Testimony 

Before the Subcommittee on Government Efficiency, 

Financial Management and Intergovernmental 

Relations, Committee on Government Reform, House 

of Representatives 

United States General Accounting Office 

GAO 

For Release on Delivery 

Expected at 2 p.m. 

Tuesday, October 8, 2002 TRAVEL CARDS 

Control Weaknesses Leave 

Navy Vulnerable to Fraud 

and Abuse 

Statement of Gregory D. Kutz 

Director, Financial Management and Assurance 

John J. Ryan 

Assistant Director, Office of Special Investigations 

GAO-03-148T 
Page 1 GAO-03-148T 

Mr. Chairman, Members of the Subcommittee, and Senator Grassley: 

Thank you for the opportunity to discuss the Department of the Navy’s 

(including the United States Marine Corps) internal controls over the 

government travel card program. This subcommittee held a hearing in May 

2001 that identified substantial delinquencies and charge-offs related to 

the Department of Defense (DOD) travel card. As a result of your hearing 

and our work on internal control over purchase card transactions at two 

Navy sites,1

 and continuing concern about fraud, waste, and abuse in 

DOD’s use of both travel and purchase cards, you requested more 

comprehensive audits of both programs. We previously testified on the 

Army travel card program in July 2002.2

 This written statement discusses 

the results of our Navy travel card program audit. We plan to follow up on 

this testimony and issue a detailed report with recommendations on the 

results of our audit. We will report to you separately on the results of our 

Air Force travel card audit. 

The intent of the travel card program, which is administered by a 

contractor (Bank of America), was to improve convenience for the 

traveler and to reduce the government’s costs of administering travel. 

During fiscal year 2001, the Navy had about $510 million in travel card 

charges and about 395,000 individually billed travel card accounts at the 

end of fiscal year 2001.3

 The individually billed travel card program is 

significantly different from the purchase card program in that cardholders 

are directly responsible for all charges incurred on their travel cards and 

the monthly bill is sent to the cardholder for payment. The cardholder is 

responsible for submitting a properly documented voucher and is 

reimbursed by the Navy for all valid expenses related to official 

 1

U.S. General Accounting Office, Purchase Cards: Control Weaknesses Leave Two Navy 

Units Vulnerable to Fraud and Abuse, GAO-01-995T (Washington, D.C.: July 30, 2001); 

Purchase Cards: Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and 

Abuse, GAO-02-32 (Washington, D.C.: Nov. 30, 2001); and qPurchase Cards: Continued 

Control Weaknesses Leave Two Navy Units Vulnerable to Fraud and Abuse, GAO-02-506T

(Washington, D.C.: Mar. 13, 2002). 

2

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

to Potential Fraud and Abuse, GAO-02-863T (Washington, D.C.: July 17, 2002). 

3

The travel card program includes both individually billed accounts—that is, accounts held 

by and paid by individual cardholders based on reimbursement of expenses incurred while 

on official government travel—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. 

This testimony covers transactions charged to individually billed accounts only. 
Page 2 GAO-03-148T 

government travel. In contrast, all purchase card charges are billed 

directly to the government for monthly payment. 

Today, I will provide my perspective on (1) 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 related causes, (2) potentially fraudulent and abusive activity related to 

the Navy travel card during the same period, (3) whether abusive activity 

associated with the travel card is effectively linked to disciplinary actions 

and security clearances, (4) the effectiveness of the overall control 

environment and key internal controls for the Navy’s travel program, and 

(5) the status of DOD and Navy corrective actions. Details on our scope 

and methodology are included in appendix I. 

In summary, the Navy’s average delinquency rate of about 12 percent over 

the last 2 years is nearly identical to the Army’s, which has the highest 

delinquency rate in DOD, and about 6 percentage points higher than that 

of federal civilian agencies. The Navy’s overall delinquency and charge-off 

problems, which have cost the Navy millions in lost rebates and higher 

fees, are primarily associated with lower-paid, enlisted military personnel. 

In addition, lack of management emphasis and oversight has resulted in 

management failure to promptly detect and address instances of 

potentially fraudulent and abusive activities related to the travel card 

program. For example, during fiscal year 2001 and the first 6 months of 

fiscal year 2002, over 250 Navy personnel might have committed bank 

fraud by writing three or more nonsufficient fund (NSF) checks to Bank of 

America, while many others abused the travel card program by failing to 

pay Bank of America charges and/or using the card for inappropriate 

transactions such as for prostitution and gambling. However, because 

Navy management was often not aware of these activities, disciplinary 

actions were not consistently taken against these cardholders. We also 

found a significant relationship between travel card fraud, abuse, and 

delinquencies and individuals with substantial credit history problems. For 

example, many cardholders whose accounts were charged off or put in 

salary offset4

 had bankruptcies and accounts placed in collection prior to 

receiving the card. The Navy’s practice of authorizing a travel card to be 

issued to virtually anyone who asked for it compounded an already 

existing problem by giving those with a history of bad financial 

 4

This program, similar to a garnishment, allows DOD to collect amounts owed by payroll 

deduction. 
Page 3 GAO-03-148T 

management additional credit. While we found that Navy management had 

taken some corrective actions to address delinquencies and misuse, 

additional preventive solutions are necessary if Navy is to effectively 

address these issues. 

