholder elected split disbursements 

whereby part of the DFAS reimbursement is sent to Bank of America.
Appendix I

Background

Page 70 GAO-03-147 Navy Travel Cards

Monitoring Travel Card 

Transaction Activity

In addition to controlling the issuance and credit limits related to the travel 

card, APCs are also responsible for monitoring the use of and 

delinquencies related to travel card accounts for which they have been 

assigned management responsibility. Bank of America’s Web-based 

Electronic Account Government Ledger System (EAGLS) provides on-line 

tools that are intended to assist APCs in monitoring travel card activity and 

related delinquencies. Specifically, APCs can access EAGLS to monitor 

and extract reports on their cardholders’ travel card transaction activity 

and related payment histories.

Managing Delinquent Cardholder 

Accounts

Both the Navy and Bank of America have a role in managing travel card 

delinquencies under GSA’s master contract. While APCs are responsible 

for monitoring cardholders’ accounts and for working with cardholders’ 

supervisors to address any travel card payment delinquencies, Bank of 

America is required to use EAGLS to notify the designated APCs if any of 

their cardholders’ accounts are in danger of suspension or cancellation. 

When Bank of America has not received a required payment on any travel 

cardholder’s account within 60 days of the billing statement closing date, it 

is considered delinquent. As summarized in figure 8, there are specific 

actions required by both DOD and Bank of America based on the number of 

days a cardholder’s account is past due.
Appendix I

Background

Page 71 GAO-03-147 Navy Travel Cards

Figure 8: Required DOD and Bank of America Delinquency Process Management 

Actions

Note: Starting in fiscal year 2002, DOD began to offset the salaries of certain civilian employees and 

military and retired military members from all services including the Navy, for the amounts delinquent 

or charged off on travel card accounts.

The following is a more detailed explanation of the required actions by 

DOD and/or Bank of America with respect to delinquent travel card 

accounts. 

Mails a precharge-off letter to the cardholders 

for accounts not in salary offset or other payment

agreements.

DOD actions Bank of America actions

Sends statement to cardholder.

Sends a delinquency reminder to cardholder.

Sends a presuspension letter to the cardholder.

Suspends the account prohibiting purchases.

Mails suspension letter to cardholder.

Assesses late fee every 30 days.

Sends 90-day letter to cardholder

Sends letter to cardholder of intent

to initiate salary offset.

Sends a precancellation letter to the cardholder.

Requests Defense Finance and Accounting Service

(DFAS) to offset salary.

Closes account, mails notice of cancellation letter

to cardholder.

Charges off account for which no payments were

being made.

Agency Program Coordinator (APC) issues 

60-day delinquency notification memorandum 

to the cardholder and immediate supervisor. 

Supervisor investigates and takes appropriate 

disciplinary action.

APC issues 90-day delinquency notification

memorandum to the cardholder, immediate 

supervisor, and the company commander 

who investigates and takes appropriate 

disciplinary action.

APC issues a 120-day delinquency

notification memorandum to the company

commander. The company commander 

investigates and takes appropriate 

disciplinary action.

DFAS offsets salary.

Statement

date

30 days

45 days

55 days

60 days

75 days

90 days

120 days

126 days

150 days

180 days

210 days

Source: GAO analysis.
Appendix I

Background

Page 72 GAO-03-147 Navy Travel Cards

• 45 days past due—Bank of America is to send a letter to the cardholder 

requesting payment. Bank of America has the option to call the 

cardholder with a reminder that payment is past due and to advise the 

cardholder that the account will be suspended if it becomes 60 days past 

due.

• 55 days past due—Bank of America is to send the cardholder a 

presuspension letter warning that Bank of America will suspend the 

account if it is not paid. If Bank of America suspends an account, the 

card cannot be used until the account is paid.

• 60 days past due—The APC is to issue a 60-day delinquency notification 

memorandum to the cardholder and to the cardholder’s immediate 

supervisor, informing them that the cardholder’s account has been 

suspended due to nonpayment. The next day, a suspension letter is to 

be sent by Bank of America to the cardholder providing notice that the 

card has been suspended until payment is received.

• 75 days past due—Bank of America is to assess the account a late fee. 

The late fee charged by Bank of America was $20 through August 9, 

2001. Effective August 10, 2001, Bank of America increased the late fee 

to $29 under the terms of the contract modification between Bank of 

America and DOD. Bank of America is allowed to assess an additional 

late fee every 30 days until the account is made current or charged off.

• 90 days past due—The APC is to issue a 90-day delinquency notification 

memorandum to the cardholder, the cardholder’s immediate supervisor, 

and the company commander (or unit director). The company 

commander is to initiate an investigation into the delinquency and take 

appropriate action, at the company commander’s discretion. At the 

same time, Bank of America is to send a “due process letter” to the 

cardholder providing notice that the account will be canceled if 

payment is not received within 30 days unless he or she enters into a 

payment plan, disputes the charge(s) in question, or declares 

bankruptcy.

• 120 days past due—The APC is to issue a 120-day delinquency 

notification memorandum to the cardholder’s commanding officer. At 

126 days past due, the account is to be canceled by Bank of America. 

Beginning in October 2001, once accounts were 120 days past due, Bank 

of America began sending files to DFAS listing these accounts for salary 

offset. 
Appendix I

Background

Page 73 GAO-03-147 Navy Travel Cards

• 180 days past due—Bank of America is to send “precharge-off” or last 

call letters to cardholders whose accounts were not put in salary offset 

informing them that Bank of America will charge off their accounts and 

report them to a credit bureau if payment is not received. A credit 

bureau is a service that reports the credit history of an individual. 

Banks and other businesses assess the creditworthiness of an individual 

using credit bureau reports. 

• 210 days past due—Bank of America is to chargeoff any delinquent 

account that it was unable to put in the offset program and, if the 

balance is $50 or greater, report it to a credit bureau, unless another 

form of payments was forthcoming.

Some accounts are pursued for collection by Bank of America’s recovery 

department, while others are sent to attorneys or collection agencies for 

recovery. The delinquency management process can be suspended when a 

cardholder’s APC informs Bank of America that the cardholder is on 

official travel, but is unable to submit vouchers and make timely payments 

on his or her account, through no fault of his or her own. Under such 

circumstances, the APC is to notify Bank of America that the cardholder is 

in “mission-critical” status. By activating this status, Bank of America is 

precluded from identifying the cardholder’s account as delinquent until 45 

days after such time as the APC determines the cardholder is to be 

removed from mission-critical status. According to Bank of America, 

approximately 800 to 1,000 cardholders throughout DOD were in this status 

at any given time throughout fiscal year 2001.
Page 74 GAO-03-147 Navy Travel Cards

Appendix II

Objectives, Scope, and Methodology ApendxiI

Pursuant to a joint request by the Chairman and Ranking Minority Member 

of the Subcommittee on Government Efficiency, Financial Management 

and Intergovernmental Relations, House Committee on Government 

Reform, and the Ranking Minority Member of the Senate Committee on 

Finance, we audited the controls over the issuance, use, and monitoring of 

individually billed travel cards and associated travel processing and 

management for the Department of the Navy. Our assessment covered

• the reported magnitude and impact of delinquent and charged-off Navy 

travel card accounts for fiscal year 2001 and the first 6 months of fiscal 

year 2002, along with an analysis of causes and related corrective 

actions;

• an analysis of the universe of Navy travel card transactions during fiscal 

year 2001 and the first 6 months of fiscal year 2002 to identify potentially 

fraudulent and abusive activity related to the travel card; 

• the Navy’s overall management control environment and the design of 

selected Navy travel program management controls, including controls 

over (1) travel card issuance, (2) APCs’ capacity to carry out assigned 

duties, (3) limiting card activation to meet travel needs, (4) transferred 

and “orphan” accounts, (5) procedures for terminating accounts when 

cardholders leave military service, and (6) access for Bank of America’s 

travel card database; and

• tests of statistical samples of transactions to assess the implementation 

of key management controls and processes for three Navy units’ travel 

activity including (1) travel order approval, (2) accuracy of travel 

voucher payments, (3) the timely submission of travel vouchers by 

travelers to the approving officials, and (4) the timely processing and 

reimbursement of travel vouchers by the Navy and DOD. 
Appendix II

Objectives, Scope, and Methodology

Page 75 GAO-03-147 Navy Travel Cards

We used as our primary criteria applicable laws and regulations, including 

the Travel and Transportation Reform Act of 1998 (Public Law 105-264),35

the General Services Administration’s (GSA) Federal Travel Regulation,

36

and the Department of Defense Financial Management Regulations, 

Volume 9, Travel Policies and Procedures. We also used as criteria our 

Standards for Internal Control in Federal Government37 and our Guide to 

Evaluating and Testing Controls Over Sensitive Payments.