Most Navy cardholders properly used their travel cards and paid amounts 

owed to Bank of America in a timely manner. However, as shown in 

figure 1, the Navy’s average delinquency rate was nearly identical to the 

Army’s, which, as we have previously testified, is the highest delinquency 

rate in the government. The Navy’s quarterly delinquency rate fluctuated 

from 10 to 18 percent, and on average was about 6 percentage points 

higher than that of federal civilian agencies. As of March 31, 2002, over 

8,400 Navy cardholders had $6 million in delinquent debt. 

Travel Card 

Delinquencies and 

Charge-offs 
Page 4 GAO-03-148T 

Figure 1: Navy/Marine Corps v. Army, Other DOD, and Non-DOD Civilian Agencies’ 

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

Source: Bank of America and General Services Administration data. 

We also found substantial charge-offs of Navy travel card accounts. Since 

the inception of the travel charge card task order between DOD and Bank 

of America on November 30, 1998, Bank of America has charged off over 

13,800 Navy travel card accounts with $16.6 million of bad debt. Recent 

task order modifications allow Bank of America to institute a salary offset 

against DOD military personnel members whose travel card accounts were 

previously charged off or are more than 120 days past due. As a result, as 

of July 31, 2002, Bank of America had recovered $5.2 million in Navy 

government travel card bad debts. The high level of delinquencies and 

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

higher fees, and substantial resources spent pursuing and collecting past 

due accounts. For example, we estimate that in fiscal year 2001, 

delinquencies and charge-offs cost the Navy $1.5 million in lost rebates, 
Page 5 GAO-03-148T 

and will cost about $1.3 million in increased automated teller machines 

(ATM) fees5

 annually. 

As shown in figure 2, the travel cardholder’s rank or grade6

 (and 

associated pay) is a strong predictor of delinquency problems. We found 

that the Navy’s overall delinquency and charge-off problems are primarily 

associated with young, low- and mid-level enlisted military personnel with 

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

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

and Civilian Employees as of September 30, 2001 

Source: GAO analysis of Bank of America data. 

According to Navy officials, low- and mid-level enlisted military personnel 

comprise the bulk of the operational forces and are generally young, often 

deployed, and have limited financial experience and resources. It is 

therefore not surprising to see a higher level of outstanding balances and 

delinquent amounts due for these personnel. Figure 2 also shows that, in 

 5

For each cash withdrawal at ATMs, cardholders are charged a fee of a set amount or 

percentage of the amount of the withdrawal. 

6

A more detailed explanation of each of these grades along with their associated basic pay 

rates is provided in appendix II. 
Page 6 GAO-03-148T 

contrast, the delinquency rate for civilians employed by the Navy is 

substantially lower. As of September 30, 2001, the delinquency rate of lowand mid-level enlisted personnel was almost 22 percent, compared to a 

Navy civilian rate of slightly more than 5 percent. This rate is comparable 

to the non-DOD civilian delinquency rate of 5 percent. 

The case study sites we audited exhibited this pattern. 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 delinquency rate for the 18-month period ending March 31, 2002, 

averaged over 15 percent and was close to 10 percent as of March 31, 2002. 

In contrast, at Puget Sound Navy 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 card holders 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. 

In combination with these demographic factors, a weak overall control 

environment, flawed policies and procedures, and a lack of adherence to 

valid policies and procedures contributed to the significant delinquencies 

and charge-offs. Further discussion of these breakdowns is provided later 

in this testimony. 
Page 7 GAO-03-148T 

Our work identified numerous instances of potentially fraudulent7 and 

abusive activity8

 related to the travel card. During fiscal year 2001 and the 

first 6 months of fiscal year 2002, over 5,100 Navy employees wrote at least 

one nonsufficient fund (NSF), or “bounced” check, to Bank of America as 

payment for their travel card bills. Of these, over 2509 wrote 3 or more NSF 

checks, a potentially fraudulent act.10 Appendix III provides a table 

summarizing 10 examples, along with more detailed descriptions of 

selected cases in which cardholders might have committed fraud by 

writing 3 or more NSF checks to Bank of America. These 10 accounts were 

subsequently charged-off11 or placed in salary offset or voluntary fixed 

payment agreements with Bank of America. 

We also 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 I, 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 transaction. Through this procedure, we identified thousands of 

suspect transactions. Table 1 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. Government travel cards were used for purchases 

in categories as diverse as legalized prostitution services, jewelry, 

 7

We considered any scheme or pattern of activity related to the use of the travel card, in 

apparent violation of federal or state criminal code, as a potentially fraudulent activity. 

8

We considered abusive travel card activity to include (1) personal use of the card—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, thus benefiting personally. In both types of activities in which the 

cardholder did not pay the bill, we considered abuses to include those situations in which 

cardholders’ accounts were eventually charged off by Bank of America, or referred to 

salary offset or a fixed pay agreement. Some of the travel card activity that we categorized 

as abusive would be potentially fraudulent if it can be established that the cardholder 

violated any element of federal or state criminal code. 