38 To assess 

the management control environment, we applied the fundamental 

concepts and standards in our internal control standards to the practices 

followed by management in the six areas reviewed.

To assess the magnitude and impact of delinquent and charged-off 

accounts, we compared the Navy’s delinquency and charge-off rates to 

other DOD services and federal agencies. We did not verify the accuracy of 

the data provided to us by Bank of America and GSA. We also analyzed the 

trends in the delinquency and charge-off data from fiscal year 2000 through 

the first half of fiscal year 2002. 

We also used data mining to identify Navy travel card transactions for 

individually billed accounts for audit. Our data mining procedures covered 

the universe of individually billed Navy travel card activity during fiscal 

35Travel and Transportation Reform Act of 1998 (Public Law 105-264, Oct. 19, 1998) includes 

requirements that federal employees use federal travel charge cards for all payments of 

expenses of official government travel, requires the government to reimburse employees 

who have submitted proper vouchers within 30 days of submission of the vouchers, and 

allows for the offset of pay for employees with undisputed travel card charge delinquencies 

in an amount up to 15 percent of the amount of disposable pay of the employee for a pay 

period.

36Federal Travel Regulation, 41 (C.F.R.) chapters 300-304, issued by the Administrator of 

General Services, governs travel and transportation allowances and relocation allowances 

for federal civilian employees.

37U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). This document was 

prepared to fulfill our statutory requirement under 31 U.S.C. 3512 (c), (d), the Federal 

Managers’ Financial Integrity Act, to issue standards that provide the overall framework for 

establishing and maintaining internal control and for identifying and addressing major 

performance and management challenges and areas at greatest risk of fraud waste, abuse, 

and mismanagement.

38U.S. General Accounting Office, Guide to Evaluating and Testing Controls Over Sensitive 

Payments, GAO/AFMD-8.1.2 (Washington, D.C.: May 1993), provides a framework for 

evaluating and testing the effectiveness of internal controls that have been established in 

various sensitive payment areas.
Appendix II

Objectives, Scope, and Methodology

Page 76 GAO-03-147 Navy Travel Cards

year 2001 and the first 6 months of fiscal year 2002 and identified 

transactions that we believed were potentially fraudulent or abusive based 

upon the nature, amount, merchant, and other identifying characteristics of 

the transaction. However, our work was not designed to identify, and we 

did not determine, the extent of any potentially fraudulent or abusive 

activity related to the travel card.

To assess the overall control environment for the travel card program at the 

Department of the Navy, we obtained an understanding of the travel 

process, including travel card management and oversight, by interviewing 

officials from the Office of the Undersecretary of Defense, Comptroller; 

Department of the Navy; Defense Finance and Accounting Service (DFAS); 

Bank of America; and GSA. We reviewed applicable policies and 

procedures and program guidance they provided. We visited three Navy 

units to “walk through” the travel process including the management of 

travel card usage and delinquency. Further, we contacted one of the three 

largest U.S. credit bureaus to obtain credit history data and information on 

how credit scoring models are developed and used by the credit industry 

for credit reporting.

At each of the Navy locations we audited, we also used our review of 

policies and procedures and the results of our “walk-throughs” of travel 

processes and other observations to assess the effectiveness of controls 

over segregation of duties among persons responsible for issuing travel 

orders, preparing travel vouchers, processing and approving travel 

vouchers, and certifying travel voucher payments. 

We also reviewed computer system access controls for Electronic Account 

Government Ledger System (EAGLS)—the system used by Bank of 

America to maintain DOD travel card data. To determine whether these 

controls over EAGLS were effective, we interviewed Bank of America 

officials and observed EAGLS functions and capabilities.

To test the implementation of key controls over individually billed Navy 

travel card transactions processed through the travel system—including 

the travel order, travel voucher, and payment processes—we obtained and 

used the database of fiscal year 2001 Navy travel card transactions to 

review random samples of transactions at three Navy locations. Because 

our objective was to test controls over travel card expenses, we excluded 

credits and miscellaneous debits (such as fees) from the population of 

transactions used to select random samples of travel card transactions to 

review at each of the three Navy units we audited. Each sampled 
Appendix II

Objectives, Scope, and Methodology

Page 77 GAO-03-147 Navy Travel Cards

transaction was subsequently weighted in the analysis to account 

statistically for all charged transactions at each of the three units, including 

those transactions that were not selected.

We selected three Navy locations for testing controls over travel card 

activity based on the relative size of travel card activity at the 27 Navy 

commands and of the units under these commands, the number and 

percentage of delinquent accounts, and the number and percentage of 

accounts written off. We selected one unit from the Naval Sea Systems 

Command because that command represented 19 percent of the total travel 

card activity, 9 percent of past due accounts, and 7 percent of accounts 

charged off during fiscal year 2001. We also selected one unit from Naval 

Air Systems Command because that command represented approximately 

12 percent of travel card activity, 4 percent of past due accounts, and 4 

percent of accounts charged off during fiscal year 2001 across the Navy. 

We also selected U.S. Marine Corps Forces Atlantic because this command 

represented about 24 percent of Corps charge card activity, 23 percent of 

accounts past due, and 26 percent of accounts charged off. Each of the 

units within the commands was selected because of the relative size of the 

unit within the respective command. Table 10 presents the sites selected 

and the number of fiscal year 2001 transactions at each location.39

Table 10: Population of Fiscal Year 2001 Travel Transactions at Navy Units Tested

Source: GAO analysis based on Bank of America data.

a

Transactions represent charges for sales and cash advances and exclude credits and fees.

We performed tests on statistical samples of travel card transactions at 

each of the three case study sites to assess whether the system of internal 

39The populations from which we selected our samples included some transactions that 

were not supported by travel orders or vouchers, such as personal charges made by a 

cardholder. We excluded such transactions from our assessment of the effectiveness of 

controls over the travel order, voucher, and payment processes. However, we included such 

transactions in order to project the percentage of personal use transactions.

Navy unit tested

Number of fiscal year 

2001 travel transactionsa

Dollar value of fiscal year 

2001 travel transactionsa

Camp Lejeune 14,209 $1,747,316

Patuxent River 179,547 $20,335,864

Puget Sound Naval Shipyard 80,583 $11,025,669
Appendix II

Objectives, Scope, and Methodology

Page 78 GAO-03-147 Navy Travel Cards

controls over the transactions was effective, as well as to provide an 

estimate of the percentage of transactions by unit that were not for official 

government travel. For each transaction in our statistical sample, we 

assessed whether (1) there was an approved travel order prior to the trip, 

(2) the travel voucher payment was accurate, (3) the travel voucher was 

submitted within 5 days of the completion of travel, and (4) the traveler 

was paid within 30 days of the submission of an approved travel voucher. 

We considered transactions not related to authorized travel to be abuse and 

incurred for personal purposes. The results of the samples of these control 

attributes, as well as the estimate for personal use—or abuse—related to 

travel card activity, can be projected to the population of transactions at 

the respective test case study site only, not to the population of travel card 

transactions for all Navy cardholders. 

We concluded that a control was effective if both the projected point 

estimate of the failure rate and the upper bound of a one-sided 95 percent 

confidence interval associated with the estimate were no more than 5 

percent. We concluded that a control was ineffective if both the point 

estimate of the failure rate and the lower bound of a one-sided 95 percent 

confidence interval associated with the estimate were greater than 10 

percent. Otherwise, we concluded that the control was partially effective. 

Tables 11 through 13 show (1) the results of our tests of key attributes, (2) 

the point estimates of the failure rates for the attributes, and (3) the twosided 95 percent confidence intervals for the failure rates for each 

attribute. Table 11 shows the results of our test of the key control related to 

the authorization of travel—(approved travel orders were prepared prior to 

dates of travel).

Table 11: Estimates of Fiscal Year 2001 Transactions That Failed Control Tests for 

Approved Travel 

Source: GAO analysis.

Navy unit tested

Number of failed

transactions

Estimated failure rate

(2-sided 95% 

confidence interval)

Camp Lejeune

11 of 96

11.5%

(5.9%, 19.6%)

Patuxent River 

3 of 96

3.1 %

(0.6%, 8.9%)

Puget Sound Naval Shipyard

47 of 96

49.0%

(38.6%, 59.4%)
Appendix II

Objectives, Scope, and Methodology

Page 79 GAO-03-147 Navy Travel Cards

Table 12 shows the results of our test for effectiveness of controls in place 

over the accuracy of travel voucher payments.

Table 12: Estimates of Fiscal Year 2001 Transactions That Failed Control Tests for 

Accurate Travel Voucher Payments

Source: GAO analysis.

Table 13 shows the results of our tests of two key controls related to timely 

processing of claims for reimbursement of expenses related to government 

travel—timely submission of the travel voucher by the employee and timely 

approval and payment processing. 

Table 13: Estimates of Fiscal Year 2001 Transactions That Failed Control Tests for 

Timely Submission and Processing of Travel Vouchers

Source: GAO analysis.