9

Of the over 250 cardholders who wrote 3 or more NSF checks, 100 had accounts that were 

eventually charged off or put in salary offset. 

10Knowingly writing checks against closed accounts or writing three or more NSF checks is 

potential bank fraud under 18 U.S.C. 1344. Further, it is a violation of the Uniform Code of 

Military Justice 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. 

11Some cardholders whose accounts were charged off have since been referred to the 

salary offset program or entered into fixed payment agreement with Bank of America. 

Potentially Fraudulent 

and Abusive Travel 

Card Activity 
Page 8 GAO-03-148T 

gentlemen’s clubs, gambling, cruises, and tickets to sporting and other 

events. The number of instances and amounts shown includes both cases 

in which the cardholders paid the bills and instances in which they did not 

pay the bills. 

Table 1:Examples of Navy-wide 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 

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 

Source: GAO analysis of Bank of America data. 

We found that 50 cardholders used their government travel card to 

purchase over $13,000 in prostitution services from two legalized brothels 

in Nevada. Charges were processed by these establishments’ merchant 

bank, and authorized by Bank of America, in part because a control 

afforded by the merchant category code (MCC),12 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 

 12MCCs 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. 
Page 9 GAO-03-148T 

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. 

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”

13 for a 10 percent fee. For example, we found that an E-5 

second class petty officer circumvented ATM cash withdrawal limits14 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 use of the travel cards that were 

clearly unrelated to official government travel. There should be no 

misunderstanding by Navy personnel that personal use of the card is not 

permitted. In fact, 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 the three sites we 

audited, we estimated that personal use of the government travel card 

ranged from almost 7 percent of fiscal year 2001 transactions at one site to 

over 26 percent at another site.15 As shown in appendix V, cardholders who 

 13Club cash is used to tip dancers, waitresses, and bartenders, but cannot be exchanged for 

currency. 

14Typically, the ATM limit for a 1-month cycle is set at $500 for a standard card and $200 for 

a restricted card. 

15We 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 3 case study locations: Camp Lejeune, U.S. Marine Forces Atlantic, 

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

Sound Naval Shipyard, Sea Systems Command, 6.6 percent. 
Page 10 GAO-03-148T 

abused the card but paid the bill also used the government travel cards for 

the same transaction types discussed in table 1. 

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

abusive purchases, which are costly to the government and the taxpayer. 

Our work found that charged-off accounts included both those of (1) 

cardholders who were reimbursed by the Navy for official travel expenses 

but failed to pay Bank of America for the related charges, thus pocketing 

the reimbursement, and (2) those who used their travel cards for personal 

purchases for which they did not pay Bank of America. Appendix IV 

provides a summary table and supporting narrative describing examples of 

abusive travel card activity where the account was charged off or placed 

in salary offset or voluntary fixed payment agreements with Bank of 

America. 

Furthermore, as detailed by the 10 examples in appendix V, we also found 

instances in which cardholders used their travel cards for personal 

purposes, but paid their travel card bills when they became due. For 

example, an E-5 second class petty officer reservist, whose civilian job 

was with the U.S. Postal Service, admitted making phony charges of over 

$7,200 to operate his own limousine service. In these transactions, the 

sailor 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 

sailor’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. 
Page 11 GAO-03-148T 

We did not always find documented evidence of disciplinary actions taken 

by Navy commanders and supervisors against cardholders who wrote NSF 

checks or had their accounts charged off or placed in salary offset. Of the 

57 cardholders fitting these categories that we selected through data 

mining, we did not find any documented evidence that 37 had been 

disciplined. For example, a lieutenant commander (O-4) with the Naval Air 

Reserve used his travel card for personal purchases in California and 

frequent personal trips to Mexico. The individual did not pay his account 

when due and was placed in salary offset in October 2001. Although the 

agency program coordinator (APC) responsible for program oversight had 

apprised management of this officer’s abuse of the travel card, and had 

initiated actions to take away the cardholder’s security clearance, 

management had not taken any administrative action against this 

cardholder. In addition, of the 10 individuals who abused the card but paid 

their bills, only 1 was disciplined. Appendixes III, IV, and V provide further 

details of the extent of disciplinary actions taken against some of the 

cardholders we examined. 

In addition, we found that 27 of these same 57 travel cardholders we 

examined whose accounts were charged off or placed in salary offset as of 

March 31, 2002, still had active secret or top-secret security clearances in 

August 2002. Some of the Navy personnel holding security clearances who 

have had difficulty paying their travel card bills may present security risks 

to the Navy. DOD rules provide that an individual’s finances are one of the 

factors to be considered in whether an individual should be entrusted with 

a security clearance. However, we found that Navy security officials were 

unaware of these financial issues and consequently could not consider 

their potential effect on whether these individuals should continue to 

receive a security clearance. We have referred cases identified from our 

audit to the U.S. Navy Central Adjudication Facility (commonly referred to 

as Navy CAF) for its continued investigation. 

For fiscal year 2001, we identified significant breakdowns in key internal 

controls over individually billed travel cards. The breakdowns stemmed 

from a weak overall control environment, a lack of focus on oversight and 

management of the travel card program, and a lack of adherence to valid 

policies and procedures. 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. In 

contrast, one Navy unit we audited with a low average delinquency rate (4 

percent) attributed its relative success to constant monitoring of 

delinquencies and to some monitoring of inappropriate travel card use. 

Abusive Travel Card 

Activity Not 

Consistently Linked 

to Disciplinary Action 

and Security 

Clearances 

Key Internal Control 

Breakdowns 
Page 12 GAO-03-148T 

We found that in fiscal year 2001, management at the three case study 

locations we audited focused primarily on reducing delinquencies. In 

general, management placed little emphasis on controls designed to 

prevent, or provide for early detection of, travel card misuse. In addition, 

we identified two key overall control environment weaknesses: (1) the 

lack of clear, sufficiently detailed Navy travel card policies and procedures 

and (2) limited internal travel card audit and program oversight. First, the 

units we audited used DOD’s travel management regulations (DOD

Financial Management Regulation, volume 9, chapter 3) as the primary 

source of policy guidance for management of Navy’s travel card program. 

In many areas, the existing guidance was not sufficiently detailed to 

provide clear, consistent travel management procedures to be followed. 

Second, as recognized in the DOD Inspector General’s March 2002 

summary report16 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, no internal review report 

had been issued since fiscal year 1999 concerning the Navy’s travel card 

program. 

We found that this overall weak control environment contributed to design 

flaws and weaknesses in a number of management control areas needed 

for an effective travel card program. For example, many problems we 

identified were the result of ineffective controls over issuance of travel 

cards. Although DOD’s policy allows an exemption from the requirement 

to use travel cards for certain groups or individuals with poor credit 

histories, we found that the Navy’s practice was to facilitate Bank of 

America issuing travel cards—with few credit restrictions—to all 

applicants regardless of whether they have a history of credit problems. 

For the cases we reviewed, we found a significant correlation between 

travel card fraud, abuse, and delinquencies and individuals with 

substantial credit history problems. The prior and current credit problems 

we identified for Navy travel card holders included charged-off credit 

cards, bankruptcies, judgments, accounts in collections, and repeated use 

of NSF checks. 

 16Department 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 13 GAO-03-148T 

Also, a key element of internal control, which, if effectively implemented, 

may reduce the risk and occurrence of delinquent accounts, is frequent 

account monitoring by the APC. However, some APCs, who have the key 

responsibility for managing and overseeing travel card holders’ activities, 

were essentially set up to fail in their duties. Some were assigned APC 

responsibilities as collateral duties and given little time to perform these 

duties, while other full-time APCs had responsibilities for a large number 

of cardholders. When an APC is unable to focus on managing travel card 

usage because of the high number of cardholders or the extent of other 

duties, the rate of delinquency and potentially abusive and fraudulent 

transactions is adversely affected. For example, at Camp Lejeune, where 

the delinquency rate was over 15 percent, the six APCs we interviewed 

were given the role as “other duty as assigned,” with most spending less 

than 20 percent of their available time to perform their APC 

responsibilities. 

In addition, a lack of management focus and priority on ensuring proper 

training for APCs resulted in some APCs being unfamiliar with the 

capabilities of Bank of America’s credit card database that would help 

them to manage and oversee the travel card program. For example, one 

APC did not know that she could access reports that would help identify 

credit card misuse and thus enable the responsible supervisors or 

commanders to counsel cardholders before they became delinquency 

problems. With the large span of control, minimal time allotted to perform 

this duty, and lack of adequate training, we found that APCs generally 

were ineffective in carrying out their key travel card program management 

and oversight responsibilities. 

In contrast, a Navy unit we visited—Patuxent River—showed that 

constant monitoring of delinquency by a knowledgeable APC contributed 

to a lower delinquency rate. The APC at this unit had responsibility for 

approximately 1,200 to 1,500 active travelers monthly, but APC duties 

were her only responsibility. The APC informed us that she constantly 

monitored the government travel card program. For example, she 

reviewed delinquency reports several times a month to identify and 

promptly alert cardholders and supervisors about the status of delinquent 

accounts. She also told us that less frequently, but still on a monthly basis, 

she monitored transactions in the Bank of America database for improper 

and abusive uses of the card and sent out notices to the cardholders and 

the cardholders’ supervisors if such transactions were identified. She also 
Page 14 GAO-03-148T 

emphasized the use of the split disbursement payment process17 (split 

disbursements) whenever possible. Consequently, the delinquency rate for 

this unit was consistently lower than the Navy-wide rate and the civilian 

agency rate. 

Another area of weakness in internal controls relates to the process over 

the cancellation and/or deactivation of cards in case of death, retirement, 

or separation from the service. These ineffective controls allowed 

continued use of the government travel card for personal purposes, which 

in some instances led to charge-offs, thereby contributing to increased 

costs to the government. For example, 

• 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 cancel 

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 used to activate the card to the new address without 

performing other verification procedures. The card was activated in midDecember 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 post-of-duty. The 

APC took immediate action to deactivate the card, thus preventing 

additional charges from occurring. Upon learning of the cardholder’s 

death from further discussion with the cardholder’s unit, the APC 

immediately reported the case to a Bank of America fraud investigator. 