Navy unit tested

Number of failed

transactions

Estimated failure rate

(2-sided 95%

confidence interval)

Camp Lejeune 

14 of 43

32.6%

(19.1%, 48.5%)

Patuxent River 

34 of 96

35.4%

(25.9%, 45.8%)

Puget Sound Naval 

Shipyard 38 of 96

39.6%

(29.8%, 50.1%)

Timely voucher submission by 

employee (5-day rule)

Timely reimbursement to the 

traveler

(30-day rule)

Navy unit 

tested

Number

of failed

transactions

Estimated 

failure rate

(2-sided 95% 

confidence 

interval)

Number

of failed

transactions

Estimated 

failure rate

(2-sided 95% 

confidence 

interval)

Camp Lejeune 

11 of 96

11.5%

(5.9%, 19.6%) 3 of 96

3.1%

(0.6%, 8.9%)

Patuxent River 

35 of 96

36.5%

(26.9%, 46.9%) 1 of 96

1.0%

(0.03%, 5.7%)

Puget Sound 

Naval 

Shipyard 33 of 96

34.4%

(25.0%, 44.8%) 1 of 96

1.0%

(0.03%, 5.7%)
Appendix II

Objectives, Scope, and Methodology

Page 80 GAO-03-147 Navy Travel Cards

To determine if cardholders were reimbursed within 30 days, we used 

payment dates provided by DFAS. We did not independently validate the 

accuracy of these reported payment dates.

We briefed Navy managers, including Assistant Secretary of the Navy 

(Financial Management and Comptroller) officials; and unit commanders 

and APCs of the details of our audit, including our findings and their 

implications. We incorporated their comments where appropriate. We 

conducted our audit work from December 2001 through October 2002 in 

accordance with generally accepted government auditing standards, and 

we performed our investigative work in accordance with standards 

prescribed by the President’s Council on Integrity and Efficiency. We 

received DOD comments on a draft of this report from the Under Secretary 

of Defense (Comptroller) dated December 5, 2002, and have reprinted 

those comments in appendix V.
Page 81 GAO-03-147 Navy Travel Cards

Appendix III

Navy Major Command Delinquency Rates ApendxiI

Table 14 shows the travel card delinquency rates for Navy’s major 

commands (and other Navy organizational units at a comparable level) that 

had outstanding balances over $1 million as of March 31, 2002. Commands 

with a March 31, 2002, balance outstanding under $1 million have been 

combined into "other." The Navy’s commands and other units are listed in 

descending order based on their respective delinquency rates as of March 

31, 2002. The delinquency rates shown represent the total amount 

delinquent (amounts not paid within 61 days of the travel card monthly 

statement closing date) as a percentage of total amount owed by the 

command’s travel cardholders at the end of each quarter. 

Table 14: Navy Major Command Delinquency Ratesa (By Quarter) for the 2 Years Ending March 31, 2002

Source: GAO calculation based on information provided by Bank of America.

a

The delinquency rates shown represent the total amount delinquent (amounts not paid within 61 days 

of the travel card monthly statement closing date) as a percentage of total amounts owed by the 

command’s travel cardholders at a point in time.

b

The negative delinquency rate was caused by the correction of a $2.3 million posting error by Bank of 

America. The rate adjusted to remove the effect of the error is 10 percent.

Major Command

June 

2000

Sept. 

2000

Dec. 

2000

Mar. 

2001

June 

2001

Sept. 

2001

Dec. 

2001

Mar. 