Investigations revealed that a 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 Systems Command Atlantic 

repeatedly used his travel card after his retirement on December 1, 2000. 

The cardholder currently works for a private company. The cardholder 

used the government travel card, since his retirement, to make charges 

 17Split disbursement is a payment method by which cardholders elect to have all or part of 

their reimbursements sent directly to Bank of America. 
Page 15 GAO-03-148T 

totaling $44,000 for hotels, car rentals, restaurants, and airline tickets. 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 cardholders’ transaction reports for abusive activity 

and because this particular account was always paid in full, they did not 

detect the abusive activity. 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 conviction 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 gas purchases 

totaling almost $4,700. The APC was not aware of these abusive charges 

until the monthly delinquency review identified the account as being 

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 Navy CAF in October 2000, our work 

indicated as of August 2002, the suspended employee continued to 

maintain a secret clearance, despite the account charge-off and felony 

conviction. 

Table 2 summarizes our statistical tests of four key control activities 

related to basic travel transaction and voucher processing at three Navy 

locations. We concluded that the control was effective if the projected 

failure rate was from 0 to 5 percent. If the projected failure rate was from 6 

to 10 percent, we concluded that the control was partially effective. We 

considered controls with projected failure rates greater than 10 percent to 

be ineffective. 
Page 16 GAO-03-148T 

Table 2: Results of Testing of Key Internal Controls

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, U.S. Marine Forces 

Atlantic 11 33 11 3

Patuxent River Air Station, Air Systems 

Command 3 35 36 1

Puget Sound Naval Shipyard, Sea 

Systems Command 49a

 40 34 1

Note: The numbers in the table represent point estimate percentages for the number of failures in the 

population based on our sampling tests. The confidence intervals for our sampling estimates are 

presented in appendix I of this testimony. 

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. 

Source: GAO analysis. 

Although we found significant failure rates at all three case study sites for 

the requirement that vouchers be filed within 5 working days of travel 

completion, this did not have an impact on these units’ delinquency rates. 

However, we found substantial errors in travel voucher processing that 

resulted in both overpayment and underpayment of the amount that 

cardholders should have received for their official travel expenses. At 

times, these errors were substantial in comparison with the total voucher 

amounts. For example, we found data entry errors that resulted, in one 

case, in an overpayment of more than $1,700 to the traveler. In another 

case, failure to carefully scrutinize supporting documentation resulted in 

an overpayment to a traveler of more than $1,000 for cell phone calls, for 

which the traveler did not submit detailed documentation to support what 

were claimed to be calls made for business purposes. As a result of our 

work, the Navy unit has taken actions to recover these overpayments. 

DOD has taken a number of actions focused on reducing delinquencies. 

For example, the Department of the Navy had established a goal of a 

delinquency rate of no more than 4 percent.18 Beginning in November 2001, 

 18For this delinquency rate calculation, the Navy is using the number of delinquent 

accounts compared to the total number of active accounts. The dollar amount method we 

used to calculate delinquency rates is the industry standard and was also used by the DOD 

Charge Card Task Force. 

Corrective Actions 
Page 17 GAO-03-148T 

DOD implemented a system of wage and retirement payment offset for 

many employees. It also began encouraging the use of split 

disbursements—a payment process by which cardholders elect to have all 

or part of their reimbursements sent directly to Bank of America. This 

payment method is a standard practice of many private sector employers. 

Although split disbursements have the potential to significantly reduce 

delinquencies, this payment process is strictly voluntary at DOD. 

According to Bank of America, split disbursements accounted for 30 

percent of total payments made by Navy employees in June 2002. This rate 

represented a large increase over fiscal year 2001, when only 16 percent of 

Navy payments were made through split disbursements. As a result of 

these actions, the Navy experienced a significant drop in charged-off 

accounts in the first half of fiscal year 2002. 

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

card usage. The Navy has a three-pronged approach to address travel card 

issues: (1) provide clear procedural guidance to APCs and travelers, 

available on the Internet, (2) provide regular training to APCs, and (3) 

enforce proper use and oversight of the travel card through data mining to 

identify problem areas and abuses. Further, to reduce the risk of card 

misuse, the Navy has also begun to deactivate cards while travelers are not 

on travel status and close a number of inactive cards, and plans to close 

inactive cards semi-annually to eliminate credit risk exposure. The Navy is 

also pursuing the use of “pre-funded” debit or stored value cards for highrisk travelers—funds would be available on the cards when travel orders 

were issued in an amount authorized on the order. 

Further, the DOD Comptroller created a DOD Charge Card Task Force to 

address management issues related to DOD’s purchase and travel card 

programs. We met with the task force in June 2002 and provided our 

perspectives on both programs. The task force issued its final report on 

June 27, 2002. To date, many of the actions that DOD has taken primarily 

address 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. We are encouraged that the DOD Comptroller recently 

took action to deactivate the travel cards of all cardholders who have not 

been on official government travel within the last 6 months. However, 

additional preventive solutions are necessary if DOD is to effectively 

address these issues. 
Page 18 GAO-03-148T 

To that end, we will be issuing a related report in this area with specific 

recommendations, including a number of preventive actions that, if 

effectively implemented, should substantially reduce delinquencies and 

potentially fraudulent and abusive activity related to Navy travel cards. 

For example, we plan to include recommendations that will address 

actions needed in the areas of exempting individuals with histories of 

financial problems from the requirement to use a travel card; providing 

sufficient infrastructure to effectively manage and provide day-to-day 

monitoring of travel card activity related to the program; deactivating 

cards when employees are not on official travel; taking appropriate 

disciplinary action against employees who commit fraud or abuse of the 

travel card; ensuring that information on travel card fraud or abuse of 

cardholders with secret or top-secret security clearances is provided to 

appropriate security officials for consideration in whether such clearances 

should be suspended or revoked; and moving towards mandating use of 

the split disbursement payment process. The defense authorization bill for 

fiscal year 2003 passed by the Senate reflected a move in this direction. 

This bill would change the voluntary use of split disbursements by 

authorizing the Secretary of Defense to require that any part of an 

employee’s travel allowance be disbursed directly to the employee’s travel 

card issuer for payment of official travel expenses. The defense 

authorization bill for fiscal year 2003 passed by the House does not 

contain comparable authority. As of September 12, 2002, the bill (H.R. 

4546) was in conference. 

Mr. Chairman, Members of the Subcommittee, and Senator Grassley, this 

concludes my prepared statement. I would be pleased to respond to any 

questions that you may have. 

For further information regarding this testimony, please contact Gregory 

D. Kutz at (202) 512-9505 or kutzg@gao.gov or John J. Ryan at (202) 512-

9587 or ryanj@gao.gov. 

Contact and 

Acknowledgments 
Page 19 GAO-03-148T 

We used as our primary criteria applicable laws and regulations, including 

the Travel and Transportation Reform Act of 1998,1

 the General Services 

Administration’s Federal Travel Regulation,

2

 and the DOD Financial 

Management Regulations, Volume 9, Travel Policies and Procedures. We 

also used as criteria our Standards for Internal Control in the Federal 

Government3

 and our Guide to Evaluating and Testing Controls Over 

Sensitive Payments.

4

 To assess the management control environment, we 

applied the fundamental concepts and standards in our internal control 

standards to the practices followed by management at our three case 

study locations. 

To assess the magnitude and impact of delinquent and charged-off 

accounts, we compared the Navy’s delinquency and charge-off rates to 

those of other DOD services and agencies and federal civilian agencies. We 

also analyzed the trends in the delinquency and charge-off data from the 

third quarter of fiscal year 2000 through the first half of fiscal year 2002. In 

addition, we obtained and analyzed Bank of America data to determine the 

extent to which Navy travel card holders wrote NSF checks to pay their 

travel card bills. We also obtained documented evidence of disciplinary 

action against cardholders with accounts that were in charge-off or salary 

offset status or had NSF checks written in payment of those accounts. We 

accepted hard copy file information and verbal confirmation by 

independent judge advocate general officials as documented evidence of 

disciplinary action. 

 1

Travel 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 and that employees be reimbursed within 30 days of 

submitting proper travel vouchers. The act also 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. 

2

Federal Travel Regulation, 41 Code of Federal Regulations, chapters 300-304, issued by the 

Administrator of General Services, governs travel and transportation allowances and 

relocation allowances for federal civilian employees. 

3

Standards for Internal Control in Federal Government (GAO/AIMD-00-21.3.1) 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. 

4 Guide to Evaluating and Testing Controls Over Sensitive Payments (GAO/AFMD-8.1.2) 

provides a framework for evaluating and testing the effectiveness of internal controls that 

have been established in various sensitive payment areas. 

Appendix I: Scope and Methodology 
Page 20 GAO-03-148T 

We also used data mining to identify Navy individually billed travel card 

transactions for audit. Our data mining procedures covered the universe of 

individually billed Navy travel card activity during fiscal year 2001 and the 

first 6 months of fiscal year 2002, and identified transactions that we 

believed were potentially fraudulent or abusive. 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 the General Services Administration, and by 

reviewing 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, and the 

preparation, examination, and approval of travel vouchers for payment. 

We also assessed actions taken to reduce the severity of travel card 

delinquencies and charge-offs. 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. 

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 a random sample of travel card transactions to 

audit at each of the three Navy case study units. Each sampled transaction 

was subsequently weighted in the analysis to account statistically for all 

charged transactions at each of the three units, including those that were 

not selected. 