2002

Naval Reserve Forces 14% 18% 42% 17% 14% 15% 30% 22%

Marine Reserve Forces 15% 21% 30% 15% 16% 24% 26% 18%

U.S. Marine Forces Atlantic 16% 17% 25% 13% 14% 19% 26% 17%

U.S. Marine Forces Pacific 16% 18% 26% 12% 16% 16% 25% 16%

U.S. Atlantic Fleet 18% 21% 20% 15% 14% 19% 17% 14%

U.S. Pacific Fleet 17% 18% 17% 12% 13% 15% 16% 12%

Bureau of Naval Personnel 15% 14% 15% 10% 12% 12% 14% 11%

Naval Special Warfare Command 14% 16% 17% -11%b 12% 11% 13% 9%

Bureau of Medicine and Surgery 11% 13% 16% 9% 9% 13% 12% 8%

Chief of Naval Education and Training 9% 12% 14% 10% 9% 14% 12% 7%

Chief of Naval Operations 6% 8% 11% 5% 5% 7% 7% 4%

Naval Sea Systems Command 6% 7% 8% 4% 5% 6% 4% 3%

Office of the Undersecretary of the Navy 5% 6% 7% 3% 3% 5% 3% 2%

Space and Naval Warfare Systems Command 4% 4% 6% 3% 4% 4% 2% 2%

Naval Air Systems Command 6% 7% 9% 4% 4% 5% 4% 2%

Naval Facilities Engineering Command 5% 5% 7% 3% 4% 5% 3% 2%

All other commands combined 9% 10% 14% 7% 8% 9% 11% 7%

Navy Wide 11% 13% 18% 10% 10% 12% 15% 11%
Page 82 GAO-03-147 Navy Travel Cards

Appendix IV

Navy Personnel Grade, Rank, and Associated 

Basic Pay Rates ApendxiIV

Tables 15, 16, and 17 show the grade, rank (where relevant), and the 

associated basic pay rates for 2001 for Navy’s and Marine Corps’ military 

personnel and civilians. The basic 2001 pay rates shown exclude other 

considerations such as locality pay and any allowances for housing or cost 

of living. 

Table 15: Navy Military Grades, Ranks, and Associated Average Basic Pay Rates for 

Fiscal Year 2001

Source: U.S. Navy

a

Officers’ ranks include warrant officers (denoted by WO) and commissioned officers (denoted by O).

Table 16: Marine Corp Military Grades, Ranks, and Associated Basic Pay Rates for 

Fiscal Year 2001

Source: U.S. Navy.

a

Officer’s rank includes warrant officers (denoted by WO) and commissioned officers (denoted by O).

Military grade Military rank 2001 Pay

Enlisted personnel

E-1 to E-3 Seaman recruit to seaman $11,976 to $14,973

E-4 to E-6 Petty officer 3rd class to 1st class $17,931 to $26,860

E-7 to E-9 Chief petty officer to master chief 

petty officer $31,739 to $45,514

Officersa

WO-2 to WO-4 Warrant officer $37,722 to $53,514

O-1 to O-3 Ensign to lieutenant $27,398 to $44,649

O-4 to O-6 Lieutenant commander to captain $54,476 to $83,982

O-7 to O-10 Admiral $98,257 to $127,695

Military grade Military rank 2001 pay

Enlisted personnel

E-1 to E-3 Private to lance corporal $11,871 to $15,093

E-4 to E-6 Corporal to staff sergeant $17,675 to $26,018

E-7 to E-9 Gunnery sergeant to sergeant 

major or master gunnery sergeant. $31,533 to $46,646

Officersa

WO-1 to WO-5 Warrant officer $32,098 to $59,587

O-1 to O-3 2nd Lieutenant to captain $25,653 to $45,120

O-4 to O-6 Major, lieutenant colonel, colonel $56,951 to $85,628

O-7 to O-10 General $98,484 to $130,200
Appendix IV

Navy Personnel Grade, Rank, and Associated 

Basic Pay Rates

Page 83 GAO-03-147 Navy Travel Cards

Table 17: Civilian Grades and Associated Basic Pay Rates for Calendar Year 2001

Source: Office of Personnel Management.

Civilian grade 2001 pay

General Schedule employees

GS-1 to GS-3 $14,244 to $22,712

GS-4 to GS-5 $19,616 to $28,535

GS-6 to GS-8 $24,463 to $39,143

GS-9 to GS-12 $33,254 to $62,686

GS-13 to GS-15 $57,345 to $103,623

Senior Executive Service

ES-01 to ES-06 $109,100 to $125,700
Page 84 GAO-03-147 Navy Travel Cards

Appendix V

Comments from the Department of Defense ApendxiV
Appendix V

Comments from the Department of Defense

Page 85 GAO-03-147 Navy Travel Cards
Appendix V

Comments from the Department of Defense

Page 86 GAO-03-147 Navy Travel Cards
Appendix V

Comments from the Department of Defense

Page 87 GAO-03-147 Navy Travel Cards
Appendix V

Comments from the Department of Defense

Page 88 GAO-03-147 Navy Travel Cards
Appendix V

Comments from the Department of Defense

Page 89 GAO-03-147 Navy Travel Cards
Appendix V

Comments from the Department of Defense

Page 90 GAO-03-147 Navy Travel Cards
Appendix V

Comments from the Department of Defense

(192064) Page 91 GAO-03-147 Navy Travel Cards
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