We selected three Navy locations for testing controls over travel card 

activity based on the relative amount of travel card activity at the three 

Navy commands and at the units under these commands, the number and 

percentage of delinquent accounts, and the number and percentage of 

charged-off accounts. Each of the units within the commands was selected 

because of the relative size of the unit within the respective command. 
Page 21 GAO-03-148T 

Table 3 presents the sites selected and the universe of fiscal year 2001 

transactions at each location.5

Table 3: Universe of Fiscal Year 2001 Travel Transactions at Navy Units Tested 

Navy unit tested 

Number of fiscal year 2001 

travel transactionsa

Dollar value of fiscal year 

2001 travel transactionsa

Camp Lejeune, U.S. Marine 

Forces Atlantic 14,209 $ 1,747,316 

Patuxent River Air Station, 

Air Systems Command 179,547 20,335,864 

Puget Sound Naval 

Shipyard, Sea Systems 

Command 80,583 11,025,669 

a

Transactions represent charges for sales and cash advances and exclude credits and fees. 

Source: GAO analysis based on Bank of America data. 

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 

control over the transactions was effective, as well as to provide an 

estimate, by unit, of the percentage of transactions 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 travel 

voucher 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 

 5

The universes 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 selections used to test travel order, 

voucher, and payment process controls. However, we included such transactions to project 

the percentage of personal use transactions. 
Page 22 GAO-03-148T 

of transactions at the respective test case study site only,6 not to the 

population of travel card transactions for all Navy cardholders. 

Table 4 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 4: Estimate of Fiscal Year 2001 Transactions That Failed Control Tests for 

Approved Travel 

Approved travel order 

Navy 

unit tested 

Number of failed 

Transactions 

Estimated failure rate 

(95% confidence 

interval) 

Camp Lejeune 11 of 96 

11.5% 

(5.9%, 19.6%) 

Patuxent River Air Station 3 of 96 

3.1% 

(0.6%, 8.9%) 

Puget Sound Naval Shipyard 47 of 96 

49.0% 

(38.6%, 59.4)% 

Source: GAO analysis 

Table 5 shows the results of our test for effectiveness of controls in place 

over the accuracy of travel voucher payments. 

 6

At Camp Lejeune, we found that 38 of 143 transactions appeared to be personal 

(projecting to an estimated 26.6 percent with a 95 percent confidence interval from 19.5 

percent to 34.6 percent). At Patuxent River Air Station, we found that 13 of 120 

transactions appeared to be personal (projecting to an estimated 10.8 percent with a 95 

percent confidence interval from 5.9 percent to 17.8 percent). At Puget Sound Naval 

Shipyard, we found that 8 of 121 transactions appeared to be personal (projecting to an 

estimated 6.6 percent with a 95 percent confidence interval from 2.9 percent to 12.6 

percent). 
Page 23 GAO-03-148T 

Table 5: Estimate of Fiscal Year 2001 Transactions that Failed Control Tests for 

Accurate Travel Voucher Payments 

Effective voucher review and accurate 

reimbursement to traveler 

Navy 

unit tested 

Number of failed 

transactions 

Estimated 

failure rate 

(95% confidence 

interval) 

Camp Lejeune 14 of 43 

32.6% 

(19.1%, 48.5%) 

Patuxent River Air Station 34 of 96 

35.4% 

(25.9%, 45.8%) 

Puget Sound Naval Shipyard 38 of 96 

39.6% 

(29.8%, 50.1%) 

Source: GAO analysis 

Table 6 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 6: Estimate of Fiscal Year 2001 Transactions that Failed Control Tests for Timely Submission and Processing of Travel 

Vouchers 

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 

(95% confidence 

interval) 

Number of failed 

transactions 

Estimated 

 failure rate 

(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 Air Station 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%) 

Source: GAO analysis 

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 DOD managers, Navy managers, including the Assistant 

Secretary of the Navy (Financial Management and Comptroller) officials, 

unit commanders, and APCs; and Bank of America officials on the details 
Page 24 GAO-03-148T 

of our audit, including our findings and their implications. We 

incorporated their comments where appropriate. We did not audit the 

general or application controls associated with the electronic data 

processing of Navy travel card transactions. We conducted our audit work 

from January 2002 through September 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. Following this testimony, 

we plan to issue a report, which will include recommendations to DOD 

and the Navy for improving internal controls over travel card activity. 
Page 25 GAO-03-148T 

Tables 7, 8, and 9 show the grade, rank (where relevant), and the 

associated basic pay rates for fiscal year 2001 for the Navy’s and Marine 

Corp’s military personnel and civilian personnel. 

Table 7: Navy Military Grades, Ranks, and Associated Basic Pay Rates for Fiscal 

Year 2001 

Military grade Military rank Fiscal year 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 

a

Officers’ ranks include warrant officers (denoted by WO) and commissioned officers (denoted by O) 

Source: U.S. Navy. 

Table 8: Marine Corp Military Grades, Ranks, and Associated Basic Pay Rates for 

Fiscal Year 2001 

Military grade Military rank Fiscal year 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, and colonel $56,951 to $85,628 

O-7 to O-10 General $98,484 to $130,200 

a

Officers’ ranks include warrant officers (denoted by WO) and commissioned officers (denoted by O) 

Source: U.S. Navy. 

Appendix II: Navy Personnel Grade, Rank, 

and Associated Basic Pay Rates 
Page 26 GAO-03-148T 

Table 9: Navy Civilian Grades and Associated Basic Pay Rates for Fiscal Year 2001 

Civilian grade Fiscal year 2001 pay 

General schedule employees 

GS-1 to GS-3 $16,181 to $20,093 

GS-4 to GS-5 $22,559 to $25,241 

GS-6 to GS-8 $28,131 to $34,625 

GS-9 to GS-12 $38,240 to $55,455 

GS-13 to GS-15 $65,949 to $91,667 

Senior executive service 

ES-01 to ES-06 $111,650 to $125,700 

Note: Basic pay rates shown are the midpoint of the range of pay for each grade and does not factor 

in locality pay received in geographic areas with higher cost-of-living. 

Source: Office of Personnel Management. 
Page 27 GAO-03-148T 

Table 10: Examples of Cases in Which Cardholders Wrote Three or More NSF Checks During Fiscal Year 2001 and the First 6 

Months of Fiscal Year 2002 and Accounts Were Subsequently Charged Off or Referred to Salary Offset or Voluntary Fixed Pay 

Terms 

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 travel card 

abuse; 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 

Note: NSF includes those accounts with nonsufficient funds, closed accounts, stop payment orders, 

and those accounts not located. 

Source: GAO analysis. 

Appendix III: NSF Checks Written to Bank of 

America 
Page 28 GAO-03-148T 

The 10 cardholders in table 10 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 charged-off multiple 

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, one of which, experienced serious 

financial problems after issuance of the Bank of America travel card. The 

following provides detailed information on some 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 filed multiple bankruptcies and had multiple 

charge-offs. Despite his financial history, the cardholder was issued a 

standard card, with a credit limit of $5,000, 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. Industry regulations 

require that an account be credited immediately upon receipt of a check. 

Consequently, when Bank of America posted the NSF checks, the 

accounts 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. However, despite 

the repeated NSF checks written throughout 2001, the individual was able 

to continue making charges through December 2001. 

Bank of America subsequently notified the cardholder’s APC of the NSF 

check problems. Because the cardholder was 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 
Page 29 GAO-03-148T 

the cardholder would face a court-martial and be separated from the Navy 

in case of continued abuse of the credit card or any other misconduct. 

• Cardholder #5 is a petty officer (E-05) assigned to the Naval Reserve 

Forces in San Jose. 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 with a credit limit of 

$2,000, 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 $20,051 to Bank of America. During fiscal 

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

this account. The cardholder had an unpaid balance of $4,922 at the time 

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

other unrelated charge-offs 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).1

 His account had been referred to salary 

offset. 

 1

Subsequent 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 30 GAO-03-148T 

Table 11: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 chargeoff 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; courtmartial 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 

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 

charge-offs, 

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 

Appendix IV: Abusive Travel Card Activity 

Where Accounts Were Charged Off or Placed 

in Salary Offset 
Page 31 GAO-03-148T 

Cardholder Grade Unit 

Total amount 

charged-off 

(CO) or in 

salary offset 

(SO) 

Transactions 

contributing to chargeoff or salary offset Credit history problems 

Documented 

disciplinary 

action 

9 O-05 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-06 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 

a

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

Source: GAO analysis. 

Eight of the 10 cardholders included in table 11 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. 

• Cardholder #1 was a sergeant (E-05) 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 and raised the credit limit to 

$25,000 so the cardholder would have access to funds 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 the DOD’s Office of Inspector General for 

appropriate action. 
Page 32 GAO-03-148T 

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 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 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 inform the APC as to 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-05) 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 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 high-ranking Navy 

officer continued, since the issuance of the government travel card, a 

pattern of delinquencies on numerous accounts, and in one instance had 

merchandise repossessed for nonpayment. 
Page 33 GAO-03-148T 

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 34 GAO-03-148T 

Table 12 shows cases of travel card use for personal expenses where the 

cardholder paid the bill. 

Table 12: Examples of Abusive Travel Card Activity Where the Cardholders Paid the Bills 

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 

Limousine Service 

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 of vitamins and 

health supplements 

None 

4 Naval Undersea 

Warfare Center, 

Newport 

ND-05b Carnival Cruise 3,790 Alaskan cruise for 2 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-07 United Vacation 1,326 United Airlines plane ticket 

for cardholder’s spouse 

None 

7 U.S. Marine 

Corps, Camp 

Pendleton 

E-06 DeAngelo Tax 

Service 

800 For preparation of 1997 

through 2000 tax returns 

None 

8 Naval Reserves 

Forces 

Command, 

Virginia 

E-07 Ticketmaster 460 4 concert tickets to the 

Backstreet Boys 

None 

9 Norfolk Naval Air 

Station 

E-04 Fredricks of 

Hollywood 

184 Women’s lingerie None 

10 Naval Medical 

Research 

Center, San 

Antonio 

E-4 GTEAir 148 Airplane telephone call None 

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. 

Source: GAO analysis. 

Appendix V: Abusive Travel Card Activity 

Where Cardholders Paid the Bills 

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